By Hazel Henderson
© 2008 Hazel Henderson
November 15, 2008, will at last see a summit on how to reform failed global finance. Invited to the USA, the heart of the failures, by President George W. Bush will be the “leaders” of global finance. Architects of the failure range from economic globalization enthusiasts Ronald Reagan, Margaret Thatcher, Alan Greenspan and free market Chicago School de-regulators and privatizers. Add Wall Street “financial engineers” and quants who “innovated” all those mortgage-backed and credit card-backed securities and the $60 trillion of credit default swaps.
Well-meaning Democrats, trying to democratize home ownership through Fannie Mae, Freddie Mac and FHA-subsidized mortgages, played into the hands of unscrupulous non-bank mortgage mills. The Federal Reserve failed to use its power to oversee this shadow banking system which included Wall Street’s huge investment banks. Under Alan Greenspan and now “helicopter” Ben Bernanke, the Fed kept interest rates too low and robbed savers in order to keep the debt-laden US economy afloat.
So, where should the summiteers begin their reforms on November 15th? China and the European Union took the lead Oct. 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 commented on 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 value of trust which underlies all markets has been shattered. We are now learning that not all our transactions can be trusted to money systems and 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 centers in favor of private electronic liquidity and trading networks. Such insights into the use of information and trading networks, including local currencies, barter networks, craigslist.com, freecycle.com and people-to-people lending as on prosper.com, are part of the emerging information-rich Solar Age economies now superseding the earlier fossil-fueled Industrial Age.
As the USA will play catch-up at the November 15th summit, there are some additional reforms they might sponsor:
* Imposing globally-harmonized currency exchange taxes is an obvious step. Promoted for decades by economists from James Tobin, Bank of Sweden’s Nobel Memorial prizewinner, to former US Treasury Secretary Larry Summers, this below 1% tax on the $2 trillion daily currency trading would reduce some of its 90% speculative activity. 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, computerized method of collecting this tax is available – the Foreign Exchange Transaction Reporting System. This FXTRS is a standardized, fair, computer program that can be easily installed in all currency trading operations (like “Intel’s Inside” famous ad – “FXTRS Inside”). This less than 1% tax, almost un-noticeable by traders, begins to rise in relationship to how many traders are “bear raiding” a country’s currency – just like Wall Street’s “uptick rule” preventing traders 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.
FXTRS is a computerized uptick rule for currency trading and is transparent to all, especially traders. As traders pounce on a weak currency to drive down its price for a later “killing,” they see the FXTRS tax rising automatically with the proceeds cascading into the country’s currency stabilization fund of its central bank. As the FXTRS tax gets steeper, traders see there is no more money to be made and pull out of their bear raiding game. Summiteers can take the FXTRS program for free, since its US patent has now run out (see FXTRS at www.hazelhenderson.com).
* To reduce the over $1 trillion annually countries spend on military hardware, the summiteers can agree on the proposed United Nations Security Insurance Agency (UNSIA). Militarism is ever-less useful in resolving today’s conflicts in Iraq, Afghanistan and other guerilla insurgencies. This UNSIA proposal, backed by four Nobel laureates, would allow countries which wished to follow Costa Rica’s lead in 1947 and abolish their armed forces. Instead, countries could buy the insurance of a peacekeeping force from the UN Security Council (expanded and veto-less). Their premiums would be determined by insurance industry risk assessors contracted to see that the country had no WMD or secret weapons and did not teach militarism and xenophobia. Countries, say those in Central America, that decided to all buy UNSIA insurance would all 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. The UNSIA proposal is taught in many university programs and was debated in the UN Security Council in 1996 (see UNSIA at www.hazelhenderson.com).
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 (see www.ethicalmarkets.tv “Money as Debt” and the American Monetary Reform Act of 2008 at www.monetary.org); in the UK, monetary reforms proposed by banking expert James Robertson at www.jamesrobertson.com and those of the New Economics Foundation at www.neweconomics.org). This includes raising capital reserve requirements for banks and reducing leverage used by all financial players.
• Criminalizing of tax avoidance in tax havens, including those non-cooperative countries and territories black-listed by the US Treasury and many central banks (see the international Financial Action Task Force NCCT Initiative at www.fatf-gafi.org).
• Regulating and requiring full disclosure of hedge funds, private equity funds, sovereign wealth funds, credit derivatives and “dark pools” of capital. Harmonizing 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 by international agreement lest market players skip from state to state “arbitraging” different jurisdictions and tax regimes.
At last, this global financial crisis brings the opportunities discussed for decades to reform today’s global casino and restore finance to its vital but limited role in facilitating real production and innovation in the world’s real economies.
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 Indicators regularly updated at www.Calvert-Henderson.com. She can be reached at www.EthicalMarkets.com and, her TV shows are at www.ethicalmarkets.tv.