October 18th, 2008
02:06 PM GMT
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LONDON, England – What do you do once your house has burnt down? Rebuild it the same as before? Or think hard about why it burnt down - and make sure it is a lot less likely to do the same again?

There seems to be a feeling among many of the world's leaders that once we have stemmed the present financial crisis, we should work out how to stop such a firestorm ever recurring.

The argument goes that this means redesigning the global financial architecture that has served since 1944, when an international agreement at Bretton Woods, New Hampshire, set up the International Monetary Fund and its sister institution, the World Bank.

Already sketching away on his drawing-board is the UK Prime Minister Gordon Brown - no doubt feeling himself to be the man of the moment after seeing his nationalization-by-another-name model for bank rescues being widely adopted, even by the Bush administration.

At its summit in Brussels, the European Union endorsed his approach and gave its blessing to this weekend's visit to Washington by the French President and EU Council President Nicolas Sarkozy and the European Commission President Jose Manuel Barroso. (It must have taken at least two strong men to hold Brown back from jumping aboard the plane alongside them.)

It is of course hard to disagree with the prime minister when he calls for a global "early warning system." That is about as controversial as motherhood and apple pie; of course we all support them. But the reality is that many authoritative voices warned of the dangers of spiralling personal and mortgage debt in the U.S., UK and elsewhere, but they were broadly ignored.

With all due respect and the luxury of hindsight, what is the point of going to great trouble to build a new early warning system when you have a history of ignoring the crescendo of early warnings of disaster - and when you allowed the problem to progress to the point of catastrophe?

The other question is one I raised on "Business International" a couple of days ago with Geoffrey Wood, Professor Economics at London's Cass Business School: what caused the fire in the first place? Was it the system that was at fault, I asked him, or was it reckless misuse of the system that got us into this mess?

Wood told me that both were at fault, but that rebuilding the so-called financial architecture was "neither necessary nor helpful."

So what did go wrong?

In Wood's view, the regulators failed. So on Friday's "Business International" I turned to Chris Rexworthy, a former manager at the UK's Financial Services Authority. He conceded the point, while pointing to the difficulties of supervising a highly complex industry with a small body of enthusiastic, intelligent but ultimately inexperienced and probably underpaid regulators.

Another important strand of Gordon Brown's argument is the need for globalized regulation in an of rapid globalisation. Again, that seems hard to dispute - but unless national regulators are up to the job, how would that work any better? Would the establishment of a supranational regulatory body really bring real benefits, or just tie up the world's best financial brains in years of haggling over its shape, size, scope and powers?

So before we embark on that process, gushingly referred to as "a new Bretton Woods," let us ask what part those 64-year-old institutions themselves have played in all of this? The fact is, the International Monetary Fund has been on the sidelines, with Managing Director Dominique Strauss-Kahn railing furiously about the intensity of the flames engulfing the financial house, while lacking water and a hose with which to douse them.

In fairness, the IMF has dealt admirably with what it was set up to do: deal with national governments whose financial payments got into scrapes. Its involvement in helping Ukraine is a fine example.

But what the fund was never designed to do was deal with a problem that originated within the commercial banking system. So it can hardly be blamed for the turmoil that swirls around us now, or for being left as more of an advisor than a rescuer. It was also never intended to save us from what we now recognise as the inevitability of the business cycle.

It is only human to seek a scapegoat, and a large well-heeled international organization like the IMF might do nicely. But ultimately, we need to address the real root of the banks' woes: those famous "toxic subprime assets" - the result of fancy financial footwork which took advantage to minimal regulation and lumped ill-advised mortgage lending in with perfectly sound loans and then marketed them as "investment grade."

Whose job was it to spot the dangers they posed and nail them? The answer must in future surely be national regulators and governments, aware of the global dimension and unafraid to turn to other nations for help and a common approach.

New Hampshire is an attractive place at this time of the year, when the autumn colors turn the hills red, orange and yellow, and especially appealing to officials and investors beaten black-and-blue by slumping markets.

But before we head off to revisit Bretton Woods, let us be clear what really went wrong, who was responsible, and whether we really need completely revamped financial architecture - or a well-constructed new wing to the house.

What do you think?



soundoff (82 Responses)
  1. Mike Chase

    Dear Mr. Hodson,

    You are certainly correct that there is little connection between the IMF and commercial banking. There is some connection between the World Bank and commercial banking, but not enough to place the blame there. The real villains are the monetary economists that de-coupled the monetary system from the reality and produced money with no backing except a politician's promise.

    What is required is a revamping of the international monetary system to prevent episodes of forcing reserves into the banking system in the attempt to force consumption and thereby sustain a consumption based economy. Increases in real economic output as opposed to burger flipping are the necessary ingredient for ongoing economic growth and increased income for the worlds poor and all the other social ills endemic to the present system. What is required is neither false growth through monetary manipulation such as occurred for the past two decades. Neither is wealth redistribution the answer. The answer lies in the creation of new products that increase real total wealth. This is not Laffer curve economics but real output growth.

    The system does need redesign, economic, political and social. New initiatives not repeats of old slogans and old ideas.

    Mike

    October 18, 2008 at 2:59 pm |
  2. vineet

    THIS HAPPEN ONLY BY IGNORANCE OF OUR LEADERS, MAY BE BY THIS CRISIS OUR LEADERS CAN THINK FOR THEIR DUTY FOR THE NATION WEATHER IT IS E.U. OR U.S.A.

    October 18, 2008 at 3:10 pm |
  3. Sergey Botvin

    If revamping will help to build eventual World Government without resorting to WW III then I say- let them revamp!

    October 18, 2008 at 3:19 pm |
  4. Silas Nyambok

    Every earthquake comes with its own magnitude on the Ritcher Scale. No current technology or genious can predict accurately the magnitude of the next earthquake and the location of the epicentre. The only security could be to design the house such that it can withstand the worst-case-scenario of any earthquake.

    However, it will definitey come with a heavy cost.

    October 18, 2008 at 4:07 pm |
  5. Marcel, The Netherlands

    Of course Buffet is a smart guy, but in this case I am not so sure if everyone should follow his advice. The US and UK economy are overloaded with debt (and still growing).The reason how this could have happened is amazingly simple: if you earn 100 each month but you spend 105, then there comes a time when your bank says to you that you have to bring down your debt. In this case, it took quite a while before the bank responded. The result is: you do not only have to bring down your level of debt rapidly (= less spending), but you lose money along the way too (housing). Some foreign countries (China, Japan) are not happy. End result: a substantial drop in GDP, demand, etc. When the real economy gets a straight hit in the face, we can go much lower.

    October 18, 2008 at 4:41 pm |
  6. not joe the plumber

    I work in the gas fields in colorado working a min. of 200 hours a month as much as 400 hours in a month and only bring home $80,000 per year. this is considered the third most dangerous jobs you work harder than a football player or actor or even a news ancor. think more than a ceo and put in more hours than most. Why should I get paid so much less than these people. the rich should get taxed more and a whole lot more because 95% of the rich don't really earn it they would just like to think they do. there not worth any more than any other hard working person and in most cases don't work as hard as most people. Obama's plan gives back to most people who actually work harder than the greedy rich. If you don't show this in the news you must be some of those greedy rich who think they should get more money for doing less than most. I won't sign this because I don't need the publicity like joe the plumber.

    October 18, 2008 at 4:42 pm |
  7. beau Gillette

    100% we are to blame, not the amazing system which got us here. we should learn to understand what works, and ensure the people who understand these inner workings are on both sides of those checks and balances that simmer below the surface of democracy to keep it burning. that would be a good use of tax payer money next to where most of it goes.

    October 18, 2008 at 5:07 pm |
  8. Gary Chandler in Canada

    Make loan sharking illegal. It would be way better for the overall economy to let organised crime handle the usury business, instead of government backed financial institutions.
    Higher interest rates for riskier borrowers IS a recipe for disaster, like driving a bus faster down a mountain road.
    If ALL lending, credit cards, car loans were restricted, BY LAW, to less than TWICE of prime, the CULTURE of Credit would could be developed!
    Credit risks beyond twice of prime? no loan! (LET them eat cake!)

    October 18, 2008 at 6:30 pm |
  9. Gary Chandler in Canada

    Further to my previous comment, compared to the mortgage crisis, HOW big is the overall debt crisis? (credit card and car loans)
    When is that boot going to fall?
    SomeBODY calculate to amount of 'risky' money that is owed at exorbitant interest rates 15 to 25%!!!!!!! legalised LOAN SHARKING!!!

