Felix Salmon

This year’s Davos was all about tail risk — or, more to the point, the absence thereof. The ECB’s Mario Draghi said — more than once — that he had “removed the tail risk from the euro”. His colleague Ignazio Visco went almost as far, saying that only a few tail risks remain. The EU’s Olli Rehn talked about how there’s “no tail risk” any more. The IMF’s Zhu Min said that “In Europe, the tail risk has been moved off the table”, which was exactly the same language also used by Ray Dalio. Bank of America CEO Brian Moynihan said that “euro tail risk is now sorted”. The FT editorialized about the best policy response when “the tail risk of renewed financial chaos is reduced”. Even Nouriel Roubini declared that tail risks have declined in the past six months, although they haven’t gone away. And that was just the on-the-record comments: off the record, many more people, including at least one official US representative, were saying the same thing.

It was enough for both incoming Bank of England chief Mark Carney and UBS’s Alex Weber to start cracking jokes about how tail risks had been reduced on Wednesday and downright eliminated by Friday. As Stephanie Flanders says, Davos wouldn’t be Davos if people weren’t constantly talking about the need to avoid complacency — but for once, this year, “there seemed a genuine risk of it breaking out”.

There’s a worrying trend here, and it’s not complacency. Rather, it’s the use of the term “tail risk” to mean “priced-in and foreseeable euro crisis”. Last year, everybody was worried that Greece could end up leaving the euro, and those worries were reflected in European markets. This year, those worries have abated somewhat. But please, let’s not use the term “tail risk” to refer to such things.

We live in a fat-tailed world: everybody at Davos would probably agree on that. But here’s what none of them seem to understand: tail risks, by definition, can’t be measured. If you can look at a certain risk and determine that it has gone down, then it’s not a tail risk: it’s something else. Let’s say that last year there was a 25% chance that Greece would leave the euro: if something has a 25% chance of happening, it’s not a tail risk any more, it’s just a risk. If you’re planning a trip to the Grand Canyon, you might think about buying travel insurance to cover yourself in the event you are seriously injured. But when you’re right up at the edge of the canyon and the ground starts slipping beneath your feet, at that point you have to actually do something to avoid injury or death. The risk has gone from being theoretical to being real — and at that point it’s not a tail risk any more, it’s a real possibility with a scarily high probability.

The World Economic Forum spends many millions of dollars every year looking at risks both imminent and remote. It’s a useful exercise, and helps to remind us how complex the world is: with so many moving parts, it’s impossible for anybody to have much success as a predictor of the future. What’s not a useful exercise is to try to quantify the world’s risks, and to make determinations as to whether the tails are getting thinner.

And it’s certainly not a useful exercise, when markets have calmed down a little, to turn around and say that something as momentous as a fully-fledged euro crisis was only ever a “tail risk” to begin with. It wasn’t: it was much more imminent than that, and in order to avert it the EU had to venture far into the realm of policy actions which only a few months earlier would have been unthinkable. (Including effectively writing off a large amount of the money Greece owes the official sector.)

Tails are the realm of unknown unknowns. They can be positive, like the discovery of antibiotics, or they can be negative, like the uncovering of Bernie Madoff. In markets, they’re not even real-world events at all: they’re just any large move of say three standard deviations or more. Such moves happen almost every week, in some market somewhere, and they happen pretty much randomly. Measuring risks is good; seeing those risks diminish is pleasurable. But let’s not refer to measurable risks as “tail risks”. Because tail risks are always hidden, and unexpected.

Frank Tantillo has a good overview of the inescapable country-branding exercises that happen in Davos every year; this year Azerbaijan was rivaling India in the ubiquity stakes, while countries like Peru and Japan made do with events.

Countries in Davos behave much like corporations: they brand themselves, they throw parties, they maneuver to ensure that their high-level representatives appear on the most important panels. And while the highest-profile heads of state, like Angela Merkel, are at the very top of the Davos pecking order, the general mass of presidents and prime ministers (there were more than 50 heads of state in attendance) are clearly less important, here, than Davos stars like Larry Summers, Henry Kissinger, or even Nouriel Roubini. The question to ask yourself is: given the choice, who would the average global CEO or hedge-fund manager rather meet. And put like that, it’s easy to see how Danny Kahneman outranks the president of Guatemala.

As a result, countries and corporations alike (including Thomson Reuters) put a significant amount of time and money into trying to capture the attention of the assembled plutocrats. Those efforts range from big public ad campaigns (Azerbaijan) to small intimate dinners (Google), with lots of off-the-record schmoozing in between. If you’re a high-level journalist in Davos (Fareed Zakaria, say), you’ll be swamped with invitations to have an informal discussion with various presidents and prime ministers: while it’s commonplace to note how Davos is great at allowing CEOs to set up dozens of meetings with each other, it’s less well understood how Davos serves the same kind of speed-dating function for interactions between governments and the international press.

There’s always the risk, however, that a carefully-orchestrated branding strategy will backfire. For instance, the prize for the most obnoxious party in Davos — which was won by the Wine Forum in 2011 — was easily snaffled this year by Sean Parker and Ian Osborne, who spent some mind-boggling amount of money putting together a party which (I swear I’m not making this up) was billed as a “future of philanthropy nightcap”. (In Davos, for reasons I’ve never understood, any party which starts after dinner has to call itself a “nightcap”.)

