The Center in the Media

Safeguarding financial stability in the TPP

From Latin America Goes GLOBAL
July 22, 2015


Chilean and Peruvian officials will meet with their counterparts later this month in what may be one of the final stages in the negotiation of the Trans-Pacific Partnership (TPP). If completed the TPP will bring together 12 key Pacific-rim countries into the largest regional trade bloc on the planet.

One of the hurdles in the negotiations is the extent to which the treaty will permit national safeguards to prevent and mitigate financial instability triggered by cross-border financial flows through bonds, stocks and derivatives. Such safeguards are particularly important to many of the developing nations involved in the negotiations, having experienced wrenching financial crises in the not-too-distant past.

The fall out from those crises and the success of regulations in preventing or mitigating others is precisely why the negotiators meeting this month should hold the line in not trading away national regulations to combat financial instability.

The main obstacle to protecting these regulations in the treaty has been the Obama Administration. Meanwhile Chile, Malaysia and ranking members of the United States Congress—members of the administration’s own party Sander Levin, Charles Rangel, Gwen Moore, and Maxine Waters—and to some extent the International Monetary Fund have been pressing the Obama Administration to ensure that nations have the flexibility to regulate their financial sectors.

Latin American and East Asian nations alike have learned the hard way that unregulated capital flows of the sort currently on the table in the TPP discussions can cause financial instability. Financial flows tend to surge into a country when things are going well and then rush out the door on a whim. During a surge, exchange rates appreciate and credit expands and in the rush to exit exchange rates depreciate and debt balloons. Such cycles are among the key causes of the financial crises that wracked both regions in the 1990s.

TPP nations such as Chile and Malaysia have both been praised for successfully managing foreign capital flows to prevent and mitigate those financial crises in the 1990s. Chile famously regulated the inflow of capital during a surge —thereby heading off a crisis—and Malaysia regulated the outflow of capital during a crisis itself—preventing it from becoming worse.


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Five years on, Dodd-Frank bank rules still being written

Dodd-Frank reforms help consumers, but repeal efforts seek to roll back new rules


By John W. Schoen | Marguerite Ward
July 17, 2015


As the global financial system continues a long, slow healing process, the echoes of the implosion inflicted by the credit collapse of 2008 are fading into history.

Yet five years after the worst financial crisis since the Great Depression, a pitched political and regulatory battle is still being fought over multiple provisions of a far-reaching series of reforms and regulations, known as Dodd-Frank, that were designed to prevent a recurrence.

“The financial crisis crushed the American economy and devastated American taxpayers, households and businesses and that’s what we cannot afford to have,” said Michael Barr, a University of Michigan law professor and former Treasury official who as a key architect of the law. “Dodd-Frank and other reforms are making the system safer and fairer and that’s exactly what we need.”

But five years after Dodd-Frank was enacted, roughly 40 percent of the nearly 400 proposed rules required under the 850-page law have yet to be finalized. A fifth of them haven’t even been proposed, according to Davis Polk & Wardwell, a law firm that has tracked the Dodd-Frank rule-making progress since the law was enacted….


“The whole law leaves the financial system vulnerable,” said Cornelius Hurley, a Boston University professor and former Federal Reserve official. “The law was designed to eliminate bailouts and banks that are too big to fail, and it didn’t do that. Where Dodd-Frank went wrong was in not declaring its policy to break up the banks that are too big to fail.”…


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Unusual partnership means Obama trade agenda can progress

From The Boston Globe
June 23, 2015


WASHINGTON — An unusual alliance of President Obama and Senate Republicans resuscitated the president’s foreign trade agenda Tuesday, delivering a sharp defeat to congressional Democrats, including Senator Elizabeth Warren and the rest of the Massachusetts delegation, who vociferously opposed the plan.

The Senate cleared a key procedural hurdle that sets the table for votes this week to send a bill to Obama’s desk giving him the authority to complete negotiations on a sweeping Pacific Rim trade deal. The 60-to-37 vote brought a victory to Obama by the narrowest of margins, just meeting the 60 votes required to break a filibuster.

The vote follows embarrassing setbacks in the Senate in May and just two weeks ago in the House, when Democrats derailed the bill granting what’s known as fast-track authority. The opposition forced the president to align himself with Republican leaders in both chambers who engineered a series of parliamentary steps to maneuver around the Democratic barriers.

“This has been a long and rather twisted path to where we are today, but it’s a very, very important accomplishment for the country,” said Senate majority leader Mitch McConnell, a Kentucky Republican, following Tuesday’s vote.

At the White House, Obama spokesman Josh Earnest commended the Senate for its vote and said 11 participating Asian countries were watching Washington’s actions and looking for signs of progress toward an ultimate trade deal.

“What our partners are looking for is Congress to give the president the authority that he needs to complete this agreement,” Earnest told reporters.

Senator Bernie Sanders, a Vermont independent who is running for the Democratic presidential nomination, railed against the outcome. The trade agreement, he said, was supported by Wall Street, pharmaceutical companies, and corporations that outsource jobs.

“It’s a great day for the big moneyed interests,” Sanders said, “not a great day for working families.”

The saga has revealed how Massachusetts senators and representatives — with Warren the most visible — are more tightly aligned with labor than they are with the executives running the high-tech, pharmaceutical, medical devices, and financial services companies that propel the state economy.

“Given the global nature of many of our industries in Massachusetts, it’s a little surprising,” said Graham Wilson, chairman of the political science department at Boston University. “You could cynically say one of the things they got out of this is a vote on the record, and they could take that to the bank in terms of labor unions and other powerful interests in the Democratic base, including environmental groups.”…


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William Kring’s Letter in the Financial Times

From The Financial Times

June 26th, 2015

Sir, While I was deeply concerned to read Harriet Agnew’s report of Deloitte’s more assertive push into investment banking territory (“Deloitte lures investment expert”, June 25), I was rather unsurprised. Despite the lessons on conflicts of interest from Enron and other accounting scandals, regulators have failed to push for comprehensive changes to the “big” audit model. To that end, rules such as mandatory auditor rotation do not necessarily improve audit quality.

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Research director Kevin Gallagher on Chinese Rail In South America


May 19, 2015 at 2:26 PM


As the US struggles with infrastructure, China moves to build a brand new railway across South America. We’ll get the story.

Amtrak went off the rails in Philadelphia, but in South America the talk is of brand new railroads. And the building has nothing to do with the USA.  It’s all about China. Talk about contrasts. While Washington is cutting Amtrak funding and cleaning up the wreck in Philly, China is moving to build a brand spanking new high-speed trans-continental railway from Atlantic to Pacific. Brazil to Peru. Over the Andes. Investing billions as part of a quarter-trillion dollar Chinese investment in Latin America. This hour on On Point: As the US struggles with infrastructure, China builds big south of the border.

– Tom Ashbrook


Kevin Gallagher, Associate Professor of Global Development Policy at Boston University. Author of the forthcoming book “The China Triangle: Latin America’s China Boom and the Fate of the Washington Consensus” (@KevinPGallagher)

Louis Thompson, Transportation consultant for rail industries worldwide. Railway adviser to the World Bank from 1987 to 2003.

Anthony Perl, Professor of Urban Studies and Political Science at Simon Fraser University.


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Chinese investment not Brazil panacea: Kevin Gallagher

From Yahoo News!
By Damian Wroclavsky
May 21, 2015


Brasília (AFP) – Brazil may have received a $53 billion investment boost from China but the South American giant would be unwise to view investment from the Asian superpower as a panacea to its economic woes, analysts said.

Chinese Prime Minister Li Keqiang wound up a three-day visit to Brazil on Wednesday with a ride on a subway train made in China to be used on a new metro line in Rio de Janeiro ahead of the 2016 Olympics.

It came China agreeid a series of deals which Brazil hopes will help to jump-start its sluggish economy.

Brazilian President Dilma Rousseff has welcomed the investment, with her country’s economy widely forecast to contract this year.

Li said China hoped to build factories in Brazil and would seek “to take on local personnel and train up Brazilian workers.”

Beijing also intends to pursue an ambitious plan to link Brazil’s eastern coast with the Peruvian Pacific coast via a transcontinental railway to facilitate the movement of Brazilian exports to China.

Trade Minister Armando Monteiro told AFP the railway link would cost around $30 billion.

Analysts warned that China did not always deliver on every mooted project — although Kevin Gallagher, professor at Boston University, said Brazil needs the Asian giant.

“Growth projections are way down for the region, and the private sector is shying away. China is the only game in town for long run investment in the region,” said Gallagher.

