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.
The crisis has to run its course. The best resolution to this problem is to let the market eliminate the problems through bankruptcy. Attempts to prop up failed institutions and businesses is fruitless, these entities need to fail, otherwise we'll never have a solid foundation to build upon. Also, there has to be transparency and revision to central bank policy, we can't have central banks manipulating the markets the way they have in the past. Controlling market behavior through artificially low interest rates and currency inflation does not work...the present situation is a clear testament to the failings of current economic thought.
The failings of central economic planning we're supposed be have been killed off, yet here we are again trying to run a supposed free market economy through central economic planning.
Unless we cease this incessant meddling we'll continue to get more of the same. Let the liquidation of debt occur and allow better business managers to acquire the assets and move forward. The idea that we reward failure through bailout policy is absurd. And the idea that we reward private sector failure with public sector money is even more disturbing.
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To create a global forum on issues, first break things up into segments..social, economic, health, transport, etc.
Then you’ll need some sort of translation service so that people in one country can read the suggestions of people from other countries. Sort of like U.N. translators.
You’ll need moderators obviously, but this could be combined with translation, make sure that it goes through two translators though to proof read.
Then have the posts vetted by people who are experts..obviously not all suggestions will work.
Then open the refined idea for additional comment and discussion.
Set up a “deal breaker” criteria to discard ideas..EX. if the solution would work, but would involve war..that’s a deal breaker.
Set up an incentive whereby the best idea in any category for that week gets a plaque that says ” I helped save the World”
I like the idea of a “bad bank” to clean out the bad debt which could in turn be profitable at a later more favorable time.
Start small and rebuild within respective states. I believe the United Nations applauded a system called microcredit to generate the system to create jobs in poor countries. Same system could be used especially to generate renewable green jobs and companies.
The only way we are going to survive this economic situation is to see it as an opportunity to change direction.
Good luck to all.
Quick fixes are needed for the worst of the symptoms of the downturn – in particular rescuing banks sufficiently to re-engage their leveraging capability. But a longer term solution to regain confidence internationally and by households and industry needs to tackle the causes of the problems.
Greed, short-sightedness, and poor information reflect the human condition. Three factors enabled the blow-out:
1. Loose monetary policy based on a narrow focus on CPI, rather than also looking at debt ratios and asset price inflation.
2. Loose regulation which assumed professionalism, far sightedness and trustworthiness of financial players, such that their self-interest would ensure the market was self-regulating. The complexity of assets, the size of rewards and perceived guarantees (e.g. in relation to Freddie Mac) ensured that greed et al undermined those assumptions.
3. The role of the U.S. in providing both the world’s reserve currency and reserve source of demand provided a very long rope for the first two factors to work.
Some of the quick fixes are in danger of reinforcing factors (1) and (3). Trying to reflate to former levels of demand and asset price levels invites a re-run of the 2008 debacle.
Assume – optimistically - that domestic and international working parties can resolve (2) without strangling the banking sector with red tape and politically driven decisions. The difficult work is in tackling (1) and (3).
On (1): With household wealth having taken a big hit, portfolio rebuilding will require more saving and thus less consumption than hitherto in many countries, notably the U.S. Central banks (or Treasurys) need to compensate for the reduction in the supply of (broadly defined) money resulting directly from banks’ deleveraging - replacing bad money with good. Central banks should not attempt, through the “printing press”, to compensate for reduction in the velocity of circulation (V) of money resulting from changes in household or industry behaviour. This risks hyper inflation both through growing debt to fund this and through upticks in V. (This can be simply illustrated by modelling shifts in the Hicksian IS-LM curves – sometimes the old tools are the best!) For the future, central banks – possibly with other financial regulators - need to develop monetary policy to encompass changes in real asset prices and debt ratios.
On (3): After the greatest waste of funds in history by the U.S., global fund movements should not effectively prioritise the U.S. by preferential lending to it. This also exacerbates, rather than reduces, global exposure to the U.S. economy. Such lending and such exposure can be reduced by three means.
