The final communiqué adopted at the end of the G8 summit, held after four months at most stabilize the financial markets is likely to formally end the financial crisis. If so, what lessons can be learned and what conclusions can be guided by identifying further economic and financial policies? The history of the crisis, as outlined in the next few paragraphs will likely differ from the standard interpretation, adopted by most commentators and economists, but in light of recent events, she has a right to exist. Gross errors, which last autumn led to a financial crisis, have no connection with the alleged inflationary monetary policies of Alan Greenspan, and financial waste, Gordon Brown, or the lack of practical marketing experience, Mervyn King, or mercantile approach to foreign currencies and export of Hu Jintao. These and many other factors contributed to the growing vulnerability of the global economy, but none of them could lead to this crash occurring last fall. We have an obligation to unintentional mistakes by Henry Paulson, the former Minister of Finance of the United States and the former Chairman of Goldman Sachs, who resides in blissful oblivion, since he quietly left his post earlier this year.
In order to understand how local financial problem of one segment of the U.S. mortgage market could become a practical collapse of the global financial system, it is necessary to recall the astonishing abuse of Mr. Paulson accounting standards, current prices for the purpose of expropriation of property rights at the shareholders' Fannie Mae, and then bankruptcy Lehman Brothers. In the crown it all, he was unable to understand the systemic consequences of their actions. Those who doubt the significance of the individual in economic history, it should be recalled that the worst day of the financial crisis last fall, is based on increasing risk spreads on interbank loans, to 23 September. to this day, Mr. Paulson appeared before the Senate Finance Committee to explain what he intends to spend the amount requested from Congress in the $ 700 billion this at this point everyone realized that the most powerful in the world of economics, in fact, do not know what the .
So, we understand that the identity and financial policies are critical. Not surprisingly, the situation began to improve almost immediately after the Finance Minister, Mr. Paulson was replaced by Timothy Gaytner. The fall in equity prices on Wall Street, led to the bankruptcy of Lehman Brothers in September last year, finished just a day after President Obama, responding to attacks on the personal integrity of Mr. Gaytnera, he had strong support. A week later suicidal accounting standards, current prices have been eliminated. And the fact that the financial crisis, at least in America and Britain, in fact, ended during the week does not match. Since then, the U.S. government itself was surprised to receive tens of billions of dollars in debt allegedly insolvent banks. Without any compulsion to nationalize almost every bank and have no means to refinance toxic assets - such as economists had predicted panicked Nobel Prize winners - The Ministry of Finance of the U.S. is in disarray, not knowing what to do with the hundreds of billions of dollars in the budget to maintain the banking system, which is no longer in need of public support.
That is the history of the crisis. What all this has for economic policy coming months? First, loans to U.S. and British governments - whether in their own country's citizens, or from China - do not stand in the list of the main causes of the crisis. This does not mean that excessive government spending does not harm the long-term productivity growth and do not affect the standard of living in Britain, America and much of Europe. However, the need for tighter fiscal policy is not to suggest that it is the lack of decisive action has been commenced in the cause of the crisis last year. In fact, the financial crisis has led to huge budget deficits, rather than vice versa. Therefore, before you in the next few years to carry out the reduction of state government spending, it is important to wait until the moment when the national economy will return to proper growth.
The same is true of monetary policy. Began last year, the crisis is not a consequence of the monetary policies of Alan Greenspan after the economic recession of 2001. Nothing has happened should not prevent the Fed and other central worldwide maintain interest rates at record low levels until growth is restored and the unemployment rate did not reach satisfactory levels. In fact, the best that can now make the Central Bank is to maintain interest rates at extremely low levels for much longer than most people expect the market participants. As a result, they will be able to establish conditions under which the Government will be able to tighten fiscal policy, without the risk of economic growth. If the Central Bank decides to raise interest rates at the same time with the way the Government will increase taxes or reduce government spending, the case will end the economic suicide and would be counterproductive from a financial point of view - this is reflected in the 15-year experience in Japan.
And finally, the issue of regulation. Perhaps the most obvious lesson of this crisis, unless, of course, monetary authorities will want to acknowledge this, is that regulation should have a clear purpose and be more reasonable than wider. Rather than penetrate into other spheres of the economy, for example, in case the hedge funds which have nothing to do with the financial crisis, regulators must ensure that the backbone of banks capital adequacy and risk of government bonds or the reserves of central banks to cope with the outflow of liquidity. In addition, regulators should prevent any repetition of the debacle in such areas as accounting, current prices, requirements for capital adequacy, taking into account the risk and the extent to which models of private rating agencies. All of these errors call into question the ideology of market fundamentalism, that markets are always right.
