Debate free trade vs fair trade at The Economist

Fair trade must be threatening someone's bottom line.

Starting today, The Economist is hosting an online debate. The proposition: "This house believes that making trade fairer is more important than making it freer." Two economists, one for and one against present their positions. You can vote or comment after completing a free registration. Read my own comments below.

"Free trade" is a rhetorical term that means whatever you want. Bearing little relation to actual agreements in which special trade relations are spelled out, it most frequently serves to justify or consolidate the power relationships that best serve a threatened international (or bi-lateral) establishment.

At best, it is a convenient analytical fairy tale like the ball that rolls friction-free down an inclined plane. In the real world, the inclined plane may be as good as a road with ruts, potholes and market failures. Reality rarely looks like the the picture you formed when you were listening to experts and policy wonks (or physicists) describing their utopia.

The same is true for the term "fair trade." Where I live, "fair trade" refers only to coffee and chocolate. Probably it will never be used for anything but similar luxury monocultures encouraged by now defunct empires when they were bringing civilization to the heathens. Let's talk about the pillars of real economies in the context of real political and social circumstances.

We might, for example, debate instead about bread and housing--ah housing. America's non-Islamic allies will have plenty of time to reflect on the the price they are paying for the fantasy that all Americans have a right to home ownership in a free, globalized economy supported by a poorly regulated derivatives market.

We might discuss what an oil market undefended by NATO and the US Marines might look like. Or how about nuclear technology? or the weapons trade? How much better will the world be when we have free trade in nuclear weapons?

Or babies?

The market that best fits the free trade model is the traffic in narcotics. It is highly competitive, private (or so we are led to believe) and manifestly lacking in any effective government regulation. Is that some kind of ideal?

Unfortunately, a debate frames issues as two-sided. Here in Canada, the two-sided debate has been over for several decades. If you want to understand the real contention, you will have to leave the simplistic gaming metaphor and posit additional positions made up of those who support--or at least are willing to tolerate--the idealized, frictionless version of free trade, but for whom the real world version is 100% unacceptable for a variety of specific reasons.

Free trade is not free. It is usually packaged as the front end of a comprehensive anti-labour, neoliberal ideology--anemic government, toxic deregulation, corrupt privatization and anorexic social services. I am not a nationalist, but it is fitting to note that the price of this glorious utopia is national sovereignty and all that goes with it. Forget the "country" your grandparents fought for.

Free trade (in the form of the Canada-US FTA and subsequently NAFTA) has dramatically increased Canada's dependence on the US--a circumstance that for some, including myself, is a more significant security issue than terrorism.

"National treatment" for companies trading in water is a deal-breaker here in the BC Interior where much fresh water comes from.

Or bread. The notion that farmers will happpily "compete" against heavily subsidized European, American and Canadian agribusiness is a delusion the rich Western world would do well to get over.

The neoliberal version of unregulated corporate dominance has had a thirty year run to make its case. Time to break up anything that's still too big to fail and vote for a change.

I'm for the motion as the best of a poor set. Recommend this Post

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Notes on economics as a sectarian "science."

Economics is a sectarian "science." It is the most mathematical of the social sciences and employs the most simplistic models of human psychology and behaviour. Today, everyone talks about "confidence". However, few talk, for example, about shopping as a form of addictive behaviour.

In his 2006 State of the Union address, President Bush acknowledged his country's addiction to oil; however, mathematical economic models ignore the idea as a casual metaphor by a dyslexic buffoon rather than as a psychological disposition that might override other factors in creating demand and a situation of oversupply, to say nothing of numerous wars, oppression, and poverty to feed the habit.

Let's have a look at a few other sectarian behavioural quirks with economic consequences:
First, a word about language behaviour. "Subprime" mortgage is a euphemism, plain and simple. "Subprime" means literally "less than the very best" or "not quite the ultimate." By way of contrast, a term that is almost never used in discussions of the economic crisis is the word "sucker." PT Barnum is rarely quoted: "No one ever went broke underestimating the intelligence of the public." A subprime mortgage is a form of snake oil. Lenders buy business by selling debt to suckers who cannot afford it, but who can dream and feel glad when they are finally "approved" or even "pre-approved" to receive money they will never be able to repay. The subprime is then repackaged and marketed as an asset in a shell game right under the noses of buyers and regulators who should know better, but who are too busy....

Well, let's just say that the herding behaviour of investors has been studied, but is seldom part of the public analysis.

