ADVICE FOR SUMMITEERS ON REFORMING THE GLOBAL CASINO

By Hazel Henderson Reprint | | Print |

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ST AUGUSTINE, FLORIDA, Nov 3 2008 (IPS) - A summit on how to reform the failed global financial system will be held on November 15, 2008 in the US, the heart of the meltdown, writes Hazel Henderson, author of Ethical Markets: Growing The Green Economy (2007) and co-creator with the Calvert Group of the Calvert-Henderson Quality of Life Indicators. In this article, Henderson writes that the world\’s money systems have been corrupted and the basic trust which underlies all markets has been shattered. While we are learning that not all our transactions can be trusted to money systems, we are also seeing that 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. As the US will play catch-up at the November 15th summit, there are some additional reforms they might sponsor: imposing globally-harmonised currency-exchange taxes on the USD 2 trillion daily currency trading to dampen speculation; and reducing the amount countries spend annually on military hardware – now over USD 1 trillion – with a UN Security Insurance Agency (UNSIA), which would fund a standing, properly-trained UN peace-keeping force.

Architects of the failure range from economic globalisation enthusiasts Ronald Reagan, Margaret Thatcher, and Alan Greenspan to free market Chicago School de-regulators and privatisers. Add Wall Street “financial engineers” and quants who “innovated” all those mortgage-backed and credit card-backed securities and the 60 trillion dollars of credit-default swaps.

So, where should the summiteers begin their reforms on November 15th? China and the European Union already took the lead October 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 said this about 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 trust which underlies all markets has been shattered. While we are learning that not all our transactions can be trusted to money systems, we are also seeing 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 centres in favour of private electronic liquidity and trading networks.

As the US will play catch-up at the November 15th summit, there are some additional reforms they might sponsor:

* Imposing globally-harmonised currency-exchange taxes is an obvious step. Promoted for decades by economists from James Tobin, Bank of Sweden’s Nobel Memorial prize-winner, to former US Treasury Secretary Larry Summers, this under-one percent tax on the USD 2 trillion daily currency trading would reduce some of its activity, which is 90 percent speculative. 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, computerised method of collecting this tax is available – the Foreign Exchange Transaction Reporting System. This FXTRS is a standardised, fair, computer programme that can be easily installed in all currency trading operations. This low tax, almost unnoticeable by traders, rises in proportion to the number of traders that are “bear raiding” a given currency – a mechanism similar to Wall Street’s “uptick rule”, which prevents traders from 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.

* To reduce the amount countries spend annually on military hardware – now over USD 1 trillion – the summiteers could agree on the proposed United Nations Security Insurance Agency (UNSIA). Militarism is less and less useful in resolving today’s conflicts in Iraq, Afghanistan, and other guerilla insurgencies. This UNSIA proposal, backed by four Nobel laureates and debated in the UN Security Council in 1996, would allow countries to abolish their armed forces, as Costa Rica did in 1947. Countries could then buy peacekeeping insurance from the UN Security Council (expanded and veto-less). Their premiums would be determined by insurance industry risk assessors contracted to verify that the country had no weapons of mass destruction (WMD) or secret weapons and did not teach militarism and xenophobia. Groups of countries, say those in Central America, that decided to all buy UNSIA insurance would 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.

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.

* Criminalisation of tax avoidance in tax havens, including those non-cooperative countries and territories black-listed by the US Treasury and many central banks.

* Regulating and requiring full disclosure of hedge funds, private equity funds, sovereign wealth funds, credit derivatives, and “dark pools” of capital.

* Harmonising 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 introduced by international agreement lest market players skip from state to state “arbitraging” different jurisdictions and tax regimes.

Finally, this global financial crisis provides an opportunity for the long-discussed project of reforming today’s global casino and restoring finance to its vital but limited role in facilitating real production and innovation in the world’s real economies. (END/COPYRIGHT IPS)