Russia, Argentina, America? U.S. as "Emerging Market"

"Emerging market" is a World Bank euphemism for countries like Russia, Argentina, and Pakistan who don't do capitalism the way we Western experts think they should.

Did I say experts?

Over the past year, I've been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking -- with other people's money -- for their personal gain.

...The parallels between U.S. policymaking and what we see in emerging markets are clearest in how we've mishandled the banking crisis. We delude ourselves that our banks face liquidity problems, rather than deeper solvency problems, and we try to fix it all on the cheap just like any run-of-the-mill emerging market economy would try to do. And after years of lecturing Asian and Latin American leaders about the importance of consistency and transparency in sorting out financial crises, we fail on both counts: In March 2008, one investment bank, Bear Stearns, is bailed out because it is thought to be too interconnected with the rest of the banking system to fail. However, six months later, another investment bank, Lehman Brothers -- for all intents and purposes indistinguishable from Bear Stearns in its financial market inter-connectedness -- is allowed to fail, with catastrophic effects on global financial markets.

...In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to "get their house in order" -- without the slightest thought that the United States might fare no better when facing a major economic crisis. Now, I fear time is running out for our own policymakers to mend their ways and offer real leadership to extricate the United States from its worst economic calamity since the 1930s. If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long [Desmond Lachman, "Welcome to America, the World's Scariest Emerging Market," Washington Post, 2009.03.29, p. B01].

Lachman, a pretty smart fellow at the American Enterprise Institute, blames both political parties, and sees our current Treasury Secretary to be as at sea as his predecessor. Mr. Lachman recommends following the Swedish model of bank reform, where nationalization of two major banks scared other institutions straight. He also calls for complete transparency and consistency in our bank reforms. In this morning's article, he sees disaster for America if we don't eventually rein in spending, but last October he said that the argument that a big deficit spending push "might compromise the longer run US budget position overlooks how very much worse the US budget position would be in the event of an even deeper recession than that already in train."

The policy questions of what to do at this moment are tough. But Lachman's larger point is that the United States sank into a myopic crony capitalism even as it was telling other countries to reform their markets. With our recent performance, we shouldn't be any more surprised that China would like to buck the buck and create a more stable world currency than we are that no one outside Russia uses rubles.