Turning the tables: Can you help Davos leaders?

By Reuters Staff
January 27, 2009

Klaus SchwabDavos is a well-rehearsed event and everyone knows the part they should play. Business and political leaders gather each year to tackle the major challenges of a global economy while the rest of the world, or those of its citizens who are interested, look on from afar. But this year, for obvious reasons, things are different. The notion of leadership has been coupled in the public mind with that of responsibility. The tone here is a little more humble and the attitude more open-minded. There’s a recognition that new thinking is required.  A suitable time, perhaps, to turn the tables on convention and have Davos delegates ask the questions they can’t answer and for global citizens to offer solutions.

Gamefully opening the discourse is Professor Klaus Schwab, Founder and President of the World Economic Forum.

YouTube Preview Image

If you’ve got suggestions for Klaus then use the comments section below.

282 comments

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/

First of all folks understand VERY CLEARLY that the government has NO money. It does not provide any service or product which can be defined as wealth creation. Only YOU can create wealth in your job or business. The only purpose of government is to re-distribute YOUR MONEY. And to the purpose of wealth redistribution, government gets larger and more inefficient…. while paying its elected officials and bureaucracy a gold plated salary, pension and benefits. Now ASK yourself this about YOUR MONEY… in this crisis you or your neighbor are suffering, yet have you heard ANYTHING about government officials cutting any part of THEIR income, pensions, or benefits which the rest of us can only dream about? No, not one. Not Obama, not any Congressman, not one Mayor, no one. Think about it. Cutting the size of government 18% equals the new $1 trillion being discussed — as opposed to you and I, as well as our children, working off the debt under new crushing taxes. What do the government officials and bureaucracy care? They are looking after themselves, not YOU.

We’ve heard of the urgent need for Governments accross the globe to bail out banks in order to keep the credit marketing flowing, and yet they still don’t trust each other enough to do so. This is causing businesses large and small to fail. My question is, why can’t central Governments through schemes run through local authorities lend directly to local businesses? The initial billions pumped into banks for which none has been accounted for (US and Uk as examples) could have gone into such schemes to help local businesses which in turn could keep people in their jobs and hence boost confidence, leading to more consumer spending. I am not an economist, so could someone tell me what the implications of such a move woukd or could be? I think whilst it’s a good idea for the UK government to run the insurance scheme for the banks (UK’s latest rescue programme), they should and must stop short of liquidising the banks as they refuse to lend and rather run a direct scheme of propping up UK businesses.

Posted by Francis Abrokwah | Report as abusive

To robert1234. You say “Demand high wages” and “Join a union” which really demonstrates how out of touch much of America is with reality. You are paid what you are “worth” in a job as valued by the marketplace. You will never be paid one cent more than what you are “worth”, regardless of what you “demand”. A “union” only places an artificial limitation on the “supply” of labor, and therefore will ultimately fail if it is priced much higher than the marketplace, which always pays the REAL “worth”. If the goods or services price provided by union labor exceeds the true market price, then the buyer will purchase the cheaper of the two, and the union will fail. Take a basic economics course. “Demands” and “unions” are one of the root causes of the current problem — especially the bloated cost of government.

Dear Professor Schwab,
New communication methods such as blogging open doors to the online community but are only as useful as the content written on them. Government, in Western European nations, is widely seen as a set of elite persons whose primary interest is in maintaining their jobs. The Democratic government ideal mandates a degree of selflessness in decision making – taking a choice or supporting legislation that is better for one’s country moreso than one’s constituents. Blogging and YouTube are excellent, fairly easy ways to document the struggle many are sure our leaders face – to find that balance between self interest, the bankers’ interest, and the interest of the people who are paying the bills – the taxpayer. If one of our leaders can do that he or she may just hang on to a job

The recapitisation of troubled banks isn’t working. Governments must stop pumping endless public funds into troubled institutions. That will just destroy the public finances of many nations. Troubled banks must be allowed to declare bankruptcy, and trillions of toxic liabilities wiped out in the process.

Posted by Josetxo Usubiaga | Report as abusive

Lehmans bust, and the enforced nationalisation of Northern Rock has undermined shareholder confidence in America & UK.

Compensation for shareholders would attract investment into all the surviving banks, as shareholders would no longer face the dire threat of their investment being wiped-out.

The issue of who would provide such compensation is something else, taxpayers are already being “milked”, and other banks are unlikely to want to ever compensate shareholders of another Lehman’s

Posted by Jerry | Report as abusive

A run on a bank pretty much demonstrates that “commitment” from the banks is “one-way”.

Banks lend to business, and mortgage-borrowers in particular, giving them the use of the banks money for up to 25 years.

Depositors, however, are rightly able to withdraw all their money at short notice.

Certain measures could improve the effects of this commitment dichotomy . . . . eg the more widespread use of “offset” mortgages (tied with current accounts) would tend to make customers less likely to withdraw all of their deposit.

