But he slips over the line into transnational UN-speak when he advocates “global governance” — for our own good, mind you:
Forgot yourself for a moment there, eh, Mr. Prime Minister? The Bilderburg Group stresses the importance of keeping such plans secret, but you in your well-meaning enthusiasm let the mask slip.
Thanks to Henrik Ræder Clausen for creating a full transcript of this clip, which I have posted below the jump.
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Prime Minister Stephen Harper speaks with media at close of G8 summit
| [0:00] | Journalist: Prime Minister, we know that financial institutions have played a big role in starting this economic crisis, and have played a big role even in the recovery. They get too much money to people that [inaudible] people have to serve money and there is kind of a credit crunch. I know that your government, your minister of finance and yourself said that we need some international coordination, some rules to, in order to avoid what happened up to now will not happen again in the future. I wonder if you pushed this issue during the meeting, and if you did, what was the reaction, what was accomplished. | |
| [0:44] | Stephen Harper: I did push that issue very hard. Let me go through the various things I said on that. I think they’re all important. I think there was a fair amount of agreement around them. First of all, it is important that we fix the financial sector. And that means, for those countries that have had to intervene in the financial sector, in particular, had to intervene to bailout banks and financial institutions, it is critical that that intervention be seen through to its conclusion. | |
| [1:18] | That means, what I mean by that, is the following: It means that .. toxic assets have to be removed from the balance sheets; the banks the financial institutions have to be restored to health, and the system of regulation that led to that problem has to be fixed, the national system of regulation. What we cannot have happen, what concerns me, is that we see government intervention in some countries, giving a great deal of money to banks and financial institutions. Then the financial institutions do short-term fixing to their balance sheets, and then say: “We want to give the money back to government, and then get out of our lives.” That is the worst of all worlds. | |
| [1:58] | Because if we don’t see the intervention through to its conclusion, the message we will have sent is actually worse than the signal we had before. The only thing worse than a situation of unregulated Capitalism that led to massive failure would be a system of unlimited Capitalism backed by the unlimited desire of government to intervene at any point in time to bail people out. We can’t have that. | |
| [2:26] | The bailout, the situation that led to the bailout, has to be fixed. We have to allow institutions, that are particularly badly run, to fail, without having systemic failure. So that’s very important, I was very clear on that. We’ve also been very clear, as you know, Canada co-chaired the international panel on financial regulation. Our view is that all of these national systems of regulation have to be fixed. | |
| [2:56] | But there also has to be international coordination, there has to be an international peer review process for national regulations, so there’s transparency, there’s peer review and peer assessment. We’ve undergone that in Canada, it’s been very useful when we have undergone it, and we think all countries need to be part of that. It does not detract from national sovereignty. Nation-states are clearly going to exercise their rights to regulate the financial system. | |
| [3:28] | But in a globalized economy, we are going to have to take global responsibilities. And there is going to have to be some semblance of global governance on these questions. We can’t operate where major financial institutions operate in a manner that is not transparent, because it affects the entire global economy. So that problem does have to be fixed. | |
| [3:50] | The other thing, if I can add, that has to be fixed around this, and I’ve said that at previous meetings, is the underlying — I think there was an underlying situation here, that led to the massive problems in the financial system. And that wasn’t just the poor regulation of the financial system. It is that we have had a system of global imbalances, where the American consumer was sustaining global growth on the basis of unsustainable consumption. | |
| [4:23] | Financed, obviously, through American financial institutions, but also financed through excessive surpluses, excessive rates of savings in other countries. And that has to be corrected. Countries that have been in massive surplus have to start increasing their domestic demand to sustain global growth, and as President 0bama said very forcefully at this summit, very correctly: The American consumer cannot go back to a zero savings rate. That is not realistic, and it is not useful in the long term to the global economy. | |
| [4:57] | So, all of us have to put our minds together on fixing those global imbalances, as well as the regulation of the financial sector. |
I lost the tip, so I don’t know who sent this. Thank you, whoever you are!
7 comments:
I think this speech is quite typical of what our Dear Leaders say about the situation. In brief, it indicates that they do not understand the nature of the crisis, nor have any idea about how to fix it. Quite apart from the omnious quip about global governance.
A couple of highlights:
First of all, it is important that we fix the financial sector.
No mention of the productive sectors? Trade deficit drained of of money, a root cause of the crisis.
the system of regulation that led to that problem
That's a mean one. While government systems of regulations routinely fail (and then demand more power and more money), I do not believe the regulation system led to the problem. Not at all.
Yes, there has been regulatory failures. Failures that the government regulation agencies didn't predict, didn't take steps to prevent. Instead many have blamed the free-market equivalents: Short-sellers, 'speculants' and others seeking a profit in a profit-disabled market.
'Profit-disabled'?
Yes, that. An article in New York Times alerted me to the fact that in the highly stimulated economy, fueled by an extremely low interest rate, credit is easy and cheap, profit is practically unattainable.
What Merrily Lynch and the other great banks did was simple: In an economic environment with rock-bottom interest rates, one needed more leverage (geared investments) in order to make reasonable profit. That leverage was found in the form of the mortgage packages, loans with insurance against defaults and the like - theoretically sound investments that provided rates of profit otherwise unattainable.
