Wanted: A New Financial order

[marcinmoka]

Amidst all the anxiety over the present day economy, I am somewhat excited about possibly witnessing the birth of a new global financial order.

What effect will this have over the current day geopolitical structure? Will it usher in a greater level of cooperation between old allies who have not been on best terms of late? Or will it only lead to further splintering of global powers? Though best to hear out the proposals before jumping to conclusions. I just hope Canada remains well placed to increase its presence in the world.

Time will tell.

DOUG SAUNDERS

From Saturday's Globe and Mail

That was a view that had been pushed strongly by Mr. Brown, in a memo that he had begun circulating among associates and leaders, and it agreed, on the surface, with something similar to what Mr. Sarkozy had been saying for weeks: That this was an unprecedented global crisis, beyond the scope or powers of any national government.

The next step, they agreed, would have to involve the whole world, and would require rewriting the rulebook of global capitalism.

With that lunch, Europe had reached a consensus, at least superficially, on a solution that had not been attempted in 64 years: a major global meeting that would attempt to redesign the world-finance system. It was an acknowledgment, at a high level, that with the current crisis, the entire postwar economic system may have come to an end. What comes next will be a matter of heated disagreement.

http://www.theglobeandmail.com/servlet/sto...pageRequested=1

[eyeball]

I don't see much point to a New Financial Order without a New Economic Order. If we continue to rely on the misperception that our human economy exists independently of our planet's ecosystems and that these are simply irrelevent externalities, an NFO will simply be another short-term bandaid inside an economic bubble that is oblivious to what it is actually floating on. Such is the way of all our bubbles before they pop.

[marcinmoka]

I don't see much point to a New Financial Order without a New Economic Order.

Say what??? Or are you just another one of 'them' suggesting turning our backs on civilization and living in a pre-agrarian nomadic lifestyle? I suppose living a neanderthalic life (which many already seem to embrace, knowingly or otherwise) would put the liquidity/credit crises to rest. Unfortunately, mass starvation is not my thing.

[August1991]

Amidst all the anxiety over the present day economy, I am somewhat excited about possibly witnessing the birth of a new global financial order.

A new financial order designed by the likes of Bush, Obama, Brown, Harper and Sarkozy?

Are you insane?

[marcinmoka]

A new financial order designed by the likes of Bush, Obama, Brown, Harper and Sarkozy?

Are you insane?

Any other suggestions? Yourself? You clearly seem to buy in to many standard model assumptions; i.e. people are rational, act to maximize their self interest, etc.

But seriously.

You mean a new financial order marketed by the likes of Harper, Bush, Sarko, Brown. Leaders toiling into the wee hours of the night crafting their own risk-management algorithms; would be a sight to see. Mugabe, Jong Il et al excepted. What next, the aforementioned conducting their very own war-game simulations?

[August1991]

Any other suggestions? Yourself? You clearly seem to buy in to many standard model assumptions; i.e. people are rational, act to maximize their self interest, etc.

Indivduals are rational; groups are not necessarily rational. The assumption of rationality applies to individual behaviour, not group behaviour.

Markets seem to have confused many people on this point.

[Riverwind]

Talk about throwing the baby away with the bath water.

The fact that banks in Japan, Canada and a few other countries emerged from this debacle relatively unscathed demonstrates that the system is not universally flawed.

I think we should start by looking at what worked in Japan and Canada. I suspect part of the explanation will be cultural but I also suspect government regulation played a role too.

We need to figure out what worked and what did not and bring some uniformity to global banking regulations. I don't think we need to 'reinvent the system' and I don't trust the motivations of those who claim that it is necessary.

Edited October 19, 2008 by Riverwind

[marcinmoka]

Indivduals are rational; groups are not necessarily rational.

eg. People will not pile up debt they cannot afford to pay back?

To be honest, if you can even possibly rationalize the actions of all individuals, from teens who torture small animals to folks who buy homes they cannot afford, I pity you

Anyhow, back to the original question, who do you suggest draft this new financial plan?

Edited October 19, 2008 by marcinmoka

[August1991]

eg. People will not pile up debt they cannot afford to pay back?

That is hardly evidence of irrational behaviour. On the contrary, it may be entirely rational to borrow alot of money if someone else guarantees the loan.

To be honest, if you can even possibly rationalize the actions of all individuals, from adult serial killers to teens who torture small animals, I pity you.

It depends how you define "rational". Even lunatics can put food in their mouth.

Anyway, the larger problem is how rational individuals can lead to completely irrational group behaviour.

Since you seem interested in this, here's a good read from Kenneth Arrow:

The current financial crisis, the loss of asset values, the refusal to extend normally-given credit and the great increase in defaults on obligations ranging from individual mortgages to the debts of great investment banks presents, of course, a pressing challenge to the fiscal authorities and central banks to take measures to minimise the consequences. But they also present a challenge to standard economic theory, a challenge all the more important since the development of policies to prevent future financial crises will depend on a deeper understanding of the processes at work.

Guardian

[eyeball]

Say what??? Or are you just another one of 'them' suggesting turning our backs on civilization and living in a pre-agrarian nomadic lifestyle? I suppose living a neanderthalic life (which many already seem to embrace, knowingly or otherwise) would put the liquidity/credit crises to rest. Unfortunately, mass starvation is not my thing.

What exactly is it that you have against basing the economy in reality? Do you think its possible to have financial capital without something real backing it up? If so you must also believe its possible to have a human economy without the natural capital of an ecosystem to fuel its growth. Is that what you're saying?

As for mass starvation...money doesn't grow on trees, so what did you plan on eating?

[marcinmoka]

It depends how you define "rational". Even lunatics can put food in their mouth.

Anyway, the larger problem is how rational individuals can lead to completely irrational group behaviour.

Well, how do you? A definition of terms is always in order. Although I would have trouble categorizing eating (along with defecating, mating, etc) as rational, rather than instinctual behaviour. My dog, as smart as he is, would hardly constitute a reasoned creature.

In economics, the idea of the "rational individual" is purely that, an idea, not fact. Above all, it is an assumption of convenience for no other reason that it makes modeling far more manageable. Are we all lunatics? No. Most of us do act rationally (depending on your interpretation of course) most of the time. But when a minority segment acts irrationally, this has ramifications far beyond the realm of those directly concerned (sort of a la Arrow's Theorem).

My point is, unless you have a definition of reason which encompasses the whole "gamme" of human behaviour, (every perversion, deviation, instability,etc included), you cannot label the individual as rational.

[planetx]

That is hardly evidence of irrational behaviour. On the contrary, it may be entirely rational to borrow alot of money if someone else guarantees the loan.

It depends how you define "rational". Even lunatics can put food in their mouth.

Anyway, the larger problem is how rational individuals can lead to completely irrational group behaviour.

Since you seem interested in this, here's a good read from Kenneth Arrow:Guardian

thats a great quote from mr arrow... why doesn't he just say "if you abandon standard economic theory then don't expect it to get you out of a jam later on"!

the tech bubble i can understand... essentially another scam where smart money raids dumb money (the huge financial stores of the baby boomers).

but the sub-prime mortgage fiasco?! come on! these were banks that should have known better!