Chapter 16

Reconfi guration of Authority and Control of the International Financial Architecture

Eisuke Suzuki

I. Introduction In the midst of the global fi nancial crisis that was unfolding in September 2008 and the subsequent measures to deal with the deepening global fi nancial meltdown,1 we witnessed a few extraordinary events which attest to the global review of fi nancial policy and practices that were taking place. Th e President of the world’s largest econ- omy said matter-of-factly, “I’ve abandoned free market principles to save the free market system.”2 Th e Bush administration asked Congress on September 20, 2008, for 700 billion to bail out fi rms burdened with bad mortgage debt, seeking unfettered authority for Treasury Secretary Henry Paulson as he tackled the worst fi nancial crisis since the Great Depression. Th is bailout plan followed a wrenching week of the spectacular failure of Wall Street.3 Th e global fi nancial crisis was developing in the midst of the U.S. presidential election campaign, and it inevitably embroiled the candidates in search for alterna- tive policy choices as ordinary taxpayers were getting angry and demonstrating on the street against this humongous 700 billion bailout proposal. November 4, 2008

1 Akbar E. Torbat, Global Financial Meltdown and the Demise of Neoliberalism, Oct. 13, 2008, Global Research, Center for Research on Globalization, available at http:// www.globalresearch.ca/index.php?context=va&aid=10549 (visited Dec. 24, 2008); see also Anup Sha, Global Financial Crisis 2008, Global Issues, Dec. 7, 2008, available at http://www.globalissues.org/article/768/global-fi nancial-crisis (visited Dec. 24, 2008). 2 President George W. Bush’s interview with CNN, Dec. 16, 2008, available at http:// thinkprogress.org/ 2008/12/16bush-free-market/ (visited Dec. 24, 2008.) 3 See Andrew Ross Sorkin, Lehman Files for Bankruptcy; Merrill Is Sold, N.Y. Times, Sept. 14, 2008, available at http://www.nytimes.com/2008/09/15/business/15lehman.html (visited Jan. 3, 2009); see also Th e Last Days of Lehman Brothers, N.Y. Times, Oct. 6, 2008, available at http://dealbook.blogs.nytimes.com/2008/10/06/the-last-days-of- lehman-brothers (visited Jan. 3, 2009); Edmund L. Andrew, Michael J. de la Merced & Mary Williams Walsh, Fed’s 85 Billion Loan Rescues Insurer, N.Y. Times, Sept. 16, 2008, available at http://www.nytimes.com/2008/9/17/business/17insure.html (visited Jan. 3, 2009).

Mahnoush H. Arsanjani et al. (eds.), Looking to the Future: Essays on International Law in Honor of W. Michael Reisman. © Koninklijke Brill nv. Printed in Th e Netherlands. isbn 978 90 04 17361 3. pp. 271-297. II Theory About Making and Applying Law

was not only the U.S. Presidential Election Day; it was also the Election Day for 35 272 Senators and all 435 Members of the House of Representatives. Th ey had to face their own constituencies’ angry voters. In the end the campaign reinforced a general clamour for review of the adequacy of the existing policy and regulatory framework of fi nancial institutions.4 Th e end result of intense negotiations between the Bush Administration and the bipartisan Congressional leadership was the “Emergency Economic Stabilization Act of 2008” which spells out in details how the money will be disbursed in stages.5 According to Professor Michael Reisman, review is “an ongoing process of the reconfi guration of authority and control.”6 In a broader global social process, the public expression of complaints against certain offi cial policies, be it in the form of organized demonstrations or spontaneous outcries against specifi c instances of ap- plication of such policies, is an eff ort to review the policies adopted earlier in the authoritative decision process.7 In the words of Professor Reisman,

Th e communication decreeing certain value allocations or reallocation will necessarily stimulate a verbal or behavioural response in that segment of the group aff ected by it. Th e intensity of the response may remain below a certain threshold, either because of the per- ceived marginal importance of the values at stake, the compelling authority of the decision, the control that can be mustered to support it, or any combination of these factors. If the response passes the minimum threshold, it becomes legally and politically relevant to speak of the initiation of a process of review. And if, as a result, the decision is not enforced, or is materially altered before it is transformed into a controlling value allocation, it has been reviewed.8

Th e description of the process of review in those functional terms enables us to de- scribe more accurately what has happened to the international fi nancial architecture. Th e World Bank’s former Chief Economist and a recipient of the 2001 Nobel Prize in Economics, Professor Joseph E. Stiglitz of Columbia University proclaims,

4 Republican members of the House of Representatives revolted against the government’s bailout plan most ferociously. Democrats pressed hard for more oversight and protection of taxpayers’ interest. See Carl Hulse & David M. Herszenhorn, House Rejects Bailout Package, 228-205; Stocks Plunge, N.Y. Times, Sept. 29, 2008, available at http://www. nytimes.com/2008/09/30/business/30bailout.html (visited Jan. 14, 2009). 5 Th e Emergency Economic Stabilization Act of 2008, Pub. L. 110-342, div. A. It includes the establishment of a Financial Stability Oversight Board; limitations on executive com- pensation and a ban on any golden parachute payment; judicial review of the Treasury Secretary’s action; stringent reporting and monitoring measures and various measures of protection for taxpayers. Id. Title I- Troubled Assets Relief Program. 6 W. Michael Reisman, Nullity and Revision: The Review and Enforcement of International Judgments and Awards 15 (1971). 7 Id. at 6. 8 Id. at 6-7.