I was at a very interesting little conference at the Liberal Club yesterday, on the ‘future of the financial industry’.

The first speaker was Vince Cable, who added his voice to those, like Martin Wolf of the FT and Mohammad El-Erian of Pimco, who say banks should become, or are on their way to becoming, more like utilities than glamorous investment vehicles.

Cable basically suggested a two-tier banking system: some retail banks would be considered crucial to the payment system and the economy, and thus ‘too big to fail’. They would be managed like electricity utilities, with very strict regulation, and owned, he suggested, through some form of public-private partnership, or as mutuals.

Any other financial players would be treated like hedge funds, and ‘would have no claim on tax-payers’ money should they fail’.

Bank of England governor Mervyn King weighed up the pros and cons of a similar model in a speech to a group of bankers on March 16:

“There are good arguments in favour – to separate the utility functions of a retail bank taking household deposits and running the payments system from the casino trading of an investment bank, and good arguments against – the difficulty of maintaining a credible boundary between those institutions that are eligible to receive government support and those that are not.”

Martin Wolf is in favour either of a complete utility model, or of mechanisms to let big banks fail :

The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both. The UK cannot afford it.

Adair Turner, formerly a senior advisor to Merrill Lynch (before it had to be rescued by the US Treasury) rejected this division of banks into those we let fail and those that don’t, in his recent report. He came out instead in favour of banks putting aside more capital in the good times, to act as a buffer in the bad.

I asked Cable if he thought the government was fudging the essential unfairness of the present system, whereby banks have repeatedly kept the profits and socialised their losses:

“Yes, the government and Turner are turning their face away from the problem. At the moment, the system is obviously unfair. But the government wants to muddle through with it anyway. Turner’s argument is that hedge funds can grow so big that they acquire systematic importance and have to be bailed out.”

This is true – look at the example of Long Term Capital Management, the enormous hedge fund which threatened the stability of Wall Street when it went bust in 1998, because of the emerging market crises, and had to be supported by the Fed.

At the same time, hedge funds were then (and are today) unregulated. They are now going to be much more actively regulated by the FSA and SEC.This could prevent the rapid unsupervised growth of funds like LTCM – the FSA could have the power to intervene, and rein in the organisation’s balance sheet.

It seems to me that banks and hedge funds have enjoyed the largesse of tax-payers for far, far too long. It’s not just 2008: in the last 30 years, they’ve been bailed out during the 1998 crises (via the IMF), during the Latin American debt crisis (via Brady Bonds), and during the Savings and Loans crisis. They chronically over-extend themselves, and then turn to their friends at the Treasury and IMF for a bail-out, while tax-payers – whether in emerging markets or at home – shoulder the cost and the suffering.

Who is the bigger fool – the banks, for repeatedly getting into serious debt problems, or us, for repeatedly giving them the tax-payers’ money to go off and do it again?

Afghan President Hamid Karzai provoked international outrage with draconian restrictions on women and laws that explicitly sanction marital rape. A leaked copy of the laws obtained by The Times details new strictures for Afghanistan’s Shia minority. Women are banned from leaving the home without permission. A wife has the absolute duty to provide sexual services to her husband, and child marriage is legalised.

Terrible? Without a doubt. But it may also be good electoral politics. In a post in late January I mused on what US-style election consultants would tell Karzai to do:

In the run-up to the election, our consultant might say, having a another go at the international community might not be a bad idea.  Kicking out a few human-rights NGOs would be a start and then he could ban driving by women, including by foreign women. In fact, why not ban all alcohol, including for foreigners. A raid on a restaurant frequented by diplomats might make good copy. And, like in Saudi Arabia, why not try to legislate that all women — again including foreigners — must wear headscarves at all times? 

It looks like Karzai has done something very similar….

I’ve already done a post with some quick reactions to the specifics of the communique, but before I pass out with fatigue, a final reflection on the day.

As summits go, today was a big success, particularly for Gordon Brown.  If you thought Obama was warm about Brown’s leadership yesterday, that was nothing compared to some of the language he used in his press conference at the end of the summit – where, incidentally, he charmed the assembled press to the extent that they couldn’t help applauding at the end. ‘Things you seldom see’, as they say.

But at the same time, today was always – of necessity – going to be about fighting the immediate crisis, and trying to prime some kind of immediate-term economic recovery. 

