Sunday, 29 March 2009

G20 needs to address the "White blue-eyed bankers" issue

The Brown government in the UK is doing its best to set expectations appropriately for the G20 meeting to be held in London this coming Thursday. With a backdrop of domestic dissent between two pillars of the UK financial establishment - the Treasury and the Bank of England, a deficit to GDP ratio this year of at least 11% (and a similar ratio in coming years), and with opinion surveys showing that for a sizable percentage of the UK electorate a chance to boot him out office cannot come quickly enough, Gordon Brown will be very far from presenting the persona that he wanted to at this summit.

There appears to be no emerging consensus on such vital issues, at least from Brown's perspective, as to the size of domestic stimulus packages, the creation of international regulatory structures and a clear statement from the gathered world leaders on a more widespread adoption of quantitative easing.

But there is another major issue which casts a real shadow over the financial technocracy elite - of which Mr. Brown considers himself to be a member - and seriously undermines the presumption that the current elite, having created this crisis, should count on being the group that can, and will be allowed to, fix it.

Through their poor judgment, their inability or unwillingness to see the big picture issues, both economical and ecological, and as a result of the poverty of their intellectual framework, the financial technocracy proved to be totally incapable of anticipating the magnitude and severity of the systemic risk issues that the global economy is now confronting. Why on earth should we assume that these same individuals know how to provide the necessary leadership to move beyond the current crisis?

As reported in the Observer newspaper this weekend the issue arose last week in the memorable phrase of the Brazilian president.
The attack last week by Brazil's president, Luis da Silva, on "white blue-eyed bankers" revealed a new anger among some of the world's most populous countries at being dragged into a mess not of their making - and a determination to hold the west to account.

I suspect that this kind of thinking represents a significant watershed event in shaping the longer term global and cultural ramifications of the financial meltdown. There is no going back to business as usual. For those policy makers who are principally preoccupied with tinkering with their domestic rescue packages (e.g. the PPIP scheme in the US and the Asset Protection Scheme in the UK) which are designed to preserve the status quo in the banking world there is a much larger shock coming. This is the shock that the old financial world order is disintegrating and what it will be replaced with is much less likely to be crafted by powerful Anglo-American interests in London and New York.

Not only will the white bankers and current financial technocrats have to learn some humility but also other parts of the post Bretton Woods elite will also have to be re-invent themselves. The modus operandi of such world bodies as the IMF and the UN Security Council will have to change to reflect the new power bases of the emerging world, and even the nascent discussions regarding a new global reserve currency are likely to gain traction in coming years. I say years but it would not require a febrile imagination to conjure up another new phase to the financial meltdown, precipitated perhaps by default of a major sovereign borrower, where years could turn into months.

The Observer piece contains the following rather prescient comments from the former Deputy Secretary-General of the United Nations

"There is the recognition that you are not going to go back to the world as it was before, and we must get a new balance between spending and saving and borrowing. You can't have the old model where it was the US consumer who was widely seen as driving growth through his or her spending and borrowing.

"You are going to see a situation where countries in Asia begin to spend and consume more at home and countries in the west have to move towards a more prudent lifestyle and live within their means." Consumers will also have to learn "within environmental limits", he said, which could also affect standards of living for those wedded to cars and cheap flights

The G20 meeting will be the first forum, of many similar gatherings in years to come, where it becomes increasingly apparent how a global liquidity crisis has far more serious roots and consequences than just a few financial markets getting "gummed up" as Henry Paulson was fond of saying during the latter part of 2008.

1 comment:

  1. As a follow up to this piece the author addresses the criticism that there is an element of racism implicit in citing and then repeating Lula's remarks about the color of the skin of the bankers he is criticizing.

    Certainly the author intended no racism in the piece - as the title of the piece suggests it is the issue and not the color of the skin that is the important takeaway from Lula's remark.
    I don't know whether he (Lula) meant his comment in a racist fashion - it doesn't actually matter from my perspective - rather his comments should be seen symbolically as an attack on the cultural mindset of what is often referred to as the Anglo Saxon model of finance.
    Getting sidetracked into thinking about this matter from the point of race is like getting irate about the 0.1% of the rescue monies paid out to AIG executives in bonuses while overlooking the other 99.9% that the taxpayer has shoveled into this company.