    October 18, 2008 at 6:34 pm |
  10. david

    Very interesting point of view,but(there is always a but) you or anyone else can't say it never has see it coming.The market has to balance itself,told us the experts.So what happened when no sherif is in town?you bet it,human nature in the most blattant way.More cash for shareholders,quickest return,more efficient economic tools(hop it appears,hop it disappears...)But what is the purpose of Economics?And what is the purpose of WallStreet and so on?To help the entrepreneurs to strength their own business to offer the best products to the consumers(us..)and what is this goal when you make profits warning,trimestrial results all the time?I know that companies must adapt,but there are people,and shareholder invest all around the world in ONE minute.How could you compete with that?
    Don't make me wrong,I am Die hard capitalist,but(especially in my country)it was more and more difficult to sell the system when you see people fired because the PROFITS didn't expect the target,when bad bosses where thrown with millions of dollars euros yen of bonuses cause they had contract,even if they hit the ground with the company.
    We need to have a sheriff in town,a wise man who let the fellow entreprise grow strong,to the good of the community,to let them offer the best for all.
    After all,in all the places of the earth,it's good to have someone to rely on.

    October 18, 2008 at 6:34 pm |
  11. Gary Chandler in Canada

    Conclusion? YES the house has to be rebuilt! All this effort to unfreeze the credit market, which the 'Economy is built on', which is the CAUSE of the problems!!!
    JUST MAKE SURE there is projected Income to cover repayments and the only way to do this is with legislation!
    Most people who talk about the great American FREE market economies are idiots who do not know the definition of FREEDOM!
    Wildness is, like animals, doing what you please. Freedom is the ability to choose between right and wrong. Governments who do not employ laws, (stop signs, police officers, jails AND financial restrictions) are NEGLIGENT. It is NOT freedom to ALLOW people, businesses, and governments to LIVE BEYOND THEIR means. It IS WILDNESS. Price controlling INTEREST rates would bring us back to the freedom of not losing out imaginary, paper, wealth.
    SIMPLE FORMULA – NO ability to repay NO loan!!!

    October 18, 2008 at 6:46 pm |
  12. Gary Chandler in Canada

    Shakespear was not only a great poet, he was a BRILLIANT economist!
    "Neither a Borrower nor a Lender be!"

    October 18, 2008 at 6:49 pm |
  13. Gary Chandler in Canada

    If the high interest rates on Credit Cards are not adjusted downward in a legal and orderly manner, we WILL see a real depression!
    It's so FUNNY how people define 'recession' and 'depression'.
    No 2nd vehicle, no flat screen tv, having to rent a house. LOL
    When the MASSIVE credit card debts start falling on the poor banks, there WILL be bread lines!

    October 18, 2008 at 6:53 pm |
  14. Timo Partanen

    What´s the matter with socialism (except for the Monopoly players, who do not count)?

    October 18, 2008 at 6:59 pm |
  15. Timo Partanen

    What´s the matter with socialism
    (except for the Monopoly players, who do not count)?

    October 18, 2008 at 7:02 pm |
  16. Colin Carter

    I am not a banker and these are just some off-the-cuff remarks on your stimulating blog.

    You can’t compare the financial industry to something as static as a house. Rather, it’s a dynamic and somewhat cyclical system with multiple feedback loops and interactions. It is almost self-contained but it requires and responds mildly to external changes. The only similar system I can think of is the weather. And you know how difficult it is to predict that further than a few days.

    Clearly the equilibrium between some of the opposing forces inside the financial system entered an unstable phase without anyone noticing. After that, any small disturbance could have triggered the implosion. Therefore we cannot lay the blame at any one particular door. In fact, we can see there are centrifugal forces in the financial world that can, do and will get out of hand occasionally.

    The next self-evident observation is that the old system was unable to detect the problems and make the necessary adjustments to avert a global disaster. So I conclude we need stronger global oversight and I assume that would be done by an institution such as a revamped IMF. And before someone races to tell us that no one could have seen it coming, I want to point out some banks saw the risks of a collapse in the US housing market and overleveraged banks long before January 2007. We need those people working for the IMF.

    The institution in question should have enough teeth to put real pressure on the central banks of individual countries (including the Fed) and should pay much more attention to things like concentration risk (the hazard of being too exposed to one market, one economic sector, etc). Furthermore, central banks should have supervisory powers over rating agencies and hedge fund activities.

    I am not suggesting the IMF and the central banks should run the financial system (good grief!). But they should have similar powers to those of umpires or referees in football matches.

    October 18, 2008 at 7:32 pm |
  17. Jitso Keizer

    Washington wanted that everybody gets a good house, but failed to organize what then is necessary: redistribution of the better jobs with the nice salaries so that evey citizen can afford a fine homeplace. Strangely at first sight this can be connected to art 1 of the Declaration on human rights: "everybody is born free and with equal rights" because it implies material components as well. P.e. the right to own a minimal place for staying or dwelling without others drawing money from it against your consent. That does not regard the carpenter who presents a real contribution but concerns moneylenders asking interest, etc. The White House should have furnished to mortgage holders interest free, except for correcting inflation, loans of say fifty thousand dollars, which would have reduced the annual burdens of the mortgage holders and cause liquidity again to the mortgage distributors.
    Some shrinking in the economic situation may cause disappearing of superfluous things and services. Essentials will continue to be produced and sold.
    Also people wanting to improve their situation by moving should receive such money from the Treasury, while those with a nice home get nothing because nice means overvalue which can be considered to balance.
    As for the losses at the stock exhange there may be big speculation going on: first trying to get in big minus while next buying call options or so.

    October 18, 2008 at 7:41 pm |
  18. alfred

    Well I think first ceo should never receive such 'golden parachutes'. It is more than enough to receive such high salaries compared to average workers.

    Also banks should be regulated in the 'excess' of making too much priofits so that schemes to first time buyers of houses would not have such a high mortgage interest on their shoulders that they have to carry thro all their lives. Thus encouraging couples for a decent way of living together and burdening them with such heavy interests.

    I think also that govts. can regulate 'somehow' the price of land and property.

    Also some form of regulating speculators without controlling the free use of investing etc....

    BUT CERTAINLY THE FIRST STEP IS THAT THE REGULATING BODY HAS TO BE ADEQUETLY MANNED AND HIGHLY PAID TO DO THEIR JOB PROPERLY.

    October 18, 2008 at 8:58 pm |
  19. Voice of Reason

    Things crash only when they become unsustainable.This boom had become unsustainable.There were no tangible reasons or framework to support such a mammoth edifice.And down it came like a castle of sand because that is what is was. To be able to name the price of a house you need a house in first place.There was no house here but mere speculations and betting over who would win over the house if and when the house is erected.

    And all this could have been prevented had we gone slow.There were/are not just enough performing assets to justify such betting,speculation and leverage.Had that been checked in time then this present crisis would have been a mere minor correction or readjustment,as the experts still love to call it,and not a full-fledged recession.

    October 18, 2008 at 9:22 pm |
  20. alfred

    I FORGOT TO MENTION THAT FAT CATS SHOULD BE HELD RESPONSIBLE FOR THEIR ABUSES.

    October 18, 2008 at 9:29 pm |
  21. Rick Yagodich

    Charles, you have obviously done some of your homework, but not all of it.

    There are several issues at stake here:

    1) Does the world's financial infrastructure have fatal flaws?
    2) What actually caused the current crisis?
    3) How was it all allowed to get so out of hand, despite the warnings?

    The answer to the first question is yes. There are flaws within the very fabric of the financial world. It's called circular equity ownership. Call it recursive self-investment. It is the same money purportedly showing up as assets on multiple balance sheets. But – well, this is an issue that the world will not have come knocking at its door for half a dozen years or more. This problem has nothing to do with the current crisis.

    The second question is the one no one seems to want to answer clearly. Obviously, it has political implications. No one is hiding the fact that it's all those sub-prime mortgages. So why do they exist? Why was there so much lending to individuals who could not afford it? The answer appears to be the Clinton administration. (I can't remember the details of all the bills involved, but I saw it in the response to a blog item within the last week.) They apparently – on the grounds of encouraging home ownership – told the banks to lend to those deemed unsafe. This over the banking world's objections. but the law instructed them to. And then they wanted to offload these as quickly and cleanly as possible, hence the bundling with safe loans. They were obviously "safe".. the law said so.

