Transcript THE FIRST-WORLD DEBT CRISIS IN GLOBAL PERSPECTIVE

THE FIRST-WORLD DEBT
CRISIS IN GLOBAL
PERSPECTIVE
Robert Wade
See essay with same title, Challenge,
July/Aug 2008
OUTLINE
• The current and likely future trajectory
• The larger significance of the crisis
• Public policy response: What is being
done and what should be done?
Drivers of 2nd stage crisis
NATIONAL
• Demand shock from falling house prices
• New defaults in corporate & consumer
debt
INTERNATIONAL
• Perverse interaction b/w capital markets
and foreign exchange rate
• Internat. rules: Basel 2 and IAS 39
Even if crisis turns out to be a blip,
it is historic:
• Crisis is first time dev’ed c’ies dependent
on dev’ing c’ies
• Crisis exposes flaws in “efficient markets”
theory, and in regulatory structures
• Now is the most promising time for fin.
reform for half a century
• US middle class may support reform
(Continue)
• Crisis not only financial crisis and
macroeconomic crisis, but also crisis of
neoliberal ideology and of US hegemony
• Crisis erodes US strategy towards China
• Crisis gives US incentives to “cheat” on
neoliberal norms
Regulatory response
Robert Wade, “A new financial architecture?”, New
Left Review July/Aug 07
• Tighter regulation can be effective despite
“globalization”: anti-money laundering
technology; “negative enforcement”
• Be cautious about fin. liberalization
• Aim for “positively correlated” capital structures:
GPD-linked bonds; countercyclical international
rules – Basel 2 and IAS 39
Regulatory response
• Credit rating agencies
• Central bank mandate
MORE RADICAL PROPOSALS
• Finance to be made an auxiliary to “real
economy”: same frame as alcohol,
explosives
• Capital controls
• “Mixed economy” in banking
Financial governance reforms
• US: Regulatory regime grew bit by bit,
each new product got own regulator, over
100 authorities now regulate different
segments. Needs to be consolidated.
• International: Regulatory regime very
complex, large # of bodies, obscure
relationships b/w them, no locus of
leadership. Eg Basel Cttee; IOSCO