Turning the tables: Can you help Davos leaders?
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Davos 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.
If you’ve got suggestions for Klaus then use the comments section below.
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Banks should provide first time home buyers with 100% government backed loans, in 50/50 shared equity schemes. The home owners should be allowed to buy up the rest of the home, or pass on their paid up share to their offspring, who would continue to pay off the loan. Interest rates would need to be very fair and reasonable throughout the whole term, governed by law. This would help a lot of people get onto the ownership ladder, and help builders sell a lot more homes.
New motor cars should be offered for sale interest free, over a 5 year term. Millions more would then buy motors. I’ve seen dealers in the USA offer such deals – all dealers should offer this! Things would start moving rapidly if these things happened, and lots of companies would stay open, instead of going to the wall
This is humorous. As if nobody knows how this happened.
Central banks and /or governments to develop a carrot and stick mechanism that will prevent commercial banks to approve mortgages and other loans that are doomed to fail.
Banks need to ratify a ‘quality-charter’ and subject themselves to a control system. Commercial banks participating in the system will have preferred lending conditions from Central Banks.
The problems are twofold:
1. GREED
2. PRIDE
So change the harts of those who control – top to bottom.
Yes, I can help the Davos Leaders.
What I can summarise from all the happenings from end 2007 till date in Jan 2009 on world economic front was scheduled to happen with clear intention and extremely lack of knowledge on simple economics in the market place.
To start with the King of the Kings fraud-Madoff with a massive $50 billion, everybody from SEC to FINRA and the SOX or say the AICPA or the so called auditors, all failed. I mean to say nobody wanted to work or do their respective jobs for what they had been paid for-a very handsome salary. It is a clear negligence of duty, laxity to utmost length, may be due to lack of knowledge in the field or just not doing the work.
In the 2nd place the sub prime or Citibank financial crisis with Lehman, Goldman Sach etc along with the big brothers’ like Enron and Worldcom’s early mis daventure enabling the SOX to be born, but all that are just waiting to happen. I am telling again after the posting in the WSJ that all these are not last one/ two years outcome, rather the so called economists/ analyst were doing really bad jobs since last 10/15 or more years.
Only the outcome we are able to see now in 2007-08.
So, with just two above examples I can say that the so called leaders are to work hard and work honestly. That’s all they need to do. Please put more brains and time for the economic / financial things and think long run to balance a demand and supply (not to dole out the TARP money like it disbursed $200 odd billion already to any Tom/ Dick and Harry). It may take bit time to come to a stabilize mode but would be stable as well, provided these so called Biz and Political leaders are working hard and with good knowledge base utilization.
Orelse, this year Davos meet would be similar to any other years like a paid holiday or holiday break to meet old friends who are equally with the same eagerness to see their counterparts claiming to be managing the world crowd. Cheers.
Professor Schwab,
I’m responding to the Jan 27th, 2009 Reuters online article, “Turning the Tables: Can You Help Davos Leaders?”, and I mean to contribute an observation of an economic pattern among U.S. state economies.
In U.S. presidential election years, there’s a commonly published map in which those states voting republican are colored red and those states voting democrat are colored blue. States which vote republican in presidential elections tend to also be governed by republican majorities, and states which vote democrat tend to also be governed by democrat majorities. These tendencies don’t change much over time.
There’s a correlation between U.S. state economies and how the states are governed: in rankings of the 50 U.S. states’ economies (per capita), almost all of the poorest 15 are republican (red) states, and almost all of the richest 15 are democrat (blue) states. The bottom 15 states also have the highest crime rates and lowest average education.
I suggest that economic policy on the global scale should consider incorporating economic policy elements which are common among blue states, and avoiding economic policy elements which are common among red states.
It would also be of great interest to eventually understand the actual mechanics of why “blue” economies are superior to “red” economies, so that economic policy becomes a (statistical, at least) science instead of an art.
Casey
To fix the mortgage, credit and bank crisis and thereby the economy, we need forward looking changes. Government’s behavior must encourage the desired result without rules that can not be enforced. Create a new investment vehicle that guarantees both principle and interest and that pays more than the treasuries. Call it GGP, Government Guaranteed Product. When a bank makes a loan, the bank keeps 5% to 10% of that loan. The remaining 95% to 90% is packaged and sold in the market as GGP’s and the US government guarantees both the interest and principal. The money for the guarantees comes from a surcharge or a take on the interest percentage. To ice the cake, make gains tax free for two years for all involved. The banks must keep a certain percentage of each loan, in order to encourage appropriate lending. But then the bank can sell the remaining part and make money and have new capital to lend. People will be willing to invest because the yield would be higher than treasuries and their safety would be the same as treasuries. This would get the wheels turning and eventually the risk adversion to loan investment will dissipate.
Dear Sirs:
I am really suprized that it is not obviuois to all of you that currencies must have an anchor in reality. Gold and silver and oil could all play a role in providing the anchor. Other commodities or items of substance in the real world, must be the basis of wealth. The idea that the US dollar is a standard never was a good idea, just a politically comfortable one at the time.
best wishes
John R. Wibel
It seemed a lot of the trouble began (the straw that broke the camel’s back?), when the subprime mortgages fell apart….and property values plummeted.
Why don’t they de-value the mortgages by a corresponding amount….say percent…rather than foreclosing?
Say $200,000 mortgage with $180,000 mortgage. Due to the economy/etc. the house is de-valued by 30% to $140,000, then simply reduce the mortgage by 30% (market value by the way) to about $120,000. Let the people continue making payments on the $120,000 loan.
