Davos debate: How to fix finance?

By Reuters Staff
January 26, 2009

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.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

what about private financial institutions benefiting of global market,incresing there gains ,preserving them by fiscal evasion,and somehow target indirectly the souvereinity of state nation.
some of this financial consortium have sometimes higher incomes than some small countries.
is there a way to bring states regulations to direct this movements,or transparancy to knock down financial piracy?

Posted by zerai | Report as abusive

It is important to realize the inflationary effect that USA is exporting to the rest of the world, with a currency that no longer have value.
New rules have to be set, no more Keynes, no more US Dolar with reserve currency status, no more of the same rules that put us in this financial debacle.

FIAT money is the root of our economic plight, Why not going back to the Gold standard ?

Posted by Mario Reyes | Report as abusive

It is time for new rules in this global economy…maybe we should seriously consider devising a global banking watchdog that can effectively handle all of the global markets and keep them in check, without becoming corrupted in the process. I think the rules and regulations need to be exercised across all borders if we really want to fix the global financial crisis we are facing today. This is definitely not the fault of one country, nor the fault of one financial institution or government, it is the lack of global financial rules and regulations and it is also the old rules and regulations that have been applied to economics and banking…this is no longer the world that these theories were written in and applied to a modern world. They stated that the system couldn’t be broken but it has…on all levels and at levels unprecedented except for the Great Depression. If the global economy suffers a Great Depression, I can only say that chaos will happen in modernized countries like it happens in third world countries that live in ancient times and have not moved into the world we live in today.

Posted by Damian Palmares | Report as abusive

It seems in all the fora about the prevailing economic/financial situation, we have forgotten about, one very crucial factor, Human.

This is on e factor that cannot be analysed, dissected, or expung so that this scenerio we have now, does not repeat itself again in the nearest futute.
So, how do we guard against, greed, excess bravado, unimpeded confidence in ourself, so that 10 0r 15 years when we gone through another boom, it would land us at the doorstep of bust.

Posted by Adenrele Adeniran | Report as abusive

I think the issue of massive regulatory failure needs to be addressed much more explicitly. I am a former bank regulator (a Director of Research of the New York State Banking Dept.) and I have spent many years in the investment banking world involved in risk management, risk reporting and risk technology. Lately there have been several proposals for revising the regulatory process, including establishing a clearing house for credit-default swaps. consolidating regulators, new reporting requirements, etc. But there seems to be a failure to recognize that the regulatory process can only work if there are good regulatory people looking at the matters every day. If I may let me offer the following comments:

1. The bank regulators have had the authority to examine any aspect of a bank’s activities. They had the authority to figure out what was going at the banks on and to limit it. The regulators did nothing. So all the new regulations on paper will mean nothing if the regulators cannot or will not do their jobs.

2. Mr. Timothy Geithner recently said “First, the multitude of overlapping regulators must be rationalized into a coherent few, the communication between them improved and their turf battles ended”. Unfortunately consolidating the regulators will produce some streamlining but will not likely achieve the desired goals. Sending a regulator who makes $50,000 dollars a year to examine the activities of sophisticated financial traders who make millions of dollars a year is not a fair battle. And if you have ever worked in a government agency, as I did for over 4 1/2 years, you will be intimately familiar with the viciousness of the turf battles among the senior officials. There is a lot of deadwood at the top of the agencies and it needs to be cleaned out. A Herculean task if there ever was one.

Posted by S. Hellinger | Report as abusive

There’s quite a few measures that will be resented enormously by bankers, and will be very effective:
1. A ban on bonus-payments.
2. A ban on mixing good and bad risks (the investor should do that him or herself)
3. A Tobin tax or something equivalent to prevent currency speculation
4. An end to CDOs. They were not needed before they were invented.
5. Retrogression on all income based on short-term profits but long-term losses.
6. A 90% income tax on income above 20x median income.
7. (Optional: public flogging of managers who obtained more than $100 million from companies that have received state help. Anyway, irresponsible bankers have created huge holes in my pension fund, and in the state budget (future taxes), I’m mad as hell).

Posted by Jan | Report as abusive

Turn it around….encourage your investors by rewarding a savings plan. A credit card that pays interest on a credit balance would encourage everybody to save.10% on a credit balance, 25% on a debit balance. The credit company would still make it’s profit on big spenders. It is only greed and bad planning that got the world into this mess. If we have to use money to trade, make it work!

Posted by Sharon Schaffhauser | Report as abusive

The problem is criminal activity in our federal government and monetary system. Solution: Vote out incumbent Republicans and Democrats and elect 3rd party candidates. Abolish the federal reserve and return to the gold standard. Withdraw ourselves from the WTO and NAFTA and the likes. Reduce our over seas military involvement by 100%. Bring large scale manufacturing back to America. And we must greatly reduce and limit the size of the federal government. One thing for sure is that we are not free people and our markets are far from free as well. The Federal government controls both the means and the end. We need to change that.

