The negative-sum new reality

By Felix Salmon
January 27, 2011
Remember those off-the record comments by "top executives from Goldman Sachs and Standard Chartered" which indicated that the era of contrition had come to an end? Well, they're on the record now, splashed all over the front page of this morning's FT.

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Remember those off-the record comments by “top executives from Goldman Sachs and Standard Chartered” which indicated that the era of contrition had come to an end? Well, they’re on the record now, splashed all over the front page of this morning’s FT. Goldman’s Gary Cohn is coming out swinging, saying that the real danger to the global economy is now posed by unregulated non-banks, while Peter Sands of Standard Chartered reckons that most bank regulations will no more prevent another crisis than seatbelts on airplanes will prevent a plane crash.

It’s true that bankers are not contrite these days: Bob Diamond is standing tall in the halls of Davos, seemingly emboldened by his performance in front of the UK parliament, at which he said that “there was a period of remorse and apology for banks and I think that period needs to be over”.

Looking at the bankers as just one of the many species of plutocrats and power brokers in Davos, it seems to me that they’re taking full advantage of their present profitability (thanks, Mr Bernanke) to consolidate their position as much as possible in a world which is evolving in a fast and unpredictable manner.

Nouriel Roubini had a nice little soundbite yesterday, which I think touches on something important:

“There is complete disagreement and disarray. That’s the sense of the G Zero,” Mr Roubini said, explaining the new buzzword at the World Economic Forum’s annual conference in the Swiss resort of Davos.

“There is no agreement on anything. We are in a world where there is no leadership,” he added.

This is bearish, yes, but it’s also descriptive of an every-man-for-himself kind of world. There’s a good number of heads of state floating around, but many of them seem more interested in selling their countries as a great place to do business — just see Dmitry Medvedev’s opening address last night — than in trying to put together any kind of grand international coalition which could bring a measure of predictability or stability to a world filled with massive risks.

In that kind of world, it makes no sense for bankers to stay on the back foot or to try to work constructively on building what the World Economic Forum calls “shared norms for the new reality”. There’s been general puzzlement in Davos as to what that slogan is meant to mean and I was of the opinion, up to yesterday, that it was simply empty pablum. But I’ve changed my mind a bit, now, and I think that the WEF is, in its own weak and powerless way, making a desperate and doomed attempt to recreate the sense of global purpose that reached its high point at the G20 meeting in London in 2009.

The problem is that there’s a huge difference between a real global crisis, on the one hand, and a parade of theoretical risks, on the other. The former can concentrate minds and get people pulling in the same direction; the latter can’t. So instead we’ve got thousands of people, in Davos and around the world, all making tactical maneuvers and trying to position themselves as advantageously as possible in relation to everybody else. It’s a negative-sum game which will all end in tears, but I fear that if there really is a “new reality”,  it will turn out to be one marked by destructive power struggles rather than constructive strategic cooperation.

Update: Ian Bremmer tells me that G-zero is his big idea; I’m perfectly happy to give him the credit for it.


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Banks will not be contrite, until there are regulations with teeth in them and a few of the people who played the largest roles in tanking the economy are held accountable, preferably behind bars. Of course, this will not happen, and the same vigilantes will keep doing what they have always been doing – lining their pockets at the expense of others.

Roubini is correct. There is no leadership to make this happen. Obama was scorned by Wall Street when he alluded to their avarice and lack of moral compass, and he retreated. As a result, the big banks will continue to lead the economy to ruin. They use their insider position to the advantage of their executives first, their biggest clients second, and the rest be damned.

I applaud your efforts to call the scoundrels out, Felix. I wish you would be more aggressive.

Posted by netvet | Report as abusive

So-called investment banks do little to create real value, but they certainly have destroyed trillions of dollars of it. At a time when millions of homeowners are being driven out of their homes, due to the irresponsible and greedy actions of these scoundrels, these execs of these IB’s have amongst the highest standards of living in the world.

Their incomes should be capped and their profits heavily taxed. Furthermore, there should be an appropriate insurance system established and enforced to protect others from their machinations.

Posted by netvet | Report as abusive

Bankster CEOs in orange jumpsuits doing the perp walk.

“Confidence” will never be restored until the public sees that. Until it happens, we can be quite sure that the entire economy and the government is run by looters and thieves who rig the game to steal whatever we work for.

Posted by lambertstrether | Report as abusive

Hey, Hank Paulson. Do you feel any responsibility for playing a key role in increasing the leverage ratio for the big five from 12 to 40 to 1? Do you have any remorse for the extreme damage you created to the global economy by packaging up and exporting hoards of toxic mortgages all in the name of your fat cat bonuses? Do you sleep well at night? If so, you are a clinical sociopath. Plain and simple. I hope your day in court comes, along with all of the others who helped you.

Posted by netvet | Report as abusive

In looking for leadership how about we look at any country’s main resource, it’s people, and make their health and financial well-being the cornerstone that stabilizes all governments and holds politicians and banks responsible to it’s people. People are beginning to rebel because they are sick and tired of politicians, governments and financial institutions playing ‘a shell game’ with their money and future.

Posted by Mydaisydew | Report as abusive

Mega global competitors, fewer competitors, governmental/public bail-outs of financial institutions, the government picking winners & losers, and deferring to international laws/tribunals rather than national laws & institutions always has and always will serve the American public poorly and our country less.

Posted by FormerUSAF | Report as abusive

Biggest failure of the current administration – financial reform. I wouldn’t be at all dissappointed to see these wealth destroyers regulated out of business, but I guess it’s too late for that…

Posted by jobon1 | Report as abusive

In my opinion, the greatest economic failure of the last few years is the framing of issues as “us vs. them” rather than looking for win-win solutions to problems that affect us all. Too many carrots and sticks, too little bread and butter.

Economics works best when it isn’t coerced.

Posted by TFF | Report as abusive