A Larger Vacuum to Fill
The financial sector in most parts of the world is focused on short-term profits, for the simple reason that consistent short-term profitability is important to long-term success of any business. So short-termism isn't necessarily the explanation for the financial problems in the past couple of years, and it is wishful thinking on our part to expect that a long-term focus, if achievable, would yield better leaders. To expect Wall Street, on its own, to provide the new leadership that can fundamentally change the way capital markets behave is an unrealistic expectation.
So far, the recovery gameplans to come out of this crisis are largely spearheaded by institutions and countries that first led the world into the crisis -- namely the U.S. and U.K. -- and their proposed solutions don't necessarily reflect the views and suggestions of countries, including some in Europe, let alone Asia, where these problems were less intense or better contained.
Returning financial institutions to medium-term financial stability through sensible lending and borrowing practices, and without bailout crutches, will help countries like the U.S. and U.K. regain some semblance of international financial leadership. And successful recovery, even if under the G-20, will require better coordination among global institutions and regulators. But there is a larger vaccuum that won't be filled anytime soon.
Before this crisis, the CEO of Citi, for example, would visit India and lecture regulators there about the need to "open up" India's banking because India was falling behind with its relatively closed banking system. But its very closed banking system and tight-fisted regulators helped India deal with the global crisis in a robust way. So, it will be years, if not decades, before a Western banker can make a similar case for "opening up" in a country like India even if, fundamentally, he or she is correct.
Moral leadership in the global financial arena will take years to regain even if and when companies like Citi regain sustained profitability in the medium-term. And for this to happen, Wall Street and Western governments will need to pay attention and respect practices that may seem to go against the classical definition of open markets and capitalism. But a willingness to put aside ideology might be the true leadership qualities that countries and its leaders, such as President Obama or Prime Minister Gordon Brown, need to regain long-term leadership in global financial market, a leadership that is as much based on market clout as it is on moral grounds.
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