Jacques Cheminade and Christian de Boissieu Debate NBW on TV France 24's `Face Off'
Oct. 18, 2008 (EIRNS)The broadcast aired directly in English at noon yesterday, on France 24's English-language program `Face Off,' and will be posted on the TV station's Internet site all during Saturday, when French President Sarkozy will be meeting his U.S. counterpart, Bush.
Anchorman of France 24: Hello and welcome to face-off on France 24. Europe wants an overhaul of the world's financial order. At the EU summit in Brussels this week leaders called for more transparency and regulation of global markets. That means in effect a rethink of Bretton Woods, the 1944 conference that created the rules of modern day capitalism.
Representing the European Union, French President Nicolas Sarkozy is to meet his US counterpart, George W. Bush, on Saturday to flesh out this idea. There are also plans for a summit in an expanded G8 format to push for it. So, what could Bretton Woods II look like and who actually needs it? Let's ask our guests, Christian de Boissieu, who is the president of the Economics Analysis Council which advises the French Prime Minister, and also with me, Jacques Cheminade, the president of the Solidarity and Progress association. Good morning.
F24: Jacques, I like to start with you. This is going to be a difficult sell for Nicolas Sarkozy in Camp David, isnt it?
Jacques Cheminade: He's helped by the situation. You know that Joseph Stiglitz said, and this is a quote: "The Wall Street crisis is to the markets what has been the fall of the Berlin wall to Communism." So it's an issue of life and death.
CDB: I think the same in the sense that this crisis is global, and to a global crisis we need some global solution. To come back to the title of this broadcast, I would say that what is important for me is 'new:' it is not Bretton Woods, it is the new Bretton Woods, because in my mind this worldwide conference is going to be very different from the first Bretton Woods which was about exchange rates; which was about monetary cooperation; which was about how to finance external deficits. And now the topics with which we have to deal are totally different. We don't have to rebuild from scratch, we have to improve the system in regard of banking and financial regulation.
F24: Well, [we'll] explore that in detail in a minute. On the question of America: does the US actually need a New Bretton Woods, when it actually exemplifies, it embodies Bretton Woods?
CDB: My view is that the US economy and the US banking and financial system are in such a bad situation that they actually will [accept] playing this game of further, expanded international coordination. It is going to be not only necessary for us, but also for them.
F24: Jacques, does the US need a New Bretton Woods?
JC: Oh yeah, the American people and the true American System do need a new Bretton Woods; but Wall Street and the City of Londonthat's another story. For example, M. Gordon Brown has said that hedge funds, off-shore markets, and tax heavens have to be regulated but you can't regulate vice if you want to produce virtue.
CDB: You know, I was plugged by these wordings by M. Brown. In the sense that not only M. Sarkozy, but also today M. Brown and some others, are advocating to hold a New Bretton Woods conference. As I said before, I think the US will play the game because they are obliged to do so. They cannot play the game of being a free rider in the current circumstances. This crisis, the subprime crisis, was coming from the US, and it has become global for all the reasons we know, and the US must participate. And I think it is also a question of global governance.
To come back to the format, I guess that this Saturday, M. Sarkozy and M. Bush will appeal for a meeting of the expanded G8 but with whom? Perhaps the G13 format with China, India, Brazil, and some other countries. I think that in the end we need to have everyone around the table
CDB: Everyone, all the emerging countries and the developing countries. You have today 185 member countries belonging to the IMF. Let this assembly of countries decide for us, for the world, and not only a small club of countries.
JC: France can be a catalyzer, but not an author of the new system. The New Bretton Woods, the issue of the New Bretton Woods is, either you adapt to the situation, and you try to keep the existing financial system by all kinds of tricks and regulations. Or, you go toward a new system, and that's a challenge for civilization at this point. I fully agree with M. de Boissieu on this issue; it's a challenge for civilization.
CDB: For me the menu of this possible new Bretton Woods must be twofold. First: to give a consistent answer to the entire list of questions which have been raised by this current financial crisis. This list is very long: how to improve the working of the rating agencies; how to improve transparency of information; the debate of how to implement a reasonable code of conduct for the sovereign wealth funds; the debate about the accounting standards which is very important in respect to what we saw in the recent past.
This is the first topic: not to give piece-meal answers but a global answer to the global problem. I would say not only to improve regulation. The issue here is to ameliorate the quality of banking and financial regulation rather than the quantity. Second topic is the fact that we have to redefine the role of the IMF for the future.
