ANALYSIS:Temperatures were well below zero but bankers were hot and bothered at criticism, writes SIMON CARSWELL
THE LEGENDARY US investor George Soros could have been giving a presentation on how Ireland has found itself in its large financial hole when he spoke at a private lunch in Davos about “asset bubbles” and the need to regulate banks to stop those bubbles growing.
Soros has made fortunes out of bubbles by cashing in at the right time. Property represented “the simplest case of a bubble”, he said. It starts with easy money and a surge in lending, and then a misconception that the value of property is “independent from the availability of credit”.
“There is nothing irrational in a bubble – when I recognise a bubble I rush out and buy. That is the rational thing to do. Therefore you cannot expect markets to correct their excesses. There is a need to maintain stability and the authorities have to accept that responsibility.”
Soros is right. Bubbles are simple, but few saw “the superbubble” (as he describes it) forming, not least the many past visitors to the annual think-in in this sleepy Swiss ski resort.
Josef Ackermann of Deutsche Bank and Peter Sands of Standard Chartered were quizzed on this very subject. Should those who contributed to the causes of the crisis be the ones to help solve it? A question familiar to many Irish bankers.
“We are not meeting in small circles of bankers or regulators; we are meeting in a much broader audience and completely different people with different views,” replied Ackermann.
Temperatures dropped to minus 13 degrees yesterday and bankers were in a flap – not to keep warm, but over Obama’s plans to stop more bubbles forming. As if to wind the bankers up, the US president announced plans to stop excessive risk-taking by large banks just days before the 40th Davos annual meeting kicked off.
The bankers have risen to Obama’s challenge for a fight, but at Davos they are seeking to conquer by dividing international political consensus, saying that the US cannot go it alone with measures which would have a severe impact around the globe.
French president Nicolas Sarkozy is as outraged as Obama. Bankers had stopped doing their jobs, he said in a keynote speech last night. They had engaged in speculation, not lending.
He called for a fundamental rethink of capitalism and a new Bretton Woods agreement, referring to 1944 agreement that created the world financial market. “We cannot have, on the one hand, a multipolar world and on the other a single benchmark currency across the globe.” Capitalism must be re-engineered “to restore its moral dimension, its conscience”, he said.
Sarkozy also had a pop at bankers directly, describing as “morally indefensible” large payments to individuals who had destroyed jobs and wealth. “There are remuneration packages that will no longer be tolerated because they bear no relationship to merit,” he said.
There was scattered applause.
