Bankers' Irony - The Shaming of Rich Nations

I apologize for the brevity of this diary entry; monetary policy is not my field.  However, since I have not seen the topic blogged anywhere - I would like to bring your attention to the ongoing Annual Meetings of the International Monetary Fund (IMF).

The developing nations are sticking it to the industrialized world, and the irony is breathtaking:

"Allow me to point out the irony," Brazilian Finance Minister Guido Mantega told the annual meeting of the IMF and World Bank in Washington. "Countries that were references for good governance, of standards and codes for the financial systems, these are the very countries facing serious problems of financial fragility, putting at risk the prosperity of the world economy."

More below:

The article continues:

At the gathering yesterday, finance ministers and central bankers from the Middle East to Asia expressed resentment at past conditions the U.S. and IMF demanded in return for loans. Pledges of asset sales, budget cuts and greater regulatory oversight were usually extracted before cash would be channeled to shore up currencies and banking systems.

Brazil, Argentina, Uruguay, Bolivia, Ecuador, Venezuela and Paraguay this month agreed to establish Banco del Sur, an independent development bank. Venezuelan Finance Minister Rodrigo Cabezas said Oct. 8 the institution won't impose the same restrictions the does IMF when it opens next month.

It will be interesting to see whether the same rules will be applied to all nations.

While finance ministers from the Group of Seven rich nations club were locked in talks in Washington, trying to find a cure for turmoil in global financial markets, their G24 developing nations counterparts said their economies were largely untouched by the ill effects of the cash crunch.

With members like India and Brazil, the G24 said in their final communique that developing nations were the new driving force, as well as stabilizing forces, in the global economy.

[...]

"Ministers noted the vulnerability of the U.S. subprime mortgage market and its financial and real spillover effects," the G24 communique said.

"They underscored the need to improve the fund's surveillance of advanced economies, putting as much focus in evaluating their vulnerabilities as it does in emerging market economies."

EVENHANDED TREATMENT

Oscar Tangelson, secretary of economic policy in Argentina, which chairs the G24, said the forum agreed all members should be treated evenhandedly under the IMF's updated currency surveillance rules and analysis of economic policies.

"It is very important that that kind of analysis be applied to all," said Tangelson, speaking through an interpreter. "We also have to see what the prospects are for international financial stability, given the levels of imbalances that are found in some of the developed countries," he added.

"This can have significant long-term effects if these imbalances are not addressed," he said.

An effort to create a fund to rescue the greedy bankers from the brutal realities of the free market is meeting with resistance also from other quarters:

WASHINGTON (Reuters) - Bankers remain wary of plans to launch a massive investment rescue fund to soften the blow of the U.S. subprime meltdown, saying it could interfere with a market recovery and stall a resolution to the credit crisis.

Carl Stalberg, executive chairman of Swedbank (SWEDa.ST: Quote, Profile, Research), said on Saturday he doubted the fund would be an effective way for banks to liquidate billions of dollars in structured debt in markets where buyers have effectively gone on strike.

"It might be better to let the markets work it out. Trading platforms like that are always a difficult task," Stalberg told Reuters on the sidelines of a banking conference.

Such bad news over the weekend after a major Friday drop in the stock market do not bode well for the financial markets when the open again tomorrow.
Watch out!

Edit: Crossposted @ Booman Tribune

•  Tip Jar

  There is not much coverage out there; Google search gives primarily wire-services links.

  MSM - next to nothing:
  BBC's (current) fp story on the IMF does not mention it with a word.  Instead, it paints a fairly rosy picture for 2008.
  Can't find the story on CNN's front page at all.

  by ask on Sun Oct 21, 2007 at 05:51:24 AM PDT

  •  Here's a good article from this week:

    Mike Whitney - It's Time for the Banks to Face the Hangman

    Officials in the Treasury Dept----working with their colleagues at Citigroup, J.P. Morgan and Bank of America---have concocted a scheme to rescue the banks from their massive losses in mortgage-backed securities. The group is planning to set up a $100 billion emergency fund which will purchase non-performing assets for short term debt. In truth, the fund is a bailout which provides the financial giants with an excuse for not reporting their enormous losses from bad bets.

    The story first appeared in Saturday’s Wall Street Journal and was followed on Monday with a second headline piece:

    "RESCUE READIED BY BANKS IS BET TO SPUR MARKET"

    WSJ: "The high stakes plan to RESCUE BANKS FROM LOSSES on mortgage securities amounts to a big bet that a consortium of financial giants—AT THE PRODDING OF THE US GOVERNMENT—can PERSUADE INVESTORS TO POUR MORE MONEY INTO THE TROUBLED CREDIT MARKET."

