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October 25, 2008
Jeffrey Sachs argues that the international financial system is broken; an integrated set of reforms will be needed to achieve sustained economic growth and shared prosperity; and that the G8 leaders must go well beyond the issues of financial regulation. A true Bretton Woods II summit would set a financial framework to achieve urgent global goals in macroeconomic stability, economic development, environmental sustainability and trade for development. Who is going to push for this?
Martin Rowson
There will be no lasting settlement that is centred the global economy on the United States system as was Bretton Woods as we are witnessing the end of American economic dominance.
There needs to be something more modest. On Lateline Joseph Stiglitz said that there was a need for a financial product safety commission, a financial system stability commission and getting the economy going in the short run in a way that's consistent with long run needs of the US. The former, a financial product safety commission, would:
look at the individual products, like these credit default swaps, and make a judgment; are they appropriate for these, as I say, commercial banks that are taking care of other people's money.They might be appropriate for particular uses; for instance, if you are exposed to a foreign exchange risk you can insure against that foreign exchange risk, but not to gamble. So, one would look at the specific products and make a decision about what uses are they appropriate for, are they transparent, can we see what will happen?
The latter, a financial system stability commission, would:
look at the system as a whole, the financial market stability for the whole system, because what we've discovered is that AIG, an insurance company, was insuring Goldman Sachs, an investment bank, that the interrelations of the various institutions are so complex that each of them has become too big to fail. And if they're too big to fail, that means, and they know it. That means they have an incentive to take too big risks; and we've seen that.
Stigletiz argues for a broad role for governments in getting economies out of the crisis, particularly in America. His big picture solutions include calls for big public investments in infrastructure, education, and technology, but also energy.
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shouldn't they be visiting the grave of Marx?