If the markets were always right, the regulation would not be required, but such a phenomenon as the financial crisis in general would never have arisen. In fact, the market is right in most cases, but sometimes he commits the fatal error. The task of governments and central banks is to evaluate and monitor the situation, deciding when the market is not to interfere and when to conduct sound and meaningful regulation. A good start will be an objective analysis of errors the past 12 months.
In order to understand how local financial problem of one segment of the U.S. mortgage market could become a practical collapse of the global financial system, it is necessary to recall the astonishing abuse of Mr. Paulson accounting standards, current prices for the purpose of expropriation of property rights at the shareholders' Fannie Mae, and then bankruptcy Lehman Brothers. In the crown it all, he was unable to understand the systemic consequences of their actions. Those who doubt the significance of the individual in economic history, it should be recalled that the worst day of the financial crisis last fall, is based on increasing risk spreads on interbank loans, to 23 September. to this day, Mr. Paulson appeared before the Senate Finance Committee to explain what he intends to spend the amount requested from Congress in the $ 700 billion this at this point everyone realized that the most powerful in the world of economics, in fact, do not know what the .
So, we understand that the identity and financial policies are critical. Not surprisingly, the situation began to improve almost immediately after the Finance Minister, Mr. Paulson was replaced by Timothy Gaytner. The fall in equity prices on Wall Street, led to the bankruptcy of Lehman Brothers in September last year, finished just a day after President Obama, responding to attacks on the personal integrity of Mr. Gaytnera, he had strong support. A week later suicidal accounting standards, current prices have been eliminated. And the fact that the financial crisis, at least in America and Britain, in fact, ended during the week does not match. Since then, the U.S. government itself was surprised to receive tens of billions of dollars in debt allegedly insolvent banks. Without any compulsion to nationalize almost every bank and have no means to refinance toxic assets - such as economists had predicted panicked Nobel Prize winners - The Ministry of Finance of the U.S. is in disarray, not knowing what to do with the hundreds of billions of dollars in the budget to maintain the banking system, which is no longer in need of public support.
That is the history of the crisis. What all this has for economic policy coming months? First, loans to U.S. and British governments - whether in their own country's citizens, or from China - do not stand in the list of the main causes of the crisis. This does not mean that excessive government spending does not harm the long-term productivity growth and do not affect the standard of living in Britain, America and much of Europe. However, the need for tighter fiscal policy is not to suggest that it is the lack of decisive action has been commenced in the cause of the crisis last year. In fact, the financial crisis has led to huge budget deficits, rather than vice versa. Therefore, before you in the next few years to carry out the reduction of state government spending, it is important to wait until the moment when the national economy will return to proper growth.
The same is true of monetary policy. Began last year, the crisis is not a consequence of the monetary policies of Alan Greenspan after the economic recession of 2001. Nothing has happened should not prevent the Fed and other central worldwide maintain interest rates at record low levels until growth is restored and the unemployment rate did not reach satisfactory levels. In fact, the best that can now make the Central Bank is to maintain interest rates at extremely low levels for much longer than most people expect the market participants. As a result, they will be able to establish conditions under which the Government will be able to tighten fiscal policy, without the risk of economic growth. If the Central Bank decides to raise interest rates at the same time with the way the Government will increase taxes or reduce government spending, the case will end the economic suicide and would be counterproductive from a financial point of view - this is reflected in the 15-year experience in Japan.
And finally, the issue of regulation. Perhaps the most obvious lesson of this crisis, unless, of course, monetary authorities will want to acknowledge this, is that regulation should have a clear purpose and be more reasonable than wider. Rather than penetrate into other spheres of the economy, for example, in case the hedge funds which have nothing to do with the financial crisis, regulators must ensure that the backbone of banks capital adequacy and risk of government bonds or the reserves of central banks to cope with the outflow of liquidity. In addition, regulators should prevent any repetition of the debacle in such areas as accounting, current prices, requirements for capital adequacy, taking into account the risk and the extent to which models of private rating agencies. All of these errors call into question the ideology of market fundamentalism, that markets are always right.
If the markets were always right, the regulation would not be required, but such a phenomenon as the financial crisis in general would never have arisen. In fact, the market is right in most cases, but sometimes he commits the fatal error. The task of governments and central banks is to evaluate and monitor the situation, deciding when the market is not to interfere and when to conduct sound and meaningful regulation. A good start will be an objective analysis of errors the past 12 months.
Anatole Kaletsky
