Theme 4: Reforming the global financial architecture
The globalization of the financial sector is guiding the formation of the world system trajectory. The role of a United Nations committee or other international body should be a position as a mediator and facilitator of a new framework for future global institutions with the understanding that the world system evolution will be lead by international commerce and finance while countries will continue to struggle to retain sovereignty. A new organization should be created to eliminate past biases, create a new image of preparedness for the future, coupled with new tactics and approach.
The organization should shift its strategies from macroeconomic intervention to being an oversight, auditing, and reporting committee that will participate in standardizing and framing a stable, transparent, and fair environment for the interconnected global trading exchanges, investment and banking institutions. The goal should be to enable opportunity, not stifle free trade; to be driven by foresight into future issues, not responding to current behavior; to be unbiased and independent with no country taking a dominant role, not an organization mixed by incentives.
Expected continuation of complexity requires participants to have insight of future emerging issues, identification skill sets and strategies to lead the evolution. More creative financial engineering and new trading instruments will continue to accelerate change and volatility with governments’ inappropriate responses creating reverberation. The committee should focus on putting in controls or triggers that prevent faulty structures from developing imbalances that impact global stability.
The geographic diffusion of shocks no longer depends on the epicenter of the shock or the periphery. The spatial dislocations are now more dependent on the linkage between the participants in the arbitrage. Correcting mechanisms for events such as the recent crisis will come from the periphery, which is more prone to organization based on human behavior. Therefore, the mandate should meet ongoing issues that will arise, with an understanding of what forces will continue. Tasks should define measures to prevent destructive actions and events, not regulatory policies that influence regional or national governance. Standardization should be the goal.
Creative securitization that has embedded unregulated financial instruments in the complex integrated systems will continue in some form or another despite imposed regulations on current structures. Such instruments expose innocent recipients to unknown high levels of risk and insecurity. Without a set of international accounting standards, the exploitation of unregulated securities that pass through regulated funds will become harder to track as the portfolio of investment products inflates choices.
To successfully address these issues, the organization must be definitive in its role with the directive to be purposeful and a model of unbiased decision-makers. Projects should frame specific preventative mechanisms that address potential global systemic risk to prevent crisis and system collapse through standardization of measurement systems and reducing opportunity for over-speculation and unethical incentives. The primary goal should be to 1) limit manipulation, 2) warn of imbalances, and 3) lead global uniformity of financial system.
The following actions are appropriate for leaders of global standardization that could effectively manage an international reporting and auditing agency that becomes the rating and disclosure clearing house for all, institutional and individuals:
• Establish international standards for rating and auditing system to equalize asset valuations of stocks, industrial sectors, and regional economies.
• Establish the rating agency as a public service that reports ratings and analysis openly.
• Promote transparency of foreign trading entities to minimize risk of a sovereign fund overpowering or threatening a major economy by successfully manipulating a market, which would lead to financial war.
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