New committee to save the world

November 15, 2008

In the late 1990s, when the Asian Financial Crisis was in full swing, Time Magazine dubbed then Treasury Secretary Robert Rubin, his deputy Lawrence Summers and then Federal Reserve Board Chairman Alan Greenspan as “The Committee to Save the World.”

On Saturday, a new committee convened in Washington, only this time the crisis is global, and now there are 20 members. Leaders from the 20 richest countries came together and backed a 10-page plan for the global economic crisis, agreeing on the need for measures to spur growth, better financial market rules and more say for emerging countries.

Sexy stuff, right?

Here’s a sample paragraph:

“Regulators should develop enhanced guidance to strengthen banks’ risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management. * Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions. * Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies. * Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts. * The Basel Committee should study the need for and help develop firms’ new stress testing models, as appropriate. * Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. * Banks should exercise effective risk management and due diligence over structured products and securitization.”

Eyes glazed over yet?

But don’t discount it, because if it works, it could help get us all out of the worst global economic situation since the Great Depression.

As one senior administration official told reporters at the White House, “this is the stuff of financial markets reform.”

“A number of these may sound very technical, or very mundane. I can assure you they are not,” he added.

This is the stuff that could get your house price back to where it was, your ability to get a loan, and your 401(k) to the point where you might want to open the envelope.

Another official pleaded with reporters to focus on the specifics.

“This is my life, I’ve been living this stuff. I want you to get all excited about it,” he said.

It may not be exciting, but important is another matter. Tell us what you think of the plan.

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fun stuff

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