Fear In Davos.

Posted by: Bruce Nussbaum on January 28, 2009

It’s midnight and I’ve talked with maybe 20 really smart people so far at Davos (yep, very dense population of very smart people at the World Economic Forum) and the consensus is that a deep fear is running through the conference this year. Things could be much worse, is the message.

As proof, people point to the riots in the southern tier of Europe—Greece, Spain, Portugal—and in the east—Latvia and Lithuania. Young people are taking to the streets to protest growing unemployment and impoverishment. Ireland is in deep financial trouble. Ditto for Iceland. Britain is nationalizing major banks. And the economic data out of the US is worse and worse every day.

One senior public European figure told me “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.”

Not too many US bankers or hedge fund managers in sight at the party scene. I saw JP Morgan’s Jamie Dimon downstairs talking to someone but not the crowd of “no regulation is good regulation” financial folks so evident in the past two years at Davos.

The party scene itself was subdued tonight. No models, no flamboyant dress. Most of the men worse suits with ties. I wore a sweater. I have to get more sober.

So what should they be talking about right now at the World Economic Forum in Davos? What questions should I ask people here? Let me know.

Reader Comments

Chris Baum

January 29, 2009 1:00 AM

How should those young people be engaged? How can their (currently angry) energy be channeled into something useful? Funding entrepreneurship programs, perhaps?

On that note, what can enterprises to do engage workers they no longer fully utilize? How can government engage them when the companies lay them off?

I live in California the Land of Ever Optimism (at least it HAS been). Now the pessimism is taking over. Give all of the folks in Davos a copy of the January 26 New Yorker. Ask them to read Gawande's story on health care and McGrath's story on dystopians. Compare and contrast.

On the one hand, it seems that the dystopians are right, but, as Gawande notes, transformation arises from what is. How can we take the inherent structure of our current lives and turn them into a useful, low impact existence.

I'm sure there are myriad ideas there at Davos. That's what I want to hear.

Roxanna Cain

January 29, 2009 1:15 AM

Can we reach agreement at this forum on a group of strong-enough ideas to take back to our governments and convince them that their earnest implementation has a 75% chance of staving off another Great Depression? List these ideas and how they ought to be implemented, and the consequences of their not implementation to the noncompliant country and the rest of the globalized world.

brett

January 29, 2009 6:36 AM

hi, good article. i would ask what preperations are being made for the imminent economic collapse of the usa poss in the next year or 2. what measures for riot control and social order ect..

williambanzai7

January 29, 2009 6:57 AM

FOR IMMEDIATE RELEASE

DAVOS, SWITZERLAND
WORLD ECONOMIC FORUM
January 28, 2009

KLAUS SCHWAB, FOUNDER OF WORLD ECONOMIC FORUM ANNOUNCES SURPRISE PANEL

GLOBAL PONZINOMICS: THE VIEW FROM WALL STREET

The following are excerpts from today's surprise panel discussion:

KLAUS SCHWAB: Distinguished guests, today we have arranged a surprise panel to lead us through the cutting edge of Global Ponzinomics. As you all know, the modern day version of Ponzinomics has its origins on Wall Street. I know you are all keen to hear directly from the leaders of Wall Street as well as the regulators all of whom made this remarkable feat of financial wizardry possible. The organisers of the Forum have spared no expense in bringing you a first rate panel. I would like to thank the United States Marshall Service for its cooperation in making it possible for Mr. Madoff to attend the Forum. That is a custom designed Cartier bailout bracelet Bernie is wearing. It is designed to explode if he gets within 50 yards of any UBS Branch in Davos. Mr. Madoff requires no introduction. His genius and modesty is well known. We thought it would be appropriate for Bernie to lead today's panel discussion. At this time I would also like to thank Citigroup for providing special air transport services to bring the panel participants straight to Davos on such short notice. Without further delay, I turn the discussion over to Bernie.

