Summary and Comments on the Stiglitz Report

Edward J. Dodson

[Prepared in Advance of a Roundtable Discussion to occur Friday, 5 August, 2011 at the annual conference of the Council of Georgist Organizations, Minneapolis, Minnesota. The Roundtable participants will discuss the Content of the 2009 Report written by Joseph Stiglitz and a Commission of Experts addressing the causes of the global economic and financial crisis and setting forth proposals to address the crisis and prevent a recurrence. ]

In 2008, Joseph Stiglitz was asked by Miguel d'Escoto Brockman, President of the United Nations General Assembly, to chair a Commission of Experts on Reforms of the International Financial and Monetary System. The Commission's final report made this important observation:

The crisis is not just a once in a century accident, something that just happened to the economy, something that could not be anticipated, let alone avoided. We believe that, to the contrary, the crisis is manmade: It was the result of mistakes by the private sector and misguided and failed policies of the public.

A thorough analysis of the report is required to identify whether the Commission is justifiably criticized for any errors in fact or reasoning.

In his Forward to the report, Miguel d'Escoto Brockman acknowledges the "polarizing" state of discussions that point to nations "who occupy the most privileged positions in the current institutional arrangement" as most responsible for global financial and economic problems. Those most responsible are the least likely to respond favorably to measures that impose restrictions and/or unfavorable discipline on their sovereign institutions.

Joseph Stiglitz opens the report, in the Preface, pointing to "policies of deregulation and financial and capital market liberalization" as the triggers to the crisis. Moreover, the global nature of the crisis is offered as proof against the theoretical (or ideological) position that free markets are inherently "self-regulating." He observes that economic globalization demanded more rather than less regulatory oversight, enforcement and - most difficult of all -- governmental coordination. Stiglitz does not use the term, but he describes how each government acted as if a player in a zero sum game.

An impotent International Monetary Fund provided no answers to the global crisis; its economists had not seen it coming. The G-20 nations would certainly look out for their own interests only (against one another, in fact). So, most of the leaders of other nations turned to the United Nations. Joseph Stiglitz then recruited a diverse group of people, each with broad experience and respected expertise, to serve on the Commission. What they specifically brought to the discussions were "different academic perspectives":

"While members were well-versed in neoclassical doctrines - notions that markets were efficient and self-correcting-they also understood the limitations of those doctrines and their underpinning assumptions."

Stiglitz observes with some satisfaction that "a remarkable consensus was reached on almost all of the issues." Another important outcome was a number of "reforms" in policy embraced by the International Monetary Fund to lessen the stresses on nations weakened by the global recession.

CHAPTER 2 / MACROECONOMIC ISSUES AND PERSPECTIVES

What the Stiglitz team recognizes clearly is the global nature of the crisis and its causes. Individual governments no longer possess sufficient regulatory power or the legal reach to reign in the excesses of multinational corporate players. The team concludes:

"National policies introduced in response to the crisis may have unintended and unforeseen protectionist effects."

For example, governments are reminded of what happened during the Great Depression when barriers to trade were put into place.

As an element in the financial meltdown, the sub-prime mortgage crisis is seen as an outgrowth of a dramatic increase in the supply of credit generated by the "global capital markets," a widespread failure of central banks to "dampen the speculative increases in housing and other asset prices," and "lax financial regulation." A clearer statement would have referred not to housing prices (which, in general, did not increase) but to the price of land parcels on which housing is constructed and which is the driver of property market speculation. Moreover, at least in the United States, the collective institutional failures are traceable to the early 1970s and the creation of the first money market funds. The competition for the savings of those with financial reserves was made unequal, and hundreds of billions of dollars were in a few years withdrawn from traditional savings institutions not permitted to compete with the new money market funds. The failure of thousands of savings institutions - and the gross mismanagement of some - resulted.

These same institutional failures contributed to what the Stiglitz team points to as "the rise of income inequalities" and a widening gap in other measures of household and individual well-being. And, of course, underlying this turn in personal fortunes were the so-called supply-side and monetarist "economic doctrines that became fashionable in some quarters during the last three decades." Given the evidence of this and previous economic cycles, why would we not agree "that markets are not self-correcting." Yes. Government intervention is required; the more serious question is what such intervention must entail. The Stiglitz team presents a case that seeks to restructure the balance between developed and developing nations.

