A global financial crisis of the current magnitude is unique. But
two historic events offer lessons for a way out, say economists.
First, move with alacrity. During the Great Depression a
protracted delay in aiding banks proved fatal - a lesson Britain and
now, this week, the United States have taken on. Second, coordinate
globally. The Bretton Woods agreement near the end of World War II
became an effective tool for reworking a shattered world economy.
Calls for a second Bretton Woods are now being sounded by such
figures as Britain's Prime Minster Gordon Brown, French President
Nicolas Sarkozy, and World Bank president Robert Zoellick.
Central to European leaders discussions Wednesday and Thursday in
Brussels is this motto: A global crisis requires a global solution.
The subtext is that much tougher regulation is required. As Mr.
Brown put it Monday, "Sometimes it takes a crisis for people to
agree that what is obvious and should have been done years ago can
no longer be postponed. We must create a new international financial
architecture for the global age."
The storied 1944 Bretton Woods conference - where some 700
delegates from 44 nations gathered at a hotel in New Hampshire - was
a bold move to create the first negotiated monetary system among
industrial states. The World Bank and the 185-nation International
Monetary Fund emerged from that pact. The IMF has become a major
source of loans for developing nations in financial trouble.
The legacy of Bretton Woods, said Mr. Zoellick in a speech this
week, was that the crisis of a ravaged world created a commitment to
remake institutions, to "turn the problems of an era into an
In the past week, European nations have begun to coordinate their
responses to the crisis, after initially being unwilling, or unable,
to do so. The two-day meeting in Brussels, ending Thursday, is
intended to solidify new measures in the wake of bank failures and
credit crises from Iceland to Germany that brought near panic.
"Mechanisms for cross-border cooperation in Europe exist but they
are incomplete," argued Mr. Mandelson, who joined Brown's Cabinet
this week. "Internationally, the problem is even more acute...." he
says, since coordinating systems are "outdated," with huge
stakeholders like China not tied firmly enough into the economic
order. "It is 64 years since the Bretton Woods conference put in
place the basic machinery.... It is time for a Bretton Woods for
this century," he wrote on Oct. 3 in The Guardian, a British
The specter of another Great Depression of the 1920s and '30s has
been raised by the speed and scope of this financial crisis. But
such fears have been mitigated, for some, because Federal Reserve
Chairman Ben Bernanke is himself a student of the Great Depression.
He has taken the opposite approach to the Fed's cautionary policy of
the '30s, when the Fed tried to slow the economy, increased interest
rates, and allowed some 9,000 banks to fail.
By contrast, the Fed's response under Mr. Bernanke is entirely
proactive. The Fed has cut interest rates, worked closely with the
US Treasury to bail out key private firms like Bear Stearns and AIG,
and flooded markets with liquidity.
Still, differences between the 1930s and today are profound, and
not easily comparable say economic historians such as Ballard
Campbell, author of the recent book "Disaster, Accidents and Crises
in American History."
Unlike the stereotyped image of the period, only a tiny number of
Americans were invested in Wall Street when it crashed in 1929. …