Veteran financier George Soros yesterday voiced concern that
the globalized system of finance that evolved in the run-up to
the global crisis is beginning to give way to a more fragmented
system of bilateral rather than multilateral
He cited the growth of state capitalism in China
as an example, and said that the trend toward reserves-rich
nations becoming major providers of funds to partner countries
instead of global capital markets serving this function
It could cause conflict between states, Soros
claimed at a seminar in Istanbul. Already, in the wake of the
financial crisis alternative systems are beginning to
manifest themselves, he said.
Reregulation is needed in the aftermath of major
deregulation of the global financial system, but it needs to be
done in a coordinated way across national jurisdictions, he
Otherwise, there will be regulatory arbitrage and
capital will go to where it is best treated, he
said. If financial reregulation is not done now, the impetus
for reform will quickly fade.
The crisis is already beginning to seem like a bad
dream and people are waking up and hoping that it will just go
away, Soros said. Your need reregulation but it is
not going to be easy.
Former World Bank chief economist Joseph Stiglitz
charged yesterday at a separate briefing that the global
financial system has become bloated and needs to be
downsized and restructured.
Stiglitz, now professor of economics at Columbia University,
called for a kind of pollution tax to be imposed on
financial institutions, because of the way in which they
poisoned the system with toxic assets.
It is also only fair that banks and other institutions
pay a tax to compensate for the massive subsidies
that some of them have received by way of state-funded final
bailouts, he argued.
Stiglitz pointed out that financial sector profits comprised
more than 40% of total corporate profits in the US before the
onset of the crisis. Finance had become an end in itself
rather than a means to an end.
The financial sector needs to be reregulated following
sweeping deregulation in recent years, but it also needs to be
downsized and restructured, he said. There is also a
consensus that you ought to tax the financial sector.
He cited as justification for a special financial sector tax
the fact that the US Congress voted $700 billion of
aid to the financial sector at the outset of the crisis.
This is equal to ten years of [US] foreign aid, he
The Istanbul meetings have provoked extensive debate on how
extensive and severe re-regulation of banks and other financial
institutions should be in the wake of the financial crisis.
Strong arguments in favour of regulation have been countered by
claims that over-regulation could stifle global economic