G20 Summit: Confirmation of the Need for Stronger Regulation of Markets

11-20-08, 10:04 am

Original source: Akahata (Japan)

The leaders of 20 countries met in Washington, D.C. last week to discuss how to respond to the current global financial crisis that broke out in the United States and how to prevent the recurrence of such a crisis.

They concluded that market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence, and agreed to strengthen regulations on financial markets. This agreement is a first step to adequately controlling financial speculations. It amounts to admitting the harmful effect of casino capitalism.

Toward restricting speculations

Speculators have been desperately looking for markets to invest their glut of money. They have preyed on financial products but also commodities such as oil and grains. The extraordinary rise in prices was a cause in food riots in developing countries. In developed countries, people are being forced to endure financial hardships. Speculative money on the rampage has triggered a financial crisis and led to an economic downturn all over the world, forcing small- and medium-sized businesses to go bust and contributing to a rapid increase in the unemployment rate.

The “Declaration of the Summit” states: “all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances.” The task now should be to consider specific regulatory measures against credit-rating firms that endorsed high-risk securities incorporating sub-prime mortgages, against methods of off-balance sheet financing to conceal risks, leverage marketing aimed at making big profits, and payments of excessive compensation to executives. As these are measures aimed at eliminating factors that incite financial speculation, they should be implemented immediately.

The outcome of the G20 summit is a confirmation of the fact that the US-led “neo-liberalism,” which leaves financial institutions’ activities to market forces, has failed and that a change of course is inevitable. At the G8 summit in Heiligendamm, Germany, in 2007, and in Hokkaido, Japan, this year, European countries called for stronger regulatory measures, but their calls were not adopted due to objections from the United States and Japan.

In the G20 financial summit, European countries’ call for stronger regulations met US resistance in defense of the “free market” principle. This is reflected in the “Declaration,” which fails to set forth specific measures to regulate hedge funds on the grounds that hedge funds are private.

However, the United States on the whole could not oppose specific regulatory measures. The G8 framework of responses to economic crises is clearly shifting to a G20 framework that involves emerging economies such as China, India, and Brazil having their input.

The International Monetary Fund (IMF) and the World Bank have been controlled by the big powers. They have barred developing countries from exercising their right to participate in the decision-making process and instead imposed on them the US-style deregulation and financial liberalization. The US-triggered financial crisis requires this system to be really reformed.

The fact that the developing countries’ right to participate in the IMF and other international financial organizations has been confirmed will help to reform these international financial institutions.

The agreement calls on each country to come up with plans for immediate actions by March 31, 2009. It also cited tasks to be studied in the future. All this calls for reforms of the international financial institutions to be accelerated.

Japan is called upon to change its course

Japan shows interest in taking immediate measures but is reluctant to address the issue of long-term reforms. However, it is clear that Prime Minister Aso was pressed to modify the government policy of following the US lead and opposing reforms.

The government must recognize that the neo-liberalist policies have failed and fundamentally change its subordination to casino capitalism.