History lessons for financial crisis: Act fast, act globally
European leaders call for a new Bretton Woods-type agreement as they meet in Brussels.
(Page 3 of 3)
But the current crisis, like the one in the 1930s, does appear to be ushering in a major shift toward more government regulation and intervention.Skip to next paragraph
Subscribe Today to the Monitor
Some historians compare the Ronald Reagan era of deregulation to a similar period of "rugged individualism" touted by Herbert Hoover's White House from 1929-33. That view was based on a small town ethos of personal responsibility of the 19th century. But when banks failed in the 1930s, many thrifty people lost their savings. The crisis was so great that in an increasingly urban America, people often did not come to the aid of each other, in the way that Hoover had assumed.
"If there is anything cathartic in this crisis," writes Mandelson in The Guardian, "it will be a healthy new skepticism for financial products we don't understand, a heightened intolerance for excessive risk-taking…."
Today's calls for a new Bretton Woods, and global decisive action to create confidence and liquidity are common sense moves to stave off a depression, says Philippe Waechter, director of economic research at Natixis Asset Management in Paris. "If you look in the last two centuries in the US and Europe, when you have a war or a huge shock, you finance it, and you pay for it later. You take on a very large public debt, on a huge scale, and pay for it down the road. In World War II, World War 1, the '30s – every government increased debt and paid later. We need to save the system to avoid a depression."
But Charles Wyplosz, of the Graduate Institute in Geneva, says there cannot be a literal return to the original Bretton Woods in the sense that "the Bretton Woods [monetary] system was based on fixed interest rates." He says that fixed rates, independent monetary policy, and free capital markets cannot exist together.
A French source at the office of the EU presidency in Brussels says that in this week's meeting "we are talking about Bretton Woods because it is a way of speaking to people about new rules at a global level."
As current EU president, France's President Sarkozy says he will seek the backing of the other 26 EU states to hold an international conference as early as next month on reforming the world financial order put in place by Bretton Woods.