If the United States is any example of what occurs when the taxation of income is dramatically lowered on higher income individuals without regard for how income is derived, the need for a return to "progressivity of income tax systems" is apparent. At the same time, individual compliance with tax law requires an army of tax accountants, tax attorneys, private tax preparation firms and a huge government bureaucracy. Progressivity and tax simplification are desperately needed, but in a way that effectively distinguishes between income earned by producing goods and/or providing services, and income gained from passive and essentially speculative investment. Such measures could, as an added benefit, address "the size of fiscal deficits and national debt." I offer more details below on what might be adopted.


The Need for Stronger Social Protection

The Stiglitz team raises the obvious problem caused by income and wealth concentration in most societies, citing the need for "progressive redistribution" to remedy the problem of generational poverty. What has long been the case is a process of "regressive redistribution" (i.e., of wealth channeled to non-producers because of privileges they enjoy under property and tax law). The concentrated control over land is a consequence of such privilege-based law, resulting in deep poverty for billions of landless people even when they are able to secure a formal education and a degree of technical training.

MONETARY POLICY AND RESTRUCTURING FINANCIAL MARKETS

In one of the great understatements of the last economic cycle, the report concludes that "capital markets have proved inefficient ... to prevent a deepening of the financial crisis." What is needed, therefore, is "global coordination of expansionary policy."

Arguable is the team's assertion that "the focus should be on restarting lending" which could involve the chartering of new banks, closely regulated and with explicit government guarantees provided. While many businesses must rely on lines of credit to facilitate production and sales, consumer reliance on credit to acquire desired goods is - absent national programs in financial literacy - a significant component of widespread financial distress of households. To be sure, millions of households must by necessity live perpetually in debt in order to meet basic needs. Millions of others consume goods and services well beyond what their household income warrants, even though adequate for basic needs.

One essential component to the global financial markets since the 1970s has been a secondary market in which to sell financial instruments and assets. This secondary market broke down after 2007. Changes in accounting rules required institutions to mark assets to market value. As the recession took hold many companies found themselves forced to book deep losses in net worth. For banking concerns, survival required strengthening balance sheets and tightening credit standards on future loans. Banks experiencing high levels of loan defaults and falling asset values eventually closed their doors or were acquired by healthier institutions.

The Stiglitz team acknowledges the great difficulty of achieving "global coordination of expansionary policy." Credit must be made available but made available under far more prudent terms and regulatory oversight than has been the case in recent decades. Falling demand and falling prices (i.e., deflation) are thought to be a greater risk than a general rise in prices. Ironically, we hear every day from market analysts that a return to rising property prices - provided prices rise slowly and moderately - is a sign the recession is ending and the global markets are recovering.

BAILOUTS

Two years beyond the Stiglitz team's analysis, we cannot say with any certainty that their criteria for success, that the "bailouts must be designed to facilitate the restructuring of the financial system," has been effectively addressed. In the United States, depositors have been protected from losses; however, the increase in the maximum deposit balance covered by deposit insurance benefits most those households with significant net worth. It is important to note that central bank measures to drive down interest rates have also significantly reduced the interest income of millions of households headed by retired persons without resulting in business investment in new plant and equipment or expansion in permanent new jobs. Hence, the public distrust of bankers who benefited by "a massive redistribution of wealth from ordinary taxpayers" and the elected representatives who almost universally have accepted huge sums from the financial sector to fund their political campaigns.

The Stiglitz team's recommendation that governments consider chartering "a new bank or banks operating without the bad debts of the failed institutions" but without "a competitive advantage over existing banks" raises a long list of questions regarding the subscribing of such banks and the businesses in which they would be permitted to engage. As noted, opposition to all manner of regulatory and competitive market reforms by the global financial players is a major impediment. Some reformers in the United States are campaigning for the establishment of public banks in each of the separate states, banks that would serve as the repository for state revenue and be charged with providing the funding for socially-desirable forms of investment.

THE ROLE OF CENTRAL BANKS

The Stiglitz team guardedly suggests that the price stability measures pursued by the central banks "contributed to the gravest financial turmoil since the Great Depression." Those of us working in the property markets are able to make a direct connection: inexpensive and broadly available credit fueled heavy speculation in land, in real estate, in the stock and bond markets, in commodities and in collectibles. When combined with government borrowing, funding for new capital goods production, on which returns are historically far more modest, was drained away by essentially nonproductive (i.e., rent-seeking) investment strategies.

