Global Economic Crisis: Potential Solutions?
I now yield the floor to the following article which is of interest to Canadians as well:
Global capitalism: on the edge of the abyss
Dramatic recent events have thrown into sharp relief some chronic and long-standing problems of our global and national economic system: an over-developed financial sector which has fuelled rampant speculation rather than productive, job-creating investments in the real economy; huge returns for senior executives and corporate insiders while the wages and the incomes of working families have stagnated; rising household debt instead of a fair sharing of productivity gains with workers; over-reliance on the export of raw resources; a deep crisis in our manufacturing and forest industries; and massive global financial imbalances driven by unbalanced and unfair trade.
Even heads of government of the largest advanced industrial countries are now saying that the age of deregulated "neo-liberal" global capitalism is over. Financial collapse has led not just to the discrediting of an ideology, but also to a major reassertion of the role of governments in maintaining systemic financial stability. What remains to be seen as we await emergency international meetings is how far the re-regulation of finance will go, and how much more profound will be the needed re-assertion of the role of governments.
Toward solutions
A co-ordinated international response
Future financial crises will be avoided only by strengthening government regulation of the banks and other financial institutions, and by extending the scope of government regulation to include hedge funds and private equity groups. Leverage (the use of borrowed funds) must be both limited and closely monitored by regulators to reduce excessive risk-taking and to forestall future asset bubbles. Calls for self-regulation must be rejected. There must be regulation of credit rating agencies to prevent conflicts of interest.
An international framework is needed since re-regulation at the national level would soon be undermined by capital moving to the least onerous locations. Governments should be encouraged to restrict or ban capital flight to locations which do not agree to abide by a new set of rules.
Governments must follow up with further concerted cuts to interest rates.
A small transactions tax should be levied on all securities trading, including the trading of commodity futures, to discourage short-term speculation in financial assets and to raise government revenues.
We also need a co-ordinated fiscal stimulus. Those countries, including Canada, which have no or very low deficits and paid down government debt should do the most.
China and other countries running large trade surpluses must expand demand at home by increasing public investment and by allowing free trade unions to grow and function, while helping shore up the global financial system so that the U.S. can grow its way out of a recession through higher exports.
Financial Re-Regulation and Action at Home
More government assistance to the Canadian banks should be given only in return for an equity position, with a view to increasing the power of the federal government to regulate and supervise the banks on an ongoing basis through an internal, ownership-based window on the industry.
While it is claimed that the large Canadian banks are strong and well capitalized, this should be confirmed through a thorough audit.
As needed, the federal government must be prepared to guarantee operating lines of credit to viable companies which cannot obtain credit from the banks. Consideration should be given to creating a public investment fund which would take equity positions in companies seeking funds for long term investments.
Moving forward, the Bank of Canada should be given the power to impose asset-backed reserve requirements on the banks and near bank lending institutions so as to slow the growth of asset bubbles in areas such as housing, commercial real estate, and equities without raising overall interest rates.
It is a myth that Canada has not experienced a housing bubble. CMHC must be given access to government guaranteed funds to be drawn upon as needed to refinance distressed mortgages at lower rates in return for a partial equity stake so as to forestall any wave of foreclosures.
In addition to reviews by the Competition Bureau, all major corporate mergers and acquisitions, including leveraged buyouts and private equity purchases, should require government approval, preceded by an open public interest review of the impacts on real investment and employment.
Fair Solutions to the Crisis
Executive compensation in the form of stock options must be restricted to reasonable amounts and limited to long-term gains in share values. A maximum limit should be placed on senior executive compensation which can be deducted for corporate tax purposes. Capital gains should be fully included in taxable income, and there should be a surtax on very high incomes to help pay for the costs of bail-outs.
Fighting recession
The question today is not whether we will see large job losses and rising unemployment in Canada, but rather how deep and prolonged the crisis will be.
(Keep reading ...)
Dramatic recent events have thrown into sharp relief some chronic and long-standing problems of our global and national economic system: an over-developed financial sector which has fuelled rampant speculation rather than productive, job-creating investments in the real economy; huge returns for senior executives and corporate insiders while the wages and the incomes of working families have stagnated; rising household debt instead of a fair sharing of productivity gains with workers; over-reliance on the export of raw resources; a deep crisis in our manufacturing and forest industries; and massive global financial imbalances driven by unbalanced and unfair trade.
Even heads of government of the largest advanced industrial countries are now saying that the age of deregulated "neo-liberal" global capitalism is over. Financial collapse has led not just to the discrediting of an ideology, but also to a major reassertion of the role of governments in maintaining systemic financial stability. What remains to be seen as we await emergency international meetings is how far the re-regulation of finance will go, and how much more profound will be the needed re-assertion of the role of governments.
Toward solutions
A co-ordinated international response
Future financial crises will be avoided only by strengthening government regulation of the banks and other financial institutions, and by extending the scope of government regulation to include hedge funds and private equity groups. Leverage (the use of borrowed funds) must be both limited and closely monitored by regulators to reduce excessive risk-taking and to forestall future asset bubbles. Calls for self-regulation must be rejected. There must be regulation of credit rating agencies to prevent conflicts of interest.
An international framework is needed since re-regulation at the national level would soon be undermined by capital moving to the least onerous locations. Governments should be encouraged to restrict or ban capital flight to locations which do not agree to abide by a new set of rules.
Governments must follow up with further concerted cuts to interest rates.
A small transactions tax should be levied on all securities trading, including the trading of commodity futures, to discourage short-term speculation in financial assets and to raise government revenues.
We also need a co-ordinated fiscal stimulus. Those countries, including Canada, which have no or very low deficits and paid down government debt should do the most.
China and other countries running large trade surpluses must expand demand at home by increasing public investment and by allowing free trade unions to grow and function, while helping shore up the global financial system so that the U.S. can grow its way out of a recession through higher exports.
Financial Re-Regulation and Action at Home
More government assistance to the Canadian banks should be given only in return for an equity position, with a view to increasing the power of the federal government to regulate and supervise the banks on an ongoing basis through an internal, ownership-based window on the industry.
While it is claimed that the large Canadian banks are strong and well capitalized, this should be confirmed through a thorough audit.
As needed, the federal government must be prepared to guarantee operating lines of credit to viable companies which cannot obtain credit from the banks. Consideration should be given to creating a public investment fund which would take equity positions in companies seeking funds for long term investments.
Moving forward, the Bank of Canada should be given the power to impose asset-backed reserve requirements on the banks and near bank lending institutions so as to slow the growth of asset bubbles in areas such as housing, commercial real estate, and equities without raising overall interest rates.
It is a myth that Canada has not experienced a housing bubble. CMHC must be given access to government guaranteed funds to be drawn upon as needed to refinance distressed mortgages at lower rates in return for a partial equity stake so as to forestall any wave of foreclosures.
In addition to reviews by the Competition Bureau, all major corporate mergers and acquisitions, including leveraged buyouts and private equity purchases, should require government approval, preceded by an open public interest review of the impacts on real investment and employment.
Fair Solutions to the Crisis
Executive compensation in the form of stock options must be restricted to reasonable amounts and limited to long-term gains in share values. A maximum limit should be placed on senior executive compensation which can be deducted for corporate tax purposes. Capital gains should be fully included in taxable income, and there should be a surtax on very high incomes to help pay for the costs of bail-outs.
Fighting recession
The question today is not whether we will see large job losses and rising unemployment in Canada, but rather how deep and prolonged the crisis will be.
(Keep reading ...)
If Canadian banks were so solid than why did the Harper govt (in secret during the last week of the election) take over funding of housing mortgages?
ReplyDeleteThat said, I agree with what the CLC says here.
"If Canadian banks were so solid than why did the Harper govt (in secret during the last week of the election) take over funding of housing mortgages?"
ReplyDeleteThat *is* the question ... exactly!