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The royal road to global tyranny

The FT today carries a piece from Timothy Geithner, We can reduce risk in the financial system in which the president of the Federal Bank of New York asserts:

The institutions that play a central role in money and funding markets – including the main globally active banks and investment banks – need to operate under a unified framework that provides a stronger form of consolidated supervision, with appropriate requirements for capital and liquidity. [...] It is important that we move quickly to adapt the regulatory system to address the vulnerabilities exposed by this financial crisis. We are beginning the process of building the necessary consensus here and with the other main financial centres.

The FT itself kindly translates: “NY Fed chief in push for global bank framework”. Is this merely one more piece of assumption by a US government agent that running the entire world according to US government standards is an unquestionable good? Or is such a fearsome regulatory cartel genuinely likely to come about?

8 comments to The royal road to global tyranny

  • Meanwhile, IMF economists are proposing a unified global currency, a central banker’s wet dream.

    A world central bank is becoming a necessity in a global economy. Such an independent central bank, not subject to the political whims of a particular government, would be more likely to apply orthodox and safe central banking. Contrary to any country’s central bank, a world central bank would have no obligation to accommodate budgetary deficits, war spending, domestic wage and price rigidities, speculative asset bubbles, or rescue ailing domestic banks. Its law should be as meticulously applied as any constitutional law of a Western democracy.

    The article does not mention flying ponies.

  • Laird

    The US Fed has done such a great job in regulating the bank holding companies under its charge that the rest of the world should be clamoring to come under its supervision. Right.

  • RRS

    First off, the “N Y Fed Chief” is not a U.S. Gov’t agent.

    The Fed District Bank over which he presides is owned by the member banks in its district. He is elected, not appointed.

    The various District Presidents have varying views (and shades of views).

    Geithner just happens to be personally knowledgable about the financial instruments (derivatives, swaps, et alia) and how they come to be created and used. He didn’t get out of a textbook. He is not spoon-fed by staff.

    Despite lack of personal qualification, I abhor the tack he proposes for the global credit markets which have largely displaced historic banking. But, his views are based on a point of perspective with more information than most of us who post here can claim access to.

  • guy herbert

    RRS,

    I am grateful for the information about the structure, but how is a regulator less a regulator because he is elected – whatever the constituency?

    I have no doubt he’s good at his job. But that doesn’t mean I necessarily want him to do it to me.

    Unlike a number of people here, I don’t really have a problem with lenders of last resort as a means of damping banking crashes. I have a big problem with the tendency of governments and regulators to expand their empires and to conspire together against the different, the new and the unregulated – that is, against freedom.

    Geithner’s solution is in one sense banal: more reserves. And his suggestion that the US regulatory system be simplified, so that bankers, central and otherwise, can see what the hell they are doing, is certainly reasonable. So is the one for reciprocal support between central banks. But where he is an agent of imperium, deliberate or not, is to suggest that regulation be made globally uniform and led by the Fed.

    The ‘led by the Fed’ bit is the presumption of the American way being the best way. But the global uniformity is the really pernicious bit.

    One of the glorious things about finance (likewise shipping) is its mobility. Because it can run from choking governments, and does, it acts as some regulator on regulation – and what needs to be done can usually be done somewhere. But governments have started to master that mobility by ganging-up. We really don’t want them ganging-up any more.

    A global reserve bank, not competing for capital, could clamp down on all economic activity in the name of removing risk. And its mission and its interest would be to do precisely that that. But risk is not bad. Risk is two-sided. Squeeze until the regulator’s measure of risk is gone, and you have no transactions that don’t fit an officially approved format, and none that are not officially authorised in advance.

  • Laird beat me to it. This logic applies to anything; oops things are going wrong, give us yet more power. Not that it was our fault in the first place, oh no…

  • Laird beat me to it. This logic applies to anything; oops things are going wrong, give us yet more power. Not that it was our fault in the first place, oh no…

  • RRS

    The really abhorrent implication in Geithner’s tack is the further drift toward the concept of “Philosopher Kings,” who will know what is “best” for an entire world of very, very diverse individual objectives, desires and fears.

    However, there is the germ of a a possibly viable idea in Geithner’s expressed perceptions: There could come to be “District” type banks within the ECB (for example) which could serve the direct needs of each economic perimeter (“Nation” ?), with the same sort of coordination that is achieved by the present Federal Reserve System for the diverse regions of the U S economy.

    Politically, regulation exists to instill and maintain greater “trust.” That objective does get perverted or diminished when other “functions” (price stability, full employment, support for Gov’t fiscal adventures, etc., etc.) are loaded on.

    But, it does seem in the nature of societies to pervert the institutions that are successful, be they the police, schools, or banks (sometimes even the religious) by loading on functions for which those institutions were not established, and as a minimum diluting their effectiveness, and in the end causing decay.

  • Paul Marks

    The idea that yet more regulations can stop financial bubbles is absurd.

    And, yes, globel regulations mean a world government – and that means tyranny (as there would be nowhere to flee to – so no practical limits on government).

    If the Federal Reserve wishes to prevent financial bubbles it can stop pushing the expansion of the money supply – accept that would take away the central purpose of the Fed.

    As for world central bank – i.e. no real competition between currencies and a world credit money bubble.