What remains so far unaddressed in leaders’ in-trays is a set of longer-term crises - and the need for longer-term recovery - on at least four key underlying issues: climate change; global economic imbalances; the issue of reserve currencies; and the need to head off another oil and food price spike, which could well get underway before the economic downturn is over.

All four of these issues raise big questions about changing the way the global economy works, and the need to ‘manage globalisation’ to make it more resilient, sustainable and equitable. All also involve big questions about power relations between the developed economies, emerging economies and low income economies.  And most fundamentally of all, they’re inextricably interrelated with one another.

At the moment, as just about every commission, task-force or high level panel on international reform in recent years has noted, the international system deals with these kinds of issues in a particularly fragmented, ‘stove-piped’, silo-riven fashion. 

That’s one reason why more and more of the hardest global issues get escalated to heads’ level, in bodies like the G8 or the G20.  But as the track record of the G8 over the last decade demonstrates, heads’ level bodies don’t obviously have the capacity to cope with them.  Initiatives and carefully crafted communique language all too often trump far-reaching, genuinely comprehensive action; it’s the old problem of the urgent crowding out the essential.  That was the case before the credit crunch – and it’s doubly so now.

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This post from Evening Standard political editor Paul Waugh is a must-read:

Much ink will be spilled tonight and tomorrow about Gordon Brown personally securing various victories in the G20 London summit.

But here’s a fascinating clue to the real power broker. Conducting himself assuredly as if he were a summit veteran rather than a first-timer, Barack Obama appears to have been the crucial player in securing a form of words on the thorny issue of tax havens.

American sources have now revealed that it was the US President who stepped in to knock heads together (in the nicest possible way) to get Sarko and China’s President Hu to come to an agreement.

In the final plenary session with just minutes to go before a deal had to be signed, Sarkozy and Hu were having a heated disagreement about tax havens. France wants urgent action, while China fears a crackdown would hurt banking centers in Macao, Shanghai and Hong Kong.

As they went through a revised draft, the exchange between Sarkozy and Hu got so heated that it was threatening the unity of the G-20 leaders’ meeting.

Sarkozy specifically was pushing for a list from the OECD to be included in the G20 Leaders’ Statement. China, which is not a party to the OECD, opposed any such list being included in the final Leaders’ Statement.

But Mr. Obama stepped between the two men, urging them to try to find consensus, and giving them a “pep talk” about the importance of working together.

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I have long thought that we’ll live to regret our failure to use the current crisis to nudge the global economy onto a greener trajectory. A WWF/E3G report, published today, heightens this fear.

By weighting elements of national stimulus packages, it offers a quick and dirty estimate of how green each one is. The answer is ‘not very’ with the UK’s risible effort one of the worst offenders.

The share of ‘climate friendly’ stimulus is small, researcher find, and it’s more than offset by investment in roads (including one to Manchester airport) and fossil fuel R&D (yes – read that and weep).

You can quibble with the analysis. Investment in nuclear is not included on the green side of the ledger – which seems unfair on the French, who have low per capita emissions relative to GDP and expect additional nuclear investment to push them lower. But the scoring is transparent and easy for others to replicate with different weightings.

And there’s a much bigger point: why is it up to a couple of NGOs to do this work? By now, the G20 should have set up standardised and sophisticated systems for monitoring the net carbon impact of each country’s stimulus package.

That they haven’t shows how confused and fragmented our thinking remains about the interlocking crises the world faces.

Disclosure: I recently agreed to act as an adviser to E3G in the run up to Copenhagen, but have had no involvement in any aspect of this report.

Today’s summit marks the first time that bloggers have been included as fully accredited members of the press at a heads’ level summit meeting - in their own right, that is, rather than because they persuaded a newspaper to accredit them (which remains the route that a lot of NGO campaigners have to follow).

Another first from today: during the Chairman’s press conference, Gordon Brown called on one of the G20 Voice bloggers, Richard Murphy, to ask one of the questions: the first time a blogger has ever asked a question at a heads’ level summit press conference.  (Newsnight have already booked him for an interview for tonight.)

The organisers of G20 Voice are ebullient, and they should be. As Tom Watson (who took the day off from being a minister of state at the Cabinet Office in order to sit here and blog with us) told me earlier, this is the result of a small group of quietly determined people focusing very hard in the run-up to the summit on the objective of establishing the blogosphere’s right to representation at such events.  It looks a lot like they’ve pulled it off.  Hats off to them.

