3-19-09, 10:15 am

Original source: Akahata (Japan)

At issue is international effort to establish effective financial regulation

Leaders of G-20 countries will meet in London on April 2 to discuss ways to respond to the global financial and economic crises. At issue is how to strengthen international oversight and regulation of financial institutions.

Europe is moving toward a tougher financial regulation stance by reviewing mechanisms that have encouraged financial speculations, including hedge funds and other speculative groups, derivatives, credit-rating agencies, tax havens, and offshore markets.

Stronger control was discussed in the recent U.S.-British summit. U.S. President Barack Obama suggested that tighter regulation is a high international priority.

The U.S. government changed its policy to rescue financial institutions after letting the investment bank Lehman Brothers fail. It did so because it could not ignore the crisis of the American International Group (AIG), the world’s largest insurance company, which is aggressive in its operations in Japan.

AIG was obliged to pay for the financial crisis, as it had sold a lot of derivatives which are liable for risks of real estate loans and business failures. U.S. Federal Reserve Chairman Ben S. Bernanke said in anger in Congress that AIG is a hedge fund “exploiting a huge gap in the regulatory system.”

The U.S. government is under pressure to regulate financial institutions’ operations that may cause a serious crisis in the future like the present one. It is a matter of course that large financial institutions should be strongly regulated immediately.

However, regulations should not stop there. Recent speculations on crude oil and grains have dealt a heavy blow to the living standards of people in many countries, particularly in poor countries. The task is for the countries of the world to regulate the activities behind the scenes regarding speculative funds and to overcome the aberration of “casino capitalism.”

Whether stronger control will be realized or not depends on the U.S. effort to keep pace with European moves. The U.S. government must not stop at regulating financial institutions’ activities that can be a serious threat to the financial system. It must also strengthen controls on financial speculations by hedge funds and other speculative groups.