Posted by Jerry | Report as abusive

This is, at its source, not a financial crisis. This is, at its source, not even a general real estate crisis. Monetarism did allow it, yet Montarism does not understand it. One cannot solve, what one doesnt understand. This is the end of a speculationary Asset- value system for any Assets not carrying cash- income. This is especially Homes, individual houses and flats and this sector is big. They shrink in price also if financed by 100% equity, just this, of course does not burst.

Buying something which does not generate enough cash- flow income to pay interest and all the capital invested (incl. equity) requires for a profit that somebody else will buy it later on at a higher price while still not generating income. This requires more and more credit. As in opposition thereto, repaying from rental income would not require more and more credit.
They did finance the WRONG ASSETS. It is a giant problem, yet in its core a problem of WHAT more than of HOW MUCH. They got the last chance now to have it solved by Deflation. Any try to solve it otherwise, kills the currencies, the states and all the economy. That´s it. The choice is between very hard or horrible.

Posted by C. Vartian | Report as abusive

Sustainable annual growth is only 1-2 %. Central banks control the velocity of money and obviously they have failed to promote sustainable growth. The only solution is to go back to gold standard.

Capitalism does not work without control as it behaves like fox in a henhouse. Everything is exploited to the maximum. Now the response from governments is to reward this fiscal irresponsibility. Fiscal discipline is thrown out the window and “borrow and spend” mentality continues to be promoted as before. We simply cannot continue like this.

The change needs to start in our thoughts and minds. What are the important things in life ? Collect money ? Own cars and houses ? Buy luxury goods ? Slow down for a moment and look beyond and you realise that this is just an illusion. It is a trap where everyone is tempted to fall. The way out is to look inside. What we really are as humans and what is our purpose and goals in this universe.

Posted by Tim | Report as abusive

Klaus: I suggest that all the corporate chieftans start limiting themselves to a reasonable and fair amount of pay. For the millions of dollars saved the company can keep some of its people working longer. Looking at my example, while my CEO made 70 million dollars last year people in the firm were being laid off to the worst recession in a long time. For that 70 million a lot of jobs could have been saved, these are people who would no be contributing to the economy instead of living in despair. The CEOs have to realize that having one 14 room mansion should be enough and they should start acting like responsible citizens with an obligation to employees and society.

Posted by paul | Report as abusive

The problem started with lending money.

Why is it that we lend money from other people or organisations?

Well, impatience really.

We want something now that we are not prepared to wait for until we have the actual money in the bank to pay for it.

Im not suggesting we wipe out the notion of debt.

What I am suggesting is that instead of lenders looking for payment of that debt plus interest, that they rather look at possibilities regarding taking some sort of legal or equitable interest in that business or over the object/asset with respect to which that debt relates, at a higher percentage than what they have been taking up until now, with options for the debtor to buy out the lender at a future date with interest.

This will curtail dodgy lending to people who may need the money for some or other endeavour but cannot actually afford to pay it back and where it is highly likely that they will not be able to do so in the near future – which begs the question why give those people money in the first place? (however, see the housing mortgage crisis in the US to get a picture of how silly/greedy lenders can be by lending people money who shouldnt be lent any money).

Also, leasing should be considered as a viable alternative in this day and age as opposed to ownership.

Many people dont really need to own a house, or car, or own the equipment that their business uses.

etc

Posted by Bob | Report as abusive

Are you kidding me, asking ordinary folks to solve the mess like a world economic downturn. That’s bizzare ! Where are all those MBA’s and PhD’s…You’d have to be extremely gullible to think that a solution of any kind can be concocted by people that have no idea what’s going on if anything trying hold on to their jobs. How could they if the best brains are scratching their heads. The next Nobel prize in economics should go to the guy(s) with the best proposal for systemic change. Stop giving prizes if necessary or those given for theories that simply don’t pass the reality check. The crisis just has to run it’s course. The greatest worry though is knowing how to avoid future bubble or any kind of imbalance.The ripple effects are instantaneous and that can cut both ways. Then again there were people predicting this so don’t hold your breath for a miracle cure. There have been enough of signals to foresee problems, but not many heeded the advice. The central bankers are best equipped to use their resources and brains to coordinate changes in the system put in place controls. Most of all educate and raise the salary of the poor compliance staff to attract the best people that can manage the markets/lending/risk oversight based on common principles and market forces agreed internationaly. At the company level they need to be truly independent and not motivated by performance only. Best mandated by law. Polititians are necessary to pass the laws but don’t expect them to come up with anything.

Posted by Franz Kafka | Report as abusive

While The Economist has published a Davos-related essay called “Mountain Reboot”, I believe a Redesign (not reboot) is what’s needed. I’ve blogged about this distinction in The Huffington Post here…

http://tinyurl.com/c2dafg

The Economist thinks the existing economic system is like a crashed computer. They don’t realize the existing system is actually obsolete.

It needs to be redesigned around collaboration (not competition) and sustainability (not never ending growth and consumption) principles.