EG….let the mortgages follow the market instead of remaining at the top of the “bubble”.
Why don’t you just talk to Ron Paul? If countries were unable to inflate their currencies all this would never have happened and government would not be riding us like mules. Go back to a commodity standard so inflation can’t be used to impoverish the poor and middle class. After all, you can’t make money off them unless they have some to give you.
Citibank must be NATIONALIZE. Citibank can not possibly get out of the mess they are in with the same people calling the shots. Citibank must be removed from the DJIA. The DJIA committee has the obligation to remove any component that drops below $10.00 us. Citibank has remained as part of the index. Bank of America, and General Motors should also be removed. If the Fed keeps giving Citibank more money, the will keep burning it. Citibank does not know money. All that is to come isthe credit markets will remain locked, because it does not make sense for a bank to risk funds to make 2 to 3 percent return.
The basis for any long-term solution has to be education. We have ample evidence that classroom education with printed textbooks is completely resistant to effective reform. However, we also have some evidence that One Laptop Per Child and other one-to-one educational computing can transform the process. Earth Treasury is organizing a consortium to design a new generation of freely-licensed textbooks that bypass the usual textbook acquisition process. With a computer for every student, these materials can be integrated into the curriculum for the first time.
We invite Professor Schwab to discuss with us how to design and write suitable economic education materials, starting as early as first grade, perhaps with a version of the classic Lemonade Stand game or something that gives students experience, not just theory.
http://wiki.sugarlabs.org/go/Creating_te xtbooks
Firstly, focus on the right proportions more than on the numbers, Secondly, downsize your business to the point where you really control it, even if you must sacrifice certain synergies. Thirdly, stop depending on technolgy to limit the risk of third party default. Fourthly, start forgiving some debt before being forced to write off more (there is an historical precedent in the Bible). Fifthly, attract medium-term depositors so the banks can lend again. Sixthly, write off all questionable assets, (gradual write-offs undermine trust). And seventhly, explore alternative modes of transportation, housing, health-care, education, and legislation, that may be more cost-effective.
If the US government wants to bail out the us car manufacturers with billions of dollars, then they should initiate a mandatory development and production of fuel cell hydrogen powered cars. maybe this would be costly and unprofitable ( hey it’s the taxpayer’s cash, not the car manufatcturer’s cash) in the short term, but it will eventually be cast effective. moreover, and more importantly it will 1: put a lot of people back to work in many new industries,2: decrease the reliance on oil, eliminate CO2 and other pollutants 3: create a product that the entire world will want to buy. what’s not to like?
The best solution to a problem at the top is to bailout the bottom. Provide micro-loans to small businesses and farmers in the poorest of regions to modernize, even a little bit. Allow them to make more real product to sell and they will undoubtedly pay back the loans and provide the needed food for the world. Don’t bailout big banks that have screwed up the management of the top of our world market model. Make the bottom of any structure more stable and everyone higher up gets more comfortable.
1. cap for manager bonuses (eg. percentage of EGT of the last 10 years and only if EGT has risen sustainably and bonus only if same percentage is payed also to employees)
2. cap for risk premium for stakeholders (eg 2 fold risk free premium for dividend)
3. prolong term for tax exemption of capital gain to 10 years
4. promote one man enterprise and other SME founding (tax exemptions, unemployment pay, state guarantee for loans)
5. promote future core industries (nano techniques, high speed railway network, bio-energies) by loans of Federal Reserve syndicated with liquid banks partly with state guarantee)
5. govermental foundation of a good bank as competitor of established banks to finish the credit crunch (with the possibility for private investors to hold deposits with this bank – $ 20 bn of equity would create more than $ 200 bn of loans to enterprises)
5. change of mark to market valuation of assets in IFRS and US-GAAP (cap for positive revaluation due to the sector and portioning of revaluation over several years)
6. allow commodity trading (or option agreements) only for enterprises involved in the business (eg future on grain only for farming companies)
7. ban short selling of shares
8. create governmental private equity firms with the possibility for private households to participate as investors
9. give unemployed the chance to work in govermental projects of infrastructure paying them higher unemployment pay in order to stimulate consumption
10. cancel VAT for consumers for one week in february (even if good is only ordered within this week)
11. cancel VAT for consumers for consumer goods for the amount they spent more than the month before (purchase of consumer goods in February $ 1000, in March $ 1500, total or part of VAT for $ 500 can be retrieved in the annual tax return)which would cause an avalanche effect on consumption
12. increase tax for overtime hours of employees with the employers to create more jobs
Dear Professor Schwab,
1)I believe that if everybody(domestic and manufacturing) installs solar panels (photovoltaic only needs light to function, so overcast does not matter)on their rooftops (paid for via Carbon Credits from Industry)then it would free up the power grid for manufacturing and transit purposes.
2)I believe that if each home can supply it’s own independent power source plus some then “Mother” can stay home and reconnect with her children.
Therefore only one vehicle needs to be on the road, and if that vehicle is electrical all the better.
3) I believe that it is all the carbon emissions that has pushed up our rates of cancer. Carbons are stored in our fatty tissue and for a woman her first vulnerable fat storage facility are her breasts.
4) I believe that our bodies and their diseases are a reflection of the conditions that are happening on this Planet right now. When we correct all the problems we have created, then will we see a miraculous remission of all our terminal illnesses.
As a former stock broker, mortgage originator and contractor, I feel I have some insight into this mess we are in.
