"The implosion of the subprime mortgage market provides a glimpse of what can happen when some kinds of competition run too far. While it might be great for consumers who want to live beyond their means, the risk is that in an effort to book new business, financial institutions make greater and greater concessions that invite danger. In extremis that leads to ruin. At a minimum it necessitates the imposition of new regulations and lending guidelines.
It thus stands to reason that the same thing could be happening in the global version of subprime lending, or the market for economic development dollars. Ever since the creation of the World Bank and International Monetary Fund at Bretton Woods near the end of World War Two, the two multilateral institutions, with heavy guidance from Washington and European capitals, have dominated the business of extending money to governments either in crisis (the IMF’s purview) or trying to reduce poverty (World Bank)."
Rob Cox begins this article talk about the US housing boom and bust. He then goes on to talk about the cause being banks taking risky loans without proper collateral put against the loan or documentation of income. The real issue he wants to discuss though, is the danger of global financial institutions being in competition. World Bank Chief Jim Yong Kim believes, "If the world’s multilateral banks, including the new ones, can form alliances, work together and support development, we all benefit – especially the poor and most vulnerable."
On the other hand, Cox is worried that this competition between global lenders could "weaken private institutions, prop up bad governance and potentially increase the gap between the rich and the poor." I can't say that I necessarily disagree with him either. It is somewhat alarming to me that we continue to develop these world financial institutions. It seems that once too many of these are instituted, that there will be some major global issues.
The US failed to make some changes that other countries were in favor of, "So China is going its own way with the Asian Infrastructure Investment Bank – without American participation. The starting gun has been fired on a new global race to the bottom."
Yesterday, I posted a different article about the implementation of the Asian Infrastructure Investment Bank, but this article shows an opposing view. Do you think the implementation of the Asian Infrastructure Investment Bank and similar future institutions will cause global issues?
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