    (The detail people seem to be missing when they speak of the economy is that, generally, the economy does not reflect current economic policy. It lags behind, by anything from four to eight years. And what happens day to day in the stock market, for anyone inclined to try claiming policy is driving that, is based on the "economy of hysteric opinion" – it's all speculation and manic gambling. You have to keep digging backwards to find the cause of today's problems, not lump the blame at the feet of the nearest scapegoat.)

    So, to question three: how was it allowed to get out of hand? And, to go with this, what is the solution? A lack of centralised oversight, and obviously no one wanting to step in and admit that they had been party to causing the problems. And the solution? Given that the root cause is politics – politicians meddling in things they don't understand, and mainly in the name of approval and re-election – let's look to the example that is already in place elsewhere within our societies. There is generally an accepted clear division between executive, legislative and judiciary pillars of civilisation. Why, then, is the financial pillar not immune to the meddling of special interests?

    Maybe taking all those hysterical gamblers out if the equation would help too, but one thing at a time...

    October 18, 2008 at 10:22 pm |
  22. Andy Jones

    So we are going to get a global one world central bank, then a global one world central government just to solve all these "problems", run, controlled and managed by the same bunch of criminals that "accidentally" created the problem?

    Isnt that it?

    Call it a conspiracy theory if you like but that's were its going, and who looses here? The poor tax payer who is doing the "bailing out" not the governments. We just end up being slaves to the system, tracked, traced, taxed, and fed x factor to keep us distracted.

    This is an obvious coup of the global financial and governmental system and the press are missing it.

    October 18, 2008 at 10:26 pm |
  23. Roland

    Charlie,

    I agree with your thesis that the IMF and the World Bank are neither the architechts nor the villains behind this disaster. Regulation on an international level is hardly going to work; the precious and precocious American capitalists who back the powers that be in the White House are hardly going to be enthusiastic about having, say, Pakistani's monitoring their investments in Paraguay (if one were to have a UN Investment Monitor setup, lets say).

    However, dare I suggest that the thrust of the New Bretton Woods should, perhaps, be of an EU style; for membership to the exclusive club of advanced globalised capitalist nations, you have to play by a few rules in your own backyard. This is, by the by, the EU membership dress code if you will, but in the current global financial arena it's flip flops next to black tie, and we all know how easy-wearing flip-flops are in terms of domestic fiduciary regulatory systems.

    Take Australia, for example. Over-regulated by comparison to the US of A; strong regulatory bodies, relatively well staffed (though by the dull kind of plodders versus the GSJBW Wunderkind who now seem to run the Fed) and effective. The difference in terms of the failure rate of banks is stark. The difference is this: here in Australia we have a financial system which is regulated such that it has the freedom to make prudent investment decisions. In the US you have a much more unregulated system where there's so much freedom the banks can make idiotic, unsafe and crazy investment decisions and take unreasonable risks and liberties.

    Clearly, you agree, the American model of laissez faire needs a bit of constraint. Its just a pity it is anathema. It is also now highly ironic that the US Government now owns a chunk of nearly every bank in the land. America Inc.

    October 19, 2008 at 12:29 am |
  24. gatkin09

    I think we can thank Alan Greenspan, the regulators and U.S lawmakers for the mess we find ourselves in.

    Greenspan gave the U.S low interest rates for too long and oversaw a dramatic rise in U.S household debt.

    The regulators I feel were (are) too close to thier pals on Wall Street or were asleep at the wheel. They failed to see the dangers in high debt levels,easy credit and poor lending practices.

    The lawmakers (both Democrats and Republicans) wanted to keep the economy cruising along at all costs so they could be seen as the ones delivering the "American Dream". Putting people in their own homes was seen as good "politics" even if in the longer term it was no good policy.

    Greg Atkinson
    http://www.shareswatch.com.au/blog

    October 19, 2008 at 1:43 am |
  25. PK

    The problem with bubbles, be it the recently bursted housing bubble or the internet bubble which bursted around 2000 is that when you are in the bubble, a form of shared madness takes over which cause one to ignore one's common sense.

    Remember how the practise of valuing internet companies based on a multiplier of revenue, whilst clearly misleading and flawed, was accepted without blinking an eye.

    Regardless of what measures will be put in place now in the currently affected institutions, the bubble effect will re-occur in a different shape.

    In addition to "fixing the house", I would strongly recommend that a focus group of psychologists is put in place to find out why the inhabitants of the house were so silly to put it on fire in the first place.

    This is a direct result of a flawed aspect of human nature which probable served as well in a tribal format, but will ultimately be our downfall in the current globalized format unless we acknowledge and address it.

    October 19, 2008 at 2:08 am |
  26. James Ravazzolo

    If an understaffed team of regulators is not sufficient to manage things (clearly it is not) then certain financial 'products' that are clearly of dubious value just can't be permitted to be created in the first place. This is no different from all other scams of history: substitute ridiculously valued Tulip Bulbs in the 1600's to worthless mortgages of 2008 and all these illusory 'derivatives' inventions.

    October 19, 2008 at 2:23 am |
  27. Ethan Zara

    Regulation has to be outsourced to all the major players taking part in global finance now. The technology makes it easier now to have global monitoring than back in 1944 when the world's financial order was thought up for the first time.

    -Ethan
    http://backpackingonlittlemoney.wordpress.com/

    October 19, 2008 at 2:51 am |
  28. Alan

    It's my belief a casino has more regulation than the US financial system...am I wrong..?
    How did the world become hostage to a few greedy corrupt companies . Re- packaging sub-prime loans, is that not corrupt.? Governments allowed it to happen, " well, we didn't understand the details, it was complicated".. puleeeeze. So, another fine mess. But, wait..! The stock market always bounces back , right..? just like real estate values always go up..
    Methinks it will be a while before confidence returns in the stock market, 401k's ,financial institutions & government.

    October 19, 2008 at 3:41 am |
  29. vankirkc

    So what you're saying is that the IMF and World Bank did the jobs they were meant to do, but that that wasn't helpful because they weren't meant to address the problems that actually came up.

    That sounds to me like it's a hole in the global regulatory and monetary framework. Doesn't it sound that way to you?

    From what I've been able to glean, two factos are principally responsible for the mess we're in now.

    One, the practical detachment of mortgage loans from the investor who funds them. None of the market participants involved with the issuance of Mortgages or their packaging into complicated derivative products had any stake in the success or failure of their product...so they didn't care if the products had a sound financial basis.

    Two, government had bought into the deregulation fantasy. Congress had an opportunity to decide that Credit Default Swaps were, in fact, insurance policies, and that they should require capitalization just as insurance policies do. They did not, and as a consequence we now have tens of trillions of insufficiently capitalized policies out there.

    Both of these are regulation faults, brought on by an unrealistic faith that markets would govern themselves. What we now need is a new global regulatory body that is immune to the vagaries of crackpot national politics that will ensure that the beast that is deregulation is never allowed to return.

    October 19, 2008 at 3:54 am |
  30. Mike Steinbach

    The world markets are finished for one very simple reason. Greed. The great Depression was caused by greed in stocks and this Depression is being caused by greed in the housing market. And the next Depresion will also be caused by greed. However I am beting that there will never be another Depression since some 2500 years ago it was written in Ezikiel Chapter 38 that Armaggeddon will be launched by a "Continuing world leader whose job is title is president who will be apppointed after a counting of many days and will come to loot Israel" It is hard to believe that this George will come to loot israel unless hios country is bankrupt. And as a final coincidence Bush in hebrew is embarrasment and Al Gore who was his opponent means in Hebrew "Do not be afraid" Oh yes there are only a few months left but look how quickly the calamity has spread and how quickly the WTC collapsed. And that was alos prophezized some 2500 years ago in Daniel Chapter 8.

    October 19, 2008 at 6:47 am |
  31. MOHAMMED N. RAZAVI

    all the hoopla is there to avoid mass panics and riots, and the people asking for trials and prison for the once so called the banking giants, and financing wizards, and the wizards they were, they created money from thin air adn then they made it all dis appear too

    October 19, 2008 at 7:09 am |
  32. Elisabeth Hightower

    Globalization inevitably leads to a global financial system, and yet regulation is at a national level. The only currently operating, global body with even a modicum of international respect is the U.N. I think the charter of the UN should be expanded to include a committee on Global Finance. It wouldn't take time to set up such a committee, and then the committee could discuss and pass resolutions through time as needed, to address problems as they occur, rather than some big new proposal to "fix everything" being handed down. That will never work. We need a flexible, long-term solution, that adapts to changing circumstances. Though common sense folk were aware that the subprime lending trend was dangerous, and bankers in backrooms probably knew this as well, having a U.N. resolution condemning the practice would have certainly helped stem at least some of the over-enthusiastic application of this risky tool.