– Cautiously positive –

But he added that Brazil would have to manage carefully the debts it is taking on, with Brasilia deeming another $70 billion necessary beyond what China is offering to tackle inefficient infrastructure…


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Kevin Gallagher cited in International Business Times

From International Business Times
By Brianna Lee
May 19, 2015


A major South American infrastructure deal is in the works as China’s prime minister tours the region this week. Beijing is hoping to back and build an ambitious interoceanic railway between Brazil and Peru that could make for faster, cheaper transportation of local commodities to resource-thirsty Chinese markets. It’s an unprecedented project in Latin America that’s already raised some flags over environmental and human rights risks, and analysts say it could be the biggest test yet of China’s growing relationship with the region.

The proposed rail link, known as the Twin Ocean Railroad, would connect Porto do Açu, a Brazilian Atlantic port, with Peru’s Puerto Ilo on the Pacific Ocean through some 3,300 miles (5,300 km) of rail. The railway is expected to cut transportation time and reduce the cost of shipping grain from Brazil to China by about $30 a ton, Brazilian officials told Reuters last year. China is a major trading partner for both countries: Brazil is a top exporter of iron ore and soybeans to China, while the biggest share of Peruvian exports — primarily minerals like gold and copper — also goes to Chinese markets.

Chinese President Xi Jinping jump-started discussions on the railroad during his trip to Latin America in summer 2014, and the three countries signed a memorandum of understanding on it in November. Brazilian President Dilma Rousseff and Chinese Premier Li Keqiang, who is visiting four South American countries this week, announced Tuesday that they would be starting feasibility studies on the project.

The rail line is estimated to cost $10 billion and reach completion in six years; around 2,000 miles of it will run through Brazil. It’s not yet clear who would build it: the Associated Press reported that Brazilian firms would likely take on the construction, but Chinese companies can bid to work on some sections of the rail line, too.

There are high financial hopes for the deal. China, currently facing an economic slowdown, would be able to access raw materials more efficiently and at a lower cost if the railway is successfully completed. It could also be a major boost to Latin America’s sluggish economies, said Kevin Gallagher, an associate professor of global development policy at Boston University who has focused on the China-Latin America relationship.

“Latin America will benefit the most if this is done right,” he said. “High-speed rail could help get products to the Pacific, which is a growing destination for Latin American exports, but it could also facilitate trade among Latin American countries themselves.”


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Center director cited in BBC News

From  BBC News
By  Howard Mustoe
May 21, 2015


On Wednesday, four of the world’s largest banks – JP Morgan, Barclays, Citigroup and Royal Bank of Scotland – pleaded guilty to criminal charges in the US relating to the rigging of currency markets.
The four, and Switzerland’s UBS, which pleaded guilty to a different charge, agreed to pay $5.7bn (£3.6bn) in fines.
It is rare for a company to be found guilty of criminal behaviour. For some bank watchers this move represents a problem for regulators: aside from more fines, little else has changed, and they may have just played their best card.
Two years ago, the then US Attorney General Eric Holder opined that criminal charges against large banks could threaten the global economy. But now?
“Now it’s a non-event. We have trivialised the criminal penalties, so I don’t know what’s left,” says Cornelius Hurley, director of the Boston University Centre for Finance, Law & Policy.
“It used to be that the fear of a criminal penalty was you might lose your banking licence. That it would be a death knell. That’s been removed – nobody has lost their licence,” he adds. “Somehow there has to be a fear factor.”…


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Dr. Rodima-Taylor published in The International Encyclopedia of the Social and Behavioral Sciences


The International Encyclopedia of the Social and Behavioral Sciences (2015) published an article co-authored by Daivi Rodima-Taylor (CFLP Senior Researcher) and Parker Shipton (BU Anthropology, African Studies). The article explores the topics of land tenure and land property in the framework of much-debated issues of human territoriality and sovereignty, placing the discussion in the context of recent land titling and tenure formalization reforms and examining their implications to changing institutions of property, governance, belonging and identity.

Cornelius Hurley comments on trade deal

From  The Boston Globe
By  Jessica Meyers
May 12, 2015


WASHINGTON — President Obama and Senator Elizabeth Warren have waged an escalating war of words over a massive trade deal that spans the Pacific. After weeks of fighting, they’ll find out Tuesday just who is winning.

