A Global New Deal

[Joanne98]

by Harold Meyerson

f you look at all of the U.S.-based operations of American International Group (AIG) -- the insurance and annuities company that our government has been compelled to take over and bail out with more than $100 billion of our money -- it's hard to see how the company got into trouble. Within the United States, AIG consisted largely of regulated insurance companies, subject to the conscientious oversight of 50 state insurance commissioners. How could such a company go wrong?

Actually, the better question is where did such a company go wrong? AIG was dragged down by its financial-products unit, which marketed the credit-default swaps on which the company could not make good when, unexpectedly, it had to pony up actual money to cover them. And that financial-products unit was headquartered not in the U.S. but in London -- the world financial center known for its aversion to regulatory controls. AIG, along with much of the American financial sector, had been favored -- and then, doomed -- by federal legislation that exempted credit-default swaps from all regulation. Still, at least on paper, there were two oversight bodies with responsibility over the activities of the London office. Because AIG owned a savings and loan association in the States, the U.S. Office of Thrift Supervision -- a notoriously lax regulator -- had oversight jurisdiction over the London office. So did the French government's banking regulator, since AIG owned a bank in France.

But the disintegration of AIG suggests that nobody really regulated its London-based financial-products unit. And the multinational mishmash of regulatory bodies that claimed jurisdiction over the London office while actually doing nothing to rein it in, not to mention the national regulatory bodies that didn't claim jurisdiction over the office (such as Britain's), suggests another culprit: the failure of nation-states to figure out who is responsible for overseeing the activities of banks and corporations whose offices are spread across the planet. To put it more succinctly, the failure of nation-states to figure out who the hell is supposed to regulate global capitalism.

Barack Obama may well seek a new New Deal to right a profoundly dysfunctional American economy. But he faces one constraint that Franklin Roosevelt didn't have to confront in the 1930s: The economy that Roosevelt saved was fundamentally a national economy that could be altered by national policies. The economy that Obama must fix, by contrast, has national dimensions that can be altered by national policies, but in matters ranging from corporate conduct to consumer safety to Americans' incomes, not to mention global warming, purely national solutions no longer suffice. To fix America today requires fixing global systems. The next New Deal won't work if it's only American.

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http://www.commondreams.org/view/2008/12/15-2