Monday, 6 April 2009
Chris Uhlmann must have clearly enjoyed London because even his anti-government cynicism was swept away by what came out of the G20. It is hard to see why. It gave us the re-packaged, the token and the useless.
First the re-packaged. The extra monies allocated to the IMF amounted to little more than that already promised six months before, so unless the major countries reaffirming that they weren’t lying about their previous commitments amounts to an achievement, it isn’t.
Then the token, the cap on executive pay effectively re-states guidelines that already exist here, but it nevertheless keeps up the pretence that the Global Financial Crisis started in Wall Street last October rather on Main Street the year before. Presumably this is because it is more comforting to think of the crisis starting with the risk-taking of over-paid financiers than giving mortgages to the lowly paid.
The myth that this is all about excessive risk has led to the summit’s third non-achievement, a new framework for global financial regulation. Or at least the vague promise of one, which is all it is ever likely to be as the US will never allow a foreign body to regulate its financial system. Even if it is true that the real problem is excessive risk-taking and credit in the financial market, wouldn’t it have been better to do something about it when it was actually happening rather than after it has all collapsed?
This is not even a case of shutting the door after the horse has bolted but closing it when it wants to come back in. The irony is that while governments attack the evil of risk-taking in the financial system, at the same time they are having to encourage the banks to do the opposite right now. The number one problem identified by the governments at the moment is the banks’ refusal to lend. But this is a normal response at this stage of the cycle when banks are keener to rebuild their balance sheets than lend to businesses heading into a downturn. By pushing the banks to lend at a time when the economy is in free fall, governments are in effect asking the banks to take on more risks than they normally would.
Which is fine, but what should have happened as even a starting point is for the banks to be re-capitalised so that lending can start. Yet after having identified this problem since the sub-prime crisis broke a year and a half ago, little progress has still been made on this core problem and certainly none was at the G20 Summit. The only move was the US’s unilateral decision (so much for a globally co-ordinated regulatory framework) to allow US banks not to have to report their assets at market value, a paper move, but enough to send the markets up when it was announced.
If the market’s response was understandable, the media’s was less so. They duly reported the rift between Europe and the US that was behind the lack of real outcome from the Summit. However, none of the political leaders are strong enough to turn that into a full scale walk-out, even the histrionic Sarkozy, especially if, for these uncool politicians, it meant not being able to be photographed with the currently über cool US President. So all the politicians had a self-interest in making non-action look like a result and here at least, they got away with it.
What this means for Rudd is that he has avoided the immediate political fall-out that would have come from an openly failed conference and indeed has won an international endorsement of what he has done so far. But he still doesn’t come back with anything tangible that will help him deal with the next stage of the downturn. Maybe that’s why the media were so willing to suspend disbelief. Loving a narrative as they do, perhaps they don’t want to think about the obvious question, now what?
Posted by The Piping Shrike on Monday, 6 April 2009.Filed under International relations