Very impressive — over the weekend the governmental leaders of the world’s largest economies gathered in Washington to exchange ideas and lay the groundwork for greater cooperation in solving the multiple financial crises their nations are experiencing. Or maybe it’s a multi-dimensional crisis (one) with many moving parts affecting many countries…
One thing that may be clear 
is that just as in ancient times, all roads were said to lead to Imperial Rome, the 21st Century “AppianWay” in financial, economic and capital markets terms are the global electronic networks over which numbers fly (some quite large) representing financial transactions. This Appian Way has been centered in New York (for the most part), with brokers, hedge fund managers, money managers, portfolio managers, and other market players moving millions’ and billions’ of dollars of financial products…turns out, some of them turned toxic.
And those toxic assets are part of the reasons that world leaders traveled to the United States over the weekend. Their nations’ central bankers and other investors were eager buyers of the collateralized mortgage obligations (CMOs) and mortgage-backed securities (MBS’s) and other asset-backed securities conceived, assembled and expertly marketed by (primarily) US-based market players.
It’s more complicated than that, but it is accurate to say theexotica created by the ever-innovative American Masters of Wall Street in time became the financial instruments that are now clogging the arteries of banking, brokerage, investment management and the world’s capital markets. Now it’s time to un-clog the global financial system and get things going in the right direction.
To unravel the complicated financial web weaved as the exoticawere marketed, heroic measures are required such as the US Treasury “TARP” program. (Unfortunately, a good many of the investments involved were un-regulated). What is that old expression Grandma used…about closing the barn doors after the horses have all run off? That was sort of the starting point in Washington – the horses are surely thundering away in the markets — but at least it’s a good beginning to try to do the rights things to protect investors and stakeholders in the years ahead…
The Summit of the Big 20
One thing that was
very different about this summit meeting of 20 nations was the makeup of the invitee list – the BRICS were there (that’s what Goldman Sachs identified as the new power players on the global stage: Brazil, Russia, India and China. This was way beyond the usual G-7 meeting plus one (Russia). The current world crisis involves many nations, including the resource-rich players (think oil and gas) that have been recycling some of their revenues through the US and other markets to buy those asset-backed exotica. Most of the nations at the summit have their own Sovereign Wealth Funds (SWFs) and state pension plans…some of these are also investors with stakes in the troubled capital markets. As we said, there’s a lot of inter-connectivity in finance these days.
One topic high on the agenda was risk – the means necessary to address risky investments and weak regulatory oversight (hear those horses running away from the barn?) It seemed from press reports that the participants agreed that a new regulatory framework is needed, and there was consensus that work should go forward to update and expand domestic, global and interdependent financial oversight. The details of what, how, whenwas less clear as the meeting ended, although an ambitious framework was established, with deadlines…
The New York Times reported today that the summiteers had agreed on these points:
- Financial markets must be made more transparent.
- Derivative instruments must be addressed globally.
- Regulation must be coordinated [globally].
- Executive compensation must be addressed more broadly (the USA’s excessive CEO pay practices are becoming a global issue).
- The concept of establishing “Colleges of Regulators” to share information across national borders seemed to find favor among the delegates.
There was a Declaration of the Summit on Financial Markets and the World Economy issued by the Group of 20 nation leaders to stress the consensus reached on at least the possible way forward: “We are committed and determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems.”
Goal of the Summit 20: To help ensure that a global crisis (such as this one) does not happen again. The work going forward will be guided by the nations’ shared belief that market principles, open trade and investment regimes, and effectively regulated and financial markets foster the dynamism, innovation and entrepreneurship essential for economic growth, employment and reduction of poverty.
Deadlines for study and action steps were set at the summit. There will now be serious discussion of capital market and banking reforms: (1) in the United States, certainly a top priority for the Administration and the Congress; (2) inside in other sovereign states; (3) within the European Union system; (4) within cooperative efforts that are ongoing, such as the dialogue between US and international accounting rule setters and banking standard setters. Watch for this action as the research, dialogues and potential action steps reach their deadlines (a number were set for March 31, 2009).
These efforts include looking at financial markets regulation; accounting and financial reporting standards; executive compensation; derivative products; hedge funds; securities regulation and oversight; risk management; and banking industry best practices (re: Basel agreements); and more.
Stay Tuned – in the United States, and in other major economics, and now among the world’s major sovereign players – to the efforts to bring about greater accountability in the global financial system and capital markets. Before the horses race away again from the wide open barn doors.
Note: The communiqué issued by participants via the White House is available at:
