And now, a kind word for Dominique Strauss-Kahn.
The alleged behavior that landed him in a cell at Rikers Island, of course, was grotesque. But one of the casualties of Strauss-Kahn's fall is that his tenure as managing director of the International Monetary Fund actually marked something of a break with that institution's role as austerity monger and debt collector for the banks.
Last October, Strauss-Kahn sat beside the director general of the International Labor Organization, a Chilean socialist named Juan Somavia, at an unprecedented joint conference on restoring jobs and growth. Unlike the Wall Street formula, Strauss-Kahn's was not a call for austerity but for employment.
"We must not underestimate the daunting prospect we face: a lost generation, disconnected from the labor market, with a progressive loss of skills and motivation," he said. "If you lose your job, you are more likely to suffer from health problems, or even die younger. If you lose your job, your children are likely to do worse in school. If you lose your job, you are less likely to have faith in public institutions and democracy."
As recently as last month, in a talk at the Brookings Institution pointedly titled "The Global Jobs Crisis," Strauss-Kahn provocatively began by quoting Keynes, adding that "we need financial-sector reform and repair, to put the banks back in the service of the real economy, and direct credit to small and medium-term enterprises -- key drivers of employment and indeed of growth." And while calling for long-term fiscal reform, he warned, "But fiscal tightening can lower growth in the short term, and this can even increase long-term unemployment, turning a cyclical into a structural problem. The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth."
To say that you don't usually hear such talk from the chief of the IMF is to put it mildly. When Strauss-Kahn was hauled off his Air France flight at JFK airport, he was en route to see German Chancellor Angela Merkel to work on a solution to the Greek debt crisis. A stop at the European Central Bank, a fierce opponent of any rescheduling of the Greek debt, was also on Strauss-Kahn's to-do list.
A year ago, Strauss-Kahn's intervention was key to getting the Greeks additional credit to buy time. But the price extracted by austerity hawks was way too high. The Greeks had to put themselves through a deflationary wringer to win the confidence of private money markets. Now those same money markets are noting that Greece has only sunk deeper into recession and are demanding a huge interest-rate premium to buy Greek bonds -- thus proving the folly of the austerity cure.
There is an easy fix to the Greek situation, modeled on the U.S. Brady Plan of the late 1980s, which solved the Latin American debt crisis. Several large Latin countries had gone deeply in debt to Wall Street banks. When inflation rates rose in the late 1970s, the countries could not pay their huge debts, leaving at least three big banks technically insolvent.
Nicholas Brady, Treasury secretary under George H.W. Bush, worked out a deal in 1989 whereby short-term debt was traded for long-term debt and bondholders took a loss averaging about 30 percent. A Brady Plan for Greece would be much easier, because far lesser sums are involved. But the big holders of Greek debt have dug in, and Merkel, as the most powerful leader of the creditor counties, shows no sign of relenting. So the policy is to kick the can down the road and demand even more self-defeating economic sacrifices from the suffering Greeks.
Strauss-Kahn, at least, was something of a fiscal dove compared to most world leaders and central bankers. With his downfall, there is now intense speculation on who should succeed him. The conflict has been framed as mainly geographical. Ever since these institutions were created at Bretton Woods in 1944, a gentlemen's agreement has given the presidency of the World Bank to the U.S. and head of the IMF to a European.
For at least a decade, emergent Third World leaders have been demanding one of the top jobs. A major battle was anticipated for when Strauss-Kahn formally resigned his IMF post to run for president of France. Instead, his abrupt resignation in disgrace accelerates this debate, which begins this week .
There's a good argument that a Third World figure should get this post, both because the economic world has expanded far beyond the North Atlantic and because someone from a developing nation would likely be less of a fiscal hawk. With the conversion in 1995 of the General Agreement on Tariffs and Trade into a more potent World Trade Organization (now also headed by a French socialist, Pascal Lamy), Europeans now head two of the three major global financial organizations and a strong case can be made that they should give up one of those jobs.
The European elite has now united behind French Finance Minister Christine Lagarde, (one French figure unlikely to sexually assault a chamber in a hotel.) The Europeans collectively control just over 35 percent of the IMF voting rights. The Chinese have already signaled that they don't want another European. The US, with 17 percent, will be the swing vote, and President Obama must decide whether to vote with Europe or with the Third World.
One often mentioned Third World figure to succeed Strauss-Kahn is Kemal Dervis, who as Turkish economic affairs minister a decade ago, managed to steer his country through a severe financial crisis without more austerity than necessary. More importantly, Dervis subsequently headed the UN Development Program, well known as a center of advocacy of sustainable growth and a resistor of austerity. Dervis would bring a more balanced sensibility to the IMF without the hauteur.
Sex, money, and power: Henry Kissinger, not the most handsome of creatures, once said that power is the ultimate aphrodisiac, but he was flattering himself. Very powerful men sometimes commit outright rape--but often use their power to seduce or manipulate women into sexual acts that are "consenting" in name only. The same is true of powerful financial institutions that make vulnerable societies offers they can't refuse. Strauss-Kahn deserves one cheer for his IMF behavior, and our contempt for his personal conduct and abuse of office. In a just world, we wouldn't have either brand of rape.
