As this weekend’s NATO Summit came to a close, Obama left needing to raise $1.3 billion from Western European countries to support the ongoing efforts in Afghanistan. One reason Obama cannot get this funding is because Western Europe does not have enough money to give and refuses to spend when they are already in debt. They see American requests for aid to Afghanistan as leading them toward more financial debt. The U.S. cannot stabilize its economy, and Europe does not want more trouble should American advice, or interests go awry. Obama needs to prove that his spending policies are safe for the Western European economy.
To accomplish this task, Obama should implement his proposal to require banks to have more cash on hand, and change his other proposal to reward CEOs that make the most profit with the least risk. By tightening regulations, Obama will address European fears over whether spending can stabilize the economy during government debt.
Europeans fear another financial crisis. To counter this fear, they have implemented austerity measures and raised taxes. The idea behind this policy is that the government will increase its money to stabilize the economy. Once the government has funds, it can start buying again and continue buying if the economy starts to slump again. The underlying purpose is to keep the economy stable and prevent another financial crisis.
Financial regulations will accomplish exactly these two purposes. Enforcing a minimum of on-hand cash at banks and rewarding hedge fund CEOs for making large profits without risky deals will prevent banks from going into debt, which contributed to the financial meltdown in 2008. The cause of the financial crisis was hedge funds encouraging banks to risk lending more money than they had to homebuyers.
If hedge fund CEOs had not made such risky investments, they would not have lost so much money. The plan was this: hedge funds intentionally wanted banks to lend to homebuyers that they knew would default; banks could, then, sell houses for higher prices in foreclosures; these foreclosures would increase the value of mortgaged-backed securities to allow CEOs to buy low and sell high. But this process backfired when the housing bubble burst.
Had CEOs been rewarded for non-risky deals instead, banks would not have engaged in selling bad loans. Billions of dollars would not have been lost and banks would continue pushing the economy in an upward motion like they are supposed to be doing.
These financial regulations would stabilize the economy to show Germany that they no longer need to worry about saving in case of another financial meltdown. This scenario is exactly the reassurance Western Europe needs to spend on Afghanistan.
But, the economy is not the only problem needed to get Western Europe to contribute to funds for Afghanistan; a myriad of political problems plague the decision too.