German president Horst Köhler in the annual Berlin Speech addressed the global financial collapse but also accepted part of the blame for not having been able to introduce major reforms and regulations to financial markets when the was head of the International Monetary Fund (2000/2004).-
I’m going to tell you a story of my own failure”, began President Köhler during his one in the year traditional Berlin Speech of German leaders.
Köhler recalled that when the 1999 Asian crisis, the lesson was the urgent need to look closely at the banking systems, which did not occur.
“Many who knew about the situation warned over the dangers of a major crisis in the financial system but in the capitals of the industrialized countries warnings only received deaf ears; there was the lack to impose the rationality of politics over financial markets”, said the German leader who emphasized on the need to extract the learning and consequences of the current crisis which has spread to the whole world.
Although admitting that it’s not clear yet the real motives behind the collapse of financial markets, one thing is clear: “too many people with very little money managed to establish huge financial leverages”.
“For many years people were convinced that debts were a value in itself and could be traded: banks purchased and sold more and more papers which they did not understand entirely. What was vital was to increase short term earnings”.
And this could only have happened because banks forgot the essence of their trade and culture: “monetary stability, respect for depositors and think long term”. Most important also “they forgot the constitutional statement that property also generates obligations”.
Köhler said that the building of financial pyramids became a target in itself, particularly for investment banks, “not only did they forget the real economy but also the community in general with the problem that it turned into an issue of responsibility and decency”.
Furthermore, “the belief that economic growth solved all problems and the fact that for a long time financial systems were growth-machines, made them feel safe and the result was the loss of limits”.
“Now we can see that markets by themselves solve nothing. They need a strong state that imposes strict rules. Freedom without borders, limits generates destruction”, underlined the German president.
To overcome the crisis money and credit needs to get moving again and address the recession, but on the long term “we need a new order with more effective rules and regulations”.
Köhler said that more resources are needed for the IMF, currently they are insufficient, and “apparently there’s a consensus to double IMF funds, which is good, but more would be even better”.