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A European model?
Washington's foibles and its temporary loss of economic authority
and leadership notwithstanding, the United States should not lightly
succumb to a "grand scheme," European-style, new financial world
order with governments taking over the market, said Werner
Bonadurer, an clinical professor of finance at the W. P. Carey School
and a native of Switzerland.
"In Europe, they're going ballistic on re-regulation," he said. "I
won't call it socialism, but it's getting close. The French and
Germans are attempting to create a "new form" of capitalism, based
on moral values and heavy supervision in all areas of the financial
world -- theyre very quick to intervene in markets. In my view, it's a
regulatory overreaction which will be reversed in just a few years."
Exotic investments gone bad have hobbled banks around the globe,
and now taxpayers worldwide are being asked to support their
countries' financial institutions. That has created an atmosphere of
mistrust in financiers, global markets and the kind of financial
engineering that created mortgage derivatives.
But Bonadurer cautioned that people shouldn't lose sight of the
benefits that all of these things also brought -- and, once the current
crisis ends, should bring again.
"Globalization, lighter regulation and financial innovation brought us
tremendous welfare, and now we're giving back some of it," he
pointed out. "But we shouldn't lose sight of the fact that they led to
significant welfare -- particularly throughout the emerging markets."
Bottom Line:
In the last month, financial markets came as close to collapsing as
they have since the Great Depression, and the root of their woes was
frozen credit markets.
The crisis sparked several weeks of furious improvisation by U.S.
regulators and lawmakers. Then last week, the U.S. Treasury and the
Federal Reserve announced a plan to invest at least $250 billion
directly into U.S. banks. The regulators also said that they'd buy up
bad mortgage assets, raise federal bank insurance limits and
guarantee short-term loans between banks.
By early this week, their proposal appeared to be bringing relief.
Credit markets seemed to be returning to normal, and stock markets