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EDITORIAL - The subprime crisis and Bretton Woods
published: Thursday | September 18, 2008
It emerged yesterday that Halifax Bank of Scotland (HBOS), Britain's biggest mortgage lender, was in talks with Lloyd's TBS, the country's fifth-largest bank, on either a merger or an acquisition deal.
The matchmaker in this deal, it appears, is no other person than Prime Minister Gordon Brown, who fears the dark mood that would be visited on an already struggling British economy, should there be a collapse of HBOS, which provides a fifth of the UK's mortgages. Mr Brown, no doubt, remembers the scenes a year ago when another big UK mortgage lender, Northern Rock, suffered a run before it was bailed out by the government.
But, the developments in London, following this week's convulsions on Wall Street, with the demise of two iconic American investment banks and the federal government bail-out of the country's largest insurer, says something far more worrying.
Financial tsunami
No one is quite sure just how deep this unfolding financial tsunami runs, or how long it will take before there is a correction. More fundamentally, there is a declaration that there is no certainty in old certitudes. An old order is, if not at an end, certainly passing.
The question is: What is to be the new order, and how is it to be fashioned?
In the over six decades since Bretton Woods and its associated institutions - the International Monetary Fund and the World Bank - the centre of global financial power has been the United States, plus a handful of other Western powers and Japan. The system worked reasonably well once, as with their banks, these economies were the primary engines of global growth and prosperity.
Much, though, has changed in the past two decades. Alternative centres of economic power have emerged, with the rapid growth of newly industrialised or industrialising powerhouses like China, India and Brazil. And, as the contagion from America's corrosive subprime crisis has shown, in this new globalised world, an economy may be inoculated, but not totally resistant, from the illnesses in others.
Poor regulation
In as much as the subprime crisis is the result of bad and irresponsible US financial policy and poor regulation, it points to a shift in global economic power. Its resolution rests not only with Washington, London, Tokyo, Berlin, Paris, Ottawa or Rome. In other words, the reform of Bretton Woods is not only a call to conscience but a demand for recognition of global economic realities.
And, it demands urgency, which is a point of misfortune. Clearly, even in its current weakened and unsure state, the United States remains the global leader and has to be at the table of a global conference to begin to shape a response to the immediate events and to chart a new course. The new economic powers, and others of the developing world, must have a place, too.
Sadly, however, President Bush is not only a lame duck, but has lost the moral standing to commit America, at this stage in his presidency, to a course to be followed by his successor, especially if the Democratic candidate, Mr Obama, were not to prevail in November's election. Things, however, can't be put on hold until a new president is sworn in January. Maybe it is possible for the administration to tap presidential candidates for their inputs as it begins to shape its contribution to this debate.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
published: Thursday | September 18, 2008
It emerged yesterday that Halifax Bank of Scotland (HBOS), Britain's biggest mortgage lender, was in talks with Lloyd's TBS, the country's fifth-largest bank, on either a merger or an acquisition deal.
The matchmaker in this deal, it appears, is no other person than Prime Minister Gordon Brown, who fears the dark mood that would be visited on an already struggling British economy, should there be a collapse of HBOS, which provides a fifth of the UK's mortgages. Mr Brown, no doubt, remembers the scenes a year ago when another big UK mortgage lender, Northern Rock, suffered a run before it was bailed out by the government.
But, the developments in London, following this week's convulsions on Wall Street, with the demise of two iconic American investment banks and the federal government bail-out of the country's largest insurer, says something far more worrying.
Financial tsunami
No one is quite sure just how deep this unfolding financial tsunami runs, or how long it will take before there is a correction. More fundamentally, there is a declaration that there is no certainty in old certitudes. An old order is, if not at an end, certainly passing.
The question is: What is to be the new order, and how is it to be fashioned?
In the over six decades since Bretton Woods and its associated institutions - the International Monetary Fund and the World Bank - the centre of global financial power has been the United States, plus a handful of other Western powers and Japan. The system worked reasonably well once, as with their banks, these economies were the primary engines of global growth and prosperity.
Much, though, has changed in the past two decades. Alternative centres of economic power have emerged, with the rapid growth of newly industrialised or industrialising powerhouses like China, India and Brazil. And, as the contagion from America's corrosive subprime crisis has shown, in this new globalised world, an economy may be inoculated, but not totally resistant, from the illnesses in others.
Poor regulation
In as much as the subprime crisis is the result of bad and irresponsible US financial policy and poor regulation, it points to a shift in global economic power. Its resolution rests not only with Washington, London, Tokyo, Berlin, Paris, Ottawa or Rome. In other words, the reform of Bretton Woods is not only a call to conscience but a demand for recognition of global economic realities.
And, it demands urgency, which is a point of misfortune. Clearly, even in its current weakened and unsure state, the United States remains the global leader and has to be at the table of a global conference to begin to shape a response to the immediate events and to chart a new course. The new economic powers, and others of the developing world, must have a place, too.
Sadly, however, President Bush is not only a lame duck, but has lost the moral standing to commit America, at this stage in his presidency, to a course to be followed by his successor, especially if the Democratic candidate, Mr Obama, were not to prevail in November's election. Things, however, can't be put on hold until a new president is sworn in January. Maybe it is possible for the administration to tap presidential candidates for their inputs as it begins to shape its contribution to this debate.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.