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America: Get Your Financial Act Together

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America must smarten up. The global economy has crashed and the cause must be determined to prevent another. My concern is that the big problem facing the world's leaders, who are trying to fix the global economy, will be America's denial of its responsibility for this mess and its resistance to submitting to supranational institutions, solutions or oversight.

Such American policy isolationism could sink the planetary ship. It's obvious that the biggest misdeeds were perpetrated by American financial institutions worldwide. This makes arguments by Americans, that they don't want international regulatory oversight, is the financial equivalent of Iran's isolationism.

Put another way, it would be as irrational to allow the Ayatollahs to build bombs as it would be to allow Wall Streeters, hedge funds and rogue insurance underwriters to run amok again building their weapons of financial mass destruction.

The fact is the catastrophe is mostly America's fault and here's why:

 Successive American regimes allowed the Federal Reserve Bank to print money without responsible controls.
 This currency debasement was camouflaged because China, Saudi Arabia and Asian export nations bought massive amounts of T-bills. They did so to artificially reduce the value of their currencies in order to cheat trade-wise and sell more oil, cars and manufactured goods.
 Washington's Treasury Department turned a blind eye to this currency manipulation cheating even though it has the power to impose tariffs against countries who do this. Washington was co-opted and allowed its dollar to be higher than it deserved to be and others to be too low.
 The U.S.-controlled International Monetary Fund also reneged on its responsibility to watch currency cheating and, instead, morphed into a slush fund for infrastructure projects in poor countries.
 Washington made matters worse by encouraging the over-leveraging, or weakening, of the American economy. Policies promoted borrowing and credit, in large measure through gigantic, regressive entitlements for rich people or homeowners such as unlimited mortgage interest deductions against taxes.
 These incentives, easy credit and soaring money supply policies fostered the tech and real estate bubbles.
 America also failed to be prudent and ran huge fiscal and trade deficits financed by foreigners. It did not encourage savings rates, in order to meet its looming demographic time-bomb of pension and senior healthcare liabilities.
 American mortgage and banking regulation was an oxymoron. Fraudsters, mafias, terrorists were easily able to defraud borrowers and lenders. These bad debts were packaged, fraudulently re-rated and exported around the world by Wall Street, bundled along with good debts.
 American insurance and securities regulation was also an oxymoron. There wasn't enough regulation, nor was there sufficient money to support sophisticated or streetsmart regulatory bodies. The result was the credit default swap tsunami which capsized Wall Street, AIG and the globe. There is no excuse for this, given that these swaps were merely gigantic insurance policies issued by public companies which knew that insurance and financial products must have sufficient capital and assets to cover claims. Their managers and boards turned a blind eye.
 America's financial institution boards of directors, shareholder activists and other watchdogs did not do their jobs.


Of course, the U.S. isn't the only culprit, but it's by far the biggest.

That's why the world must push back vigorously against any American resistance to supranational regulations and reforms. Every economy in the world must sign a non-proliferation treaty and submit to policing to avoid the financial skullduggery that has brought the world to its knees.

-- today's Financial/National Post Diane Francis blog