Reuters reported that International Monetary Fund gave itself a scathing review for its mistakes in spotting the roots of the global crisis and acknowledged it fell short in its job as the world’s main financial system supervisor.
In a series of papers that look at the initial lessons from the crisis, the IMF said that a patchwork of uncoordinated oversight and ineffective messaging failed to spot and call attention to the risk that a global credit boom could burst spectacularly, triggering the worst global slump in decades.
The IMF said warnings before the crisis, including its own, were scattered and unspecific to force policy makers to act, let alone prompt collective policy action. In the long list of its failings, the IMF acknowledged its surveillance either missed or underestimated risks, while complacency was encouraged by its optimistic bottom line assessments and hedged messages.
Mr Reza Moghadam director of the IMF’s strategy, policy and review department said that "This crisis has been a wake up call for reassessing the effectiveness of international financial architecture and in particular for mechanisms to head off systemic risks."
He said that the crisis revealed flaws not only in global surveillance but also policy coordination and cross-border financial regulation. He added that "To be sure, there was some prescient bell ringing about the build up of risks in the US banking model and housing market. However, official warnings both within and outside the Fund were insufficiently specific, detailed, or dire to gain traction with policy makers."
The IMF said the policy debate as the crisis built was fragmented and scattered among numerous fora, including the IMF, the Bank for International Settlements and the Financial Stability Forum, each with their own missions. It said while it had identified many potential risks in its cacophony of research and reports on the state of the global economy, its messages were often coded and embedded in lengthy discussions or lists of concerns. It also said it underestimated the links between macroeconomic risks and development in domestic and financial markets. While it was not alone, its surveillance underrated the combined threat of new complex financial instruments and rising leverage.
The IMF said its surveillance mirrored the conventional view that advanced countries with relatively low and stable inflation and well capitalized banking sectors could withstand the unwinding of any froth in housing and capital markets. It added that "While this is understandable, more time should have been spent on ‘tail risks’ from these domestic vulnerabilities."
It also noted that it did, however, repeatedly warn about the risks of global imbalances, although it acknowledged as the economic imbalances rose, the message became more muted rather than louder.
(Sourced from www.reuters.com)
