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Restoring Trust Is a Matter of Patience

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Monday, 01 Feb 2010 01:26 PM Current | Bio | Archive

The 40th World Economic Forum (WEF) Annual Meeting ended Saturday in Davos, Switzerland.

Here are some interesting quotes from the event:

• Lord Levene, chairman of British bank Lloyd's: “We need good regulation, better regulation, but not more regulation.”

• Stephen Green, chairman of HSBC: "The market cannot police itself. It needs a regulatory framework for the markets. So the governments need to make sure the right regulations are in place for the financial development, but the regulations themselves cannot guarantee the good behavior. All they can do is to make sure certain things don't happen. So, there's a real responsibility on the leadership of banks to recognize that they have economic and social responsibility and to ensure their business is conducted professionally.”

• U.S. Congressman Barney Frank: “We are determined to do strong, sensible regulation.”

He rejected any notion that the U.S. government was threatening to choke off growth by putting too many controls on the banking industry too quickly.

• Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF): “If we exit too late, public debt will be higher... But if we exit too early, there is the risk of a double-dip recession. In that case, I don't know what we can do because we have used all of the tools. The probability is low, but the risk is high... Growth is better than expected, but still fragile.”

• Jean-Claude Trichet, head of the European Central Bank: “We must have global rules to treat global issues. This is absolutely essential. If not, it's a recipe for catastrophe.”

• French President Nicolas Sarkozy: “The prosperity of the post-war era owed a great deal to Bretton Woods, to its rules and its institutions. That is exactly what we need today; we need a new Bretton Woods … We can’t have on the one hand a multipolar world and on the other a single reserve currency on a global level … We cannot preach free trade and tolerate monetary dumping. France, which will chair G20 in 2011, will place reform of the monetary system on the agenda.”

• Chinese Vice Premier Li Keqiang: “We should promote more open market ... Trade protectionist practice will only exacerbate the economic crisis, slow down the recovery process and ultimately harm the interests of the very countries who apply such measures.”

The eight-year-old Doha Round of trade negotiations currently remain stalled, with 153 WTO members widely divided on complex issues of farm trade and industrial market access.

A 2010 target to conclude the negotiations seems increasingly impossible to be achieved.

• People's Bank of China Deputy Governor Zhu Min believes that the tensions that are still evident in financial markets today are the result of U.S. monetary policy, not Chinese currency policy.

Moreover, he also believes that the actions taken by the Federal Reserve over the past two years risk creating a second crisis.

• Brazil Finance Minister Guido Mantega said he is not concerned about its current account deficit, which should have the benefit of weakening the real.

He also said that Brazilian fiscal stimulus — in the form of tax cuts and tax breaks — would not be renewed.

“We are not concerned about it because we have strong reserves,” he said.

“This deficit will help the exchange rate because there might be a (market) devaluation of the real," which would make Brazilian exports more competitiveness.

• Former Mexican President Ernesto Zedillo said the obsession with the debate over markets versus governments misses the point for most developing countries. Private initiative is the critical driver of growth, he said.

But “we are not going to have a strong economy if we don’t have a strong, functioning state, with the rule of law.”

• Paul Bulcke, CEO of Nestlé SA: “The definition of a pessimist is an optimist who went to Davos.”

I’d like to add that Davos made it clear there is still a lot to be done on restoring trust.

We’re starting to see the wheels of reform grinding slowly.

There is a chance that the current intended reforms could deliver decades of stability while still permitting innovation.

Remember, it was transparency that allowed the reforms of the 1930s to adjust to innovation in securities and trading.

Once again, we need transparency to make the present round of reforms work and yet change, to “bend without breaking.”

For this year, politicians and finance officials are focusing their attention on the currency markets and, inevitably, also want to have a greater say in how they operate.

We should fully expect these themes to take center stage.

For the rest, we’ll have to be patient.

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The 40th World Economic Forum (WEF) Annual Meeting ended Saturday in Davos, Switzerland. Here are some interesting quotes from the event: • Lord Levene, chairman of British bank Lloyd's: We need good regulation, better regulation, but not more regulation. •...
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2010-26-01
Monday, 01 Feb 2010 01:26 PM
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