Davos Notebook

from James Saft:

Whose job is it to stimulate Europe?

So do countries which can borrow money more cheaply, Germany for example, have a higher obligation to borrow, spend and make things better for everyone across Europe?

Polish finmin Jacek Rostowski, speaking in a session on the outlook for Europe, seemed to think so:

"Fiscal policy ... some countries which are far more able to afford increases in govt expediture and budget deficits than others. We should apply the principle that those with the lowest debt financing costs should consider the most expansive policies."

He pointed out that Greece is now paying more for financing that Poland, and said further that Poland would not go down the stimulative route, seeing as how credit was still flowing, but instead "leaving space for interest rate reductions."

He did make clear that this was the province of the central bank.

Rostowski did raise another point I think has legs: financial protectionism. Smaller countries without a big banking sector could see themselves really hurt if governments make lending at home rather than abroad a quid pro quo for bailout money. It is a slippery slope.

UAE Oil Minister forced to stay off Davos pistes

Deep, crisp and even –¬†some would say the best thing about this year’s World Economic Forum is the quality of the snow on the well-groomed pistes above all the fevered debate.

But one prospective delegate who will not be enjoying them is the United Arab Emirates Oil Minister Mohammed al-Hamli, who has had to cancel his trip to Davos because of a lingering ski injury.

Sources said the minister injured both shoulders in a ski accident during a family holiday in November last year and had to have surgery, which can have only added to the pain of a steep fall in world oil prices.

Davos delegates take baby steps to new world order

The world’s business elite has been told to take a hike.

This year, the gift in the World Economic Forum’s conference bag is a plastic pedometer. Delegates gathering to discuss the dismal state of the world economy have been told to reduce traffic congestion and contribute to a “Green Davos” by walking around the Alpine ski resort, instead of jumping in a limousine.

Those who take more than 20,000 steps during this week’s meeting are promised a prize. Your correspondent, having clocked up 12,500 already, is hopeful…

Music no second fiddle to the credit crisis

Benjamin Zander, conductor of the Boston Philharmonic Orchestra, is a unique participant to the annual meeting of the World Economic Forum dominated by movers and shakers of the business and political world.

Zander says the financial world could learn from how the conductor and the orchestra operate — the conductor, or the leader, does not play the music himself, and let the orchestra do the job.

“There is even more need for music in times of trouble,” he said before delivering a speech on an artist’s approach to managing complexity.

from James Saft:

Shocker – Davosians vote against more regulation

Duncan Niederauer, chief exec of NYSE Euronext, told a panel here at Davos that rather than inventing a whole host of new regulations, we'd be better off focusing on existing means of bringing order to markets, specifically taking a page from the exchanges books by having central clearing and more price transparancy for derivatives and off-exchange structured products. I think he's actually got a great point about clearing and better price information, but I can't see this as being anywhere near bringing regulation up to scratch.

The response from others on the panel was similar.

Nourial Roubini of NYU - "The ideology of the last decade was self-regulation which means no regulation. Reliance on ratings agencies with massive conflicts of interest.

"If we don't want a backlash against trade we have to have prudential regulation of the financial system."

from James Saft:

Stephen Schwarzman’s hair of the dog

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

More leverage and less transparency, apparently.

Schwarzman told a panel at Davos that you can't mandate higher levels of bank capital at the same time losses are mounting and that mark-to-market accounting needed to be changed.

"You need lower capital. Do something with fair value accounting which is exacerbating things . . . We have to add more leverage to the system." He further took issue with what he described as a "fixation on transparency" and said "We have to use regulators to schedule out losses." By that I presume he means keep the bank on life support until they can make enough to absorb their losses. It did work in the 1990s with some prominent U.S. banks, but...

from The Great Debate:

Trust: the commodity in shortest supply

Where do I put my money?
What do I read?
Who do I listen to?
Who saw it coming?
Who made money from it?
Who will make money from it?
Who can I trust?

As Davos gets under way, my feeling from chatting with contacts and listening to conversations around me is that one thing the world economy is really suffering from right now is a crisis in trust.

Institutions failed us.
Governments failed us.

Our own intuition failed most of us (George Soros said today that he protected his capital and had a satisfactory return -- that's certainly better than I did!).

The shift in power from West to East

One news theme I’ve asked our journalists to be alert to this year is the shift in power and emphasis from est to East.

The rise of China’s economic power during 30 years of reform and opening to the world is just one manifestation of this; the knowledge and service powerhouse that India has come in a globalised world is another. At Davos this year I’m moderating a panel on Asian innovation that will surely highlight software advances in Japan, Korea and Thailand as well.

I’m convinced the current global economic crisis must lead to a fundamental reassessment of how power and influence is expressed through the world, from manufacturing and service oriented Asia through the oil-rich Gulf.

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."

Davos Today – 28th January

Watch interviews with top business and world leaders including the following:

    Stephen Roach Angel Gurria Maria Ramos Lars Thunell Sameer Al Ansari Ben Verwaayen Ian Livingston Alexander Isozimov
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