Financial Crisis

A proposal by Gordon Brown's government to up the taxes paid by resident foreigners and demand greater transparency in their offshore dealings has many fearing an exodus of London's international financiers. This comes at a time when increasing numbers of businesses in London are also moving their headquarters to countries with lower taxes. Layoffs by banks in the wake of the subprime crisis are further damaging the City's reputation as a vibrant financial center. A loss of foreign residents and international business would be devastating for a city that has emerged as New York's greatest rival for global preeminence.

Snapshot asks, could New York reclaim the top spot if London falls?

A guest post by Ian McAllister 

The International Monetary Fund recently released its assessment of world economies and its outlook for 2008 and 2009. In addition to its estimates of unprecedented potential losses--totaling almost a trillion dollars--the report offered a gloomy picture for recovery later this year. More influential may be the report's calls for improved regulation of our increasingly complex financial system.

Snapshot asks, does the IMF have any impact on the regulatory environment in the United States or EU?

IMF Report, Chapter 2 - Structured Finance, Executive Summary
Financial Times - A Risk Shared May Be More Risky
Economist - Fixing Finance
Deutsche Bank - Dr. Josef Ackermann Leads Debate on Globalized Regulation
Financial Stability Forum - Interim Report to G7 Finance Ministers

Steve Clemons, director of the American Strategy Program here at the New America Foundation held a media conference call Friday with George Soros to discuss his new book, New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. The book is available in electronic form, here. To listen to the MP3 of the call, click here.

In the book, Soros examines the financial roots of the current financial crisis and what to do about it. After the call on Friday, my colleague Sam Sherraden looked at Soros' market analysis and policy prescriptions in this special edition of Global Economic Snapshot. I will take a little more time to examine the geopolitical roots of the crisis, focusing on his concept of the Superbubble and extracting some strategic lessons for the United States.

Bubble of Damocles

Part of what we do here at the American Strategy Program is tell the hard truths about America's strategic position. We think of it as hard-nosed tough love, as there is no way of getting to a better place if you don't know where you are right now. Parag Khanna has done this at length in his latest book, The Second World. Today, American Strategy Program Director Steve Clemons underlines another important point that I discussed a few weeks ago with the Spokesman of the Bundestag's Budget Committee Steffen Kampeter: America's lack of regulatory oversight of the finance sector has weakened America even further.

As TWN readers know, I have been on a lot of international travel lately -- to Beijing, Mumbain, Tokyo, Berlin, London, Brussels, and Tel Aviv. In all of these places, I met angry and frustrated finance ministry bureaucrats, central bankers, retail bankers, investment bankers, and other fund managers.

All of them had a single message that rang a bit like the US accusing China of shipping out poisoned pet food and lead-paint covered toys. They said American regulators failed. "You exported poisoned financial products."