[GA - Draft TBS] Preventing Financial Crises

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Preventing Financial Crises
Category: Advancement of Industry | Area of Effect: Commercial Enterprise
Proposed by: Imperium Anglorum | Onsite Topic​
Whereas financial crises happen, but diversifying assets and creating a system to prevent those crises from freezing up economic activity would make them less dangerous and more unlikely, reducing harms towards average people:

And whereas securitising debt increases liquidity in capital markets, transfers risk from risk-averse investors to willing buyers, and increases the supply of loanable funds, thereby speeding recoveries:

And whereas a single nation's assets lack the diversity to stop highly correlated movement in default rates:

Be it therefore enacted by this most excellent World Assembly, as follows :—

  1. Member nations:
    1. shall allow the sale of secured and unsecured interest-bearing financial instruments, i.e. "base assets", to the Credit Securitisation Facility and other public investors;

    2. may make reasonable purchasing rules on those base assets unless they affect the Facility; and

    3. are guaranteed that the World Assembly will not, in future resolutions, specify explicit non-zero numbers for the size of the money supply, the interest rate for unsecured interbank loans, the required reserve ratio, or the allocation of government funds.
  2. There shall be established a Credit Securitisation Facility, i.e. "the Facility", to tranche and securitise reasonably uncorrelated base assets. It will raise funds from the sale of securities it creates. It shall publicly document the components from which those securities are produced. All produced securities shall fulfil the most stringent reasonable transparency rules established by member nations or the Assembly in future legislation.
    1. The Facility may subcontract out the maintenance of its products to third parties. When it does so, those products must maintain their original uncorrelated character and posted coupons.

    2. The Facility may guarantee its products. It may use funds from its support programme to make those guarantees credible.

    3. The Facility shall produce public indices to provide information on current pricing for the securities it produces and their component base assets.
  3. The Facility shall create a liquidity support programme. It shall invest its net income in safe interest-bearing assets. If an illiquidity crisis threatens a member nation's financial system and the Facility has exhausted its loanable funds, it may borrow monies from the General Fund for this purpose.
    1. An institution, to be eligible for liquidity support, must file public disclosures detailing:
      1. its owned properties and subsidiaries, its balance sheet, the balance sheets of its subsidiaries,

      2. risk factors to its business, currently on-going legal proceedings,

      3. documentation of its accounting procedures, and

      4. other data that the Facility believes useful in determining an institution's value.
      Institutions shall certify that their disclosures are truthful. The Facility may undertake any necessary or proper actions to ensure that institutional disclosures are accurate. Institutions must also have a history of and commitment to maintaining such disclosures before being eligible for support.

    2. Moreover, eligible institutions must abide by weighted liquidity and capital ratios established, promulgated, and set by the Facility based on levels that would best ensure adequate investment, lowered bank insolvency risk for borrowers, and beneficial general equilibrium effects. The Facility shall also advise member nations on the appropriate subsidies on deposits so to maximise investment levels.

    3. If an eligible financial institution requires such liquidity support, the Facility may extend such support, for limited times only, if it believes a member nation's financial system is under threat of collapse. It will do so through secured loans or preferred share purchases. The Facility shall publicly report the quantity and details of all its liquidity actions. When providing liquidity support, the Facility shall secure its loans with proffered equity capital or illiquid assets.

    4. The Facility may not support what it believes to be truly insolvent institutions.
  4. The Facility shall publicly release data it believes helpful in valuing eligible institutions and not sensitive to the public.
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Voting Instructions:
  • Vote For if you want the Delegate to vote For the resolution.
  • Vote Against if you want the Delegate to vote Against the resolution.
  • Vote Abstain if you want the Delegate to abstain from voting on this resolution.
  • Vote Present if you are personally abstaining from this vote.

Detailed opinions with your vote are appreciated and encouraged!
 
Based on my read of the proposal, I'm For. That said, IA should know that not everyone on NS has professional legal or economic training, and should do more in the future to produce legislation that reads clearly in plain English. I rarely argue for the lowest common denominator, but IA's work is always difficult to understand. When economics get complicated, people ignore the fine text, and it gets easier to just put a blanket stamp of approval. We should be careful not to let that happen. ALL of that said, this version is much better than the original, and I can see that an honest effort was made to make it more understandable.
 
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Against

Section 1 Part 3's preventing the WA from requiring "allocation of government funds" will hamper further WA resolutions unnecessarly and promote unfunded WA resolutions.

Section 3's "safe interest-bearing assets" is also an issue. There is no such thing as an Safe asset. There is always a degree of risk involved.

There is no requirement that a member nation using these funds to stablize its economy or currency will have to reform anything. There is a section on truely insolvent insitutions, but there should be a mechanism to require reform if necessary. So ether the agency saves a company or doesnt. Theres no room for them to assist a nation in reform and stablize.
 
For (non-TNP WA)

I do have to agree with Fiji in regards to the economic jargon so inherent to IA's writing.

