We must not be allowed to forget who was responsible for our plight - and the need for still more reform.

TO BE NOTED: From the Guardian:

"It's easy to sneer, but this G20 summit will make a difference

The protesters have it right - global finance needs to be tamed. Fortunately we're about to hear some innovative proposals

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• 
• • Will Hutton
  • The Observer, Sunday 29 March 2009
  • Article history

At last, the demonstrators have got the correct target in their sights. The anti-globalisation movement has always been too sweeping in its choices of enemies, lumping the excesses of big global finance in the same dark place as free and open trade, the handmaiden of growth and prosperity.

No more. This week's protests in the run-up to the G20 meeting on Thursday chime with a growing mood across Europe and the US. The world has been brought to its knees by the behaviour of western financiers, who even now do not recognise the magnitude of their mistakes or the rank unfairness of the bargain that has been struck with civil society. They have had licence to make billions - Wall Street paid itself $39bn in bonuses in 2007 - while ordinary taxpayers are then left to foot the multi-trillion dollar bill in bailouts, capital injections and loan guarantees.

Yet still bankers and financiers claim staggering bonuses and pensions from the institutions they have bankrupted, the executives at AIG in the US being the latest in a long line. Still the banks organise monumental tax- avoidance schemes to cheat governments from the tax revenues needed to rescue their own industry.

Breaking Sir Fred Goodwin's windows was wrong. But it was part of a worldwide reaction that is generating change. Some AIG executives have handed their bonuses back, however gracelessly. Extraordinarily, Swiss bank executives now fear arrest if they travel abroad. Two of the three American partners in Barclays' Project Knight, the tax-avoidance scheme, have withdrawn from the deal. The suspicion must be that they daren't be part of such a scam. RBS felt it had to suspend its own operations dedicated to tax "efficiency".

Such transformation of attitudes and behaviour is good news. The even better news is that, partly in response to public opinion and partly because the risks of doing nothing are so obvious, the G20 countries increasingly look as if they have got their act together. There will be a deal that will create a new regulatory architecture for global finance.

This is not the fashionable view of the G20 meeting. It is billed to be a huge disappointment, full of banalities and merely papering over the deep cracks between Europe and the US. The cartoon characterisation is that Europe wants to regulate more, while the US - and to a degree, Britain - remain wedded to free markets and less regulation. Meanwhile, Europeans deeply distrust Anglo-Saxon enthusiasm for wildly increasing public spending and borrowing. Brown is engaged in a futile attempt to bridge an unbridgeable gap that no amount of lofty rhetoric can disguise.

I beg to differ. Nothing effective can be done about any broken national financial system unless it is within a set of internationally agreed rules.

My understanding is that, extraordinarily, the G20 will decide to regulate hedge funds, register credit-rating agencies and their business practices, insist that derivative trading is undertaken in regulated exchanges, set a framework for bank pay and bonuses, require transparency and disclosure of information from tax havens and organise international "colleges of regulators".

The individual reviews of regulation by US Treasury secretary Tim Geithner, Britain's Adair Turner and the EU's Jacques de Larosière have all come to similar conclusions. Brown and his team have brokered an international deal on regulation that would have been unthinkable even three months ago.

In addition there will be an agreed common template to address the alarming depth of the global recession, release credit flows, especially for trade finance, and assist the less-developed countries who have suffered from a flight of capital.

The G20, despite its many different economic traditions and philosophies, will agree that governments must put capital behind their banks if necessary, and banks must adjust that capital up and down over the economic cycle. On top, monetary and fiscal policy must be deployed to the maximum extent to prop up weak demand.

Yes, the Americans are more aggressive than the Europeans in wanting a fiscal stimulus, but they need to be; they have a weaker welfare state. For Europeans, the automatic stabiliser of rising welfare spending is greater. As the IMF reports, between 2008 to 2010 budget deficits of the G20 are rising by a similar degree in Europe and America. In 2010 the rise in the stimulus put forward by Germany will be among the largest of all.

I am also blinking at the emerging unanimity over the IMF. It is to be doubled in size to $500bn, and given new powers to monitor national economic policies. Equally important is that less-developed countries will be allowed much more access to its "Special Drawing Rights" on an IMF paper currency backed by dollars, yen, euros and sterling that can be used to buy hard currency at the discretion of individual central banks. It is this IMF currency that Zhou Xiaochuan, governor of the Central Bank of China, wants greatly expanded to rival the dollar, so protecting China from the impact of a potential dollar collapse.

This is the kind of deal that Keynesians such as myself have been calling for. It will radically reduce the casino tendencies of the shadow financial system, make prices less volatile, help restore confidence in banks, challenge bonus culture and promote flows of capital into poorer countries.

But for all the progress, it may still be insufficient. Emergent economies in Latin America, Africa, Asia and eastern Europe are teetering on the edge. Wider commitments to boost demand in 2010 are insufficient. The IMF's proposed new powers are still unclear. Rogue banks will still be able to poach staff by promising absurd rewards. Yet anybody who suggested a year ago that so much could have been achieved would have been asked what they were smoking.

Beyond addressing the immediate crisis, Brown has to put some flesh on what he means by a more principled capitalism. If he is serious he will have to follow up G20 with concrete proposals for how British companies are to revive the idea of satisfying a range of stakeholders beyond shareholders. He will need to come up with ideas about how ordinary people can manage risk in their lives more reasonably - whether over their job, their income, their mortgage or their pension. He must ameliorate the some two million rise in unemployment expected in Britain over the next two years.

It will be a big gear change from the politician who was the cheerleader for Big Finance. It is hard not to be sceptical about this new Brown, and few reporters or commentators will want to risk the accusation of being the patsy who declared the summit an unexpected success. The script is already written: a beleaguered prime minister papering over the gap between statist, fiscally conservative Europeans and free market but free spending Americans.

The real script is very different: this is the first international summit to make substantive progress regulating global finance since 1944. The protesters must keep up the good work. It is public opinion that is forcing such change. We must not be allowed to forget who was responsible for our plight - and the need for still more reform."