Challenging the typically neoclassical analysis of the relation between interest rates and changes in the general price level, the Stiglitz team urges great care in the use of interest rate increases to dampen inflation, particularly in low income countries where food costs absorb the greater portion of household income. Their conclusion is that it is better to endure moderate inflation than widespread unemployment.

RISKS AND POLICY TRADE-OFFS

Central bankers apparently expressed to the Stiglitz team that they do not possess the powers to achieve asset price stability. They were reluctant to raise interest rates because of the impact on the affordability of consumer goods. This raises the question of whether interest rates on consumer borrowing has a direct influence on the market price of goods and services. High rates of interest charged on credit card balances does not seem to affect demand for consumer goods or the use of credit to make these purchases.

The central bankers are criticized by the Stiglitz team for not increasing margin requirements as a second anti-speculation tool. Another and perhaps more important reform would be to impose the same rate of taxation on the asset sale gains experienced by non-profit institutions as on individuals and for-profit entities.

MULTIPLE AND NEW OBJECTIVES

The Stiglitz team sees the need to address "national inequalities and global imbalances," by which they mean the growing gap between the haves and have nots, individually and societally.

Another important concern expressed is for the environment and, in particular, the "challenges of global warming." Governments must see that environmental resources are appropriately priced. The report provides no detailed proposal of how this to be accomplished. A disturbing trend around the world is the sale of public lands in order to raise needed revenue, and without any serious effort to recapture through annual taxation even a portion of the rental value of resource-laden lands (or other monopoly licenses granted to private individuals or entities).

CHAPTER 3 / REFORMING GLOBAL REGULATION TO ENHANCE GLOBAL ECONOMIC STABILITY

When the Stiglitz team writes that "financial crises and bailouts are a regular feature of the market economy" they are essentially asserting that the global financial system exacerbates an inherently unstable structure. A related issue is whether the global financial system is integral to the operation of markets or is an externality. As an externality, the financial system is both extremely powerful and inherently unstable, as history has proven. Their conclusion, that "an excessively large financial sector ... should be a cause of concern to those interested in long-term economic growth" is, one can argue, an understatement of the dimensions of the problem. In the United States, some three-quarters of all persons employed are engaged in services. What moves the financial sector are transactions, a significant portion of which result in the redistribution of income and wealth away from producers to non-producers. Income and wealth concentration in the United States is today at a level last experienced on the eve of the Great Depression.

As the crisis affects "developing countries," the causes are more systemic than the Stiglitz team describes. Few developing countries are governed by systems of law designed to promote even a modest level of equality of opportunity. Many are burdened by the legacy of centuries of external domination and more recent exploitation by resource-extracting foreign corporate interests. Not much public revenue is raised for "investments in education, health, infrastructure, and technology" in too many of these countries.

The team advises readers that the "quarter century following World War II is noteworthy for its absence of financial crisis" because of the measures adopted by governments during and after the Great Depression. On this point there is considerable opportunity for discussion. The United States emerged from the war with its industrial capacity and its labor force fully employed, extending credit to governments aligned against Soviet state-socialism. The U.S. dollar became the global reserve currency, and U.S. consumers had the income to purchase much of what other countries produced for export. Even so, business cycles continued to come and go, with recessions and periods of moderately high unemployment a recurring problem. Government interventions and regulations awarded privileges and subsidies to some, imposing penalties and hardships on others. Anti-poverty programs attacked the problems at the margin but changes in law never attempted to remove the sources of entrenched privilege that kept millions of households at the bottom of the economic ladder.

The current financial crisis supports the team's call for an improved "regulatory regime." And, if the economic models relied upon to advance the cause of deregulation were flawed (and ideologically based), sound regulation requires a far more objective presentation of how markets operate and the effects of socio-political arrangements and institutions as externalities. For one thing, there is the matter of how to distinguish between actual "capital gains" and the gains on the sale of non-capital goods assets, of which financial instruments and land are the most common forms. That such a distinction is warranted where public policies are concerned is not raised by the Stiglitz team.

