Yep, the G-20 did it a third time: they called for reregulation and deregulation simultaneously. Here's the leaders' statement from the Pittsburgh meeting last week:
We will keep markets open and free and reaffirm the commitments made in
Washington and London: to refrain from raising barriers or imposing new
barriers to investment or to trade in goods and services, imposing new
export restrictions or implementing World Trade Organization (WTO)
inconsistent measures to stimulate exports and commit to rectify such
measures as they arise. We will minimize any negative impact on trade
and investment of our domestic policy actions, including fiscal policy
and action to support the financial sector. We will not retreat into
financial protectionism, particularly measures that constrain worldwide
capital flows, especially to developing countries...
We remain committed to further trade liberalization. We are determined
to seek an ambitious and balanced conclusion to the Doha Development
Round in 2010...
As my colleague Lori Wallach noted after this was released:
The G-20 leaders have announced a very perplexing plan of action
that calls for reregulation of the financial sector to try to avoid the
next economic crisis while simultaneously calling for completion of the
WTO Doha Round, which would require additional financial deregulation,
including new WTO limits on accounting standards through a text the
disgraced Arthur Andersen firm had a hand in formulating.
Perversely, the Europeans at the G-20 have been the strongest
proponents of a new global floor of financial regulation while
simultaneously being the strongest proponents pushing for a G-20
agreement on a new deadline for completion of the WTO Doha Round, which
European negotiators have packed with new financial deregulation
requirements. The G-20 leaders cannot have it both ways: They cannot
follow through on desperately needed reregulation of the financial
sector while also pushing for completion of the WTO Doha Round, which
requires additional financial deregulation.
Over at the Baseline Scenario, Simon Johnson asks a good question: "Was The G20 Summit Actually Dangerous?"
consider for a moment the key way in which the G20 summit has worsened our predicament.
There is broad agreement that capital requirements need to be
increased and a growing consensus that very large banks in particular
should be required to hold bigger equity cushions. This is a pressing
national priority – if our financial system is to become safer – and
reasonable people are starting to put numbers on the table, ever so
quietly: Joe Nocera is hearing 8%, but Lehman had 11.6% tier one capital on
the day before it failed and the US banking system used to carry much
more capital – back in the days when it really was bailout free (think
20-30% in modern equivalent terms (see slide 40 here).
Obviously, raising capital standards in the US is going to be a long
and drawn out fight. The G20 could help, if it set high international
expectations, but the opposite is more likely. As Nocera suggests this morning,
the inclination of the Europeans – largely because of their funky
“hybrid” capital, but also because they have some very weak banks –
will be to drag their feet.
Why should we care? This administration seems to think that we need
to bring others with us, if we are to strengthen capital requirements.
Our progress will be slowed by this thinking, the glacial nature of
international economic diplomacy, and the self-interest of the
Instead, the US should use its power as the leading potential place
for productive investments to make this point: If you want to play in
the US market, you need a lot of capital. If you would rather move
your reckless high risk activities overseas, that is fine.
I couldn't agree more, and while we're at it, let's break up all the big banks, and divide up their investment from their commercial arms.
But I think Simon errs in his passing comment that "this process needs to be WTO-compliant." The solution is to walk and chew gum at the same time: reform the banking sector AND reform the WTO.