Kofi Annan, in his pre-Davos essay, writes from the perspective that the world has fundamentally changed as well.

This is what Davos’ leaders need to realize. The global financial system is not a car with a blown engine that needs to be replaced. It is a car that is now on the ocean, rather than dry land. That car must be transformed into a boat, or else all of humanity is sunk!

No, we cannot help the leaders at Davos because they obviously feel by the virtue of being at the World Economic Forum that they are part of the solution to our troubles and not the source of our problems. To whom exactly should we turn to for advice? Gordon Brown? Give me a break!

Posted by MrBill, Eurasia | Report as abusive

Lyndon LaRouche, American economist and former Democratic presidential candidate, has warned of a coming financial collapse for years, as well as providing solutions:

1. Put the U.S. Federal Reserve system, and ailing banks into bankruptcy reorganization — no bail outs, but seperating the toxic speculative financial paper from the healthy functioning of the banks, and WRITE OFF the toxic waste. Don’t try to buy it up — eliminate it.

2. Establish Alexander Hamilton-style national banks to issue massive amounts of earmarked state credit to revive the real production economy — modern infrastructure, including nuclear power and magnetic levitation trains, high-technology industry and agriculture, research and development, education, health care.

3. A four-power agreement between the U.S., Russia, China and India to initiate a New Bretton Woods international fixed-rate credit system to achieve the same goals as in #2, on an international scale.

4. Promoting scientific creativity, especially among young people, to make the breakthroughs needed to develop new technologies for the future. Wealth is generated by human creativity, not by speculative paper money.

5. To learn more, see: http://www.larouchepac.com, http://www.larouchepub.com, http://www.wlym.com, http://www.schillerinstitute.org

Dear Prof. Schwab,

Please find bellow my humble comment, why this entire crisis is happening:

1. Late’80, in USA democrats created NAFTA. This allowed US companies to move jobs out of country to low cost regions, mainly Mexico and Asia.

2. The plants started to close in US and move overseas, people started to loose their jobs…

3. In parallel to this, Hillary Clinton started to “volunteer” and “fix” the Health care system…Nothing happened…worsened…let’s see under president Obama…Universal Healthcare coverage…what a nice dream for American people…

4. Cheap Asian goods started to flood American market, the demand for more expensive American product dropped dramatically, again American plants reduced their production, more lay-offs…

5. Cheap foreign labour (very much illegal) started to invade the US, driving down the local salaries. Life in became US harder and harder…

6. By loosing their jobs, more and more people could not afford to make anymore their mortgage payments and started loosing their houses.

7. American people are not idiot! They (99% of them) know how much mortgage can afford, but they cannot control for how long they will have a job so they can the family mortgage.
As soon as they started to loose their jobs, again I repeat, they could not afford to pay anymore for the house…the crisis started to develop…

8. All the big companies including the auto manufacturers moved the majority of their plants overseas, there are not very many plants left in US, so jobs are hard to be reopened on US soil, for American workers.

9. How Obama administration is planning to create jobs it wrong: they want to create jobs by fixing holes in highways, painting bridges and repairing schools, because these “items” can not be shipped overseas…But one can not transform a healthy multiskilled working class in a bunch of low level bridge painters…there are 2.5 million people out of jobs…

10. American people became depressed; they are not used to live in conditions like these. They are turning toward right deep conservative-fundamental Southern-style religion, become violent, started to hate foreigners, immigrants, the rate of killing among them is increasing, same with the suicide rate…Very bad, it looks like there is not hope…

11. The same key people that created this mess by starting NAFTA are now back, same strategy (hope not!)

But there are some solutions…what I said above was just the root cause…

How to fix it…I will tell you more, as soon as I realise I’m not talking to the walls…

Sincerely,
bibicu_99@yahoo.com

Only the government is the logically disinterested party to act for the good of the entire population. Only the government has no self-interest. The government is not as efficient, but efficiency is less important at this time than impartial judgment and action. Given this, the best way out of the crisis is to nationalize the banks until the situation returns to normalcy and then de-nationalize the banks. Sweden did this and it worked; Japan didn’t and tried to solve the problems it had by stimulus packages, noe of which worked. The answer is gulp and nationalize temporarily. With a steady hand on the tiller of government, the usual fears of government ought to be much more correctable than the failures of the people of the people who got us to this mess. I trust Obama more than the barons of Wall Street.

Posted by Apostle | Report as abusive

The present economic crisis started with US Subprime and the related collapse of CDS market. The biggest reason for the continuation of this crisis even after detecting the same in 2007 is that the problem is not addressed at the real root level. The crisis started due to the default in payment by the people who had taken housing loans. It is imperative that to solve the issue, the borrowers should be enabled to make the payment. If tehy lose their job and put them inot more trouble, it can only aggrevate teh situation. Instead of bailing out big banks and auto companies US govt. should bailout the loan borrowers by paying their due for 3 or 6 months as a one-time measure and end the era of foreclosure of loans in USA. This can bring stability to market and the economy will definitely start reviving. The cost incurre b America for this would be much lesser than the stimulus package.