Parker and Osborne, who decided to throw their party under the auspices of a semi-fictional special-purpose company called The Montagnard Group, flew in both John Legend and Mark Ronson for the event: the scuttlebutt was that Jay-Z turned them down. There wasn’t just an expensive sommelier with a very high-end wine list; they brought in someone else to do the same thing with whisky. They also transformed a local Davos nightclub, putting up walls, installing taxidermy, and getting half of Davos asking why on earth these guys thought it was a good idea to schlep a stuffed water buffalo up an Alp, especially one with green lasers shining out of its eyes. Generally the whole thing reeked of excess, which maybe explains why Lloyd Blankfein stayed for hours, and how the party was the hottest ticket in town, with normally-sensible CEOs all but begging for an invite.

The Montagnard party was particularly weird because it wasn’t promoting a company or country: it felt like a piece of obscenely expensive performance art, sending up the way in which conspicuous consumption gets rebounded as “philanthropy” in order to give it a veneer of sophistication. Or maybe the whole thing was just an elaborate joke, decipherable only to Parker, Osborne, and their co-host, Marc Benioff of Salesforce. Either way, it was exclusive, expensive, and excessive: it allowed the real Sean Parker to handily trump anything the Justin Timberlake character in The Social Network could have dreamed of.

Which brings me to Russia. The Russian Federation, like most countries at Davos, was engaged in both overt and covert branding. And while the overt branding was a huge success, the quieter schmoozing backfired massively.

The big Russian Federation party, interestingly enough, took place at exactly the same time as the Sean Parker party, and it was a triumph. Where Parker had a carefully-tended guest list, the Russian doors were wide open; where Parker had fine wines, the Russians had trays of vodka shots; where Parker’s party was dominated by men in suits, the Russians found a much happier crowd, determined to party, dressed down rather than up. The entertainment was Leningrad, a 14-piece gypsy-punk band (think Gogol Bordello, but better), and the venue was a huge white tent erected across from the train station, which helped to avoid the overheating problem endemic to popular Davos parties.

The event was as unapologetically Russian as the Olympic opening ceremonies were unapologetically British: rather than putting a tasteful national twist on a standard Swiss party, those of us who couldn’t speak Russian or decipher cyrillic were happily baffled by most of what was going on. (The bafflement chez Parker was rather different.) The vodka and Champagne were flowing freely, the crowd was pogoing madly, and the whole thing succeeded spectacularly in being that rarest of Davos events: a place where you could genuinely enjoy yourself and let your hair down, rather than eyeing name badges and mingling politely.

There was corporate sponsorship — Vadim Belyaev, the chairman of Otkritie Financial Corporation, joined the band gamely at the end of the evening — but the night really belonged to the revelers. This was the party where you found the TV-station technicians who had been freezing on top of the Conference Center all day; the drivers and waiters and musicians and other support staff whose job is to be as invisible as possible most of the time; generally, the 99% of Davos, rather than the 1% that you normally hear about. This year in particular, when the number of parties shrank and door policies tightened up across the board, it was fantastic to see a party where literally everybody in Davos was welcome.

The morning after its party, however, Russia ran straight into a PR nightmare stemming from a much more exclusive event. Prime minister Dmitry Medvedev was in town, and gave an off-the-record press briefing to some 20 international journalists. The ground rules were clearly designed so as to prevent any of Medvedev’s comments being made public, but when Medvedev said something which could easily be interpreted as a direct threat against Hermitage Capital’s Bill Browder, a number of the journalists in the meeting went immediately to Browder to tell him what the Russian prime minister was saying about him. And then Browder, who understandably cares more about his own personal safety than he does about the nuances of Chatham House attribution, immediately went on the record to Reuters, telling the world what he had heard.

In the space of less than 24 hours, then, Davos saw Russia at its best and at its worst: open and closed, free and fearsome, fun and deadly. On net, maybe the country would have been better off just buying a bunch of ads on the side of buses. But probably no one in Russia — least of all Dmitry Medvedev — much cares.

Russians know how to have a good time, and they also live in an incredibly violent state-dominated society. Neither of these things is exactly a secret, and no one’s looking to change anybody else’s mind on either front. Anybody doing business in Russia today is doing so with their eyes wide open. Let the rest of the world go to Davos to present itself in the best possible light. Russia will just continue being Russia — in good ways and in bad.

Andrew Ross Sorkin has placed himself on the party beat at Davos: since nothing has happened yet, the main thing to report is that everybody’s Friday-night dance card is looking pretty forlorn. The Google party being canceled we could live with, but the cancellation of the Accel party is bigger news — people really loved that one. Yahoo’s cocktail party early in the evening isn’t going to make up the difference, and Sean Parker’s nightclub event, while surely hard to get in to, is certainly going to turn into the kind of loud and overcrowded sausage party that makes you wonder why you even wanted to go there in the first place.

Sorkin’s headline asks whether the Davos party is over. The answer is no, of course — but it can be interesting to keep an eye on the permanent tension between the World Economic Forum, on the one hand, and Davos more generally, on the other. The two are generally considered interchangeable, which annoys the WEF no end: the vision of Klaus Schwab is for a pretty austere conference taking place at the Conference Center, with little or nothing going on in the rest of town. But of course no self-respecting global organization is going to pass up this annual opportunity to impress thousands of plutocrats by any means necessary.

The result is endless and futile overt and covert strong-arming by the WEF to (a) try to minimize the number of non-WEF events in Davos; and (b) try to ensure that insofar as non-WEF events are certainly going to happen, at least they don’t clash too badly with the formal WEF program. And since the covert strong-arming wasn’t working very well, the WEF is getting more overt, with a very detailed Code of Conduct that they make all participants agree to when they register for the conference.

