Nov 17, 2008
Obama on financial overhaul
WASHINGTON - MR BARACK Obama is not president yet, but he has already been charged with yet another challenge after taking office: helping oversee the overhaul of the world's financial regulatory system.
That is one of the assignments to the president-elect from current global leaders after their weekend summit, where they pledged action to avoid a repeat of the financial mess that has caused worldwide economic chaos.
'Obama has a tall order,' said Mr Morris Goldstein, a senior fellow at the Peterson Institute for International Economics who spent years working at the International Monetary Fund, the world's financial firefighter.
'He has a lot of things he has to do quickly in a number of areas and doesn't have a lot of time to think about them,' Mr Goldstein said in an interview on Sunday.
That will put a lot of pressure on Mr Obama. He did not participate in the emergency two-day summit that concluded on Saturday, instead sending representatives, former Secretary of State Madeleine Albright and former Republican Representative Jim Leach of Iowa, to meet with leaders on the sidelines.
After taking the oath of office Jan 20, Mr Obama will have to figure out in short order how far his administration is willing to go in revamping oversight of financial companies and products, in the United States and abroad, and nailing down the crucial details.
'Obama has an incredible mountain to climb in the way of the economic and financial situation,' said Mr Richard Yamarone, economist at Argus Research.
President George W. Bush hosted the summit, where nearly two dozen foreign leaders endorsed broad goals to fend off any future calamities and to revive the global economy.
It will be up to finance ministers to flesh out the details to put such changes in place by the end of March. Leaders plan to hold the next summit by Apr 30 - just months into Mr Obama's term.
'I think this puts Obama and a new administration in a very difficult position,' said Mr Steven Schrage, a former Bush administration trade official now at the Centre for Strategic and International Studies.
'It's really going to be up to the next administration to figure, do they breathe life into this? Does this go forward? Do they take it in a different direction?'
All the while, the new president will be under immense pressure to bring relief to millions of Americans who have watched jobs disappear, retirement nest eggs shrink, home values plunge, foreclosures zoom upward and banks - along with storied Wall Street firms - laid low by the financial and economic crises.
'Make no mistake: This is the greatest economic challenge of our times,' Mr Obama said on Saturday in the weekly Democratic radio address.
'And while the road ahead will be long and the work will be hard, I know that we can steer ourselves out of this crisis.'
The president-elect himself did not weigh in after the summit about whether he agreed with the thrust of the leaders' broad goals.
But he indicated the global gathering was a good idea because 'our global economic crisis requires a coordinated global response,' he said on Saturday.
Translating the leaders' sweeping principles into specific actions will be difficult.
'That's the rub. That's where you really see the differences across countries in what you want to do,' Mr Goldstein said.
'In the coming months, we'll see to what extent Obama's agenda will conflict with the Europeans.'
Leaders pledged to make the global financial system more accountable to investors and less vulnerable to risky investing.
But there are sure to be differences of opinion on exactly how to accomplish that, which could impede progress at the next summit in the spring.
To provide relief from the current woes, the leaders supported the benefits of enacting government spending plans to stimulate their economies. But they stopped short of a commitment for all to act at the same time, as some Europeans had favored.
The Bush administration has reacted coolly to the idea of a second US stimulus plan, but Mr Obama and his fellow Democrats are more supportive.
Perhaps as important as the modest concrete steps they took, the leaders of the planet's richest nations - and some of the fastest-developing - made clear that they recognise the world's increasingly interconnected financial architecture and the responsibilities that go along with it.
'There shall be no blind spots,' German Chancellor Angela Merkel declared.
'There is here a great common will to ensure that such a crisis is not repeated.'
Underscoring how bad things have gotten, Mr Bush said he had agreed to the recent US$700 billion (S$1 trillion) rescue plan for US financial institutions only after being told America was at risk of falling into 'a depression greater than the Great Depression.'
The meeting included a far broader range of countries than the elite, old-guard group that usually holds such economic summit meetings.
'Emerging market countries were not the cause of this crisis, but they are amongst its worst affected victims,' declared Indian Prime Minister Manmohan Singh.
Leaders from 21 nations and four international organisations - from major powers including Britain, Germany, France and Japan to the fastest developing countries such as China, India, Brazil and South Korea as well as oil-rich Saudi Arabia - attended the emergency summit.
The meeting concluded with the release of a joint communique covering eight pages and 47 action items. The document's overarching focus is to establish a series of new safeguards for the fragile and opaque global financial system.
Nearly all the efforts are aimed in some way at better flagging risky investment patterns and regulatory weak spots before they bring down companies and then ripple dangerously through entire economies, as has happened in recent months.
For Wall Street, the leaders' talk about ways to provide relief probably will be of more importance than efforts to prevent another financial fiasco, experts said.
Even without new concrete commitments for government spending, tax cuts or interest rate reductions, the fact that leaders came together to address the crisis and did not let it become a blame game should help bolster some confidence on Wall Street, according to Mr Goldstein, Mr Yamarone and others.
US Commerce Secretary Carlos Gutierrez, appearing on CNN's Late Edition on Sunday, warned against making any new financial rules of the road too restrictive.
'There is an inclination, when you get into problems like this to go to an extreme, to over regulate, to think that we're going to have a worldwide compensation system. How is that going to be done? I think we have to be careful, we have to find a balance and we can't over regulate so that five years from now we're trying to claw our way back because we overdid it,' he said.
In their communique, the leaders called for such mundane things as 'supervisory colleges' where financial regulators can compare market notes across countries, better cooperation between nations on regulations, the eventual standardisation of accounting rules governing how companies can value potentially tricky assets, and new attention to credit-rating agencies.
The leaders also supported expanding the membership of the Financial Stability Forum, a group that has been examining the causes of the financial crisis and crafting ways to prevent future problems.
And the group called for broadening the financial police work of the 63-year-old International Monetary Fund as well as modernising the institution to better keep pace with the changing economic environment.
More than two dozen items were slated for some level of action by the end of March, around the time the leaders expect to gather again, with the rest left for later.
With fears high that signs of discord among the world's most powerful politicians could send markets plunging again come on Monday, the presidents and prime ministers appeared uncharacteristically determined to hold their tongues about any disagreement over either the cause of the current crisis or their compromise agreement.
This despite the fact that the action plan seemed to leaning in most areas far more toward the US preference for boosting oversight and free-market incentives than the European desire for increased regulation and requirements. -- AP
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