The world economy nearly failed and a global effort by governments and central banks has pulled the system back from the proverbial brink. That's why only a global solution going forward will save the day. Whether Obama or McCain succeed, the next President and his team must manage the creation of global institutions. The summit to be hosted soon by Washington, which was announced on the weekend, is an important turning point in history and the only way to insure the advancement of the world's prosperity and financial safety. Here is my blog on Financial Post in Canada and how I see the new world financial order architecture:
The global financial economy had to be put on life support to survive, but serious preventative medicine is needed immediately. That is why it was welcome news this weekend that the world's leaders agreed to stage a series of summits to create a new global governance architecture out of the global regulatory and legal vacuum that led to the crisis in the first place.
The failure to have global governance in the financial economy led to the panic, to bad practices, rogue elements and widespread credit fraud. Countries, companies and individuals should never be allowed to do as they wish. This has been like allowing California or Quebec or London to do whatever it wishes irrespective of damage to other portions of the country. Same applies worldwide.
Here are the issues that must be addressed over time:
1. Creation of an umbrella international Securities and Exchange Commission, similar to the World Trade Organization, which will monitor, prosecute and impose fines. National securities commissions will report and cooperate fully with this body. Those who balk or refuse, will be outside the system.
2. Stock market trading rules should be standardized based on a best-practices system involving full and timely disclosure, transparency, insider and tipping laws. Markets which do not comply will soon do so because investors will seek those with protective rules.
3. Ratings agencies criteria must be standardized and transparent. The ratings failure contributed mightily to both the finance and real estate fiascos in the United States which brought the system tumbling down. The ratings agencies must be rated and only those endorsed by governments will be sought and followed. The conflicts of interest on the part of ratings agencies, paid by those they are rating, must be replaced, perhaps with a global pool of cash from governments.
4. Banking practices should be standardized and overseen by an international regulator or non-governmental agency that will rate them.
5. Foreign exchange abuses. These also contributed to the panic and the International Monetary Fund must return to this important role instead of building dams in the third world. The International Monetary Fund has the responsibility of monitoring currency "cheating" around the world, its original mandate after the Second World War. But it doesn't. This had led to gigantic economic and financial distortions as well as trade cheating through artificially suppressing currency values.
6. Make tax havens and secrecy havens unacceptable through visa requirements, trade embargos, boycotts and so on. There is absolutely no justification for these entities except to hide wealth, hide trading activities, hide ownership or hide taxable income. The Caribbean's dirty money industry should be shut down completely and those little nations who don't agree to open up everything to transparency and regulation should be punished by the world's developed countries. Hedge funds are headquartered in Cayman Island and elsewhere, far from disclosure requirements that competitors must meet.
7. Credit markets must be globally regulated or rated. The AIG fiasco (writing credit default swaps which are insurance without necessary capital base) means that there should be an independent rating and monitoring agency for insurance. Insurers are heavily regulated in nation-states and should be worldwide too.
8. Extradition treaties should be changed to allow the arrest and movement of white collar criminals, tax evaders and anyone who arbitrages the law through practices offshore that are illegal in the countries where investors reside.
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