    October 19, 2008 at 9:46 am |
  33. nestor

    I think that geopolitics is also a factor behind the crisis.
    The risk is that economic stress may translate into other type of conflicts ( wars).History says that humans in power could behave in an irrational way,and millons have to endure such misconducts.

    October 19, 2008 at 11:20 am |
  34. S.Ravichandran

    I've been a gilts trader for a commercial bank in India. If you look at the genesis of the problem, it is reckless greed of the operators in the Wall Street. Rules are broken and what the Bankers endeavor is to blur the line bordering laid out instructions. You have the connivance of the top management and all is forgotten when profits are realised. The present architecture is good enough, but the people who are there to ensure it is adhered to are not. Banking is financial backbone of a country and what is required is the guy who is selected to run commercial bank, should not only know the job but should also possess iron like integrity. Without this even the latest version of Basel norms cannot protect Commercial Banking.

    October 19, 2008 at 1:09 pm |
  35. M.Crain

    All the hyperbole regarding the "finanacial crisis" is misguided, incomplete and misdirected. When an economic financial system of free market enterprise becomes the investment basis of pension funds, retirement funds and greedy profit schemes designed to optimize the return on investment, what occurs is financial management professionals labeling and compartmentalizing figures of assets which are really liabilities, and then s-e-l-l-i-n-g these accounts receivables, which are not really real,or whose value is 10 percent on the dollar once collected, if at all, to some clueless other moron of a financial professional, who then moves the "receivable" along to someone else. Ultimately, someone is left holding an empty bag, with no chair to sit down upon, while the music stops and everyone is looking around staring, wondering where it all went wrong. Bad decisions caused this crisis. The system failed period because the activities were bogus, inflated and misrepresented by ignorant greedy people.

    October 19, 2008 at 5:14 pm |
  36. elias

    I think that the analogy will be better with a block of flats. This time what has been burnt is the basement. It doesn,t matter that we discover how the fire caught, next time won,t be the basement, the fire will be in other floor. And even if we rebuilt the whole block in a different way it could happen again because probably inside the flats won,t be decorated in the same way.

    October 19, 2008 at 6:24 pm |
  37. Leo

    "We have a much lower level of income support for poor families than do Western European countries or Canada. Social policy in Europe, Canada and Japan does a lot more to reduce economic disparities created by the marketplace than we do in this country. We have much higher poverty rates than do other advanced industrialized countries." ... Edward Wolff

    When the rich regulate themselves, we have yet another meltdown....

    When will there be the political will in US to actually invest in the health, education and well being

    October 19, 2008 at 6:30 pm |
  38. Leo

    of ALL their residents, NOT just in the wealthiest 5%...

    It amazes me that their is such anti- government sentiment....yet its government by the people for the people....so the antigovernemet is anti- self people

    October 19, 2008 at 6:33 pm |
  39. Tom Schrecker

    No I don't think we need a completely revamped financial architecture.

    We need simple regulation, which the inevitably inadequate regulatory supervisors will actually be able to control.

    What should these simple regulations be? Well, as I've suggested before, first of all a sensible limit on the percentage of mortgage lending – 60% at most?
    Second, a ban on all derivatives for which the underlying value cannot be easily assesed.
    Third, there should be stricter controls for financial institutions which hope to be bailed out by their governments if they get into trouble and the public should be made aware of which these institutions are. These controls should include adequate capital requirements and greater controls of conflict of interest. Thus, for example, a trading and wealth-advisory bank should not be allowed to be joined to an investment bank. A stock-broking firm should not be attached to a merchant bank.

    Clearly one of the most important reasons for the current crisis
    is excessive leverage – some financial institutions as much as 40 times! A regulatory ceiling should also be put on this – 15 times?
    If it were up to me I would also restrict credit card lending and encourage saving through taxation benefits.

    The above changes, plus perhaps a few others (control of executive benefits etc.) are I feel quite clear and should be relatively easy to police. They also have the advantage that they could be applied nationally, thus avoiding the problems of international agreements. These would of course be desirable but the system should not be based on getting them!

    Simple regulation also has the advantage that it could be introduced
    quickly and avoid years of committee and legislative work.

    Apart from all this we should review in our educational systems how we should encourage enterprise but discourage greed and excess.
    This I know is easier said than done and that is why it is all the more important to have a regulatory framework which will adequately control our human failings until such a, perhaps utopian, time when it will no longer be necessary.

    October 19, 2008 at 9:29 pm |
  40. Nostromo

    In this time of man-made financial crisis, what we most need is what Sarkozy declared (and in no way am I an admirer of the French president), namely: we need more entrepreneurs and not speculators. Amen. It is precisely the fault of savage neo-liberlismo by uncontrolled speculators on the world markets – but especially so on Wall Street – to blame for the whole upheaval.
    Such free-hand devil-may-care attitude by, especially, the U.S. Government, is obviously a fallacy, and therefore hypocritical, when the government has to rush in to bail out the obvious failures in the system of money-hungry so-called investors.
    What worries me is that Mr. George Soros has not spoken out; something very serious must be happening inside his cerebral calculations.

    October 19, 2008 at 9:53 pm |
  41. erik asplund

    Transparency in the form of a central clearinghouse for the unregulated derivatives market could be important.
    In an even broader context I think the world increasingly needs to focus on the imbalances and inequalities between nations, beetween rich and poor. We need globally to get our true priorities straight to stand a fighting chance in this century.

    October 19, 2008 at 9:53 pm |
  42. Concerned Aussie

    Banks and Financial Services companies are service industries, they are there to serve the people.
    Looks like they have forgotten this and exploited them instead.

    October 20, 2008 at 5:15 am |
  43. Wesley Bruce

    One spectacular pattern to the current coverage of the booms bust is the total refusal in the mainstream to discuss the Austrian School of Economics predictions before the bust and its recommendations of significant and very radical pro-free market reforms. Everyone is depicting this as market failure but as Ludwig Von Mises and Henry Hazlett both pointed out years ago we don't really have a free market in capital, banking and currency systems. All three are heavily constrained by government. We don't have over regulation or excessive deregulation we have active Miss-regulation. Laws and traditions that systematically miss guide buyers and sellers, regulators and voters and block new entries into key markets. Instead of systems that produce a stable place to trade we have a framework that tries to push the market into an eternal boom creating instead a dangerous rise in hopes and expectations that only deepens the abyss when something goes wrong. See http://mises.org/story/3128 and http://mises.org/
    Ron Paul is not the only one that sees these things in this light. Interview some of the others at Mises.org and Gary Norths site http://garynorth.com/ and get all sides of the debate not just variations on Keynesianism.

    October 20, 2008 at 5:31 am |
  44. Thomas Wamm

    Yes, we need a substantially revamped financial architecture, but we don't need something new. We need to return to what worked well in the past, the gold standard, before it was dismantled in favor of a reckless and devious experiment with irredeemable fiat currencies manipulated by a few people to the detriment of the rest of us.

    Over the past century, numerous "mistakes" were made, some out of ignorance, some deliberately for personal gain. Much of the current financial mess was caused by too much trust placed in governments, central banks, and financial companies to always do the right thing. These organizations are composed of fallible humans, who do not always do the right thing, even when they know better. We need better mechanisms for errors to be discovered and corrected. A return to a rigorous gold standard will impose an impersonal discipline on the global financial system through market feedback mechanisms. Basing the global economy on an irredeemable fiat American dollar 'reserve currency' was a major mistake that concentrated too much power and responsibility in the hands of too few fallible humans. Decades of central bank interest rate manipulations and money creation from thin air allowed ridiculous inflation and unrepayable debts to pile up unchecked. Letting any small subset of humanity control the definition of money, and the creation of money, was/is a recipe for disaster for the rest of us.

    Gold became money by an historical evolutionary selection process because it worked better as money than anything else. Gold as money works reliably, and is more immune from troublesome manipulations than a plethora of fiat currencies. One way or another, we have to return to the hard-learned lesson that gold is money, paper is not.

