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It shall begin.
Albert Einstein, whom many feel
is the cleverest man ever in the universe,
was a pretty scatterbrain professor.
Once he gave his same students twice in a row the same questions
for the final exams
and when his assistant drew his attention to this,
that the students already knew all the questions,
he only smiled and said
"No matter, the answers have changed."
So I ask myself if we want to talk about the world
after the financial crisis here with all these
eminent representatives from different walks of life,
are we not like Einstein's students?
The questions are the same but the quantum economic storm
has swept away all the old paradigms
and we have to come out of this black hole
and redefine everything anew.
So what we have here are the Einsteins from all their specialty fields,
the cr�me de la cr�me.
I'm very happy about this.
Each one of them is so excellent that we could just sit there
and listen to them for hours and hours.
But I still think that the best monologue
of the best speaker will be topped by a dialogue
between two excellent speakers so I will intervene,
at times even after a minute and pass the ball on to another panelist.
It doesn't mean that you may no longer speak
but I just hope when everyone will be here,
these six brilliant participants will be intermeshed like clocks
of a sophistic Swiss clockwork
so that together we can find out for whom tolls which bell.
The Minister is about to arrive.
As a Swiss,
I will alphabetically present the panelists.
I'm after all neutral.
I would like to welcome the most successful CEO
of the Turkish Bank, Mr. Ziya Akkurt.
Then we have the Supremo of the Swiss Bankers with us,
the President of the Swiss Bankers Association,
Patrick Odier.
And then one of the voices one hears most in Germany,
the Vice Chair of the Council of Protestant Church in Germany,
Nikolaus Schneider.
Then when it's a matter of jobs, the most important man at the UN,
Director-General of the ILO, Juan Somavia.
And last but not least at all,
the Einstein of all market theoreticians, f
ormer Chief Economist of the World Bank,
former US Adviser and Nobel Prize Winner for Economics
Joseph Stiglitz.
Ladies and gentlemen,
Nikolas Sarkozy yesterday here in Davos
spoke about ethical and moral capitalism
and I wonder whether that is not what an oxymoron is,
a contradiction in terms.
Can it exist, moral ethical capitalism?
Let's ask our Supremo of bankers, Mr. Odier.
What do you think?
I think as you ask me to answer in English,
I will start in English.
I think we have to be very careful that we don't antagonize morality
with any industry and that we come back to the reality
of what has happened and perhaps qualify your question in a different way
and I would suggest the question has the society,
has the banking industry or the financial sector loose
some sense of responsibility.
And I think in this respect, responsibility would probably call
for more comments than moral
because I don't think you just can't oppose the two.
But you would say that there is a moral
it's not a contradiction, capital can be good and...
Absolutely, I think that capitalism, if well organized, well monitored,
well defined and controlled can be
of high value from the moral point of view.
Joseph Stiglitz, you're a very interesting guy.
All are interesting here but I mean you are critical
about globalization but not against it.
So in your view, can capitalism be good and moral?
One way of thinking about this is to go back to an idea,
a very old idea of Adam Smith where he argued that individuals,
in the pursuit of their self-interest,
would lead as if by an invisible hand to the wellbeing of everybody.
So in his view or this particular view,
then all the people had to do to pursue the general interest
was to think about what was in their own interest.
I think we now understand why Adam Smith was wrong.
And...theoretical pointed out one of the reasons
that the invisible hand often seems invisible is that it's not there.
But the real point...
What is there?
Nothing or the hand of the powerful or...
Well let me say I see this perhaps from a particularly American view
because we were at the center of the storm
and we saw a lot of the banker financial sector did.
Much of what it did was just the pursuit of self-interest,
excessive risk taking,
short sighted behavior that imposed enormous cost on the rest of society
so rather than reading as if by an invisible hand
to the wellbeing of society led to the destruction of our economy.
But what disturbs me,
these are cases where you might say the incentives got wrong,
the regulators didn't stop them from taking excessive risk
but there was some aspect of what happened in America
where the issues in morality really do get raised
and that is that many of the banks targeted the poorest Americans...
mortgage prices.
The banks looked around for the least educated,
least sophisticated people and try as...
there's this expression about there's money
at the bottom of the pyramid.
They discovered that there was money at the bottom of the pyramid
and they decided it shouldn't remain there,
it should move to the top as quickly as possible.
That's not very ethical, is it?
No, it wasn't very ethical.
Let me check then with our Swiss banker,
your fellow American bankers, have they been unethical?
Again I think it's more a question here of responsibility,
probably irresponsible in trying to pursue the objective
of the short term profitability of their institutions
for the benefit of their...
I do think that when they targeted the poorest people,
and we have clear evidence that they did,
they were acting unethically.
I think most of what was irresponsible,
reckless but there was this whole aspect of predatory lending
that in a way... the irony is they got hoisted
on their own petard but it was clearly predatory.
We knew it was predatory.
Many of us were trying to get legislation through
to stop the predatory lending and they used all their political power
to stop the legislation to stop them from exploiting others.
They have five lobbyists for every congressman and they succeeded.
So to me,
that is where I draw the line between irresponsible,
which is I think most of what went on,
but the unethical which is this case where you were targeting
the poorest Americans and they continue to do that.
Yes?
Can I just react? I would agree with, of course, Professor Stiglitz on that,
the distinction of words. I just think it's very difficult to start
regulating ethics. In other words it's probably easier to start
from the responsibility point of view because the responsibility calls
for fixing objectives, fixing limits, and judging upon the results
reached by the one exercising the responsibility
within targeting objectives. And in this respect, it's much easier
not only to set regulation but also to measure the results.
You don't like, what I can understand, the ethical view too much
because otherwise you are going to be baptized on the scene,
you the bankers.
No, I don't know, I certainly don't feel the bad guy at all. I think ethics
goes per se. What I'm saying is that it goes per se,
that society should not accept unethical behavior from any industry.
But what I'm saying is that if you want to correct
some of the misconducts that were at the origin of the crisis,
it's easier to go with the issue of responsibility. How do you fix it?
How do you take it? How do you get accountable?
How do you measure it? And how do you punish lack of responsibility?
You see, my own feeling - one of the issues here though
is to what extent can we rely - you might say trust that they
will behave responsibly and to what extent do we need
to pass laws that restrict what they can do. So in this case,
I wish didn't have to pass laws against predatory lending
and trust their sense of ethics. But I don't think we can
and there's always a worry that there's a race to the bottom.
The guys who are least ethical will be, in the short run,
maybe not in the long run, in the short run able
to get those extra profits.
Just let me add, I guess responsibility
is an ethical category so if you don't behave
in responsibility to your duty to your fellow people duty
and to the duty of the whole creation then you are not ethical
in your behavior. So it's really an ethical category and then you can see
how it is interlinked. And ethical means it is something - the behavior
of a human being and because systems are ideas of human beings,
a mechanism worked out by human beings their ethic can flow into the system
or not. So there is a possibility and it always will depend
on how we act and react. So I guess theirs is no such difference.
You'll see it.
