Our present global economic crisis is demonstrating the urgent need for a new, global financial system to replace the current, disjointed and clearly failing one.

The simple truth is that our present system was developed in a different time, when computers were huge, room-sized devices and consumers only heard about them in conversation or in regard to payment processing.

Today, computers are on everyone’s desk and in the majority of homes in the civilized world – all connected, allowing computer users to interact internationally. This is a wonderful thing for bringing people together and improving international trade and understanding.

On the flip-side, it also has its problems. As a tool for rumour-spreading, the Internet is ideal for anyone trying to create economic chaos. One has only to get into a chatroom at AOL or Yahoo and spread false information about a company listed in some bourse, and before management has a chance to deny it, clients are running for the hills.

Effectively, this is what happened to Bear Stearns, where the run on that financial institution was electronic, not physical. It is also what happened with a number of our banking institutions in the US and Europe during this present crisis.

If you recall, Senator Charles “Chuck” Schumer said that certain banks were in difficulty in a media interview. This information kicked off a flood of Internet gossip and before the end of the day; depositors and investors were pulling their money out of those banks in massive numbers electronically, depleting the depositor base and within days, forcing the collapse of the banks or the need for government bail-out.

As we’ve also seen, some institutions become so big they cannot be allowed to fail. This should indicate to government that banking and insurance institutions should only be allowed to reach a certain size before becoming subject to anti-trust laws and forced to break into separate institutions.

Yet in the midst of this crisis, government itself is forcing the mergers of large banks and creating a handful of “super” banks. Should they fail, it would require additional government bail-out of “unprecedented proportion”.

Economists and political scientists alike, at the Institute believe that the new reality in finance requires a new international treaty governing the behavior of financial institutions and, moreover, the creation of new legislative and regulatory controls governing the manner in which these global companies are able to behave.

Further to that point, we also believe a new, international regulatory body must be established to prevent national economic meltdowns and to control the use of domestic bank assets in international transactions, preventing a single country’s banks from investing more than their deposit base in other countries on speculation or with any degree of improperly assessed risk.

One might suggest this is what the International Monetary Fund is all about. We would disagree. However, it does provide the core foundations for what’s needed. Yet it is the wrong organization for the role.

We need more than a central bank, but a central authority, some hybrid of the US Federal Reserve Board, FDIC and SEC, along with the Chancellor of the Exchequer and European Central Bank. We may even need a standardized international currency, though that might pose other problems.

This system we’re proposing should include countries around the world, not merely the US and Europe. We urge government leaders to organize this and meet early in 2009 to discuss this proposal, as it is an inevitable requirement of modern day finance.

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