American Hypocrisy
A few weeks ago, the entire planet held its breath. Inspired by Paul Volcker, former chairman of the Fed, Barack Obama solemnly revealed his intention to initiate in-depth reforms of the American financial system. What we see: limitations on the size of banks and interdiction of investments in the riskiest markets (namely hedge funds and private equity) for their own accounts. Would the president do what this economist, who revealed the source of the crisis, dreamed of? Nothing was less certain. To begin with, the Volcker plan puts aside multiple shadowy zones of the American financial system. Thus, there are several regulatory “Bermuda Triangles” that allow entire sections of American finance (like the derivatives market) to escape almost any control. There’s also the troubling problem of trader bonuses that have poisoned marketplaces for several months. We should stop deluding ourselves in this area. Bonuses in the amount of $124 million granted by 34 of the largest American banks: That’s the equivalent of the developmental assistance for countries from the North to the South, and double the profits earned in 2009 by the combined enterprises of CAC 40! “Business as usual!”
But that can’t be the most important part. Because the most important part lies, since the end of WWII at least, in the capacity of the American government to hide behind Congress to postpone indefinitely the reforms that they don’t want to put into motion. We cannot pretend to understand the United States if we consider the Congress of this country as impotent as the one that exists in France. In the United States, Congress alone dictates the tempo of reforms. So, a single lost congressional seat from Massachusetts is sufficient then for Barack Obama, threatened by Damocles’ sword of midterm elections, to be ready to compromise: strongly declaring his desire to force Wall Street to yield in order to please his electorate, while trusting in “his” Congress to thwart any attempts to introduce ethical standards into American finance. Such is the (sad) reality of democracy in the United States, which regularly relativizes the sincerity of Barack Obama’s reformist instincts.
But we can go even further and consider the Volcker pseudo-reform as part of a larger plan that aims at reinforcing the competitive ability of American finance. What we see: It’s not the raft of reforms initiated by the three-member management group of the G20 (reunited since October 2008) that gave rise to an American decline. The application of prudential rules from the Bank for International Settlements, known under its pseudonym of “Basel II”? Maybe later. The promotion of “leverage ratio” (a ratio that favors American banks in relation to European banks)? An absolute necessity for Washington. Refusal to seriously regulate derivative markets? A profession of faith. Refusal to cooperate with European authorities concerning accounting rules? Same punishment, same motive. The obstruction of any regulation by rating agencies, whose two global leaders are American (Moody’s and Standard & Poor’s)? Absolute evidence. Attempts to make the European model of a “universal bank” (which combines the riskiest businesses and those of commercial banks that are the least risky) implode by pushing for formal separation of commercial banks’ operations and those of merchant banks? What’s more natural? These six examples demonstrate that the United States, undermined by their deindustrialization, will do everything it can to protect its finances.
What to do in this instance, in Europe generally and in France in particular? First, remain firm on the principles defined by the three-member management group of the G20, who had the honor of tackling, at last, the sensitive subjects. Next, don’t lower one’s regulatory guard; employ better regulation , but don’t do it alone. Finally, call upon the global governance for aid to developing countries — particularly China — who have been excluded from this for more than 20 years, in order to constitute a tandem-emerging Europe, capable of making the American financial system, the primary cause of the crisis and the first to profit from the situation, give way. It isn’t a victory, but at least we can dream!
But that can’t be the most important part. Because the most important part lies, since the end of WWII at least, in the capacity of the American government to hide behind Congress to postpone indefinitely the reforms that they don’t want to put into motion. We cannot pretend to understand the United States if we consider the Congress of this country as impotent as the one that exists in France. In the United States, Congress alone dictates the tempo of reforms. So, a single lost congressional seat from Massachusetts is sufficient then for Barack Obama, threatened by Damocles’ sword of midterm elections, to be ready to compromise: strongly declaring his desire to force Wall Street to yield in order to please his electorate, while trusting in “his” Congress to thwart any attempts to introduce ethical standards into American finance. Such is the (sad) reality of democracy in the United States, which regularly relativizes the sincerity of Barack Obama’s reformist instincts.
But we can go even further and consider the Volcker pseudo-reform as part of a larger plan that aims at reinforcing the competitive ability of American finance. What we see: It’s not the raft of reforms initiated by the three-member management group of the G20 (reunited since October 2008) that gave rise to an American decline. The application of prudential rules from the Bank for International Settlements, known under its pseudonym of “Basel II”? Maybe later. The promotion of “leverage ratio” (a ratio that favors American banks in relation to European banks)? An absolute necessity for Washington. Refusal to seriously regulate derivative markets? A profession of faith. Refusal to cooperate with European authorities concerning accounting rules? Same punishment, same motive. The obstruction of any regulation by rating agencies, whose two global leaders are American (Moody’s and Standard & Poor’s)? Absolute evidence. Attempts to make the European model of a “universal bank” (which combines the riskiest businesses and those of commercial banks that are the least risky) implode by pushing for formal separation of commercial banks’ operations and those of merchant banks? What’s more natural? These six examples demonstrate that the United States, undermined by their deindustrialization, will do everything it can to protect its finances.
What to do in this instance, in Europe generally and in France in particular? First, remain firm on the principles defined by the three-member management group of the G20, who had the honor of tackling, at last, the sensitive subjects. Next, don’t lower one’s regulatory guard; employ better regulation , but don’t do it alone. Finally, call upon the global governance for aid to developing countries — particularly China — who have been excluded from this for more than 20 years, in order to constitute a tandem-emerging Europe, capable of making the American financial system, the primary cause of the crisis and the first to profit from the situation, give way. It isn’t a victory, but at least we can dream!