Another important lesson is that people should never be allowed to borrow without checks and balances. The limits of all individuals against credit card should be limited to their one month salary inclusive of all type of credit cards. This will have two advantages. One it would limit the losses to the banks due to non-payment 2) It would limit the reckless spending of consumers.

Posted by Benny Sebastian | 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 in many 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 an 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 a mentality … as with foundations many use … the hard ball competition is still there but it returns to support the one including self … fight to win in a different way …. education :)

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

Posted by Harry | Report as abusive

The real problem is that the current economic model is based on growth. Impossible on a finite sized planet!

Cyclical contraction of the economy ought to be seen as a goal, not a disaster! Otherwise we have a runaway system that can only end in chaos.

I suggest NEGATIVE interest rates should be introduced so that if you have capital, you use it or lose it!

Posted by Adrian Piers | Report as abusive

I forgot to mention … I feel the only way to avoid this colapse is the big traders need more small trade partner … 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 at everything.

but we live in hope .

Posted by Harry | Report as abusive

The people gathered at Davos need to re-establish their social contract with society and articulate that where they are the empowered individual in a social contract, how and when they will act to deliver the higher duty of care that is their responsibility because they are the trusted source of knowledge in the contract.

The best analogy I can draw is that of the Black Cabbie. An individual learns to drive and earns a driving licence. At the moment he takes a car on to the road he enters in to a social contract with everyone else in that environment, be it other drivers, pedestrians etc. That driver then decides to learn The Knowledge and after three years he is awarded a permit that means he can take one of London’s iconic symbols on to the road and engage with the general public from a position of trust.

What is the higher duty of care? If anyone reading this is a parent whose teenage children come to London at some stage, particularly if you have a daughter, you will have said : “If you get stuck late at night in London get in a black cab, do not use a mini cab etc etc”. At that moment a social contract exists between unknown parents and black cab drivers. As parents, and indeed as individuals, we rely on those black cab drivers to apply the higher duty of care in that social contract. At the moment someone’s child gets in to a cab late at night possibly the wrong side of several alcoholic drinks the human connection of the social contract comes in to play.

If you are a single woman in London you will also know that when it is dark, and often when it is not black cab drivers always wait until you have safely entered your house or gone through the security gate to your building.

That is the higher duty of care of an empowered human being and that is what all leaders need to define and decide how they are going to deploy it within the environment where they operate.

Whilst we as individuals outside Davos might see personal security as one of our highest priorities, this social contract applies equally to the issue those at Davos are trying to address. In positions of responsibility for global (and personal) funds, the question is how bankers and those within that sphere should be acting that demonstrates that they care for and feel responsibility for the money they are managing, and that they are applying the knowledge they have that earnt them a position of trust within a banking licence. Surely the higher duty of care applies all the more as it is not their money they are managing, in the way that it is not the Black Cabbie’s daughter the cab driver is taking home.

Posted by Suzanne (London) | Report as abusive

Governments should sponser development of methods of fosssel fuel replacement, which are non-polluting and renewable, especially for transport purposes. Solar, wind, wave, and geothermal methods would provide work for millions world wide, and would not need to be done in developed regions, or ones where mineral resorces are abundent. If we are to spend ourselves out of this world wide problem let us do it in a way that defeats two menaces, viz. dependence on fossel fuels and contibution to global warming.

Posted by Harold Roper | Report as abusive

Now the people of the world should really panic. Hey everybody, we’ve been using this tired old debt based system as a way pretend to increase wealth to the middle classes and suddenly we find that we’re having some trouble with it. We used to let your Governments have their own banks that forced private lenders to use the same trusted lending techniques such as requiring a 20 percent deposit for large loans such as housing but when we forced your Governments to privatise them into the hands of the minority elite we also allowed them to put pressure on tried and true lending ratios. As a consequence we let these private lending institutions lend money to people with jobs in insecure industries that are prone to economic down turns. Sadly we also watched as many Governments around the world deliberately pushed a housing and construction bubble by giving tax incentives for housing purchases. We stood afar and watched lenders use these tax incentives as a deposit even though the lenders knew that these people didn’t actually have any money in the bank. To top it off we have been allowing big businesses and corporations to buy out their competition so that they can dictate prices for their products on an unprecedented scale. We encouraged these businesses to move to cheap labour markets at the expense of local jobs under the pretense that we were creating a two-tiered system of knowledge economies and manufacturing/production economies.

We are terribly sorry for the predicament we created and would now like to ask your help in the form of ideas for fixing the problem.

Yeah right. They don’t want any help. This is called a resetting of the middle class. It has happened before and will surely happen again.

