11/21/2009 05:12 am ET | Updated May 25, 2011

G-20: On a Wing and a Prayer

In this season of our discontents we long for signs that astute, reliable people are taking charge of at least one problem that is bedeviling us. The G-20 summit this week has raised hope in some quarters that the worlds' leaders are finally coming to grips with the root causes of the financial meltdown that brought us to the brink of collapse and has left the global economy in tatters. Serious reforms could inspire confidence that responsible authorities are back in charge. An outcome that is heavy on cosmetics and thin on substance, by contrast, will add to feelings of unease and anxiety. The dismaying reality is that the outlook is for an emphasis on the superficial to mask collective inaction on the basics of a badly flawed system that threatens future seismic shocks. Here is why we are likely to be disappointed by what happens in Pittsburgh.

Most of the talk will be about bank capital requirements and global rules on bonuses. Neither addresses core issues. Obviously it is a good thing for banks (and, equally, other financial businesses -- who will not figure in these recommendations) to strengthen their reserve position. Beating the drums on this point, though, avoids the harsh truth that the downfall of Lehman Bros, AIG, Merrill Lynch et al derived from their abusive trading and accounting practices -- not a weak reserve position. Lehman had more than double the level of reserves now being advocated. Enough said.

Run-away bonuses count because they encourage exaggerated risk taking. Linking them to long term performance rather than speculative gains is another good idea. But it will not work short of draconian controls that aren't in the cards. Getting a universal consensus on tough measures is an impossibility given American reluctance to start down that road. In the miraculous event that a meaningful accord could be reached, effective execution would depend on an even greater miracle. There are myriad ways for ingenious, money crazed financiers to circumvent any rules; this is the kind of invention at which they are superb.

Moreover, conscientious enforcement is unrealistic in the light of half-hearted, feeble regulation in Washington.

That leaves us with a thin menu of global reform -- a menu whose two main items seem better suited to promoting anorexia than robust performance. The prime elements are missing, inter alia strict controls on financial innovations such as Credit Default Swaps and Collateralized Debt Obligations, whose only value is generating rich profits for inside operators; uniform, tight regulations of all derivatives and of hedge funds who are the main players in that game; and steps to dismantle "too big to fail" banks who now hold governments hostage. As Simon Johnson of MIT, former Chief Economist at the IMF, has said, "There is nothing in the works to defang the financial system." This sad state of affairs is all the more shocking for indications as recently as this spring that there would be a serious push by Western European governments, led by Germany and France, for coordinated regulation of just that sort. There was even talk of an unprecedented Euro-American dust-up. The 'dog that didn't bark' will be one of the plot lines to untangle if this expectation proves to be correct.

The foremost imperative is an honest, believable statement in deed as well as word that governments, individually and together, have a crucial obligation to oversee markets in the interest of the commonweal rather than provide a protection service for a gambling enterprise to the benefit of its operators. That is the measure of progress that counts.

How did we wind up in this latest fix? First, the sense of mortal danger aroused by last year's near death experience has faded quickly. Unreasoning faith that 'happy days are here again' -- or around the corner -- has been actively fostered by Washington while other leaders find it tempting to set aside their doubts so as not to have to confront both the White House and a set of extremely onerous choices. In other words, classic avoidance behavior that is politically and intellectually convenient. Angela Merkel, for one, faces a General Election on Sunday wherein being seen at odds with Uncle Sam is a liability. So this epochal global summit originally intended to land the world financial system safely on a secure base looks more and more like 'a wing and a prayer' improvisation.

The lesson: no real reform will happen without the United States providing the impetus. That means clear, firm, unswerving leadership -- ready to take-on the heavy hitters of Wall Street -- from Mr. Obama in the White House. Good luck, all.

One favorable omen -- Pittsburgh's neo-Stalinist David L. Lawrence Convention Center, venue for the Summit, is on the sunny side of the street, Liberty Avenue.