Courtesy of Phil Levy:
. . . In the context of mortgage regulation, former Senator Phil Gramm writes: “It was not that regulators were not empowered; it was that they were not alarmed.” Nor is this a uniquely American problem. The troubled European banks that relied heavily on dubious AIG credit default swaps to avoid capital requirements were under the watchful gaze of European regulators.
Poor regulation and inadequate regulation have very different implications. If our difficulty was that regulators were human and fallible and unwilling to use the tools at their disposal, it is not clear how expanding the tools at their disposal will solve the problem. We can at least be grateful that President Obama resisted French and German attempts to go even further on the regulatory front.
Thus, it appears the G20 did little harm, but did little to save the world either. At the core of the current global crisis lie failed banking systems. As the communiqué noted, “Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows.” The leaders promised to work on that in unspecified ways.