What is the opinion of the ILO boss?
Well let me say that I think that this model of globalization
in which we're operating has in fact lost its moral compass.
It doesn't have it. And we should try to answer the question by looking
at what's happening in the world. Half of the world of the labor market,
of the interest of the labor market and in the labor market
are in vulnerable jobs, the levels of poverty worldwide are well known,
the impact on the environment is well known, the dignity of work
is not particularly respected, and I could go on and on,
all of you know that. So can we say that all of that is very moral?
I would say no. We have very bad results and consequently -
But the question will be is there a system that would produce
better results? Thinkable -
No the questions, I mean, we can have a theoretical discussion
or we could look at real life. And what I'm trying to say
is real life is telling us that there is a moral compass
that is lost and let's try to solve that problem. And I think that we have
to solve it by recognizing that this model of globalization,
the way it has been put together, is unfair, is unbalanced,
and became unsustainable. The big question we have in front of us
is "How do we want to be in the economy that has different bases?
And if one of the questions that you ask of that new economy
is how is it that he can have a moral compass,
I believe that it's a perfectly legitimate question
because we've lost the moral compass.
Mr. Akkurt, I have to warn you, I'm a journalist.
that means simple-minded professionally. As Swiss historian, JACOB BURCKHARDT,
said, we simplify everything so we need a bad guy and a good guy
in every story.
I mean public opinion thinks that bankers are the bad guys
so you're a potential bad - not you personally, present bankers
are exempted here, but I mean the bankers as a class,
they have really done bad things. Is that a fair judgment or not?
I think, firstly, it you would not mind I would like to go back
to where the problems are stemming, to the roots of the problem
and to make the right diagnosis and then let's discuss
whether it is hazardous for the moral or not. The point is that first
there was a high liquidity in the market and then it truly went
to the United States, mainly to the investment banking system
so they had to deal with this money. So what they did was to clear
a lot of instruments to utilize, to give this liquidity to the market.
Another side which we are not discussing one thing,
those *** kids who did those interesting deals
was pushed by the investors. They were all saying that
"Your ROE should not be less than this" and they were pumping them
to be about 20%, 25%, 27%. Now in an environment
where the interest rates are 5% or 6%, how somebody can create 20%, 25%
return on the capital.
Ladies and gentlemen.
Let me introduce a little more formally, because the French like fanfares,
I have prepared something in German, please welcome with me
and with some applause proofs that the deep friendship
between Switzerland and France has not been made to topple
simply because of some vagaries about bank customer lists,
welcome the Minister for Economic Affairs from a country
whose President yesterday, those on the right,
rebuked very seriously derailed capitalism,
the woman with the most important ministerial office of the whole nation,
former manager and who speaks English perfectly, Madame Christine Lagarde,
Minister of Economic Affairs, Industry, and Employment.
There was a general or an officer of the French Army
who accompanied the President yesterday when he entered the stage yesterday.
I will start with the first question I had asked this gentleman
which was your President actually.
Was more moralistic capitalism?
He said capitalism is good but something has gone wrong.
It was unethical. And I said is this not a contradiction in terms,
moralistic and ethical capitalism?
Well first of all it's very nice being with you, it's been a long journey
to here and I'm delighted to be here. Back to your point and thank you
for the introduction. I understand little of it but I got a few words.
It was very positive.
It sounded positive.
I always start positive and then I get critical.
Back to your point about moral, moralistic, the morality of moralization
and capitalism on the other side.
I personally don't think that capitalism is moral or that there is anything
connected between capitalism and moral and moralism, moralization,
however you call it. I very strongly believe that it is the man and woman
who operate within capitalism, associated very often
with the free market economy which I think is a bit different,
that bring the moral element about it and that introduce morality or not,
that's exactly the point. And to move from not to bringing
morality about, I think the rules and the enforcement of rules
is the right gateway to making sure that capitalism is not amoral
because man will be involved.
And do you join your President in anything? I mean was he right
in his analysis of capitalism? Have things gone really wrong?
Well I join my President. I was with him yesterday actually.
And I join him in the thinking and in the articulation of principles
that he presented yesterday. Having gone through the process
of the crisis and the emerging out of the crisis and trying to make sure
that the economy is back on its feet with him and supporting the policies
that we have supported both as President of Europe
at the time when the crisis hit and later on as members of the G20,
I strongly believe that we have to move from the excesses
that we've experienced and that we are still suffering today
to a more balanced situation and to use the word "ethics."
And I always think of Aristotle in his "Ethics to
whatever you say it in English. Yeah, that's right.
In which he really describes number one, the principles of ethics
which has to do with the moral character deriving from Greek
and number two, where he - and that's the part that I find
really interesting, where he identifies what is the appropriate distribution.
And I think distribution applies to either goods or services or profit
or money and everything else. And he identifies that
as the appropriate balance between the too much and the too little.
And if you put all that together, you're back to fair and balanced.
And to me the struggle that we're facing at the moment
is to find a system that actually guarantees the fairness
without sticking to what we call the fair value
which is totally different from the market value.
And that's a little bit of - you know, making fun of this fair
value/market value, and the principle of fairness.
And clearly the principle of fairness and the principle of balance
that we need to reach in many instances and in many situations
that we've experienced is totally different from this issue of market.
And clearly between fairness and market, there is a massive difference
that I think we should explore.
Do we need new laws in order to get to this new kind of fair position?
I think we need to number one, agree that this fairness
and this balance and this measure need to be restored. Number two,
I am not pursuing regulation for the sake of regulation
or asking for more laws because we like laws and we are very good
at producing them, that's what my people are telling me,
my services, that's their job, they have to give me new bits
of legislation so that I can be a good minister.
That's a French model, a lot of laws.
Yeah, yeah, yeah, yeah, now I know. But it was also
who said that we should only draft the law with a shaking hand
because we shouldn't produce too much of it.
Did he say that?
Yes, he did.
Oh, did any one read it?
But we need to make sure that the laws we have are implementable and forcible,
efficient and provide for what I call the level playing field
so when we don't have so many discrepancies
and competitive advantages or disadvantages
that people actually arbitrate between them.
Thank you very much.
Sorry Mr. Akkurt, I had to interrupt you but the minister has -
Priority of course.
No, no.
Welcome, Madam. Yes I was talking about the returns and the profitability.
Why those returns and profits are important?
Because all those companies are traded in the stock exchange
and then the valuation of a company is very important to determine
their price in the stock exchange, at what level they have to be traded.
So it is called as the Gordon Method.
I think this is the starting point of this moral hazard.
So to increase these returns and equity ROEs
the guys try to increase the liquidity and then create another way of
but while these -
Who at the first time you said the investors,
who were these guys who pushed the bankers?
Who put money to a company, who buy their shares from the stock exchange,
I mean the people, all the world, the people who are investing,
having money and making those companies.
Every one wanting to be a part -
Maybe you are also investing in the UBS, I don't know.
I wouldn't want to comment on UBS.