    That’s right; the Treasury Dept is directly involved in a scam that saves the banks while trying to "persuade" investors to "pour more money" into toxic mortgage-backed sludge. Treasury Dept officials clearly have a different idea of "moral hazard" than the rest of us.

    and...

    How bad is it?

    An article in yesterday’s Financial Times said that, "Only $9.9 billion of home equity loan securitizations have come to market since July 1---A 95% DECLINE FROM THE $200.9 BILLION IN THE FIRST HALF OF THIS YEAR AND A ROUGHLY 92% DECREASE FROM THE SAME PERIOD LAST YEAR."

    The banks are in trouble. Big trouble. Main sources of revenue have dried up overnight and they’re stuck with hundreds of billions of debt. That’s why the papers broke the story on Saturday when there was NO chance of triggering a stock market crash.

    and

    Wall Street avoids transparency like the plague. That is to be expected. But what about the government? It’s the government’s job to protect the investor and maintain the integrity of the system. Is that what Treasury Dept is doing or are they "LURING investors to buy debt issued by the rescue fund as part of the plan"? (quote from the Wall Street Journal)

    "Luring"? Is that how Paulson sees it; like luring turkeys to the chopping block with a trail of bread crumbs?

    The idea of protecting the little guy has never occurred to anyone in the Bush administration. Their job is to shift wealth from one class to the other via equity bubbles and government bailouts----anything that advances the corporate agenda.

    I love reading Mike Whitney's articles about the financial markets. He cuts right through all the bullshit.

    by dantyrant on Sun Oct 21, 2007 at 06:11:53 AM PDT

    •  Thanks for the link

      I liked the article.  What I find interesting in the news this weekend is the growing resistance to the bailout attempt.

      by ask on Sun Oct 21, 2007 at 06:35:05 AM PDT

      •  Yes

        Greenspan weighed in on that, too..

        Henry C K Liu has two great articles on the overall picture:

        SUPER CAPITALISM, SUPER IMPERIALISM
        PART 1: A Structural Link

        Robert B Reich, former US Secretary of Labor and resident neo-liberal in the Clinton administration from 1993 to 1997, wrote in the September 14, 2007 edition of The Wall Street Journal an opinion piece, "CEOs Deserve Their Pay", as part of an orchestrated campaign to promote his new book: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Afred A Knopf).

        SUPERCAPITALISM, SUPER IMPERIALISM
        PART 2: Deregulation: Global war on labor
        By Henry C K Liu

        The long-range consequence of the Carter deregulation policies and practices that had begun during 1978-1982 was magnified during the Reagan period of 1980-88, with greater emphasis on changing the tax regime to favor the rich, industry deregulation to lower prices by lowering quality, and a shift of power from unions to management.

        by junta0201 on Sun Oct 21, 2007 at 06:49:00 AM PDT

        •  oooh... thanks for the linkage! n/t

          by dantyrant on Sun Oct 21, 2007 at 07:57:48 AM PDT

    •  The only time trickle down works

      When the big players are going to lose money somehow the consumer will pay more, lose more and suffer more. The losses are the only thing that trickles down.

      by tobendaro on Sun Oct 21, 2007 at 07:55:36 AM PDT

  •  This one's interesting:

    America vetoes G7's dollar alert

    European finance ministers this weekend failed in their bid to slap down the United States for allowing the dollar to plunge to record lows against the euro.

    by junta0201 on Sun Oct 21, 2007 at 06:50:51 AM PDT

•  Bush is destroying the economy?

  Did I need a diary to tell me that? Can anyone tell the Republicans? Will America ever be rid of these guys? Stay tuned next week for the exciting conclusion of "America".

  by Danjuma on Sun Oct 21, 2007 at 05:58:47 AM PDT

•  Irony

  It would be funny if it weren't so tragic.  Here are the developing nations watching us, not as a model of what to do but what to avoid.  Good for them, shame on us!

  by luckylizard on Sun Oct 21, 2007 at 06:49:53 AM PDT

•  'A Debt Culture Gone Awry'

  Link

  The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion. America has become shackled by an immovable mountain of debt that endangers its prosperity and threatens to bring the rest of the world economy crashing down with it.

  The ongoing sub-prime mortgage crisis, a result of irresponsible lending policies designed to generate commissions for unscrupulous brokers, presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world. [...]

  This new reality has had unfortunate side effects that go beyond economics. As a banker working in the heart of the Muslim world, I have been amazed by the depth and breadth of anti-Americanism, even among U.S. allies, manifested in reactions ranging from fierce anger to stoic fatalism. Muslims outside the United States interpret America's policies in the Middle East not as an effort to spread democracy but as a blatant neocolonialist attempt to solve its economic problems by force. Arabs and Persians alike argue that America's fiscal irresponsibility has forced the nation to seek solutions through military aggression.

  by dantyrant on Sun Oct 21, 2007 at 08:51:52 AM PDT