First, the world needs to reduce its reliance on the U.S. $ before the U.S. reaches unsustainable levels of debt. A common trading currency does not require a uniform issuance of less fungible forms of debt instrument. This is illustrated in the Eurozone where the ECB issues Euro cash but different governments issue their own bonds which are then priced differently by the market. Thus, it should be possible to accommodate a common trading currency across a number of large economies with separate sovereign debt continuing to be issued in separate currencies.
Second, non-U.S. markets should be developed as a priority (the obvious case being China). Third, other countries’ sovereign debt should be supported by pooled insurance arrangements, thus reducing the risk. Potentially, these second and third strategies could be joined together by developing large scale cross-national pooled funds for the development of new markets.
In sum, a radical change in the economic scenery is needed to stymie the drivers of economic destruction.
I believe the problem is in us, in people themselves, i.e. that human nature is prone to greed and excess in all areas. The only solution to rampant greed and excessive spending is for ALL nations to turn in a true heart repentance to God. This is the way to bring help to a dying world.
However, because there is the continuance of a refusal to acknowledge that we can’t take it (riches) with us, we continue to want more and more to be “satisfied and to have the American dream.” Mankind seeks more and more to be self-fulfilled, while God, in the Person of Jesus Christ His Son, has proclaimed that all who will come to Him in repentance can be filled full of His Spirit, by simply accepting His free (no money required) redemption from the bondage of corruption.
Whether we possess anything on this earth or not, we can be wealthy through eternity in all spiritual blessings in heavenly places in Christ, simply by turning to Him and accepting His finished work in dying on the Cross for the sins of the world. HE is the answer!
Also, the Lord promises that if we seek FIRST the Kingdom of God, all earthly things (that we NEED, not all we may WANT) will be added unto us.
The US (and Europe at one time) sought the Lord in prayer and repentance for their sins. Now we quickly take away the rights of a helpless unborn child and we destroy the sanctity of the home, so that we can sacrifice our lives to the gods of sex, illegal drugs, convenience, money, and popularity–and we wonder why these problems come to us and cannot be solved? Cry out to God, He is waiting for all of us to exercise faith in Him alone.
I DARE YOU TO PRINT THIS. HOWEVER, IF IT REACHES THE EYES OF ONLY THE PERSON WHO READS IT, IT WILL BE WORTH THE TIME SPENT. May God bless you by giving you the true gift of His Son.
Use a portion of public money to buy ‘troubled’ assets. Nationalize a portion of the banks and/or create new federal banks. Aim for a bank entity count that is proportional to GDP. Prohibit mergers/acquisitions of these ‘core’ banks. Separate the assets that these core banks may use. Place an artificial limit on the size of the core banks. Limit which banks may/may-not deal with external entities outside the relevant GDP zone.
Temporarily lower any tax placed on common transactions. i.e. lower GST, VAT, duties, Sales tax, whatever your GDP zone calls it. Put money directly into the hands of people who are currently still able and most likely to spend.
Have a really close look at how the CDS market is constructed, regulated, and monitored. (It’s the next bomb to go off)
Have a close look at your insurance industry participants and how their current practices are affecting business. Consider more state run insurers.
Davos 2009 Conference Shows The World At An Economic Crossroads……
http://wcgfairfield.blogspot.com/2009/01 /davos-2009-conference-shows-world-at.h tml
Collaboration of the masses to solve the problems of the masses. This blog isn’t working for me as there are way too many comments to go through (sorry). And I will project my feelings onto the rest of us when I say that it probably isn’t working for the others as well, as the last comments don’t seem to be on how we can work together to solve this problem; instead, the comments are specific solutions for perceived problems.
Collaboration succeeds when there is the ability to converge on facts (like a good Wikipedia entry), when there is some organization asking a specific question and that organization has the ability to determine the validity of the answers (the mining example from Wikinomics), and occasionally the crowd vote can determine a good solution.