Suddenly Kenyes is respectable again. Frequent mention of his "paradox of thrift" sometimes formulated as a "vicious cycle of thrift" is put forward as a plea to go on spending. Suddenly people feel duped into living beyond their means, buying crap that they cannot afford. This feeling of being had, like Charlie Brown as he misses the football for another season, is called a crisis in "confidence." Gullible is another word we might dust off and use more.

Now that Keynes is poised for a comeback, it may be time to remember the Paris peace conference of 1919 where he proposed that the Allies simply cancel their debts. The US opposed this sensible plan, largely because it held the bulk of the debt.

Friedman and Pat Buchanan agree on gas tax and carbon tax, an interesting transcendence of the usual sectarian boundaries.

In 2000, Perry Anderson, noted Marxist and founding editor of the New Left Review acknowledges that "neo-liberalism as a set of principles rules undivided across the globe" It is, he said then, "the most successful ideology in world history." In that same essay (P Anderson, "Renewals," New Left Review 2/1, January/February 2000, p16),
he argued that this circumstance "will probably remain stable so long as there is no deep economic crisis in the West." For an essay that criticizes this "historical pessimism," see http://pubs.socialistreviewindex.org.uk/isj88/achcar.htm

Philip Blond, a philosopher and journalist, in a March 2008 article for the Independent:

"The disintegration of Anglo-Saxon-inspired markets has come about largely because of the confluence of two tendencies of the 'free market': speculation and monopoly capitalism. Contrary to received opinion, free markets – unless subject to civil regulation, asset distribution and persistent intervention – always tend to monopoly.

"Similarly, there is nothing inherently efficient about free markets – they do not of themselves promote sound investment or wise management. Rather, when markets are conceived wholly in terms of price and return, and when asset wealth and the leverage that this provides becomes as concentrated as it was in the 19th century (which is a scenario we are approaching), then markets encourage nothing other than gambling masking itself as sound investment."

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"How will the financial crisis affect remittances to Africa?" Africa Can End Poverty, November 4, 2008.

Sub-Saharan Africa received almost $12 billion in remittances in 2007, and that was only the official number. With "informal" flows added the total amount can easily be double that number. Nigeria, Kenya, Sudan, Senegal, Uganda and South Africa received the highest volume of remittances, while in smaller countries such as Lesotho remittances represent up to a quarter of GDP.

Remittance costs are significantly higher for Africa compared to other regions; costs can go up to almost 25% of the amount remitted. Remittances between African countries (from South Africa, for example) are especially expensive. Reducing these costs will mean substantial extra transfers, and this will be a focus of the World Bank’s medium term agenda on the African financial sector. The immediate concern is, however, stability of flows: the recent international credit crisis will lead to a slowdown in remittances. Remittances have generally been counter-cyclical in the past, as they tend to increase when the receiving country experiences adverse events.

But a recession in sending countries could hurt the capacity of migrants to send money home. It is still too early to determine if the latter factor will dominate and cause a decline in the total amount remitted, although there are some disturbing signs. High-frequency data on remittances for African countries are scarce, but available data show that remittances from the US seem to have slowed down in recent months; remittances from other sending countries, however, have not yet been affected.

Since some readers of this blog are senders of remittances, and others recipients, it would be helpful to hear how you see remittances changing in the current situation.

Read or make comments here =>

Submitted by Ms. Marilou Uy, who is is the Sector Director for the Africa Financial and Private Sector Development Department at the World Bank.Recommend this Post

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Alan Kohler, "A tsunami of hope or terror?" Business Spectator, November 19, 2008.

[For anyone who is obsessively following the labyrinth of financial collapse, this will be interesting reading indeed. A CDO is a special form of derivative thievery known as a collateralized debt obligation. Read on and see how it's been synthesized. -jlt]

...for the banks, it’s happy days. Suddenly, when the ninth reference entity tips over, they will be flooded with capital. It’s possible they will have so much new capital, they won’t know what to do with it.

As the world slips into recession, it is also on the brink of a synthetic CDO cataclysm that could actually save the global banking system.

It is a truly great irony that the world’s banks could end up being saved not by governments, but by the synthetic CDO time bomb that they set ticking with their own questionable practices during the credit boom.

Alternatively, the triggering of default on the trillions of dollars worth of synthetic CDOs that were sold before 2007 could be a disaster that tips the world from recession into depression. Nobody knows, but it won’t be a small event.

A synthetic CDO is a collateralised debt obligation that is based on credit default swaps rather than physical debt securities.

If the list of defaults – full and partial – gets to nine, then a mass transfer of money will take place from unsuspecting investors around the world into the banking system. How much? Nobody knows, but it’s many trillions.