The Stiglitz team rightfully calls for far better measures to prevent fraud and misrepresentation in the financial services sector. While it is certainly true that the "financial system's failure is in part a result of predatory lending," there has always been a significant amount of financial business done under predatory terms. What changed was the huge amount of financial resources placed into the hands of predators by Wall Street investment firms and global bank holding companies. Fraud has always been a serious problem in the real estate and mortgage financing sector. Deregulation opened the door to very sophisticated and well-organized fraud schemes lucrative to the perpetrators with a relatively low risk of imprisonment even if caught and prosecuted.

The Stiglitz team makes note of the role played by so-called "shadow banks" in providing investment resources to entities engaged in non-regulated activities. While regulatory failure is now admitted, these activities indicate very clearly the unwillingness or inability of internal and external auditors or boards of directors to exercise adequate control over corporate executives. CEOs and CFOs of key financial entities state before Congressional committees that they were not intimately involved in the decision-making process to commit tens or hundreds of billions of dollars to highly speculative financial relationships. Such decisions, they tell us, were within the scope of authority of people in charge of distinct business areas.

As mentioned above, a controversial change in accounting rules involved "mark-to-market" accounting. Falling asset values requires companies to raise funds to meet minimum net worth requirements. Yet, the Stiglitz team is convinced the rules are essential to market transparency. Mark-to-market accounting would make even more sense under market conditions freed of speculative frenzy. Toward this objective, the Stiglitz team proposes removing "the implicit subsidy associated with the risk of a government bailout." One measure that should be considered is a prohibition on any financial institution that accepts government-insured deposits from making loans for the purchase of land, or the reliance of land value as collateral for any other type of loan. This step would require purchasers of property to accumulate savings sufficient to cover the land cost component of property, or at least secure financing from sources required to absorb any losses without access to government protections. In the residential property markets, this would return the role of the bank to that which existed thirty years ago, when a minimum 20 percent cash down payment equated to the purchase of the land parcel beneath a home. More than anything else proposed this measure would serve to establish "counter-cyclical capital adequacy."

The Stiglitz team departs from objective analysis by asserting that "during booms, increasing the loan-to-value ratios for mortgages and requiring larger monthly payments of outstanding credit card debts will help reduce an excessive growth of these types of lending." What actually occurs is that by reducing the property buyers' cash contributions, market forces will capitalize the expanded borrowing capacity into higher land prices. Fannie Mae and Freddie Mac accommodated the speculative land market of the 1990s and 2000s by annually increasing maximum loan amounts and reducing or eliminating borrower down payment requirements. Not only did this result in higher mortgage payments but the need for greater flexibility in maximum income-to-total-debt ratios. Many new homebuyers began to carry a level of mortgage debt that could be handled only if their personal financial circumstance actually improved over time. Obviously, the exact opposite occurred as the impact of recession spread and unemployment increased.

REGULATING SECURITIES MARKETS

The Stiglitz team briefly summarizes some of the main problems with the structure of mortgage-backed securities and the securitization market. The proposal to require "originators of securities ... to hold a stake of at least 10% in each securities issue they underwrite" sounds attractive. However, my experience in this market convinces me that other measures are even more important to minimize the extent of outright fraud as well as predatory lending practices. Property appraisal information should be captured and made accessible to regulatory bodies, with the value of land parcels captured as a data element separate from total property value. Appraisers report frequently of the pressures they experience to assign values to property sufficient to cover maximum loan-to-value ratios established by lenders and/or investors. Fannie Mae and Freddie Mac requirements that lenders establish an internal post-closing quality control function were resisted and undermined by lender managements. They viewed such operational costs as difficult to absorb, and the function was rarely staffed appropriately or given sufficient authority to protect against the origination of loans characterized by misrepresentation of borrower income, employment, credit history or inflated property value.


Predatory Lending and Usury

Deregulation of the financial services sector diverted huge amounts of financial reserves into market segments long plagued by predatory practices and outright fraud. Providing credit to higher risk individuals involves a delicate balance between pricing for increased risk of default and pricing that is so high the borrower is unable to repay the debt. What the Stiglitz team should have explored but did not are the underlying reasons why so many people must rely on high cost credit to meet basic needs.

There is a fundamental need for financial literacy education in our society that is unmet by our schools. Stronger consumer protection laws combined with financial literacy are two important components to a counter-strategy against predatory lending and fraud.


