Something important isn’t getting the headlines like it should: The New World Financial Order.
As the politicians and central bankers run around like March hares chucking money at anything that isn’t moving as fast as themselves, like bank lending and unsold autos and Olympic building sites and transport infrastructure that isn’t going anywhere, something important isn’t getting the headlines like it should: The New World Financial Order.
This global crisis is revealing some interesting deficiencies: the only genuinely well-organised financial centres are New York/Boston and London, followed by Paris, Frankfurt and Zurich, but at a lesser level. And outside the US, UK and EU, what are we looking at? Abu Dhabi, Bahrain and Singapore perhaps, and…?
You can forget Africa, Australasia, China, Japan (where they are as good at making things as not managing money), India, Korea, Turkey, Russia and South America.
The reality is that the resolution of the new world order can only emerge from the Anglo-Saxon world of England and New England, where the finest universities and private think-tanks and leading consultancies of every type are located, and all conversant with English law. What the rest of the world thinks up for all practical purposes is frankly irrelevant.
The next deficiency thrown up by the crisis is the utter failure of the brave new world of regulation. It’s complicated, cumbersome and expensive and run by losers, so it shouldn’t surprise us that it hasn’t worked.
All markets require varying levels of regulation, especially financial ones. And regulatory rules that are simple, clear and inexpensive to operate and designed by those experienced in the markets and don’t require rain forest-loads of paper to manage them are by far the best.
The London Stock Exchange’s Yellow Book is a case in point: during the crisis, the exchange has worked efficiently with no problems, unlike the banks and central banks who forgot the most basic rules of banking.
The regulatory systems that have failed were designed by government bureaucrats and consumed rain forests, to the point where the regulators couldn’t spot a tree called Northern Rock for the sake of the forests of paperwork that had buried them.
This debate of all debates has so far only gone backwards, to 1944 and Bretton Woods, as though that arrangement could be a panacea for all the ills in today’s global economy.
Just to remind ourselves what Bretton Woods was all about: in the post-war era, stability between nations and their currencies was rightly perceived as a sine qua non to get world trade moving again on a basis of fair and certain value: all currencies were aligned with the victor’s Dollar, the strongest currency in the world, and the mighty Dollar was convertible to gold at $35 per ounce.
Now, however, as gold approaches $1,000 an ounce, it would mean that the Dollar has lost 97% of its 1944 value. In fact, the Dollar’s convertibility into gold was suspended in 1971, which was just as well as those forced alignments would never have survived the 1974 Oil Crisis, or the 1998 Asian and Ruble currency crises. And a currency crisis could erupt at any time in this crisis…
Yesterday’s solutions have no currency today. With a Harvard lawyer about to enter the White House, the time is propitious for all the collective wisdom and intelligence of the English-speaking institutions to redefine the structures and rules of the new world financial order.