“Concern is growing,” explains the Code, “that the unique and special nature of the Annual Meeting is being jeopardized by behaviour and activities contrary to the ‘spirit of Davos’”. As a result, everybody here is “expected to respect the non-commercial nature of the event”; “avoid organizing private events or functions that conflict with the programme of the Annual Meeting”; and “not extend invitations to guests who are not registered participants in the Annual Meeting”. On top of that, it’s an explicit violation of the Code to “pay honoraria to speakers at private events or activities organized during the Annual Meeting regardless of whether or not they are participants in the Annual Meeting”.

Not everybody respects the code, of course. Ukrainian billionaire Victor Pinchuk flouts it most visibly, every year, with a huge event at the Morosani hotel. But even the WEF-iest companies seem to be happy to break the code whenever they feel like it. Pepsico CEO Indra Nooyi, for instance, has been a co-chair of the entire meeting in the past, and is still deeply involved in the organization. And yet at lunchtime today she’ll be at something called the Pepsico Cafe, not particularly close to the conference, hosting a lunch with — of all people — Derek Jeter.

Still, the pendulum does seem to be swinging back, a little bit, from Davos towards the WEF. And that’s probably a good thing if only because it might allow the people here to get a bit more sleep. Davos will never be relaxing, of course. But this morning I was very impressed to hear Heather McGregor, the FT’s Mrs Moneypenny columnist, declare after doing a TV hit that she was heading back to her flat to sit back and enjoy the spectacular Alpine view, rather than launching headlong into conference schmoozing. Maybe the smart new way of organizing private events at Davos is to make sure that they only involve yourself.

Bloomberg has just found out that the big Friday-night Google party, one of the hottest and loudest and most gruesome events in the annual Davos calendar, is not happening this year; no one is going to miss it. No reason was given for the decision to cancel the party, but the message is a clear one: Google has matured, now, and is going to be a lot smarter about the way it schmoozes Davos.

Google has historically had something of a charmed existence at Davos, mainly because it arrived there under the wing of one of its biggest and most important investors, Jim Breyer of Accel Partners. Breyer is a Davos networker extraordinaire, and knows exactly how to use the conference to his best advantage: my guess is that he gets more valuable high-level facetime over the course of the week than just about anybody, including Bill Clinton.

One way that Breyer does that is by ingratiating himself with the people who matter the most by holding pretty much the only large-scale event where everybody who’s invited, goes. The Accel party has been going on for 18 years now; held in the lovely Kirchner museum, it has always featured an absolutely spectacular wine list; if you’re fortunate enough to score an invite, you will be able to help yourself to some of the greatest wines and Champagnes in the world, all while surrounded — of course — by an elite group of some of the richest and most important people in the world. It’s almost the Platonic ideal of what people imagine Davos parties to be.

When Google started being invited to Davos, its executives had Breyer to show them the ropes — and they also started co-hosting the Accel party. Before long, it was known as the Google party, and was the hottest ticket in town; everybody wanted to go, and eventually it just became too much: too many people trying to get into too small of a space to drink too few wines.

So in 2007, Google struck out on its own. The Accel party remained, but now there was a separate Google party on the other side of the street, in the Belvédère hotel. It was held in the biggest space that the biggest hotel in Davos had to offer, and became one of the two huge parties held in that space every year — the other being the McKinsey party, the night before. Every year, the scene is the same: late at night, when all the dinners are over, the world’s plutocrats converge into a narrow hallway, at the end of which are ID scanners telling bouncers whether you’re On The List or not. If you manage to get past them, you find yourself in an insanely hot and loud party, with lots of drinks, a little food, and seemingly infinite numbers of drunk men in dark suits. It’s essentially unbearable for more than a couple of minutes, and there’s absolutely nothing pleasurable about it.

These parties are eye-wateringly expensive, and I’ve never understood why any corporation would willingly pay for something which so few people actually enjoy. The parties certainly get the hosts a lot of buzz: all day, people will ask you whether you’re going to the McKinsey party, or the Google party. So I guess your company’s name gets mentioned a lot, in the context of something which is superficially desirable. But Google doesn’t exactly have what you’d call a name-recognition problem.

So last year, Google tried a different tack. It still kept its big party at the Belvédère. But it also closed down everybody’s favorite coffee shop, and hosted a series of exclusive dinners there, catered by world-class chefs. Private dinners have always been at the top of the Davos food chain: the smaller and more exclusive the private dinners you get invited to, the more important you are. So Google put a lot of effort into curating amazing tables with first-class food, conversation, and wine.

That kind of thing is vastly more enjoyable for Google’s executives than standing in a sweaty corridor peering at name badges and trying to remember who this drunk gentlemen might be. And it’s much more pleasant for Google’s guests, too. So this year, the other shoe has dropped: while the private dinners will remain, the big obnoxious party is a thing of the past.

The move is a sign of two things. Firstly, Google has learned how to really get the respect of the Davos crowd: invite a very select group of people to something truly special and unique, rather than herding them like sheep into something which feels like the ninth circle of hell. And secondly, Google no longer has the kind of insecurity which results in somebody saying “we need to throw a really big party”. Necessarily, the number of people invited ton one of Google’s dinners is going to be only a tiny fraction of the number of people invited to the party at the Belvédère. And some of them will be cross that they didn’t get an invite. But, so be it. Google might not be evil, but it can live with people being annoyed at it.

