The New World Order?

"The People are suffering through no fault of their own."

With the recent economic downturn, Gordon Brown, the embattled and belittled Prime Minister of Great Britain has gone from being written off as a "has been" to Savior of the Banking World. Reports are that W. has been receptive to Brown's ideas which are being feted in Europe as a world solution to the current crisis. But at what cost to free enterprise?

European leaders press for new economic order


Fri Oct 17, 2:19 PM EDT

The idea is ambitious: World leaders joined by aides to the new U.S. president-elect would gather before the year's end in New York and attempt to forge a new vision for the global economy.

French President Nicolas Sarkozy has teamed up with British Prime Minister Gordon Brown to press for such a summit, and the French leader travels to Camp David this weekend to lobby President Bush to sign on.

Brown, buoyed by the praise he won for engineering a British bank bailout that inspired U.S. and European rescues, is proposing "radical changes" to the global capitalist system, including a cross-border mechanism to monitor the world's 30 biggest financial institutions. Sarkozy has floated the idea of reforming rating agencies and even exploring the future of currency systems.

Details remain vague and the obstacles are many.

But the political pendulum, at least in Europe, is swinging decisively in the direction of tighter control and supervision, away from the laissez-faire economics that fueled a colossal global boom and appear to have enabled an equally dramatic bust.

In Brown's view, what's needed is nothing less than a new version of the 1944 Bretton Woods conference that brought together Allied leaders and established a post-World War II global monetary and financial order, laying foundations for the International Monetary Fund and a currency exchange regime that lasted for three decades.

"This is a defining moment for the world economy," Brown wrote in Friday's Washington Post. "The old postwar international financial institutions are out of date. They have to be rebuilt for a wholly new era."

Behind the lofty rhetoric, Brown and Sarkozy are backed by a degree of clout.

They have proved instrumental in the past two weeks in corralling European governments to dig deep into taxpayers' pockets to shore up banks, unfreeze credit, and soothe markets.

But experts wonder whether leaders at the proposed summit will truly be able to set aside national interests and clashing legal and business cultures to agree on a common vision. In exchange for global financial stability, nations could be forced to sacrifice autonomy and economic growth under tighter regulatory shackles.

The gathering aims to bring together the Group of Eight industrial powers as well as emerging players like China and India — and countries at different stages of economic maturity will bring different needs to the table, as climate change talks have made abundantly clear.

Officials in the waning Bush administration are also politely dismissing global regulation and some observers are skeptical Europeans can sell the idea to any U.S. president.

"I'm very dubious that much can be done," said Charles Wyplosz, an international economics professor in Switzerland.

The White House is playing down the likelihood Bush will agree to a time and place for a summit when he meets this weekend with Sarkozy and European Commission President Jose Manuel Barroso.

For Brown, the banking bailouts are only phase 1 in getting finance working again. Phase 2, he argues, will require global action as sweeping as that which gave birth to the United Nations, the World Bank and the IMF in the 1940s.

At a European summit this week, Sarkozy and Brown started to flesh out their proposals, backed by Barroso and German Chancellor Angela Merkel.

The most eye-catching proposal from Brown — albeit one based on a proposed European system — envisions a cross-border monitoring program for the 30 biggest giants of global finance, such as America's Citigroup Inc. or Britain's HSBC PLC.

He also called for the 185-nation IMF to be turned into an "early warning system for the world economy," with international monitoring powers. Such reform would mark a revival for the IMF, which has receded to the sidelines of the global economy in recent years.

Sarkozy cast his net even wider. The conservative — who has in recent weeks sounded increasingly like a leftist — wants discussion on tax havens, hedge and sovereign wealth funds, the "folly" of big pay bonuses for risk-taking executives and even how many major currencies the world needs.

Some of his harshest words were for ratings agencies, hinting that he wouldn't be sorry to see them disappear altogether in the financial architecture that he and Brown say they want built.

"Do we keep them?" he asked. "What do we replace them with?

"Should they only be American?" he added, in a statement bound to get attention from U.S.-based Moody's and Standard & Poors.

As always, Sarkozy is in a hurry. Waiting three months until John McCain or Barack Obama is sworn in runs the risk of the crisis getting worse or getting better, which could frustrate the drive for fundamental reform, the French leader warned.

He suggested instead that the winner of the November election send economic aides with Bush to the summit. Sarkozy is pushing for a November or December meeting in New York, "where everything started."

"Europe wants it, Europe is asking for it, Europe will get it," he said. "If we wait for the new president that means, in the best case scenario, we would get together in the spring ... It's much too late and not acceptable."