Anyway so let me conclude and while those things are happening,
the public authorities, they were all,
did they take any action? Did they say "Hey guys,
what are you doing over there?" how we are creating those things.
Let's come and discuss it. So unfortunately,
as everybody was happy because everybody was making money,
everybody was enjoying, people are getting their houses built,
people are getting their cars while the banking system was pumping
the money to the system, so everybody was happy.
But I think the problem started that especially investment bankers
rather than the banking, banking used to collect money
and then to give credit. The manufacturing industry,
trading money, but this was a very scarce item under work
so one day it ended so this is where we have this problem.
So when the problem came out, everybody began to think
"Oh, why, these guys did it" but who pushed them to do it.
Why they did not control it? One word and then I will leave the platform.
No, stay with us.
You know when capitalism first came out, there was a French word
and then what was actually done in the capitalist world
everybody was left to do freely because everybody was happy
at the time that we have to pay it. So we cannot blame only the bankers
that they are guilty. I think we all have to look
at that we all have the responsibility here and those responsibilities
have to be controlled by the regulatory authorities in a regulated environment
and I believe, Mr. Sarkozy is underlining
that the environment has to be regulated.
He may have a good point here,
I mean we all say "Oh, these bankers" but everyone - a lot of people
wanted to get rich with this party we had.
Yeah, you told us, you know, I have some discussion.
Let me question the word "everybody." Not everybody, certainly not everybody
benefited from the system that we have. There has been an enormous amount
of wealth creation that has been very badly distributed
and this is one of the points that President Sarkozy
was making yesterday. Let me just give you one example.
In the last around 25 years, the percentage of salaries in GDP
has been going down and down. Suddenly, with this crisis,
it became clear there was a demand crisis also and part of it was that,
yes, workers and middle classes had less money to consume.
One of the biggest issues today is that the construction
of the middle classes is coming to a stop. So just to say
"Yes, a lot of people benefited from that model," certainly not everybody.
I would very much want to underline that as well and I'll do it in German
if I may be permitted. If everyone has the same responsibility,
no one has any responsibility and that's not the case.
Now some people bear a lot of responsibility,
they create these systems, they create the new tools
and they have the responsibility for the tools that they use
or introduce or impose. And they cannot say "Well,
if you're stupid enough to buy this stuff
too bad for him. So if you create an instrument
then there is responsibility for it so you cannot say
that the responsibility is the same, borne by all in the same way.
Furthermore, investors are different.
There are the major investors who can put on a lot of pressure
and then there are small investors who would like to have more of a share
but no one takes notice of them. If you can go to a bank
and have little money, you don't have any clout
to get anything and those who come with piles and piles of money
have a different kind of power of negotiation. So one has to look
at this is a more differentiated way. So everyone is not just anyone
or anyone is not everyone. Every human being would like
to get something and can be tempted but in the same way, every individual
can also bear responsibility, assume responsibility.
So if Mr. Akkurt says that the Deutsche Bank needs 25%
of return on equity, well, that's a model, that's an example
that has to be followed by everyone else and that's why I would refute that.
There are different types of responsibilities
especially at the executive level, also amongst politicians and especially
amongst those who invest such tools. And you may not sell poison
and junk bonds and toxic assets are poison.
Well, while you have a scapegoat its' always easy to say
"Well they've got the money, it's their fault"
and therefore deny that one has any responsibility.
Yes, of course, that's true too. Mr. Odier.
In English,
something in Turkish maybe? No. What would you say
to the point of your fellow banker, I mean, the bankers
just put the liquidity in but they were pushed by others.
I think there's no supply without demand and in this respect.
I think there is a shared responsibility that starts with the financial sector
certainly. Again, in terms of measuring the impact of the activity,
the risk of the activity and the limits of the activity correctly,
in an environment, if we go back to the origin of the crisis
which was politically geared towards making liquidity available
to the widest possible scope of people, rightly or wrongly. Low interest rates
was the political objective, property and in particular real estate
property was meant to be a tangible sign of wellbeing and this combination,
together with the wrong behavior or the wrong responsibility
for some institutions, in particular in the States, somewhere else also,
conducted to the crisis. So, yes it could not have happened
if there weren't a demand. Now to generalize that is perhaps
too much of a simplification but let me take another example.
I think that, again, if you want to take the lessons
of what has happened, if we were to go back
to the notion of responsibility, we should probably make sure
that the people who have to or are paid for taking decisions
relative to the distribution of products, relative to rendering
financial services, one is clear on the overall objective
of the financial sector which is basically to make liquidity
and financing possible for the economy and two, are accountable
for how they make it. And that's where I think regulation should start.
We forget in this that we are not in the debate where we should simply say
who are the bad guys and the good guys but we are in a debate
where we should find, as the Minister said before,
a balance between what is good in the system today,
in particular making liquidity, making finance available
to the widest possible scope of people and what went wrong that these abuses
or lack of competence or lack of responsibility.
Very good. We will shortly come to the point that we have to repair
the whole thing but Professor Einstein -
Well first I think beyond the crisis itself, we have to recognize
that the financial sector did not fulfill its basic
societal functions. It did not allocate capital well. It did not manage risk.
It resisted the creation of an efficient payments mechanism which would cost you
just a few pennies to move money from your bank account
to a merchant's bank account. And with a Visa or MasterCard
they charge us 1% or more. It's abuse of monopoly power.
They are supposed to do all this at low transaction costs.
They have 40% of all corporate profits. So I think if you look at it broadly
not just in terms of the crisis, I think you have to say
it was dysfunctional. The second -
He just wants to answer on that and then we come back to you,
Can we really generalize that point of view?
I don't say that every bank, some people are venture capital firms
for providing funds to create new enterprises,
there were some small banks among those who have been killed
were among those who were behaving well. So I want to make it clear
that there are many parts that were doing their job
but the system as a whole, looking at it from a macro point of view,
didn't do its job. At a certain point, I want to come back to your remark.
In the end we have to say that the banks didn't even serve
their shareholders, their bondholders well so they may have been asked
by the shareholders to do certain things but there is a sense, I think,
of responsibility of somebody who is in charge and is supposed to be
an authority on managing risk, to say if we have that kind of leverage,
I can get you the return you want but there is no way that I can get you
a 25% return without huge leverage. And huge leverage is huge risk.
If you have that kind of leverage that
had, 3% or 4% change in the value of the assets wipes you out.
In America, risks at markets went down 30% or 40%. And that leads
to a broad view that I think is at the core of modern capitalism
and I think you should distinguish between 19th century and 21st century
capitalism. Most corporations - there's a separation of ownership
of control. Most people don't own their own corporation
and that is a profound implication that means some of the consequences,
many of them are not borne by themselves but by others, other decisions.
Part and among the decisions that they have made,
at least in the United States,
is they've decided how to compensate themselves.
And they've compensated themselves in ways which induce
not only excessive risk taking and short sighted behavior
but also induce lack of transparency. They induce moving losses,
risks off balance sheets so that nobody can see it
and recording profits on balance sheet. They have, you know, when you get paid
by stock options, you have an incentive to try to get your stock value up.
