Those who expected much of anything to come out of this G-20 meeting were mistaken. The bottom line is that every country is going to do what it wants, and unfortunately most of them have agreed to do the wrong thing which is to stimulate lending.

In addition, a fight of sorts as broken out between the US and EU over additional stimulus proposals. With that backdrop let’s take a look at some snips from G-20 pledge sustained action on financial crisis.

Finance ministers and central bankers from the Group of 20, which accounts for more than 80 percent of the world economy, agreed there was an “urgent need” for a big boost to the lending resources of the International Monetary Fund to help struggling governments in the developing world.

They left the specific amount and who would contribute open, to be taken up at the much-anticipated summit of the group’s national leaders in London on April 2.

“We’re prepared to take whatever action is necessary to ensure growth is restored and we’re committed to do that for however long it takes to do that,” said British Treasury chief Alistair Darling.

“I can’t be clearer in saying that there are no sides,” Obama told reporters after the meeting.

“It makes no sense to pump more and more money in our economy when we haven’t restored the confidence on the financial market,” said German Finance Minister Peer Steinbrueck.

The G-20 statement also agreed to some oversight on hedge funds, largely unregulated investment funds whose financial clout has grown enormously over the past decade. “We agreed that stronger regulation … was necessary to prevent the build-up of systemic risk,” he said.

They also agreed to oversight and registration of credit rating agencies, clearer accounting rules for problem assets, and more standards for credit derivatives, another lightly regulated area that has raised fears of large losses.

As expected there was not one mention of the role the Fed, central bankers in general, fractional reserve lending, reckless deficit spending by the US and others, SIVs and off balance sheet accounting at Citigroup and banks in general, or anything else that contributed mightily to the meltdown.

Instead there was an agreement to look at hedge funds.

Framework for Financial Repair

The G-20 did manage to put together this lame Framework for Financial Repair and Recovery.

We, the G20 Finance Ministers and Central Bank Governors, agreed the need to continue working together to maintain and support lending in our financial systems. We are committed to taking decisive action, where needed, and to use all available tools to restore the full functioning of financial markets, and in particular to underpin the flow of credit, both domestically and globally.

Actions to achieve this may include where necessary:

  • providing liquidity support, including through government guarantees to financial institutions’ liabilities;
  • injecting capital into financial institutions;
  • protecting savings and deposits; and,
  • strengthening banks’ balance sheets, including through dealing with impaired assets.

Our key priority now is to address the uncertainties around the value of assets held on banks’ balance sheets, which are significantly constraining banks’ lending. This uncertainty, and the extent to which banks are holding capital to protect themselves from further potential extreme losses, is preventing them from restoring lending to business and households, with damaging consequences to our economies.

G-20 Communiqué

Anyone hoping for some meaningful statement of action in the G-20 Governors Communiqué is sure to be disappointed. The communiqué is nothing more than a useless hand holding seance in praise of motherhood and apple pie.

Consider point number one.

1. … We commit to fight all forms of protectionism and maintain open trade and investment.

Are we supposed to believe this? Why? There have been so many consecutive failures in trade talks that I have lost count.

2. Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalisation and dealing with impaired assets, through a common framework. We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions.

Hallelujah. The key priority is to restore lending when reckless lending is what got us into this mess. There are six more statements most of which amount to nothing more than an agreement to agree. Let’s take a look at number seven.

7. We have also agreed to: regulatory oversight, including registration, of all Credit Rating Agencies whose ratings are used for regulatory purposes, and compliance with the International Organisation of Securities Commissions (IOSCO) code; full transparency of exposures to off-balance sheet vehicles; the need for improvements in accounting standards, including for provisioning and valuation uncertainty; greater standardisation and resilience of credit derivatives markets; the FSF’s sound practice principles for compensation; and the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective counter measure.

Wonderful. They agreed to register credit rating agencies. Wow. That’s sure going to help. Notice too the statement regarding full transparency to off-balance sheet vehicles. Excuse me for asking but how about a timeline as to when? Then again, why should there be off-balance sheet entities at all?

And please check out that last statement. “We have also agreed to the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective counter measure.

That’s not even a sentence but the idea seems to be to “develop a toolbox to identify non-cooperative jurisdictions” whatever the hell that means.

Rest assured, whatever it is, it will be another bureaucratic boondoggle and a complete waste of money if it is attempted. For that matter, the entire G-20 conference was a complete waste of money judging from the results.

Mike “Mish” Shedlock
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