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Advice for Summiteers on Reforming the Global Casino

 


By Hazel Henderson (*)


ST. AUGUSTINE,  (IPS)   .-  A summit on how to reform the failed

global financial system will be held on November 15, 2008 in the

US, the heart of the meltdown. President George W. Bush has invited

the "leaders" of global finance to participate.

 

Architects of the failure range from economic globalisation

enthusiasts Ronald Reagan, Margaret Thatcher, and Alan Greenspan to

free market Chicago School de-regulators and privatisers. Add Wall

Street "financial engineers" and quants who "innovated" all those

mortgage-backed and credit card-backed securities and the 60

trillion dollars of credit-default swaps.

 

So, where should the summiteers begin their reforms on November

15th? China and the European Union already took the lead October

24-25 by convening 40 leaders for the 7th Asian-European Meeting in

Beijing. Represented were 27 European countries, 10 ASEAN

countries, the European Commission, China, Japan, South Korea,

India, Pakistan, and Mongolia.

 

China’s foreign ministry spokesman Qin Gong said "China maintains

that the international community should strengthen

cooperation and jointly handle the current financial crisis on the

basis of equal consultation," as reported by analyst Antoaneta

Bezlova in Other News, October 22, 2008. UK Prime Minister Gordon

Brown has proposed a global system of financial supervision,

including empowering the IMF to monitor global markets. French

president Nicholas Sarkozy said this about the financial meltdown:

"What has happened is an act of treason against the values of

capitalism."

 

Clearly, the world’s money systems have been corrupted, and the

basic trust which underlies all markets has been shattered. While

we are learning that not all our transactions can be trusted to

money systems, we are also seeing that in today’s Information Age

there are many new, pure, information-based trading systems, from

international barter to "countertrade" between governments to

trading between global companies of everything from media and

telephony to commodities. Information and money are equivalent

mediums of exchange and equally valuable. Many investors are now

bypassing Wall Street and big money centres in favour of private

electronic liquidity and trading networks.

 

As the US will play catch-up at the November 15th summit, there

are some additional reforms they might sponsor:

 

* Imposing globally-harmonised currency-exchange taxes is an

obvious step. Promoted for decades by economists from James Tobin,

Bank of Sweden’s Nobel Memorial prize-winner, to former US Treasury

Secretary Larry Summers, this under-one percent tax on the USD 2

trillion daily currency trading would reduce some of its activity,

which is 90 percent speculative. Recent levels of turbulence in

currency markets are not sustainable, and Bernanke’s ideas about

selling US dollars to buy other currencies are unprecedented. Only

global regulation of currency markets can address the problem of

weaker currencies leading countries to default.

 

Luckily, a proven, simple, computerised method of collecting this

tax is available – the Foreign Exchange Transaction Reporting

System. This FXTRS is a standardised, fair, computer programme that

can be easily installed in all currency trading operations. This

low tax, almost unnoticeable by traders, rises in

proportion to the number of traders that are "bear raiding" a

given currency – a mechanism similar to Wall Street’s "uptick

rule", which prevents traders from driving down prices. This

"uptick rule" was deregulated away in the recent wave of market

fundamentalism, but traders themselves are now urging its

reinstatement along with tighter rules on short-selling. After

every financial crisis in the past decade, finance ministers and

central bankers have called for more prudent regulation and a new

global financial architecture. Now, they must get on with it.

 

* To reduce the amount countries spend annually on military

hardware – now over USD 1 trillion – the summiteers

could agree on the proposed United Nations Security Insurance

Agency (UNSIA). Militarism is less and less useful in resolving

today’s conflicts in Iraq, Afghanistan, and other guerilla

insurgencies. This UNSIA proposal, backed by four Nobel laureates

and debated in the UN Security Council in 1996, would allow

countries to abolish their armed forces, as Costa Rica did in 1947.

Countries could then buy peacekeeping insurance from the UN

Security Council (expanded and veto-less). Their premiums would be

determined by insurance industry risk assessors contracted to

verify that the country had no weapons of mass destruction (WMD)

or secret weapons and did not teach militarism and xenophobia.

Groups of countries, say those in Central America, that decided

to all buy UNSIA insurance would get lower premiums. The

premiums would fund a standing, properly-trained UN peace-keeping

force and complimentary contingents of NGO peace-making

conflict-resolution groups.

 

These two global reforms could be introduced at the November 15th

summit, debated in the UN General Assembly, and ratified by member

countries. Many other reforms should be on the agenda:

 

* Reform of ill-designed monetary systems based on debt  "Money as Debt" and the American Monetary

Reform Act of 2008); in the UK, monetaryreforms proposed by banking expert James Robertson and those of the New Economics Foundation. This includes raising capital reserve

requirements for banks and reducing leverage used by all financial

players.

 

* Criminalisation of tax avoidance in tax havens, including those

non-cooperative countries and territories black-listed by the US

Treasury and many central banks.

 

* Regulating and requiring full disclosure of hedge funds, private

equity funds, sovereign wealth funds, credit derivatives, and "dark

pools" of capital.

 

* Harmonising market rules to prevent arbitrage between major

securities markets.

 

* Raising margin requirements and increasing Basel II capital

reserve ratios to reduce speculation in all markets and futures and

derivatives exchanges.

 

All these regulations, as we have learned, must be introduced by

international agreement lest market players skip from state to

state "arbitraging" different jurisdictions and tax regimes.

 

Finally, this global financial crisis provides an opportunity for

the long-discussed project of reforming today’s global casino and

restoring finance to its vital but limited role in facilitating real

production and innovation in the world’s real economies.

(END/COPYRIGHT IPS)

 

(*) Hazel Henderson is author of Ethical Markets: Growing The Green

Economy (2007) and co-creator with the Calvert Group of the

Calvert-Henderson Quality of Life