Posted by jason | Report as abusive

I’ll try to keep this simple so easier to absorb … there has been a new evolution of thinking happening for sometime … but because of power monopolies and the insecurity of loosing them a certain business formula has been used behind many exploitation masks … with moral lines crossed by the likes of Madoff and other…. without expanding on the subject of holistic philosophy “go google” but there is a machination as with Tao of quantum physics and its micro macro … the One with yin – yang dynamics major and minor within 3 layers of the 8fold.

so you have the majors US – EU … minor Russia – China … and G8

a harmony of dynamic economic activity is a move towards this model …. the strength of the US is in multicultural unity , a nucleus … but the failure is external exploitations and overheated growth … rather than an economic continuum returning the the public whole as One … the push shove self interest and black holes of corruption has lead to a moral edge of colapse … put simply find that harmony around the US nucleus the fall of empire will be avoided … we have the communication tools now and the US has a president that can listen and apply the changes … a lot of forgivness and olive branches.

it’s about mentality … as with foundations many use … the hard ball competition is still there but it returns to support the one including self rather than out into a vacuum … fight to win in a different way …. education

as long as these unethical people who helped create this disaster are in control and still collecting high salaries and bonus from a public handout we are heading to a system crash very soon… though a certain amnesty for judgement errors is needed to bring back the lost $$ trillions back into play … cut out the rot now or the desease will kill us all.

I feel the only way to avoid this colapse is the big traders need more stable small trade partners , not creating war zones … so remove the bully monopoly mentality that has overheated and now strangled world trade … spead it wisely … techno manufacturing in Africa for EU … Sth America for US … Asia for Australasia … China for high volume … transport cost saved … ecotech energy to cut consumer costs … then oil price rise to keep them alive too …. balance and equilibrium in a complex world.

at the moment it’s still like uncivilized push and shove for everything in life.

but we live in hope .

if anyone likes to chat about the subject my email … unity_8@bigpond.com

Posted by Harry | Report as abusive

Why keep wasting time?:

The World will go back to the GOLD STANDARD by default, better act now, reality always wins.
What needs to be done is beyond any governments reach.

Posted by George | Report as abusive

You are absolutely right S. Hellinger and Trevor. I think the regulators failed us. We need people in these positions who can’t be corrupted and are not afraid of the CEO’s of large corporations and banks that will look at their books and probe, without fear. I think they should be paid much more than $55,000 a year, I believe that would help bring in some really smart people who know how to make $250,000 a year but would work for the government or the right people if the salaries weren’t so low.

Posted by Damian Palmares | Report as abusive

Problem is not the economy, it’s the non transperency in how assets are valued. Who establishes the parameters? As far as the dollar, the US is still a powerful growth engine. Do not discount it or it’s currency. In the past many have discounted US ability to succeed.

Posted by cruiser | Report as abusive

A new world order would make it against the laws for anyone to make more money than the man who has the most responsibility. No one can demonstrate that they have more responsibility than the president of the country. Therefore, bonus etc. should be lower than that of the president of the USA, China, etc.

Posted by jal | Report as abusive

If you don’t mind me asking:
What exactly is being taught at the schools and universities that make business leaders and accountants have a never ending desire for money, to the point of destroying everything around them?

What ethics and morals come along with degrees in finance and accounting?

What sort of friendships are made and who enables their anti-social desire and fires up their ambition beyond reason?

Why is it that pride in your nationality and desire to do good to your society are not seen as qualities?

Posted by Dan | Report as abusive

My first suggestion for the US is that instead of investing Social Security money in the T-Bills w/ 2%+ returns, we should invest of those money in buying Fannimae’s new loan w/ strickly 80% of the colaterals and “full doc”. By doing that we can lower the 30yrs mortgage rates to 4.5% or better while increasing Social Security funds’ returns w/ much almost double. Secondly, the Fed and law makers should never have bail-out banks but let it runs its course. There will not be bank-run because depositors are protected by FDIC for $100k, which has been increased to $300k recently. $700bil should be helping to stop foreclosures. I hope Americans don’t have to go on street like French citizens do, whom I admired their courage and understanding of the seriousness of the bailout problem.
Good Luck Americans and may God bless America, before it is too late.

