National Security Network

A Year After Lehman

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Report 14 September 2009

International Economy International Economy crisis economics G20 G8 International Economy Lehman trade


Today, on the one year anniversary of the collapse of Lehman Brothers, President Obama is speaking on Wall Street, addressing the need for regulatory reforms to the financial sector.  Since taking office the president has led a coordinated global response to the worst economic crisis since the Great Depression. This response has included coordinated efforts to stimulate global demand and avoid a wave of protectionism, commitments to improve financial regulations, and added assistance to the International Monetary Fund (IMF), which has helped stave off collapse in some of the world’s most dangerous and unstable countries, including those strategically vital to America’s interests. Expanding oversight of Wall Street is not only critical to preventing future crises, but to reasserting U.S. global leadership and rebuilding America’s credibility, since the failure to effectively regulate Wall Street financial institutions is seen globally as one of the major reasons for the current economic crisis. Yet, despite the urgency and necessity of recovery plans, conservatives have worked tirelessly to block the Administration’s efforts to prevent a depression by unanimously opposing the stimulus bill, opposing oversight of Wall Street, and obstructing increased IMF funding.  

While there have been signs of economic improvement worldwide, it is important to remember that the crisis is not behind us and more action is needed. There is a continued need for international coordination to address the crisis. At next week’s G20 summit in Pittsburgh, leaders will gather to discuss greater means of cooperation. As the global response moves forward, the question remains whether conservatives will contribute to recovery efforts or continue to stand in the way.

In his speech today, Obama says the crisis is not behind us and continued cooperation with the global economic community is vital to a full recovery.  President “Obama's speech in New York on Monday will push Congress to take action on regulatory reform to prevent the kind of tailspin that the economy went through last year. Obama also plans to repeat his call for global partners to coordinate to prevent future crises,” reports the Associated Press.  The Washington Post reports, “In New York, Obama will try to retake the initiative, capping other recent efforts in which top government officials have emphasized improvements in the economy and made the case anew for rewriting the nation's financial rulebook. He will urge members of the financial community ‘to take responsibility, not only to support reforming the regulatory system but also to avoid a return to the practices on Wall Street that led us to the financial crisis,’ an administration official said Sunday.”  Additionally, “A White House official tells CBS News that… ‘President Obama will discuss the Administration’s plan to wind down government involvement in the financial sector, lay out a strong case for immediate action on regulatory reform and reiterate the importance of global coordination in preventing future crises.’”

Dominique Strauss-Kahn, Managing Director of the IMF, echoed the president’s message of continued international cooperation in addressing the economic crisis, saying this weekend of the G20 that, "For months and months in Europe, and notably in France, growth will come back but unemployment will still be there. So from this point of view we obviously can't say that the crisis is behind us. I think the trend is good. The finance ministers understood that the crisis means that we should continue to support the economy, that we shouldn't stop now and it is not because there have been a few good numbers that we should drop our guard. So I think that the heads of state in Pittsburgh will stick to this idea which is a good thing." [Associated Press, 9/13/09. Washington Post, 9/14/09. CBS News, 9/14/09. Reuters, 9/14/09]

Facing a worldwide economic crisis of depression-era proportions, the Obama administration led an international response to stave off potentially catastrophic consequences.
   One year ago, the world teetered on the edge of an economic disaster, with implications not just for the economy but security as well.  In February Dennis Blair, Director of National Intelligence, told Congress that the economic crisis had replaced terrorism as the “the primary near-term security concern” for America, exacerbating instability in such places as Mexico, Pakistan and Congo.  To head off these downward trends, the Obama administration led a global response.  At the April G20 meeting, the U.S., together with international partners, developed a global stimulus via a dramatic increase in assistance to the International Monetary Fund (IMF), also agreeing to adopt tighter rules for international financial regulation and take a stand against international protectionism.  By the start of the G8 meeting in Italy in June, the international effort to stem the downturn appeared to have yielded results.  The Wall Street Journal reported at the time on a cautiously optimistic IMF assessment: “‘Financial conditions have improved, as unprecedented policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen,’ the IMF said in its updating its outlook for the world economy and financial system. ‘Nonetheless, vulnerabilities remain and complacency must be avoided.’”  [DNI Director Dennis Blair via the New York Times, 2/12/09.  USA Today, 4/02/09. AP, 4/02/09. Wall Street Journal, 4/02/09. Wall Street Journal, 7/08/09]

The G-20 countries and international financial institutions see result from global stimulus efforts. Last Week, the G20’s representatives released a joint statement ahead of this month’s meeting in Pittsburgh, acknowledging that their “unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand,” but that stimulus efforts must continue “until recovery is secured.”  Today, IMF Managing Director Dominique Strauss-Kahn concurred, saying: “the trend is good. Finance ministers [in London] understood that the crisis requires that we need to keep boosting the economy… good figures don’t mean that we can lower our guard.”  Consistent with that view, on Monday, European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said that Europe’s financial health had improved, “mainly due to the unprecedented amounts of money pumped into the economy by central banks and public authorities.” At the same time, he cautioned that still-weak economic conditions would affect jobs and public finances.  Continuing the stimulus also has broad global support according to a recent Globescan/PIPA survey for the BBC.  The poll of over 22,000 people in 20 countries found that an average of three in five citizens supported “significantly increasing government spending to stimulate the economy.” [G20 Economic Statement, 9/05/09. Dominique Strauss-Kahn via the WSJ, 9/14/09. Joaquin Almunia via AFP, 9/14/09. BBC, 9/14/09]

Conservatives have adopted an irresponsible approach to handling the economic crisis, obstructing recovery efforts and playing political gamesmanship.  

