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'Global crisis failure of extreme capitalism'

world Updated: Oct 15, 2008 09:52 IST

The global economic crisis is a result of the "comprehensive failure of extreme capitalism", Australian Prime Minister Kevin Rudd said on Wednesday.

The centre-left Labor Party leader named greed and fear as the "twin evils" at the root of the financial sector collapse, which began in the United States and swept the world.

"What we have seen is the comprehensive failure of extreme capitalism -- extreme capitalism which now turns to government to prevent systemic failure," Rudd told the National Press Club in Canberra.

Governments around the industrialised world have pumped billions of dollars into their financial sectors to bail out financial institutions, leading to charges that capitalism privatises profits but socialises losses.

Rudd, who on Tuesday announced a 10.4 billion dollar (7.25 billion US) economic stimulus package designed to shield the vulnerable and boost economic activity, said fear was the first of the demons to be dealt with.

"Dealing with the greed which has caused the fear will come after that," he said, pointing to executive pay that rewarded short-term returns or excessive risk taking.

"Obscene failures in corporate governance which rewarded greed without any regard to the integrity of the financial system" were one of the factors behind the collapse, Rudd said.

Governments should act so that greed and lax regulation were never allowed to put the world in the same position again, he said, adding that Australia would press for this at a meeting of the group of 20 rich and emerging nations next month.

Financial institutions needed to have clear incentives to promote responsible behaviour rather than unrestrained greed, and the Basel II rules that deal with capital adequacy should pick this concept up, he said.

"Specifically... regulators should set higher capital requirements for financial firms with executive remuneration packages that reward short-term returns or excessive risk taking."

Rudd reiterated what has become his government's mantra amid the crisis -- Australia will not escape unscathed but its financial institutions are sound and the country is better placed than many to weather the storm.