I believe that for this complex situation, that collaborative answers on specific questions should be elicited. Perhaps there can be a collective vote on culled suggestions. This probably means that the whole problem needs to be broken down into smaller pieces, and a guided collaborative effort be undertaken for the smaller pieces. For instance, one piece might be what to do with the banks that took the risks associated with mortgage backed securities. A web site could be set up that contains all the known data about these banks and the mortgage backed securities (a Wiki). Then parties could submit solutions (email to searchable database) and the interested party (the US Treasury Department) could review the solution suggestions, perhaps with the help of the web audience. As a motivation for the web members, some sort of point system could be set up to recognize those with the best suggestions or clearest explanations for or against the proposed suggestions.
One key piece of this process is to produce accurate data for people to review. The banks’ actions are still not clear (motivations, understanding of risk), the inability to untangle the securities (what else are computers good for), etc. are all questions that seem to be repeated in the press. As they say, garbage in garbage out. This information, in the case of the mortgages, will remain hidden while banks fear being penalized for revealing it. Maybe we need an anonymous reporting mechanism for those parties (a good internet ability).
Another key piece is to be able to objectively evaluate the solutions. This is problematic because everyone brings bias (sorry) and these problems are very complex. I would again recommend making the problem as simple as possible by breaking it into smaller pieces or by isolating a particular aspect of a problem. For instance, smaller banks in the US that typically held their mortgages were not as exposed to the initial problems. Their problems are less complex than the “too big to fail banks” (I think, or is that just my bias?). Or one could look at Wells Fargo as a large bank that did well through the initial period to perhaps isolate some of the practices that led to the downfall of the other large banks. Again, accurate and detailed information needs to be obtained.
So, in conclusion, the web can be a useful tool, if the problems and all the data about the problems can be posted in a way that is verified and accurate. Then, good mass collaboration can occur.
As far as a way to use the global community to help solve the problem, why not create a wikiforum.com where good ideas could be expanded upon, and bad ideas will get lost in the shuffle.
Well, 12 things actually.
Just as well I am not an accountant…
Do the leaders really want to fix the system or do they want to game it so that they and the fat cats end up on top as usual?
If you want to fix it, start initiating more local business and manufacturing and give the less wealthy people money with which to buy the goods.
Otherwise continue to throw money at fat cats and talk about globalization. Hope the corporate masters continue to donate to your political campaigns with their hidden bribes.
Davos is supposed to be finding a solution to an economic problem in a capitalist system.
As there are a lot of solutions already on this page, I thought I could put down some “not solutions”.
Ten things which are NOT a solution:
Blaming the republicans.
1) Policies designed to reverse climate change.
2) Positive karma production.
3) Mass redistribution of CEO paychecks, or other socialist experiments.
4) Trying to formulate peace and goodwill among nations.
5) Donating more money to the third world.
6) Trying to replace the economic market with a fantasy hippy economy.
7) Renewable energy.
9) Buzz words such as “listen to the people”.
10) Anything based on the assumption that the crisis represents a failure of the capitalist system.
11) Reducing the exploitation of natural resources.
12) Anything which opposes or ignores basic economic or financial theory.
Though they are important issues, they are not directly relevant to the economic problem.
People are just trying to push their own issues on the agenda, for fear that these issues will be ignored. In order to end the crisis, they may well be ignored.
