 Let me just say a big thank you to Wyder for making the whole event possible and for existing. I titled this International Financial Systems rather than the International Financial System and you'll see why in a moment. I'm really structuring my talk around a broad question. That is, why have International Financial Systems reforms failed as Valpy quite rightly said at the beginning. We've had several major attempts at reforming the International Financial Architecture and none of them has really succeeded. The most ambitious were after the 1997 Asian crisis and after the 2008 crisis but none has really succeeded. That's the broad question. The answer that I give basically is that reform attempts are bound to fail. Major reform attempts are bound to fail. I'm putting that hypothesis forward really as something derived from the endogeneity within the financial system itself or within the financial systems. In other words, I'm not talking about the inevitability of failure because of vested interests or national interests or political lobbying and so on although of course all those things are terribly important. What I'm suggesting is that there are endogenous forces within the financial system that we can understand as economists that are bound to lead us to be disappointed with reform plans. I'm really based out of four propositions. The first is that the International Financial System actually comprises two distinct International Financial Systems. The second is that the evolution of those two International Financial Systems drives and is driven by crises. Crises are central to its evolution. The third is that our standard toolkits, as economists, our standard theoretical toolkits, our standard models that enable us to, I want to go back a bit, that our standard toolkits actually omit one major element or they downplay at least one major element of the existing International Financial System. And the consequence of those three propositions is the fourth one that reform plans are always backward looking. Let me just expand on those. Starting the first proposition, there are two International Financial Systems bundled into one. I'll call them IFS-1, IFS-2 and IFS-1 is what I would define as International Financial Architecture. It comprises institutions like the IMF Central Banks, the Basel Committee on Supervision, the Paris Club, the London Club, regulatory bodies of various kinds. The second IFS-2 is, if you like, the private sector, but I wouldn't, that's not an adequate description. So it includes agents, institutions like banks, non-bank financial firms such as hedge funds, pension funds, and various markets, forex markets, fixed income markets, equity markets, and even the treasurers as a particular agent, the treasurers of non-financial firms, multinational corporations are themselves highly financialized. It's difficult to distinguish them from banks or shadow banks in some ways. I just want to keep those two distinct elements of the International Financial System in our minds. I'm going to argue that our reform attempts always focus upon the International Financial Architecture, IMF, etc. but there are forces within the markets and banks sector that make those reform attempts inevitably fail. Moreover, those forces are such that they both drive crises and are driven, that changes are both drive crises and are driven by crises. Okay, so the reforms of the International Financial Architecture, the IMF, etc., are always driven by crises. I don't have time to go through the list, but you're familiar with it all. The second is that those crises are inherent in the system because they're generated by the very nature of the dynamic nature of the, if you like, private part of the International Financial System, IFS-2. The system of banks and markets by nature has a dynamic which has three characteristics. It can only exist through continual innovation. That innovation involves a continual cycle of overexpansion, an overexpansion driven by such things as what we call nowadays, search for yield or overexuberance. And by the very definition of overexpansion, that means that it's punctuated by crises. And we're talking about the importance of crises because for all crises, all crises involve great setbacks for developing countries, even if they don't originate in developing countries. Crises occur when overexpansion is brought to a halt by a concentration upon unanimity, a single-minded view of what's happening to markets, a single-minded view of where your investments should be going or what kinds of transactions you should be doing or what kinds of financial products you should be developing. And we know that bankers are not good at making those judgments and brought about by ultimately a withdrawal of liquidity. That leads me to my third proposition, which is that we don't have the toolkits to be able to develop a financial architecture that can put forward, can operate, can implement good policies. Our toolkits are extremely limited. They emit a key element of the international financial system. Okay, what is our basic standard toolkit? Well, we still use basic models, equilibrium price models. Purchasing power parity is fundamental to everything where time and again will make policy judgments based upon an assessment. Is this country overvalued or is this exchange rate undervalued? It's not a very functional toolkit in its own right, but what I'm going to say is that concentration upon purchasing power parity actually emits an important part of what we should be looking at. The other part of our toolkit is a basic Mandel Fleming model and things such as the impossible trinity. But why do I say that's emitting a lot of what actually exists in the international financial system? Well, let's just look at foreign exchange markets. What are the transactions on foreign exchange markets that policy is meant to be engaging with, addressing? Well, transactions on foreign exchange markets are huge and that leads us to think, well, that's fine as foreign exchange markets are financing trade. Good thing. In 2013, approximately five trillion US dollars per day were traded. At the same time though, trade was miniscule by comparison. Goods and services exports were only 63 billion instead of 5,000 billion per day. What's happening to the rest of it? Well, the rest of it obviously is made up of the millions of transactions that occur daily of portfolio adjustments, some of which are speculative, some of which are built into risk minimization portfolios and so on. But they're essentially capital account type transactions between currencies. Our models don't really engage with them. Now, you could say, well, OK, Mandel Fleming or Uncovered Interest Parity and Fisher Equation do engage with them because clearly they have an equilibrium interest rate in the middle of them. But my argument is that actually building models which really take, can capture the capital market simply in terms of comparative interest, relative interest rates on riskless debt, riskless government short-term debt between countries is totally inadequate for really giving attention to that vast volume of portfolio transactions daily. And as a result, our policy debates continue to focus upon current account pricing issues such as focusing upon whether an exchange rate is overvalued or undervalued. My fourth proposition is that reform plans are always backward looking and that follows. The major reform attempt, that follows from what I've said because major reform attempts for the financial architect at IFS-1 always disappoint because they're inevitably attempts to fight the last war and when you look at the details of any of them, they're always looking at the past crisis rather than possibly future ones and that's inevitable. It's not simply that people malign or foolish. It's inevitable because IFS-2, the free market, etc., is driven by financial innovation that leads to overexpansion and crises, new engineered products, shadow banking, new market trading systems, algorithmic trading, etc. And by nature, by definition, innovation cannot be foreseen. So in the face of this, reform, in the face of this, the sort of regulatory architecture of IFS-1 is like a drug control agency continually trying to reign in the market for drugs but it's always existing drugs and the drug makers are one step ahead. They make new types and so on. Okay, so that's a pessimistic view and I'm sure that many other people in these three days will be having lots of optimistic views about the future and that's why I'm here to gain some cheer and optimism. But let me finish by saying, even though I have a pessimistic view, let's try. What would we need to do if we're going to try and make any serious attempt at financial architectural reform? The first is to understand and build models of the new developments within the international financial system. Some of those that have already been referred to and others that I won't have time to list. The second is that we have to have a universal sovereign bankruptcy system. In IFS-1, it's not really a system. We have a financial architecture. We don't really have a system. It's not designed as an engineer. We design a system. It's grown up as a hodgepodge and look at things like the Paris Club and London Club. They've grown up as a very ad-hoc kind of institutions and other parts of the architecture as well. We need to have a proper sovereign bankruptcy system to mitigate the effects of crises and to be able to resolve crises. We need to reform credit rating firms' role. I like the idea of abolishing them, but actually that wouldn't work. But there are other ways of mitigating the dangers of creating credit rating firms' current role. And finally, I endorse the proposal that Willem Bountel made a couple of years ago that we need to increase the role of equity type financing throughout the international financial system rather than fixed income financing. Such things as sovereign GDP growth bonds. I look forward to the discussion.