My suggestion is really simple and no, it doesn’t provide millions of dollars in bonuses for the crooks who run the banks and Wall Street. Simply let we the people borrow money at 1% for the purpose of paying off our mortgage — instead of giving to the banks at this rate so they can line their pockets with it. This would solve the home mortgage crisis and give people money to spend on other things. Simple, yes? I know this is not capitalism. It doesn’t keep the rich rich and the poor poor but it would go a long way to fixing our current financial problems.
Thank you for listening.
The bankers and economists need to connect with reality. There are only two elements in human economy and our present situation clearly points to the need to adjust one of them—that is, access to resources must be expanded and those resources must be used wisely, regardless of which resource we name. This can be done by governments quite independently of any banking system, and you will note that China is already doing so. Get yourselves off the hook by recommending that your own governments follow suit. Then, go home and look closely at those initiatives within your own economies that make the best use of resources–those that offer a cyclic system of energy use and which waste nothing. Those will offer you the opportunities your nations need.
1) You must create individual wealth again.
2) The $45,000 ave. household inc. does not create jobs.
3) The 50+ year old, who was close to retirement, but
having lost 40% of her 6-figure IRA, is not going to buy anything(John Deere mower, boat, new car,…) until her retirement account is back!!! The focus should be on this 6-figure “retirement savings” class to create the jobs!
4) REDUCE HIS TAXES, so he can put more in his retirement account; and, FOCUS ON THE STOCK MARKET to get these retirement accounts up, and ….the buying will commence again—not until!
As a former stock broker, mortgage originator and property manager, I feel I have some insight into this mess we are in. There is private money out there that would be more than happy to take some property off the bank\’s hands. But, there has to be a mechanism for that to be facilitated. First of all, either the banks or the government has to be a property manager even if it is for a short amount of time. These properties should be offered on a rent to own basis with the largest rent offer prices getting the choicest properties. the details that I have worked out are too lengthy here. But this could be the equivalent to the \”Oklahoma Land Rush\” in the 1800\’s. If you offer it, they will come. The banks need these properties off their balance sheets.
Secondly, the banks have to reinvent their business models. If I mowed grass for a living and all the grass was blacktopped over, no amount of bailout would restore my business to profitability. I would either have to go into the driveway sealing business or retire to a warm climate. The banks, brokers and financial services companies need to cut themselves to the point where they are supporting the business that is there. Large banks should be broken up so that any one bank cannot damage the system. Aig, Citibank and BofA should be forced to break up. Too big too fail is a moniker for too big to succeed the capitalistic way.
Thirdly, the American public and the world at large need the major companies to take a more proactive role in public relations. To the man on the street, somebody has to pay for this fiasco. Without Joe consumer, you do not have businesses and the consumers confidence in the system has been shattered. They are not going to come back to the well if they think it is poisoned. A public relations campaign is needed where the industries that caused this problem fess up and let the public know that we are all in this together. Only drastic action will regain the public confidence. The velocity of money is coming to a standstill not from deflation but from fear. Only drastic action will regain the public confidence. We need visible leadership. Use your imagination. Davos just doesn\’t cut it. Most of my friends think Davos is a sub shop restaurant.
I am amazed that everyone says we need to get credit moving again. The US has over $350% credit market debt to GDP. Only by following strict underwriting standards will make the investors come back. So please stop saying we need to credit flowing again. It\’s hurting your credibility. Currently, there are very few credit worthy borrowers out there. Credit will naturally flow again when the clog has been removed.
Sincerely
Thomas Rose
Northbridge, Ma
In this hour of global crisis, we need to focus even more on human issues in the developing world – poverty and hunger; rather than institutional issues in the developed world – financial meltdown and credit freeze.
Let us not forget how unregulated financial markets caused commodity prices for energy and grains to unjustifiable levels leading to riots and deaths in many poor countries. If there is an economic forum that aims to solve the world’s problems, it must get its priorities right. In the final analysis, what we need first is a healthier world.
I think that whole idea of helping people who could not afford houses got loans and corporation who gave bonuses to themselves on productivity and Governments who could not afford to spend spent all the money from future revenue.
Firstly those subprime homeowner should not be supported as they caused most of the problems of housing bubble not in the united states but all over the world.
Corporations rewarded the employee on the years they made money but wrote off on the years they lost money. It should have been that those who made money in corporate profit years and should have been penalized for when they lost money for the corporations instead of being bailed out either by Governments or at the cost of shareholders.
Banks tried to make quick buck and gambled and should be penalized for their actions as well.
How can a responsible Government can afford to spend money they do not have or they are not going to have in future and should be penalized for their actions as well.
I live on fixed income and I balance my budget and all the above actors should be held to same standard.
I suggest world leaders get a copy of I.O.U.S.A., produced by Agora Financial in Baltimore, MD. It was shown at the Sundance Film Festival initially, and then general American audiences in August 2008, before it fizzling because it is neither sexy nor contains scenes of physical violence. The stars are the former lead auditor of the U.S. government, David Walker (Controller General), Warren Buffet, Pete Peterson (his foundation was a primary sponsor), and others with an interest in looking beyond “their watch”, to use a corporate American euphemism for the “short term” self-serving perspective.
