Roger Cohen: World leaders converge on a battered New York this week for the United Nations General Assembly and my advice to them is: think Damien Hirst.
It’s not that I expect them to dwell on the British artist’s giant tanks of dead sharks and piglets at a time when the U.S. economy is being socialized to the tune of $700 billion ($2,000 for every man, woman and child in the country) as a result of a giant mortgage-related Ponzi scheme.
It’s that the Hirst bull market in the midst of the most convulsive week for financial markets since 1929 says something important about the global economy and America’s declining place in it. In case you missed it, Hirst sold 223 works last week for just over $200 million, well above Sotheby’s pre-auction estimate.
Oliver Barker, the auctioneer, identified the Russians as major buyers. Sotheby’s took a preview of the sale to New Delhi, where it received a number of pre-auction bids. Jose Mugrabi, a New York dealer, told my colleague Carol Vogel that Hirst is a “global artist” who can defy “local economies.”
For local, read American.
Yes, folks, the cash is elsewhere. Asians have been saving rather than spending. Their consumers are in better shape, as are their banks. The China Investment Corp. (C.I.C.), a sovereign wealth fund, is sitting on $200 billion (and a 9.9 percent stake in Morgan Stanley) while China’s central bank is managing another $1.8 trillion in reserves.
And what have we heard from the new centers of wealth and power — China, India, Brazil, Russia, the Gulf states — about America’s financial agony over the past week? Zilch.
Well, not quite. Asked about the crisis, Luiz Inácio Lula da Silva, the Brazilian president, said: “What crisis? Go ask Bush.”
Thanks, Lula. Brazil is sitting on $208 billion of its own in reserves, so perhaps Lula would say his flippancy is justified. But I don’t think it is.
Remember the last financial crisis in 1998? With the Russian economy in a freefall, Moscow officials scurried to the U.S. Treasury to secure vital American support for $17.1 billion in new International Monetary Fund loans. That steadied things.
The world has changed in the past decade. There’s been a steady transfer of wealth away from the United States in a shift most Americans have not yet grasped. But there has been no accompanying transfer of responsibility. New powers are free-riding as if it were still the American century.
It’s not. Imagine if Hu Jintao, the Chinese president, had declared last week: “China has a deep interest in the stability of the U.S. economy and the dollar. We stand ready to help in the essential return of confidence to financial markets. Talks with the U.S. Treasury are ongoing.” Or perhaps the BRIC countries (Brazil, Russia, India and China) might have put out such a joint statement.
Let’s be clear: this is an American mess forged by the American genius for new-fangled financial instruments in an era where the mantra has been that government is dumb and the markets are smart and risk is non-existent. The responsibility for undoing the debacle is chiefly American, too.
But toxic mortgage-backed securities were peddled by plenty of foreign banks. And the decision to pour $85 billion of U.S. taxpayers’ money into the rescue of American International Group (A.I.G.), the insurance giant, followed appeals from foreign finance ministers to Henry Paulson, the Treasury secretary, to save a global company.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, told me: “Paulson said he was getting calls from finance ministers all around the world saying, you have to save A.I.G. Well, they should have been asked to contribute to the pot.”
Frank has a point. (He should coach Barack Obama on how to put economics in plain language.) As Frank said on “The Charlie Rose Show,” “I don’t think the European Central Bank should be free to spend the Federal Reserve’s money and not put any in.”
I know, you reap what you sow. Nobody’s itching to help the Bush administration. World central banks did inject billions in concerted action to help stabilize money markets. But the U.S. has essentially been on its own. Now foreign banks with U.S. affiliates will want a slice of the $700 billion bailout. That doesn’t make sense until the burden of this rescue starts reflecting a globalized world.
I asked Frank why Paulson and Ben Bernanke, the Federal Reserve chairman, did not get more foreign support. “I think it’s a perverse pride thing,” he said. “We don’t ask for help. We’re the big, strong father figure. But let’s be realistic: we’re no longer the dominant world power.”
It’s time for a responsibility shift. Call it the Hirst reality check. If he can sell a formaldehyde-pickled sheep with gold horns for millions while Lehman goes under, perhaps it’s time for everyone to help a little when Americans get fleeced.
Via NY Times