“What’s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries,”
Robert Zoellick, President of the World Bank
Leaders of banks usually go out of their way to calm markets, and assure the masses that “Everything will be okay”. What would motivate the President of the World Bank to warn of problems ahead?
First, what is the World Bank and why does his opinion matter?
The World Bank was one of the institutions created by The World (The victors of WW II) immediately after the war ended, in order to coordinate how the world’s banking systems would recover and rebuild following the destruction of Europe.
As the war was winding down, bankers met in Bretton Woods, New Hampshire and hammered out the details of how the International Banking system would work, and that largely is still in place – except the reliance on gold as a way to stabilize foreign exchange rates. The Bretton Group’s framework is closely affiliated with the United Nations, but the United States has ultimate control over the organizations. The World Bank is located in Washington, DC, which is not a coincidence.
Zoellick is a former director of Goldman Sachs (I’m shocked, I tell you!). He has a law degree from Harvard and got his Masters from the JFK school of Government (I wonder if Andy Dean has met him?). In the 1990s, he was on the Board of directors of Fannie Mae (I’m double shocked!)
During the closing years of the “W” Bush administration, he served as Deputy Secretary of State, and ruffled feathers by suggesting that we get used to having China as a partner, whether we like it or not. He is a fan of Woodrow Wilson (I’m triple shocked!). Zoellick would like to see gold prices be brought back into the way foreign exchange rates are determined. He is also closely aligned with German interests, which is where his family is from, although he was born in the United States.
The World Bank is NOT the IMF. It is more like the Welfare Department of the United Nations. Its mission is to reduce poverty by providing loans for development projects. The World Bank isn’t actually a “Bank” in any sense that you might think of.
Both were created out of Bretton Woods. The IMF is more involved in the day to day operations of the world’s central banking systems – the World Bank is more the place where economists sit in the Ivory Tower in Washington DC and pontificate about their theory of how the world works and how the United Nations can make the world a better place. The rumor mill is abuzz that if Hillary Clinton is in need of a new job in 2012, she would like to run the World Bank.