SEMANA/Interview | 10/6/2008 12:00:00 AM
“The end of market fundamentalists”
Many have already concluded that financial capitalism will never be the same, says respected international economist José Antonio Ocampo.
SEMANA: Do you agree the current financial model has collapsed?
JOSÉ ANTONIO OCAMPO: Hopefully what Paul Krugman has said comes to pass: that this crisis in Wall Street will be for the markets what the Berlin Wall was to communism. I believe that this is the end of market fundamentalists. It is the end of those who think that markets self-regulate, of those who believe that markets correct their own errors.
SEMANA: Will those “fundamentalists” just disappear or will there have to be new rules?
J.A.O.: Well, you can’t ask the Pope to stop being a believer. It is society that must re-assert itself. That’s what happened during the crisis in the 1930s. The government of Franklin D. Roosevelt put in place regulations because of society’s call, not because Wall Street wanted it.
SEMANA: A lot has been said about the regulatory gaps that provoked this crisis. What failed?
J.A.O.: In fact that is one of the big problems. Look at the economic authorities in the United States, where they came from. They come from Goldman Sachs and in general from all of the Wall Street firms. Look at the ministers of finance or to the former president of the Federal Reserve Bank- not the current one because he is an academic-. If you ask me, the common practice that the private financial world becomes minister of finance or president of the Federal Reserve is a big mistake. The public arena is different. And you have to understand when the public interest goes against private interests. A long time ago they should have understood the craziness that was going on would require regulation.
SEMANA: Who is responsible for the chaos?
J.A.O.: I have said, like many others, that the main person who is responsible is the “Number One,” the great banker of the United States, Alan Greenspan. Look at his record. It says that he didn’t need to regulate anything at all, that the market regulates itself and that when catastrophes happen the central bank would intervene. And it has been proven that central banks cannot stop a collapse of this nature. They don’t have the instruments to do so. Now we are seeing the effects of financial deregulation in the United States.
SEMANA: How much blame do the credit rating agencies have?
J.A.O.: The credit rating agencies are, in my opinion, entities of very doubtful usefulness. Generally they lower ratings when the entities have already failed. But they do not guide investors. Investors are interested in knowing if the entities will go bankrupt or not when they make their investment, not after they have already purchased their bonds. I believe that credit rating agencies should be regulated.
SEMANA: Does the crisis prove that the theory of the decoupling of economies wasn’t true?
J.A.O.: The idea of decoupling was science fiction and was invented by the International Monetary Fund a year ago to try to persuade everybody that this wouldn’t affect the developing world. That has no basis. The integration of the global economy is very deep. Today Europe and Japan are in recession. The United States had a good second trimester, but the third was disastrous. China had export growth at around 30 percent per year and all the forecasts show that at the end of this year it will be at zero. Look at what is happening in the stock markets of emerging economies. All of them have fallen since May. Look at the collapse of Russian banks. Can we really talk about decoupling? That belongs to the world of science fiction.
SEMANA: Will the rescue plan work?
J.A.O.: First, we have to stop the bank failures. It is like a patient who is bleeding. The instruments do not have to be the most refined, but you have to stop the bleeding. It is an emergency. This rescue package is part of that. Later will come the second phase of how we recover liquidity, credit, confidence; and institutions are capitalized. Without capitalization there is no credit.
SEMANA: What will be the new model going forward?
J.A.O.: I believe that we are headed towards a world of more risk aversion by all agents. We are going towards greater regulation. And I believe that we are going towards a dramatic and unprecedented concentration of financial intermediation. We’re at the mercy of three huge banks.