Congress Should Ask Treasury: Can the US Self-Regulate?

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7 Responses

  1. A.J. Sutter says:

    As Max Beerbohm said, “The ant sets an example to us all; but not a good one.” I don’t understand your argument here: Yes, the IMF has experience in these matters, but even you don’t claim that the results were good.

    Indeed, one of the countries that resisted IMF, Malaysia, went its own way, with much better result than some of the countries that allowed themselves to be guided by IMF advice. Many others, especially in Africa, have shifted from being food exporters to being net food importers because of IMF advice or conditions. The organization’s track record isn’t just limited to the Asian crisis of a decade ago.

    What evidence is there that IMF has grown wiser from its experience? (Could it be that IMF’s expertise at protecting the interests of commercial lenders, rather than of a country’s citizenry, is what recommends it to Paulson & Co.?)

  2. Frank says:

    Perhaps “capping executive compensation for recipient firms” is a “collateral matter.” But it really diminishes public confidence in the plan when it seems like the very people who caused the crisis are going to become ever richer working on its solution. Consider this scathing article from our H.L. Mencken, Dana Milbank:

    “‘If we design it so it’s punitive and so institutions aren’t going to participate, this won’t work the way we need it to work,’ Paulson, whose net worth is said to be north of $600 million, told Chris Wallace on ‘Fox News Sunday.’

    “It was a message of mercy and humanity — who, after all, would be so cruel to deny executives their eight-figure bonuses merely because they drove their companies into insolvency? — and administration officials and Republican lawmakers joined the cause of the unappreciated CEOs.”


  3. Lawrence Cunningham says:


    Please allow me both a weaker and stronger form of response to your queries:

    1. Weaker Form Response: I am not confident endorsing, and am not here endorsing, having Congress require Treasury to engage IMF for a review, advice, direction or assistance in managing the proposed government program; I am confident suggesting, and am here suggesting, that Congress should consider it a responsible idea for debate and discussion.

    2. Stronger Form Response: IMF policies, especially conditionality, are controversial and empirical evidence of success either mixed or contestable. For net favorable analysis, see, for example:

    a. John Norberg, In Defense of Global Capitalism (2001) 177-181 (noting that countries following IMF policy advice, including Uganda and Ghana, benefit, while those not doing so, including Nigeria, Kenya and Zambia, do not);

    b. Jagdish Bhagwati, In Defense of Globalization, 4-5 (2004/2007 paperback) (characterizing routine criticism of IMF, and especially regular public protests at its and World Bank’s annual meetings, as “clever guerilla tactics”) and 260 (noting IMF policy reversals after its “wrongheaded deflationary prescription in the East Asian crisis”); and

    c. Stanley Fischer, IMF Essays from a Time of Crisis: The International Financial System, Stabilization and Development (2004) (including reviews thereof, such as Patrick Conway 44 Journal of Economic Literature 115-144 (analyzing Fischer’s empirical data and comparing it empirical data elsewhere in the literature)).

  4. A.J. Sutter says:

    Thanks for your reply. Johan Norberg says that countries complying with IMF “have had on average higher growth *and thus* reduced poverty” (emphasis added), while the others “remain economically unimpressive, having become bogged down in poverty and inequality of unimaginable dimensions” (@181). One could question whether the causation of higher growth reducing poverty is correct, to say nothing of the implied causation regarding IMF advice. And while probably the US is not (yet) in danger of poverty of unimaginable dimensions, it’s interesting to compare the 2007 Gini coefficients of some countries (UN and CIA figures agree, unless otherwise noted): Ghana 40.8, Uganda 45.7, Kenya 42.5 (UN)/44.5 (CIA), Nigeria 43.7, USA 40.8 (UN)/45 (CIA). While Zambia is off the charts, at over 50, it’s hard to draw a strong connection between following IMF advice and reducing inequality, as Norberg contends.

    More generally contra on the IMF, see, e.g., Joseph Stiglitz & Andrew Charlton, Fair Trade for All (2005), noting, e.g., that “the IMF often forces developing countries to have high interest rates, well above the global ‘market rate’,” (@131), “monetary policies or structural adjustment programs advocated by the IMF may adversely affect the flow or affordability of finance to facilitate the restructuring of the economy in response to liberalization” (@208) and that IMF usually fails to consider the effects of its policies in conjunction with effects of the WTO (@81).

    I agree with the broad idea that the US shouldn’t be the sole regulator of the world’s financial system, but I doubt that IMF are the right folks for the job.

  5. Lawrence Cunningham says:


    We seem to agree to ask a vital question: what expertise is available to offer national advice in a deeply inter-connected global financial system? Maybe IMF is not the ideal group, but what group is?

    US Congress, principally through its gifted staff, has valuable expertise. But this is limited concerning the crisis US Treasury and Fed ask it to address. The latter may equally fail to grasp all dimensions of the challenges posed. To overcome these limits, why not get advice from those who have addressed broad-scale financial crises akin to the present one before, even if (or maybe precisely because) results of their efforts are mixed?

    On your finer points, true, causal inferences about growth leading to poverty reduction, and IMF’s role, are contestable. An open question is how intensively US policy should seek eradication of such inequality as there is, or poverty that, perhaps not of “unimaginable dimensions”, is surely treacherous in pockets. Serious political questions arise, with stakes far beyond, though implicated in, this discussion. And, no doubt, Professor Stiglitz is right to remind IMF to consider how its policy recommendations interact with other constraints, including those emanating from the World Trade Organization.

    Shall we leave it at that? Or could we turn crisis into advantage by considering how the US economy’s performance poses global repercussions? Shall domestic institutions alone sort this out?

  6. A.J. Sutter says:

    I do agree that US domestic institutions shouldn’t sort this out alone. A first thought would be to consult with OECD finance ministers and central bankers. I may be a bit naive about how the IMF works, and I understand that technically the group I’m suggesting is a subset of the IMF Board of Governors, but by dealing with national teams (and their supporting bureaucracies, rather than IMF’s) more directly, I suspect there might be more political savvy in the room. But I also suspect a second thought about this — to say nothing of political change in some of the countries concerned — might be more fruitful.

    There is, of course, another option, which is to learn from the private sector in Nigeria. Here is an example: (Source: ):

    From: Minister of the Treasury Paulson


    Dear American:

    I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude. I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

    I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

    This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

    Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed

    information about safeguards that will be used to protect the funds.

    Yours Faithfully Minister of Treasury Paulson

  7. Miriam Cherry says:

    Thank you, Larry, for your insightful commentary on this and related issues here.