So: the outcome.  Here’s the communique - and three thoughts from me.

First, the biggest winner from today is the IMF. This is an organisation which looked like it might go bust just a couple of months ago; now, its funds have been trebled to $750bn, much higher than the $500bn that David Miliband was touting last week.

But the IMF’s win isn’t just financial; it’s existential.  At the beginning of last year, it was set to lose a sixth of its staff.  People were openly wondering what is was for.  And now?  The G20 has just issued a clear, ringing, and very public, declaration of its continuing centrality to global governance.

Here’s my hesitation, though.  If the declaration of faith in the IMF is clear, the path towards reforming it is much less so.  The communique calls on the IMF to complete the next review of quota votes by 2011, but says nothing about the principles that should underpin this review. It includes the traditional call for “greater voice and representation for poor countries”, but doesn’t get into specifics.  As Oxfam have put it, the IMF’s back, it’s big and it’s bad.  Whether it’s reformed is another question.

Second, the movement on tax havens is actually pretty significant.  The communique says that “the era of banking secrecy is over”, and actually, it might be right.  We’re told to expect a list of tax havens, broken down into ‘white’, ‘grey’ and ‘black’ – and Stephen Timms, a junior UK Treasury minister, briefed this morning that he expects sanctions against countries that don’t sign up to the required disclosure standards.

For development advocates, tax havens have long been a massive bugbear.  Back when I was working a DFID at the time of its 3rd White Paper in 2006, tax havens were already starting to be recognised as one of the most critical policy coherence issues in development – but it was clear there was no chance of getting reform of them onto the global agenda.  A lot can change in three years…

Third, a big disappointment: climate change.  I blogged earlier that not much was expected on this, and so it has proved. On green new deals, in particular, the lack of numbers is a very major omission.

OK, just had chats with a couple of senior UK officials, and here’s where things are at inside the negotiations:

- Lots of discussion about SDRs and IMF finance.  It looks like we’re heading towards a $250bn SDR issue as part of a larger package on IMF financing; things look hopeful for getting beyond the important $500bn level.  Germany has apparently been a bit difficult over the SDRs issue – they’re keen on applying a lot of conditionality.  The SDR discussions were also complicated by China’s recent suggestion of ending the dollar’s role as global reserve currency, and using SDRs instead – this made the US somewhat suspicious of SDRs in general.

- A big fight is underway on tax havens. Sarkozy’s going in hard for tough language, but China is against as it’s worried about the effect on Hong Kong and Macao.  Gordon Brown is looking for a compromise on that right now at the lunch.  The Czech Presidency has been ‘unhelpful’.

- On trade finance, there are hopes for a pretty good package, which would then be presented as a key outcome for low income countries.

- But it looks like today’s big disappointment will be on climate change and green new deals.  Both sources told me that there will be no numbers at all on green new deals, either in terms of percentages of stimulus packages, or overall dollar totals.  Worse, there are real struggles underway on keeping language about Copenhagen in the communique at all.  The issue here is apparently largely with China – which is reportedly worried about linking climate and the G20 process, on the basis that this would provide Congress with another platform for protectionism. Right now, all language on “greening”, “low-carbon” and “Copenhagen” is out of the communique, at China’s request.

That’s it for now.  As ever, apply a discount rate to all this: this is about the time you’d expect host government officials to be lowering expectations, so that they can pull a rabbit out of the hat in about an hour’s time…

Although the food price crisis has slipped from the agenda as the credit crunch has gathered pace, for poor people around the world it hasn’t gone away – and may now be set to worsen again. 

While the FAO’s food price index has fallen by around 30% since its peak last summer, that only takes it back to May 2007 levels: still well above recent norms.  Meanwhile, the global total of undernourished people is now over a billion, up from 850m just a couple of years ago. Now, FAO officials say privately that they expect the next findings from the index to show a new increase. 

If that’s right, then we’re really moving in to worst case scenario for developing countries, who are already reeling from the credit crunch. So what’s happening here at the London Summit on this front?

I asked that to Douglas Alexander, the UK’s international development secretary, in a press conference he did an hour or so ago.  He pointed to the £200m the UK has committed to a new ‘rapid response social fund’ to provide safety nets for the most vulnerable people, and applauded the work of the World Bank and WFP in particular. On increasing supply, meanwhile, he suggested that infrastructure investment is crucial (which it is).