    There are several big obstacles in the way for all of us in trying to return to a gold standard for money. The main obstacle is lack of familiarity with the gold standard, since paper fiat currencies have been in use globally for more than an average human lifetime. Almost no one living has any experience with a gold standard or redeemable currency. There is a huge social inertia that will need to be overcome to convert civilization back to the gold standard for money.

    Another obstacle is men with guns, often known as government, who are inclined to steal (or forcibly tax away) any liquid wealth they can identify, if they cannot take it sneakily by fraud. These bad guys will do whatever they can to keep fiat currencies in use as money, because fiat currencies are easier to control and corrupt for personal gain by whoever runs the printing presses.

    The obstacles can be overcome. A necessary first step is for people to start thinking again of gold as money, and of money as gold. They are the same thing. Subsequent steps include acquiring gold, then modifying accounting, banking, and pricing systems to use gold units of account. This need not be done all at once. If persons in power resist the necessary changes, the rest of us might have to use work-arounds such as black markets until we can dislodge the obstinate bad guys. Multiple money systems can be run in parallel as we transition to what works best, again letting evolution work its magic. We have to eliminate artificial impediments that favour one kind of money over another, an example being 'legal tender' laws, another example being unfair taxation such as capital gains taxes on currency exchanges.

    A most important principle to learn and teach is that money must be defined by the people who use it, who choose it, who spend it, who accept it, who exchange it, who save it, who make it work better and more efficiently in all the ways we have learned throughout history. Money is not defined by a few people far away, by decree or fiat, in ways that might enrich them at your expense. It is you and your counterparty in any trade, that decides what your money is. Don't let third parties like governments meddle in your transaction for no good reason. Use seashells if you want to, or bushels of wheat, or pretty rocks, or pieces of paper with a picture of some politician's face on them. But remember that history has selected gold as the best all-round money of all time. The world has just conducted a century-long experiment with irredeemable fiat currency, and it did not work out too well. We can go back to what worked well for centuries: gold as money.

    October 20, 2008 at 5:53 am |
  45. Andreas

    I think you make great points Mr. Hodson. There is a lot of finger pointing and tentative witch hunting without any information or knowledge. People who have neither financial education nor experience talk of "re-doing the system" without the first idea how.

    Classic 20/20 hindsight. If regulators and the public try to enact new mechanisms in the current panic stricken climate, the results will be neither rational nor effective.

    October 20, 2008 at 6:12 am |
  46. Tom Schrecker

    I would just like to add to my earlier comment that what is obviously required is greater transparency and this should be the primary concern of future regulation – whether we are dealing with derivatives, Credit Default Swaps, showing assets at current market value in accounts or whatever. Without transparency there can be no confidence and confidence is, of course, at the heart of the problem.

    October 20, 2008 at 7:11 am |
  47. Mike

    The housing industry failed the logic test a long time ago. I was preducting the bubble on the housing market to pop over 5 years ago.

    Here's the logic test.... Should a stick frame home on a small lot in a development crammed wiht hundreds of other nearly idetical homes be valued at more than $500k? Ummm...no. Should a person making $50k/year be approved for a $200k mortgage? Ummmm...no.

    See how easy that is. The simple fact that hte above questions were answered YES, tells us that there was a very big problem.

    The fault lies equally with spoiled, bratty, ignorrant borrowers and greedy, unethical lenderes.

    Simple fix. Let's implement real income guidelines for mortage approval. 15 year terms, and 20% down for homes over $200k. For homes under $200k, 30 year terms and 10% down. The only exception is 0 down for first time homebuyers for homes under $300k.

    Now the readjustment of the market will be pinful, but nessesary to bring back responsible lending.

    October 20, 2008 at 1:47 pm |
  48. Eric Johnson City,TN

    I think what we need is a new tax system. The Fair Tax system. Originally the 16th ammendment protected the american citizen from tax burdens levied by the government. It was ratified in 1913 by pressure put on the president by the democrats. Our tax system has grown out of control and is on the border if not alredy into socialism.
    The tax system woud help the economy in all aspects of life for individuals and all businesses alike! It would put the constitution back where it needs to be, in the hands of the american people. We the people need the 16th ammendment repealed! We the people can fix our economy, it's obvious the government can't. Both parties need to do the right thing and pass the Fair Tax into law, NOW!! Forget about government power over the people,(which by the way is a form of communism,and socialism!) and let the people take back this country and bring america back on it's feet, through the sweat of the brow and hard work, and from that hard work our spending to get the economy back on track,not NOT government foolishly spending our hard earned dollars!
    Put America in charge and lets get back to business, Pass The Fair Tax!!! Please!! It's your patriotic duty the this nation and to the hard working people of the United States!
    Sincerely a hard working factory worker!, Eric Peterson

    October 20, 2008 at 6:52 pm |
  49. frappa

    You hit the nail on the head, Mr Hodson. I never quite figured out why anyone would trust an "advisor" to deal with one's hard-earned cash. Rhetorically, the answer would be "it's just how the system is structured". But we all knew that. And there lies the problem.

    It's the system, stupid. Short of Italian Premier, Silvio Berlusconi's quickly retracted reference to "changing the rules of the game", none of the who's who who surfaced in the wake said anything that's worth more than the paper they were reading from. Of course, they would beg to differ and with strained straight faces argue that the bailout-cum-nationalisation solution is our best bet. Why not? The system survives and the top 5% (or has it bloated to 15%) get on with their lives leaving the rest of us who depend on "advisors" to continue to scurry around – no different from forlorn rats after a flood (the ones that survived) – and no wiser.

    Talk about a fool's paradise. Unbelievable? No, it's pathetic. All this talk about 'saving the system' presupposes the system works, fundamentals are solid and that this highly rigged free market enterprise is the holy grail of mankind's current socio-economic serfdom, some holistic man-made miracle.

    When will they learn? Scouring for discontinued spare part relics for your Oldsmobile is a luxury only madness can buy. GM is not the only kid in town and as things go, might soon be leaving town. Why even talk about going green? Is hybrid a keyword now? Resistance to change is a resounding confirmation that the folks who turn the wheel couldn't care less about the monkeys (rats too) caged within the system. Why fix it when it ain't broken? Right.

    Nothing's broken? Mr Buffet cannot help but shore up confidence in the system, he knows it won't be changed in his lifetime. Get real – other primates still stuck in this apocalyptic spiral the wheel creates are the ones facing the music. You think lending to otherwise ineligible would-be home owners was merely an abhorrent oversight? Come on. Remember the "give fish and he has one meal, teach him to fish and he ..." or whatever version of that? Guess what, that's just good PR. Supplying him with the tools and upgrades after upgrades will not only give him a lease of life but a lease for life, it gives Wall Street a reason to keep him in the loop so we can continue the numbers game. And why not? Money makes the world go round.

    The only fools in this paradox are those who in this age and time, do not take this sterling once-in-a-mankind opportunity to teach these folks a lesson just because you can. There is no better time. The rot will get worse, even devastating, yes but we now have a chance at a resurrection void of all the ill-begotten excesses, parasitic gains and finally, the perpetrators who feign fortitude to mask greed.

    Face it, the global financial system is instrinsically flawed, insiduously partisan and an insult to human rights. To the extent that its perpetrators shamelessly collude to "make money" in the face of flagrant inequity, this meltdown is a blessing and when done, a dire victory for an impoverished world. On that day, we have a chance to start from scratch, no tainted baggage – let good men (and better minds) rise from the ashes, preferably no where near Bretton Woods.

    Enough said. These are difficult times. Lest primal instincts get the better of good sense, it's time to call a spade a spade and rotting meat the carcass that it is. God help us.

    ------------------------
    Need confidence? Don't you just love mushrooms after the rain sprouting layers of wisdom from hindsight in a trillion ways, one for each dollar lost. One thing's certain, these mushrooms always seem to thrive – we need to get out of the Woods.
    ------------------------

    October 21, 2008 at 7:09 am |
  50. Baba Shettima Kukawa

    Over the past months from the global food crisis to the global economic crisis I have watched with keen interest as the stories unfold. However, CNN has not given Africa the desired coverage of the Economic Crisis as it did during the Food Crisis, though it could be said that there is more of hunger in Africa than stock market meltdown. But to tell you the truth the market meltdown has really affected Africa's emerging middle class, for instance the Nigerian Stock Exchange lost about $26bn over the past few months. Therefore, analysis of the by renowned world economist and business correspondents will give us a better understanding of the situation.