Posted by Yien Phe | Report as abusive

It should be clear to everyone that we need an international set of standards administered by one internationally recognized organization or, alternatively, harmonized sets of national standards administered nationally, which will: (1) define “securities” to include derivatives, credit default swaps, and anything else which is dependent upon performance for realization of value, (2) register securities so that complete and accurate information is available quickly and easily on each security and its risks, (3) evaluate issuers of securities to rate the likelihood of performance, and (4) evaluate prospective purchasers of securities to make sure that offerings are made to and sales consummated only to purchasers who (a) understand what they are buying and (b) can bear the risk.

Posted by Leric Goodman | Report as abusive

Davos 2009 Conference Shows The World At An Economic Crossroads……
http://wcgfairfield.blogspot.com/2009/01  /davos-2009-conference-shows-world-at.h tml

Posted by Anonymous | Report as abusive

Limit, by law, the amount of money any one CEO can earn. The stockhoders should get a percentage of the take. I agree with comment – January 29th, 2009 10:57 pm GMT – Posted by jal

Posted by ingrid | Report as abusive

Davos delegate comment: Best Buy CEO

[youtube]http://uk.youtube.com/watch?v=X OYOXolPbIA[/youtube]

Posted by Brad Anderson | Report as abusive

another clue to holistic economic equilibrium and stability … the capitalist system has great dynamic merit relying on fair competition.. privatization of some entities works other don’t … some elements work better with a socialist model … education and health as a birth right not a brutal unfair battle breeding social resentments.

positive working fundamentals are there but for the holistic global model to work properly , needed is a return of some business entities to stable government control … the proven capital free markets that build stable connections create the expansion dynamics … proven beneficial foundations sponsored by tax incentives getting wider use …. once a positive flow through to the whole of humanity is acheived stable equilibrium will be found .

for this to happen all the wasted arguments or blame games must be replaced by clearly presented communication towards co-operation.

the other benefit found world peace … not just a dream .

Posted by Harry | Report as abusive

The answer is both absurdly simple and hard to do.
The U.S. has abused its position as providing the world’s reserve currency. It continues to extract the maximum possible rent from this through cheap debt.
Dethrone the U.S. $ and there will be an end to huge global imbalances, debt binges etc. Of course, hard to do both in terms of what will replace it and the transition. But anything else is just hot air. Tackle the fundamental problem.

We first step towards reducing global financial balances and therefore reducing financial instability is to acknowledge that we cannot all grower faster than trend. We cannot all be better than average. Keynesian policies on steroids known as non-Ricardian fiscal policies are the source of global financial imbalances characterized as persistant current account deficits on one hand with currency manipulation to remain export competitive on the other. It works in the short-term, but longer term it shows up as unsustainable financial imbalances, a misallocation of resources, and exacerbates the boom and the bust of the business cycle as there are fewer natural mechanisms for self-rigthing those imbalances. Reduce your global financial imbalances and markets will be less prone to violent corrections.

Posted by MrBill, Eurasia | Report as abusive

Dear Sir,
I have been putting some thought to the current global financial crisis and would like to put forward to you a hypothesis for consideration, if it is a viable solution to the increasingly catastrophic situation the global financial system is currently experiencing.
It is about time that someone came up with some constructive thoughts and started to look at the ‘credit crunch / recession /depression) as an entirely global problem that is not going to improve in anything like the near future.

Global problems require global solutions and the only REAL solution is to tackle the problem on a global scale.

Consider this hypothesis – the only way to revive the world economy is to instill confidence in the public mind, give investors something to invest in!

Banks and bankers cannot do this anymore nobody trusts them

The answer is to respond to the masses in such a way that they have the power to bring the world economy back on track.

Bring confidence back and it will turn around very quickly, the burning question is HOW?

A simple solution is available, provided that the world financial systems and all governments work as one entity for one goal.


Close down all financial dealings for 48 hours

The concept is to take all global assets, everything but hard cash and reduce the value to one tenth

Next take all cash assets and multiply value by ten

(this would require revaluation of every world currency) yes print new money

This would create wealth for every man and women in the world overnight and create a differential of 100 times between asset values and cash values globally and therefore will not have any inflationary impact whatsoever.

after 48 hours all transactions would recommence with all assets a tenth of what they were before, but cash assets having being multiplied by ten they would be worth 100 times more. However the status quo of assets, wages, prices, etc., relatively, will remain the same.

The windfall from the change gives revenue back to the people to spend but have 100 times more spending power. Costs of assets are slashed and the cash assets allow people to buy houses and spend while still maintaining the original differential as the revaluation is totally global therefore there will be no difference in the relative values of assets compared to incomes.

If such a plan was considered and published globally it would almost certainly create confidence, in fact ity may even improve the world economy before it is applied. Just the knowledge of global improvement may give the kick-start the banking bail-out strategy has not.

I am an engineer, not an economist, I look for solutions to problems every day.


CG London

Posted by cliff | Report as abusive