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Adam Gill interviews Michael Albert, "Venezuelan direct democracy – The case of the Consejos Comunales," ZNet, November 19, 2008.

[Readers familiar with Albert's participatory economy will easily recognize the community councils. The biggest risk at the moment is that we will fail to grasp the opportunity presented by the economic collapse. -jlt]

Venezuela seems to me to be uniquely seeking a gigantic revolution in structures and relations - not just economically but also politically, socially, culturally - all non violently and even without much confrontation, none provoked by the agents of change.

In 2004, Venezuelan President Hugo Chavez created a movement named the consejos comunales (communal councils) aimed at creating more responsive local governance by handing local budgetary and legislative power to the councils. This movement was seen by Chavez as one of the most important of the five motors of the ‘Bolivarian Revolution' in that they should influence policy from the grassroots upwards. Great interest in the councils was evident between 2004 and 2007 in that thousands formed quickly and $5 Billion was given to them during this period. Communal banks are a pre-requisite to receiving funds from the government so as to avoid clientalistic relationships of dependency.

Local councils have the power to vote on issues directly affecting their community and have used this to make significant changes. Major improvements have included building social housing and repairing roads. The local councils are formed with 200-400 families with members aged 15 and above and have an executive council and representatives of groups within the community.

I asked Michael Albert if he might be able to offer his opinion on this movement in Venezuela.

What do you feel the role of the Communal Councils is strategically and politically?

Well, I believe they are partly intended, in the present, to push forward the whole revolutionary process by increasing current participation, raising consciousness, etc.

But I also believe that for a great many folks in Venezuela, both inside and outside the government, the councils are the evolving infrastructure of a new polity. The idea is that people should govern their own lives, and in that context local councils are the proposed vehicle for doing it. As such, they are intended to become an alternative to rather than just being an adjunct to local governments of mayors and governors and the like.

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Ellen Brown, "The Anatomy of a bubble," from Global Research, September 18, 2008.

What had to be saved at all costs was not housing or the dollar but the financial derivatives industry...

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can "hedge your bet" that something you own will go up by placing a side bet that it will go down. "Hedge funds" hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.

"The point everyone misses," wrote economist Robert Chapman a decade ago, "is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing."1 They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve "risk management." Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.2

Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars.3 How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in.

Credit default swaps (CDS) are the most widely traded form of credit derivative. CDS are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff from the "protection seller" if the company defaults within a certain period of time, while the "protection seller" collects periodic payments from the "protection buyer" for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes. In one blogger’s example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.

And there’s the catch: what if the hedge fund doesn’t have the $100 million? The fund’s corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down. Players who have "hedged their bets" by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets.

The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives "weapons of financial mass destruction." It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots. The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.

In an article on FinancialSense.com on September 9, Daniel Amerman maintains that the government’s takeover of Fannie Mae and Freddie Mac was not actually a bailout of the mortgage giants. It was a bailout of the financial derivatives industry, which was faced with a $1.4 trillion "event of default" that could have bankrupted Wall Street and much of the rest of the financial world. To explain the enormous risk involved, Amerman posits a scenario in which the mortgage giants are not bailed out by the government. When they default on the $5 trillion in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered on $1.4 trillion in credit default swaps entered into by major financial firms, which have promised to make good on Fannie/Freddie defaulted bonds in return for very lucrative fee income and multi-million dollar bonuses. The value of the vulnerable bonds plummets by 70%, causing $1 trillion (70% of $1.4 trillion) to be due to the "protection buyers." This is more money, however, than the already-strapped financial institutions have to spare. The CDS sellers are highly leveraged themselves, which means they depend on huge day-to-day lines of credit just to stay afloat. When their creditors see the trillion dollar hit coming, they pull their financing, leaving the strapped institutions with massive portfolios of illiquid assets. The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations. This triggers another massive round of CDS events, going to $10 trillion, then $20 trillion. The financial centers become insolvent, the markets have to be shut down, and when they open months later, the stock market has been crushed. The federal government and the financiers pulling its strings naturally feel compelled to step in to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie/Freddie shareholders who will get wiped out. Amerman concludes:

"[I]t’s the best game in town. Take a huge amount of risk, be paid exceedingly well for it and if you screw up -- you have absolute proof that the government will come in and bail you out at the expense of the rest of the population (who did not share in your profits in the first place)."4

The whole article, "It's the derivatives, stupid! Why Fannie Mae and Freddie Mac had to be bailed out," is available here =>Recommend this Post

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Paulo L dos Santos, "The World Bank, the IFC and the antecedents of the financial crisis," Bretton Woods Project, November 27, 2008.

