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from Davos Notebook:

Overheard in Davos

One of the best things about Davos is the conversations you overhear. It's like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:

"So, how much trouble are you in?"

The banker responded in what sounded like soothing tones but I couldn't make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:

"The prices are very low, but there are no buyers!"

That's it, in a nutshell.

from James Saft:

Overheard in Davos

[CROSSPOST blog: 29 post: 324]

Original Post Text: One of the best things about Davos is the conversations you overhear. It's like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banker said:

"So, how much trouble are you in?"

The banker responded in what sounded like soothing tones but I couldn't make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation:

"The prices are very low, but there are no buyers!"

That's it, in a nutshell.

from Davos Notebook:

Hank Paulson is not Gavrilo Princip, Lehman is not the Archduke Franz Ferdinand

Was letting Lehman go down the biggest mistake of the crisis? Many, including George Soros in the Financial Times, have argued that letting Lehman go down sowed panic to markets, consumers and businesses.

Not so fast, says Harvard historian Niall Ferguson, in an interview in Davos:

"My position is this is a typical error of historical understanding in which a single event is blamed for much more than it can possibly have caused. You can say ‘Hank Paulson is to blame for my troubles' and if you can change one thing in the story it would have a happy ending.

It's like saying if only Princip had not shot the Archduke Franz Ferdinand in 1914 there wouldn't have been a First World War.

If you go through the events of September of last year you will find it incredibly hard to produce a counterfactual scenario in which it could have been possible to save both Merrill Lynch and Lehman. There is one bank which could be bought by Bank of America but there couldn't have been two.

This is a crisis of too much bank leverage which began in August of 2007 and indeed had it roots far before. A bank leveraged 25-1 only needs a 4 percent decline in their assets to have their equity wiped out. And the notion that saving one investment bank could somehow have prevented or mitigated the crisis is a fantasy. The problem would have happened at some point somewhere else. There is a fundamental problem of bank solvency."

Ferguson argues that without another buyer for one of the two, one would have needed to have been taken into a kind of Treasury conservatorship, as Fannie Mae and Freddie Mac were. But those were already quasi-government and such a move would have required Congressional approval, which given that Congress turned down the first version of the TARP, was not likely.

from James Saft:

Stephen Roach – protectionism a threat

Stephen Roach of Morgan Stanley, who pretty much called it at last year's Davos, when consensus was for no recession in the "real" economy and decoupling of emerging markets, is gloomy again. Speaking with him this morning after he did an interview with Reuters on Davos Today, Roach said that there was a real threat of protectionism as politicians come under pressure from rising unemployment. The U.S. and China relationship will be key, he said.

On U.S. real estate - a continuing issue for banks and the economy:

"The interplay between the property and financial sectors has been ground zero of this crisis.

The problem was the banks played the property bubble just like consumers did and so we are all in this together."

Not a big fan of equities, it seems:-

"Equities have pretty much discounted a dire outlook for 2009. The problem with equities as an asset class is that they are pretty much based on optimistic earning expectations for 2010 and 2011. We will challenge those expectations this year. I'd be pretty cautious before committing new funds to the equity market in this climate.

So what is Blackstone Group chairman Stephen Schwarzman's prescription for solving the banking crisis?

from The Great Debate:

Davos debate: How to fix finance?

The credit crunch has left little of the globe unaffected and few sectors of the world economy untouched. The interlinkages between economics and finance are at the core of discussions at the World Economic Forum in Davos. Reuters News asked delegates for their analysis of the roots of the problem and prescriptions for recovery.

from The Great Debate UK:

Davos debate: Towards economic models that work

[CROSSPOST blog: 44 post: 1587] Original Post Text: The credit crunch has left little of the globe unaffected and few sectors of the world economy untouched. The interlinkages between economics and finance are at the core of discussions at the World Economic Forum in Davos. Reuters News asked delegates for their analysis of the roots of the problem and prescriptions for recovery.

from James Saft:

Balance of power upended at Davos

So, back we go next week to Davos for the World Economic Forum 2009, titled this year "Shaping the post-crisis world."

Except the crisis ain't over yet and shaping the world while it is happening is proving to be about as easy as tying your shoes while riding a bicycle.

Let's dial back briefly to those more innocent days in 2008 and remember what was being discussed at Davos then.

Q - Will Sovereign Wealth Funds save the world financial system through equity investments? Are they a menace?

A - No, and even if they are it doesn't much matter.

Q - Isn't this just about a bunch of red-neck American sub-prime borrowers and the banks that were dumb enough to lend to them?