And if you're getting your stock value up, what's the best way
of doing it? Come up with a better idea, that's actually hard.
Come up with a deceptive idea, that's relatively easy.
And that's what a lot of them did. And again, not all of them,
some of them were doing very well and one of the points I do make
in my new book "Free Fall" is exact to your point that the worse
are banks that wanted to behave and bankers who wanted to behave
in a responsible way and they did have that pressure that you said
and the question is "How would a responsible CEO respond
to that kind of pressure? What kinds of statements should he have made?
Mr. Akkurt, has your bank -
Now I would like to - why I said the public authority has a regulated
environment because if you do not perceive
as an advertisement of Turkey, I would like to give some examples
from my country. Firstly, I am
the number one bank in my country and we didn't involve
we didn't do this kind of toxic assets.
Didn't touch it?
We didn't touch it. But the environment in Turkey was very well regulated
by the government authorities, that was the case.
Before the crisis?
Absolutely. We paid a very bid burden in 2001.
After the last crisis.
Half of the banking industry has gone out that time so afterwards,
we established all the regulatory authorities,
independent authorities, they were all taught to be independent.
They did their job. So the capital adequacy ratio
from international standards is 8% but in my country,
by law it is 12%. There are a lot of liquidity restrictions
that which now, the international are trying to set for the whole banking,
for the whole financial system, but we did it. That is why
the public authorities, they had also their responsibilities. So the problem -
You the bankers accept these measures gladly?
We had to. Do we have another choice?
You have an authoritarian government and they say what to do?
They set the rules.
So the French could do it, I guess.
I have to tell you one thing which is not very well known
even by many bankers. This capital adequacy ratio 8%
was decided. It was found by a British banker, Mr. Cook,
and it took 10 years for him to set this international
settlement system and then the major discussion was what would be the capital
adequacy ratio. So that time, at that point,
the politicians of the world, they came together, not the bankers,
not the technicians, not the scientists, and then they discussed
what it had to be. And then finally the politicians decided it has to be 8%.
Why? Because there would be rather repercussions and negative effects
to the economy what the politicians are running that time in their country.
That's very interesting. There is a place on earth called Turkey
and they have had good regulation at the right time. So Madam Minister,
that brings us to the question why haven't you in France created,
introduced this kind of regulation a little bit earlier?
Well to the risk of disappointing you, I think we have actually.
Really?
Yeah. And following from the Cook ratio certainly there was
and we are now in
two and I'll be happy to talk about that.
Not too technical.
No, no, no, no. I promise I won't.
Okay, good.
We did have regulations and we did have the appropriate bodies
to enforce the rules as far as France is concerned but France or Turkey alone
didn't really matter. I hope I will not be quoted just on that phrase.
Because what was so different from previous crises,
the 2001 crisis in Turkey, the late '90s crisis in Asia
which actually helped in many ways those countries who survived the crisis
that we have just gone through because back in the late '90s
or early 2000, you set up a system, you organize regulations,
you make sure that you had an independent supervisor
and in many ways it was the same in Asia. So those countries
that had gone through sporadic or limited crisis back in the '90s
were somehow not immune but better protected
than those that had not gone through the crisis.
And you've gone back to strengthen the rules now?
That's number one. Number two, the major element about this crisis
is that it was totally global. It spread out very quickly
because there were many counterparts all over the place
that once one bank went down then went down around many banking places,
financial centers, and as a result, froze the system. And where I join Joe
when he says that banks didn't do their job,
well maybe they exceeded their natural job in the first place
but then they certainly stopped doing the job of moving money around.
Because once the crisis had started, they were all absolutely scared to death
that yet another one would fall and therefore they should not transact
with each other. And from that point on they stopped moving money around
and that's when everybody turned to the state because the state
and the government were the only parties whose signature was still credible
on the markets to say "Please organize the liquidity, make sure that money
continues flowing" because otherwise we just have to stop the business
and the economy would have stopped.
That's really what happened and the very unique thing about
this particular financial crisis is the speed at which it spread
and the global and depth - the globality of it and the depth
that it took in a very short timeframe. Now I would like to submit
First submit a question then you can go on with your -
but is France already happy with your regulation
or will you strengthen it a little bit.
We are strengthening it together with the others and we're certainly
strengthening it at a European level. We are modifying the supervision system,
we are modifying a lot of rules and the
two rules are being improved at the moment. Can you hear me?
We need a mike.
Okay. All right. So to answer your question about is France happy
with the rules as they are, no, and we are changing them
and our point is that they should be changed on a global basis to make sure
that we have this level playing field in which the players will operate.
So we're doing it at the European level but clearly, it has to be done
on a global basis and the United States has to move along and also apply
principles that will put all players at this level playing field principles
that are referred to.
Thank you. Mr. Somavia.
Yes just another dimension of the crisis that became very evident within the ILO
which is that the high level of benefits of the financial sector, 40% in 2007
in the United States, began to be a pressure
on the real economy policies. Most of those high level profits
are profits based on relatively short term operations
while real economic companies operate on a much longer perspective.
So this pressure, there was an enormous pressure on the real economy
to produce the types of profits that the financial system was having.
So you had a conflict between the short term perspective
and a longer term perspective of real economy. What happened there
in terms of work that then concepts like labor flexibility
became very functional to ensuring that real economy could shed jobs easily
because you had to relatively adapt your labor force to the levels
of profits that needed to be done. I won't say that this is in every bank
again, in every case of lending to private enterprise
but there was an atmosphere. The famous market expectations,
I don't know how many of you in the room look at business news, but the notion
"Did you meet market expectations or didn't meet market expectations"
has an implicit that the market, which is the financial market,
it's not really the economic market, are expecting that you,
real economy company are going to produce this level of profits.
And that, I believe, when we think about how do we manage
the financial system along with the future,
this is an essential point. You know the financial system
cannot be the reference point of benefit in terms of the real economy.
Do you - does the ILO have ideas how to regulate the playing field
in order to avoid this kind of -
You know we are not experts in the financial system
but I can tell you one common sense answer,
we want to see the financial system at the service of the real economy.
We want to see the financial system at the service of the real economy.
We want to see it recuperate. Every fundamental function
which gave it its public system which is you have other people's money
that you have to utilize and you have to utilize it in ways
that permit production to happen, jobs to create
and consumption to be established through the salaries that workers get.
It's pretty simple but I think that we've completely lost sight
that that is the function of banking.
Mr. Schneider.
Yes I think that some basic concepts have simply disappeared, have vanished,
that the banks are supposed to finance the real economy.
Interbank industry has taken on quite a different importance
and you should only be able to produce value when you have the joining of labor
and money and labor was totally undervalued and belittled
which also means a great loss of human values. And secondly,
I think Mr. Sarkozy meant to say this, the understanding that the market
in itself is neutral or blind, ethically blind and therefore
the market needs rules in the interest of those the market actually exists for.
Doing trading doesn't really have any meaning in itself.