[Few doubt that extreme liberal economic orthodoxy is a broken paradigm. This article moves the focus away from Wall Street and the US Congress. It sketches the relations between the World Bank (including the IFC which finances private projects in developing countries) and personal household debt. It also shows how "banks from developed economies have been central to the spread of the current financial crisis to middle-income countries." Housing bubbles and bloated consumer spending as a result of the entry of foreign banks are now endemic in, for example, Mexico and Central and Eastern Europe. The World Bank Group was providing "significant financial support to banks and other financial firms focusing on credit to individuals, including 'payday loans' to low and mid-income households, broader consumption lending, mortgages and mortgage securitisation...in Eastern Europe and Latin America." -jlt]

...across the developing world many vulnerabilities remain...

The World Bank wasted little time in using the financial distress gripping middle-income economies to promote an agenda of privatisation and cuts in state social spending. Yet the orthodox prescription of passing the costs of a financial crisis on to ordinary people through cuts in social services is especially objectionable in the current situation. It will make the recession worse, and it poses a breathtaking double-standard at a time when states in the US and Western Europe prepare to spend more to minimise the damage wreaked on their economies by an unfolding global recession.

...in the US, credit systems became focused on lending to individual households, leading to growing personal debt, and to the transfer of rising shares of wage income to the financial system in the form of debt servicing payments and various fees.

It is also particularly offensive given that the World Bank's advocacy and programming over the past ten years directly contributed to the financial vulnerabilities now straining Latin American, East Asian and Central and Eastern European economies. Bank economists led the policy push for the entry of top international banks into middle-income economies. The International Finance Corporation (IFC) provided handsome financial support to the development of many of the financial models and instruments at the heart of this crisis, including consumer and mortgage lending, loan securitisation, mortgage-backed securities, collateralised debt obligations, and originate-and-distribute business models in those countries.

The social provision of quality housing needs to be advanced as an alternative to private provision through capital markets, which has proven so damaging and expensive for ordinary people. The same applies to pensions, health-care, and education, where privatisation has increasingly forced individuals to access capital markets through banks, investment funds and insurance companies to meet their basic needs.

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Helga Serrano Narváez, "Ecuador seeks non-payment of illegitimate foreign debt," Americas Policy Program, November 24, 2008.

Economist Karina Saénz points out that in one projection done by the Commission, it was determined that if the interest rate had been kept at the original rate of 6% the debt would already have been paid off.

Ecuadorian President Rafael Correa announced on Nov. 20 that his government "will seek to not pay the illegitimate, corrupt, and illegal foreign debt," while at the same time demanding sanctions for those guilty of a series of irregularities in the accumulation of the Ecuadorian foreign debt. He said that "its weight should be transferred in equal parts to those who were responsible for acquiring it with dishonesty, blackmail, and betrayal. Each person will have to take responsibility and pay the corresponding amount with their own assets."

This was the Ecuadorian President's response after the official presentation of the final report from the Public Credit Audit Commission (Comision para la Auditoria Integral del Crédito Pública, CAIC) audit regarding Ecuador's foreign debt. It's important to note that this is the first official audit that has ever taken place to determine responsibility for the debt. Among the main conclusions, the Commission pointed out that an "incalculable fraud" was produced during the process of borrowing and renegotiation of the debt. President Correa informed sources that he would promote the creation of an International Tribunal for Arbitration of Sovereign Debt in the United Nations and a reform of the international financial framework, through which it will be possible to arrive at a comprehensive solution to the problem of foreign debt.

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Vijay Prashad, "The crash," Frontline, October 25, 2008.

[Commentary on the economic crisis abounds. This article is one of the few that describes the devastated, nearly comical, body language of the players. It also begins with this prophetic quotation-jlt]

Society has played out its stake; it is check-mated. Young men have no hope. Adults stand like day laborers idle in the streets. None calleth us to labor. The old wear no crown of warm life on their gray hairs. The present generation is bankrupt of principles and hope, as of property…. Behold the boasted world has come to nothing. Prudence itself is at her wits’ end. Ralph Waldo Emerson Journals, 1837

THE financial dam burst on September 13, 2008. A flood of capital swept out of the stock markets and went into government-backed bank accounts, where they remain, pooled up and inert. These bank accounts are the equivalent of hiding money in one’s mattress. They are shelters from the turbulence of the financial storms. Governments from Japan to the United States struggled to take control over a vast continent of economic life that they had previously given up to the bandits of profit. To re-establish sovereignty over these regions has not been easy, and it has aged many of those who are trying to lead the charge.

