G20 Summit Offers Hope

Global leaders met to strategize on how to save the global economy from further economic damage.

Some may have hoped that the G20 summit would have ended with a message as strong as Wyatt Earp's declaration in Tombstone: "[T]he law is coming! You tell them I'm coming...and Hell's coming with me!" It didn't. But the G20 leaders perhaps accomplished more than this; they established the beginnings of a realistic plan to stabilize global economies.

Global leaders unite

On November 14 and 15, 2008, G20 leaders came together in Washington, D.C., to discuss strategies for managing the economic crisis that has frozen credit markets around the world. The meeting, called the G20 summit, was attended by representatives from the 20 political entities, including the U.S. and EU, that make up the G20, plus the Netherlands, Spain, the European Commission, the World Bank, the International Monetary Fund (IMF), and the Financial Stability Forum.

The media nicknamed the summit Bretton Woods II, as a reference to the series of conferences that led to the development of the Bretton Woods Agreements of 1944. Back then, economies around the globe were reeling from the ravages of World War II. Hundreds of delegates from 44 Allied nations brainstormed to develop a framework for a post-war, international monetary system. In addition to defining fixed currency exchange rates to gold, the Bretton Woods system also created the IMF and the International Bank for Reconstruction and Development (IBRD).

Rome wasn't built in a day

The summit produced a host of suggestions, some specific targets, and the agreement to meet again. According to the White House Fact Sheet, the international finance leaders discussed the root causes of the global crisis, reviewed the actions taken to date, developed a cursory action plan, identified reform guidelines, and reaffirmed their commitment to the free market system.

The immediate term, cursory action plan involves measures to:

• Address accounting standards, particularly with respect to off-balance sheet activities

• Hold credit rating agencies to higher standards

• Monitor firms' capital and establish higher capital requirements for certain specialized bank activities

• Promote better risk management practices at banks

• Create a better system for regulating and sharing information about global financial institutions

• Open up the Financial Stability Forum to provide representation for emerging market economies

Longer term, the G20 leaders will reform financial markets to prevent this type of crisis from happening again. Those reform efforts will focus on:

• Improving transparency with better, more complete disclosures

• Improving regulatory systems of financial markets, particularly with respect to credit rating agencies

• Fostering market integrity by cracking down on manipulation and fraud

• Promoting better international cooperation through regulatory consistency and better cross-market coordination

• Modernizing international financial institutions (e.g., the IMF) to improve representation of emerging economies

The G20 leaders didn't emerge from the summit with their guns drawn like Wyatt Earp.  Instead, they developed a logical, focused course of action to repair and reform the global economy and financial markets.