What Did I Miss In The G20 Statement?

Brad Setser reads the G20 statement ( I still say calling it a communique makes it sound like it's from Subcomandante Marcos ) with a different pair of eyes than I do:

"The G-20’s communiqué offered a surprisingly robust work program for regulatory reform. MIT’s Simon Johnson even worries that it may be too robust – and push banks to scale back their lending in a pro-cyclical way. I am a little less worried about this risk. I assume regulators recognize that a sensible macro-prudential regulatory framework requires raising capital charges in good times (to lean against the boom), not forcing banks to squeeze lending to conserve capital in bad times."

I read it three times, and didn't get any sense of this import.

Here's Niall Ferguson's take which I liked.

Here's Free Exchange:

"PERHAPS you recall that leaders of twenty of the world's largest economies sat down for a meeting this past weekend, in order to hash out what to do about all this financial crisis ado. The Economist has the recap:

JUDGED by the hubristic promises that preceded it, the G20 meeting was bound to disappoint. The leaders of the world’s 20 biggest rich and emerging economies, who had gathered in Washington, DC, on Saturday November 15th, did not remake global finance as some of them had promised. Nor, as others had hoped, did they come up with a detailed set of co-ordinated fiscal measures to counter the deepening global downturn (although they did talk of using fiscal measures “to rapid effect”). Nonetheless, the five-page communiqué contained more than just diplomatic blather.

As well as promising a “broader policy response” to the current crisis, the G20’s leaders laid out a detailed plan for financial reform. They promised to “strive” for a deal on the stalled Doha round of world trade talks by the end of the year and, more importantly, made a collective pledge not to raise any barriers to trade and investment over the coming year. Add in the promises made around the gathering’s fringes, particularly Japan’s pledge to bolster the IMF’s kitty by lending it $100 billion, and the weekend yielded enough to justify the traffic jams in Washington, DC–and to mark an important shift in global economic governance."

I think most observers had very low expectations of the summit, given the lame duck host and his deliberate, expectations-lowering rhetoric, but some still came away disappointed. Like Dani Rodrik:

I was not expecting any substantial agreement on international regulatory coordination or any semblance of a new Bretton Woods, so I am not disappointed on that score. What I was looking for were three things: (i) coordination on fiscal stimulus; (ii) a commitment to provide more liquidity support, as needed, to prevent a further spread of the crisis to emerging nations; and (iii) a clear commitment not to engage in trade protection, with a monitoring mechanism to ensure the pledge is being observed.

How does the statement do in these regards? So-so. There is no coordination in the fiscal arena, the promises made to emerging markets are vague, and even though there is a clear statement on protection and export subsidization, there is no monitoring or enforcement mechanism.

He wanted more. That will have to wait."

They seem to agree with Setser. Rodrik is in the middle. What did I miss? It was simply a laundry list of hopes. I guess that's important. As a piece of prose, it lacked any specificity.

"The IMF should conduct vigorous and even-handed surveillance reviews of all countries": It Was All Like This

Via the NY Times, here's the G20 statement from the summit, all on one page.

Here's Paul Kedrosky's summary:

"I'm trying hard to read the entire G-20 communique -– what leaders propose to do so that global markets stop re-enacting Mothra vs. Godzilla, except with capitalism playing the part of a small island near Japan -- and it's taking years off my life while destroying my corneas. Insofar as I can tell, the shorter version is contained in these four bullet points:

• It's not you, it's me.
• If you change, I might love you more, but don't count on it.
• The IMF sucks.
• "Never" is open. How does that work for you?

And you knew this was coming, so here's the word cloud for the whole thing in its straight-outta-Brussels diplomatic-speak vagueness."

Now, since he's sussed it, why should I even bother to read it?( One note Paul, don't call it a communique. It makes it sound like something issued by subcomandante Marcos ). After all, I'm constantly amazed by Hilzoy, who feels called upon, out of decency or fairness I suppose, to slog through some of the most boring texts. I usually skim these atrocities at best. In fact, I've already scrolled through this text once, but I'm going to see if there's anything that I find interesting.

"Root Causes of the Current Crisis

3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption."

Is there anything that they didn't mention? I don't see low interest rates and a giant sloshing pool of money. There's no point in going through this thing, it's going to mention everything in general terms.

"Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund’s (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility.

•

Encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and we welcome the recent introduction of new facilities by the World Bank in the areas of infrastructure and trade finance.

•

Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis."

I guess that this is important.

"Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace. Financial institutions must also bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices."

And also:

"Then peace will guide the planets
And love will steer the stars

This is the dawning of the age of Aquarius
The age of Aquarius
Aquarius!
Aquarius!

Harmony and understanding
Sympathy and trust abounding
No more falsehoods or derisions
Golden living dreams of visions
Mystic crystal revalation
And the mind's true liberation
Aquarius!
Aquarius!"

Wow. This is awful. Pablum.

"Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution’ financial statements include a complete, accurate, and timely picture of the firm’s activities (including off-balance sheet activities) and are reported on a consistent and regular basis."

Pretty bold stuff.

"Prudential Oversight"

Prudential. This is like the good before Socrates gets to it.

"Advanced economies, the IMF, and other international organizations should provide capacity-building programs for emerging market economies and developing countries on the formulation and the implementation of new major regulations, consistent with international standards."

It's kind of like a statement of principles of peace and harmony among nations, ignoring everything to do with real world conflicts and contradictions. It can't hurt.