Barter assets

Mr Schwab I believe you have hit the nail on the head.
We do need to included/intergrate everybody into the soultion process.
The answer lies in this itself. To use two simple and well know paradigms to, in the most cursory way, examine & explain this you could say we need an intergration of both capitalism & socialism, but in a new and unconfined way.
To explain more throughly using these new comunication methods we could design a new paradigm in which as opposed to merely state & or private ownership of resources & capital, there begins to exist a third factor. One of neither private or state, corporation or organisation.
This new group would have one edict, to provide a base level of security & existance for all humanity. Housing, medical care, food, for the individual & community. To use this as a counterbalance to both private & state interest.
However I fear our blind prerequisite to monetary factors in ALL matters will prevent this in our current position.

Posted by Jon | Report as abusive

Mr. Schwab,

The problem lies in too much talk and little action. Alas, the WEF is a lot of concentrated power but it exists in a bubble, as the wealthy and powerful tend to do. You forget, ignore or disregard what real people experience on a day by day basis. Kilojoule for Kilojoule of output, the folk meeting up in Davos do not work nearly as much as my neighbors (and I’ll say: myself) for the money they are earning.

You have Mr. Putin speaking: Ask him why is he blackmailing Europe with gas. Find out why people have to pay for water, a human right. Why are oil companies monopolizing a global resource? Why is the third world in debt, and why are the world’s biggest arms dealers (USA, Russia, Germany, for example) not working to create a more sustainable model? Why dio the rich and powerful feel they can use up more resources than others? Why are you folk not SETTING A GOOD EXAMPLE?

As for the solution to the financial crisis…. there is no financial crisis for those who have maintained a certain humility and try to understand the limits of what is needed and what is a luxury. The only reason why the mood is dismal in Davos is because this time round some of you folk have to think twice about buying the wife a new Maybach or a second airplane. More dangerously, though, the crisis risks to engulf countries that are not that stable and where hunger could become a problem.

Once you and your companions on the Magic Mountain understand the basic fact that you cannot keep accumulating wealth indiscriminately on the backs of the real wealth creators, that is the poor, and once you begin doing something about it — and that begins with a change of attitude — then things will change.

Which brings me to the last point: Decentralization, not globalization, is the solution. Globalization, Herr Schwab, is a Ponzi scheme with labor as the currency. We look for cheaper and cheaper labor to produce cheap goods so our fat western societies can buy more. Meanwhile, energy is going up the chimney transporting all that rubbish (please look at the toy section of IKEA, “Made by Child’s Hands” should be written there, and for what? For Mr Kamprad’s greater wealth).

There is enough money around for just about everyone to have a piece of land and cultivate it, to have a house to feed a family. But huge companies like Migros and nestle and the energy companies would prefer keeping us forced to feed at their inefficient trough. And for that, they spend not millions, sir, but BILLIONS in marketing. And the more the globalization, the greater the instability on our planet.

If you do not realize that Mr. Schwob, then you are no more effective than Humpty Dumpty.

Set up a good bank and lend to the credit worthy. All else should be allowed to fail.

Posted by Froddo | Report as abusive

In addition to the previous very good comments there is a key element that after 4 months of talking about this crisis still has not been clearly seen. “Acceptance of clear responsibility”. There is talk about bankers and waste loans… and so on but nobody, neither politicians (for obvious reasons) nor financial regulators has clearly stated that the key contributor hence responsible people or institutions were ?????? so and so. Here we are, two trillion dollars later and possibly over 20 million job losses in 2009 and we the citizens and our children that actually bailed these clowns that allegedly knew better(Prudence, Paulson fix…) and were better prepared and still nobody has actually been identified or will be punished for this. Free market found its limit and is ugly, our leaders need to understand that they work for us and that one way or another they need to be accountable.

Posted by Juan Tovar | Report as abusive

I strongly concur with Michael Petro’s posting above:

January 29th, 2009 12:06 am GMT – Posted by Michael Petro

Posted by Howard Perry | Report as abusive

This one is easy: break up these multinational companies. There is no competition anymore because they are way too large. They also influence economies too much. For example, if banks/finacial institutions weren’t so large, no one would’ve freaked out when Bear, BofA, Fannie and others got in trouble.

Posted by Marc Beltran | Report as abusive

It appears that in recent years we have undergone market “corrections”, in one form or another, every ten years or so. (1987, 1993, 2003…) People get slapped on the wrist, the holes in the dyke are repaired and the markets move on.

Shortly thereafter, when regulators are watching the old “holes”, some banker invents, or gives birth, a new financial “instrument”. Herein lies a major problem.
New instruments are adopted in financial markets without multi-tier scrutiny. Just because they are popular, they self perpetuate. This makes them viable but not substantiative.
This practice is probably THE most central cause of the recent global meltdown.
Instruments, opaque in nature, were being assigned values based on exchanged-added-value, not substance. In other words, because an instrument…like a mortgage…developed an inflated value based on the number of hands it got handed off to.

Value that is inherent is consistent and core. Value that is assigned is inflated, virtual and, more than often, prone to collapse.