The movie puts the 4-letter word DEBT in proper perspective, which media leaders, advertisers, bankers, builders, retailers, etc. do not want to discuss, because it would mean “living within one’s means,” a lifestyle taught to some of us by those who survived and prospered after the Great Depression. To this I would add one more element, Table 2.1 on p. 49 of “Empire of Debt – The Rise of an Epic Financial Crisis” by Bill Bonner & Addison Wiggin, also authors of “Financial Reckoning Day”; both books were NY Times best sellers. Table 2.1 lists some 50 empires of history dating back to before the Egyptian Empire (1550-1070 BC), each of which rose and then fell to ashes in its own circumstances, but always after its fiat money system became worthless through inflation and obsolence to competitive systems. Regardless, throughout human history, gold has remained the relative measure of value because it is limited in its supply by its relative scarcity on Earth.
The mess leaders and politicians face today is unfortunately, derived from failure to live within one’s means and within the U.S. Constitution’s framework, as espoused by Congressman Ron Paul of Texas. The solution he and others suggest is far “too right” of political center to have any chance of discussion in the halls of power in Washington or other capitals of government and finance which thrive on the “credit culture” of the past 100 years (IRS and Federal Reserve were created in 1913).
Unfortunately, unless America returns to the principles and practices of sound capitalist practices with reasponsible regulation based on the delivery of tangible goods and services and sound business practices (including a structured, monitored, credible debt management system), our grandchildren will inherit a deteriorated “dream” that fell prey to “unbridled greed” after the Federal Reserve Chairman, in his turn and on his watch, failed to act on his own words of warning, “irrational exuberance”, more than a decade ago.
We must have consistency in life, in trade, in business dealings and cost of living. That means one generally accepted trade currency backed by tangibles. Yes, sovereignty will suffer perhaps, but a trade currency doesn’t mean that countries can’t trade on their regional or national currency.
A metal-backed currency will lend stability and credibility to global trade. Not easy, I know. But the throes we are experiencing now, in the US for example, are not easy either. At least a metal-backed universal trade currency would keep global trade honest. And consistent.
Peg this universal trade currency to a composite of precious and semi precious metals to prevent speculators from playing with the metals market; that which has been such a poor indicator for more than a year as governments baked metal prices to suit their needs.
A trade currency will give the people of the world choices of where to place their savings. They can, if they wish, play roulette with national currencies or for the more conservative of us in this world a safe and structured alternative. Poorly run government currencies would be revealed, and they would be forced to become responsible as large and small investors would flee the defective currency in favor of a precious metal backed currency.
The transparency would, in a word, be redeemable in metal of choice: nickel, copper, silver, gold, platinum etc. The stores of metal would be open to inspection by investors and savers from around the world. The place housing the metals would need to be on neutral ground where all the world’s people feel welcome. We can put humans in space and replace the heart of an infant seems we could engineer a safe currency in a safe place for the protection of all peoples of the world.
Such a move would be an olive branch to people of different or conflicting ideologies and perhaps we could all develop some respect and appreciation for the diversity that exists in this world. And move toward greater global understanding.
No one country or cartel would ever be in charge of this currency, but a committee focused on the health and direction of the currency. Representatives from every country with a vote from each rather than larger countries having unfair advantage in the voting process, for this currency is intended to represent all countries fairly in a completely bipartisan environment.
Representatives should not be appointed who have conflict of purpose. A housewife from the Ukraine, a teacher from China or a farmer from India and a plumber from England. A dentist from Iran and a truck driver from South Africa, for these are the people most in touch with the issues confronting their countries and consequently the world.
These people of moderate social standing are exactly the people most capable of making good and honorable decisions. They could achieve the greatest credibility for the new currency as well. No politics would ever enter this currency plan due to its unique structure. Finland would have a single vote as would Japan. All by secret ballot so none need justify choices.
We have recently seen many great corruptions from individuals with more power than understanding. I think we should take a lesson from this and apply it to all our future plans. It seems no one individual is safe from temptation—some more than others. These decision makers are so far removed from the problems they cannot conceptualize the issues hence the possible solutions are made with faulty intelligence. A permanent solution will ultimately come from the ground up, rather than top down.
Perhaps our vicious world isn’t ready for such a spirit of cooperation, but if we are to survive we must focus our attentions on peace and mutual prosperity because as a world we are as poor as our poorest person.
Where the physical facilities will come from is beyond my understanding, but I sense that most countries’ citizens are tired of the drama and disappointment that characterize the present financial systems. Perhaps Iceland would be the most appropriate location to host such an endeavor since they have fallen victim firstly to the financial meltdown and could use the help to rebuild. Warmly ccw
Suggestion to help solve one problem only: If a home is foreclosed, rather than evict the defaulting homeowner, allow them to stay and pay on a rent-to-own basis to the mortgage holder (i.e. bank). Rent would be determined by a third party. That way, families will not be homeless, and houses will not be empty, leading to surrounding property values falling, vandalism, etc. Money managing counseling should also be given to the defaulter. In the case that the rent is not paid, then, unfortunately, eviction might have to follow.
Economists seem to forget at time that theirs is a social science. Money is simply a medium to exchange, and exchanges are based on choices made by people. To that end, we are where we are because the incentives drove the decision-makers to bring us to this point.
The world has a management problem. We repeatedly see inept management in the most key areas of our economies. And while some of this can be attributed to stupidity and politics, much of it is because of the incentive programs we have designed. If my bonus, as an executive, is paid on an annual basis, and is based on profit margin, then there is no incentive for me to invest in future product development, improved processes, or better trained labor. My incentive drives me to salvage and scrounge as much corporate value as I can and sell it as fast as I can to increase current quarter earnings.