Too-Big-to-be-Resolved Financial Institutions

Size and concentration are identified by the Stiglitz team as "risks imposed on the economy and the public finances." They support the strengthening of antitrust law, increased premiums for deposit insurance, stronger regulation and authority to break-up large institutions. Similar measures are proposed to be applied to the bond rating agencies with additional attention to "conflicts of interest in the stock and bond research and ratings provided by analysts paid by investment banks." The legal and regulatory issues are exacerbated by the fact that so many financial holding companies have subsidiaries with locations all around the globe. This highlights the need for uniformly-strong regulatory oversight and enforcement mechanisms.

Lending and Public Banking to Promote Development

The Stiglitz team concludes there is strong evidence that "public financial institutions have sometimes done a far better job at providing financial products that mitigate critical risks ... than the private sector." They identify education loans and small business loan programs as two examples. These types of programs are thought critical in developing countries. This section of the report does not mention the effectiveness of targeted investment tax credits; however, tax credits have a track record far superior than a general lowering of the tax rate on business profits.

CHAPTER 4 / INTERNATIONAL INSTITUTIONS

The Stiglitz team calls for a dramatic strengthening of international financial institutions, with increased powers of governance and representation from developing countries. They propose a new Global Economic Coordination Council to deal holistically with the complex nature of international relations:

"The economic crisis followed upon the food and energy crises, which also imposed a high toll on many developing countries. These crises, as well as the growing divide between poor and rich within and between countries and the risk of systemic climate change, are all interconnected global challenges that threaten to unravel the fragile state of globalization."

Neither the institutions established out of the Bretton Woods conference in1944 nor the various United Nations initiatives have met these challenges. Cooperation has not always existed, and governments have been resistant to any loss of sovereignty. The Stiglitz team points to "informal groups such as the G-7 and G-20" as too often acting in opposition "of formal institutional arrangements and the discharge of their respective mandates." The language is polite, but the intimation is clear. Governments frequently act not in the common interest, or even in the common interest of their own citizens, but often to protect vested interests. A real question is whether national governments would defer to the United Nations as "the most legitimate forum for addressing the pressing needs of global collective action facing the world today."

BRETTON WOODS, IMF, WORLD BANK ISSUES

Concluding that "the IMF did not perform as well as one might have hoped in identifying systemic vulnerabilities or in anticipating the present crisis," opens the door for a serious discussion of what authority the IMF ought to have but also points to the failure of economic analysis to focus on the credit-driven speculation and rent-seeking nature of the world's property markets. Instead, the Stiglitz team merely urges the IMF and World Bank to "play a counter-cyclical role." Expanding the decision-making role of representatives of developing countries is warranted, in any event, but this will do little to stabilize the global economic system without an objective analysis of economic cycles and pressure to adopt remedial laws and policies. Land rent reform must be at the top of the agenda if sustainable economic growth is to be achieved.

Asserting that "the IMF's current lending resources are not sufficient to allow it to respond appropriately to the worsening problems in developing countries" must be measured against the size of each country's privately-appropriated land rent fund. This change in how governments raise revenue would significantly reduce the volatility of "boom-bust cycles" and stimulate the production of agricultural commodities for domestic consumption rather than for export and accumulation of foreign currencies. An objective analysis of how much rent is being privatized and, if taxed, could provide a reliable revenue base is fundamental to meeting the needs of developing countries.

The Stiglitz team observes with great concern that "throughout the world protectionism has increased" as a consequence of the global recession. The economies of developing countries are the most seriously affected because of their dependence on exports and trade. The World Trade Organization is urged to "systematically assess the policies conducted by Member States in the framework of their stimulus and recovery packages."

CHAPTER 5 / INTERNATIONAL FINANCIAL INNOVATIONS

The Stiglitz team is certainly correct that the dollar-dependent global currency system "has proven to be unstable, incompatible with global full employment, and inequitable." As producers of goods in the United States lost competitive ground to foreign producers, imports exceeded exports, and the value of the dollar declined and declined against other primary currencies. Is the answer a "supranational international reserve currency" as some believe? The Stiglitz team concludes "this is an idea whose time has come." To counter the building of large reserve accumulations by export-driven countries, and, conversely, central bank monetary creation by the U.S. Federal Reserve (and other debtor nations), the Stiglitz team believes a global reserve currency is the only practical alternative.

Inequities / Global Currency Reserve as a Solution

No doubt, the Stiglitz team's observation is correct that the existing global monetary system has enabled the United States government to service a heretofore unfathomable level of debt because "dollar reserves [in developing countries] represents lending to the United States at very low interest rates." What is also true is that the income of savers in the United States has almost disappeared to the benefit of both private and public debtors. Households headed by retired seniors have been hit hardest by this loss of income in the face of rapidly increasing living expenses for housing, food, utilities and medical care.

