How can this monster called the financial market be tamed? How can a repeat of the enormous crisis that has faced the world for the past two years be avoided? The political search for the right answers is unpleasantly reminiscent of the attempts to save the world's climate: everyone agrees that something needs to be done. But when it comes to concrete action, no one wants to take the first step. That could be seen again during the one-day conference in Berlin.
There, German Chancellor Angela Merkel insistently called on G-20 nations to act together on planned transaction fees for banks. Her words were especially directed at Canada, the host of the next G-20 summit this summer. It didn't take long to hear the Canadian delegation's response: No, there won't be any kind of standard solution in Toronto. After all, Canadian banks weren't affected by the crisis and didn't need to be rescued with money from the state.
This kind of national egotism, as understandable as it might be, is uncalled for in the current situation. Financial markets don't recognize borders or oceans any more. Politics does. And as long as that's the case, there won't be any sort of reasonable regulation of the financial markets. Granted, it is an extremely complicated issue to tackle, but the consequences of failing to tame the financial markets must be clear to everyone. The first concern was rescuing the banks. For that, the rescuers had to free up giant sums, which they didn't even have. Now, the rescuers need to be rescued, namely the individual states. And an entire currency zone needs to be secured with an unimaginable sum of 750 billion euro. Just as a reminder: to get the Asian crisis of 1997 under control, it only took $10 billion. It took a good 100 billion euro from the state to save Germany's IKB bank alone, which was widely unknown before the start of the crisis.
G-20 nations promptly came up with a package of 50 measures at their crisis summit in response to the collapse of Lehman Brothers. That helped to avoid a total meltdown. But there is no sign of this kind of dynamic now. In Berlin, there's been a lot of talk of patiently waiting out the storm. That may be a good plan, but there just isn't a lot of time: the world's hedge funds have long since closed ranks. At the moment, hedge funds are politicians' favorite opponent. That looks good to the voting population, but it's not enough by a long shot.
Why not take concrete action and put a ban to banks' practise of trading on their own accounts, a practice known as proprietary trading? Or to lead the banks back to their original task of being there for their customers? Or to limit the size of banks, so that in the event of a bankruptcy they don't drag the entire system down with them? And why not do what Germany has already done: banning naked short sales? Does the world really need credit default insurance, when creditors already earn money from a different risk incentive called interest?
There's a lot at stake in this game. It comes down to the acceptance of the system known as the market economy. People will eventually lose faith in this system when they are constantly being called on to pay for problems that they didn't even cause. The practice of throwing together another bailout package every weekend can't be continued. To avoid that, there's only one solution: clear, standardized rules for all the players in this big casino. Put an end to the idea that the gambler pockets the winnings while the tax payer is saddled with the losses.
Author: Henrik Boehme/mz
Editor: Ian Johnson