    Thank you

    October 21, 2008 at 3:41 pm |
  51. The George

    In all of this finger-pointing at the cause of the current problems, supposedly with an intent to seek a solution, I don't seem to see mention of the average, run of the mill person. The persons who don't want to be bothered with understanding how it works. The persons who refuse to act responsibly and take responsibility for their actions. The persons who are so willing to "hock" the future for immediate self-gratification. There's your problem.

    Yep, blame it on government, financial institutions, anybody and anything but me. Of course, if I elected good leaders to office, did not do business with irresponsible financial institutions (or at least did not avail myself of their destructive financial products), and consumed responsibly, then most of these problems wouldn't exist.

    But that means I have to take the responsibility and the blame for my own actions - God forbid...

    October 22, 2008 at 3:42 pm |
  52. Carlos Romero

    Oh! Mr. Hodson,
    We have lost our ways…it is that simple.

    There was a time when Banks simply received money from depositors and invested these funds prudently (in their communities); when Wall St. served as a capital formation center for REAL enterprises; when venture capital served as seed money for GOOD and REAL ideas; when the casinos were where folks would squander their money hoping for a quick return; and loan sharking was practiced at the risk of perpetual damnation. Well, folks, it is all one big pile now. One can not tell what’s what.

    What is the answer? Leave it alone. Just make sure that every one does their job, as simple as that. Keep th epoliticians away from the economy.

    The last thing we need is hundreds of Government agents CONDUCTING the economy……may our good GOD help us.

    Carlos G. Romero
    El Salvador

    October 22, 2008 at 10:55 pm |
  53. Andreas, Sweden

    A few specific points that will hopefully be addressed are 1.Need for nonpartisan International accreditors 2.New CDS disclosure laws 3. Uniform collateral rules (especially for hedge funds) 4. General Swap disclosure rules. If all these key issues are properly dealt with it will be easier to earlier spot similar meltdowns in the future and hopefully prevent them. What happened leading up to this crisis was an exponential increase in risktaking and an unrealistic belief that it could be averted by an unhealthy level of swap trading. Add to that the improper use of biased/profiting credit rating agencies and the outcome is actually inevitable. This recession will not be as long as the gloomy doomprofets proclaim. We have not had this type of 'shift' back to fundamentals before and I think once it is clear to everyone what caused this most will get a sense of relief and things will start moving in the right direction again and this time based less on pure speculation. My time horizon is short and I think markets will start to recover early next year, february march.

    October 23, 2008 at 5:21 am |
  54. Brian

    The finger pointing whenever things like this happen is always intrueging. It is always greedy wall street and corrupt or inept government at fault. Is main street ever at fault? Does main street really think they have no part to play in all this? Is ignorance an excuse to blame others?

    The people sending angry letters with calcium in them are probably the same people that are about to lose their home to foreclosure because of a sub-prime loan THEY signed their name on.

    Every one thinks more regulation!!! What about more education? If people don't sign these loans because they know better, these loans don't exist to be pooled into exotic financial instruments. You can't have a sub-prime crisis if people don't sign their name on a sub-prime mortage.

    So does the whole system need to be tore down. No. Hopefully we can use this as a wake up call to start teaching financial responsibility in the home and in schools. Maybe the next generation of main streeters won't be as gulible and can help to avert this sort of mess in the future. Maybe main street will for once realize they do actually have a say in all this instead of begging the corrupt politicians to regulate the greedy rich people when another mess happens.

    October 23, 2008 at 10:02 am |
  55. Adrian, Romania

    The primary blame for the crisis lies with people who borrowed beyond their means. This is not a popular message, because there are many of them and they all have a vote.

    While the banks and regulators were duplicitous in facilitating this borrowing and failing to rein it in, their guilt is secondary.

    Another guilty party is school education systems, which have evidently failed to teach people how to manage their personal finances in a responsible way.

    October 23, 2008 at 12:01 pm |
  56. Sam in Spain

    Charles,
    Everybody, Economists, Financial Gura's, you , Todd and evrybody is guessing where the markets will end by the end of the year. Hargreaves Lansdown already asked this question and gave options.
    I chose the FTSE to finish below 5000, now I might as well guess where it will actually finish. I suppose my guess is as good as anyone else and with the jumping up and down and no one knowing what is really happening and showing Good Direction I will forcast that it will hit 3,500 before starting any recovery.
    I therefore will have to bide my time suffer the current losses, keep investing monthly and wait for the ultimate gains in 5 years???

    Retired (long ago) Financial Advisor

    October 23, 2008 at 2:45 pm |
  57. Srikanth Chandrasekaran

    Dear Mr. Hodson, Indeed the house has to be rebuilt. In this connection I have the following points of view.
    - The Enitre currency system should be revamped. The dominance of dollar , euro and the yen in the markets have to go. Much of the present abuse has emanated from the free printing of Dollars after de-linking it from gold in 1971.
    - The new system should have a common unit of currency for all cross border transactions. In addition countries will continue to have their domestic currencies . The common currency should be issued /monitored by a global IMF style body.
    - The underlying strength of the domestic economy will determine each countries exchange rate vis a vis the world currency and will also determine the reserves of the world currency held by each country.
    - This system will easily identify the offending countries and ensure that the whole world is not put to risk like it is now.

    October 23, 2008 at 5:02 pm |
  58. Loren

    Hi Anderson: I watch your show every day. , good job!
    It seems that Hank Paulson should be on your list of ten because he worked for Goldman Sachs, who helped design the "SWAPS" that are creating the the meltdown. I understand he shorted the market to make big bucks. Now the write downs are being done after the banks are given bailout money not before so that they can make their balance sheets look better. Should this guy really be in charge of this bailout?

    October 23, 2008 at 5:50 pm |
  59. Robert

    Government manipulation via the Community Reinvestment Act of 1975 started this mess (with other exacerbating factors). Social engineering, i.e., promoting home ownership (for whatever reason) was the tool for relaxing lending standards and forcing Fannie Mae and Freddie Mac (under threat of litigation) to back loans to unworthy borrows. Of course, several politicians were more than happy to run interference for the lenders, as long as the monetary contributions kept coming (hello, Barney Frank, Chris Dodd and Barack Obama). This was the root cause of the housing bubble in the U.S. Through pure legislative fiat, the market's risk managment tools were removed, and we have the situation currently before us. Those that are indicting capitalism in this scenario need to rethink their position and pursue further education on the subject. It wasn't lack of regulation, it was the WRONG regulation that's at fault.

    October 23, 2008 at 6:06 pm |
  60. John Ferris

    Dear Mr. Hodson,
    I dare not begin, "Charlie, Charlie, you coulda been a contenda, instead of a ..." because clearly you are a contender and have been one for many years. I have been watching you for three years now in Moscow, Russia, and I have bee pleasantly enjoying your reports. However, I can no longer let go without comment your assertion that "We have nothing to fear but fear itself" is a quote taken from some long lost speech by John F. Kennedy. Tonight you did it again, and even Steven Forbes let it pass. Mr. Hodson, with all due respect , that was the assertion of one FDR, not one JFK. But, hell, you're a Limey. All's forgiven. But please adjust your attribution. Thanks.
    Your Fan,
    John Edward Ferris

    October 23, 2008 at 6:25 pm |
  61. Prem Kumar

    Lets get to the bottom of it. Companies lost Purpose(what was the board doing).CEOs let them drift and sail they way they wanted it too ,putting their intrests ahead of corporate and share holder intrests(no commitment to Purpose), The Govts watched the fun, and Bingo here we are the lay man left high and dry.The house fell apart since the foundation was never meant to support so many floors. Basic stuff.You build more floors then the foundation can support it has to come down. Lets now get the foundation right and make sure only that many floors are build upon it as the foundation is supposed to support.
    Prem kumar

    October 23, 2008 at 7:25 pm |
  62. Sharon Avery-Fahlstrom

    Dear Mr. Hodgson,
    "We have nothing to fear but fear itself" is among the most famous statements of Franklin Delano Roosevelt. Each time I hear you attribute it to JFK I cringe.
    Kind regards,
    Sharon Avery-Fahlström

    October 23, 2008 at 8:16 pm |
  63. Uma in Liverpool, UK

    Dear Mr Hodson,

    You said:
    Whose job was it to spot the dangers they posed and nail them? The answer must in future surely be national regulators and governments, aware of the global dimension and unafraid to turn to other nations for help and a common approach.

