George Vojta discusses the current U.S. financial situation and the effects of globalization in developing countries. CLICK HERE or on the photo above for the full interview.

Two days before the federal government announced plans to support two faltering financial companies, the keynote speaker at Emory University’s July 10-11 globalization conference said that the U.S. financial system is in a crisis likely to worsen before it gets better.

The Federal Reserve and Treasury Department announced plans to provide funds to the Federal Home Loan Mortgage Corp., known as Freddie Mac, and the Federal National Mortgage Association, or Fannie Mae, July 13.

Both are government-chartered mortgage providers owned by private shareholders.

George Vojta, chairman and CEO of the New York-based investment consulting firm Westchester Group, and a former president of executive group Financial Services Forum in Washington, said that a shakeup in the U.S.’s financial system is overdue and will result in stronger regulations in the coming years.

“This crisis will flush out, necessarily, excesses that grew into the system and result in better, more efficient, more responsive financial institutions,” he said.  “I’m fairly sure we’re going to have a new regulatory model for overseeing the financial system, which has been long overdue.”

Mr. Vojta added that there may be more negative consequences in the short term, but a reorganization of the financial system will result in long-term stability.

“When it’s finished I think we’ll find that the U.S. capital market and its financial system remains in a leadership role, but it’s going to go through a major set of somewhat painful, difficult changes to get from here to there,” he said.  “In five years I think we’ll be there, and we’ll be proud of it.”

In the first step toward greater regulation of the housing industry, the Federal Reserve approved new mortgage lending rules July 14 designed to curb fraudulent house assessments and mortgage costs, according to news reports.

The Federal Bureau of Investigation is examining possible fraud at IndyMac Bank, which collapsed this month.  The Federal Deposit Insurance Corp., or FDIC, is taking over the bank’s assets, which are mostly mortgages.

Mr. Vojta founded the Financial Standards Foundation, which publishes www.estandardsforum.com to provide information on financial principles and economic data around the world.

He said that establishing a sound, responsible financial system is important to a country’s development, whether in the U.S. or a developing nation.

“If you do not have a viable financial system that’s safe and sound and conducting itself in the interests of the country, you will not have any development at all,” Mr. Vojta said.

His speech at the Emory conference focused on globalization and its effect on lower-income countries. 

Mr. Vojta said that connecting economies around the world has been responsible for raising incomes in many countries, but that resultant job losses are inevitable and gains are not shared by everyone.

“There’s no question that the results of the globalization, of the integration of the world economies…there has been enormous benefit in terms of rising incomes, bringing people out of poverty,” he said. 

“The issue that’s arisen out of globalization is, it is not of benefit to everybody.  There are segments of our global community who are not participating positively in the benefits.”

Mr. Vojta said that globalization can be tweaked to bring more people into the global economy.

“There are many who’ve been suffering from the dislocations caused by globalization, which is inevitable,” he said.  “There’s a very great need for those adversely affected to be recognized, for the community to adjust its course in the globalization process so the benefit is more evenly distributed.”

He added that the financial services industry continues to globalize and that future leaders in that business will require a general knowledge of world practices, rather than the intense specialization of the past.