A - No and no. It is all of us, every one, and if the heart isn't pumping sooner or later the limbs stop moving.

from Pakistan: Now or Never?:

Pakistan, India and the rise and/or fall of the nation state

When the British left India in 1947, they bequeathed what was arguably a European notion of the nation state on a region for which the very concept was alien. I say "arguably" because anything one writes about Partition or the nation state is open to dispute. And until the financial crisis, I relegated this argument to the realm of historians -- a subject that interested me personally, but did not seem relevant today.

That was until I noticed a new debate bubbling up on the internet about the future of the nation state. Will it become more powerful as countries scramble to protect themselves from the financial crisis as George Friedman at Stratfor argues in this article?  Or does the need for global solutions to the crisis sound a death knell for the nation state, as John Robb suggests here?

Let's just suppose the paradigm has shifted and the 60-year-old model defined by the departing British colonial rulers is no longer valid. What does that mean for Pakistan and India?

First the history. India under the British was far from what might have been considered a nation-state. Here's Friedman's definition: "A nation is a collection of people who share an ethnicity. A state is the entity that rules a piece of land. A nation-state — the foundation of the modern international order — is what is formed when the nation and state overlap."

There was no overlap between nation and state when the British left. At the time the region was a patchwork of different people, speaking different languages, with their own ethnic identities. It included more than 500 princely states which had retained nominal autonomy in return for pledging allegiance to the British crown, along with a sizeable proportion of Muslims who fretted about who would protect them in an independent Hindu-dominated India. Yet Britain created not one, but two nation states in the European model -- India and Pakistan.

"...the concept of State itself was alien to Indian political thought. It could not be otherwise," wrote former Indian foreign minister and defence minister Jaswant Singh in his book "Defending India". "Civilisationally, the Indian nation is a unity, a whole: diverse, multilingual, with numerous shades and varieties of faith and kaleidoscopic cultural distinctions, also varieties of beliefs, languages, dialects, dress, food -- but always with that indefinable, civilisational oneness: an Indianness."

from UK News:

Brown needs Darling in these troubled times

    One thing looks certain after Alistair Darling's speech to***the Labour Party conference on Monday -- he'll be Chancellor of***the Exchequer for a while yet.******    Prime Minister Gordon Brown is expected to reshuffle his***ministerial team next week and there's been a lot of speculation***that Darling could lose his job and be moved to another***department.******    The silver-haired finance minister has had a rough ride***lately. The economy is on the brink of recession and his***comments in a magazine interview saying the economic challenges***were the greatest in 60 years caused a furore and were blamed***for sinking the pound.******    But delegates at the Labour conference today just loved him.***They stood and clapped and then they clapped some more after***Darling hit out at unfettered capitalism and the huge payouts***given to bankers that he said helped cause the credit crunch.******    Darling looked genuinely embarrassed. He called for them to***stop but the delegates just went on. Besides modesty, the***finance minister had another reason for wanting them to stop.******    He had another type of conference call to attend to. A G7***one. The finance ministers and central bankers of the rich***nations club were having a hastily-arranged telephone chat at***1230 London time to discuss the latest bout of market turmoil.******    Given London's position as one of the world's top financial***centres, Darling could hardly miss out and he rushed off the***stage to get on with his G7 buddies.******    The crisis also looks to have cemented Darling's position.***It would seem odd to remove the finance minister when the whole***world financial system is in the middle of the biggest upheaval***in a generation.******    With Brown making his economic experience a key selling***point, he needs Darling on side.

from Global News Journal:

Does the West still matter for Africa?

First on Zimbabwe, now on Darfur, Western countries have lost out at the U.N. Security Council to African states backed by China and Russia.

A Western attempt to get sanctions imposed on Zimbabwean President Robert Mugabe's government flopped on July 11. Three weeks later, when it came to renewing the mandate of peacekeepers in Darfur, Western countries bowed to demands to include wording that made clear the council would be ready to freeze any International Criminal Court indictment of President Omar Hassan al-Bashir for genocide. The United States abstained, but that made no difference to the vote.

The question had long come up in Western countries as to how much Africa mattered to them given what often seemed intractable wars, famine, disease and poverty. From an African perspective, Western countries - often former colonial powers - have sometimes been accused of arrogance, meddling and ignorance of the continent's realities.

But while Africa's economies were once dependent on aid and finance from the West, it is China and other Asian countries that are now rushing to invest, helping to drive unprecedented growth. How Africa will deal with the new investment was a key topic at this week's meeting in Mauritania with the International Monetary Fund and World Bank. G8 countries, meanwhile, appear to be falling short on their promises of aid.