The Bankwatch

The Forum is an intense 4 days, and this year probably more so than most – even folowing it by written word and video as I did was intense.  There were some clear themes, and some clear leadership from surprising sources.  The surprise was the Asian contingent and their discussion of global co-operation. Prime Minister Aso of Japan, Premier Wen of China, and Prime Minister Putin of Russia all summarised the crisis well, and spoke clearly about solutions comprising both domestic programs to boost GDP and consumption, and global co-operation to re-arrange global finance

Tony Blair was another bright spot as he spoke about the need for not just regulation to solve for the last crisis, but sets of principles and values that would help us to avoid or minimise the next crisis..

The abject failure in my mind was Gordon Brown who showed no understanding of how things work, choosing to quote Churchill, classic artists and Latin to make points but they only served to emphasise his sticking to a clear “on message” that was designed to divert attention from the British economy to one of a “broken banking system”.  Not once did he achnowledge the consumer debt issue in the UK and US, nor does he acknowledge UK has an economic problem.  He stuck to his usual refrain of regulation that transparency, disclosure, cross border approach, but it came out sounding as buzz words, with little depth.  On a side note his comments on government ownership of banks left little doubt he is prepared to completely nationalise them.

The presence of country leaders from all over the world thihs year, highlighted the belief in revised global structures.  This could be the silver lining in the crisis by highlighting the international interdependence that is driven by the worlds banking system.  Clearly the intricacies of those connections mean that no one country can regulate and manage itself out of this crisis.  Just to pick on Brown again, he made the mistake of speaking of unwinding the Chinese current account surplus as part of the solution.  Clearly solutions and deficits will always exist, and taking a broader view of that matter might make better sense that focussing on one country only.  This would be one difference between regulating the last crisis, versus regulating for now and the future.

It was nice to see Mike Arringtons session on digital life style and moble internet going mainstream.  One a side note, his show of hands survey showed diverse mobile devices, with blacknberry #1, iphone #2 and others a distant 3rd.

In general though the forum was a good reflection on where the world is at, and it is clear that banks will come out of the regulations to come, looking different that they do today.  There was no discussion on the merits of regulation, the form of regulation, scenario’s on IMF 2 or Bretton Woods 3 which surprised me.    The conference was in summary an acceptance of the problem as a global one, but it appears that the G20 meeting in April may be the first time we will get closer to specifcs.  However it was a good snapshot that covered every continent of the world and highlighted the breadth of issues that must be addressed.  I fear though that the focus will knee jerk shift from last years’ focus on poverty and environment to one of economy.  It might be some time before we see comprehensive planning.

The Values Behind Market Capitalism
Tony Blair, Stephen Green, Indra Nooyi, Shimon Peres, James J. Schiro, Jim Wallis with Maria Ramos

Tony Blair – introductory remarks on the Values of Capitalism

• tendency to want to staate at this conference – “The End of Capitalism”
• it is normal and intelligent to reflect on the system
• New world, but we have been taught old lesson – that values matter
• we will build new regulation that will solve for the last crisis because that is what we do

• Old lesson was enlightened self interest, sense of long tgerm value, transparency – financial system at the service of the wider economy, and society.  Old lesson that we have re-learned again
• free enterprise has not failed – financial system has failed

1. The concept that the wider interest is as essential as the narrower shareholder interest – enlightened self interest
2. This ciris is global in nature – this is new and not seen in earlier crises

• globalisation has moved ahead of the capacity of the political system to manage
• it would be bizarre to speak about the G8 – in the space of a few months the G8 is unthinkable unless broader membership
• important – getting the right strategic relationship between US and China – big challenge for US administration
• 2nd thought: increased globally – shared purpose and shared values
• need enlightened self interest
• we need stakeholder capitalism – wider interest – not narrow shareholder interest
• important – getting the right strategic relationship between US and China – big challenge for US administration
• 2nd thought: increased globally – shared purpose and shared values
• need enlightened self interest
• we require shared purpose and shared values including justice
• Africa is important is not just about Africa – it is an essential expression of our belief on the global community
• revive a concept of free enterprise that has enlightened self interest and stakeholder broader view of success
• target would be a prosperous and just world

Stephen Green, Chairman HSBC

• How do we deal with the incentives in the system that do not addess the ;points raised by Tony
• the system allows the value of a transaction to be the only measure
• need to overhaul the regulatory environment, Basel2, Accounting – but no amount of rules will enforce good behaviour.  Rules will not institute values.
• sustained economic development in the world requires an international capital market system
• need profit growth, but we need to think about the broader responsibilities
• translates into compensation issues
• things will not bounce back to the way things were – need to bounce to something

Theme:  Capitalism is required, and well functionaling international markets are rewquired.  Regulation in and of itself is not adequate to provide for the riht kind of system.

Themes I have picked up from the World Economic Forum on day one from blogs, speeches, and other comments.  Anyone attending in person and reading this, I would love to hear your observations and perspectives in the comments.

1. government | the worlds orientation towards government economic support and regulation is at once welcomed and a concern.  A powerful sub concern is that of untended consequences – there is a general sense that the level of government support towards bailouts will create problems in the near future that we do not understand.  [my contribution - there will be rampant inflation during 2010/2011 as interest rates are ramped up significantly and home currencies revalue in consequence.  This in response to  refinance of bonds printed to ease credit crisis and bailouts]
2. small business | support is directed at large business yet the engine of world growth is expected to be small business, especially in developing countries.
3. bankers credibility is shot | typified in the comment “Do I really want to hear a banker tell me about the financial mess?”
4. Crisis | will get much worse before it gets better.  “First we had the financial crisis. We still have that plus an economic crisis. Now we’re getting both plus a political crisis. This is getting ugly.”