October 07, 2008
States and Firms
Posted by Anna Gelpern

My friends who practice international political economy have long flogged the fuzzy line between states and firms, public and private capital.  It has been truly striking in recent days to see the distinctions dissolve in mainstream policy talk.

  • Lehman 2008 is Argentina 2001 – a long-overextended debtor whose lenders should have known better.  Both marked lines in the sand for official assistance; Argentina’s turned out to be cleaner – no one else collapsed in its wake.
  • Wall Street now is Asia ten years ago.  In this view, both are victims of liquidity runs that brought about self-fulfilling collapse, except “[f]or countries then, read banks (or markets) today.”
  • Iceland is a hedge fund. Russia, poised to inject capital in Iceland, must be … an offshore billionaire … or China.

This rhetorical turn has interesting implications for regulation.  There is no true lender of last resort or regulator for countries going down the tubes – the IMF’s attempt to fill that role in recent decades illustrates the point, sometimes tragically so.  Does the new talk reveal regulatory impotence? ... (And for the optimists:) reframe the mandate for international cooperation?

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