    I couldn't agree more. The fun part of this trick is going to be getting the USA to agree. This first meeting with Bush is a complete waste of time. Until the new President and Congress are sworn in, nothing will change. Bush will never agree to the amount of regulation the Eurozone and other nations are recommending.

    Only with a potentially supra-national regulatory body, with the power to arm-twist co-operation, if necessary, will the myriad different economies, all over the world, agree to the necessary regulation. I still doubt that Dubai, the UAE, and other tax-haven, 'free-zone' sorts of investment countries will get on board.

    In short, yes, that is what the world needs. Chances that we'll get it, are between slim and none.

    New Hampshire is an attractive place at this time of the year, when the autumn colors turn the hills red, orange and yellow, and especially appealing to officials and investors beaten black-and-blue by slumping markets.

    Oi! I went to Uni in New England. That is not a word-painting I really wanted, overlaid upon my memories of Octobers in Massachussetts.

    Thanks loads... Faugh.

    But before we head off to revisit Bretton Woods, let us be clear what really went wrong, who was responsible, and whether we really need completely revamped financial architecture — or a well-constructed new wing to the house.

    I thought you said the house had burnt down. To what are you suggesting we attach this well-constructed new wing?

    I'm throwing in with the 'completely revamped financial architecture'. Post-capitalist, post-socialist, regulated, transparent, where the financial infrastructure is like any infrastructure - taken for granted because it works. Take the drama-queens out of investment-banking. If they want to be divas, there must be an appropriate karaoke bar somewhere, where they can get their need for attention met. Pay financiers as the functionaries they are.

    (Of course, I'm for paying sport-stars for the entertainment they provide - meaning less than school-teachers are paid...)

    Barack Obama, socialist? Hah!!

    I've listened to all the pundits, scholars, nutters, and comedians, and arrived at the conclusion that 'hypothetical money' is a fundamentally flawed idea. I'd like the gold standard back! And no long-term gambling. Stock-market turnover needs to be from actual stock trading, to auditing, on a monthly basis, so everybody keeps everybody honest.

    Billionaires and Beckhams can jolly well share the wealth, too! (Sorry, I really didn't mean to bring up 'Beckhams' - but this AC Milan stunt has been on the news all day.) No tax havens! The rich pay! They'll still be relatively rich, but they should pay...

    Impoverished, in a grotty slum, outside of a run-down city in the Industrial North of England, which is Officially in a Recession.

    Wasn't it clever of those goverment lads to work it out? And so swiftly! How very clever! Yes... One should find a way to thank them. Can we replace them all with Lib Dems, please please please? I'm sorry - even if I were not an old Commie, David Cameron (and most Tories, but particularly David Cameron) just fills me with an uncontrollable urge to slap his smug, young, spoilt face.

    Uma
    What light at the end of... you mean it has an end?

    October 24, 2008 at 1:34 am |
  64. Miss Kitty

    Although it is indeed only human to look for a scapegoat, I think that people should try to keep a clear vision and try to analyze the situation rather than simply spreading blame around. To me, the root of all the problems lie in the beliefs that are built into the economic and political system and therefore there is no protection when they turn to be wrong. Greenspan yesterday admitted that his belief in self-regulation proved to be wrong. He was an ardent believer in self-regulation of free markets and their inherent superiority. He was certainly not alone.

    His false belief was grounded in his ideology and supported by forty years of market functioning in perfect concordance with his belief. He did not have many reasons to question this belief and even more so, the questioning would be politically dangerous and was not encouraged. Still, I do not want to justify Greenspan's mistake because he clearly had some advantage over many other people beliving in the free markets – he at least had better idea and information about how the markets work. There were many ominous signs that geralded the coming of the trouble. But Greenspan's belief made him blind – but this is what beliefs do to most of us, don't they?

    Ideally any economic system should be based on the set of clearly formulated goals and priorities and all the actions of the governments and legislation bodies should be checked against this set. Yet, all of us are humans and greed, for money and power, are always present. Hypocrisy and stupidy are always with us. The current crisis stemmed from the desire of US legislative and executive bodies to advance all-American dream of homeownership. But doing that they contradicted their whole paradigm of free markets. So the markets are coming back at them. Time to change the paradigm?

    October 24, 2008 at 8:34 am |
  65. Åge Mariussen

    Dear Mr. Hodson

    The fire started inside the US economy. It was lighted by Mr Allan Greenspan. He thought he could solve the US economic problems by making money cheap and easily available to US consumers. He was encouraged by certain actors in Asia, who kept providing the US with credit, and at the same time were more than happy to grow their own economies by taking responsibility for manufacturing of goods. In that way, the "fundamentals", in terms of production capacity and technology, shifted from USA to Asia. Mr Greenspan thought this could go on forever, because the Asian economies would forever be locked into their supporting role of the US economy. After all, this structure had been in place ever since WW2. In this way, he thought, if there was ever a problem in the US financial system, the Asians (and probably also the Europeans) would bail out the US consumers. The structure of the global economy, he thought, would remain stable. The welfare of US consumers would forever be the overriding concern of all other people on this planet. That was the wrong assumption in his ideology.

    The fact of the matter is on the contrary, as we see today, that the Asians and Europeans have an alternative. They are now turning their back to the house-on-fire, the US economy, trying to create their own growth machines. They have the "fundamentals" on their side, technology and factories. For instance, there is a tremendous potential for growth inside China, through modernisation of their lagging regions. There is a similar growth potential in Africa, Latin America, lagging parts of Russia, and in other parts of Asia.

    The objective of the global summit must be to define new rules of the global economy which aims at providing all people on this planet welfare and decent living contitions through modernisation of their economies. That would create a new global growth machine which eventually after some years could restart even the US economy, once it has been shifted back down to its "current fundamentals", whatever that level might be. In short, we must not build a new single house, we must build a village. We need rules for trade within this village which curbs ambitions which may start new fires.

    October 24, 2008 at 9:05 am |
  66. peter christensen

    It's simple.

    We have just seen the biggest bank robbery in the history of the world.

    We considerd and planned.

    October 24, 2008 at 9:12 am |
  67. Andre

    It will take a bit longer but eventually people will recognize that the problem is "spiritual" in nature.

    Greenspan admitted he made a mistake by presuming that lenders were more capable than regulators of protecting their finances, and said that "still do not understand exactly how it happened." Perhaps what he is not been able to see is that the "invisible" hands of the CEOs and Board of Directors were different hands than that of the financial institutions and stockholders?

    It is just a matter of free-will, of choices: altruism vs. selfness

    Anyway, at the end we (society) are all at falt.

    October 24, 2008 at 11:46 am |
  68. Dharmesh Sanghani

    Its a fact, everytime Paulson or Fed chief opens their mouth they spell out more crisis. everytime they inject stimulus they drive the crisis further deep, everytime they reduce interest rates it further destabelizes interest rate market. Now BBA is on positive track to maintain Libor interest rates but any further reduction in central bank and fed rates will only depen the crisis and not allowing it to recover.Let the markets bottom-out and maintain interest rates and Libor will help people to understand the reality. I feel Paulson and Fed chief are fabricating further crisis to benefit a few firms and their friends. US 750 billion already flushed away to a few banks and firms should. be further investigated as its not helping the markets recover nor freeing the credit crisis.

    October 24, 2008 at 11:48 am |
  69. Silver

    I think this discussion is nonsense and smoke screen.

    It smells very much to me like some purposely-misleading drivel from a free market spin-doctor hoping to avoid inevitable regulation.

    Unregulated securities markets do not learn from the past because that runs against their interests. Markets want to have booms and busts because unless the market bottoms out every now and then, the big market players cannot make enough money worth their while. They need to churn the market every so often. While these market makers do not want a recession or a meltdown, they are also afraid regulators will also curb the limits of a market boom. This is why they put out drivel like this to avoid being regulated.

    The problem has to do with lack of authority and lack of clear process needed by regulators to initiate corrective measures once they have detected danger signs.

    This is a true story, my broker came to me 2 years ago very worried; and privately told me that this would happen. Three months later, he quit from his brokerage rather than to continue to be connected with people who were playing the field with sub-prime mortgage derivatives. He went to work for another firm which did not deal in such derivatives.

    The experts clearly knew this would happen and some heeded their own advice and got out. What we need is the AUTHORITY and PROCEDURES for such people to come down hard and stop the crooks from putting more bad securities in the market. These derivatives were clearly worse than JUNK BONDS if anyone cares to remember. Perhaps you'll also remember what happened to those people as well.

