Financial Times: Uncomfortable truths for a new world of them and us

[marmar]

Uncomfortable truths for a new world of them and us
By Philip Stephens

Published: May 29 2008 17:47 | Last updated: May 29 2008 17:47



Globalisation belonged to us; financial crises happened to them.

The world has been turned on its head. Consumers in the wealthiest nations are struggling with the consequences of the credit crunch and with the soaring cost of energy and food. In China, retail sales have been rising at an annual 15 per cent. I cannot think of a better description of the emerging global order.

The trouble is that the politics of globalisation lags ever further behind the economics. For all its tacit recognition that power has been flowing eastwards, the west still wants to imagine things as they used to be. In this world of them and us, “they” are accused by Democratic contenders in the US presidential contest of stealing “our” jobs. Now, you hear Europeans say, “they” are driving up international commodity prices by burning “our” fuel and eating “our” food.

The other day I listened to an eminent central banker offer a lucid explanation of the collapse of confidence that last summer paralysed international credit markets. I say lucid because he kept it simple, skipping the indecipherable stuff about algorithms, bundled securities and mark-to-market accounting rules.

The crisis, this banker told a conference hosted by the Weidenfeld Institute for Strategic Dialogue, flowed from the coincidence of a global savings glut with the explosion in financial innovation made possible by ever more sophisticated information technology. This had engendered among all those highly paid investment bankers and traders an insouciant indifference to risk. It was always going to end in tears.

The savings had come largely from the fast-growing Asian economies and from the burgeoning incomes of oil and gas producers, though some could be traced to a disinclination to investment in developed nations after the bursting of the dotcom bubble. As risk premiums had fallen and spreads narrowed, central bankers and regulators had warned of the dangers. What they had not foreseen was that the explosion in subprime mortgage lending in the US would be the catalyst for such a sudden bust.

None of the above, I suppose, is any great revelation to those in the banking business now counting the bonuses lost to irrational exuberance. What struck me, though, was how this crisis (no one is sure it is over) provides a perfect metaphor for the new geopolitical landscape.

Think back to the financial shocks of the 1980s and 1990s. For those of us in the west, these were unfortunate events in faraway places: Latin America, Russia, Asia, Latin America again. There was a risk of contagion, but in so far as rich nations paid a price, it lay largely in the cost of bailing out their own feckless banks. The really unpleasant medicine, prescribed by the International Monetary Fund, had to be taken by the far less fortunate borrowers. ......(more)

The complete piece is at: http://www.ft.com/cms/s/0/36674e8e-2d9c-11dd-b92a-000077b07658.html?nclick_check=1

[LSparkle]

1. I'll bet ol' RatBastard wishes his pal Wolfiewitz had been able to stay at World Bank

It's not nation states that will be pulling the strings in this
looming crisis -- it's New World Order groups like the IMF and
World Bank, which do not reflexively support U.S. monetary policy.
As Rev. Wright (and others) have famously said, "the chickens
are coming home to roost" ...