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G-20 Summit Politicians Blame Investors For Credit Crisis

Politics / Credit Crisis 2008 Nov 16, 2008 - 01:47 AM GMT

By: Mike_Shedlock

Politics Best Financial Markets Analysis ArticleHopes were high that the G-20 summit would issue a statement on US dollar hegemony, currency fluctuations, a new world order, a return to a gold standard, or make some other earth shattering statement. I predicted the summit would be a complete waste of time. Let's take a look.

Bloomberg is reporting G-20 Calls for Action on Growth, Regulatory Changes .

In a statement after a five-hour summit in Washington, the Group of 20 urged a "broader policy response" to spur growth, including potential interest-rate cuts and fiscal stimulus.

My Comment : Wonderful. The US is at 1% and Japan at .3% with every other country on a Mad Race To ZIRP . It did not help Japan or the US and it will not help spur growth anywhere else either.

The group set a March 31 deadline for recommendations on tightening accounting standards, strengthening derivatives markets and increasing oversight of hedge funds and debt-rating firms.

My Comment : Gee let's see. We postponed mark to market accounting, did nothing about off balance sheet accounting, and are blaming hedge funds for loose lending practices at banks.

"There was a common understanding that all of us should promote a pro-growth economic policy," U.S. President George W. Bush said. U.K. Prime Minister Gordon Brown said "there is a clear determination on the part of world leaders in every continent to take necessary action to move economies out of this difficult period."

My Comment : The understanding (or rather the misunderstanding) was that the meeting would actually accomplish something other than sing the praises of pro-growth economic policy.

With no clear promise to cut taxes and interest rates together, markets may be disappointed, said Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York. "This isn't a strong action statement on addressing the matters at hand."

Rather than coordinate action, nations should act "as deemed appropriate to domestic conditions," the leaders said in their statement.

My translation : Everyone will continue to do whatever it was they were doing before.

The group pledged not to erect new trade barriers, guaranteed more resources for the International Monetary Fund if needed and promised to meet again before May.

Tumbling stock markets and forecasts for a worldwide recession are intensifying pressure on the G-20 leaders to act, 15 months after the credit crunch began. The IMF predicts advanced economies will together contract next year for the first time since World War II.

My Comment : Another meeting before May? How exciting. Exactly what is another meeting supposed to accomplish other than issue another lame statement praising growth?

The G-20 leaders, representing 90 percent of the world economy, blamed the crisis on investors who "sought higher yields without an adequate appreciation of the risks."

My Comment : Banks and brokerage packages sold poison apples. The G-20 is blaming those who bought poison apples not those who knowingly sold poison apples.

Reaching agreement on what to do was difficult, French President Nicolas Sarkozy said after the meeting. "I'm a friend of the U.S. but it wasn't always easy," he said. "There were misunderstandings to overcome."

My Comment : Exactly what misunderstandings were overcome?

The statement papered over differences by recognizing that regulation is "first and foremost" a national responsibility, while at the same time demanding "intensified international cooperation" to oversee financial firms whose operations and problems cross national borders.

My Comment : "Papered Over" is right and not a single misunderstanding was overcome.

The leaders called for the creation of "supervisory colleges" for bank regulators around the world to better to coordinate oversight and share information about activities and risk-taking of international banks.

My Comment : They are going to create yet another college of useless bureaucrats that will not do a damn thing but receive outrageous pay for sharing information one can easily find on Bloomberg. Any information actually worth sharing will be hidden from public view just as it is now.

Capital standards should be raised, they said, particularly for banks' structured credit and securitization activities.

My Comment : This is a case of saying one thing and doing another as Compelling Banks To Lend At Bazooka Point and the Battle Over Bazooka Point Lending proves.

The leaders directed their finance ministers to work on recommendations for enhancing disclosure by investors and institutions, including hedge funds, of their financial conditions.

My Comment : Meanwhile Paulson and Bernanke are in a battle with Bloomberg because they are failing to disclose to investors exactly what they are doing with taxpayer money.

Debt-rating companies, which blessed many of the products that have since gone into default, should be registered, and oversight of their actions strengthened to ensure they provide unbiased information and avoid conflicts of interest.

My Comment : This is more useless nonsense. Exactly what good would it do to register Moody's, Fitch, and the S&P. The big three were blessed by the SEC and that is what the problem is. It's Time To Break Up The Credit Rating Cartel .

Accounting standards should be harmonized around the world, the group said, and regulators should consider whether current rules properly value securities, particularly complex, illiquid products, during times of stress.

My Comment : This sounds suspiciously like a move away from mark to market accounting to more mark to fantasy accounting.

The leaders said executive compensation should be managed to "avoid excessive risk-taking," while stopping short of calling for any caps.

My Comment : This is clearly another useless statement.

Warning against protectionism as a way to fight recession, the G-20 vowed not to raise any trade barriers for the next year. They also said they will seek ways by the end of the year to conclude the Doha round of trade talks that collapsed in July.

My Comment : Trade talks have collapsed every year for a decade. The US and EU are primarily to blame.

Leaders will meet again before the end of April, most likely in London, when a new American administration is in office.

My Comment : Why bother?

Heads of emerging-market nations said the G-20 should now replace the Group of Eight as the forum for addressing economic issues.

Brazilian President Luiz Inacio Lula da Silva said the G-8 has "become a group of friends" and there's "no sense in making political and economic decisions without the G-20 countries."

What sense is there in adding more to the group? The odds that 20 can agree to something when 8 cannot is zero. With that let's take a look at the top ten accomplishments of the summit.

G-20 Top 10 Accomplishments

  • 10: President Bush said "There was a common understanding that all of us should promote a pro-growth economic policy."
  • 09: U.K. Prime Minister Gordon Brown said "there is a clear determination on the part of world leaders in every continent to take necessary action to move economies out of this difficult period."
  • 08: The group agreed to not cap executive pay.
  • 07: The group sang the praises of low interest rates.
  • 06: The group will work on recommendations for enhancing disclosure while hinting it would allow the continuation of mark to fantasy accounting.
  • 05: The group called for rating agencies to be registered even though rating agencies in the US are already sponsored by the SEC.
  • 04: The group called for the creation of "supervisory colleges" who will not do anything thing but receive outrageous pay for sharing information one can easily find on Bloomberg.
  • 03: Argentina, Australia, Brazil, China, India, Indonesia, South Korea, Mexico, Saudi Arabia, South Africa, and Turkey complained "the group of friends" otherwise known as the G-8 would not let them in whenever the G-8 got together to party. The above listed countries are saying to the G-8 "please don't throw a party without us."
  • 02: The all inclusive group of 20 friends agreed to throw another party in April.
  • 01: Drum roll please..... The number one accomplishment of the G20 meeting was to blame hedge funds and the buyers (not sellers) of poison apples for the financial crisis.

Top 5 Things G-20 Ignored
  • 05: US Dollar Hegemony.
  • 04: Micro-Mismanagement of interest rates by the Fed and Central Bankers.
  • 03: Spending run rampant in US authorized by Congress. Same thing in other G-20 countries.
  • 02: Of immediate concern is the Collapse of Trade, Letters of Credit, and Baltic Dry Shipping. Please see Yet More Trade Finance Worries (Not for the Fainthearted) .
  • 01: Fractional Reserve Lending run rampant, leverage, excessive credit creation, and unsound fiat currencies. In other words the G-20 ignored discussing the very cause of the problem we are now facing.

By Mike "Mish" Shedlock

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2008 Mike Shedlock, All Rights Reserved

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