Five Nobel laureates favour regulation of financial markets

November 9th, 2008 - 2:59 pm ICT by IANS  

Berlin, Nov 9 (DPA) Five economics Nobel laureates generally favour an increase in regulation of financial markets, the German news magazine Der Spiegel has reported.The magazine said it asked them for comment before key world leaders hold a G20 meeting on the crisis in Washington.

Those asked for a recipe were four US academics, Joseph E Stiglitz, Paul A Samuelson, Edmund S Phelps and Robert E Lucas and one German, Reinhard Selten.

Lucas was quoted as saying the best solution would be a competitive banking system where deposits were guaranteed by the state.

Selten called for investment products to be classified like food so that the risks were known to investors and said new rules for financial markets must extend to hedge funds.

“Banks must under no circumstances be allowed to shift highly speculative contracts off their books into special entities created for the purpose,” he said. Those entities were not subject to the strict rules prevailing over banks.

Stiglitz called for a global solution to a global problem, saying the existing financial structures were not only faulty but also unjust, especially to developing nations.

He also said the global foreign-exchange reserves system based on the dollar was getting threadbare.

Samuelson, 93, was fiercest in his criticism, saying those who relied purely on market forces were “emotional cripples.”

He said rules set by the state should regulate enterprise and aim at stabilizing the economy as a whole.”

Phelps said, “New rules are needed here and there.” But he predicted that strictly regulated banks would not be ideal suppliers of capital for innovative ideas, and society should not regulate hedge funds or providers of risk capital.

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