Is Wall Street still a model?

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(China Daily)
Updated: 2009-01-05 08:05

Yes

Liu Jinghua, Beijing Normal University professor:

The fall of the Wall Street has many doubting the necessity of continuing financial innovation in China. We should admit the defects of the Wall Street system but it is still in China's interest to adopt some of its innovations, balanced, of course, with the kind of regulations that would have prevented Wall Street's failure.

Many see Wall Street's failure as the failure of the Western economic and financial system. But the voracity of the financial gurus as well as the greed of the common people - both stemming from basic human instinct - are at the root of the crisis. This is nothing new and has happened many times before.

So it may not be proper to attribute the current crisis to the Wall Street system; rather it is the fallout of human nature.

Wall Street, literally, is but a narrow 600-meter-long street in Manhattan. However, it is the heart of the global financial world and the symbol of the financial prowess of the world. While we are denouncing the damages of the financial crisis that originated from Wall Street, we should not forget that in the past half century it was this street that brought innovations that drove the world's economic and technological miracles.

If the US did not indulge in excessive borrowing-based consumption, the crisis may not have happened but we should not forget that the greed of irresponsible ratings agencies and policymakers also played an ugly role in triggering the crisis.

The Western financial system, represented by Wall Street, should be reformed but it is unnecessary to dump all its financial practices and rules. What we need to do is to draw lessons from Wall Street, strengthen financial regulation and establish closer global cooperation among the world economies to preclude any future crisis.

Zhang Jingwei, Jiangsu province scholar:

Everybody would have said yes a few years ago. But now we're lucky we didn't apply too much Wall Street financial know-how to the Chinese market. Five investment banks and Citigroup in the US have fallen to the financial turmoil. The Wall Street system creates not only wealth but also bubbles.

Former US Federal Reserve chairman Alan Greenspan told Asian countries during the 1997 Asian financial crisis that the US capital market is the model to follow. Countries such as South Korea, Indonesia and Thailand copied the Western style of economic and financial management in return for Western aid. But 10 years later many countries following the Wall Street recipe paid a dear price. Iceland, a European finance hub, is being pushed into bankruptcy.

The international community is pondering the cause of the crisis as it spreads across the globe. Two factors are prominent. One is the Washington Consensus, which was initially coined in 1989 by institutions such as the International Monetary Fund (IMF) and the World Bank to describe a set of 10 specific economic policy prescriptions constituting a standard reform package for crisis-wracked developing countries. The other is that so many countries jumped on the Wall Street bandwagon.

China made efforts to get integrated into the global financial market over the last two decades. Many domestic economists advocated faster and wider opening up of the financial market and less intervention in the market so that the US mode of financial management could be introduced into China. The Asian financial crisis, however, reminded us of the havoc full financial de-regulation can wreak. We are fortunate we adopted a gradualist approach in financial innovation.

We learned from Wall Street to launch such financial products as securities and bonds, but we have tried to keep the scale of the virtual economy proportionate with the real economy so that risks are controllable.

China should tap its own approach in constructing its financial management regime.

The article is reprinted from Beijing-based Global Times

(China Daily 01/05/2009 page2)