Money should be at the service of human beings, of prosperity,
of wellbeing, of advancement of human beings and that is something
we see from the point of view of the churches.
And also how can the developing countries fit in?
How can those who are on the margin, on the periphery join in?
How can they have a chance of surviving? And the third point I would like to add
is what is the calibration for successful marketing.
We still have GDP and GNP but is still enough?
What about the consumption of a logical and environmental goods?
How does one bring a balance between the
of which? How can we bring back some balance to the imbalances
that we have created, for example the imbalance between what the people
in the developing world earn and those in the industrialized world?
All these things have to be seen and examined if we want to make
any progress. Now I don't want to do away with capitalism
for simple reason because it has emerged from the cohabitation
and the will of human beings. It's not something that has been imposed
in contrast to other centers but you want to take your regulation.
Yes, we need stricter rules in the interest of human beings
and economists and politicians have to see to these rules.
The person sitting beside me to the right is not an evil person.
I'm sure he's a basic good human being who doesn't want to do evil.
So you're saying that the economy banks and the politicians
and all political parties need to do something but why don't you just call up
Mrs..Macho, she is a Christian democrat and tell her she should
change the rules. Why not?
If she listens to me.
Well obviously everything is much more complex than that.
Just add to that point, I think it's not a question of having
a lot of regulation, it's a question of making sure there's a right balance
between self initiatives and regulation and I would add that it's impossible
to think that they will be only solutions coming
from within the industry. At this point we need to take into consideration,
take the lesson that society says too much is too much, the big risks
have not been handled correctly by the professionals.
Let's see how we can handle it better.
And one difficult issue is who should take the lead,
whether it's one country or whether it's one part of the finance industry.
Remember, again, I don't want to make too much of that case but yes,
some of the financial sector members have gone far beyond what responsibility
for what we'd call for but even during the crisis,
a big portion of the financial sector has played its role.
It has been a big part of the economy worldwide that could ensure
that there would be no liquidity crunch. This is not only because of governance
Why being afraid of new regulation?
I didn't say that.
You said not too much, that means often.
No, I said you need a balance between self initiative
and regulation and the difficult point is who should start.
So the point that I wanted to make is that one of the key lessons
from this crisis is that it has to be a global approval
of what are the basic rules in which we have to develop
the financial sector. It cannot be one country, one region, etc.
And those global rules have to do with what is the fundamental role
of the financial sector, how can you avoid the investors
or the savers to be disappointed or even endangered by the activities
and how do we ensure that the professionalism
with which the financial sector acts is guaranteed. I think if you treat
those three aspects, you go already far ahead of correcting
some of the weaknesses of what we've lived through.
Minister, what do the bankers in France say? Do they say
"Give us new regulation" or do they say "Not too much regulation?"
Not too much regulation, of course. I'd like to bounce back
from what Mr. Odier started. You say we should have a mix
of self regulation, the rules provided by the bankers for the bankers,
and regulation produced by governments in the interest of the general
population. I disagree and I agree with you.
I disagree because I think that self regulations has really proven
that it did not work, whether it did not work
because the rules were bad or because the people that were playing
by the rules were distorting the rules or whether there was no referee,
I don't know, but it didn't work. And I agree with you in the sense
that there should be a dialogue and an effort on the part of both
the community of bankers and financial institution
representatives and the government so that we can find the appropriate
technically sound principles, not too many, not too much
because we won't have a lot of it, but that will actually work
and make sure that we preserve the general public interest.
And I think that's the only way we're going to get out of it.
Now I would like to propose, if I may, a rehabilitation program
for the bankers because we need them, we need them to move money around
and we need them to do what they're best at which
is to take short term money and transform it into long term instruments.
And to rehab the bankers, if I may say, I see two tools --
to the cotton fields and the capital centers.
No, no, no, no, no. We need them to do the job and to finance the economy.
That's the Chinese solution.
But I would restore two things which I believe have gone off
the radar screen for them. Number one, rehabilitate and restore risk.
Risk in many ways has been split and sliced and diced and eliminated
and scattered around so much that no one really knew where risks were,
that was very much the subprime debate, CDS debates, and all sorts of ways
in which to ensure risks so that nobody had the risk
and when the music stops eventually we found out where the risk was.
So restore risk as part of the business and make sure that it is in there
because you cannot be responsible and have no risk.
Let me just make an acceptability check.
Would you want to be rehabilitated by the French minister?
I would love to be rehabilitated if it is the French Minister.
But the idea of rehabilitation is probably not very sympathetic to me
but I'd like to let the Minister finish before I react, if I may.
Okay, so number one is restore risk and just one example of that,
when you produce a new financial instrument, be required to keep
some of it in your own balance sheet so that you actually share risk
with those to which to whom you actually distribute the risk,
that one way of sharing. The second thing that I would suggest
be restore a better taking into account is time. I think, Juan you mentioned
the issue of time and the fact that there is this acceleration of time.
You mentioned stock options where you actually fiddle
and play so much that you actually raise your opportunities for gains.
I think time and - time should be restored. Time should be part
of the game very much because it is part of the banker's job
to actually not play with time but actually use time,
leverage money against time and I think time has gone a little bit too far
in the distance.
May I quickly react by just making - you're preaching a convinced banker,
Madam Minister. I have unlimited liability
or everything that the bank I manage and own has so I understand this notion
of risk than perhaps some of my colleagues. On the other hand,
the firm has gone through 42 crises in more than 200 years
so it has a notion of long term. It's precisely those two issues
that need a balance between self-regulation and regulation.
Let me give you an example. In Switzerland, we have taken,
on the last point, we have taken measures during the last few months
to make sure that we look at the wrong incentives that were perhaps
still valid into our Swiss environment. Let's be modest. Let's look
at the Swiss environment. And we've gone through a very quick,
very efficient, very deep thinking process together with our authorities
to make sure we address by order of priority one: the responsibility,
two: the long term, three: the risk. And the result of that is
that we have now in effect in Switzerland
since the first of January this year, a new regulation that exactly prevents
what you're saying so it's possible to act quickly
and it's to do it together and not as an imposed regulation
from a politician. We've done, by the way, the same thing
on the capital ratio as you know.
So I agree with you. Now let me make a side comment.
One of the lessons of this crisis is that risk was not so much absent
with the exception of some institutions, yes, in particular in the subprime
and in the toxic acid business. But what the problem was
is that the mechanism to assess risk were wrong.
And one very simple explanation, if I may because I understand
these things are quite from time to time complex, is simply the confusion
between value and price. And if you could already take measures
in order to make sure that we don't confuse
the value of something that you own against which you do lend
and the price that this asset can have in the market,
you would solve already a lot of problems.
Professor, before I open the discussion to the floor,
is this the right path to go, what these people agree on?
Let me just emphasize, self-regulation only gets you a little bit of the way.
We've seen it fail. The second point though is the reason we have regulation
for the most part is there are what economists call externalities.
The financial sector has effects on others.