Those profits were staggering, and the CEO's who managed to get into these super-profits accordingly drew super-wages.
But tbere was a systemic flaw: The risk of default was not an independent event for each house owner. That was an assumption behind the credit-default swap packages, and that was wrong. Regulation agencies didn't catch it, and this menace was permitted to run wild.
Now they want to fix the regulation, and force greater transparency in the financial sector. Both are rubbish. First, the regulation will be circumvented again. Second, the transparency is fine - except in one crucial institution:
The Federal Reserve
That is the institution that set the extremely low interest rates. That is the institution that fuels inflation, and that purchases government debt for money created with no ground in reality. All done behind closed doors, with not even a published summary of board meetings. Transparency, accountability? Start right there.
The whole speech avoids the thorny issue of the Fed - for good reason.
So, he wants lower saving rates elsewhere in order to make up for the lack of savings in the US etc? We need to fix our own savings, not diminish those of others.
But does he tackle the issue of 'quantitative easing'? Nope. Does he say we need more production and trade, less finance? No. Does he take the opportunity to demand more power for government and global institutions? Yes.
I don't think he's evil. I just think he fails to comprehend the full picture, and then is lured by the temptation of more power.
Harper's right. The lack of regulation over securitized mortgage instruments and credit default swaps was the reason that part of the market went wild. Had the swaps been done in a market (like the NYSE) out in the open, and had a regulator been on top of it, it would not have ballooned to the unbelievable extent that it did. The previous comments on the Federal Reserve are correct, however. Ultra low interest rates meant banks couldn't make money in traditional ways.
Frank, I disagree with you on some technical points about the mortgages and the CDS's. Yes, massive losses were the immediate trigger of the crisis. But that doesn't make them the cause of the crisis.
What I consider the real cause is too much money chasing too little profit, balooning both financial markets, housing markets and stock markets to unsustainable levels - levels from which the only way down was a crash.
If it wasn't the CDS's etc., it would have been something else - regulations be damned.
BTW, it's not only the bank that have trouble turning a profit in a low-interest rate environment, that goes for all business.
It would be much healthier to abolish the stimulus strategy and leave interest rates to market levels.
Hi Henrik R Clausen,
I think you're missing an important point here. The market is just a reflection of the human condition which is greed, grasping and ambition. The reason there is a market at all is that the Dutch found that trading in private led to corruption, fraud and false dealing; thus an open exchange. Later we discovered we, the British, needed regulation of these exchanges. The unique aspect of the securitized instruments was that they were done privately. Also, the non-bank financial institutions doing them, managed to keep them private. Thus, fraud, the bubble and the collapse.
Certainly regulation can get a handle on this. But you're right, greed always finds a way, right? So this simply means the regulators need to be 'in the market'.
One more thing; the greed included all those private individuals, corporations and public entities that thought they could earn a better return in a completely unregulated market than in one that was regulated. Silly people.
The market is just a reflection of the human condition which is greed, grasping and ambition.
OK, we have some serious differences here.
The market is a unique place where anyone is free to value the goods he/she purchases, openly and in competition with others. This is the most rational and effective trading post that exists.
Sure, as in traffic, rules are needed. But if subsidies on car production causes permanent congestion in the traffic and it breaks down, it won't help to create still more rules - what is needed is to stop the subsidizing, for it does more harm than good.
The corresponding problem in the financial markets is the never-ending creation of money, effectively subsidizing finance over production, and leading to all kinds of bubbles. Regulation won't stop that, won't remove the bubbles, and won't cure the underlying problem, an economy based on service and inflation rather than production and trade.
That, in turn, points back to the Fed, its ridicously low interest rates (these people don't seem to value money) and their badly misleadingly named "Open Market Operations", wherein government debt is turned directly into 'money'.
Let me point out something else that I find preposterous:
... excessive rates of savings in other countries. And that has to be corrected.
Here comes the global governance in full force. So, citizens of other countries produce more and consume less than the US, Canada & Europe. That's their choice. They work for their money, earn it and save it - any problem to that?
The problem, of course, lies elsewhere: We consume more and produce less. Neither Harper or any other Western leader has any right, whatsoever, to demand a lower savings rate in other countries. To him, this is just a number indicating a problem - and he's hoping to fix the problem by fixing the number.
In real life, however, these numbers represent deep cultural differences, that citizens of other countries have the discipline of saving, a discipline we in the West have lost, substituted by easy money and cheap credit, and ultimately by the promise of the welfare state taking care of us when in need.
Countries that have been in massive surplus have to start increasing their domestic demand to sustain global growth
Further depleting oil and other natural resources. Increasing CO2 emissions as well. I don't think he's even being coherent here.
President 0bama said very forcefully at this summit, very correctly: The American consumer cannot go back to a zero savings rate.
As if that would be a good thing... Saving is prudence, and provides banks with real capital that can be lend to real industry.
What we are doing now is to replace the wisdom of saving with the folly of cheap credit and artificial money. That is unsustainable.
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