The world needs more entrepreneurs and leaders in management positions, and fewer politicians. One solution that would help is paying executives predominantly in stock and not allowing it to begin vesting until 5 years after the issue date. This would help tie their reward more directly to their ability to build actual value versus short-term robbing of company assets.
But that’s a solution to moving a queen in a larger game. The reality is that this is the age of non-accountability. Companies and governments continue to look outside for assistance and plausible deniability versus inside for solutions. It is as if every person who graduated college in the 70′s and 80′s believes that you can litigate your way to success in every situation. That a good argument is better than a good solution. This mindset needs to change.
Our financial markets need to cease to be a game of musical chairs. There is no logical reason to allow a fund manager to invest in other funds. There is no logical reason to allow short-selling. The goal of the stock market is to provide capital investment to entrepreneurs, and allow investors to earn a return on their savings. Naked short-selling, hedge-funds, and the ilk are all simply turning investing into a large pyramid-based gambling hall.
And, finally, we need to embrace responsibility. And by this I mean that when a bank issues me a credit card they do so with the knowledge that they will eat the loss if I do not repay. Private investment firms are not regulated enough or public-minded enough to be able to effectively create and honestly market credit-backed securities. We need to cease outsourcing, not to save jobs or in a protectionist push, but because it distances the management from their results. If you can’t manage your own people, you should find another field of work and let someone who can take your place. When a mortgage company knows it will never service a mortgage that they sell, but are paid for every mortgage that they sell, their incentives will drive them to write bad mortgages. When a bank makes money on the mortgage-backed securities that they sell while using investor dollars to finance those mortgages the bank will be less inclined to care about the quality of the mortgage behind the security they are marketing. All along the chain is a repeat of the same practice, off-shoring responsibility for the consequences of choices while incentivising decision-makers to make poor choices.
How do we fix it? Create more accountability. Tie executive compensation to the future value of the company. Make finished-product companies fully liable for the actions of their suppliers. Why was Purina not criminally held to account for poisoning their food? They claim it was a supplier issue, but Purina chose that supplier. If an executive doesn’t want to spend a few years in prison, they will manage their vendors better, or develop their own processes and products in house to avoid being held at the mercy of their contractors and vendors. The same should be true of national leaders. If you aren’t willing to manage your own responsibilities, you should step down. The average Iraqi citizen does not know the difference between a US soldier and a Blackwater mercenary. And, in effect, there is no difference. To that end, the chain of command that hired Blackwater should be directly, personally responsible for the actions of their personnel. Choosing to distance yourself from your responsibilities should not provide the rewards of good management without the risks of bad management. That theme must be broken.
Professor Schwab,
The biggest challenge that we face as a species is not one of economics, but rather one of survival. There is a much bigger picture that our “leaders” appear to be ignoring.
We live on a finite planet with finite resources. “Global Stability” should not be about our economics, it should be about the health of the “Globe”, on which we live.
The world is in extreme peril. Every single natural system on our planet is in a state of decline. If we do not focus all of our resources on solutions to saving our only home right now, we will not have a hospitable planet in the near future. We need to place our complete attention on population control and the end of our dependency on fossil fuels. We should have responded forty years ago when our scientists told us to. Unfortunately, we did not listen then and we are still not listening now. The future will already be very different for our children. The choice we face now, is whether or not our children will be able to survive long enough to have children of their own. If we are fortunate enough to even get that far.
It is time to focus on availability of clean water, local food production and alternate sources of “clean” energy for everyone. We must take a huge step backwards, and re-evaluate our priorities.
Business as usual, is not sustainable, period.
We can try to pretend that we can solve the worlds economic problems, but it would be like putting a Band-Aid on a paper cut on your finger, when your carotid artery has been slashed.
If you truly are looking for solutions, I would suggest involving the world’s scientific communities. Focus on the disease, rather than on one of it’s symptoms.
We have some very hard changes to face. We can make these changes voluntarily, or through wars, famine and disease. It is a very simple choice really.
Greg T in Canada
The solution is actually quite simple. There are only 3 elements:
1) cut taxes
2) Cut Taxes
3) CUT TAXES!
All taxes, but especially corporate and capital gains. At least a 25% reduction.
The recession will be completely over by Summer.
I believe deeply that business as usual cannot extricate the world from this mess.
Regardless of the specific problems that led us here, it is clear they are systemic issues. Logically, any truly effective fix must be systemic in nature.
Unfettered capital movement underpinned by Alan Greenspans ideal of “benevolent self-interest” has failed.
We the people, need from you the economic leaders, a willingness to re-invent the marketplace paradigm. Capitalism must grow and incorporate human limitations, as well as planetary limitations into its equations. Progressives have been saying for decades that GDP does not measure quality of life, & GDP can give false-positives when for instance the bottom 50% economic bracket has DECLINED in real wealth.
The GDP issue is merely the tip of the iceberg.
We need (new) effective metrics for understanding not just “wealth” but also “quality of life”.
We need a new class of non-derivative (gasp!) investments, serving a new class of socially-oriented sustainable business activity.
We need to avoid propping up an investment bank system that has failed us, but by the same token we must avoid attempting to force or overhaul existing companies & markets. (This encounters heavy beaurocratic inertia & is startlingly inefficient per-dollar-spent)
We must allow the existing markets to continue, (yes, to conduct their business-as-usual, however badly it is failing,) UN-INTERFERED!.
We must create new investment categories for businesses directly servicing existing household/national/inter-national issues. Accompanied by an alternate set of market regulations, tax-categories, & business definitions, this is the only option I see being responsive, adaptable, & lightning quick enough to re-invent the idea of global progress.
