As the credit crisis has worsened, regulators are increasingly abandoning their usual anodyne statements in favor of blunt assessments and plainspoken calls for action.
But even in this new age of supervisory candor, the call by Dominique Strauss-Kahn, the IMF head, for global fiscal action to combat the decline in growth, reveals that the IMF is alarmed by the economic outlook. That alone should be cause for pause.
From the Financial Times:
Government intervention at a global level is required to tackle the credit crisis, according to the head of the International Monetary Fund, who has warned that market turmoil will take a serious toll on world growth.
Dominique Strauss-Kahn, IMF managing director, told the FT: “I really think that the need for public intervention is becoming more evident.”
Government intervention – whether in the securities market, the housing market or the banking sector – would act as a “third line of defence” supporting monetary and fiscal policy, he said…
Until now authorities, particularly in the US, have employed increasingly aggressive measures to support market liquidity but stopped short of intervention in the financial system – with the exception of the rescue of Bear Stearns last month.
In recent months finance ministries and central banks have been exchanging ideas behind the scenes on possible interventions as part of contingency planning. Most policymakers, including those in the eurozone and the US, do not believe broad public intervention is yet necessary.
Mr Strauss-Kahn’s call will increase pressure on them to act. The Institute of International Finance, an association representing big banks, last week said there was a “growing case” for government intervention.
Mr Strauss-Kahn, a former French finance minister, rubbished the notion that the credit crisis was largely a US problem. “The crisis is global,” he said. “The so-called decoupling theory is totally misleading.” Developing countries such as China and India would be affected.
Public intervention would provide a third line of defence by tackling the housing and credit problem directly, he said.
“Effort has to be made on loan restructuring. With respect to the banks, if capital buffers cannot be repaired quickly enough by the private sector, use of public money can be examined.”
The IMF would this week revise down its global economic forecasts to below the current private and official consensus, he said. “The forecasts we are going to release in a few days are not very optimistic. The downside risks we underlined in the last world economic outlook have materialised.”
He said central banks around the world were constrained in their ability to battle the growth risks by high commodity prices.
IMF analysis suggests that the US and other countries that account for an additional 20 to 25 per cent of the world economy are in strong enough financial positions to provide additional fiscal stimulus if required.
But the IMF estimates that other countries, including most in Europe, are not in such a position.
DSK was always one who believed in public intervention – not that I disagree with him, but the fact that *he’s* calling for it is less remarkable than it might seem, and I don’t think it can be taken as a significant about-face by the powers-that-be.
Corporate giantism pits the core principle of private enterprise against the central principle of democratic government, and puts society in the no-win position of adhering to one principle or the other, but not both.
Government can uphold the free-market principle by refusing to bail out collapsing giants and make them responsible for the consequences of their own private decisionmaking – but only by risking broader economic turmoil and violating the democratic principle of government that’s accountable to, and mindful of, citizens.
THE REAL ISSUE BEHIND SAVING BEAR STEARNS: SIZE
A way out of the bailout dilemma? Prevent corporate giantism.
If I’m asked to donate to the ‘Help Prevent the Worldwide Monetary Meltdown’ fund via taxes or inflation (one in the same) then I’ll need some concessions…..Let’s see….ah, the immediate end to the UN, UNICEF and homeland security, oil prices at a set level for the duration, ‘global warming’ to be stricken from the record along with its food vs fuel connotations, reverting to the no taxation of ones own labor in any form policy,……uhm….I think that would do it for starters. (Any other oblivious take downs would transpire as perks via harmonic resonance)
If you would agree I would agree.
I would like to see an agressive global regulatory response, particularly in London and New York, in the commodity markets.
I think the situation calls for an immediate increase in margin requirements (35 – 50 pct), audit or investigation of the off exchange warehouses, and a review of contract concentration.
It would seem that the regulators are too timid or afraid to at least ensure that the futures markets are mechanisms of price discovery rather price fixing.
Monday, April 7, 2008 – 10:21 AM EDT
Willow Financial to restate two years of financial reports
Willow said in November that it discovered an out-of-balance condition of about $6 million in its financial statements that prevented it from filing the report for the quarter ended Sept. 30. It has since been reviewing the situation with the assistance of Jefferson Wells International and PricewaterhouseCoopers.
Company management and the audit committee board have concluded that Willow’s previously issued financial statements for the past two fiscal years and the quarter ended September 30 should “no longer be relied upon due to the anticipated restatement.” It said the most impact will occur in the first and second quarters of fiscal year 2006, which immediately followed the merger with Chester Valley Bancorp.
Willow Financial (NASDAQ:WFBC) of Wayne, Pa,. is the holding company for Willow Financial Bank, a community bank with $1.6 billion in assets and 29 branch offices located in Bucks, Chester, Montgomery and Philadelphia counties.
Hmmm. Isn’t that the Institute of Monetary Folly?
They’re on the Comedy Channel, aren’t they? I believe their office is next door to the Ministry of Silly Walks.
I call BS on all of this.
This man represents other rich men who participated in the credit bubble and who are losing their butts.
They blow this stuff out of proportion to scare you into giving up your money. It’s a con game, people.
Fall for it, and you will have successfully shown the rich you are exactly as stupid as they make you out to be.
Bring on the ‘crisis’, I say.
Get ‘r done.
Say that to them in public, sometime. You’ll see I’m right by the frightened response you get.
This period of history represents the greatest overturn of wealth from rich to poor in generations.
The rich will not go quietly.
They will pull out all the stops, including the Armageddon scenario, to part you with your money.
Nice try, barfbag.