Financial system 
should be reformed

10th July 2009 By: Seeraj Mohamed

I wrote in a recent article in this column that the best investment by US financiers was the billions of dollars they used for lobbying the US government over the past decade or more.

They lobbied for the deregulation of financial markets and the banking system. They lobbied to prevent regulation of derivatives markets. After the dotcom bubble burst, they lobbied to tone down the new corporate governance and oversight laws. They earned billions in bonuses by increasing financial 
leverage and taking risks that put the entire global financial system in danger. Further, the politicians in Washington DC advocated 
financial liberalisation in the rest of the world to open global financial markets to their 
underregulated US financial institutions.

To put it crudely, Wall Street and other financiers paid off Washington DC officials to allow them to pilfer and destabilise the global financial system. And, when the financial house of cards they had built came crashing down, Washington DC officials bailed them out. The US government used public 
resources to nationalise private debt and toxic financial assets.

They poured hundreds of billions into the financial sector. The billions they gave away to the financiers could have reduced the absolute levels of poverty in the US for generations. However, there has not been significant reregulation of the US financial sector. The world is still not safe from the underregulated financial institutions of the US.

The global financial system is in crisis, but there are no significant changes to financial regulation. The US and other countries seriously affected by the financial crisis have not changed their frameworks for financial regulation. With few exceptions, the same people who drove the world’s financial system into a crisis are still in charge.

They will probably perpetuate the system of lies and deceit that built the shadow banking system at the centre 
of the global financial collapse. These are the same people who know that their large investment in lobbying Washington DC officials had huge returns in the form of billions of dollars in bail-outs. In short, they know that the system is corrupt and that they can continue to benefit from that corruption.

Of course, the word ‘corruption’ is not used when talking about the relationship 
between Wall Street and Washington DC. The favours, the jobs for wives and friends, and the campaign finance that buys influence in Washington DC are so entrenched that they are not thought of as corruption. The likes of the World Bank do not write about the need to improve governance in the US. They hold up the US and other developed countries as 
models of good governance and little corruption.

They spread the myth that the 
political governance systems of the West are characterised by transparency and arms-length relations. They do not tell us to learn from the obvious governance problems in the US and other developing countries. They do not point to the lessons that show the need for serious reform of campaign contributions and election finance. They do not point to the revolving doors 
between government and big business. Government officials know they will receive good jobs in business if they behave while in government. Instead, they tell us in Africa and 
the developing world to emulate these models.

We, citizens of developing countries, should shout loudly that there cannot be a better 
example than the current global financial crisis to show that the models of governance and financial regulation we are told to 
emulate are indefensible. We should call for reform of the developed-country governance systems and for proper regulation of their 
financial systems. At the same time, we should embark on our own reforms. Our future 
financial stability and economic growth 
depend on political and economic reforms in the developed countries.