As the spirit of human ingenuity cannot fail us, we need to create a playing field where products, services, & investment models DIRECTLY serving human needs can prosper & proliferate.
I refer to the work of Nobel-prize winning Author/Economist Mohammed Yunnus. Micro-lending, & the non-derivative business model (called “Social Business” in his books) is not my idea, & it has shown extreme efficacy in the areas of poverty reduction, localized employment, more balanced wealth increases, & systemic adjustment to a more complex world than traditional micro/macro-economics allows for.
Group Danone became the first corporation, (in partner-ship with Yunnus’s Grameen institutions) to create a multi-national social business model, using efficient micro-factories to employ & serve local populations with their nutritive food product.
If we can harness the creativity of visionary business leaders, we can walk hand-in-hand out of this thicket, & into the new millenium. Economists simply must not stand in the way of people creating their own solutions for powering, feeding, clothing, & lifting up themselves & their communities.
So good sirs & madams, kindly pave the road, then stand out of our way.
_D.Morris
1. Discharge or reassign those guilty of putting America in financial ruin. They should not be the ones in charge of the recovery!
2. Bring in expert economists such as Bob Brinker who have successfully advised Americans on individual economic strategy for a career.
3. Refuse to use the national economy for social re-engineering. That effort has been a disaster.
4. Do not spend one dime toward recovery without a distinct goal and absolute accountability.
The time has come to redefine wealth in much broader terms. Let’s look at wealth as coming from four P’s:
1. People
2. Profits
3. Planet
4. Potential (this needs a bit of explanation)
Today we tend to use a single profit based measure of wealth, and make minor adjustments for the other variables (e.g. workforce, sustainability). In the future all four P’s will need to consciously play out when we make the decision on a project or an investment. It may seem helpessly complicated, but there is a way. To follow along, let’s spend a moment on perhaps the most important P of all – Potential.
Potential stands for the inherent possibility in our environment, our society and our human creativity to build a future for ourselves that is far superior to the one we now find ourselves in. Potential is JFK’s statement about the man on the moon, multiplied a billion-fold. To where our human potential not only permeates our planet, but finds its way to the moon, other planets, and far beyond. It is about finding our civilizational destiny, and galvanizing the entire ~7billion humans to bring about a civilization of immense wealth.
Once the vision is there, and the potential can be demonstrated, the other three P’s will come along in the wealth creation process. Without a vision of our future success, the smallest of hopes and fears will send our markets booming or busting – because there are no long term metrics we can use as reference; to give perspective to the tiny setbacks and opportunities we encounter everyday in our search for profits.
Professor Klaus Schwab,
The gesture you have made with this forum is laudable although reading through all of the suggestions does not sound terribly enjoyable to me.
My humble suggestion is to begin to look at the impact of globalization and a world economy from the point of view of where we would hope to be ten to twenty years from now and move backwards from there. It manifests itself somewhat as a gap analysis of the difference between where we ought to be and where we are now.
Some of the ways we could look at that would be to see the present and future natural resources which developed and developing nations possess and look at the ways in which all of us together can contribute to creating a more sustainable world economy and environment. For example, Russia is a significant resource for many raw manufacturing materials as well as oil and gas. Additionally, they have a great resource for software technology. China has great capacity for providing manufacturing in their own right.
If we began to create more fluid means for those resources to move between countries, we would be able to inspire more innovation and development in each of those countries as well as in other places around the world. Allowing for freedom of movement of citizens from countries from the EU or the United States who can train citizens in other countries, we provide the opportunity to promote new business and ideas throughout the world. At the same time, by providing free flow of materials and expertise from countries like Japan, India, Argentina and others the United States can begin to move away from the idea of isolation and begin to concentrate on those industries and business which it can excel and export to the world’s benefit.
This can start by looking for areas of trade that would specifically mutually benefit countries and create synergy between them. It takes strong leadership to make it happen but I fear the result of entropy will lead us all down a dismal path.
When will we figure out that the rational-man views of economists got us into this mess and that these same perspectives will not get us out of it. At the root of our financial crisis is a crisis in confidence and until we address this reality we will not fix anything. This is a problem of psychology; people will not start spending with the threat of job loss or loss of savings hanging over their head. Time to require industry to support the social net (aka unemployment); that’ll make them think twice before cutting salary expense to bolster their own pockets.
1. Eliminate all central banks, especially the Federal Reserve.
2. Eliminate fiat money by returning to a gold and silver standard.
3. Criminalize fractional reserve banking.
4. Follow strict anti trust regulations and heavily regulate corporations.
5. Return to a highly progressive tax system that puts more emphasis on taxing wealth and less on taxing work.
Here is a naive idea in need of a creative/practical method of implementation. Note that the creative/practical method will need to be devised by someone else….
Assume that through different financial instruments:
Peter owes Paul $1000.00 principal in cash.
Paul owes John $900.00 principal in cash.
John owes Peter $800.00 principal in cash.
This case shows that there is at least $800 of debt on paper for each of them, which they owe to one of the other two creditors. In fact however, this $800 of debt is a common debt to all of them as both debtors and creditors. Or put another way, in effect each of them indirectly owes himself $800. Of course there are different repayment terms, interest rates, collateral, etc. The point – Is it possible to devise a system that enables all three debtors/creditors to write-off both the debtor’s obligation to repay and the creditor’s claims on one of the other debtor’s at the same time, thus eliminating a mutually burdensome but unnecessary debt from all of them at once?
