G20 Proposal.....

[Tecnos]

Economists' G20 Policy Proposal


Top economists urge London Summit to act to unblock credit markets

A panel of 16 of the world’s leading economists has drawn up a policy prescription for the heads of state of the largest developed and emerging economists meeting at the London Summit in April.

In a 194-page book published by the Centre for Economic Policy Research and VOX EU, they warn that leaders must act quickly and in a co-ordinated manner to restore stability and stimulate global economic growth.

Neither monetary nor fiscal policies will work unless and until the blockages in the supply of credit are resolved, they say. Financial intermediation and the structure supporting it must be restored to near-normal conditions to stop the accelerating decline.

'As the financial crisis deepens the temptations for each individual country to free-ride increase and the need for coordination becomes more evident,' warn the editors.

The report, Macroeconomic Stability and Financial Regulation: Key Issues for the G20, which is published as an e-book, is based on a seminar with the G20 Deputies on 31 January, hosted by HM Treasury and the Bank of England and involving academics and private sector participants as well as the officials.

Its main recommendations are:

• Address global imbalances by creating credible insurance mechanisms for countries that forego reserve accumulation and stimulate domestic expansion; and by accelerating the development of financial systems in emerging markets, in particular local currency bond markets and foreign currency hedging instruments.

• Use macroeconomic policy to meet any threat of deflation promptly, with a zero interest rate policy and quantitative easing, and an inflation target to avoid expectations of deflation.

• Design fiscal stimulus packages cooperatively, so that they avoid simply boosting output abroad through larger imports and reduced exports while reflecting each country’s 'fiscal spare capacity'.

• Mitigate the procyclicality built into the Basel II capital requirements – the fact that banks must restrict their lending when the economy goes into recession – by using a multiplier based on macroeconomic conditions.

• Create a centralised clearing counterparty for credit default swap (CDS) trades without further delay. Consider insisting that CDS be traded on an exchange rather than over-the-counter.

• Sever the link between credit rating agencies (CRAs) and issuers, so that a CRA's rating cannot be influenced by the prospect of future business with the issuer. Prohibit indirect payments by issuers to CRAs in the form of the purchase of consulting or pre-rating services.

• Consider eliminating the 'hard wiring' of the CRAs into the regulatory system by using them as a benchmark indicator for financial watchdogs.

• Force greater disclosure of information about the underlying pool of securities for structured instruments.

• Establish a harmonised bankruptcy regime for banks, based on US-style 'prompt corrective action', giving the supervisor strong powers over bank managers and shareholders before the bank is technically insolvent.

• Consider the creation of an International Financial Stability Fund that takes equity positions in the financial institutions of participating countries and monitors their activities.

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I want my money!!!!!!

[Tecnos]

• Sever the link between credit rating agencies (CRAs) and issuers, so that a CRA's rating cannot be influenced by the prospect of future business with the issuer. Prohibit indirect payments by issuers to CRAs in the form of the purchase of consulting or pre-rating services.

That's a start.... I suppose!

[kidflash2008]

There is a growing trend in micro financial institutions in third world and emerging economies. They lend up to $100 to the poor and impoverished so they can start local businesses at home, from laundry services to small shops. $100 can go a very far distance in those locations. I think to combat poverty, the world's nations should help from the bottom up. It is much cheaper when the bureaucrats are cut out of the loop. They take most of the aid that should otherwise go to the poorest of citizens.