F24: Jacques, could you respond on this issue of quality rather than quantity of regulation. What do you think of that?
JC: Well, if you look, at this point, at the outstanding, non-regulated, derivatives markets, it's 600,000 billion dollars. And if you look at all the interbank derivatives transactions, it was about 2 million billion to a quadrillion dollars, and probably more. So we have a tremendous problem in front of us: you have a pyramid of illegitimate and unpayable debts. So either you apply triage on this illegitimate and unpayable debt, or you apply triage on the people and the economy; and that's the choice!
CDB: Jacques, may I say that you're talking in fact about what is called the Over The Counter (OTC) market, which could create some systemic risk. We have to better articulate the organized market with the OTC market, and I agree with you to re-regulate somewhat a part of the OTC market and to extend also the perimeter of financial regulation to bodies and institutions which are today totally out of the system.
JC: I would say, as a politician, a dirty word: bankruptcy reorganization. What you do to a bankrupt firm? You put it into bankruptcy reorganization, and you try to establish the conditions under which firms continue to function for the economy. It should be the same for the international economic system. At this point, the money went away from true long-term real investment, away from what's good for the people and the economy, and went into money making money. This process started with the big bang of the City of London, initially in 1986, and before that, by the decoupling of the dollar from gold on August 15, 1971. That's the issue.
CDB: When I said that the current topic [for the NBW] is not the exchange rate, as different from the original 1944 Bretton Woods conference, I think that at some point, we will rediscover the exchange rates problems. But now, in the short run, topic number one has to be financial regulation.
JC: But you can't revive a corpse with electro-shocks. You have to rebuild something that works, and it doesn't necessarily mean throwing everything in the [paper] basket. It means to regulate in a true way, and that means to check all the derivatives markets, and throw away everything having to do with mere bets as opposed of functioning as insurance. Derivatives based on insurance of tangible assets should be maintained, but all the rest should be thrown away.
CDB: To come back to the issue I raised when I talked about quality rather than mere quantity of regulation. If one looks back to the history of securitization, over the past fifteen, or past ten years, one realizes that in most cases, securitization was introduced by banks and their customers in order to circumvent some banking regulation.
CDB: And therefore, when we design the future financial system, we have to keep in mind that there is a dialectic between regulation and innovation. And therefore, we will have to improve Basel II, the solvency rules for the banks; we will have to look at the solvency and liquidity rules of insurance companies and also liquidity rules for the banks.
F24: Who is going to provide the regulations? You mentioned the IMF earlier, that it needs be a new actor, a new leader? Is that a realistic option that it could provide the oversight?
CDB: My proposal is that the IMF could co-manage, co-manage the future systemic banking and financial crisis. When I say co-manage, it means manage with the central banks, because the IMF is not going to become a true central bank and manage with the governments. And therefore, we have to give some regulatory powers to the IMF which is not the case today which will be exercised with the national authorities, co-managed.
F24: What do you think of that, of a system of co-regulation?
JC: The same people that are responsible for the mess in which we are, cannot be called upon to solve it. And I am very doubtful when I see Alan Greenspan as special advisor to M. Gordon Brown in England; when I see Michel Camdessus, the former head of the IMF, called upon to lead the French agency to refinance the banks in France, and worse, since that is a conflict of interest. I'm shocked and really furious when I see Henry Paulson calling M. Neel Kashkari, who's from Goldman Sachs, to rule over the 700 billion dollars of the Paulson plan! I would say, if I can make a joke: No Sachs next night! No more Sachs!
CDB: This is a different point than the one I was making.
JC: Yes, You are an expert and I am a politician.
CDB: In my view, I want to avoid any kind of conflict of interest.
CDB: The debate about if we have to give some regulatory powers to the IMF which could be exercised jointly with the national authorities, this is an important question. And it is also a political question.
F24: But who should then provide the oversight, if it's not the people who, in your view, are responsible for the mess?
JC: Well, I have been calling for a New Bretton Woods since years and years, and my American friend Lyndon LaRouche also has called for a New Bretton Woods, and we denounced derivatives right at their beginning. He denounced them in 1993, whereas George Soros, who is now talking and talking, created the derivatives and created the hedge funds. So, that's what I meant when I said that those responsible for the crisis should not be put in a position to speak, and speak about how to solve it. The doctor that made the good diagnosis should be one that should be in charge of curing the patient.
F24: I'm sorry we have to end here, so Christian can't even have the last word since we ran out of time. Thank you, etc.