IT is now clear that the G-20 meeting of the world’s largest economies in London this April will devote a significant proportion of its time trying to rewrite the rules of global finance. EU leaders meeting Sunday in Berlin all seized the opportunity to sound united and determined in the cause of avoiding a future meltdown of the international financial system, by improvident investments and greedy bonus-driven investments by the world’s banks. The mistakes of the banking system must not be repeated. To the fore insisting this was UK Prime Minister Gordon Brown, who when Britain’s finance chief, the chancellor of the exchequer, once argued vigorously for the light touch of regulation on Britain’s then booming international financial institutions in the City of London. Clearly the next month is going to be occupied by frantic exchanges between the world’s financial regulators and finance ministries, in an attempt to hammer out a set of rules, at least in principle, that can be endorsed at the G-20 meeting, to be given greater flesh and detail thereafter. Insofar as such regulations will introduce greater harmonization of accounting standards, it is to be certainly welcomed. Investors ought to be able to compare opportunities on a like-for-like basis and not have to penetrate telephone directory-sized annual reports, whose clarity has come to be the inverse of their proportions.
The declared intent to crack down on offshore tax havens, boosted by the recent disaster of the Caribbean-based Stanford Group, must clearly be part of this process. It is not so much that the super-rich of North America and Europe have long used offshore havens to hide part of their wealth from their taxmen. It is rather that now humbled international banks themselves created hugely elaborate networks of offshore companies to process and conceal their own activities. A return to transparency and thus honesty is long overdue.
But there is clearly a political sub agenda to this drive now for greater regulation that will “clean up” the international financial system. The uncomfortable truth is that every G-20 country already had sufficient regulatory powers to stop the insanity and greed that led to the meltdown. The big accountants, humiliated by failures such as Enron and WorldCom were supposed to be refocused on the core business of checking the numbers were real. The financial regulators, often backed by shiny new powers, were supposed to be watching for aberrant behavior in the markets as well as within individual institutions. And banks themselves were supposed to have risk and compliance officers who could cry halt to what they considered foolhardy investment decisions.
None of these worked. In the UK it has emerged one failed bank fired its compliance officer and later sank beneath the storm of which he had warned. The bank boss who fired him went on to become deputy chief of the UK financial regulator. Such failures happened because politicians throughout the G-20 were too busy basking in its reflected success to ask the basic tough questions about the global financial system. They, therefore, share the blame.
US turning to the Far East
BRITAIN’S relationship with the US is special not only because we share history, culture, language and tradition but also, more practically, because the countries share intelligence, said The Daily Telegraph in an editorial yesterday:
Before Downing Street gets too smug over its coup in ensuring that Gordon Brown will, early next month, become the first EU leader to meet President Barack Obama, it should note two things. First, President Obama’s first foreign visitor will actually be Taro Aso, the Japanese prime minister. This serves to confirm that the new administration’s world view will focus across the Pacific rather than the Atlantic.
Hillary Clinton used her inaugural trip as secretary of state not to visit Europe, the Middle East, or the war zones of Iraq and Afghanistan, but to take a swing through South Korea, Indonesia, Japan and China. The Far East will be Obama’s foreign policy priority. Second, when Brown and Obama do meet, we are unlikely to witness the communion of outlook that characterized the relationship of Brown’s predecessor with both of Obama’s. The president’s economic stimulus package has strong protectionist elements that are anathema to the prime minister. There is also the potential for tensions on the security front, with some American commanders less than enthusiastic about the effectiveness of the British military both in Iraq and Afghanistan.
That said, the March 3 visit by the prime minister offers an opportunity for him to establish a constructive partnership with the new president: His relationship with George W. Bush never quite recovered from that frosty start in Camp David. There is every reason to expect a good personal rapport; Brown is, after all, a keen student of American history. Our relationship with the US is special not only because we share history, culture, language and tradition but also, more practically, because we share intelligence. For it to flourish, it is not crucial that the two men at the top hit it off — but it certainly helps.