I also caught up with Peter Mandelson, the UK’s business secretary, and asked him how the trade system could be proofed against the kind of crazy security of supply perturbations that caused such problems last summer, when over 30 countries had export restrictions in place. He stressed that what’s needed is to keep markets open, and that any impediments to this would harm supply by undermining incentives.

In analytical terms, I can’t fault anything either of them said. But note the lack of specifics about what this summit should be doing: there’s no getting round the underlying fact that preventing a resumption of the food price spike isn’t on the agenda here.  It should be.  As a senior IMF official put it to David and I when we were over in DC recently: “the last thing we can afford now is another crisis creeping up on us”.

Alex Barker at the FT’s Westminster blog:

This is my first dispatch from the G20 media hangar, which has so far proved to be full of journalists and free of information. But Britain’s intrepid press pack have succeeded in digging up one important story: the “minty green” colour of the “lounge area”.

We’re told that the world’s leaders will be plotting the course for economic recovery from a modern, functional, informal “break out zone”. There are comfortable chairs and tables, but “no bean bags”, according to one well informed source.

Leaders left breakfast a short while ago (the menu remains top secret) and are now “milling around”, chewing the fat and bargaining over the world’s future. Here’s to hoping the coffee is better than it is in the press area.

Actually, an informal ‘break out zone’ is probably a good idea.  Watching the TV feed of the formal summit room a couple of minutes ago, I couldn’t help wondering how any kind of shared awareness could emerge from such stilted surroundings…

So here I am in the cavernous media centre at the London Summit.  Some of the main excitement of the day so far: (a) the police found an unexploded World War Two bomb sunk in the dock next to the Excel centre, and will be detonating it shortly; and (b) there are free bacon sandwiches.

Plus, it turns out that one of the other G20 voice bloggers is Daniel Kaufmann - now at the Brookings Institution, before that at the World Bank.  He’s one of the top governance experts in the world (the FT’s words), and was one of the World Bank staffers who really put pressure on Paul Wolfowitz during the 2007 graft kerfuffle - if you recall the letter that he and other Bank staff sent to Wolfowitz, it read

The credibility of our front-line staff is eroding in the face of legitimate questions from our clients about the Bank’s ability to practise what it preaches on governance.  In these circumstances, we cannot credibly implement the governance and anti-corruption strategy.”

Hats off for that.  Next up: bloggers’ press conference wit Douglas Alexander coming up shortly.

Earlier this week, I did a post on Chinese central bank governor Zhou Xiaochuan’s essay calling for the replacement of the dollar as the world’s reserve currency.  Today’s FT contains another instalment of big picture thinking from China on the global economy – this time from Yu Qiao, an economics professor at Tsingua University’s School of Public Policy and Management.

Like Zhou, Yu is explicit on Chinese worries about the potential erosion of the value of their rather large stash of US dollars – $1,200 billion of T-bills alone.  “Most of Mr Obama’s stimulus spending is devoted to social programmes rather than growth promotion,” he notes, “which may exacerbate America’s over-consumption problem and delay sustainable recovery”.

What’s more, he continues, that could in turn end up doing exactly what Tim Geither was worried about in the wake of Zhou’s essay: an erosion of the dollar’s role as reserve currency.  Here, interestingly, there’s what looks like a signal of preparedness to moderate the position set out in Zhou’s essay. Yu says explicitly that,

No other international monetary system offers a viable alternative. However, we can make the main reserve currency power more accountable by creating an instrument to help manage the global crisis.

Admittedly, Yu is an academic and not a member of the government.  But it’s very hard to imagine that a senior Chinese professor would directly contradict his government’s position, on such an acutely political issue, in a time of such severe risks, in the FT, the day before the G20 summit, without clearance.  At the same time, using this approach avoids losing face for Zhou – and may signal a willingness to talk, rather than a definite climbdown.

So what does Yu propose as an alternative way of safeguarding China’s assets, if not reform of the dollar’s reserve currency role?

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Please do send your crap placards to the team here at Global Dashboard. Some placards – like make love not leverage raised smiles – most, however, were woeful.  Your starter for ten, which I think should win for sheer laziness and hypocrisy (is that a pair of Levi’s and Reebok trainers on the protester?) is the following: