Catarina's World

Now the permanent stewards of the world economy, will G20 keep the momentum going by improving the global economic regime that has been crafted over the years?

Will G20 leaders from developing countries manage to make their colleagues from the West realize that in order for the world economy to work properly, there need to be advantages for the poor as well?

G20 has come a long way – the new kid on the block in 2004 is now the leader of the pack. It started as an alliance to bring democracy to world trade at the WTO talks in Cancun and has become the main permanent body in the world responsible for economic co-operation, meeting annually at the leaders level

Hopefully G20 will not forget the importance of world trade. Will G20 again, manage to have an impact on world trade? The WTO trade talks in Cancun, as you may remember, collapsed as a result of G20 demanding fairer trade. If so, what strategies will be deployed to negotiate a trade deal that benefits not only multinationals in the North but also the poor in the South? How will G20 make the world focus on making international trade rules fairer? What steps will be taken to decrease rich countries protectionist policies?

G20 is now the key player on the global scene which, at least in theory, enables it to provide the conditions for developing countries to embark on peace, prosperity and pluralism. We have come a long way from G8 to G20 and it will go further. The developing world, representing four-fifth of humanity, is now much better represented on the global scene.

Poverty does not cause terrorism – but it causes frustration and resentment that help foster the kind of atmosphere in which extremist groups can thrive. A much better, and cheaper, way of defeating extremists than war on terrorism would be to give developing countries the possibility to trade out of poverty.

Trade has been shown to be the indispensable means for poverty reduction and growth. There also seems to be a close correlation between a country engaging in open trade and ultimately embracing democracy. With 40 percent of humanity living on less than $2 a day and approximately a billion living under military style dictatorships often engaged in civil war and genocide, we should care a lot. The most striking example of the benefits of a trade oriented economy versus a closed, self-sufficient one is the two Koreas. At the end of the Korean war in 1952 they were both extremely poor. And how North and South Korea have developed since then under their different systems is well known.

What will G20 do to craft a fairer world trade order? Most Westerners would like a fair global economic system. If, for instance, the issue of access to life-saving Aids drugs were put to a vote, the overwhelming majority would not support the position of Western pharmaceutical companies. The power of special interests is high – but will it still be if trade moves up the political agenda in G20? And once that has happened, will people in the West agree to anything that asks the poorest people in the world – the billions living on less than $2 a day – to pay the price? Will G20 leaders from developing countries manage to make their colleagues from the West realize that in order for the world economy to work properly, there need to be advantages for the poor as well? That’s the big question isn’t it ,and my hope is that they will succeed so that we can finally unlock the benefits of the world economy for all.

(Photo:www.flickr.com/photos/londonsummit/href=”http://www.flickr.com/photos/londonsummit)

The G20 group’s discussions this weekend may lead to banks and other financial institutions having to pay two new taxes to fund future bail-outs. The global proposals by the IMF are “more radical” than most had anticipated.

“Too many Wall Street firms had no one looking over their shoulder, and they went off the deep end.”, Senator Charles E. Schumer of New York said. He has long been one of Wall Street’s best friends on Capitol Hill, but Mr. Schumer has embraced new legislation that will put constraints on his hometown’s leading industry.

Banks are likely to be horrified, especially about the proposed tax on pay.

Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis. If not, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.

The main focus is on the European Union and United States, where much of the financial crisis played out.

My feeling is that it is crucial to regulate complicated financial products that not even the people who invented them understand fully. A case in point are the subprime debt securities, not to mention the CDOs, sold in the United States and Europe that played a key role in the financial crisis. They were almost non-existent in Asia and a major reason why the region was able to recover more quickly from the global recession.

Good timing that a former Goldman CDO man just published a novel he wrote “about the cliched high life I had been living while creating and selling billions upon billions of these securitization and credit derivative products, now better known as ‘toxic assets”.

President Obama took his rhetoric of reform on Thursday to the nation’s financial capital in a high-profile foray to chide Wall Street bankers for their “reckless practices” and to press for tighter regulations meant to avert another financial crisis.

It is my belief that if there is no oversight and regulation of new complex financial products it is just a question of how long it takes before we have another global crisis. So I am pleased that the Senate approved legislation to tighten regulation of derivatives trading a couple of days ago. But will that be enough? We need similar legislation in Europe and the rest of the world. Debt securities based on life insurance instead of sub prime morgages have been sold for quite some time already. Let’s hope Wall Street isn’t, again, betting against them with a complicated CDO as well?

G20 countries have to find common ground on a variety of reforms to prevent a repeat of the credit crisis that led to a global recession. Otherwise operations will just move to countries where it is allowed. Do you think it will be possible to agree on regulations that make a difference? Or will financial companies just find loopholes and new ways of doing whatever is profitable.

Seems to me that most political ideologies are on the shelf at the moment. Or maybe they have just gone on leave? Many social scientists currently consider political ideologies dead, but I wouldn’t go that far because it would imply the end of innovative and creative development in the intellectual world. And that wouldn’t only be an unlikely but also disastrous development.

My father was an international entrepreneur already in the 1950's, leading his life and businesses in global ways that were unusual then.

Capitalism and individualism, for instance, are alive and kicking, but then again, they have been since time immemorial, and always will be.

But sure, communism is dead in all but name and socialism today lacks innovative, new ideas. Its proponents keep on repeating the same old slogans that are no longer relevant. And where can you find true conservatism today?

