UNCTAD: A global crisis needs global answers : Heiner Flassbeck, Director of UNCTAD's Division on Globalization and Development Strategies, explains the factors at the origin of the current economic crisis and outlines policy alternatives to respond to the global crisis with "global answers."

Beginning with the subprime credit collapse and the unwinding of speculative positions in the stock, financial and commodities markets, Flassbeck traces the origins of the crisis through unsustainable price increases and the inevitable crash.

Moreover, the regulators' recent "stress tests" on bank holding companies didn't fully measure the cash squeeze those institutions could face if souring conditions forced them to post tens of billions of dollars in additional collateral on some of their insurance-like bets, known as derivatives. The banks' financial reports to regulators for the quarter ending March 31 also tell a potentially ominous story about their holdings of derivatives, instruments whose value is tied to an underlying asset, such as a pool of subprime mortgages. Seventeen of the 19 largest banks reported that, in the event of an economic catastrophe, they face combined derivatives losses exceeding $568 billion. --  Big banks could lose more than stress tests projected: Miami Herald, 12 may 2009.

Mark-to-market accounting is one of over 20 issues that would be potentially be explored by a Financial Crisis Inquiry Commission (as named in the House version of the FERA bill; with a slightly different name in the Senate version).

Cady North, FEI's Manager of Government Relations, explains: "The bill includes $5 million for the creation of a Select Committee to investigate the economic crisis. The panel would have 10 members, six chosen by congressional Democrats and four by Republicans. The chairman and vice chairman would be from different parties. No elected officials could serve on the panel, which would have subpoena power."

According to the House version of the bill, excerpted below, the Financial Crisis Inquiry Commission (FCIC) would be charged with: "examin[ing] the causes of the current financial and economic crisis in the United States, specifically the role of--
(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
(D) monetary policy and the availability and terms of credit;
(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
(F) tax treatment of financial products and investments;
(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
(K) the concept that certain institutions are `too-big-to-fail' and its impact on market expectations;
(L) corporate governance, including the impact of company conversions from partnerships to corporations;
(M) compensation structures;
(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
(O) the legal and regulatory structure of the United States housing market;
(P) derivatives and unregulated financial products and practices, including credit default swaps;
(Q) short-selling;
(R) financial institution reliance on numerical models, including risk models and credit ratings;
(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
(T) the legal and regulatory structure governing investor and mortrgagor protection;
(U) financial institutions and government-sponsored enterprises; and
(V) the quality of due diligence undertaken by financial institutions;

Additionally, the bill specifies the FCIC would be required to:
- examine the causes of the collapse of each major financial institution that failed
- submit a report,
- refer potential violations of the law to the U.S. Attorney General and State attorney generals, and
- build upon (but not duplicate)the work of other entities (such as congressional committees, GAO, other agencies) to avoid duplication in conducting its examination of these matters.

Humanitarian Resource Institute . Stephen M. Apatow President, Director of Research and Development, Humanitarian University Consortium Graduate Studies Center for Medicine, Veterinary Medicine and Law   Tel: (203) 668-0282 Internet: www.humanitarian.net Email: s.m.apatow@humanitarian.net

Dialogue on Freedom: American Bar Association: The terrorist attacks on September 11 underscore the necessity for serious and constant discussions about American civic values and their compatibility with other cultures.