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Who rules US financial system?
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By Wang Yusheng

As the global financial turmoil triggered by the US subprime crisis worsens affecting more countries, disputes are also rising on how to end this mess.

And as critics search for the arch-criminal to blame for this crisis, one point of view convicts supervision authorities such as the Federal Reserve. This view holds them guilty of loose market monitoring, while it acknowledges capital's greediness for maximum profit is just the law of nature.

True, the lack of supervision is a major contributor to the collapse. But it might be a misjudgment to identify the US Federal Reserve (Fed) as the arch-criminal despite its delinquency of responsibilities as the watchdog of the US financial system.

The Fed, which actually runs as the central bank of the US, is in fact an organization consisting of private bankers and large enterprise groups, and independent of government control. Almost all the high-ranking officials of the Fed are heads or elites representing those groups, like Alan Greenspan and Ben S. Bernanke, from whom the US government will appoint one as chairman of the Fed. On the surface, the Fed is the overlord of the country's banking system, but the fact is it's just a lord.

Greenspan confessed recently that the Fed should have monitored and restrained overgenerous and irresponsible lending, but he didn't intervene in the free market. He obviously thought the free market is mighty enough to adjust the financial mechanism. And as a result, he is partly accountable for the current situation as the Fed's former chairman.

But don't you believe this politicized, exculpating and misleading cant. In fact, Greenspan had been sharing the same financial concepts as well as vital interests with the real overlord of the system behind the dark scene. They were comrades in the same trench fighting for their common fate. Now, Bernanke also comes from the same camp.

Then, let's talk about the big three US rating agencies, Fitch, Moody and Standard & Poor, which people once believed to be the most authoritative and credible financial managerial bodies. A large number of materials exposed lately show that these three trumpeters of the overlord had all the time been blaring a fantasia in praise of the harmlessness, safety and benefiting potential of bonds supplied by the latter.

For money's sake, they labeled countless safety marks on those poisonous bonds created by the Wall Street, and sometimes they even made up good-looking rating statistics for enterprises that had no credit references being filed.

Elites in the industry, if they had any doubts, will be driven out immediately. But even these elites, if they stopped thinking to maintain their jobs, sighed that they were not doing professional rating analysis; rather, they were selling their souls to put coins in the devil's pocket.

What appeared coincidentally, when the big three had their revenue doubled in the past five years, were that many innocent Americans and people in other countries were fooled by their lies.

And if one moves to the US treasury and government, republicans have been advocating absolute and unfretted market economy of liberalism since the Reagan administration, and peddling it all around the world.

For example, the so-called "Washington Consensus" was established in former US president George Bush's period. Therefore, policies and concepts of the government can be basically considered as rooted in the same origin of rules of the banking system fixed by its overlord.

To deal with issues like financial innovation and financial derivatives, official policies and industry rules were actually made in a complementary way for the common strategic goal. Only after uncovering the deepest root of the financial storm can we discuss solving the problem in an efficient way.

First of all, the US government must carry out the duty as the final supreme ruler of the financial system and put every corner of the market under scrutiny. Tough it is difficult to do this since White House is used to being influenced by those banking overlords, it's worth a try. After all, it's American people who choose their president. Additionally, ruling power there is tripartite.

Second, the US must give up its blind faith in absolute liberal market economy and have relevant concepts and policies corrected. In the times of globalization, market economy shouldn't be denied and derivatives still need to be developed, but we must insist on the following three indispensable preconditions: financial innovations and derivatives must be based on real economy; they cannot step over the reasonable scope of core capital; and they must be strictly supervised and assessed.

Third, from a global point of view, the existing international financial system, especially the IMF, must be adjusted to adapt to the trend of multi-polarization.

Here two points are very important, discourse power and monetary power. For the former, democracy and equal consultation must be introduced in discussing international affairs, rather than leaving the whole thing to be judged by one or two countries.

As for the currency issue, it is necessary to strengthen surveillance over the US dollar and increase transparency of its operation because it serves as a main international reserve & settlement currency.

Uncle Sam should not have his note printing machines run at his own will simply because it just shifts a crisis elsewhere and causes turbulence. For sure, it is difficult for the US to take such ideas of reform. But right now, everyone knows the only question is how to reform, rather than whether to reform or not.

The author is a Beijing-based researcher in international relations

(China Daily November 21, 2008)

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