I only wish they didn’t have to close down the Kaffee Klatsch in order to host their dinners. That place really did have the most amazing coffee.

*Update: I’m not sure where I got it into my head that Breyer was a big Google investor, he wasn’t. (Maybe I was confusing Google with Facebook?) But Google did start co-hosting the Accel party very early on in its corporate life.

Nick Paumgarten was told repeatedly, both before and during his first trip to Davos, that he couldn’t possibly get it right after going only once. But he had to try, and he ended up delivering what might be the best description of Davos yet: accurate, well-written, keenly observed.

The Davos of Niall Ferguson, for instance, tells you pretty much everything you need to know about Niall Ferguson:

“What this is is Brownian motion, with human beings,” Niall Ferguson, the financial historian, said one morning, outside the Congress Hall, as his eyes darted about. Vikram Pandit (Citigroup) marched by, and then Brian Moynihan (Bank of America). “Last year, I bumped into Tim Geithner, and he said, ‘We’re going to prove you wrong with our fiscal policy.’ ” At that moment, Ferguson was jostled by a woman who was pushing swiftly through the center, with an entourage of journalists and aides. “Hello, Christine!” he said. It was the I.M.F. chief, Christine Lagarde. She touched his shoulder in greeting. Ferguson turned back to me. “See there? Right on cue.”

Paumgarten decided not to fillet Davos, in the end, although he easily could have done. He goes surprisingly easy on Richard Stromback, for instance, the founder of the you-couldn’t-make-it-up Piano Bar Partners. Stromback’s LinkedIn page identifies him first as “Davos” and second as “YGL”, which is another way of saying “Davos”; his current positions include both “Managing Partner at Piano Bar Partners” and “Young Global Leader at World Economic Forum”.

And Paumgarten also went easy on the Global Shapers, the new set of ultra-earnest twentysomethings who infested Davos this year but who in the end didn’t even get mentioned in his piece.

He even ends with a scene which could have been dictated to him by Klaus Schwab, the Forum’s founder. Davos is glistening; “The mountains, newly covered in snow, sparkled beyond the rooftops. Snow misted down from the pines like pixie dust; now and then, as the sun warmed the boughs, clumps fell noiselessly to the street.” Two men, leaders in their respective fields, engage in a fruitful interdisicplinary conversation about what each can do for the other, after the executive had attended the scientist’s WEF panel earlier in the day. Finally, the two “exchanged cards, shook hands, and parted ways.”

Such genuine and useful encounters do happen in Davos, normally at the rate of once per attendee per year. But they’re not really what Davos is about. Paumgarten gets that the monks and the scientists are “window dressing”, but I think what he misses is the way that that they’re being wheeled out as brain-ticklers for the financiers and plutocrats who actually pay for the whole thing.

In the case of Victor Pinchuk’s annual panel discussion, the power relationship is clear: many of the people up on stage (Jeff Koons last year, Chelsea Clinton this year) are not invited to the WEF meetings at all, and have simply been summonsed by Pinchuk in a highly-conspicuous display of just how rich and important he is. Other famous people flit in and out of Davos while barely being noticed: this year, for instance, Paumgarten’s New Yorker colleague Malcom Gladwell was flown in by Deloitte, gave a speech to a select group of clients at dinner, and then immediately left.

But even within the Forum and the conference center itself, the economics are clear. Paumgarten says that the big spenders “subsidize the scores of academics, scientists, artists, journalists, and N.G.O. chiefs who attend for free” — but that’s putting it politely. The truth is that the academics, scientists, artists, journalists, and NGO chiefs are there for the big spenders, and would immediately be uninvited if the big spenders didn’t want them to be there. And the genius of Klaus Schwab is to persuade those academics, scientists, artists, journalists, and NGO chiefs that being invited to Davos is a great privilege, rather than something they should charge for.

Schwab tells Paumgarten that “you cannot buy your way in” to Davos, but the astonishing number of hedge fund managers with white badges puts the lie to that. The hedgies are ubiquitous at Davos, and they love to talk about how brilliant it is to be able to organize a private dinner with Larry. And when Paumgarten says of the meetings at Davos that “all that’s missing is the hourly rate”, I think he’s wrong twice over. For one thing, companies justify the immense cost of Davos by working out the cost per hour-long meeting, and working out how much those same meetings would cost to organize elsewhere. And for another thing, certain big-name “gets” really do ask for money if you want them to attend your dinner. One of them even included the contact details of his speaking agency in the “Not for Distribution” press release announcing his attendance.

All of which explains the power dynamics of Davos. The CEOs and hedgies might be paying for everything, but in a sense that just makes them the punters, rather than the stars of the show. It’s the people who don’t pay, but whom everybody wants to get, who have the power — whether they’re politicians or Nobelists or rock stars. And then of course, always, above it all, is Klaus Schwab himself, manipulating the puppet strings and keeping everybody on their toes, convinced that they’re missing the real action, wherever that might be. It would be a masterful exercise in relational aesthetics, if only anybody but Klaus himself were able to actually observe it.

If you’re Europe, and your struggling people are called “Greeks”, and your rich people are called “Germans”, then the World Economic Forum will spend pretty much limitless amounts of time and effort on attempts to understand the dynamics between the two and (doomed) plans to try to prevent it from turning into a fully-blown crisis.

