13 days to G20: set broad principles, leave detailing to sovereigns

When a herd runs, it doesn’t differentiate whether it’s plains or plateaus, trees or shrubs, calves or bulls. In a frenzied panic, it tramples just about anything and anyone. The herd in financial markets is no different. And if the ongoing credit crisis is to be seen from a distance, when the participants are the mightiest of the mighty (the world’s largest banks, the world’s largest investment banks, the world’s largest governments, the world’s largest dealmakers), the herd is the very face of destruction.
Countries, companies and individuals that had absolutely nothing to do with the crisis are suffering the aftermath of loose regulation and looser morals of executives who helped lobby and create the deregulated financial atmosphere even as they collected — and continue to collect — their million-dollar bonuses.
The US Congress’ proposal to tax the bonuses of Wall Street at the rate of 90 per cent yesterday is the one sane act in a sea of chaos where even now executives are playing the profiteering game by getting taxpayers to sign their seven-digit bonuses — well done, Obama.
The herd is blind and will remain so. It was blind on the way up, as the high tide of excess liquidity lifted markets across the world, altogether, irrespective of the underlying. Then, everyone thought Russia’s oil, Pakistan’s low economic base, Chile’s commodities, South Korea’s diversified manufacturing, Brazil’s mines, China’s Olympics and India’s infrastructure potential, were opportunities that wouldn’t come again, at least for the next few millenniums.
Now, with liquidity almost dry, a reversal is underway — harsh, sweeping, bloody.

Blog post on Cutting the Edge