Developing markets do indeed need new, and market relevant, instruments. However, they should all be monitored closely UPON RELEASE, have term limitations for review, and reeled in when their assigned value has grown significantly from their inherent value.
I call this the “cancer factor” in assessing a reliable-turned-volatile instrument.
When the CF is detected, the instrument’s value will have a couple of options but will, in effect, “peaked”.
The process, up until then, can be exciting and profitable, but it’s longevity can remain manageable and non-lethal.

…and so it goes.

josepbATrcnDOTcom

Posted by J Bolanos | Report as abusive

The solution is simple – monies given to financial institutions should be targeted at offsetting personal customers’ loans. Yes, that means paying-off a portion of everyone’s credit card, car loan, mortgage, etc.
Think about the knock-on of this – as the multiplier effect spreads this through the economy.
The banks will receive funding, but people will be the beneficiaries, not the government. Consumer demand will improve, and the economy becomes unstuck.
Think through the effects of this and you will see myriad benefits!

Posted by Luke | Report as abusive

While this may not fix it, I would like to see all governments make a temporary change to their tax code that forces a look back period of 4 to 10 years. Any individual averaging 8 times the national median income over the look back period gets taxed at 90% on the income above 8x median. Income derived from writing books, and patent royalties probably should be exempt.

Next, write down the interest rate on all mortgages to 1% for the next ten years, and reduce the amount due by 20% and make the new payments payroll deductions, and non dischargeable in bankruptcy.

End the manipulation of the commodities markets by the US government and its satellite investment banks.

Last July/August, this group intentionally worked to crash the oil markets, creating massive disruptions in markets worldwide. Yes, the spike in prices was unsustainable and was hurting the US economy, but had that been worked off naturally, things worldwide might not have crashed so quickly or so catastrophically.

Now we are in much the same situation in the gold & silver markets. Here prices are artificially low, and periodically nuked by the handmaidens of the US government. When the dollar begins dropping due to its deteriorating fundamentals, gold and silver will spike dramatically >>> highlighting the drop, and because of the manipulation of the markets, could rise so significantly they will induce panics, and ultimately currency runs.

The US needs to get out of the futures markets. AT this point, they are doing far, far more damage than good….and they have the potential to create an even more traumatic situation globally.

Posted by Andrew Masia | Report as abusive

gold,silver,oil standard

There really are only two workable possible solutions to the current problems and the command and control solution currently being used is not one of them as the Russians discovered. Unfortunately the bankers won’t like either solution because they relinquish their stranglehold as a result, so the chances of either solution being implemented are about zero. I guess however it depends how much desire their is to save the capitalist theology, but flooding the system with money will not work without a corresponding increase in the velocity of money. Getting money into the hands of the public is the solution, not putting ever increasing sums into insolvent banks. Few are likely in a position to borrow even if the banks put the bailout money on offer. So how do you get the money to the public without borrowing to reduce taxes?
Solution 1:-
Debt Forgiveness:- Not likely to be popular with banks and the rich and comes with a high moral hazard but hear me out. Part of the current problem is the value of paper assets on bank balance sheets. Mortgages that go bad are worth about 25% of their previous value due to loss of interest to the bank, a fall in property or other underpinning asset values when sold and costs related to dealing with the sale of those assets. In a scenario where say 20% of the principle is forgiven the loans become more affordable to service and less likely to default thus underpinning the banks paper asset values. Even in a worst case scenario I imagine that asset values would be worth a lot more than the current book values. This debt forgiveness then puts cash into the hands of large numbers of people who will spend it thus re-inflating the economy. Unfrotunately banks are like the chimp who puts his hand in a jar to take the nut and having closed his fist can no longer take his hand out of the jar and dies as a result of his greed.
Solution 2:- Monetisation of Gold
Because gold represents a threat to banking interests as an alternative currency the price is being supressed. One key issue here relates to the correlation of the price of gold to that of paper assets. The belief is that a low gold price means higher paper asset prices which banks make their money from, and vice versa. Thus the supression (don’t bother denying it)is part of the command and control toolbox. By allowing gold to find it’s own price the profits for those holding it when put back into the economy will provide sufficient stimulus to re inflate.
Neither solution costs the taxpayer any money so please stop all these cash injections with our money they will not work. Keynesian economics is bankrupt, stop trying to employ Keynsian solutions.

Posted by John Pexton | Report as abusive

Abolish the Federal Reserve and the Central Bank of the IMF start backing our money by something other than more debt! Bring the Gold standard back. Stop bringing in economic hitmen to destroy third world nations. We need to put the federal reserve into receivership it IS BANKRUPT, BROKE, BUSTED and it always has been it is a scam! The US is bankrupt and we need to start restructuring. Let these companies fail they are too big and expanded too fast with a false sense of self importance. Let the Auto industry downsize. Stop printing FIAT currency to bail out corrupt institutions. Start investing into infrastructure and put people back to work. There’s a host of infrastructure projects that need immediate attention. The answer is not a New World Order!