No one knows the exact size of the fictitious sector, but some estimate that the credit default swap market alone is about $62 trillion.

In Washington, D.C., President George W. Bush has lost his swagger. Impetuous in front of the press, he now looks grave, grizzled even. Beside him, the members of his Working Group on Financial Markets look ashen-faced, stooped. Sheila Bair, whom Forbes called the second most powerful woman in the world (after German Chancellor Angela Merkel), runs the Federal Deposit Insurance Corporation. A few years ago, she wrote two books for children on sound money management; now she is in the position to act on her own advice. Beside her is Ben Bernanke, Chairman of the Federal Reserve and a former Princeton University professor of Economics (his colleague, Paul Krugman, won the Noble memorial prize in Economics this year). Towering above them is the U.S. Treasury Secretary, the dour-faced Henry Paulson, who studied alongside Bernanke at Harvard before building a fortune at the helm of Goldman Sachs.

...the Bush team saw this as a solvency crisis created by bad loans made by irresponsible bankers and not as a wider problem of debt in American society.

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"EU-Russia Summit: Brussels and Moscow rediscover friendship," Der Spiegel, November 15, 2008.

"...there is no solution to most of today's problems without it [Russia], let alone against it." Bernard Kouchner French Foreign Minister

Suddenly the barriers that had been piling up in recent months between the East and West seemed to be a lot lower. French President Nicolas Sarkozy, whose country currently holds the rotating presidency of the European Union, and his colleague from Moscow, Dmitry Medvedev, cleared the political hurdles at the EU-Russia summit in Nice on Friday with surprising ease -- setting a new tone in difficult relations between unequal neighbors.

[...]

Russia has become the European Union's third-largest trading partner, with a growth rate of 20 percent. The Russians supply energy -- one quarter of all natural gas and oil consumed in the EU -- and with the money they earn from that, they purchase countless products from European markets, from cars to heavy machinery to fashion and services, you name it.

Find out how you can reprint this SPIEGEL ONLINE article in your publication.
Moscow also loves the euro. Billions of them are sitting in the safes of Russia's state bank as currency reserves. Economically, the giant in the east is deeply connected to the 27-member EU. And that creates obligations -- for both sides.

Without a reasonable relationship with major geopolitical power Russia, true European security is also almost unthinkable in the long term.

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George Soros, "Interview: The economy fell off the cliff," Der Spiegel, November 24, 2008.

[In this interview, Soros reveals many of his beliefs about the relationship between government and markets, territory that is fraught with sectarian differences. For example, Soros declares himself to be "against market fundamentalism" largely because he believes that "the state should set the rules and enforce them--but not become involved as a market player."

While this runs counter to the neo-liberal embrace of wholesale de-regulation, Soros says he believes "regulation should be kept to a minimum." For him, regulation arises mainly out of a need for "some cooperation between market participants and authorities," which is a far cry from setting the rules and enforcing them.

Still, he articulates the judgement that "it is better to have a government that wants to provide good government than a government that doesn't believe in government." Survivors of Katrina would probably agree.

Soros also rejects public private partnerships, but looks forward to "a cap and trade system with auctioning of licenses for emissions rights." He believes that "transactions involving credit should be regulated" but that "it is impossible to prevent speculation." The only difference between speculation and investment is "basically that investments are successful speculations."

Evidently, Soros does not speculate (or invest) in military products, but he is prepared to do so with carbon production. -jlt]

The situation is very similar to the 1930s -- but it is going to unfold differently. We have learned not to allow the financial market to collapse. We will spend all the money in the world to prevent that from happening.

SPIEGEL: Mr. Soros, in spite of massive interventions by governments and federal banks the financial crisis is getting worse. The stock markets are in free fall, millions of people could lose their jobs. More and more companies are in trouble, from General Motors in Detroit to BASF in Ludwigshafen. Have you ever seen anything like it?

Soros: Never. I find the present situation dramatic and overwhelming. In my latest book “The New Paradigm for Financial Markets: The Credit Crisis of 2008” I predicted the worst financial crisis since the 1930s. But to tell you the truth: I did not actually anticipate that it would get as bad as it did. It has gone beyond my wildest imagination.

SPIEGEL: What are your fears for the coming months?

Soros: I think that the dark comes before dawn. The financial markets are under great pressure because of the lack of leadership during the transition period. In the next two months, the markets will experience maximum pressure. Then we will see some initiatives from the Obama administration. How long the crisis lasts will depend on the success of these measures.

