The Editor, Sir:
We are being continuously bombarded by amazing developments out of the unfolding world financial and economic crisis. One of the latest was former Fed Chairman Alan Greenspan’s contrite admission before the United States House of Representatives Oversight Committee that his orienting world view that shaped his understanding of markets for over 40 years was wrong. It is, perhaps, a measure of the shock and trauma Greenspan is feeling that he did not even seek to offer the rationalisation that while current realities have shifted dramatically, away from his philosophy of institutional behaviour in financial markets
, his world view might have been somewhat true to the circumstances of yesteryear.
Such a far-reaching revision of sentiment, coming from one as widely respected as Greenspan, will bring added poignancy to the crescendo of voices calling for a reshaping of the architecture
of the world financial system. Already, President Bush has called for a summit meeting, in November, of several major countries to address the financial and economic challenges facing the world (though it is a moot point whether such an initiative, led by an administration in its final lame-duck months, will yield any worthwhile results).
Some key issues should loom large, going forward, in national and international response to the crisis that is upon us.
First, there is the question of the effectiveness, vis-à-vis the major economic powers, of the International Monetary Fund’s (IMF’s) role as the world’s premier financial surveillance institution. Will a dispassionate review of IMF surveillance reveal that it exerted pressure on countries with little or no systemic impact, while paying insufficient attention to the gathering storm in the major economies, or while meeting with indifference to its policy advice on the part of these countries? Either way, any future regime must address the adequacy and the authority of IMF surveillance in countries of major systemic importance.
A second issue concerns the disjuncture between an increasingly seamless global financial system and a world order marked by hard political boundaries. It is tempting to suggest that this disjuncture be overcome by better alignment of world financial and political boundaries – either by rolling back the considerable interconnectedness of financial markets or by easing the firmness of political boundaries.