How much of the current debt crisis is locked up in this kind of circular debt? If there is a large component of ‘circular debt’ playing a role in our current debt crisis and a way can be found to thus mutually write-off a significant amount of it, then both individual market participants and the market as a whole would benefit from the elimination of this unnecessary debt burden….
Note that the inability/unwillingness to repay by any one of these participants undermines the financial strength of all three of them, and thus weakens the financial system as a whole! If it is possible to reduce this mutual exposure, why not do so?
The main cause of the depth of the current crisis was the unsupervised and unrestricted gambling ( aggravated by leveraging ) of our financial institutions. Through greed and avarice an american problem was spread to the whole globe. Modern economies cannot operate without a sound banking system,but:
1) Banks and investment houses must be separated once again.
2) Banks must not be allowed Unsupervised gambling with depositor or investor money.
3} Investment houses should also not be allowed unsupervised gambling except with
their own money when it is fully segregated from investor money
4) All financial institutions should be strictly limited on the use of leverage.
To answer the question:
“How can we involve everybody in the solution making process,” here are some suggestions:
1. Make your data available to everyone in one central location (online).
- People can’t provide worthwhile suggestions without accurate and timely data. The data will naturally be spread all over the internet.
2. Look to open source software development as a model.
- The Open source software development model could be helpful here. You will get some good suggestions from the masses, but you will also get heaps upon heaps of garbage. The filtration mechanism here is community based. The community should be empowered to filter out garbage by presenting criteria that solution suggestions must meet in order to be considered valid solutions. If they don’t meet the criteria, moderators of the community should be able to filter them out. The criteria can either be drawn up and voted on by the community or presented by top level administrators/moderators.
3. Refuse Anonymity/ Recognize Accomplishment
One of the great things about the internet, is the anonymity it allows people. The problem is, people feel free to say anything anonymously. Anyone who proposes an idea must be held accountable for it. On the flip side, good ideas and those who think them up should be given high praise.
I think this could be a good start. As you can see by some of the many comments that have already been posted, you’re opening up a big can of worms here. This could be beneficial and helpful to all, or it could completely backfire and be a huge waste of time. It all depends on the structure of the building you create to hold the meeting in and the rules by which attendees must abide.
Orion Kubow
english(at)fretmd(dot)com
The US government is approaching the solution exactly wrong. It is much cheaper to incent good behavior than reward bad behavior. Buying bad mortgages rewards poor stewardship of capital. Instead of buying bad mortgages, we need to get people to refinance loans. Tax incentives and loan guarantees should be given to people who can bring more capital to the table. This incents responsible mortages, which will stem future foreclosures. Buying bad mortgages really does nothing if real estate prices continue to fall.
Let me illustrate, I have a friend who has lost all of his initial principal, and is now 135% LTV. He continues to pay because he wants to stay where he lives. But let me assure you that he is considering walking away. He has capital, but he won’t commit a dime because tax losses on real estate aren’t tax deductible. He isn’t making any investment in his home, down to repairing the electrical wiring which needs to be upgraded. We have to keep people like him in his home. The approach of the US government is going to incent him to let the mortgage go, and see if someone will re-negotiate it.
It is faulty thinking to say that people don’t have more money to put into housing. What they lack is a reason to do it.
Reduce the amount of people or businesses own on a temporary basis anywhere between 30 to 80% for 3-5 years while government pays/complements anywhere between 50 to 5% to the loan holders. Add the negetive interest balances into a government backed security where the original lown owner must pay back at a later date. a win-win situation for all without much discimination
This is a global problem that started with banks and his getting worst as time moves on.
I like the “bad bank” idea in the US, but only doing it in the US will not help the world economy, thus not helping the US. We need a centralized organization similar to the World Bank that would be managed by the G20 members.
It would be a “world bad bank” and losses would be assume by the countries that would use it (G20 countries).
By taking all or part of the bad assets from the G20 banks we would unlock financing to jump start globalization once again. Having countries planning it’s own economy in its corner , would be like having an hockey team playing a game without communicating.
Not doing this soon will make the recession last longer.
Mr. Schwab:
Start a multi-lingual website where anybody can post comments and opinions, as well as showing how you decided to implement some of the suggestions you got online.
Also, I believe you should let the banking institutions fail and go after fraudsters in the full extent of national and international law or create much harsher punishment on those who so recklessly endanger whole countries and, by consequence, the lives of millions of people (riots, wars, hunger). There are so many banks out there that it isn’t a great loss whatsoever that Citigroup or Bank of America fall from grave criminal mismanagement. For each of those conglomerates, there are dozens of less corrupt banks who will gladly take over. It is a lie that the world will come to an end if those banks are not assisted. Absolute lie. What was going on before they came to existence? There is a past without them and surely there will be a future without them too. What will happen is that a bunch of leeches will be out of a job. It should be noted that should be created a public service website showing the faces of irreputable managers so that any institution worth a dam* won’t hire them. There is no point in giving them management jobs if all they know what to do is destroy the company they work for and make whole governments lose face and real-wealth-creating employees lose their jobs.
I suggest that Prof. Schwab looks at himself and the attendants of the WEF over the past two decades for answers. I am covinced that many of the WEF attendants are behind and the root cause of todays economic and financial crisis. Do you want me to list some names?
To put it bluntly: entirely rethink your model of economy.
Currently our model of economy demands everlasting growth of industry, which is based on (ab)using the world’s resources.
