As Congress debates bills to let government buy $700 billion of distressed mortgage assets, it may want to ask if the US can still self-regulate or needs advice from outside experts. With little fanfare or media coverage, the Treasury Department recently signaled willingness to invite representatives of the International Monetary Fund to conduct an examination of the US economy, financial infrastructure, regulatory apparatus and other systemic elements.
This IMF examination, commonly performed for emerging economies, could identify causes of the current crisis and offer reforms less subject to domestic political pressures. It may be premature for the current bill to address causes or prescribe cures with specificity. But Members and Senators could ask both Treasury and the IMF about whether anything should be in the asset purchase legislation to enable or require Treasury to undertake such an examination.
The IMF is imperfect, of course, having occasionally failed to forestall looming financial crises or offered policies that worsened a brewing crisis. But it has plenty of experience with these problems. An example, with parallels to the current crisis, and indeed a contributing cause of it, is 1997’s Asian financial crisis.