Regarding Dreadton's points:
1. I read section 1.3 as indicating that future resolutions may not specify specific government spending by number, opposed to specifying general spending mandates.
2. I believe a more reasonable, and presumably the intended reading, is that money would be invested in the options that are relatively the safest, as a mandate specifying that money in the relevant program mat not be invested at all would be ludicrous.
 
Lady Raven Wing:
For (non-TNP WA)


1. I read section 1.3 as indicating that future resolutions may not specify specific government spending by number, opposed to specifying general spending mandates.
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It specificly states or allocation of government funds. As written it covers ALL allocation of government funds. if the author wanted another interpretation the current wording would not support it. It would be enough for a nation to challenge any WA resolution requiring spending by a nation.

I believe a more reasonable, and presumably the intended reading, is that money would be invested in the options that are relatively the safest, as a mandate specifying that money in the relevant program mat not be invested at all would be ludicrous.
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We cant assume everyone would be reasonable when reading the statue, we should assume that a nation would do anything to find a loop hole in the provision. A simple revison by the author changing safe to safest could resovle this issue and head off future problems.
 
1) I'm still not seeing anything limiting governments in the manner you think because of this "specify explicit non-zero." So as far as I can see & tell, it only limits what the WA may specify on government spending if it meets those conditions.

2) The clause is dealing with committee operations, which are not subject to member state interpretation or jurisdiction to my knowledge.
 
Until IA rewrites it to something normal people can actually understand, Against
 
There is an expectation when passing resolutions that they are to be interpreted in good faith. We do not try to eliminate every possible loophole, or write around every possible way people can skirt the law. Loopholes that get pointed out in repeals are almost always unintended consequences or good faith interpretations that are compelling enough to warrant the effort. I think Dreadton's standard is not a great one to utilize for resolutions.

Gorundu, that's a petty reason to vote against. As Fiji said, we should not be appealing to the lowest common denominator. This stuff can get complex sometimes, but just as there's plenty of resolutions that aren't very complex, and more sophisticated players have to play along with those, it's only fair that more legal-minded people get a shot at writing one to their taste.

For
 
I concur with the viewpoints of both Fiji and Ghost. We should not be appealing to the lowest common denominator when it comes to the terminology included in World Assembly resolutions. Imperium Anglorum is a reputable author who’s been known to involve a certain level of complexity in his authorship diction, and while I don’t believe that to be a necessarily bad thing I’m also not someone who it’d be good to ask about General Assembly proposals in general.

Keeping some continuity with what i’ve said before, I’ll be voting Present on this draft. I don’t have enough knowledge about General Assembly authorship to make an educated decision, so instead I personally abstain so as to not sway the vote one way or another while still getting my points across. In my mind, this looks like something worth having and if I were to vote one way over another I’d be voting in favour. But alas, I am present.
 
El Fiji Grande:
Based on my read of the proposal, I'm For. That said, IA should know that not everyone on NS has professional legal or economic training, and should do more in the future to produce legislation that reads clearly in plain English. I rarely argue for the lowest common denominator, but IA's work is always difficult to understand. When economics get complicated, people ignore the fine text, and it gets easier to just put a blanket stamp of approval. We should be careful not to let that happen. ALL of that said, this version is much better than the original, and I can see that an honest effort was made to make it more understandable.
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Gorundu:
Until IA rewrites it to something normal people can actually understand, Against
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About 3 mins of googling with explain every term used here. WA members who actively vote on proposals are expected to have a base understanding of legal language.

Useful links:
https://dictionary.law.com/
https://www.economist.com/economics-a-to-z

Best to familiarize yourself with the above so this doesnt happen again.
 
I don't think they're asking for the resolution to be written for the lowest common denominator. Just for a slightly lower denominator than the existing one.

Also, compliance in the GA is automatic, you're going to have trouble changing my mind.:P
 
Pallaith:
Gorundu, that's a petty reason to vote against. As Fiji said, we should not be appealing to the lowest common denominator. This stuff can get complex sometimes, but just as there's plenty of resolutions that aren't very complex, and more sophisticated players have to play along with those, it's only fair that more legal-minded people get a shot at writing one to their taste.
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I refer you to another part of Fiji's comment, which says (italics added by myself)
El Fiji Grande:
I rarely argue for the lowest common denominator, but IA's work is always difficult to understand. When economics get complicated, people ignore the fine text, and it gets easier to just put a blanket stamp of approval. We should be careful not to let that happen.
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I fail to believe legal-minded people like IA can't make their resolutions any easier to understand. In fact, if they are legal-minded, then they should be able to construct their resolutions in a manner understandable to normal people. I'm not arguing for the lowest common denominator either; as Praetor said, just a lower one. Otherwise, the legal-minded people are writing to their own tastes at the expense of other people's ability to understand and thus their ability to cast a knowledgeable vote.

I have other reasons to be against the proposal too, which I won't try imposing on others. I have objections with the 1a, where it essentially forces nations to allow securities sales internationally. It might be a bit of a NatSov argument, but that's where I stand. I don't think nations should have to allow that if they want to be isolationist.
 
