Whither the Reform Agenda?
It now seems obvious to just about anyone working in the financial sector that some sort of comprehensive reform will be necessary to both weather the current financial crisis, and to avoid further catastrophic implosions of the financial sector in the future. In order to enact reform, two conditions must be met: first, someone or some group which is invested with governmental power must take the lead in enacting comprehensive reform, and, second, a sound policy or set of policies must be set into motion which will produce the results which previous attempts at reform and regulation failed to produce. Obviously, in order to enact reform of any kind, it would be wise to take the steps necessary to comprehend as fully as possible the methods by which the financial crisis itself was set into motion so that future reform is directed at the most necessary and most potentially beneficial areas of the financial sector.
Because the present financial crisis involves a global interdependency which has not, perhaps, been previously experienced, the cohesion of reform policies enacted by individual sovereign nations must be re-ordered or re-calibrated to demonstrably reflect the reality of a global financial market. One deeply problematic area of concern regarding the idea of reform and the current financial crisis is the reality that “Not only do banking crises deeply affect key macroeconomic variables in the short term, but they may also sow the seeds for lower long-run economic growth” (Banking, 31) and this fact under-cuts not only the contemporaneous impact of any postulated reform policies, but blunts the near-term and far-term perception of the efficacy of any postulated reform agenda. In other words, the crisis seems to demand immediate and profound reform, but the very nature of the crisis itself precludes any immediate or even near-term radical shift in the current negative financial trends. In terms of financial globalization, the lapse in financial oversight has resulted in “the removal of controls on international capital movements” (Banking 33) and “this process opens opportunities for banks to take on another type of risk by collecting funds in foreign currency and lending to unhedged domestic borrowers” (Banking 33), so the macroeconomic picture mirrors that of the specific economic “bubble” which has afflicted the US markets. Though it may seem an oversimplification to say so, the current global financial crisis was the result of radical de-regulation.
The first question in regard to reform lies in unraveling the distraught elements of the collapsed markets. Should regulators trace back to the source of broken regulatory bodies and provisions and replacing them with potentially stronger regulations or will these stronger regulations exacerbate the already atrophied avenues of liquidity, not only domestically, but globally? Another question, also involved with the issue of financial globalization is whether or not any single regulatory body can be invoked which possesses the authority and acuity to regulate a global financial system? Perhaps the most troubling question of all is whether or not a return to the essentials of a global financial system, namely a liquid credit market and a functioning banking system can be accomplished given that a global restructuring involves so many disparate economies and governments that regulation of them is practically impossible. The issue of reform boils down to three basic questions: who will lead the reform? Who will enact the reform? Who will benefit from reform? At this juncture in history, it seems self-evident that those who most desperately need to benefit from financial reform are “waiting in line” behind those who are in control of the slight and wholly ineffectual regulatory bodies which are presently engaged in the global financial system.