*UPDATE 15 Feb 2010*: Poul Nyrup Rasmussen’s lecture is now available online. To listen to the audio or watch the video of The post-crisis politics of financial reform: business as usual or new global order?, visit the OpenSpires project. You can also find it on iTunes U and via the University of Oxford’s podcasts.
Will Poul Nyrup Rasmussen inflame the bankers again? This week he is speaking at GEG (on Wednesday 21st October at Oxford University’s Examination Schools) about the politics of current efforts to regulate the financial sector. He’s been described as “the Dane who wants to put the boot into hedge funds” and recently, he’s been creating a more general storm of protest from banks and other investors.
The banks are on the up and up now that their profitability is returning. At the Annual Meetings of the IMF and World Bank in Istanbul 2 weeks ago I heard a lot of talk from bankers about the risk of “being over-regulated” and “losing all the gains from financial innovation”. In the FT today the Chairman of Barclays is warning of the dangers of “onerous regulation“. His point is that if UK regulators are rigorous while others are not, UK banks will be damaged. He does not mention the larger risk that the UK will do nothing and the banks will yet again gamble away large chunks of every taxpayers’ future.
Mr Rasmussen is one of the few leading European policy-makers who has consistently warned of the dangers of unregulated finance. He has argued that current reform proposals “have more and bigger holes than a Swiss cheese”. We’re looking forward to hearing what he thinks is necessary to plug those holes. In GEG’s project (led by Walter Mattli and Ngaire Woods) The Politics of Global Regulation we highlight the conditions necessary for regulation to succeed. Good institutions (open, transparent, expert, accessible) are important. But they are not enough. Effective regulation requires sustained and well-resourced demand. This in turn requires (1) information: people armed with accurate and timely information about the costs of not regulating; (2) powerful coalitions of those with an interest in ensuring sound regulation including financial sector firms; and (3) good ideas about how to regulate given existing institutions and capacity.
In the wake of a costly bailout ($9 trillion of taxpayers money in recapitalizing banks, purchasing toxic assets, and preventing the economy from seizing up), governments are talking a lot about regulation. This time, we are told “things will be different”. But some powerful political conditions will have to pertain if that is to be true. We hope Mr Rasmussen will offer some shred of optimism. You’re welcome to come and hear.
Examination Schools, University of Oxford, Wednesday 21 October 2009, 5pm The post-crisis politics of financial reform: business as usual or new global order? Mr. Poul Nyrup Rasmussen, President of European Socialist Party (former Prime Minister of Denmark)
October 22nd, 2009 at 1:54 pm
I was very impressed about his courage to stand up against powerful interest groups among politicians and bankers to demand on substantial reforms of the financial market. It is brave especially as he is among the minority group seeing the resurgences across Europe by conservative governments who may like to protect the interests of their bankers and financiers.
I would also like to see his vision for a new global governance institution to be set up, something like Global Financial Organization that would provide a foundation for all member states to join and negotiate on regulations or rules of the game on the global financial market. However, I may not entirely support his call on building the existing IMF while a new global governance is not yet set up. IMF does not impress the developing world, at least in the case of Vietnam, as their interventions in the macroeconomic and monetary development are often superficial and more often with little impacts. It is only not always easy to interpret their role, which is sometimes directive at one time and discrete at other time when they want to be gentle to the government so that the government will buy their ideas and concessional packages. In short, if there are problems to know the behaviors of even the global regulators like the WB and IMF, how can we use them to regulate the individual players who are governments or private financiers. Before we can hold bankers and financiers accountable and transparent, the global regulators have to set example first. This should be bear in mind before creating any new global governance structure or reforming the existing ones.
October 25th, 2009 at 12:15 am
In the aftermath of the latest global economic recession, too much focus has been shifting to banking regulation. As a result bankers are now reluctant to invest. This is not good for the global economy, as several businesses, both large and small, are feeling the impact. International trade has slowed down as a result of delayed or denied bank funding. This may result in a drastic drop in the availability of vital commodities, further resulting in inflation owing to high demand and low supply. Risk-taking is very essential in modern banking, but too much regulation will prevent financial executives from taking any risks, which will lead to a halt in global economic growth.
October 25th, 2009 at 6:56 pm
It should be obvious that the pace of financial globalisation has outrun the ability of national governments to regulate it. But the challenge of constructing a regime of international financial regulation, even remotely similar to the limited regulation in the world trade system, is going to be a huge task. The very success of the bail-out has reduced the political imperative for governments to agree to give up some of their sovereignty that a truely global regulatory regime would require. while the banks are now more confidedent and pressing to shape any regulatory system in their interests
October 26th, 2009 at 12:55 pm
The focus on regulation by policy-makers does not mean they will act. Although more than $1 trillion has been spent paying for the recklessness of the financial sector in the UK alone: “the EU has never seen such a powerful, well-resourced onslaught of lobbying against regulation” Poul Nyrup Rasmussen argued at GEG last week. His view is that the financial sector must become the servant of the real economy, assisting growth and entreneurship. Instead we’re being asked to leave the casino untouched and to continue to underwrite its most serious losses.