The Senate is set to decide whether to consider a bill that hands the White House greater authority to pass the 12-nation accord. Obama has pitched the Trans-Pacific Partnership as a counterbalance to China’s economic growth in the region and a fresh opportunity to establish enforceable labor, intellectual property, and environmental standards.

But he has run into opposition from many in his own party — most notably from Warren — who has accused the president of secretive negotiations, serving the interests of multinational corporations, and setting the stage for a future unraveling of financial regulations.

The two Democrats are fighting over whose interpretation of the complicated, unfinished deal is just plain inaccurate.

On Friday, Obama told Yahoo News that Warren was “absolutely wrong” in her critique. “The truth of the matter is that Elizabeth is, you know, a politician like everybody else . . . she’s got a voice that she wants to get out there.”

Her arguments, he added, “don’t stand the test of fact and scrutiny.”

The Massachusetts Democrat pushed back in a Globe interview Sunday.

“This isn’t about me,” Warren said. “The president describes what [the deal] is but won’t let people see it . . . . that is the wrong way for us to make such an important decision.”

The dispute between Obama and Warren is mired in complex details about the process of approving a broad trade treaty and the meaning of individual provisions. But their overall fight epitomizes the Democratic Party’s divergent approach to globalization in a time of stagnant and shrinking middle-class paychecks.

Every president in the last 40 years has won so-called fast-track authority at some point in his administration to help propel trade negotiations. The bill under consideration Tuesday would not authorize the trade agreement, but it gives the president greater power to finish negotiations and bring the deal back to Congress for an up-or-down vote.

While leaders often face opposition on trade issues, the current level of antagonism between a president and members of his own party in Congress is rare. In this case, it has created an unusual partnership between Republicans and Obama.

Both Obama and Warren are ratcheting up their rhetoric on multiple aspects of the proposal.

“I’m confident when people read the agreement for themselves, they’ll see that this is the most progressive trade deal in history,” Obama said Friday at Nike’s headquarters in Oregon, adding that months of review will ensure “every ‘T’ crossed, every ‘I’ dotted.”

The problem, counters Warren, is transparency. As she has strenuously pointed out, no one outside of a select group of Washington insiders, business interests, advocacy groups, and members of Congress has been permitted to see the deal. Lawmakers are able to examine the draft in a secure location but they are not allowed to take notes and are prohibited from discussing it publicly.

If the fast-track authority is approved, Americans will get a 60-day review period between the time negotiations with foreign countries are complete and the president signs it. Then Congress would vote on the pact, with no opportunity for amendments or filibusters.

“When other people see the full deal, there will be a lot of questions raised,” Warren said. “But by that point, Congress will have already lost its ability to shape or stop a bad deal.”

The White House says the bill is critical to passing an accord without lawmakers picking apart hard-fought wins. And yet Warren’s point has found support among a number of Democrats, who feel the bill signs away their rights.

“Being somewhat secretive is necessary because it’s a political thing,” said Randy Hall, who teaches international trade at the University of Massachusetts Dartmouth. “But I understand Warren’s point. If it’s good, why not tell us?”

In another line of attack, Warren has sought to link the prospect of Wall Street misdeeds to the legislation. She warns that fast-track authority could enable a future president to unravel financial regulations such as the 2010 Dodd-Frank financial system reforms. As evidence, Warren points to banks on both sides of the Atlantic that are pushing for the inclusion of looser financial rules in a separate European deal.

A new president, she said, “could be someone who has already announced he wants to take out Dodd-Frank and there would be nothing . . . to stop it.”

Obama called it “pure speculation.”

Observers say Warren’s scenario could occur, but the political chances are extremely slim.

“For a trade negotiation to weaken Dodd-Frank, three things would have to happen,” said Aaron Klein, director of the financial regulatory reform initiative at the Bipartisan Policy Center, a Washington think tank. “The US would have to change its longstanding position that financial regulation is not part of any trade negotiation. Two, the resulting trade negotiation would have to weaken US standards as opposed to strengthening foreign standards, or bringing us up to stronger foreign standards. And three, Congress would have to approve that new negotiation.”

Others note that a GOP leader bent on watering down financial regulations would probably aim for a simpler, more direct method.

“The bigger worry is if you have a Republican president and a Republican-controlled House and Senate, then the door is open to wholesale repeal of Dodd-Frank,” said Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy. “I don’t think we have to worry about the carom shot.”


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