Two things are obviously wrong with the whole concept:
1. at some point people don’t need more “stuff”, everybody has got pretty much all they need, so everylasting industrial growth is a utopia.
2. at some point the resources on which the industries are supposed to run, run out.
However, put together, there are more then enough natural resources in the world to feed, dress and cure every human being on the planet.
Like it or not, capitalism based on consumption does not work.
Neither does communism admittedly.
Perhaps something in between might work:
“A world governing body guarantees the equal supply of basic needs to every world citizen: food, housing, schooling, medication.
All resources are divided equally under supervision.
Then, for those with the will, fantasy and lust to accumulate more material things (“stuff”), then others, a competitive system is devised.
Want more “stuff”?? (bigger car, latest model play-station…etc..)? Be competitive and go own it.
Personally, i’d rather enjoy a job that was designed to improve the lives of other people as well as my own and have time to play tennis with my son, then to continue working in the current “rat-race” economic model and see if i can get a bigger car then my neighbour. l’ll just ask my neighbour to drive me to work sometimes…
the u.s. needs to stop borrowing billions upon billions from the federal reserve… they just slip further into debt from the interest accumulating on these loans
crises like the current one can be manufuctured at will by only a few key players. get rid of those fat cats and implement a system that doesn’t rely on debt and enslave people to the bank. when people are free to pursue their own interests and education is readily available to all, sustainable solutions for the planet will be able to emerge and be implemented
“money is the root of all evil” never seemed so appropriate
A huge problem getting huger every year is health care. However, most big summits talk about how to have the government provide more care and have more control over how health care is delivered.
The only “big” problem for government to solve is to make health care more affordable. Period. Within that context, it can become affordable for the government (all of us) to pay for some or all of the cost of healthcare for the poorest in our country.
Making catastrophic health insurance mandatory for all (ignoring the important detail in the U.S. of whether done by each state or federally), a la mandatory car insurance to be able to get a driver’s license, is one key. Government can then subsidize the cost of this catastrophic insurance for the poor.
Beyond this, we must get consumers making price/quality decisions back into the market.
Medicare and Medicaid can *only* be provided in this high deductible model, period, if we want a system which isn’t destined to fail. If we don’t fix this, we’ve got the Freddie/Fannie subprime issue all over again – government being the primary reason why “the market” fails.
Society (elected government representatives) can determine what the deductible is per income level. But complaints about “the donut hole” in Medicare today miss the point completely. Every single consumer of health MUST need to care about the cost of (non-catastrophic) care.
Of course we should level the playing field re: tax deductibility for employer vs. employee purchased health care. Long term, we should eliminate the benefit for this coming from employers, but that will obviously require a transition period.
Catastrophic health coverage can be seen as a “right”/requirement to live in an affluent society, and is doable in the same way that mandatory car insurance if you want the right to a driver’s license. Freedom from having to pay $1,000 – $2,000 a year (at the low end of the scale) out of pocket, or even $8,000 – $12,000 a year at the high end, however, CANNOT AND MUST NOT be a right, or we will not be able to have affordable health care, period.
One of the best single steps toward the critical end of allowing the market to work would be to *eliminate* the tax deductibility of any health insurance plan which did *not* have a high deductible, and/or where the consumer can get any given product/service at a price greater than ~50%-60% below it’s cost or price to consumers without such insurance.
The bottom line: The market, including specifically pricing where the consumer of the care makes price/quality decisions that affect their own pocketbook, must be allowed to work. Catastrophe insurance solves the compassion-of-an-affluent-society problem. All other points *must* be secondary to allowing market signals and market prices to work.
real estate – if bank owned properties should be rented using a property management company and collect rent on bank owned properties until market is ready for sale of that asset. Homes in default should be allowed to be transferred via assumable loan clause to eliminate defaults. default loans should be modified to a standard rate of 4.75% fixed for 30 years and 10 year interest only and write down the balance 10% for all loans regardless of performing or not. The banks need to collect what ever payment they can receive and also make it uniform for all not for sum. They want to receive tax payer monies then you write down the balance and fix the rate. Their are never discussions with the tax payer about profits. the fed funds rate at 0.5% means their is still a profit of 4+% on each file. which is better then collecting zero and further loss. current homes in bank inventory should be rehabed by contractors for repairs to increase labor. The reality is the assets are not worth what people paid for them and that is what the gov money is offsetting. Eliminate unnecessary govt spending and return the troops from overseas operations that waste money. Increase spending on education and social service programs for the country. Focus on rebuilding communities that have been neglected for years. Wall street is full of the biggest crooks is this country and need to be regulated to the full extent of accounting practices and audited for all financials. The numbers and figures reported are never true and the banks who accepted govt money need to replace the entire structure by eliminating the to management and firing the board members and corporate officers and appoint govt officers from fdic to run the operations. We keep the same people or hire from within the same structures and it will continue to fail. The other problem is a majority of these officers runing companies have never created anything therefore they dont know how to be innovative with there own monies. Its easy to play with others money without every struggling and creating something from the ground up. The major problem is everything is over deregulated bring back the regulations and checks and balances. I know as an american we will get through this but we need to bring to justice the people who stole from others and attempted to hide their actions. If they did fraudulent or inappropriate activities they need to be punished.
My suggestion is to LEND, LEND ,LEND. Only by lending( and subsequently recieving a return) can we begin to turn things around.
Banks and governments should open their door to all borrowers no matter how small and give them a chance to pull themselves up by entrepreneurship, and avoid bailouts if possible. This idea of other peoples money and free money is what is ruining our economy.