kevin m warsh : the end of history? speech by mr kevin m warsh, member of the board of governors of the us federal reserve system, to the new york association for business economics, new york, 7 november 2007. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * scholars have debated whether the end of the cold war constituted the end of history. 1 after the soviet union passed from the world stage, some suggested that an alluring new world order was upon us. sovereigns were purportedly ready to put historic conflicts in abeyance as cultures and ideologies coalesced around the principles of liberalism, freedom, and democracy. detractors have argued that this end - of - history thesis is a " mirage " ( kagan, 2007 ). intervening geopolitical events appear to have upended the notion that history is all but written, that ideological conflicts will inexorably abate. at the very least, the experience of the past dozen years suggests that the hopes and aspirations for a less confrontational political and ideological era may be delayed. but even as the geopolitical situation has become more complex, and as conflicts among ideologies become more obvious, i wonder whether we are seeing – in certain other spheres of social interaction – some coalescing of views, some mutual understanding of what makes for a strong and enduring system. here, befitting an audience of business leaders and economists, i am thinking of economic policy and, in particular, monetary policy in market - based economies. 2 as recently as several months ago, some may have been tempted to believe that, in the realm of economic policy, we were on the precipice of the end of history. the seemingly benign financial and economic conditions of the past few years may have appeared to be approaching this nirvana. 3 if the end of economic history were at hand, what would it look like? you would almost assuredly find strong, synchronized global economic growth ; favorable inflation readings and anchored inflation expectations ; low global risk premiums and low term premiums ; muted volatility across asset markets ; a relatively free flow of products and services across national boundaries ; interconnected financial markets ; deep, robust, and highly liquid secondary trading ; the democratization of credit and growing access to capital ; and, finally, a stance of monetary policy approximating its natural equilibrium. think of the economic

first place. after first describing some of the current implementation challenges associated with title ii resolution, i will return to this second issue. implementing the resolution regime on a cross - border basis remains one of the most significant challenges. u. s. authorities are working with authorities abroad on the issues that require international collaboration, but the financial industry also has a role to play in overcoming these challenges. i encourage the industry to promptly address the matters that require action on their part. in particular, i am worried about two current shortcomings : • the reach of title ii ’ s one - day stay on the close - out of qualified financial contracts is incomplete and does not extend to contracts governed by non - u. s. law with nonu. s. counterparties. bis central bankers ’ speeches • the placement of the parent company into receivership may be treated by these counterparties as an event of default due to the presence of a parent guarantee or other cross - default provisions triggered by the parent - level insolvency. unless market participants make the appropriate contractual changes that will ensure that the entry of the parent company into title ii will not trigger the close - out provisions of those over - the - counter derivatives and other qualified financial contracts that are outside the reach of title ii ’ s u. s. application, foreign counterparties to the systemically important firm will tend to exercise this right whenever it is in their individual economic interest to do so. this would create significant difficulties because such actions could greatly complicate the operations of the firm during a time when it is already under considerable stress and would propagate stress more broadly in financial markets. there are two main options for addressing this issue, and they are not mutually exclusive. existing derivative contracts need to be amended and future contracts need to provide that the parent ’ s entry into the title ii proceeding does not trigger the close - out option, or legal changes need to be implemented abroad so that the “ one - day stay ” that applies to qualified financial contracts governed by u. s. law is enforceable against those contracts governed by foreign law. only by making these changes can we avoid the potential for disruptive closeouts. i strongly encourage the ongoing efforts to address this critical issue. a second issue with respect to title ii resolution is that we cannot be certain how foreign authorities will react when the parent is put into the title ii proceeding. while the u. s. authorities have been in discussion with our colleagues abroad to enable the coordination needed