  • Conservatives oppose expanding oversight of Wall Street. Senator Jim Demint told at the conservative CPAC conference that “deregulation did not wreck our credit markets in our economy.” Former Republican presidential candidate Mitt Romney also told CPAC that “unnecessarily burdensome regulation would put us on a path to be passed by other nations.” Yet British Prime Minister Gordon Brown – reflecting the views of many around the world, has said lax regulation meant the financial crisis “started in America, there was a lot of irresponsible lending taking place, a lot of it was completely unknown to the authorities, and people were passing the risks on from one person to another and a lot of them ended up in Europe. So it’s a problem of the banking system that has started with the tragedy of the sub-prime housing market in America.”  Brown also told Sky News, “This problem started in America. They have got to sort it out. The Americans have a responsibility to the rest of the world.”
  • Conservatives oppose supporting the IMF. When it came time to increase IMF funding to keep countries on the brink of economic collapse – such as Pakistan – solvent, conservatives like Senate Minority Leader John Boehner, played politics, even reversing his own position on IMF funding.  As Politico reports, “Boehner now derides the inclusion of IMF cash in the bill, calling it a ‘global bailout,’ despite President Obama's request that Congress make a down payment on the $100 billion he's committed to keeping the financial crisis from swamping developing countries, including Pakistan. That wasn't Boehner's tune in 1998, when the Clinton administration requested $18 billion in IMF funding to ameliorate the effects of the Asian financial crisis. ‘I have been as critical about the IMF as many, but given the crisis we have around the world, the U.S. needs to provide leadership,’ the Ohio Republican told the [Newark, N.J.] Star Ledger in Oct. 1998. ‘The only real avenue is the IMF.’ His comments were in keeping with the rest of the House GOP leadership at the time, including then-Speaker Newt Gingrich, who said the U.S. had ‘an obligation to work with’ the fund.” 
  • Conservatives oppose effort to stimulate the economy. House Republicans have also opposed almost every effort to stimulate the economy, for instance the Washington Post, notes, “Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan.” Senate Minority Leader, Mitch McConnell said if he were president he would, "cancel years 2, 3, and 4 of the stimulus package. Just don't spend it.” [Financial Times, 3/2/09. Bloomberg, 2/23/09. Politico, 6/16/09. Washington Post, 1/28/09. WBKO, 9/4/09]

What We’re Reading

Former National Security Adviser Zbigniew Brzezinski says the United States risks losing the war in Afghanistan unless the perception of the US troops as foreign invaders is turned around by a more robust counter-insurgency strategy. Meanwhile, prisoners at the Bagram military base will for the first time have the right to challenge their indefinite detention and call witnesses in their defense.

Osama bin Laden reportedly released a new audio tape, calling President Obama "powerless" to stop the war in Afghanistan.

Federal prosecutors investigating the actions of Blackwater have documented a trend of loose rules of engagement which put Iraqi civilians at risk.

A recently detained aide to Iranian opposition leader Hussein Moussavi is freed.

The European Union put conditions on lifting sanctions from Zimbabwe, while Zimbabwe’s diamond industry is drawing further scrutiny from human rights activists.

China slaps tariffs on American exports in retaliation of new American tariffs on Chinese-made tires.

Internet censorship is becoming more frequent in Southeast Asia.

Pro-Western politicians are struggling to gain traction in Ukraine’s upcoming election, with Pro-Moscow politicians surging around Eastern Europe.

Israeli settlers who repeatedly defy their government’s warnings about building settlements in Palestinian territory are unlikely to move out of Palestinian lands, but are also unlikely to fight with Israeli authorities who will push them off their illegal outposts.

Commentary of the Day

Senators Joe Lieberman, John McCain and Lindsay Graham urged President Obama to dramatically increase troop levels in Afghanistan, but Spencer Ackerman points out that their posturing has more to do with them trying to set up a future denouncement of Obama’s Afghanistan policy rather than to educate the public on the need to support Obama’s policy. Fareed Zakaria believes that while a troop increase is needed in Afghanistan, he thinks the Obama Administration should further reduce its goals in that country.

The Washington Post worries that Iraq has flipped positions with Afghanistan as the “forgotten war”, and that Congress and the Administration should continue to enforce vigilant oversight over a fading topic of foreign policy.

Mona Eltahawy strenuously opposes the appointment of Egyptian Cultural Minister Farouk Hosni to be the head of UNESCO because of his track record of smothering unfretted forms of cultural expression in his own country.

Robin Wright and Robert Luttwak believe the US needs to change some conditions in order to make engagement with Iran more fruitful.