What’s the Chinese for “Bothered?”
A headline from the BBC:
Sarkozy’s financial summit proposal
Over at the UN in New York, where it’s the annual jamboree that is the General Assembly, Nicolas Sarkozy has been calling on world leaders to hold a summit later this year on building a “regulated capitalism”. Four thoughts:
1) if this summit were to go ahead, it would mark the continuation of a trend towards head of state / government level summits on specific issues (as opposed to gatherings that cover a whole range of foreign policy issues, like the G8 or the Security Council). Earlier this year heads of government turned out in force for the FAO food summit; last year, Ban Ki-moon got a good turn out for his high level event on climate change at the UN.
But there’s only value in getting heads engaged if a) their involvement is needed in order to join up the dots between different areas of ministerial or department responsibility within their goverments (e.g. cross-sectoral bargaining that involves energy, climate and trade all at once), or b) their political clout is needed to forge a deal. I’m not sure that either of those conditions applies here – in which case, wouldn’t it make more sense to leave such a summit to finance ministers?
2) Sarkozy also said at a press conference yesterday that “we cannot wait any longer to turn the G8 into the G13 or G14, and to bring in China, India, South Africa, Mexico and Brazil”. Interesting to see this idea reviving; the scale of the current crisis (‘perfect storm’ etc.) might appear to militate in favour. But as ever, the big questions are less over who would be around the table and more about what it would do, how it would work and – above all – whether it would be any more effective than the G8 (which hasn’t achieved very much lately). More on this in a paper I wrote on new global leaders’ forums a while back.
3) While Sarkozy knows he wants a summit, it’s also clear that – so far – he doesn’t have any specific proposals for multilateral action. You can bet this will cause a frisson or two at Number 10, given that Gordon Brown does have a set of proposals for international financial reform, but so far lacks a coalition to push them. There might be potential for France and the UK to team up quite effectively here, not least given that Sarkozy will have recognised that without at least one major financial centre involved front and centre, his idea’s dead in the water (n.b in that regard that Sarkozy mooted London as a possible venue for the summit, along with NYC, Paris and Brussels).
4) Whether Brown’s proposals are the right ones to deal with the current crisis is, of course, a separate question. Looking at them again, the main impression is of the lack of specificity: calling for a “common approach to handling major global market disruptions”, a “clearer, more authoritative watchdog” or “common principles, shared analyses and information and collaborative management of crises” is all very well, but if there was ever a case of the devil being in the detail, this is it. (As for his calls for a global early warning system for financial crisis – by all means, but is now really the time to be thinking about that?)
It’s good to see that someone’s asking the big questions about long term prevention and looking to facilitate a serious high level conversation about where we go from here, and the UK should certainly get involved and think seriously about offering to host. But it’s way too soon to be thinking about shared operating systems or even shared platforms at this point: the key tasks now are a) to put out the immediate fire and then b) to build up shared awareness of what’s happened, why, and what we want to achieve as we consider a new financial architecture.
(For explanation of shared operating systems, platforms and awareness, see here.)
Labour Conference keynotes in times of meltdown
Listening to Gordon Brown’s speech today, Philip Stephens notes that “Mr Brown kept his audience in its comfort zone”:
Though he set out the challenges Britain faces in a period of tumultuous global upheaval, Mr Brown did little to challenge his audience’s preconception that the present mess was all the fault of greedy capitalists.
Reading that brought to mind another Labour Conference speech in times of global upheaval: Tony Blair’s back in 2001. Remember this?
This is a moment to seize. The kaleidoscope has been shaken. The pieces are in flux. Soon they will settle again. Before they do, let us re-order this world around us.
I re-read the whole thing this afternoon, and was struck by a) its brilliance, b) its insight, c) how it soars compared to Brown’s speech today and d) the extent to which – in retrospect, with all that’s happened since – it shines with an eerie messianic fervour. It’s well worth another look: full text below the jump.
The West versus the Rest: new map
Yesterday, the European Council on Foreign Relations published a report I’ve co-authored on the EU’s influence on human rights issues at the UN. I’ll save the details for a later post, but here are the headlines: European influence is declining, and the West is looking pretty shaky at the UN as a result. We’ve had some good press coverage so far (including an hysterical piece in the Guardian), but kudos to Die Presse in Austria, which has turned the report’s data into a map. The bluer the country, the more pro-EU it is. The redder, the more anti-EU…
China vs United States bad debts showdown: who’s the commie now?
I’m out in China, where I’ve just spent a couple of weeks visiting Hong Kong, Beijing and the rural province of Yunnan. Some observations on China and sustainable development to follow in a separate post, but for now let’s focus on the big news of the week: the latest burst of financial meltdown. Lehman Brothers have filed for bankruptcy protection; Merrill Lynch have been bought out; the US Treasury has bailed out Fannie Mae, Freddie Mac and today AIG; every time I look at my blackberry, some new catastrophe seems to be unfolding.
As I’ve been chugging around China, I’ve been re-reading James Kynge’s excellent China Shakes the World – and noting with interest what Kynge has to say about the issue of bad debts. For example:
The ‘big four’ banks, which control more than half the country’s deposits and loans, are all owned by the state … The central bank, which regulates the banking industry alongside the recently established China Banking Regulatory Commission, has a track record of bailing out the ‘big four’ every time they need it … If the various cash infusions and bad debt relief for the state banks over the last five years are added together, it transpires that China has allocated nearly $250 billion to clean up its banking system.
But now fast-forward to today, a mere couple of years after Kynge’s words were first published. Fannie and Freddie have already been bailed out – a move which, according to Nouriel Roubini, at a stroke injected around $200 billion of capital into the two of them, and took on $6 trillion of debt. As Roubini concludes,
The nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trend was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill…
And that was before today’s news that the US Treasury is taking on AIG as well, to the tune of another $85 billion, which (as the BBC observes) is “viewed by some as the most radical intervention in private business in [the Fed’s] history”. For Roubini, this is just confirmation of the worst fears:
At least in the case of Fannie and Freddie these two institutions were semi-public to begin with as they were Government Sponsored Enterprises (GSEs). Now we get instead the first pure case of a fully private company, actually the largest insurance company in the world, being nationalized. So the US government is now the largerst insurance company in the world. So the transformation of the USA into the USSRA goes a step further.
From where I’m currently sitting in Hong Kong, it’s hard not to cast your mind back a decade to 1997/8 and the South East Asian economic crisis, when the Washington Consensus still prevailed and liberalisation was the war cry. As Steely Dan sagely put it: “those days are gone for ever; over a long time ago…”