New rules are needed to create more financial stability and equity, but, ultimately, banking regulation can also be a discreet instrument for upholding social values--public needs for housing, healthcare, education--since the regulation implicitly influences access to credit (which borrowers are preferred, which shut out). Not all of the issues can be reached by national legislation alone, but much of the disorder will be swiftly remedied if the wealthiest nations, especially the United States, abandon the crumbling dogma of laissez-faire and accept the obligation to restore fairness. Here is a brief sampling of some possibilities proposed by various reformers:

§ Shut off or shut down the offshore banking centers, both to curb speculation and recapture lost revenues for national governments. Leach's proposal is a modest first step toward establishing the standard of law. Tax-dodging and money-laundering are financial issues that every citizen can understand.

§ Allow nations to impose their own controls on short-term capital flows in order to disarm the "hot money," those frantic capital surges in and out of countries that have triggered so many crises. The Council on Foreign Relations, an old establishment outpost, recommended as much in a study group co-chaired by two other Republican notables, Peter Peterson, Richard Nixon's Commerce Secretary, and Carla Hills, George Bush's US Trade Representative. Their recommendation departs from orthodoxy but is not as radical as it sounds. Chile, after all, has been allowed to do this. It successfully discourages short-term lending from abroad with a stiff holding-period tax that severely penalizes early withdrawals (shorter than a year's duration). The United States and other powers simply have to tell the IMF to back off and let emerging economies use such insulating devices, perhaps even incentives like Chile's that direct longer-term capital to the nation's own priorities. One wonders, in passing, why the Clinton Administration is so shy about the issue of capital controls when the Council on Foreign Relations has provided establishment cover.

§ Create a quasi-public international investment fund that directs major volumes of long-term capital to developing countries and thus allows them to escape the dictates of investors and economic doctrines imposed by the IMF. A broadly diversified fund, including private and public investors, professionally managed to produce healthy returns, would bring patience to the process of globalization--stable capital that is not beholden to the quarterly earnings of multinational corporations or the feverish mood swings of financial markets. Governments might set forth the broad principles, but the fund would have to establish that patient capital can compete profitably (precisely why private capital loathes the idea). Jane D'Arista of the Financial Markets Center (her work is available at www.fmcenter.org) has proposed a closed-end international fund that would function like a giant mutual fund, but with a sense of history. An alternative version would raise its capital from a modest tax on global financial transactions and might gradually displace the World Bank as the leading development lender. Either way, the goal is to give aspiring nations more freedom from the fickle financial markets, while assuring the capital inflows they need to develop.

In the meantime, governments should prohibit the World Bank from financing any more oil, gas or mining projects--40 percent of the World Bank Group's loan portfolio last year, according to Friends of the Earth and other environmental groups. These generate environmental destruction and social upheaval in developing countries while often propping up corrupt regimes. Private capital should take these risks, not taxpayers.

§ Create a new international bankruptcy court to arbitrate claims between creditors and defaulting nations and provide protective workouts so indebted countries aren't destroyed in the process. The present system, loosely supervised by the IMF, central banks and various clubs of private bankers, is utterly one-sided. The fallen nations are steadily bled, their remaining assets picked over by scavenging investors, while foreign creditors walk away with no responsibility for their own mistakes. A global bankruptcy system for nations would develop equitable principles for settlements and terms of lending that could be incorporated in every debt instrument of global finance, the legal language that establishes the obligations of bankers and bondholders as well as their borrowers. This reform is a more reliable response to the problem of "moral hazard"--investors who take irresponsible gambles because they believe governments will bail them out--than anything the free-marketeers have suggested. Professor Kunibert Raff of the University of Vienna has proposed that nongovernmental organizations, trade unions and civic groups participate to speak for the affected citizens in bankrupt nations.

§ Confront and engage the long, difficult task of constructing a new international system that assures stable relationships among national currencies. The present system of floating exchange rates, with its exaggerated swings in currency values, is a central source of global instability as well as a movable feast for speculators. With everyone linked to the continuing gyrations of major currencies, the damage is randomly transmitted: US interest rates rise and trigger a collapse of the peso in Mexico or the baht in Thailand. Unpredictable exchange rates lead multinationals to disperse factories so they can hedge currency shifts by bumping their output from one country to another. This rudderless free market--$1.5 trillion a day in foreign-exchange transactions--wastes enormous amounts of capital in unproductive games, while the intimidating instability also retards growth rates in the advanced industrial nations.

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