By definition the credit crisis/freeze means banks are not lending money, so why is the interest rate at around 5%? With a lower supply of credit the cost of credit should be higher given demand, if demand is high and supply is low, the cost should be higher. Lets say to have equal supply and demand the interest rate should be at 10%, now anybody with good enough credit and can afford the 10% interest rate can get credit. This is what is known as decreasing the demand, alternatively you can increase the supply. To do this the fed would have to increase the money supply to the banks to such a point that banks could do whatever they need to do with the money and still have enough to lend out at 5% to people with good enough credit. But this still might not be enough to stop the root cause, which is the fall in home values. For that you would have to both increase the supply of money and increase the demand for money, which would mean lowering the interest rates, now the fed already lowered the interbank interest rate about as much as it could to .25%, what needs to be lowered is mortgage rates to say 3.5%, again for people with good credit (don’t need to create another sub prime problem). Okay, so how can they do this? One way is to stop selling government bonds for a while and even buy some back, this has the effect of raising bond prices and in turn lowering interest rates. Another way is to artificially lower interest rates by injecting even more money into the banking system, now I’m not talking about just giving the money away, but all the fed has to do is say to the banking system that any money the banking system needs, the fed will lend to them at the discount rate, then the banks should feel free to loan it out to just about anybody (again with good credit). But you say, if the fed is injecting all this money into the money supply, won’t that increase inflation? Well that is to be expected, after all we cannot possibly be sending around 500 billion dollars a year out of the country in the form of the trade deficit, and not expect higher inflation, in fact, this is the real root cause. This is why foreign countries like China buy our government bonds, they want to keep our inflation rate low, so that the exchange rate will stay high for them, that way we will be able to keep buying their products. In a real free market world economy the inflation rate should be allowed to float, that way over supply from other countries will eventually balance out. China is not only holding their currency artificially low, but at the same time by buying our government bonds, they are holding our currency value artificially high. This has the effect of creating a very large national trade debt that (I don’t have any numbers) could be comparable to the nation debt itself of around 11 trillion dollars. There is no way this could possibly continue indefinitely, especially given the effects of compound interest, though it might continue for quite a while longer. Something will eventually spook this bond market (like the threat of hyper inflation), and the whole system will come crashing down (then there really will be hyper inflation as the system tries to rebalance itself). Government bonds at that point will become totally worthless, iBonds might be a little safer. At this point the dollars value will be much lower than it would have if the inflation rate was allowed to float. The real weapon of mass financial destruction is the amount of our nation debt that other countries own. Biggest example being China. Of course, they could never unleash this weapon, because it would have the effect of not only destroying our financial system but at the same time also destroying their own financial system (since we would no longer be able to buy any of their products). So in effect, the US government bonds that China holds are already worthless (since they can never sell them without causing this mass financial destruction). The trick here would be for China to hold massive amounts of iBonds, now if China were to sell off the regular bonds it holds, inflation would skyrocket, in turn causing those iBonds to explode in value, then if China decided to try to redeem those iBonds, the government might have to default, since even more money would have to be created to pay those iBonds, further increasing inflation and further increasing the value of the remaining iBonds, in a viscous never-ending cycle. Now this could be a real national security problem, since China would be very upset if we had to default on our national debt, which could cause real mass destruction, not just financial mass destruction.
In conclusion, the two main problems are, the fed is trying to manipulate interest rates instead of letting interest rates float and controlling the money supply. And the government is holding the dollars value artificially high by maintaining a high national debt, which in turn causes a high trade debt.
One solution, like I say, would be for the fed to allow the banking system to borrow as much money as they want at the discount rate, and let them use it for whatever they need it for, including using the money to buy government bonds, such as 30 year treasury bonds (I think those are around 3%), so they would be able to borrow the money for 2% and buy bonds for 3%, making 1% on the difference, this would have the effect of injecting huge amounts of money into the bond market, and therefore lowering real interest rates, by at least 1%.
In my humble view , the problem really is globalization
until all nations accept standardized environmental
labour and financial laws , we will continue to have this disconnect , I think all the western world has been
doing is exporting inflation to the emerging markets,
a redistribution of wealth on a global scale
and a rethinking of what constitutes success needs to be
addressed, think of it, that pan handler or homeless
person is more succesful then any one of the latest high profile econocide victims because at least the homeless person is still alive, anyway a CEO like Fuld or anyone else who needs to make 100 million or more a year
to feel properly compensated is sick ,what happened to the people who worked for the benefit of everyone,
the whole problem is greed and social unrest will
be the ultimate undoing if today’s the leaders do not
take the lead, just look at France and Iceland
it could be just the tip of the Iceberg so to speak,
and it’s not meant to be a joke!
The weapon of mass economic destruction- CDSs -will comletely destroy what’s left of the world economy unless it’s neutralised. Effectively the’re betting slips. So, let the principal governments of the world together issue a simple declaration; ‘all these bets are cancelled, the stakes so far paid to be returned, the contracts voided, and no case can be brought to oppose this decision under any jurisdiction.’ At a stroke the huge overhang of CDSs would be swept away,and the banking system might have a chance of recovery.