Liberalism or center right politics has been the name of the game for quite some time. But even those ideologies are now being questioned after the global crisis hit and leading economists couldn’t agree on how it could have happened, why it wasn’t spotted and, worse, can’t agree on how to fix it.

Ideologies make politics lively and exciting so it’s most likely just a question of how long it will take before new ideologies take shape. Actually if we don’t, politics will be even more of a status quo than it is, so some new political ideologies would be most welcome.

Maybe it would be an idea to concentrate on globalism for the time being instead? The original use of the word in business context goes back to Harvard Business Review in the 1940′s. The idea signified the freer movement of goods, services, ideas and people around the world. My father was an international entrepreneur already in the 1950′s, leading his life and businesses in global ways that were unusual then. In those days airports were like small clubs where they all knew each other, unlike today when everybody’s flying. How often do we meet people we know at an airport nowadays? Unusual, even in first class lounges. With a father like that it probably makes sense that I’m as international as I am.

In some ways politics is actually getting more and more global. Look at the G20, ASEAN and the EU, for instance. We are more and more taking part in multinational, multicultural alliances attempting to align national politics with international aims for the greater good. The problem is that there are, and has been for a long time, far to many vested interests resulting in agreements only benefitting one group. And as we all know, agreements, or business deals for that matter, that don’t benefit all interests don’t last. So maybe it’s time to try and find long lasting solutions that will increasingly create better terms of living for more people on a global scale?

It is in everybodys interest that we elaborate the global perspective even further and work towards a world where everybody can eat three meals a day, have basic schooling and access to health care. That doesn’t mean that we should leave free markets and the ability to earn a lot of money behind. Cultural and national differences will always be there thankfully, since it would be seriously boring if all human being were all the same.

International issues should be a more important part of new political ideologies. We are just one big integrated global market. Even Coca Cola nowadays considers themselves an international and not just an American company. So why shouldn’t politics follow suit? After all where would Coca Cola be today if they had concentrated on only the US?

(Re-published on request)

G20 rich and emerging countries have been quite successful in holding protectionist pressures in check in recent months.

Will G20 leaders continue to be successful in keeping trade protectionism at a minimum?

However, some G20 countries, in contradiction to pledges at their London and Pittsburgh summits last year, have actually implemented new measures to restrict trade. Luckily however their scope has been limited and the group has continued to avoid an escalation of protectionism.

The Financial Times noted that the new import-restricting measures imposed over the past six months by G20 countries had affected at most 0.7 percent of G20 goods imports. Or to put it in another way – or 0.4 percent of world imports about half the increase in the previous six months.

G20 must remain vigilant however since when a global recession is easing off the temptation to resort to protectionism is huge. And we don’t want the world to go down that road, do we? In today’s global market it is of vital importance to facilitate trade and not to restrict it, so let’s hope G20 continues to battle protectionism.

(photo:downingstreet – flickr)

To avoid repeating last year’s crisis, governments must find a way of making investors in financial institutions understand that they will lose money if banks fail. If not, there is no stopping the moral hazard of investors feeling safe believing that governments will always prevent major banks from collapsing.

Some senior people on Wall Street now warn that if the systematic risks of the industry aren't addressed an even bigger collapse could be happening fairly soon.

As it is investors are lending cheap money to banks that often use it to make risky loans and trades, knowing that they will keep the profit regardless if their bets pay off or not. Executives on Wall Street know that if the deal goes wrong they just have to take their bonuses and move on. And the fact that they frequently have guaranteed compensation packages makes irresponsibility even more rampant.

And as if that wasn’t bad enough. Shareholders frequently get a return of zero. Am not surprised that bank employees are keen to earn as much as possible, but why do shareholders accept such a rotten deal? Bank of America’s executives may even face charges for failing to disclose Merrill Lynch’s mounting losses to shareholders ahead of the purchase.

How did we get to a stage where normal business practice, to use profit to replenish inadequate capital, reward owners and only then pay benefits to employees, has gone out the window?

Some senior people on Wall Street now warn that if the systematic risks of the industry aren’t addressed an even bigger collapse could be happening fairly soon.

The off-exchange derivatives market is still unregulated and banks are selling and trading them, regardless of the role they played a year ago. And if they are allowed to continue betting, backed by taxpayer guarantees, they will soon return to the kind of practices that made them underwrite trillions of dollars of bad loans.

Considering that G20 hasn’t yet done much to regulate banks, what can be done? “Living wills” is a way of making it mandatory for banks to plan how to handle a possible collapse so that depositors are protected while forcing creditors to take the losses. Another option is to force banks to finance themselves with a slice of junior hybrid debt. Obviously the best would be self-discipline. But that’s probably hoping for too much.

The risks taken by a few individuals on Wall Street caused the worst global recession since the Great Depression and many of the taxpayers that had to pick up the bills have also ended up unemployed, lost their houses and are in a mess that is not of their own making. Meanwhile the guys who caused the recession keep on earning a fortune and behaving as if nothing happened. It’s enough to make you understand why people become socialists. Makes me think of old-fashioned socialist posters portraying business owners making profit at the expense of the proletariat, just with the difference that it’s not the owners that are doing so, but the employees.

It’s really time for governments to put en end to the “heads I win, tails I’m bailed out” syndrome”. The minimum that can be expected is that the weak and reckless should be forced to shrink and live within their means and “Living wills” are implemented to protect depositors.

(Photo: Christopher Walker, Photo Xpress)