The U.S. government has thus far been able to continue massive deficit spending, in part, because producing countries such as China continue to require a huge export market in order to maintain high domestic employment. The Stiglitz team sees U.S. participation in a global reserve system as the only way the U.S. can "respond effectively to the current crisis." The wonder is that the dollar has not plunged in the face of continuous trade and budget deficits. Holders of U.S. dollars and investors in U.S. government bonds are essentially absorbing both negative yields and de facto devaluation.

The idea of having the IMF manage the global reserve system seems to run counter to the history of the IMF's ability to enforce fiscal discipline on the world's developed nations. Even a new Global Reserve Bank would run up against resistance to any externally-imposed discipline. A significant shortcoming in the plan offered by the Stiglitz team is thought by the team to be a strength:

"There would be no 'backing' for the global currency, except the commitment of central banks to accept it in exchange for their own currencies. This is what would give the ICCs ... the character of an international reserve currency the same say that acceptance by citizens of payments in a national currency gives it the character of domestic money."

The problem, as I see it, is that this new currency would be introduced at a time of extreme exchange rate volatility between the currencies of major trading nations. The measures described to achieve a level of fairness (between developed and developing nations) and counter-cyclical stability seem impractical given the political discord prevalent in the United States, the United Kingdom and other nations with huge levels of debt and an inability to reign in spending or enact fundamental changes in the way revenue is raised to pay for public goods and services. How the new system would "correct the 'Triffin dilemma'" is unclear absent these other reforms by national governments. As monetary imbalances are a consequence of underlying systemic problems, such imbalances cannot be resolved by changes in monetary institutions and policies.


Transition to New System

An alternative view of how to reign in the propensity of governments to self-create credit by exchanging government bonds for new currency balances issued by their central banks comes from banking history. The Bank of Amsterdam was established in the 16th century as a publicly-owned bank of deposit. In that era, good money chased out bad in the global economy, stimulating a prolonged period of non-inflationary economic growth. While it may no longer be practical for such an institution to actually hold deposits of precious metals to fully back its certificates of deposit, a replacement currency redeemable in a stated quantity of a basket of precious metals could serve to gradually retire national currencies from circulation.

The Stiglitz team comes close to offering a systemic change in public policies by advocating "taxes on pollution." They add:

"It is more efficient to tax bad things (like pollution) than good things (like work and savings)."

Pollution is a form of license, or privilege, that imposes costs on everyone. In the absence of anti-pollution regulation, location rental values for natural resource-laden lands or even locations for industrial or electrical power production will reflect the lower costs of operation. Thus, all things being equal, the owner of land is able to capitalize higher rental values into a higher price for land. A high tax on rent will provide funds for clean-up (i.e., remedial action); however, most members of a society would prefer strong preventive measures, which might lower rental values for existing uses but change the highest, best use of locations given the absence of pollution.

CONCLUDING COMMENTS

This final section of the Stiglitz Report provides a convenient summary of the team's analysis, findings and recommendations. These can be succinctly summarized as follows:

• The financial and economic crisis was caused by a combination of private sector activities and flawed public policies.
• Changes in law and policy were driven by an ideological bias that markets are self-correcting.
• Movement to market-oriented economics systems has benefited many in some countries but worsened life for many in other where the primary economic activities are natural resource exploitation.
• In many developing countries environmental degradation has been a serious consequence of the global financial structure.
• Globalization has been accompanied by high levels of instability, particularly in developing countries.
• Massive rescue packages have thus far staved off global depression, to a certain degree positively by stimulating spending to address long-term environmental problems.
• Global discussions have been taken over by the G-20 nations, but too many nations remain excluded from such discussions.
• The need for financial reform is broadly recognized, but there is yet no consensus over needed changes in laws and regulation affecting corporate governance, competition and bankruptcy.
• There remains significant concerns over protectionist steps adopted by some governments.
• Reforms must reflect a board view of social justice, poverty reduction and protection of the environment.
• Current institutional arrangements must be greatly strengthened, reformed and made independent of political considerations to be effective.
• The need for a new global reserve system is critical to resolve problems of shrinking aggregate demand.