VZCZCXYZ0000
OO RUEHWEB

DE RUEHSO #0487 2621109
ZNR UUUUU ZZH
O 181109Z SEP 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8523
INFO RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC IMMEDIATE
RUEHBR/AMEMBASSY BRASILIA PRIORITY 9655
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 8852
RUCPDOC/USDOC WASHDC 3174

UNCLAS SAO PAULO 000487 
 
SIPDIS 
 
STATE INR/R/MR; IIP/R/MR; WHA/PD 
 
DEPT PASS USTR 
 
USDOC 4322/MAC/OLAC/JAFEE 
E.O. 12958: N/A 
TAGS: KMDR OPRC OIIP ETRD XM XR BR
SUBJECT: GLOBAL ECONOMY 
 
1.The Bubble of Omission 
 
Lead editorial in center-right O Estado de S. Paulo  (09/18) says: 
"The U.S. authorities permitted the bankruptcy of Lehman Brothers, a 
major investment bank, and several small banks, but refused to watch 
passively, in the name of principles, the collapse of an institution 
such as AIG, capable of carrying with it several smaller financiers. 
 At this point, it is useless to discuss whether the moral hazard 
concept is valid only in certain situations and whether the 
government, after all, will be willing to rescue badly administered 
companies if their bankruptcy were capable of causing major damage 
to the system. .. According to the doctrine, capitalism is a system 
of risks and everyone should pay for his mistakes and the government 
should never, by its intervention, stimulate irresponsible action. 
But how can one not intervene, when the damages may affect the whole 
system? ... The present situation, however, is not only a result of 
uncontrolled factors, but mainly of factors not controlled because 
of a political decision.  By not having foreseen the risks, the 
authorities now improvise solutions, unable of re-establishing the 
security for more than a few hours or days." 
 
2.Regulation, the key word in the global financial crisis 
 
Editorial in economic newspaper Valor Economico (09/18) comments: 
"One of the many lessons to be learnt from the world financial 
crisis is the urgent need to re-think the role and extent of market 
regulation, especially in times of globalization such as today.  For 
years, specialists in international finance and representatives of 
the banking system publicly defended the thesis that less regulation 
in the sector, following the recent American model, would benefit 
Brazil a lot by favoring credit expansion, the essential fuel for 
the accelerated economic growth so much desired by the country in 
recent decades....  What we can affirm from this scene of bankruptcy 
of traditional U.S. investments banks and billion-dollar 
intervention by central banks ... is that there were terrible flaws 
in the evaluation and implementation of regulatory norms in certain 
segments of the U.S. credit system, which now serve as an alert for 
other government leaders." 
White