This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- One blog called it a "Battle Royale," as Christine Lagarde, France's Finance Minister, announced her candidacy for the IMF's top job . That job has always been held by a European. But the heads of the emerging economies believe that they are the engine of the world's future economic growth, a very strong and convincing argument.

Christine Lagarde, France's Finance Minister

Yet, the most pressing issue for the IMF, and, many, including myself, believe for the world, is the European debt crisis. Europe's financial system could very well collapse if a Greek default is followed by a default from Ireland, Portugal or Spain. This could easily trigger another worldwide financial panic if foreign financial institutions behave like they did in the 2009 crisis and refuse to provide liquidity to their brethren.

Worse, any default could very well trigger a crisis that goes well beyond the banking system if the collection of bets on credit default swaps (CDS) causes liquidity and solvency problems with the issuing institutions. Because CDS are not well regulated, we simply do not know what risk they carry in a financial meltdown. It seems then that managing Europe's debt crisis to the best of a bad lot of solutions is the most important financial issue facing the world today.

There is an underlying assumption that a European, like Lagarde, would be best suited to head the IMF in such an environment because only a European would be in a position to completely understand and address the problem. I question this assumption.

>> Lagarde Makes Sense for the IMF: Opinion

The French and German banks face liquidity and possible solvency issues if Greece defaults and dominos begin to fall. Will the former French Finance Minister be able to make decisions that carry heavy short-term pain for European banks and economies if that is the best long-term solution? Or will she advocate continuing to treat this as a liquidity crisis (which it is not -- it is a solvency crisis) and kick the can further down the road like the IMF and ECB did a year ago with the original Greek debt crisis?

Perhaps a new approach would be best in the long-run. Perhaps an IMF head without ties to Europe would be able to advocate for the best solution, no matter how painful.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.37 0.00%
FB $83.20 0.00%
GOOG $552.03 0.00%
TSLA $190.57 0.00%
YHOO $44.95 0.00%

Markets

DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs