The 3% rise in the markets early this morning is credited to an internal memo at Citi claiming a nice profit during the past couple of months. That's Citi -- the corporation on the edge of "nationalization." Any news is good news and for the more reliable S&P index, the news appeared to have been welcome.
Or could it be something else? What about a big sigh of relief all round in response to Ben Bernanke's words this morning ? It would have been nice had he said something like, "Oops! Mistake! Turns out financial systems are in great shape and the recession is over." Instead, he faced reality and complaints from our global partners. He gave a big hug to transparency and to an overhaul of financial regulations. Really, that is good news.
In a speech before the Council on Foreign Relations in Washington, Mr. Bernanke said the financial system needed to be regulated “as a whole, in a holistic way” and that stricter oversight of banks would not be enough to guard against future crises. “Strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim,” Mr. Bernanke said.
Most of us are looking for a little more than Citi's claim to a two-month uptick. A future that includes persistent oversight of financial systems is more meaningful. The specifics of Bernanke's statement are reassuring.
Mr. Bernanke also called for the creation of an authority to monitor and oversee broad, systemic risks, and said that policymakers need to add muscle to the rules governing payment and trading so that the financial markets perform better under stress. He said the United States could take a “macroprudential” approach — surveying the breadth of markets and financial institutions for signs of bubbles, growing risks like the subprime mortgage market, or risks shared by interconnected markets.
A statement now from the Obama administration supporting the Fed chair's statement would do a lot for all of us -- and for the markets, too. Certainly it would allay the fears in European financial institutions that we are so concentrated on a national stimulus plan that we're overlooking the need for basic reforms. President Obama, are you listening?
In recent days, the White House has begun signaling that when leaders of the Group of 20 nations meet in London next month, the most pressing issue should be doing more to stimulate their economies through tax and spending policies — something that Mr. Obama can assert that he has already accomplished.
The major European nations, divided among themselves over the wisdom of taking on more debt to combat the global downturn, remain more interested in focusing on a new approach to financial regulation, the issue that they say sits at the heart of the crisis. ...
...One European ambassador said last weekend that “in three weeks we’ll see whether the love affair with Mr. Obama can withstand our demand that the United States clean up its system fast, and his demand that we contribute more to Afghanistan, even faster.”
The new administration's approval ratings are dropping. Perhaps that's a response to what many of us are feeling: there's been as yet no commitment to systemic reforms acting in concert with local recovery and reinvestment efforts.