On the other hand, if you’re a country — the USA, say — and your struggling people call themselves “the 99%” while your rich people are called “Davos delegates”, then your fundamental asymmetries will be studiously ignored — and, indeed, encouraged.

I went to one session on executive compensation yesterday, which was filled with global CEOs of various stripes. And a couple of questions that Lance Knobel would like to ask were, amazingly, raised: should there be some kind of cap on CEO compensation? Maybe in terms of the ratio between the CEO’s pay and that of the average employee? The answer came swiftly and unanimously: no.

The problem of CEO compensation, it turns out, is not really a problem at all: if you look at most companies, the amount they spend on executive compensation is not really a big part of their revenues. Of course there shouldn’t be any kind of regulation. And capping pay only makes sense if you cap corporate size, and no one wants to do that.

That said, there is one outstanding problem with CEO pay: the time when you most need executive talent is not when things are going great, but rather when things are going badly. And often, in that case, compensation structures linked to stock options and the like turn out to be largely worthless. We’re good at paying CEOs in good times, but we should probably come up with ways of paying them more in bad times, too. After all, that’s when they really prove their mettle.

That panel really helped me understand the general Davos attitude towards Occupy. The delegates here don’t feel threatened by it, so much as they just feel a bit indignant at how misguided it is. Obviously, in a big inchoate sense, inequality is a problem. And maybe Occupy is a manifestation of that problem. But the Davos crowd is not even close to listening carefully to what Occupy has to say: they’re evidence of the problem, but they’re not remotely helpful when it comes to solutions.

As Lance says, “an organization that is at heart a grouping of the world’s largest corporations isn’t necessarily in the best position to improve the state of the world, particularly in an era of the Arab Spring and Occupy”. It’s another way in which Davos feels past its prime. It’s not helping to change the big world problems, in Europe: the best it can do is identify them. And it’s utterly divorced from the movements which really might make a difference.

But hey, at least the skiing is good this year.

I got a glimpse this morning of what Lance Knobel calls Davos’s “class distinctions, even if you have a white badge” — I was invited to a breakfast meeting under the auspices of something called the Industry Partnership Meeting for Financial Services. Which reminds me of that great line from In the Loop :

What you have to do is you’ve got to look for the ten dullest-named committees happening out of the executive branch. Because Linton is not going to call it “The Big Horrible War Committee”. He’s gonna hide it behind a name like “Diverse Strategy”, something so dull you’re just gonna want to self-harm.

This morning’s breakfast appears nowhere on the official Davos program, but because it was an exclusive by-invitation-only event, it managed to become by far the most high-powered session I’ve yet seen, with a large number of shiny-hologram badges and more big-name economists and central bank governors than you’d think possible. They came because this really was an interactive session, where they can talk in a serious and structured way with each other at a very high level.

This being the WEF, there was lip service paid towards the idea that a group of smart and powerful people, if you get them all in the same room, could come up with ways for the international community to improve the state of the world. But the actual participants didn’t show any sign of believing that: they were insightful with respect to diagnosing the state of the world, tentative in proposing solutions, and downright skeptical when it came to handicapping the likelihood that any of those solutions might actually be implemented.

And indeed there was a strong strain of thought which basically said that we already have the optimal level of international cooperation, and that more would not necessarily be better. Consider the two major currencies of the world: while the euro/dollar exchange rate has certainly been volatile over the course of the crisis years, it hasn’t moved as much in total as it did before the crisis, and there’s no sense at all in which we have had a currency crisis. To a very large degree, this is a function of successful international cooperation: the world’s major central banks all talk to each other regularly, and when they needed to do so they quietly and efficiently opened up unlimited swap facilities with each other. Those swap facilities didn’t cost money, in terms of government budgets, but they were an incredibly effective crisis-fighting tool.

Effectively, the unlimited swap lines have solved most of the global liquidity problems, and have prevented the otherwise very scary prospect that a liquidity run could become a self-fulfilling insolvency process. But that of course doesn’t mean that the world’s economies are all solvent. And so the question then arises: if you want to attack solvency rather than liquidity, is international cooperation (i.e., giving the IMF a massive fiscal bazooka) the best way to do so? And the answer there seems to be no. The biggest solvency problems are the problems within the Eurozone, and it is ultimately Europe’s job to get the necessary cash together if it wants to avert a series of fiscal crises.

Germany and other big northern European countries are running very large trade surpluses: they can remit cash to the periphery if they have the political will to do so. And if they don’t have the political will to do so, there’s no way in which the US, China, and the rest of the world can or should step in to try to save the likes of Greece and Portugal.

This kind of thinking is very much in line with the realism, or fatalism, which I’ve seen a lot of in Davos this year. If you control your own currency — if you’re the US, or China — then ultimately you control your own fate, and you only have yourself to blame if you go belly-up or suffer a major crisis. Certainly the rest of the world won’t come to your rescue. That’s one reason why China has such enormous foreign reserves: it needs them as insurance against a crisis. And it also explains why the yuan is not convertible, and there’s a waiting list of 800 companies who want to go public on Chinese stock exchanges but aren’t being allowed to do so: the Chinese government is keeping tight control of its economy and the way that its companies are financed, because once you lose that control, it’s impossible to regain.

In Europe, of course, the politics of transfer payments are much more fraught — and also much harder to understand. One very senior economist told me as we exited the meeting this morning that he too was decidedly unclear on the details of how TARGET2 works, even though he’s meant to be an expert on such things and he knew that it was crucially important. Similarly, while it’s surely very germane and important that the Bundesbank has more reserves than the ECB, what that means in practice is not at all obvious.