One bank can have effect on others. Self-regulation focuses on yourself,
not on those externalities. And so, almost inherently,
it won't get you to the solutions that we want. There's one issue
that I want to take up that's being discussed a lot
around Davos and around the world and that is do we need to have
global agreement to get a good regulation.
We can begin by saying "yes." It would be far better
to have a global agreement. What I worry as I hear this
is in the United States they say it has to be done in Europe,
Europe has the United States, the bankers are just loving this.
I know, not you but the other bankers.
I'm not him.
Not anybody here but the other bankers because they know that we'll never
get agreement and therefore we'll never get regulation
and we'll go back to the way we were in 2007.
So you would rather start on a national level somewhere.
We have to start on a national level. It is the responsibility of each country
to protect their economy and their citizens.
Perhaps I think it has been taken very seriously. We have to control
the incentives that lead to bad behavior.
We have to make sure there's transparency.
If some other country wants to be non-transparent that's their problem
if it wrecks their economy but we have to make sure of two things.
One, that our depositors are protected. Two, that our citizens are protected
against, for instance, risky mortgages. Turkey ahs better regulations
than America. The very kind of mortgage that
was promoting were not allowed in some other countries.
Just talking about America, isn't President Obama
trying to create better regulation?
He's trying to now unlike on the too big to fail.
One of the replies of the bankers is "Oh if you impose
those regulations on us, we'll be put at
a competitive disadvantage." Now my response to that is first,
these too big to fail banks are also too big to be managed
and this is where the corporate governance issue,
the CEOs have done well but not the shareholders
and so I'm not sure that it even gives them a real competitive disadvantage.
No significant evidence - no evidence of the economies of scale
that would put them at a major disadvantage.
But the second point is if some other country
wants to have their own financial crisis and their taxpayers want to spend
their money on that rather than on education, health, roads,
all those other things, be my guest. I don't want the American taxpayers
to do what we've done and divert all of our resources to do that
rather than - I want to make sure that doesn't happen here which means
that we should not allow our banks to become too intertwined
with those banks that are in under regulated -
from under regulated entities. This will lead to a fragmentation
of global financial system but it's better to have
that fragmentation than to go through what we've just been through.
May I ask two questions to just argue on this point?
First of all don't you feel that if we go that direction
we will have arbitrage between regulatory environments?
And the second, would you agree that this is not a bank issue?
This is a too big to fail in general issue. In other words
that - I'm sorry to say but you have good examples in America
as we do have everywhere but it's an issue of what size
is to be managed so as to avoid a major taxpayers' involvement
in case of crisis and then what's the mechanism in case
that happens to unwind the situation without creating that damage.
I totally agree. It's not just the banks.
It's all the financial institutions. And not just too big,
it can be too intertwined, too correlated and that's another reason
why you need regulation. But what I'm trying to emphasize
and I would far prefer a global solution that would avoid the arbitrage.
But what I'm saying is that we can't wait five or ten years
for the slow process of global negotiation.
What I'm arguing is the finance minister in France
and the government of the US, each of these have a responsibility
to their economy and to their citizens
to do the best they can in an environment in which
if we can't get a global agreement, they really do have to protect
their citizens and their economy.
Just before we open to the floor, you don't have the luxury,
I understand in Turkey of self-regulation,
they regulate you but do you agree with what has been said?
Now I think all the panelists here agrees somehow
that there must be a balance between the business life and the regulations,
this is for sure. My question to everybody may be also
that for the audience that if you solve the regulation problem
if you solve the financial issue problem, do you think
that we will be really getting out of this crisis?
I think we have to discuss the financial institution's problem
is not the main core of this problem. Now the system, the economic system,
the capitalist system is in a different phase.
It is what I call the world is just on the edge
of a real and new renaissance.
All the life standards, all the perceptions,
all the benchmarks are changing and first it started
with the financial institutions but it will spread
through all countries, all the institutions of the world.
So the wealth from the Western world, North Americans
and the Western Europeans, is now shifting to Eastern Asia.
So these are the balances, these are the problems,
these are the pains we are facing actually. So I believe
rather than as everybody going to the congress hall to discussing
the financial issue, we have to discuss what will happen to us
because regarding the existing model, even the companies,
they shifted to production, to the manufacturing industry -
Yeah but is this not one more reason to get our house in order?
If the Chinese become strong or the Indian -
No, the issue is that we have to think rather in a calm way
what the real problem is. The problem is the system, the economic system.
We have to really discuss it because the existing terms
and the definitions of the capitalist system doesn't explain everything
that we are really having. So we have to change our mentality.
We have to change the paradigm. We have to look for the near future
world so we are - I believe we are wasting our time
by discussing the financial institutions.
And we'll come back to it at the end. We have done exactly 60 minutes
and 23 seconds and after 60 minutes I'm supposed to open
so with Swiss punctuality I try to do it right now.
Ladies and gentlemen, if you have a question,
raise your hand and we have a gentleman here in the front row.
Where are the microphones? We do have - while she's arriving,
you didn't agree - just -oh that, sorry.
Thank you very much. Maybe rehabilitate right away somebody.
Adam Smith I think the invisible hand is there but I think in that time
as he was living, he was thinking about people who hit at their own risk
what they did that impacted their deeds and right now I think there was a bit
of touch in the direction that the bankers or the CEOS
maybe don't have - don't carry the risk and they are not caught
by the invisible hand any more
So that's a good point, that's the
which implies the other question which is hotly discussed. Bonuses.
I mean does everyone agree here that to limit bonuses
cannot be a good idea. Monsieur Odier.
I agree that there have to be limits. I agree that there have to be criteria
according to which one can be paid. I agree that there's a convergence
between responsibility and salary. And I agree that there should be
controls mechanisms on the excesses that have been put to the market
during the recent crisis
Monsieur Somavia, bonus is something that worries you?
I think that it's an important issue but it can distract from the substance
which is the financial structure but I would say
that what Ziya was saying, I would like to support him
very strongly because the invisible hand of the market has to do
with the very visible result in this crisis which
is the highest level of unemployment ever recorded in history, you see,
and this is the essence. If you take a look at what is going on
today, banks were saved, the stock market is going up,
valuations are getting better for banks, profits have come back,
and maybe growth is going to begin. And at the same time we're saying
but unfortunately the jobs don't come. You know jobs are going to take
a long time and I think that this is a recipe for political disaster,
to be very frank because, yes, if we follow what ahs always happened,
jobs will take a long time. But people are going to say
"Hey, hold on, I don't understand here very well." We didn't do
what always was done for the banks. We did completely new things.
Nothing was in the realm of the policies that were being applied
during these last 30 years. Suddenly the banks may go bust
and we say we'll do everything possible to save your banks.
I think that we all agree that it needed to be done.
What I believe we now have to do is to apply the same
policy decisiveness, the same political will, the same capacity
to think out of the box and to do different policies
to saving jobs and creating jobs and creating investment.
And saying that this is going to take five years I think is the foundation
of the social reactions that will come and let's not forget that already
a couple of years ago we had food riots in a number of countries
so dealing with the human dimension of the crisis, telling people
"We're as worried about your lives as we were worried about banks"
I think is an essential message that both business, bankers,
governments have to give to people. If not they're going to feel
that this has been a game in which, again, they are absent from.
