The G-19½

March 17, 1:00 AMDC Foreign Affairs ExaminerJoshua Pierce

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The media continues to hammer Treasury Secretary Tim Geithner on his failure to articulate the scope and duration of government intervention in the economy.  One has to wonder if Geithner would be better equipped to face Congress and the media with a full, permanent staff.  As the administration continues to have problems finding financial experts who managed to properly file their taxes throughout their lives, many of the top posts at Treasury remain vacant.  Treasury officials argue that it has filled vacancies at a faster rate than previous administrations.  That argument might have eased nerves if we weren’t in the midst of one of the most devastating financial crises in history.

As the world’s finance ministers and central bank governors prepare for the latest G-20 summit meeting in London, Obama will be accompanied by Geithner.  It would seem logical for the Treasury Undersecretary for International Affairs to be at Geithner’s side, except that there isn’t one at the moment.  Obama and Geithner will be justifiably busy reminding other member states of the need for increased fiscal stimulus and IMF funding.  Coordinating global regulatory standards to avert or at least mitigate a future worldwide financial meltdown will not be a priority.

In some areas, like bank capital adequacy standards, regulation may need to be implemented in a way that prevents a “race to the bottom”.  In other words, certain restrictions may only be effective in America if they are done in concert with other industrialized nations.  Otherwise the mobility of capital would prompt banks to circumvent regulation by transferring assets where possible to jurisdictions with more lenient restrictions.  American regulators are floating the idea but would be wise to seek assurance from other G-20 members that they will follow suit.  While forming an umbrella financial regulatory organization to oversee and harmonize worldwide regulation may not be the answer, at a minimum greater communication is needed.

Most large financial institutions do not limit their operations or assets to a single country.  The Financial Stability Forum (FSF), established in 1999 to promote international financial stability, recognizes that this inevitably creates regulatory gaps.  For some reason the FSF waited until last Thursday to broaden its membership to include all G-20 member states.  In an ideal world, U.S. officials would treat the G-20 meeting as an opportunity to fully integrate communication with new FSF members.  As it stands, the U.S. will barely have the organizational capacity to effectively represent itself.

Strengthening domestic regulation among G-20 members will be a central theme of the London Summit.  Improving communication among regulators of different nations will likely be secondary if not tertiary.  This is an area where Geithner could probably multi-task more effectively with the help of appointed subordinates.  Geithner and Obama are going to London to help the rest of the world put out the fire.  The appointment of a permanent staff at Treasury before the conference begins on April 2nd might indicate to the rest of the world that we are also serious about preventing the next one.