Bretton Woods, The Sequel? Washington Post
Washington Post
White House welcomes IMF chief’s views at summit
Reuters - 2 hours ago
The White House has declined any public comment on the investigation launched in August by the IMF board of member countries, which includes the United …
Bretton Woods, The Sequel? Washington Post
Amid the rubble of global finance, a blueprint for Bretton Woods II guardian.co.uk
all 4 news articles »
http://www.reuters.com/article/bondsNews/idUSN2252066720081022
White House welcomes IMF chief’s views at summit
Wed Oct 22, 2008 2:40pm EDT
By Tabassum Zakaria
WASHINGTON, Oct 22 (Reuters) - The White House on Wednesday said it welcomed the participation of International Monetary Fund chief Dominique Strauss-Kahn at a global leaders financial summit next month, but avoided commenting on an IMF investigation into his possible abuse of power.
The White House has declined any public comment on the investigation launched in August by the IMF board of member countries, which includes the United States, into whether Strauss-Kahn abused his position in an affair with a former IMF economist.
The investigation is looking into whether the senior economist received preferential treatment before she took a buyout in August. The former French finance minister is also being questioned about the hiring of a young French intern at the fund who worked on one of his political campaigns.
Strauss-Kahn, who was invited to attend a global summit on the financial crisis in the Washington area on Nov. 15, “has a great deal of experience in these issues and we welcome him at the table for these discussions,” White House spokesman Tony Fratto said in response to a question about the investigation.
Fratto, speaking at the Foreign Press Center, praised the IMF for its work in dealing with financial crises in emerging economies over recent decades, and said its participation can inform the discussions and decisions of world leaders on how to address the current crisis and prevent future ones.
France, Germany and Britain have called for an overhaul of the current international financial architecture established just after World War Two at the 1944 Bretton Woods conference, where the IMF and World Bank were created.
Asked about views that the Bretton Woods system should be reformed or replaced, Fratto said he could not speak for the next U.S. president, who will take office on Jan. 20. But he said there was a “misconception” about the Bretton Woods system.
“We had a system that came out of that conference that broke down nearly four decades ago,” Fratto said. “And so it’s hard for anyone to talk today about a present Bretton Woods system, it just simply doesn’t exist as it did coming out of the Bretton Woods conference at that time,” he said.
Since that time, other economic institutions have risen to play a key role in the global economy, such as the World Trade Organization, Fratto said.
“It’s a very different time today,” he said. “I know that individual countries have different feelings about the IMF and how it should operate.”
He said the IMF had done an “excellent job” in trying to promote economic growth and encouraging trade and investment. (Editing by Neil Stempleman)
© Thomson Reuters 2008. All rights reserved.
///////////////////////////////////////////////////////////////////////////////////
http://www.washingtonpost.com/wp-dyn/content/story/2008/10/19/ST2008101901455.html
In Good Times and Bad
By Robert J. Samuelson
Monday, October 20, 2008; A15
A dozen years ago, James Grant — one of the wisest commentators on Wall Street — wrote a book called “The Trouble With Prosperity.” Grant’s survey of financial history captured his crusty theory of economic predestination. If things seem splendid, they will get worse. Success inspires overconfidence and excess. If things seem dismal, they will get better. Crisis spawns opportunities and progress. Our triumphs and follies follow a rhythm that, though it can be influenced, cannot be repealed.
Good times breed bad, and vice versa. Bear that in mind. It provides context for today’s turmoil and recriminations. The recent astounding events — the government’s takeover of Fannie Mae and Freddie Mac, the Treasury’s investments in private banks, the stock market’s wild swings — have thrust us into fierce debate. Has enough been done to protect the economy? Who or what caused this mess?
We Americans want instant solutions to problems. We crave a world of crisp moral certitudes, but the real world is awash with murky ambiguities. So it is now. Start with the immediate question: Has enough been done? Well, enough for what? If the goal is to prevent a calamitous collapse of bank lending, the answer is probably yes.
Last week, the government guaranteed most interbank loans (loans among banks) and pressured nine major banks to accept $125 billion of added capital from the Treasury. Together, these steps make it easier for banks to borrow and lend. There’s less need to hoard cash. But if the goal is to inoculate us against recession and more financial turmoil, the answer is no.
We’re probably already in recession. In September, retail sales dropped 1.2 percent. The housing collapse, higher oil prices (now receding), job losses and sagging stocks have battered confidence. Consumer spending may have dropped in the third quarter for the first time since 1991. Loans are harder to get because lax lending standards have been tightened. Unemployment, now 6.1 percent, may reach 7.5 percent or higher by the end of next year.
Similar qualifications apply to financial perils. “The United States has an enormous financial system outside the banks,” says economist Raghuram Rajan of the University of Chicago. Consider hedge funds. They manage perhaps $2 trillion and rely heavily on borrowed money. They’ve suffered heavy redemptions ($43 billion in September, reports the Financial Times). Selling pressures could destabilize the markets. There’s also a global spillover. Brazil’s stock market has lost about half its value since the spring.
In this fluid situation, one thing is predictable: The crisis will produce a cottage industry of academics, journalists, pundits, politicians and bloggers to assess blame. Is former Fed chairman Alan Greenspan responsible for holding interest rates too low and for not imposing tougher regulations on mortgage lending? Would Clinton Treasury Secretary Robert Rubin have spotted the crisis sooner? Did Republican free-market ideologues leave greedy Wall Street types too unregulated?
Some stories are make-believe. After leaving government, Rubin landed at Citigroup as a top executive. He failed to identify toxic mortgage securities as a big problem in the bank’s own portfolio. It’s implausible to think he’d have done so in Washington. As recent investigative stories in the New York Times and The Post show, the Clinton administration broadly supported the financial deregulation that Democrats are now so loudly denouncing.
Greenspan is a harder case. His resistance to tougher regulation of mortgage lending is legitimately criticized, but the story of his low-interest-rate policies is more complicated. True, the overnight Fed funds rate dropped to 1 percent in 2003 to offset the effects of the burst tech bubble and the Sept. 11 attacks. Still, the Fed started raising rates in mid-2004. Unfortunately and surprisingly, long-term interest rates on mortgages (which are set by the market) didn’t follow. That undercut the Fed and is often attributed to a surge of cheap capital from China and other Asian countries.
There’s a broader lesson. When things go well, everyone wants on the bandwagon. Skeptics are regarded as fools. It’s hard for government — or anyone — to say: “Whoa, cowboys; this won’t last.”
As the housing boom strengthened, existing home prices rose 50 percent from 2000 to 2006. Investment bankers packaged dubious loans in opaque securities. To their eventual regret, bankers kept many bad loans. Almost everyone assumed that home prices would rise forever, so risks were considered minimal. Congress allowed Fannie and Freddie to operate with meager capital. Congress also increased the share of their mortgages that had to go to low- and moderate-income buyers, from 40 percent in 1996 to 52 percent in 2005. This promoted subprime mortgage lending.
So Grant’s thesis is confirmed. We go through cycles of self-delusion, sometimes too giddy and sometimes too glum. The consolation is that the genesis of the next recovery usually lies in the ruins of the last recession.