On October 10, 2008, the Bretton Woods Committee's International Council hosted its annual Luncheon for World Financial Leaders at the Willard Hotel in Washington, DC. The keynote speaker, former Secretary of Treasury Larry Summers, spoke on Renewing the Bretton Woods Compact and outlined the elements he felt would be important to a successful financial rescue package.
Summers discussed lessons learned from past crises: markets overreact, so policy must overreact; public authority must be in front of problems; solutions must be comprehensive and be in the form of concrete actions rather than just words. He argued that these principles must be a guide in dealing with the current financial crisis.
He also outlined a set of comprehensive measures, including coordinated international approaches and recapitalization of banks, which would offer a starting point to combat the lack of trust between financial institutions and the resulting credit squeeze. Summers warned that in this current crisis, the dangers of over reacting were much less than the dangers of under reacting.
Committee Co-chair E. Gerald Corrigan led a discussion on the elements of the crisis. He highlighted the fact that we are witnessing a financial and human dislocation of monumental proportions. And all of this taking place with truly massive government and central bank interventions. He said central banks had done a fantastic job and asked people to imagine what the crisis would be without the intervention to date. Corrigan layed out a thorough analysis of the crisis in a formal speech delivered on October 12. See: Corrigan Text [PDF, 118 KB]
Guillermo Ortiz, Governor of the Bank of Mexico noted that in the current crisis, he witnessed a glaring absence of political leadership. While there are no roadmaps in a crisis like this, we have to try to be ahead of the curve. Central banks have been thrown into a role they should not be playing. They are not political actors – and do not have the legitimacy to act in this capacity, he said.
