Just as Larry Summers is pushing the message that the crisis is over and Team Obama deserves credit, IMF managing director Director Dominique Strauss-Kahn is telling the media the reverse, that the crisis is far from over. From Reuters:
“The global economic crisis will continue, even if Germany and France had some good figures in the second quarter,”…Strauss-Kahn said he wanted to see more action from nations to curb bankers’ pay and tighten capital requirements in the banking sector.
“It is right to say that not enough has happened. I hope the Group of 20 meeting in Pittsburgh will bring new momentum,” he said. Leaders of the G20 meet later this month to try to agree on measures to help stop a repeat of the financial crisis.
Strauss-Kahn said the lesson of the financial crisis was that the market economy needed rules to function.
“Without new rules, there will be a return to the old behavior,” he said.
Governments needed to develop ‘exit strategies’ from the stimulus packages introduced to boost economies, said Strauss-Kahn, adding, however, that it was dangerous to think the crisis was already over.
“We need such “exit strategies.” We are working on them, but I would disagree with any …. demand to think about implementing them now,” he said.
Asked by the magazine how liquidity that had been pumped onto the markets would be withdrawn, Strauss-Kahn said a combination of higher interest rates and ending direct intervention of central banks would be needed.
It goes without saying that each story is politically motivated. The Obama Administration wants to keep up the drumbeat of good financial news, both to
distract Americans from the poor prospects for the economy keep confidence up and, of course, to take credit for the fact that the economy has not fallen into a black hole. Never mind that the bulk of the interventions were done in the Bush era and the Obama camp merely did some additional mopping up along the same lines. Americans are clearly too memory-impaired to remember the crisis timeline and who did what when.
By contrast, the IMF, along with most other advanced economies, is keen to leash and collar the bankers while there is some will to do so. However, all it takes is one country to break ranks, and the high end of finance will be able to continue as before in that jurisdiction. The only hope for reform, sadly, is for events to prove Strauss-Kahn right so that the true cost of having bankers in the driver’s seat is undeniable.