Politically, we still seem to be very far away from a fiscal solution to Europe’s problems, and the baseline scenario has to be that we’re not going to get one — ever. The result is likely to be a series of countries exiting the euro, and/or the “East Germanification” of much of Europe’s periphery: flows of money and human capital away from countries like Greece and Portugal, and towards the more prosperous countries with healthy economies and substantial trade surpluses. Essentially, those countries would become holiday resorts for the north, with all the real economic activity being concentrated in more prosperous nations. If you’re a smart young Spaniard, it’s much more attractive to seek your fortune in the UK than it is to take your chances in a deflating country with a stratospheric youth-unemployment rate.

Certainly there seems to be no belief at all, even among the well-intentioned technocrats at Davos, that coordinated international action will or should solve this particular crisis. And the inevitable conclusion is that the crisis is not going to be averted: it’s only going to get worse. It’s a very scary prospect — but one which it’s very important for global elites to come to terms with. And that’s exactly what they’re doing in Davos this week.

It’s time to move the World Economic Forum away from the Swiss enclave with which it has become synonymous, at least for one year. A Greek island — Arianna Huffington suggests Patmos, while Andrew Ross Sorkin is more partial to Santorini — would be perfect: a change of climate, a change of scenery, and an opportunity to bring the forces of global plutocracy to bear exactly where they can do the most good. Davos has billionaires, but it doesn’t have any yachts.

Patmos 2013: you know it makes sense.

Update: More recruits!

In the general atmosphere here in Davos of worry and apprehension, it was great to be able to sit down with Esther Dyson this afternoon and get a dose of refreshing optimism — and about Russia, of all places. There’s an elite group of Russian technologists here — Dyson, a lifelong Russophile who’s fluent in the language and on many boards of Russian technology companies, introduced me to both Arkady Volozh of Yandex and Anatoly Karachinsky of IBS. And she’s convinced that the success of the Russian technology sector can not only make for thriving companies but also for a much improved country.

I was skeptical, but Dyson made a number of good points. For one thing, it’s really hard to build a successful software company through corruption and bribery and other dark arts — especially when you’re creating websites which are judged on their broad popularity. And while natural resources can be stolen, human resources really can’t be.

More importantly, a whole generation of Russians is growing up on the internet, freely using Russia-developed websites which are every bit as good as their US counterparts. Their life online is transparent and not controlled by large and oppressive bureaucracies, and Dyson is convinced that once they’ve experienced that much freedom online, they’re going to start demanding it in real life as well.

Not immediately, of course: Putin is going to win the next election, and he’s going to do so legitimately. But at some point a majority of the Russian population will have no memories of the Soviet era. And already that younger generation is both demanding change and driving growth.

They’re fantastic engineers, for one — look at the way, for instance, in which Boeing does a large part of its engineering work in Russia. Or, more generally, at the Israeli technology sector, much of which is powered by Russian emigres. Russia has many problems, but there’s no doubt that its computer-science colleges are churning out a lot of smart graduates, and that the likes of Karachinsky are hiring those people at a rate of thousands per year. And they’re not robots, either: these kids are creative.

Dyson is intimately familiar with projects like Digital October in Moscow, and she’s a huge fan. Meanwhile, of course, there are the much larger phenomena which get a lot of global attention — things like Mikhail Prokhorov’s bid for the presidency, or the massive Skolkovo science park. If these things fail — and there’s a good chance that both of them will — that’s not necessarily a bad thing: free and successful societies have lots of failure. And importantly, when you look at both of them, you see hope and optimism. Which are not what you might call classic Russian traits.

I’m not entirely convinced. The population of Russia has been declining for the past 20 years, and is continuing to shrink: there are 14.2 deaths per 1,000 people per year, and just 12.6 births. And if you look at the weirdly-shaped population pyramid, you can see that the post-Soviet generation is dwarfed by its more conservative elders. It’s going to take a very long time indeed before they can or will effect any real change.

Still, if there’s any hope for Russia, it’s in the idea that democracy will percolate up from youth and the internet, rather than being demanded in some kind of revolution. As Prokhorov says, “every time we have a revolution, it was a very bloody period”. Russian democracy is not going to mean a US-style free-market economy: Russia tried that, in the 1990s, with disastrous results for the broad population. But a wired country is, by its nature, always going to be a little less corrupt. And a little more hopeful.

It’s highly unscientific and anecdotal, but the winner by far of the most-talked-about-person-in-Davos award, at least when it comes to people in my earshot, is George Soros.

Soros is out of the investing game, living now as a full-time philanthropist and sage, while still keeping an eye on the fund company which bears his name and which provides him with a ten-digit income each year. Because he doesn’t have a financial book to talk, because he’s happy being brutally honest, and because he’s giving voice to the plutocrats’ darkest fears, Soros seems to encapsulate Davos 2012 like no one else.

Sitting in his 33rd-floor corner office high above Seventh Avenue in New York, preparing for his trip to Davos, he is more concerned with surviving than staying rich. “At times like these, survival is the most important thing,” he says, peering through his owlish glasses and brushing wisps of gray hair off his forehead. He doesn’t just mean it’s time to protect your assets. He means it’s time to stave off disaster. As he sees it, the world faces one of the most dangerous periods of modern history—a period of “evil.” Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether.