Professor.
I agree. There's two points I want to make.
The first is if you look at the structure
of most of the bonuses, they are designed to distort the economy
and to lead to bad behavior. And you cannot justify them
as providing good incentives. They're called incentive systems
but they're incentives for bad behavior. In particular, let me just give you
one example, there are two ways you can get better profits:
increase beta which is higher leverage, higher risk or increase alpha.
They don't distinguish. Most of the systems don't distinguish,
very hard to do that. There are ways of distinguishing, for instance,
between when stock prices go up on the - or even profits go up
on the basis of the whole economy going up and on the basis
of something I've done, that would be compensation
based on relative performance. Almost none of them do that.
So if you look at what is going on,
it cannot be justified as providing good incentives.
In fact it is distorting incentives. The second point is
on the overall level, it does an even more -
as a teacher let me say I think there's a one really large distortion.
We talked about how the financial system distorted the allocation of capital.
It didn't give money to create jobs. It didn't create money
to new enterprises. Too much went in the wrong direction.
Some of them went in the right direction but this proportion
went in the wrong direction.
But there's also a huge distortion of human capital.
As I see my students, where they go, disproportionately, too many of them
were going into and the other areas got starved.
And one of the interesting things, I was visiting Iceland and they said
"You know one of the great things about the crisis
is that we've gotten rid of that problem."
May I add something to that? The bonus system, I see this
with a lot of skepticism, when you talk about bonuses
you also have to speak about the malaises, the opposite side
that should be a to and fro. And I rather prefer to speak
about salary, income, remuneration and that has to be in relationship
to the amount of where responsibility and the risk that has to be borne
and income must also be in relation to other incomes,
other income categories. What is average income
in relation to top executives' income? This relationship has to be sensible
so that it can be accepted by society. It has to be acceptable to human beings.
What you have just said is quite right, we cannot forget
that this is just a technical game. Many people are affected by this.
Many, many people have to help bear, carry this system. So, for example,
how do we deal with debt? Who's going to pay for debt?
And very often it's the Social Security Systems and social systems
that will have to be bled to death to pay for these debts.
Well let's now include someone from the floor here with whom
I spoke with very briefly. He's in fact someone
who's more important than the Pope in Germany and as a Catholic
I say "Does that actually exist?" He's the general secretary
of the World Council of Churches in Geneva, that's to say
all the churches except for the Catholic Church
plus minus our members of this council. I'd like to ask Olav Tveit.
Thank you. On this point the worry about the middle class,
Mr. Somavia I think I saw papers he wrote that if the middle classes
break, that is very dangerous. We're going to have social problems
as other churches going to be the advocates of the middle class
or poor people in this crisis.
Thank you moderator for allowing me to speak. I've been here in Davos
and I'm listing two basic questions. One is when will this change?
When will the crisis be over? And the second question
is are we going to change ourselves? Are we going to be more accountable
leaders after this? I haven't got an answer to the second question.
I hear some answers to the first question.
Before I got my job as general secretary for the World Council of Churches
I was asked by an African church leader a test question. Are you willing to walk
in the shoes of an unemployed farmer or worker in Africa?
If you're not able to answer that question,
you should not get that job. Is this a relevant question
also for a political leader, for a leader in finance or business?
Are we really accountable to those who are affected
by what we are doing?
I think this is a question that has to be answered.
That's a very good question.
We have a minister of a very important country.
I was asked to take a position as a leader in a global body
for churches but I think it is valid in any kind of organization
at least what we are dealing with here in Davos.
Are you willing to walk in the shoes of an unemployed African worker
or farmer? And if you're not able to answer that question, he said,
you should not apply for this job. Is that true for a French minister?
Well I don't have as big a job as you do and mine is extremely precarious,
limited in time and I look at it from my own perspective
which is not necessarily the entire world because I feel that I'm first
of all accountable to my people in France.
And yes, I'm prepared to work with, walk with, help anybody that needs help
and that's my - it's the only reason I decided to leave the very nice,
very fortunate, very wealthy position in which I was
prior to joining government and it fulfills my life well enough
but it's very often difficult because you face resistance
that is just hard to believe. When we started on a program of change,
we hoped that we would change things fast. It doesn't work like that.
It's far more complicated. You have massive resistance.
It's difficult to paint the picture of what it will be like afterwards.
And it's just an endless process. Sometimes you do it incrementally,
sometimes you nibble at the margin but you have to every morning
think to yourself "Yes, it's worth it and I do have to change the system
and I do have to improve it" But I'd like to just come back
to the point you made about payment and about the invisible hand
just for a microsecond because it gives a good example
of another point you made about arbitrage.
We in France, for instance, decided that we would put in place
both bonus and, that we would hack the time
into the equation so that people who did a very good job,
made a lot of money year one, could just run away
and either poorly perform or just grab the money and run
as the film says. So we factored time into it.
We taxed bonuses. We did lots of things. What happened next? Most of my bankers
came to me and said "Uh, this is terrible.
All my talents are going to run away. They will all go to London."
Now at the same time Gordon Brown was doing pretty much similar package
and guess what happened? All the British bankers
called Alistair Darling and said "Terrible, all my talents are going
to run away. They're going to go, well maybe not to Paris this time
but certainly to Germany, to Frankfurt, or maybe to Switzerland,
not to other places." So that's the point about arbitrage
and of Mr. Kant
where you would actually say "Yeah, let's do it. Never mind
what the others are doing, we have to set standards."
But it's really hard because otherwise you loose your edge and you run
a major risk so arbitrage between that, between taking the moral stand
of setting a President and protecting the base that you are there to protect
is a tough line to hold.
Other questions? The gentleman there and then we have a lady here.
And short questions, short answers because I think we have
10 more minutes to go.
Yes, very quick question. I'm picking up on the comment
of Madam Lagarde about all the talent moving to different areas.
If it's without on the bankers we have on the board now,
if it's the talent that got us into this problem in the first place,
should we be concerned that they're running away?
Oh, let them run.
That is exactly what President Sarkozy answered the bankers :
"if it's that talent, fine.
Madam.
A question about solutions. Mr. Akkurt already mentioned
that just a talk between bankers and governments in finding new solutions
in regulations might not work because some large companies have voted
with their feet and moved their production elsewhere.
Are you talking to the right stakeholders?
Are you really bringing everybody that needs to be talked to
to the table to find a new way forward? A question to all of you
because I haven't heard it yet, there are
from experts who know about economy and processes that led to the situation
that need to be listened to more than were in the past.
What were you going to do about differently now?
Thank you for this nice question actually because it was
one of the things I would like really to press my finger on
because there are huge budget deficit that the system tried to be saved
by the government so the financial deficit has increased.
Now they have to be called back, how they are going to call back
to increase the taxes, the people are getting poor.
