The Great Debate UK

from Felix Salmon:

Lagarde leads from the front on Europe

Going into the Jackson Hole conference, everybody was breathlessly awaiting Friday's speech from Ben Bernanke, which turned out to be incredibly boring. The most important speech of the meeting, by far, came on Saturday, and came from the new head of the IMF, Christine Lagarde. In decidedly undiplomatic prose she came right out and said what needed to be done:

Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties... the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing...

I would like to delve deeper into the different problems of Europe and the United States.

I’ll start with Europe...

Banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns...

from Felix Salmon:

How Philanthrocapitalism coddles CEOs

A quick reply to Matthew Bishop and Michael Green, which with luck will bring this exchange to an end: I'm not saying that they make the case for the status quo. But when Davos Young Global Leaders, like Bishop, intone importantly about how "there is an urgent need to tackle fundamental flaws in the economic system" and how CEOs need to concentrate on long-term enlightened self-interest rather than "short-termist behavior", the very corporate chieftains they're trying to reach are going to nod in serious agreement and claim in all sincerity to be part of the solution rather than part of the problem.

Never in the history of Davos has a CEO got up on stage and said "I'm trying to make as much money as I can before the board finds me out and fires me". Which is precisely why CEOs don't think that Bishop and Green are talking to them. And on top of that, the Philanthrocapitalists are happy reducing the pressure on any individual CEO even further with rhetoric like this:

from Felix Salmon:

How will the new IMF head be chosen?

It takes Mohamed El-Erian until the very last paragraph of his FT op-ed to rule himself out of the running for managing director of the IMF: "I will not be part of this process," he says, adding that "I already have a great job, here in California."

But it's clear what process he wants:

It is therefore critical that, in the coming weeks, the IMF Executive Board finalise and publicise a process that would be used, should Mr. Strauss-Kahn be forced to resign. Specifically, the post of Managing Director should be open to all nationalities, with candidates assessed on the basis of transparent job qualifications.

from Felix Salmon:

Why Lagarde will be the next IMF managing director

It now seems more likely that Dominique Strauss-Kahn will end up in a prison cell than that he will be elected president of France. Either way, his career at the IMF is over, which means that the race to succeed him is on.

Gordon Brown would love the job, but he's not going to get it, which is great. The front-runner is Christine Lagarde, who would be better than Brown. But France has held the top job at the IMF for 26 of the past 33 years. It's time for a change, on that front.

from Felix Salmon:

Greenspan squanders his final reserve of credibility

Thank you, internet: Henry Farrell and his commenters have all the snark so desperately required in response to Alan Greenspan's ludicrous op-ed in the FT. And they're not alone: as Alex Eichler notes, "everyone is laughing at Alan Greenspan today". Greenspan could hardly have made himself look like more of an idiot if he'd tried, not only because the "notably rare exceptions" construction is so inherently snarkworthy, but also because it's so boneheadedly stupid. Anything which normally makes money is a good idea if you ignore the times that it doesn't work.

That said, it's worth looking in a bit more detail at Greenspan's nutty ramblings, because scarily they're actually representative of what much of the financial sector believes these days. (And Clive Crook, too.) The context is the GOP-controlled Congress, which has the ability to hobble or even abolish key parts of Dodd-Frank. And Greenspan is urging them on, saying that the early consequences of Dodd-Frank "do not bode well". In order to do this, he first sets up a straw man, saying that Dodd-Frank was designed to "readily address" the causes of the financial crisis. It wasn't, of course, but Greenspan pretends it does, and proceeds to give five examples of how it fails to do so, helpfully delineated with bullet points.

from Felix Salmon:

How Larry Summers hobbled Obama’s economic policy

I love myself a brutal takedown, and Jason Linkins's evisceration of Peter Baker's big NYT Magazine story on Obama's economic policy is a classic of the genre. Except, I have to admit to being Team Baker on this one. We've all read a lot of stories about the economy, and what bad shape it's in, and how we got to this sorry place. This one's different. It's written by the NYT's White House correspondent, and it raises an uncomfortable question: what if part of the problem is that Obama's economic team just wasn't a good team? What if, in fact, it turns out to have been a very bad team?

Baker points out that most of the original members of Obama's economic team have left, and that the new guys are generally Clinton-era veterans. And given the reputation of the two presidents, you'd expect the Clinton bunch to be more fractious and chaotic than the No Drama Obama crew. But that turns out not to be the case:

from Felix Salmon:

Varley’s flexible views on Basel

In the UK, it seems, the revolving door from big private banks into a grandee's public-sector role doesn't turn quite as smoothly as it does in the U.S. And so sometimes it needs a not-so-gentle shove:

John Varley, Barclays’ chief executive, has broken ranks with the rest of the global banking industry, arguing that the availability of credit should be unaffected by tough new capital rules for banks, which he regards as fair.

from Felix Salmon:

When secret meetings are boring and useless

The WSJ has a great little story proving once and for all that just because something is secret doesn't mean it's interesting. Apparently, for a year or so, a "secret task force" met at ungodly hours on the sidelines of various euro-events in cities like Brussels and Luxembourg. Its members were hand-picked, its task momentous: to come up with a plan should a eurozone country enter a crisis and threaten the currency union.

But it achieved, to a first approximation, exactly nothing, beyond simply keeping its own existence a secret. (If the markets had found out that the committee existed, they would probably have taken it as a sign of weakness and worry on the part of the Europeans, and increased pressure on the likes of Greece.) By the time that the Greek crisis flowered, there was no plan at all, and ultimately the European bailout had to be hammered out at summit level, mainly between Nicolas Sarkozy and Angela Merkel.