Opinion

James Saft

from Davos Notebook:

Overheard in Davos

Jan 30, 2009 08:11 UTC

One of the best things about Davos is the conversations you overhear. It's like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:

"So, how much trouble are you in?"

The banker responded in what sounded like soothing tones but I couldn't make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:

"The prices are very low, but there are no buyers!"

That's it, in a nutshell.

from Davos Notebook:

Hank Paulson is not Gavrilo Princip, Lehman is not the Archduke Franz Ferdinand

Jan 29, 2009 15:33 UTC

Was letting Lehman go down the biggest mistake of the crisis? Many, including George Soros in the Financial Times, have argued that letting Lehman go down sowed panic to markets, consumers and businesses.

Not so fast, says Harvard historian Niall Ferguson, in an interview in Davos:

"My position is this is a typical error of historical understanding in which a single event is blamed for much more than it can possibly have caused. You can say ‘Hank Paulson is to blame for my troubles' and if you can change one thing in the story it would have a happy ending.

It's like saying if only Princip had not shot the Archduke Franz Ferdinand in 1914 there wouldn't have been a First World War.

from Davos Notebook:

U.S. – They’re skint, they’re frugal, get used to it

Jan 29, 2009 10:31 UTC

Good session on the "Frugal American," an as yet undiscovered species that is coming to a global economy near you.

You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That's called a recession, but how long will this frugal thing last?

Ian Davis, the MD from consultants McKinsey & Co was blunt:

"Americans have no option but to be relatively more frugal over the next 10-20 years." This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.

from Davos Notebook:

It’s never too late to blame Greenspan

Jan 29, 2009 09:55 UTC

Alan Greenspan hasn't been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year's World Economic Forum in Davos.

Polish Finance Minister Jacek Rostowski yesterday:

"This was the failure of one of the key institutions in the world." During the Greenspan era he said they continually met downturns and distress with easing and "eliminated fear."

Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp:

Whose job is it to stimulate Europe?

Jan 28, 2009 17:12 UTC

So do countries which can borrow money more cheaply, Germany for example, have a higher obligation to borrow, spend and make things better for everyone across Europe?

Polish finmin Jacek Rostowski, speaking in a session on the outlook for Europe, seemed to think so:

“Fiscal policy … some countries which are far more able to afford increases in govt expediture and budget deficits than others. We should apply the principle that those with the lowest debt financing costs should consider the most expansive policies.”

Shocker – Davosians vote against more regulation

Jan 28, 2009 12:49 UTC

Duncan Niederauer, chief exec of NYSE Euronext, told a panel here at Davos that rather than inventing a whole host of new regulations, we’d be better off focusing on existing means of bringing order to markets, specifically taking a page from the exchanges books by having central clearing and more price transparancy for derivatives and off-exchange structured products. I think he’s actually got a great point about clearing and better price information, but I can’t see this as being anywhere near bringing regulation up to scratch.

The response from others on the panel was similar.

Nourial Roubini of NYU – “The ideology of the last decade was self-regulation which means no regulation. Reliance on ratings agencies with massive conflicts of interest.

“If we don’t want a backlash against trade we have to have prudential regulation of the financial system.”

Stephen Schwarzman’s hair of the dog

Jan 28, 2009 12:33 UTC

jimsaftcolumnSo what is Blackstone Group chairman Stephen Schwarzman’s prescription for solving the banking crisis?

More leverage and less transparency, apparently.

Schwarzman told a panel at Davos that you can’t mandate higher levels of bank capital at the same time losses are mounting and that mark-to-market accounting needed to be changed.

“You need lower capital. Do something with fair value accounting which is exacerbating things . . . We have to add more leverage to the system.” He further took issue with what he described as a “fixation on transparency” and said “We have to use regulators to schedule out losses.” By that I presume he means keep the bank on life support until they can make enough to absorb their losses. It did work in the 1990s with some prominent U.S. banks, but…

Stephen Roach – protectionism a threat

Jan 28, 2009 08:05 UTC

Stephen Roach of Morgan Stanley, who pretty much called it at last year’s Davos, when consensus was for no recession in the “real” economy and decoupling of emerging markets, is gloomy again. Speaking with him this morning after he did an interview with Reuters on Davos Today, Roach said that there was a real threat of protectionism as politicians come under pressure from rising unemployment. The U.S. and China relationship will be key, he said.

On U.S. real estate – a continuing issue for banks and the economy:

“The interplay between the property and financial sectors has been ground zero of this crisis.

The problem was the banks played the property bubble just like consumers did and so we are all in this together.”

Could Davos mark the bottom?

Jan 27, 2009 12:18 UTC

It is, no doubt, going to be the most gloomy World Economic Forum in years ever. Fewer parties, lower profiles for the masters of the universe TARP.

OK, don’t get too excited but is it just possible that Davos is meeting at the bottom point for the global economy, which means, for those of you keeping score at home, that things might actually get better from here? It’s not much to go on, but some of this morning’s German IFO numbers were encouraging, particularly the forward looking expectations bit. Further, US home sales were higher than expected yesterday, though that is likely just the beginning of a foreclosure sale boom that will wither values and bank balance sheets. Credit markets are a bit less clogged too.

Weeellll, probably not really. A bottom isn’t a recovery after all and for one thing we’ve yet to get the inevitable multiplying effects fully from crashing demand in emerging markets. Still somewhere under that snow shoots must be forming, right?

Balance of power upended at Davos

Jan 23, 2009 12:35 UTC

So, back we go next week to Davos for the World Economic Forum 2009, titled this year “Shaping the post-crisis world.”

Except the crisis ain’t over yet and shaping the world while it is happening is proving to be about as easy as tying your shoes while riding a bicycle.

Let’s dial back briefly to those more innocent days in 2008 and remember what was being discussed at Davos then.

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