IMF Looks to Blame Regulators For the Current Crisis

Many economists and policymakers have been pointing to global imbalances as the reasoning behind the current economic meltdown. This view is based on the notion that "a glut of money from countries with high savings rates, such as China and the oil-producing states, came flooding into America. This kept interest rates low and fueled the credit boom and the related boom in the prices of assets, such as houses and equity, whose collapse precipitated the financial crisis." The IMF has rather cited financial regulation as being "flawed, ineffective, and too limited in scope", according to The Economist. The IMF cites the lack of regulation in what it calls the "shadow banking system"; a web of highly interconnected financial institutions such as: investment banks, hedge funds, mortgage originators. The fund notes that these institutions were not taken seriously from a regulatory standpoint, at the same time banks were looking at them from just the opposite point of view. The estimate is given that at the end of 2007 some $10 trillion was held outside of the actual banking sector and within this "shadow banking system". Yet the Economist points out that this one sided view by the IMF may be in part to insulate themselves from criticism for their policy of encouraging countries in Asia to build massive reserves following the Asian financial crisis in 1997.