Friday, September 25, 2009

Paul Martin on The Issues Facing the G20 and the Financial Crisis

Paul Martin, ex-prime minister of Canada, was on BNN yesterday discussing the G-20 meeting and the current financial situation. The interview was excellent. Mr. Martin had excellent points and insights.

Mr. Martin was the first chairman of the G20. Mr. Martin was one of the people in the Canada team who called for the creation of the G20. At the time he was considering creating the G20, he called all the leaders of the G20 to discuss the creation of the group. Nineteen agreed, only one did not (George Bush). The funny thing is that when the crisis hit, Bush was the first to call for the G20.
- G20 vs G8: He thinks the G8 is just a side show now.

- He says the main issue to discussed by the G20 is that the banks should strengthen their equity basis. Capital ratios, European argue that their banks are solved. The issue must be dealt with now. We cannot delay dealing with this.
- Timing for exiting stimulus: it is not now

- Equity: banks must have a common minimum standard. Must be subject to international standards. We cannot be subject to another Lehman Brothers or another AIG.

- Sistematic risk remains. Must deal with the issue now, because memories fade.

- Trade inbalances cannot continue. China's export model is not sustainable. Its customer (the U.S.) is no longer there. He thinks its domestic consumption will increase.
- Banks pay and bonuses should not be excessive. Bonuses cannot be paid on meeting short term goals. The Board of the banks should be accountable to the pay they agree to. Directors should be responsible. Shareholders should walk away from financial institutions with excessive pay and bonuses. The current system is certainly too clubby.

- Bank regulation should be done by each country, but there must be global regulation as well, otherwise each country will do what it can to attract banks, and that may include easing its regulations (such as a minimum reserves). Without agreeing to be subject to this global regulator banks should not be allowed to operate in another country.
- On the state of the economy now: the new economy will not look like the old one, will not have the same leverage, not the same number of homes, car and refrigerators built.
- The real issue is China. We do not really know what is the real state. it's about to become the world's 2nd economy, ahead of Japan and Germany. He thinks we are beginning to see the upturn.

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