But obstacles abound.

Brown's talk of "very large and very radical changes" could prove highly problematic in a capitalist system that has grown increasingly complex and intertwined since the end of the Cold War.

Experts say experience shows that getting nations to agree on specific rules that could crimp their economic strengths can be a long, frustrating and sometimes fruitless process. And politicians now howling that capitalism needs curing turned a deaf ear to warnings of flaws in the banking system when economic times were good, they point out.

Wyplosz predicted that leaders will find, once they get down "to the nitty gritty," that reforming the World Bank and IMF is going to be difficult.

And he was pessimistic about the prospects for effective cross-border policing of banks, saying countries have a habit of wanting to protect their own banking champions from outside meddling.

"There will be a lot of talk but the discussions will go nowhere and two or three years from now the urge to change things will be gone," he said.

On closer inspection, Brown's still ill-defined proposal to better supervise big financial groups may also not live up to the billing of radical reform.

A British Treasury spokesman, who could not be identified under government policy, said Brown was referring to creation of committees that would meet regularly to swap information on big banks' behavior.

Each committee would be made up of regulators from an array of countries, likely including Australia, Canada, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Singapore, Switzerland, Britain and the United States, the spokesman said.

He added: "It's not a regulatory thing, it's about information sharing and keeping each other informed."

Julian Jessop, chief international economist at London-based Capital Economics, said "this could be just another set of ghastly committees with a bunch of countries on them."

Some experts are also concerned that a summit with such an ambitious yet vague agenda could distract leaders from far more concrete and pressing steps, not least forcing banks to squirrel away more money so they can better ride out tough times.

"The French are always good at launching very conceptual discussions," said Harald Benink, a professor of banking and finance in the Netherlands. "That doesn't address the fundamental problems that have become all too obvious."

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AP Business Writers Aoife White in Brussels and Emily Vencat and Pan Pylas in London contributed to this report.

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Do you get the impression that panicked leaders are grasping at straws in a post-Katrina political world?

Periods of strong economic growth are neither sustainable or desirable for too long a period. Long periods of boom inevitably lead to periods of bust or as we like to say, market corrections.

We've seen the effects of the recent long boom. While millions worldwide were lifted out of poverty, millions in the first world were added to the ranks of millionaires. Remember the Millionaire Next Door ? During the heyday, it was reported that more Americans than ever owned mutual funds or shares in individual companies. The term "Day trading" made its way into the lexicon as many ordinary Americans made a very nice living for a while. McMansions began to dot the landscape as more boomers than ever inherited their parents wealth and saw their paper assets swell as tech start-ups raised unprecedented amounts of IPO capital. Tech Shares traded at ungodly multiples and wiser heads puzzled at how their Price to Earnings ratios dwarfed the old stalwarts of business and industry. Brick and mortar became passe as the public was sold on the unlimited, hightech future of a world online. Happy days, heady days until that market collapsed. The panicked herd then ran to real estate and a new race was on as house flipping became the latest theme for television shows and gist for office water cooler conversations. Everyone was invited to the party. "No job? No income? No Problem! Come on in!" Times were so good that cash littered the street as the ubiquitous armored cars were often involved in accidents or guards became nonchalant about security procedures.

Ah, the good old days, before 9/11, Hurricane Katrina and 500-year floods in England when we were suddenly reminded that civilization has a thin veneer and a government that is tone-deaf to manmade and natural disasters puts itself in jeopardy.

Now we find ourselves in the "bust" phase of a free-market system. Human nature being what it is, this was our inevitable destination as greed triumphed over wisdom and experience. Now, it is obligatory for our politicians to solemnly acknowledge, "the people are suffering." Having learned their lessons, they will not be seen as callous lackeys for Wall Street, the City or any other capitalist center of free enterprise. Instead, they see this as a time to console the downtrodden speculators and busted fatcats like Joe Six-Pack whose portfolio has taken quite a hit in recent months. The nanny-state must be seen as doing everything in its power to evacuate Joe from the rising flood waters of the deregulated financial tsunami. Even in America, Joe's hand is out. He wants whatever the government is offering.

Damn the consequences, dire times call for dire measures, right? Spend whatever it takes, do whatever it takes, just make the pain go away. Worry about tomorrow, tomorrow.

America seems to want a nanny-state but the politicians need to do as the nanny in my life, my mother, did. After we suffered a scrape or a bump, she said, "It's okay, it will feel better when it quits hurting." Then she sent us out of the house, back into the world to again take our lumps and bumps.