Australian Lefty on Politics, Governance, Science and Info Management

What should KRudd/Swan have read by tomorrow?

Posted by Dave Bath on 2008-11-07

Don’t comment or determine policy regarding the financial meltdown before reading the recent paper from "Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis" (also downloadable as 44 page – 38pp without front/back-matter- 1.2Mb PDF), written by probably the most stellar cast of research economists and senior policy advisors to governments and banks that could be assembled at the moment.

If Rudd, Swan, the entire Cabinet, along with senior folk at Treasury and the RBA haven’t digested and reflected upon this paper by the end of the weekend, they should probably resign.  They should probably read it before the G7/8 finance ministers meeting in the next few hours and the IMF meeting tomorrow.

Until I’ve digested it (or at least individual articles), I won’t comment further, apart from the hugely significant implications of a factoid buried in one of the sections: the liabilities of Swiss banks are "multiples" of the Swiss GDP (p 10 of the PDF, p2 of the Introduction).

This is fantastic news for law enforcement, and sends shivers down the spine when contemplating the fragility of the world finance system.

At least one author implies that the nation of Switzerland, not just the banks, are at risk.

It goes to the capacity of the state in cases like UBS and Credit Suisse, whose assets are both substantial multiples of Swiss GDP. Even if countries like Switzerland try to do something, the fiscal implications may be so alarming that investors flee. The capital that the government pours in through the top of the jar may then just leak back out through these holes in the bottom. This is essentially what brought down the Austrian and German banking systems when those countries were denied foreign help in 1931.

And the 1931 mess assisted, if not allowed, Hitler’s rise to power.

The paper talks of Switzerland needing significant foreign aid for an extended period.  Switzerland can’t afford to bail out its banks (central to its economy, and possibly the world’s financial system).

You can bet every government (particularly the EU) that have had their law enforcement stymied by Swiss law protecting the corrupt and criminal (as well as the obscenely rich keen on avoiding legitimate tax) will make any aid conditional on the Swiss allowing international law enforcement to follow money trails and petition for freezing bank accounts where appropriate.

That’s the great news for the world, although while the benefits of better international law investigation and enforcement will last forever, those benefits will take some time to kick in.

Mind you, it’s the Swiss bank accounts that other governments have a legitimate right to raid, confiscating the ill-gotten proceeds of many of the perpetrators of the current financial crisis.

The bad news is just how vulnerable the financial system is, particularly if there is a run on Swiss bank accounts by the paranoid filthy rich (who’ll do almost anything to protect not only their assets, but knowledge of them.

Politicians in Carribean tax havens will be rubbing their hands with glee.


One Response to “What should KRudd/Swan have read by tomorrow?”

  1. […] Dave Bath Following on from VoxEU’s great book for the recent G7/8 summit (which I reviewed here, is available for browsing as HTML and PDF) comes their dummies guide analysis of issues facing the […]

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