America, and the world, needs equally to make a new case for its financial system.

Sir Lawrence Summers observes in “America needs to make a new case for trade”, April 28, that “while the financial crisis dominates current discussions on the US economy questions regarding America’s future approach to globalization are looming increasingly large” and as if those were in fact two separate issues. They are not! Summers asks for us to better define what the purpose of trade for the sustainable well-being of a country is and the same needs to be done with respect to the financial system.

The biggest failure with the financial sector is not its current turmoil but the fact that having left it completely into the hands of regulators who on their minds had only the limited goal of avoiding defaults and bank crisis, we now face a totally purposeless banking system. Even if we would get out of the current turbulence, it would still be totally rudderless system. I say this assuming that no one could really be satisfied having a financial system that makes bets in a virtual world, guided by traffic signs set up by the credit rating agencies, all just in order to survive. Ask your regulators… survive in order to do what?

In fact had you not had such a wasteful financial system pursuing so much the lending to the public sector, the housing finance or the anticipation of consumption just because this lending could be disguised as less risky lending, you might not even have the current trade imbalances.