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John Cavanagh et al., "Towards an Economic System that Works for People and the Planet."

On November 15, the leaders of 20 nations and the major multilateral financial institutions will gather behind closed doors in Washington to discuss the future of the global economy. Led by outgoing U.S. President George W. Bush, this group includes many of the people, governments, and institutions whose policies are responsible for the current financial meltdown. As such, we believe they are the wrong group to be charged with reworking global economic rules and institutions. The world needs a process that is much more inclusive of other nations and the peoples of those nations.

This statement begins to sketch an agenda for change that would resolve the crisis by putting people and the planet first. It starts from the experiences of groups and communities around the world. It speaks to a financial meltdown triggered in the very heart of the globalized capitalist economy that has combined with the growing crises of climate chaos and hunger, and that now reaches into every corner of the planet. This new crisis of predatory and unregulated “casino capitalism” is destroying jobs, lives and livelihoods, while wreaking havoc on currencies and stock markets around the world. It has taken resources from the many, while concentrating wealth in the hands of the few.

To date, governments have largely responded by spending more than one trillion dollars bailing out private financial institutions and corporations. Meanwhile, the crushing needs of communities, ordinary citizens and fragile ecosystems have been largely ignored.

Now is the time to learn from this experience and from the consequences and devastating impacts of other recent crises, such as the debt crisis unleashed in 1982 and the financial crises in Mexico (1994-95), Asia (1997-98), Russia (1998), and Argentina (1999-2002). History continues to repeat itself. This pattern, culminating in the current global crisis, demonstrates quite definitively that a real transformation of the system is required.

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"Summary and Analysis: G20 heads of state meeting," Bretton Woods Project, November 17, 2008.

No mention of is made of who will be asked to join the expanded FSF, though it is made clear that it will only be large emerging markets and not any of the smaller or poorer economies that are currently facing economic crises due to the global events.

Despite being billed as a 'Bretton Woods 2' meeting, the first G20 heads of state meeting in Washington in mid-November agreed little of substance, and was criticised for an opaque, closed preparation process.

No specific follow-up meeting has yet been agreed, but deadlines for initial actions are set for 31st March 2009, and press reports suggest there will be a meeting soon after that, possibly in the UK. It is not clear whether this will be a meeting of finance ministers, or heads of state.

Under the following five headings, immediate actions and medium term actions are listed in the G20 statement, but most raise problems rather than proposing specific solutions. Finance ministers are tasked with coming up with additional actions in a number of areas, including: "reviewing and aligning global accounting standards" and "reviewing the mandates, governance, and resource requirements of the IFIs". A revival of the Doha 'development' trade round is also promised by the end of the year. Poverty reduction and climate change merit only a passing reference.

The rest of the summary and analysis and links to related documents and articles may be found here => and here =>

Concrete suggestions include:

• regulating derivatives
  
• stopping speculation on staple food commodities
  
• applying stricter international capital reserve requirements
  
• a speculation tax on international transactions
  
• closing tax havens
  
• stronger transparency rules
  
• A renegotiation by governments of the dozens of free trade agreements and bilateral investment treaties that currently ban governments from placing controls on capital flows and applying other sensible conditions to foreign investment and other financial transactions.

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"Bob Rae: How to deal with the economic crisis," National Post, November 22, 2008.

[Good advice, but like a voice from the past. For a potential leader of the country, he sounds out of touch with the depths threatened by the present crises. And Harper is only just emerging from an ideological fog. Property, credit, transportation, climate change, a nuclear renaissance, exporting our values--redesigning the international economic architecture indeed. The foundations have been rotting away for some time. Time to replace the war economy, to phase carbon emission right out, leave oil behind, to stop killing off other species, to share the wealth, to leave the planet better than we found it. For a while, we will have no choice other than to live within our means. It could be a great opportunity. -jlt]

We should play a role in redesigning the international economic architecture to help prevent such a crisis from happening again.

• First, it is essential to understand the speed with which a falling economy can cause the revenues of a government to evaporate. Just four weeks ago, Stephen Harper assured Canadians that our economy was fundamentally strong. Today, he openly speaks to a potential deficit.
  
  
• Second, times of crisis teach us the importance of being practical, and show us the folly of ideologies and theories. It was a great British Conservative, Edmund Burke, who reminded us that “there is nothing more dangerous than to govern in the name of a theory.” Mr. Harper is finally taking note. It’s about time.
  
