Chess Grandmasters at the Davos conference 03.02.2009– As the World Economic Forum held its annual meeting in Davos, Switzerland, two chess grandmasters weighed in on the crisis that has hit the economies of industrialised nations. One was Chess World Champion Vishy Anand, the other one of the leading economic thinkers in the world, Ken Rogoff – who in his day was listed in 40th place in the world chess rankings.
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The World Economic Forum (WEF) is a Geneva-based non-profit foundation best
known for its annual meeting in Davos, Switzerland which brings together top
business leaders, international political leaders, selected intellectuals and
journalists to discuss the most pressing issues facing the world including health
and the environment. The Forum also organizes the "Annual Meeting of the
New Champions" in China and a series of regional meetings throughout the
year. In 2008 those regional meetings included meetings on Europe and Central
Asia, East Asia, the Russia CEO Roundtable, Africa, the Middle East, and the
World Economic Forum on Latin America.
World Champion Viswanathan Anand gives his impressions in Davos
GM Ken Rogoff in and on Davos
Rogoff: The Exuberance of India
By far the chirpiest gathering I attended in Davos was on my last night at
a private dinner populated largely by top Indian journalists, senior policymakers,
and leading Indian businesspeople. Of course, people were very excited about
the academy award nominations for “Slumdog Millionaire,” not to
mention the stellar presence at Davos of World Chess champion Vishy Anand (who
recently defeated Russia’s Vladimir Kramnik to cement his title).
But the real reason my Indian companions were so cheerful was a strong sense
of relief that they were living far from the epicenter of the recession, insulated
by their country’s size and still-comparatively stringent restrictions
on international capital flows. “Thank heavens for the strong regulatory
framework we have in our financial system,” one leading provider of soft
consumer goods said.
If there is one overarching theme to virtually all my private conversations
at Davos this year, it is the credit drought. Small and medium size businesses
across all types of industries claim they cannot get credit. Small and medium
size counties can get credit but suddenly the risk spreads they are paying are
soaring. Even many CEOs from large firms say that while they can still raise
money in a variety of ways – bank loans, corporate bonds and equity markets
– the cost is soaring and the conditions have tightened dramatically.
The head of a large bank that thinks it is still solvent (I wonder if saying
that gives away their identity?) says its managers don’t know how much
they can lend because it is obvious they are about to face a brave new world
in terms of the regulatory environment. (While reviews of the Obama economic
team remain glowing, there is notable discomfort here in Davos that the new
administration has not yet announced its big bang plan for the financial system.)
Perhaps the Obama administration will be able to bring a surprisingly early
end to the ongoing U.S. financial crisis. We hope so, but it is not going to
be easy. Until now, the U.S. economy has been driving straight down the tracks
of past severe financial crises, at least according to a variety of standard
macroeconomic indicators we evaluated in a study for the National Bureau of
Economic Research (NBER) last December.
In particular, when one compares the U.S. crisis to serious financial crises
in developed countries (e.g., Spain 1977, Norway 1987, Finland 1991, Sweden
1991, and Japan 1992), or even to banking crises in major emerging-market economies,
the parallels are nothing short of stunning.
The creation of a government bad bank to buy toxic assets is necessary, but
then the government will need to take control of and restructure major banks
to fix the system, one economist at the World Economic Forum in Davos told CNBC.com.
"They have to do a bad bank," Harvard Economics Professor Ken Rogoff
said. But "if that's all they do then it's idiotic." Institutions
like Citi and Bank of America will have to go, boards will have to be fired
and equity stakeholders will be wiped out, Rogoff said.
The plan could mirror the one Sweden implemented, where all troubled banks
were nationalized, their balance sheets were cleaned up and the good parts of
the businesses were sold to the private sector. That solution was "much
cleaner," he said. Sweden’s banks were effectively bankrupt in the
early 1990s, but the government pulled off a rapid recovery that actually helped
taxpayers make money in the long run. The government placed banks with troubled
assets into a so-called bad bank, where they could be held and then sold when
market and economic conditions improved.
Kenneth Rogoff is Thomas D. Cabot Professor of Public Policy and Professor
of Economics at Harvard University. From 2001-2003, he served as Chief Economist
and Director of Research at the International Monetary Fund. He is also a former
Director of the Center for International Development at Harvard. Rogoff’s
research covers global economic issues, including exchange rates, international
capital flows and monetary policy. His treatise Foundations of International
Macroeconomics (joint with Maurice Obstfeld) is the standard graduate text in
the field worldwide, and his monthly syndicated column on global economic issues
is published in 13 languages in over 50 countries. Rogoff is on the Economic
Advisory Panel of the Federal Reserve Bank of New York and the Central Bank
of Sweden. He is currently writing a book (with Carmen Reinhart) on the history
of international financial crises over nine centuries.
Rogoff is an elected member of the American Academy of Arts and Sciences, as
well as a member of the Council on Foreign Relations, the Trilateral Commission
and the Group of Thirty. He is also a fellow of the Econometric Society and
the World Economic Forum, and has been invited to give numerous named campus-wide
lectures at universities around the world. He holds the life title of international
grandmaster of chess, and at his peak was ranked number 40 in the world.
More detailed biographical information including full cv and editorial writings
can be found here.
More about Ken, who recently visited us in Hamburg, in a future article.
Kenneth
Rogoff 
