City & Business: Keep an eye on Washington, not Moscow

A LONG time ago when I was in my first year at university, I heard about this guy at Yale: top maths student, great athlete, and he fronted a rock 'n' roll band, billing himself as James Brown's blue-eyed soul brother. Since I was a big James Brown fan - greatest soul artist in the world - I was doubly curious about the Yale man. Here was a paragon by all the standard Ivy League criteria, but with soul to boot.

The first chance I got, I drove down to New Haven to check out this guy's act. It was in the student union - smoke thick enough to cut, floor sticky with spilt beer and other suspect fluids. It heaved with Vasser, Smith, and Mt Holyoke girls vamping it up as proto-James Brown fans. There on stage was this rather sallow bloke, proficient guitar section, heavy drummer, and back-up singers behind him.

Down to the buckled, pointed shoes, it looked as though he had stolen his clothes out of the real James Brown's closet. The Yale man had pomaded his curly blond hair in an effort to get the tight ringlets affected by Brown himself. He had all the moves - the tight dance steps, the little leaps, the whipping round of the stand-up mike.

As he finished, his handlers rushed on stage, draped a silver cape over his shoulders and helped him stagger off exhausted until he broke away for one last song.

There was only one problem. The guy couldn't sing. He opened his mouth and this tiny little voice came out. I remembered this guy as I considered another Yale man, Clinton, and his summit with Yeltsin in Moscow on Tuesday. The summit, of course, will be a cross between a holding action and face- saving theatre for Yeltsin as he withdraws from the world stage. Because of the now depressingly familiar problems with his libido, Clinton as well as Yeltsin could well be a busted flush.

By the end of last week, the emotional centre of the global financial crisis had moved from Moscow to the world's main financial centres. In London, New York and Tokyo professional investors were defensively dumping shares in favour of bonds as fast possible.

There seems little hope that the meeting between the two leaders in the Russian capital will accomplish anything. There seems little hope that behind-the-scenes meetings between US officials and the Russian power- brokers assembling around the prime minister-designate, Viktor Chernomyrdin, will draw a line under the collapse of confidence at the heart of the global financial crisis.

It is, however, not Clinton the man who makes me think of James Brown's nothing-at-the-centre blue-eyed soul brother. It is his administration in its entirety and his economics team in particular. For years now the US Treasury Secretary, Robert Rubin, and his deputy, Lawrence Summers, have made all the moves. They and the Federal Reserve chairman, Alan Greenspan, have dazzled the world with deftness.

Now the moment's here, and in the face of the financial firestorm threatening a global recession (or taking the over-excited language in use with a pinch of salt - a 1930s-style slump), the world awaits an announcement from Washington that will control the mounting panic. But all we hear are bleats. At his pre-Moscow White House press conference on Friday, Clinton said X, Rubin and Summers said Y.

The accomplishments of the Clinton administration, which now stand to be washed down the drain, are real. Since 1992 above-trend economic growth in the US has anchored the world economy at a time of disturbing frailty. Clinton and his economic policy-makers have overseen the most astounding bull stock market of the century, generating Midas-like wealth for a minority and a favourable trickle-down effect for billions more.

Before the collapse of the Asian miracle last July it was possible to argue that Clinton was overseeing a global distribution of wealth in which, yes, the very rich got even richer everywhere, but meanwhile, middle-class benefits were being spread from the US and Europe to what used to be called the Third World.

The credentials of Clinton's economic team remain real. In the 1990s world of Phase II Masters of the Universe - traders with ice in their veins, millions in the bank, fast cars in their garages, but none of the showy vainglory of the Eighties - Rubin has proved himself the iciest, least vainglorious of all.

Rubin has repeatedly demonstrated he knows which way the markets are going to jump, and has the nerves to hold fast to that judgment. Up to now it seemed brilliant that Clinton appointed him. Anticipating that the management of the world was becoming synonymous with the management of the markets, the Commander-in-Chief picked the former co-chairman of Goldman Sachs to be his trader-in-chief.

Alongside Rubin has stood Deputy Treasury Secretary Summers, nephew of a Nobel prize-winning economist, former World Bank chief economist, former Harvard professor and a legend in Washington for his command of the global economy.

After the Mexican peso crisis I ran into a US Treasury man who told me: "Larry is focusing on Russia now." The tone in which he said it translated into: "Larry is solving Russia now."

Now, however, all the Clinton administration's accomplishments and all the brilliant credentials of its economics team must be called into question. As a pseudo-pundit I have to hedge here. It's possible that what we are seeing in the markets is nothing more than the long overdue correction, and that once the sell-off has run its course, the Clinton people will move back centre-stage and pick up the pieces.

A better bet, however, is that we really are into a financial crisis that will whack the global economy. At home this will mean the usual in such times - lower wages, higher prices, deteriorating economic security and, commercially, a tougher environment for businessmen and investors.

Hard times will prompt a downward re-rating of Clinton, Rubin & Co. More to the point, however, the exposure of the Clinton administration for what it is bears on the question of where we go from here.

For all the rhetoric of caution, for all the sang-froid and tactical brilliance, it now appears as if the Clinton administration has sanctioned a neo-version of old-fashioned let-her-rip laissez-faire economics. Good- time Bill and his economics team have bought votes at home with easy money, while seeking to clone America's version of free-market capitalism worldwide.

The proper response to this is not to rail at capitalism full stop as some, undoubtedly, will do. The proper response is to recognise that, in its embrace of globalisation, the Clinton administration has demolished the stabilisers meant to curtail the excesses of capitalism and the international financial regime in particular.

The International Monetary Fund - whose job it has become to pick up the pieces after private investors swoop into and then out of Third World countries - is not far from being broke. At the IMF annual meeting in Madrid in October 1994, its managing director, Michel Camdessus, warned that this might happen and asked that member states double their contributions to reserves. The Clinton administration responded by sponsoring a whispering campaign questioning Camdessus' fitness to serve a second term as head of IMF, and so put the Frenchman back in his box.

It would, of course, be absurd to put the entire blame for what's happening in the markets on Clinton. Japan's leaders have failed to work their way out of their punctured bubble economy; Germany has dithered while its neighbour to the east has descended into chaos; Blair has unthinkingly aped Clinton while offering slavish support.

Still, the US is the only superpower. Clinton could have used his popularity not to cushion himself against bimbo eruptions, but to rally support in Congress to win passage of his bill to advance $18bn (pounds 11bn) in new funds to the IMF.

Next week, all eyes will be on Moscow. They should be on Washington. It is Washington's politics that must change if the global financial crisis is not to deteriorate. A whole new architecture to buffer the excesses of globalisation is needed in the medium term. Fresh funds for the IMF are needed immediately.