Next, use rescue money to pay the the interest due on sub-prime mortgages in default, declaring the houses involved to be social housing. leave the ex owner in place as a tenant, paying a protected rent. with the governments committed to paying the interest, the toxic securities would cease to be toxic, and could then be valued. The banks’ balance sheets would begin to look realistic, and credit start to flow again.
There is no solution until the world changes it’s thinking. Greed must be controlled. Banks, better regulated. A better distribution of wealth to avoid the pyramiding of world wealth. I’m sure this guy really knows the answer, and he knows who’s responsible and what the agenda is.
1. rethink the consumption = prosperity model
2. redistribute - no multi million or even billion exec comp packages when laying off thousands
3. dramatize good news, why does the media have to focus on a drop off in new home sales and unemployment when there was an increase in total home sales? Why do we have a dot bomb bubble driven by unfounded optimism in the 90s and now our recession is partially over-reaction?
4. make love not war, it is cheaper to pay for education and health care and it employs people more than killing, bombing and rebuilding, by the way when people hate us less, they terrorize less
5. engage as many people as possible with as many ideas as possible
6. streamline healthcare in the US, 1 of 5 people work in the industry, there are so many inefficiencies, we spend more on marketing for drugs to consumers than on marketing Coke, hospitals only collect 40% of what they bill, we have the worst health outcomes of any developed nation
7. identify points of light and pockets of growth, who is still making money and why?
8. employ people helping people, think micro loans, think barter
9. share information, collaborate, cooperate - don’t reinvent the wheel,
10. educate, sustain
11. don’t freak out - actually the US has seen much worse unemployment in the past and much worse inflation.
12. stop greed, pay it forward, foster good karma, care share and love, think of the whole more than selfish greed - live simply so others can simply live - help each other. I love to ski, but one day’s ski pass at Davos could buy 4 mosquite nets which could save 4 families from malaria. Prosper by helping, maybe Davos could donate a mosquite net in Burma or Africa for each lift ticket. Be grateful and thank God for people you love, health and what you have. Crush Negativity Now!
- Government should encourage banks and people to start saving money instead of living beyond their means.
- Unfortunately the developed countries are the worst example of saving. They still want to borrow more money to keep their economies going. They are digging a deeper hole if they don’t spend that money in Infrastructure, Health and Green technologies and convince China and India to do the same.
- Credit should not be so easy to obtain. Doesn’t make sense to buy a house with no money down. Not every body can afford a house. The US Government promoted this and even bragged about it for a while thinking that risks were being kept manageable. People need more education regarding using credit.
- As a society we expect quicker returns faster than ever before. It took 40 to 50 years (from the 50’s to the 90’s) for the DJI to go from 1000 - 2000 points. And 3 years to go from 10,000 to 14,000 between 2005 and 2008. Even banks which used to be conservative in their decisions took bigger risks in the last few years seeking better returns. We are bailing out these banks and not scrutinizing them enough. Where have the 350 billion give to banks gone?
- Some of the CEO’s and elite should follow the example of millionaires like Warren Buffet and Bill Gates , who are using their clout and financial resources investing in worthwhile long term investments like education and health and contributing to society in the process.
Good bank, bad bank. Shove all the toxic assets into the bad bank and keep the good, sensible assets in the good bank. Next, examine the management at these banks for criminal negligence related to irresponsible and reckless lending practices that led to this crisis. If found guilty of negligence, such parties should be made to pay their ill-gotten bonuses back to the tax payer and serve some time in lockup. Good old-fashioned “if you do the crime, you do the time”. This will set a good example to ordinary citizens and our children, as well as act as a deterrant for future generations thinking of entering into such speculative ventures while putting the tax payers’ hard-earned, honest money and the whole economic system at risk. Bank managers should NOT be rewarded for this blatantly bad and reckless behaviour.
With the first round of the “bailouts” complete, the govts around the world have wasted enough taxpayers’ money by throwing good money after bad already. These measures need to be taken swiftly and decisively. Now is a time to lead by example. The world is watching and waiting for you to act.
The solution is rather simple, just as simple as the problem. However, no answer is available for free. Hint: The trail. I’ll tell the solution when payment for the information is received.
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.