Posted by B Gansz | Report as abusive

Luke, you had the same thought i did. if the alleged debt crisis (mortgage, credit card, etc.) is the root cause of the problem…then attack that. treat the disease. we have now thrown approximately 1.6 Trillion $$ at the banks. that same amount of money would give every household in the US approximately $100,0000 (easy, rough math). Think what that would do if, and only if that money was earmarked to pay down credit card debt and mortgage debt??

one final issue…we give these banks money form the treasury at 1% and they are charging 25% interest on Credit cards….and they can’t make money????

Posted by dave | Report as abusive

Dear Sir,

Myself I believe we need new leaders. Leaders that no longer look at only greed and how much gouging of consumers they still can make to earn their company maximum profits. We need new leaders who are more altruistic and willing to make a contribution to saving the country (perhpas the world), helping those less fortunate, and sharing their profits for a temporary period to help shore up and activate the economy.

For example, if CEO of airline or hotel business would offer a one time reduced fee, more families could and would travel, and that would get people to travel and spend on restaurants, car rentals, gaz, entertainment etc…As long as all the hotels maintain their usual going rate policy and airlines continue to use necessary evil approach to explain their pricing policies than they will continue to loss money, and so will all the business’.

What we need is brand new leaders that are not myopic, and willing to make major changes even for a short term period to help their brotheren rather than just help themselves ! Imagine if Marriott Jr said that for the month of February, all his hotels would offer rate of $49.99 to families to help with the recession ! Wow, everyone would remember him and that chain for having actively tried to help the common folk and the country.

Even OPEC could change their imagine, if they decided to announce they would allow the oil to drop for the month of February to help the world economies shore up their losses..people would no longer have a negative impression of this organization for many years, and the low fuel prices would certainly help businesses recover.

New Leaders please apply !

Alexander King
OH, USA

Relocate the United Nations HQ from NY City to Hong Kong.

Please see my thread on the Edge Forum at Asia Times Online under China, for more details.

Kindest Regards.

I believe that regulators should force banks to create an interbank electronic exchange for the trading of risk portfolios. This would result in price discovery, price stability and price transparency. In addition, the interbank e-exchange would create liquidity while reducing costs especially Tier 1 capital requirements. The concept of “interbank” would be extended to include insurance companies. My original idea was to create an interbank e-exchange for trading in trade finance risk portfolios, especially that trade finance is Sharia compliant.

FYI. This is the hypothesis of a DBA thesis that I am currently preparing.

Posted by Paul | Report as abusive

This is the time to address root causes. We’ve been trying to focus on symptoms when the actual disease is killing us. We have one core issue: overpopulation. All else is consequential. When more people share the same assets, there is less for everyone. My solution: mandatory birth control in water and food, with the goal of a 50% reduction in world population. World government with universal health care and a social security system that actually provides some security. Worldwide reduction to peacekeeping levels for all military institutions. Martial law until these goals are achieved. Yes, it sounds like a fascist’s dream- but we haven’t shown restraint or maturity given reproductive freedom, and the tipping point is here. We do it in an organized manner or we let war, famine and phages do it for us.

Posted by Craig | Report as abusive

Are you folks serious? The hoi oligoi asking the hoi polloi via blogs to tell you what to do to fix this deepening, disasterous destructive crisis? How fey!! If it was funny we could all roll on the floor laughing.

You folks have been getting together every year, playing oracles, offering prescriptions that cured nothing. There was never a Cassandra amongst you, as far as I can remember. You are THE problem, not just part of the problem. The premise on which the system of Capitalism that you celebrate and celebrate is built is false (read this sentence carefully, it is not per se anti-Capitalism).

There are solutions, albeit not, for the most part, what’s being tried. Prediction? Matters will run their course. The hoi oligoi of the developed countries of the world, and those in the less developed countries who are at the top politically and economically who are busy selling of the natural resources of their lands, and seling out their citizenry as cheap labour (both internally and externally as “illegal immigrants” and “economic migrants” just cannot conceive of different modus operandi and modus vivendi.

There are solutions, but if people will not listen, why…..?

Corruption runs wild in both the private and public sector

Let the too big to fail, fail. They used poor judgment and do not deserve to be bailed out. The old way of loaning with loans staying at the bank and community where it originated is the way to go.
No new world order or one world money. Real competition is required to keep man honest. Laziness, greed or power needs to be held in check. Few do the right thing because of moral conviction.
The USA needs to lower corporate tax rates to 20% and cut government waste. Cutting government waste probably is needed in many countries.