  
• Third, prosperity is earned, it matters and it can never be taken for granted.
  
  
• Fourth, fiscal discipline matters and is linked to prosperity.
  
  
• Fifth, governments must ensure everyone benefits from the opportunities prosperity creates.
  
  
• Sixth, you can’t go it alone. It doesn’t matter how independently secure you might think you are — global recessions are humbling to the mighty. So it’s essential to get all sorts of people to the table. You need other governments, industry, labour and community leaders, so as to build consensus for tough action.

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David P Goldman, "The black hole in financial markets," Asia Times online, November 22, 2008.

[When the Harper government runs a deficit, where will the money come from? -jlt]

Faced with the collapse of private pension, health care and financing systems, Obama will have every reason to use his mandate to socialize medicine, pensions and many other aspects of US economic life.

Subprime mortgages were the beginning, not the end, of a global financial crisis, and in recognition of this fact equity markets have crashed. The proximate cause of this week's retreat in equity markets to the lowest levels since the 1990s was the collapse of loans to American commercial real estate, which in turn implies the collapse of insurance companies and pension funds. Americans who relied on private pension funds, whether through their employer or insurance companies, will lose part or all of their pensions.

That is why it is so difficult to rescue General Motors, which has said that it may not last the year without official help. Not only stocks, but many of the fixed-income assets owned by insurance companies have fallen by half during 2008, including commercial mortgage-backed securities, and the capital securities of some commercial banks. Citigroup's preferred shares issued last March traded on November 20 at 50 cents on the dollar.

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To save, Americans must sell goods and services to someone else, and a glance at the globe makes clear who that must be: nearly half the world's population, and most of the world's capacity for economic growth, is concentrated in China and the Pacific Littoral....China and America have far more to gain from cooperation than from conflict.

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Paul Rogers, "A world in the balance," openDemocracy, November 13, 2008.

[These summary articles nearly always leave out something major. In this case, climate change is mentioned briefly under the section on the global economic recession, not as a causal factor, certainly not as a bigger market failure than the Great Depression (a view put forward several years ago by Nicholas Stern, former Chief Economist of the World Bank), but as one of a list of factors including unsustainable inequality, social tensions, dysfunctional or absent governance that have to be "factored in" to a solution.

At UNEP, climate change is understood to be part of a different kind of package that includes major biodiversity loss, loss of fisheries, and deforestation which are effects of what we like to call prosperity. These are not "Third World problems;" they are our own stench. They stand as critiques of "successful" market economies. And they make the Soviet gulags look like Sunday School picnics. Quite a bit more than "factoring-in" will be called for.

On the other hand, inclusion of Russia as an emerging item on the international short-list is a welcome contribution. -jlt]

It can be useful at moments of transition to stand back from the flux of immediate events and try to identify wider patterns that can help make sense of them - and where they might be heading. The election victory of Barack Obama in the United States provides such an opportunity. This column outlines five principle areas of concern that the new president will inherit: Iraq, Afghanistan/Pakistan, the al-Qaida movement, tensions between the west and Russia, and the security implications of the global economic recession. The analysis here is developed further in the Oxford Research Group's latest international-security monthly briefing (see "The Tipping Point?", ORG, October 2008).

Iraq: time of flux

The security situation in Iraq has eased over 2007-08, for a mix of reasons that reflect the changing dynamics of conflict there. The American military's "surge" strategy has undoubtedly had an effect, though the singling out of this by its neo-conservative and other supporters in the United States as the main or even the sole factor is misconceived. The enforced division of Sunni and Shi'a communities as a result of violence and insecurity, involving the displacement of millions of people, has also played a role; as have the ceasefire by the Mahdi army of the radical Shi'a cleric Muqtada al-Sadr, and the Sunni "awakening movement" which turned against al-Qaida and established an alliances of convenience with the Americans.

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Samuel Munzele Maimbo, "The impact of the financial crisis on Africa may be worse than we thought," Africa Can End Poverty, November 7, 2008.

The conventional wisdom that African financial systems have little to worry about in the wake of the global financial crisis needs to be challenged. In the attached note (pdf), I raise five* concerns:

1. Weakened local investor confidence in equities and bonds on African Stock Exchanges
2. Return to ultraconservative lending practices
3. Losses arising from central bank reserve management practices
4. Renewed debate on the role of governments in the financial system
5. Weakened balance sheets resulting from a downturn in the real economy.

In the note, I also propose policy options for dealing with these concerns.