Dreadton:
Section 1 Part 3's preventing the WA from requiring "allocation of government funds" will hamper further WA resolutions unnecessarly and promote unfunded WA resolutions.
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Saying that section 1(c) prohibits WA allocations of any sort is a misreading of the proposal. It says that the WA will "not specify explicit non-zero numbers for ... the allocation of government funds". What does that mean? It means proposals which declare that a member nation must pay 1 pc of GDP or government revenue on something are then illegal. Does it prohibit the WA from mandating expenditure on X? No, it doesn't, because such a proposal would not specify an explicit non-zero number.

Dreadton:
Section 3's "safe interest-bearing assets" is also an issue. There is no such thing as an Safe asset. There is always a degree of risk involved.
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That's up to the discretion of the committee. There is a presumption in the GA that committees take competent actions.

Dreadton:
There is no requirement that a member nation using these funds to stablize its economy or currency will have to reform anything. There is a section on truely insolvent insitutions, but there should be a mechanism to require reform if necessary. So ether the agency saves a company or doesnt. Theres no room for them to assist a nation in reform and stablize.
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Member nations don't use the funds. Moreover, there's just this section I think you overlooked:

Moreover, eligible institutions must abide by weighted liquidity and capital ratios established, promulgated, and set by the Facility based on levels that would best ensure adequate investment, lowered bank insolvency risk for borrowers, and beneficial general equilibrium effects. The Facility shall also advise member nations on the appropriate subsidies on deposits so to maximise investment levels.​

Saying that it doesn't make member nations execute the reforms is a non-sequitur because the committee executes the reforms directly.

Dreadton:
It specificly states or allocation of government funds. As written it covers ALL allocation of government funds. if the author wanted another interpretation the current wording would not support it. It would be enough for a nation to challenge any WA resolution requiring spending by a nation.
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See above.

Dreadton:
We cant assume everyone would be reasonable when reading the statue, we should assume that a nation would do anything to find a loop hole in the provision. A simple revison by the author changing safe to safest could resovle this issue and head off future problems.
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Well, first, actually we can: the General Assembly runs under reasonable nation theory. Second, it's not relevant, the section applies to a WA committee.

When considering language for a resolution, authors are not constrained to accommodate every absurd interpretation, merely those interpretations that a reasonable nation might apply. This theory is referred to as the Reasonable Nation Theory, which provides, in relevant part, that “most nations in the WA are sensible and fair-minded (i.e., are "reasonable nations") and will exercise good faith in implementing the legislation, should it pass.” While the Reasonable Nation Theory is not itself a rule, it is a convention that authors, moderators, and now GenSec will rely upon in interpreting law. https://forum.nationstates.net/viewtopic.php?p=31980844#p31980844​
 
Gorundu:
I fail to believe legal-minded people like IA can't make their resolutions any easier to understand. In fact, if they are legal-minded, then they should be able to construct their resolutions in a manner understandable to normal people. I'm not arguing for the lowest common denominator either; as Praetor said, just a lower one. Otherwise, the legal-minded people are writing to their own tastes at the expense of other people's ability to understand and thus their ability to cast a knowledgeable vote.
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It isn't sufficient to say "I don't understand this" when it comes to clarifications. What needs clarifying? Where? And what do you not understand?
 
Imperium Anglorum:
Saying that section 1(c) prohibits WA allocations of any sort is a misreading of the proposal. It says that the WA will "not specify explicit non-zero numbers for ... the allocation of government funds". What does that mean? It means proposals which declare that a member nation must pay 1 pc of GDP or government revenue on something are then illegal. Does it prohibit the WA from mandating expenditure on X? No, it doesn't, because such a proposal would not specify an explicit non-zero number.
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Can I get a clarification? A proposal cannot mandate a non-zero number for allocation of government funds, but WA can mandate expenditure on a program without giving a specific number. Does this imply that states are mandated to spend as little or as much to satisfy the obligations of that proposal (or to contribute a committee-determined amount to a WA program), based on their current social and economic conditions?
 
Orven:
Can I get a clarification? A proposal cannot mandate a non-zero number for allocation of government funds, but WA can mandate expenditure on a program without giving a specific number. Does this imply that states are mandated to spend as little or as much to satisfy the obligations of that proposal (or to contribute a committee-determined amount to a WA program), based on their current social and economic conditions?
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Yes and no. It would depend on the requirement made by legislation. For example, if the legislation said that WA members are to provide healthcare to all their citizens, that is not specifying a non-zero number for the allocation of government funds. Members would, nevertheless, be required to spend whatever it costs to provide healthcare to all their citizens.
 
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The issue for me regarding Section 1(c) is the not the topic of whether or not it prohibits allocation of funds or not, interpretation, etc.. On principal, I find it troublesome that 1(c) is dictating what is allowed, in general, regarding the language, topics, proposals of nations in the GA for future resolutions. It places nations in a stranglehold and takes away the flexibility of the body to act in an ever changing world economy and political atmosphere. Passing this bill would give reason for nations to try and put a stopper on certain topics in the future, possibly rendering proposals illegal, and make their resolution the end all be all with no future debate if the situation changes. Creating such a precedent (fully understanding that I may have missed a past resolution that did the same thing) is dangerous and one that I cannot vote for.

Against.
 
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