    No more spin-doctoring, these people are just trying to confuse and defuse the corrective actions needed.

    October 24, 2008 at 4:41 pm |
  70. Uma in Liverpool, UK

    @ Sharon Avery-Fahlstrom

    THANK YOU! Same gritted teeth reaction here. Mr Hodson is seldom wrong, but when he is, he makes certain to do it GLARINGLY and REPEATEDLY. There is nothing quite so annoying as a chap who is perfect at everything, including making himself look silly. ;-)

    The perils of being overeducated in Britain... faux-pas regarding US history - which is so short, that we who were educated in the States, know ALL of it.

    (Dear Mr H, you DO know I think you and Mr Quest are BOTH the IDEAL brain, in the IDEAL gent... Whichever of you is talking, I fancy at the time. :-D Well... a matronly old renaissance-woman has the right to dream, doesn't she?)

    October 24, 2008 at 5:22 pm |
  71. Dan from Spain

    Quick reminder to vineet... The now called European Union (not too long ago just called Common Market for the sheeple) IS NOT a nation like the US. I think it's worth mentioning in case someone forgot.

    October 24, 2008 at 5:53 pm |
  72. einar dyhr

    We can blame the bankers and investment houses all we want; They only did what they were programmed to do; The blame for what really is going to hurt the economy (and that has just started) are the regulators that in the name of chasing an ever increasing GNP let the mortgage market loose while forgetting all the old conservative rules that once guarded access to such loans. Can anyone remember when the size of your mortgage was determined of the breadwinner’s annual salary and not counting the spouse income; I suppose many defaulted home owners today would have appreciated to have been judged by that rule. A degree of that prudent system would have gone a long way to have prevented today’s calamity.

    October 24, 2008 at 7:05 pm |
  73. David

    People assess their own risk when making financial decisions such as borrowing money, buying shares or property, and financial institutions are responsible in same way when entering into financial transactions. What 's important is that others are protected from the impacts when these transactions go sour.

    It is obvious that the financial system needs to be changed to protect the ripple effect of poor financial decisions by a minority.

    The way that credit is currently made available to lenders through short term commercial paper exposes everyone to high risk transactions, this needs to change so that providers of funds to high risk borrowers accept those risks for the duration of the financial transaction.

    We need to globally agree on changes to the system then regulate at the national level.

    October 25, 2008 at 1:13 am |
  74. mark in Asia

    Rebuild the house but rebuild a system that has checks and balances. You want to be rich be rich but work for that! You want to be in a stable moderate lifestyle, have it based on a system that does not take from others

    The lesson learned from all of this is that if you take the easy way out you are throwing the dice! You want to throw the dice fine but do not expect the Governments and others to pay for the thrill. If you win then congrads but if you lose, you take the consequences!

    I have nothing against those who want to roll the dice but we need to have policies which will allow for this form of gambling.

    The solution is simple!

    World economy based on two systems. One which I call the Casino System. Will have all the large return short term packages. Maybe the sort of investments which started all the problems. The wild west Investments will be taxed on a worldwide tax rate. This form of investment will not be taxed by individual countries but through an international tax. This will fund the IMF or other agencies that will bailout the troubled deals. This Casino System will give investors a bit of control and guarantee on returns. It will give the deal makers and rich to make their large gains without having the normal people ridding on their tails. It will also give a chance even for the normal people to pool their resources and give that roll of the dice. The casino system can fund real world system by taking real returns and putting it into a more stable investment. Start ups can be put onto the casino system if they need large sums of money fast, or they can move to the safer system once they are ready. Companies can switch between systems. Based on their needs. Some companies can be on both. But returns can not be directly be passed from the casino system to the real world system without controls and checks.

    The other system is the current real world system. Move large speculation and the money games to the casino economics system. Both systems can feed each other and separate the risks to those who know the risks. The real world system can get investments from real gains already made, not based on speculation. The Casino System can get real money put on the crap table from earnings from companies which have money to burn. The two systems will complement each other and fund a bailout or insurance to fund the IMF or whatever agency that will be responsible to provide emergency funding .

    My idea is simple. Someone out there put into play and you have a financial system which will move risk out of where you don't need risk. Let the thrill seekers have more fun by having even more gains but in a controlled and safe environment.

    October 25, 2008 at 8:44 am |
  75. Felipe

    The only guilty part in this crisis is the human greed. Companies are autonomous entities already. They belong to nobody and yet to a lot of people. Being owned by human beings they are subject to the same negative traits that are inherent to the human nature.
    It was all about giving stockholders profit, and a lot of it. To reach this profit the companies sank themselves in the mud of subprime and other rotten papers – speculation turned to be a trap, nobody can get profits that grow much faster than the real assets (or the physical economy) forever.
    Regulation is needed because humans trend to "misbehave" and do things that lead to their own destruction or the destruction of others. In the end, the memory of this crisis will fade away to be remembered decades after when a new one bursts. And people will say the same thing: we need more regulations, the government is guilty and so on. The governments may be partially guilty but then again, they are composed of human beings....

    October 26, 2008 at 10:13 pm |
  76. Thea

    We are Europeans and we can't hold our tears of joy. Barack Obama won the battle of ideas! With this man and his wife, God showed us a glimpse of Himself. Obama unites black, white, Asians, Europeans, Africans, Arabs under one flag: the flag of the human race.

    By doing that he already did an enormous job. Again there is HOPE and BROTHERHOOD in this world. We need each other to overcome not only the financial crisis but before all our differences.

    THANK YOU, THANK YOU, THANK YOU AMERICA !!!!!!
    You are again the beacon we all look up to.
    THANK YOU SO MUCH

    November 5, 2008 at 11:44 am |
  77. mralbakr

    Only this moment is that the bright side of America has beaten the dark side.
    From all emotions expressed worldwide , from all reactions to his election as the President of the United States, the world as if they say we forgive you America.

    November 5, 2008 at 11:45 am |
  78. Chun

    Great, Congratulation!!!!!!!!!!!!!
    it was such a great expected outcome, but i still believed it was God at work.
    This victory i think does not mean the future is here but it was a new phase in America history. People have follow his aguement and believe he can bring back the lost glory.
    Mr president elect, and all Americans, remember is not only logical president you want but it was a reminded to you of your long history founded on GOD. If you follow your founders path is sure that America will become more strong than ever before,
    I think is not time for politics again but you need more grace than ever to deliver your promise and bring back hope to the despair which will only come for God,
    GOD who gives power will give you wisdom to lead his people
    Chun a Nigerian in Germany

    November 5, 2008 at 5:00 pm |
  79. Carl Caekaert

    Those in power should have a very good look at the stock markets and particularly at short selling. The system should be there to help finance the businesses, not to just enrich the shrude and very large traders. This is the world upside down and ruines all small and of good fate investors. I believe that a very serious revieuw is very urgently required, this crisis may not be resolved until the system stops rewarding the raiders.

    November 6, 2008 at 3:31 pm |
  80. saibal gupta

    There has been ample evidence that what we mean by 'capitalist free market economy' today is not tenable on a global scale. US Federal Researve chief Dr. Greenback (hope I've got the name right) has also expressed that.
    This game of one country upping the ante on another just cannot go on. It is ridiculous that US has to beg her dollars back from China, Japan and Saudi – 'or else'! How about those who have no 'or else'?
    The economic pundits of the world have to find a formula for a 'steady state economics' so that a bunch of greedy manipulators cannot rock the global market to kill a thousand babies in Ethiopia, Somalia or Bangladesh. It ought to be a punishable international crime like war crime.

    November 6, 2008 at 3:53 pm |
  81. Ralph Peoria, Il

    This meltdown was not an "Accident". There are some very rich people who are the Criminals here.

    There are plenty of RATS out there loose that need to be dealt with.

    November 7, 2008 at 3:38 am |
  82. John Russel

    You people are really funny asking this question.
    First the Democrats and their criminal friends like Zsoros created the economic mess by their desire to give impossible loans to people with impossible means to repay them all in the name of fair play.
    What a giant joke that is.
    Now you want these same people to save us !
    What planet are you from ?
    I want Obama to resign and tell us first where he got all his money.

    Ther eis no fix for this becauise you people are not in charge nor is Obama baby and hhis cronies – the rich and powerful of the world will solve this but only after a prelongued depresion / recession whatever.
    HARD RAIN IS GONA FALL!
    Thank you Democrats.

    November 7, 2008 at 7:23 pm |

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