What will the new regulator do about debt and loans? To prevent another debt bubble, the new body will recommend financial companies maintain provisions against credit losses and may impose constraints on borrowing.
What sort of constraints? The Basel Accords, imposed by the Basel Committee on Banking Supervision (also housed at the BIS) had not necessarily worked out well. The first Basel Accord, issued in 1998, had been blamed for inducing a recession in Japan from which that country had yet to recover; and the Second Basel Accord and its associated mark-to-market rule had been blamed for bringing on the 2008 crisis. (For more on this, see The Public Bank Solution.)
The Amorphous 12 International Standards and Codes
Most troubling, perhaps, was this vague parenthetical reference in a press release issued by the BIS, titled "Financial Stability Forum Re-established as the Financial Stability Board":
As obligations of membership, member countries and territories commit to . . . implement international financial standards (including the 12 key International Standards and Codes) . . . .
This was not just friendly advice from an advisory board. It was a commitment to comply, so you would expect some detailed discussion concerning what those standards entailed. But a search of the major media revealed virtually nothing. The 12 key International Standards and Codes were left undefined and undiscussed. The FSB website listed them, but it was vague. The Standards and Codes covered broad areas that were apparently subject to modification as the overseeing committees saw fit. They included money and financial policy transparency, fiscal policy transparency, data dissemination, insolvency, corporate governance, accounting, auditing, payment and settlement, market integrity, banking supervision, securities regulation, and insurance supervision.
Take "fiscal policy transparency" as an example. The "Code of Good Practices on Fiscal Transparency" was adopted by the IMF Interim Committee in 1998. The "synoptic description" said:
The code contains transparency requirements to provide assurances to the public and to capital markets that a sufficiently complete picture of the structure and finances of government is available so as to allow the soundness of fiscal policy to be reliably assessed.
Members were required to provide a "picture of the structure and finances of government" that was complete enough for an assessment of its "soundness" -- but an assessment by whom, and what if a government failed the test? Was an unelected private committee based in the BIS allowed to evaluate the "structure and function" of particular national governments and, if they were determined to have fiscal policies that were not "sound," to impose "conditionalities" and "austerity measures" of the sort that the IMF was notorious for imposing on Third World countries? Suspicious observers wondered if that was how once-mighty nations were to be brought under the heel of Big Brother at last.
For three centuries, private international banking interests have brought governments in line by blocking them from issuing their own currencies and requiring them to borrow banker-issued "banknotes" instead. Political colonialism is now a thing of the past, but under the new FSB guidelines, nations could still be held in feudalistic subservience to foreign masters.
Consider this scenario: the new FSB rules precipitate a massive global depression due to contraction of the money supply. XYZ country wakes up to the fact that all of this is unnecessary -- that it could be creating its own money, freeing itself from the debt trap, rather than borrowing from bankers who create money on computer screens and charge interest for the privilege of borrowing it. But this realization comes too late: the boot descends and XYZ is crushed into line. National sovereignty has been abdicated to a private committee, with no say by the voters.
Marilyn Barnewall, dubbed by Forbes Magazine the "dean of American private banking," wrote in an April 2009 article titled "What Happened to American Sovereignty at G-20?":
It seems the world's bankers have executed a bloodless coup and now represent all of the people in the world. . . . President Obama agreed at the G20 meeting in London to create an international board with authority to intervene in U.S. corporations by dictating executive compensation and approving or disapproving business management decisions. Under the new Financial Stability Board, the United States has only one vote. In other words, the group will be largely controlled by European central bankers. My guess is, they will represent themselves, not you and not me and certainly not America.
The Commitments Mandated by the Financial Stability Board Constitute a Commercial Treaty Requiring a Two-thirds Vote of the Senate
Are these commitments legally binding? Adoption of the FSB was never voted on by the public, either individually or through their legislators. The G20 Summit has been called "a New Bretton Woods," referring to agreements entered into in 1944 establishing new rules for international trade. But Bretton Woods was put in place by Congressional Executive Agreement, requiring a majority vote of the legislature; and it more properly should have been done by treaty, requiring a two-thirds vote of the Senate, since it was an international agreement binding on the nation.
"Bail-in" is not the law yet, but the G20 governments will be called upon to adopt the FSB's resolution measures when the proposal is finalized after taking comments in 2015. The authority of the G20 has been challenged, but mainly over whether important countries were left out of the mix. The omitted countries may prove to be the lucky ones, having avoided the FSB's net.
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