No one but Soros will actually say these things, at Davos — but everybody here fears them, which is one reason why we have the slightly ludicrous sight of billionaires bellyaching about the global burdens of inequality.

Security this year is tighter than ever — the first rule of security at these events is that it can only get ratcheted up, rather than loosened at all — and there’s a besieged feeling to this Alpine town I haven’t felt before. The financial crisis concentrated minds and was seen as a big problem to be addressed and even maybe solved. But the current breakdown of trust in global institutions cuts at the heart of the World Economic Forum’s founding principle — that if you get a bunch of important people together in the same place, they can actually make a difference.

There are fewer heads of state here than there normally are; even Bill Clinton is giving Davos a miss this year. And a theme running through many of the discussions so far seems to be the question of how one manages chaos, in a world where the risk of a chaotic breakup of the European Union can be ignored no longer. To take just one example: if you’re a European bank, with loans and funding sources and depositors in many different European countries but just one unified currency, what happens if one or more of those countries decides to go its own way and leave the euro? It’s almost impossible for a bank to prepare for such an eventuality, but it represents a huge legal and financial risk.

The WEF itself, for all its efforts at internationalization, remains a very European organization, and will naturally decline in importance and relevance as Europe fractures and loses its standing on the international stage. Last year, there were crowds around television screens showing live coverage of Tahrir Square in Cairo, as delegates turned into spectators, watching the world change with no regard at all to what the plutocrats might think. This year, the feeling of powerlessness remains. Davos hubris is dissipating, to be replaced by risk management protocols. Europe risks falling apart — and there’s nothing that anybody here can do about it, if it happens. Never have the masters of the universe seemed so very human.

Here’s my infographic on the badges at Davos, put together with the invaluable help of Alex Leo and Juno Lee.

I actually snapped a photo of the white-with-hologram badge — pretty much the top badge you can get at Davos — a couple of years ago, although I didn’t know what it meant at the time. Technically, the purpose of the hologram is to let the Davos security people know who’s allowed into IGWEL meetings. But the real purpose is to make everybody who doesn’t have a hologram feel a little bit left out.

Wonderfully, in his piece on why he isn’t going to Davos, Mohamed El-Erian calls for even more layers of exclusivity: “To be more productive, and more useful,” he writes, Davos meetings “need to be much less inclusive at some key moments. Very difficult (and highly delicate) decisions have to be made about who to involve in certain meetings and who to exclude. This would require additional (and closely monitored) status levels for participants.”

I can assure Mohamed that the WEF already spends a mind-boggling amount of time making difficult and delicate decisions about who to involve in certain meetings — none more so than IGWEL. And one of the wonders of Davos is the way that every time you go back, you discover a whole new level of secret and exclusive meetings and dinners and get-togethers which you had no idea even existed: the badge-color layers are only the beginning. Maybe Mohamed should actually go, next year. But only if he gets a hologram.

This is a word cloud of the job titles of the 2,623 official delegates to the World Economic Forum in Davos this year. It’s pretty clear what’s going on: while the most important people at the forum are still the ministers and heads of state, there are only 24 ministers in all. (I’m not sure about the presidents, they get mixed up in all the executive vice-presidents and the like.) Meanwhile, there are 674 CEOs, from Mustafa Abdel-Wadood to Jaime Augusto Zobel de Ayala. And, of course, 490 Chairmen and Vice-Chairmen (but only two Global Chairmen).

There are also two Archbishops; 133 Founders; one Novelist; three Candidates; six Mayors; one Technical Support Superintendent; 109 Heads; three Hosts; six Artists; one Theorist; 11 Fellows; one Leader; six Economists; one Singer (not including Wyclef Jean, who’s coming as “Ambassador-at-Large of the Republic of Haiti”); one Curator; 27 Deans; one Executive Geek; four Consultants; two Activists; four Researchers; and four Global Heads.

And then, of course, there are the Media Leaders: 1 Journalist, 1 Blogger, 1 Photographer, 4 Writers, 18 Anchors, 19 Columnists, 19 Correspondents, 33 Editors-in-Chief, and 152 Editors of all stripes, including the Billionaires Editor at Bloomberg.

There are 40 instances of the word Global, 15 of International, and 0 of Local or Domestic. Asia appears 7 times; Africa 8; America 10; and Europe 19.

What all of this means, I cannot say. But I’m quite glad there’s only one Chief Change Officer, even though she does have one particularly wonderful line in her bio. After listing the various advisory boards she’s on, it just says “recipient of award”. All bios, surely, should say that.

The 4th Davos Philanthropic Roundtable, held in Davos during the World Economic Forum, was one of the more surreal events to happen last week. Sponsored by Ukrainian oligarch Victor Pinchuk, it ostensibly served to examine the role of art in social transformation, both in theory and in practice. But the real message of the panel was that if you get a bunch of art-world types to sit on a panel and intone vapidly, you will produce no light and precious little heat.

The real fun was happening in the corridor outside the panel, where Damien Hirst and his assistants were helping make spin paintings for anybody who wanted one. (I’ve got two sitting by my desk — a heart that I made, and a skull my wife made.) The process was streamlined and effective:

And while insights into philanthropy were hard to find, insights into the psychology of the art market abounded. I finally got an answer, for instance, to the question of why someone like Pinchuk would go around spending hundreds of millions of dollars on shiny, evanescent art.