So it is coming to your comment that poor are getting more poor,
maybe the rich a little bit but the most crucial point,
what is important especially or the European society
is the middle class is eroding. There are a lot of young people here
and I am sure they are thinking what will they do after graduation
at the university. So we have to discuss those issues. The banker's bonuses
could be solved, could be under control but what will happen to our future
for our kids? What kind of a job they will do?
If there isn't any business the bankers cannot survive.
The bankers and the real sector are there together.
They cannot act alone. Some of them broke the rules
and then they will be, I am sure, be trained but we have to discuss
what will happen to our future.
Madam, I saw you on the American or English TV program I guess
where you talked about three phases of the crisis: financial, economic,
and now social. Do you foresee really big social problems
in modern societies as Swiss and French society?
Well I can't speak for the entire world but certainly from my perspective
and where I sat during the year 2009, we had extremely responsible
union leaders. The trade unions really understood what was going on
and we were able to work together to cooperate to make sure
that the most underprivileged people were getting additional support
and benefits and that was very helpful. But in the face of unemployment
and rising unemployment and I take your point
one about the gap between growth picking up and jobs being created.
And that timeframe is going to be extremely sensitive,
difficult to manage and will require a social contract, if I may say,
because we cannot simply draw on finances of the states
to actually fund supported jobs and things like that because we are,
as you said, living on massive deficits at the moment which were right
because we had to stimulate growth but we need a social contract
where companies actually are prepared to possibly sacrifice a little bit
of margin and maybe a little bit of profit
and tell their shareholders, pension funds, and others
that "maybe this year, maybe next year, maybe next year it will be less return"
for the purpose of creating jobs and making sure
that the whole mechanic starts on all wheels, not just one.
Can I just make a quick comment about the social crisis
in the United States which is besides the joblessness
with almost one out of five Americans who would like a fulltime job
not being able to get one right now. There's also a problem of homes.
This year we expect about 2-1/2 to 3-1/2 million Americans
to loose their homes. Two million lost it last year
and about two million the year before. So a lot of these are losing
their entire savings. I mean for most people,
most middle class and below, their home is their major form of savings
and so we do have a social crisis.
Can they be protected by the Obama administration?
I mean you used to be President Clinton's main adviser.
Why haven't you regulated all the things then?
But I mean you know what can be done out of the White House
and what cannot be done. Can they do something?
They can. The question is will they. And particularly, will they,
in the light of this budget deficit and the political
it's very hard to address some of the new problems
that have been created by the crisis itself.
And it's getting worse. I mean, for the first time
four out of ten of the people who are unemployed in the United States
have been unemployed for more than six months.
And when you're unemployed for a short time
you have buffers you can rely on. If you're unemployed
for more than six months you start losing your skills
and your sense of belonging.
Okay, we have time for one or two more questions. Sir.
Distinguished panel, I work with the fair trade
and we see a lot of impact of financial crisis in Asia and Africa,
specially the poor people. Well what can be done to help them?
They have been very badly affected, development has been sacrificed
because of the financial crisis so they are the most hit
by this financial crisis.
What does the distinguished panel think about that
Where do we - who wants to comment? Yeah.
Yes, well it was the whole point I was trying to make,
that we have to concentrate on those that as a result
of this are suffering.
Let me say that there was a crisis before the crisis.
We obviously have all the
of the crisis but the level of poverty and a number of other things,
I won't go into the details, were there so you're perfectly right,
the question has to be "How do we deal with those issues in the context
of the crisis but they were there before?''
I want to say to Christine I feel you're perfectly right
in the way you described how do we go forward.
I think that this is not about the two or three technical solutions.
We really have to come together all. The banking community,
the private sector, the governments, the civil society, we have to think
together on how is it that we transmit the message that we are worried
about people from now onwards in this crisis and that we're doing
whatever is possible and that the old mechanism,
the instruments with which we went into the crisis and produced the crisis
would probably not solve the problem now.
So we have to be creative and inventive and I think
that there's an energy that we have to generate.
There's a mission that we all have to assume together
which is that people are suffering, were suffering before,
are suffering more and we have to be able to give them answers.
I think that is the essence of what we have in front of us.
Monsieur Akkurt, do you agree? Is that -?
Now the issue is that the income distribution, the wealth distribution.
It is in the countries and on all over the world,
that is the thing I have been trying to say because unless otherwise,
if you do not have the wealth distributed among the countries
every time we will have the problems, that is one of the main problem
that is now shifting from somewhere to another place. So to overcome
this problem I think there must be - I am challenging the existing system
that is why I'm saying that we have to change our mentality
and them to redefine the capitalist system.
We have to look for how we can widen the wealth, health, and the prosperity
to all over the world not to concentrate onto some regions. Suppose in the past
we had G7, now it became G20. It means that it is enlarging.
The contributions of the countries are increasing. The wealth is increasing
and distributing. Today the Korean leader was saying
it has to be 22. Maybe tomorrow we're going to talk about the 30.
The problem is that the equalization of the wealth and income distribution
not only in the country but all over the world
is what we have to look forward to otherwise all these will have problems.
Very good. Final point and just final remarks.
In one or two words, what is the most important thing
to be done right now? Professor.
Well right now for the short run the most important thing to do
is another stimulus. I think it has to be global
and if it's focused on investment, the long term debt
will actually be lowered. So I think this focus, this deficit.
is really dangerous.
I will ask you
What we have to change, we have to change our attitude
and our attitude in thinking what is economic profit,
what is benefit, we need new definitions about that
and new measures what that really means.
Mr. Somavia.
I think that we have asked ourselves what are the values
that we want to put in place. Let me give you a couple of examples.
Labor is not a commodity. There is a labor market
but the person involved is a human being for whom work is dignity,
belongs to a family for whom work is stability,
belongs to a community for which work is peace.
Issues like social justice have totally disappeared
from the discussions and the conversations.
We have to go back to the values with which we want
to address these problems and I think that these are essential issues
in terms of the future.
Very good point. Monsieur Odier.
I think what needs to be done in this very last issue
or in the others is to bring back the notion of the long term objective
to be pursued and eliminate the short term incentive.
And the second thing which has to be done is make sure
that those who are at the command of the efforts that are being made,
whatever they are,
do benefit from success but are also penalized by failures.
Madam cannot be worse.
That would be a good solution, bring more women to the equation,
that's a very good point actually, more women. But restore balance,
more fairness, and whatever we do because we are all people of good faith
and good spirit and we mean well but let's make sure that we build
something that actually works and delivers the solutions
that we want because otherwise it will be just a lot of lip service
but no delivery.
Well that was very, very interesting. Thank you to the members of this podium.
Excellent panelists and there was a lot of good brain power here
in the whole. We started with Einstein, we're sitting on a powdered keg,
we're looking for new formula. Einstein was asked by journalists
one day whether he could explain the theory of relativity
in a few sentences. He said "Well,
if you sit on the lap of a beautiful woman
it feels like a minute but if you sit on a hot plate for only a second
it seems really long, that's relative. So I hope we're not all in the hot seat
and we're not that
Thank you very much.