*In the note, I say "four concerns" and then go on to list five, which confirms the old joke: "There are three kinds of economists. Those who can count and those who can't."Recommend this Post

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Simon Maxwell and Dirk Messner, "A new global order: Bretton Woods II...and San Francisco II," openDemocracy, November 12, 2008.

The forces in support of the status quo are considerable.

Global leaders are preparing to meet in Washington on 15 November 2008 for a summit of the G20 group of states and representatives of leading international financial institutions. The gathering is being ambitiously named "Bretton Woods II" - echoing the conference on 1-22 July 1944 which established the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT). With George W Bush presiding, and Barak Obama waiting in the wings, the delegates' task will be to fix a global financial system which has failed with spectacular and highly damaging results. They need to succeed. However, they also need to realise that financial failure is symptomatic of more fundamental failures and fissures in the global order. Fixing the plumbing will be of little help if the house is falling down.

This, by the way, was also true in 1944. The Bretton Woods conference was officially the United Nations Monetary and Financial Conference. Elsewhere - at Dumbarton Oaks on 21 August-7 October 1944, and in San Francisco on 25 April-26 June 1945 - the political framework for the United Nations was being established and the charter written. These grew out of the vision of Franklin D Roosevelt and Winston Churchill, first expressed in the Atlantic Charter in August 1941. A financial initiative set in the context of a vision of global peace and progress: is that not the kind of platform needed today?

Certainly, the challenges are of a scale to match those of the 1940s.

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JLT, Re: Alex Jones, "How the elite control politics."

What is needed then is an up-to-date understanding of the free-market prime directive: let the buyer beware.

Alex Jones here describes the 2-party system as a "very strong, stable system." But the case that he makes is only that it is stronger and more stable than a one-party system over the long run. It appears to offer a mode of succession that is preferable to the coups, assassinations and civil wars that are common when the dictator dies or falls out of favour.

But the "royal arch" he describes, as any football player will know, is easily toppled by a force applied along a line perpendicular to the left-right axis. American democracy would be improved by a third party or even more. The Canadian and Israeli examples raise other questions about real representation.

On the other hand, some here argue that the Chinese Communist Party method of succession saves money by avoiding costly and largely useless elections.

A real discourse about democratic refom that goes beyond simple STV partisanship by a party on the outside wanting to get in would go a long way toward loosening up ground that has been frozen for decades by dogmatic ideologies.

Jones's argument against the carbon tax is that people who support a carbon tax "lack the documents." Presumably he has them, but doesn't present them here.

Moreover, both Obama and Harper are on record as supporting a "cap-and-trade" system. Neoliberals of both the neocon and the true dithering liberal varieties have learned that taxation isn't popular. But side-bet paper-trading scams like junk bonds and vulture funds are proven money-making innovations, i.e, you can get away with them during the wait-and-see period. Carbon trading is the emerging replacement in this category for sub-prime mortgages. It won't reduce emissions but it will help reconstruct the short-term illusion of prosperity as an indicator that our "democracy" is succeeding. Day-trading, mergers, and golden-bucket bailouts are expected to help too. So far, no one is proposing to put any of the innovative crooks behind bars.

What is needed then is an up-to-date understanding of the free-market prime directive: let the buyer beware.

Homework: For a good warmup, pick a financial "innovation." Make a list of the real costs, and see if you can find any real benefit at all. Recommend this Post

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"IMF's shot in the arm for Ukraine means harsh comedown for the majority," Central and Eastern Europe Bankwatch, November 11, 2008.

The USD 16.5 billion bailout package that Ukraine has agreed with the IMF aims to restore some kind of international trust in Ukraine's economy, though Ukrainians themselves may be beyond despair. With the economic crisis world tour paying a visit to central and eastern Europe, Ukraine's banking system found itself on the brink, with overall national debt of USD 100 billion breaking down into USD 15 billion state debt and USD 85 billion private debt.

Quoted in The Observer, Bankwatch's coordinator in Kiev Olexi Pasyuk described the atmosphere in Ukraine before the deal was reached: “There is a certain level of panic. Investors are taking money out, and we urgently need foreign currency. The government is prepared to agree to anything the IMF proposes.”

What the IMF is prescribing is described here but hasn't the debt-based growth agenda, encouraged by IFIs like the EBRD through multiple loans to intermediary banks, played a major role in landing Ukraine's economy in an ultimately unsustainable position? And shouldn't the IFIs now be making emergency efforts to help turn round Ukraine's chronically inefficient energy use? Ukraine's businesses will be in desperate need of finding some low pain ways to cut costs – projects like this one are hopefully a sign of things to come.

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