It’s all part of the same drive which brought Pinchuk to Davos in the first place, and which got him onto the boards of the IIE or the Global Business Coalition against HIV/AIDS—the desire for international recognition and respect. Buying art gets you some small measure of that, and the more expensive the art, the more respect you get, in the art world at least. But the art world is small, while the number of people who admire philanthropic ventures is higher—so Pinchuk is trying to combine the two, as improbable as that might sound. He even commissioned an utterly bizarre video laying out his vision of art changing the world.

The Davos lunch was an impressive demonstration of the power of money and patronage. Pinchuk held his own shindig on the sidelines of the WEF and rivalled it for star power: Damien Hirst and Jeff Koons even turned up in town just for this event, without any WEF credentials at all. And it goes to show how the art market has evolved since the war, from a realm of connoisseurship surrounding dead painters of brown portraits to one of living brand names who can be schmoozed and dined and even flown up an alp.

On the flight back from Davos I read Art of the Deal , a new book by Noah Horowitz taking a deep look at the art market in general and art funds in particular. It’s definitely not for a general audience — Horowitz writes, for instance, about “desubjectivization as a challenge to the ‘capitalist character of aesthetic relationships’ and networks as an anticommodification avant-gardist strategy,” and that’s only a little bit of a single sentence — but he did help me think more about the way in which the art market has become less and less about art, and ever more about people. That’s why and how artists can make good money from careers which are spent making virtually uncollectible art, like cooking Thai food or getting kids to stop gallery-goers and ask them questions.

In a world where plutocrats collect artists rather than art—where Pinchuk can show off Hirst like he might a new Rolex, or where Dakis Joannou can get Jeff Koons to do his yacht-painting for him—the aesthetic content of the art doesn’t matter nearly as much as the fame of the artist, and the degree to which the art is instantly recognizable.

Once upon a time, artists painted in schools, and it took a certain amount of education and taste just to be able to distinguish one artist’s work from another’s. Those days are long gone: all the most successful contemporary artists have their own unique schtick, and could never be mistaken for anybody else. It’s a necessary condition for success in the art world today: you need to do something no one else has done, and which can be recognized as being your work and nobody else’s in a fraction of a second. It’s not sophisticated, but it’s effective. And it has helped drive the art market to the point at which Koons editions are selling for vastly more money than old master paintings he’s buying for himself. It’s unsustainable, but it’s fun while it lasts.

Davos, in 2011, was the year when the cynics were finally proven wrong. Long derided as a sybaritic alpine gabfest, the World Economic Forum astonished the world with what it was capable of this year, deftly leveraging the talk around its chosen theme — “shared norms for the new reality” — into an effective and timely intervention in Egypt. The Forum’s slogan — “committed to improving the state of the world” — became reality, as the actions of a small and powerful few atop a distant Swiss alp managed to give shape and direction to what would otherwise have remained inchoate and dangerous demonstrations in the volatile North African hotspot.

Certainly the Forum had a lot to work with — it has long been looking long and hard at global risks including political instability in undemocratic countries as well as the demographics of North Africa and the Middle East; the adverse effects of high unemployment among both educated and uneducated youth; the game-changing aspects in autocratic regimes of the rapid spread of information over cellphones, the internet, and satellite TV; and countless other issues of direct relevance to Egypt.

On top of that, as the Egypt crisis evolved over the first few days of the Forum’s annual meeting in Davos, two things rapidly became clear. Firstly, this was an astonishing stroke of good timing: rarely is a major global crisis so fluid and susceptible to outside influence just as the world’s top politicians, businessmen, and thinkers are all in the same place at the same time. Secondly, the work being put in by delegates to define shared norms for the new reality was directly relevant to Egypt, which was clearly in desperate need of shared norms for everybody to agree on as it moves uncomfortably into recognition that it’s now in a new reality.

The result was undoubtedly impressive. All panels and events were reconfigured to concentrate on Egypt and what the delegates at Davos could do to help. The small Swiss village was full of leaders of every stripe — women’s leaders, youth leaders, media leaders, business leaders, and, of course, politicians with direct influence and importance, such as Amre Moussa, the secretary-general of the Arab League. Knowing that swift and focused action was the order of the day, they rapidly put together an action plan. It was both clear enough to persuade Hosni Mubarak that global opinion had turned decisively against him and that his position was no longer tenable, and flexible enough to adapt to rapidly-changing realities in Cairo.

With money from a large number of the Davos rich and communications expertise from broadcast, telecommunications, and social-media representatives, the manifesto put together in the space of just two days at the Congress Center became a clear rallying point not only for Egypt’s disaffected youth but also for their counterparts across the region. And with radical and democratic change now just a matter of timing, Arab countries saw that a peaceful transition to stable democracy was both possible and necessary. The rest is history.

Cynical bloggers had said that even events of Egypt’s magnitude would barely make a dent in the rigid and out-of-touch culture of Davos. The parties and ski trips would continue, they reckoned, the program would remain unchanged, and the handful of delegates interested in Egypt would simply cluster around flat-screen televisions screening Al Jazeera rather than actually doing anything productive. Those bloggers were forced to eat their words.

Did they think that the Forum’s commitment to improving the state of the world was simply a veneer designed to make an astonishingly expensive professional-networking event look vaguely respectable? Of course it wasn’t. We might be in a new reality now, but the leaders of Davos more than ever have the ability and determination to transcend their selfish agendas and unite to effect a major and positive change in the world. The triumph of Davos in 2011 has confirmed the World Economic Forum as an indispensable gathering-point for global leadership for decades to come.