Posted by Sheri | Report as abusive

Here are my suggestions:
1) Regulations in place that protect the consumer and the employee. These regulations are based on the long-term effects of abuse and mismanagement on the economy at large. We have regulations for traffic, air traffic, security, etc., all set in place to protect the public good. Why should corporations (or governments) not be held accountable for how their actions impact the public good? Executive pay, spending decisions, and management practices should be regulated by stockholders and monitored by the government, meaning more stockholder power and establishment of government audits to protect the consumer, the employee, the citizen, and the overall health of the economy.
2) CEOs who consistently demonstrate inability to manage companies, and who abuse privileges of power, should be impeached. CEOs are not kings/queens, nor Presidents; they are employees of the company tasked with the responsibility of LEADING the company in such a way as to maintain or increase consumer demand, as well as leading in such a way as to demonstrate intelligence and responsibility for what has been entrusted to them. They are also responsible for the public good. CEOs who fail to meet these qualifications should be forced out immediately, with more power placed in the hands of stakeholders, and maybe as a result of the ability for the public to lobby companies as the companies do governments.
3) Wall Street Expectations should not be what determines the direction of the company, including layoffs, etc. Economies rise and fall based on Wall Street Expectations rather than on consumer demand. Consumer demand should be what drives the economic health of a company, that demand being based on MORE competitive products and services in the marketplace, the quality of the products and services, etc. We have to get to a point where CONSUMER EXPECTATIONS, not Wall Street Expectations, drive the success or failure of companies, which in turn stimulates competitiveness, which in turn stimulates the economy. Case in point: To appease Wall Street Expectations, companies not performing well (because of bad management and decisions by executives), cut costs, and those cost cuts, as we’ve seen in the news, result in: reduced quantities of the same goods while remaining at the same price; reduced quality, even at the risk of harming people, i.e. the peanut crisis; and employee layoffs.
4) Wealth within a company needs to be redistributed among the employee workforce in a time of crisis, rather than laying off employees, which provides an immediate relief to appease Wall Street yet cripples the economy – laid off employees default on bills, are no longer able to buys goods and services, etc., which eventually forces the company that laid them off to lay off more in order to appease Wall Street, and the cycle continues out of control.

Posted by Todd Cotts | Report as abusive

Professor Klaus Schwab is right and the previous comments are all valid. Riding out this down cycle which was much overdue is not going to be easy. Leaders such as Obama are working in the right direction. However we should ask ourselves whether we wish to continue to prop up as long as we can a debt based system that fudnamentally cannot work in the longterm given that the planet has finite resources and we have a growing demographic problem that no one wants to confront. This is why this recession differs from others. Fundamentally we should be thinking about changing our value system. It is all about redifining our definition of success and puting aside the “me society”. In the longterm we are all going to have to come to terms with HAVING AND WANTING LESS. In my opinion the new communication tools are already rasing awarenes that we are all in this together and creating a wider sense of community. We should harness this to promote a new sense of global civic duty and encourage alternative media coverage as long as it is factual. An internet/TV news channel that reports on, and summarizes the daily online content of these sites would give the growing online community an official voice.

Posted by Ariane Marcar | Report as abusive

The first thing that you have to do is not purposefully ignore certain schools of economics such as the Austrian school which predicted the entire economic collapse.

I doubt much consensus will develop from some online community. The solutions are right in front of your face but the intellectual community prefers socialist solutions that put them in positions of planning. They reject sensible economic theories that out-perform their own because they do not conform to their crackpot standards of a platonic mathematical perfection. In their eyes, if the theory says you can describe it to a computer (which means they can act as such computers in positions of planning in the government) then the theory is acceptable to debate while they also drink their tea. Somehow they allow the introduction of Keynesian “animal spirits” into the discussion but only because Keynes said the government is the solution. He said that such esteemed intellectuals can engage in “demand management” as Obama’s advisor Romer argues is the reason for the stability in our economy. What could be further from the truth!?

The root causes and the solutions do not have a real voice in the debate because they are not politically acceptable or acceptable to the intellectual elite. The solution will not come from some elite group of intellectual impostors but from free functioning of the market system and the ridding of central bank price controls and inflation creation. You economists actually applauded the giving of a Nobel Prize to Paul Krugman. I question the sanity of fellow “economists.”

Posted by Matt C. | Report as abusive

Tactically, both the US and China have the same problem, and need to face it together and in a coordinated fashion. Both need to push income down the ladder as quickly as possible.

China has the savings to be more aggressive than the US., but on the other hand the US already has in place more robust safety nets than does China.

In any case, if two of the world’s most populous, and largest economies, increase wages and benefits to labor, consumption will increase in China (savings as well, but less so), and savings will increase in the US, along with consumption.

Globally, the 800 lb gorilla in everyone’s home is sustainability: The realization and response to understanding the increasing problem of finite resources, particularly fossil fuels.

A global push towards sustainable energy is needed worldwide. Such cooperation will not only help the environment, but can be an important engine for employment and wage growth.

Right now, there is a global deficit in spending on this problem. A coordinated spending program worldwide would boost economies dramatically.

Protectionism is unavoidable in this recessionary environment, but that should not stop countries from making compromises that can keep the flow of technology and production going, as opposed to being shut down entirely.