BERNIE MADOFF: "I would like to express my sincere gratitude to many of the participants in this forum. Without their undying support for so many years, my achievements would not have been possible. They deserve much of the credit for making the modern paradigm of this fascinating art possible. As you all know, Ponzinomics were invented by Charles Ponzi some 100 years ago. Who would have thought that the genius of this humble man would become the driving force behind today's global financial markets. Dick, before I forget, would you please be good enough give me the number of that Real Estate lawyer in Palm Beach."

DICK FULD: "We thought we had all the bases covered. We were hedged up the wazoo. I was certain that we managed to make ourselves too big to fail. In the end I was wrong. I underestimated the financial tsunami of 2008. My big mistake was not finding a way to put a Lehman banker in the Treasury Department. Lloyd you snookered me on that one."

JOHN THAIN: "I would like to start by saying three things: First, I have posted my French Commode along with my resume on Craig's list and Monster.com, Second, Ken you can take that faux hand Grenade sitting on your desk and shove it you know where. As we shall see, BAC is one big live hand grenade and Ken has already pulled the pin, Third, can anyone tell me where I can find a reputable antique dealer in Davos? Oh, and one more thing, Stan O Neal owes me my bonus."

KEN LEWIS: "John, you and I both know that I'm the CEO of BAC and you are not. You did not jump on the bailout hand grenade like a good bailout soldier. For this you must suffer the consequences. If this is not good enough, I will meet you on the top of the Weissfluhgipfel at O-700 hours for a Chinese downhill. The downhill will decide everything."

HANK GREENBURG: "You are all a bunch of rascals, give me back my Company so I can lose it fairly!"

LLOYD BLANKFEIN: "As I have said on many occasions, the Goldman investment banking model remains sound. We concentrated our efforts on putting men of Gold in the halls of power. This has paid off handsomely. Hank Paulsen saved us from the AIG explosion. The primary purpose of TARP was to save Goldman Sachs and this goal was achieved magnificently. Hopefully, the hiccups we are experiencing will dissappear in due course. Then we can all get back to business as usual."

VIKRAM PANDIT: "In response to yesterday's negative press we have decided to divide the Citigroup jet fleet into two halves consisting of good jets and bad jets..."

JIMMIE CAYNE: "Anyone know where I can find a decent bridge game around here?"

STEPHEN SCHWARZMAN: As you all know, I am CEO of the Flintstone Group, a humongous (2big) financial (systemic) juggernaut ready to (fail) implode (risk). I don't mean to sound self serving or pedantic, but the reason we are in this mess is very simple, not enough leverage. Remember--Flintstone Group, not enough leverage, systemic risk.

PHIL GRAMM: "If we could just stop all the whining."

ALAN GREENSPAN: "Where am I?"

BOB RUBIN: "Shut up Al, your giving me a headache."

CHRISTOPHER COX: "I just did what I was told to do."

VLAD PUTIN: Gentlemans, you are all cordially invited to spend a few days with my Dacha in Chita Sibera, following this Summit. We Russians would like to thank you (the Russian way) for the financial Chernobyl engineered by your kind selves and the damage to Vodkanomics.

FOR FURTHER INFORMATION:

Go to the WilliamBanzai7 Blog

Phil Barton

January 29, 2009 7:19 AM

a). Ask those from other countries what actions they want the U.S. Gov't. to perform. Do they favor Obama's policies, or the GOP's reticence to act?
b). What actions are other governments prepared to take, in concert with the U.S., to work in common to resolve a worldwide problem?
c). With tax rates at current levels, will the Laffer Curve theory really get enough net revenue increase, as against the loss of tax revenues?
d). When people are losing jobs, what's the point of income tax rate cuts? Why would people spend in this economy?
e). Will we need more government action in terms of funding, over and above what Obama wants? The total of asset markdowns will probably be in the trillions.

Gerry Bresnahan

January 29, 2009 7:29 AM

I would like to take this opportunity to correct your first sentence. It's people who *think* they are really smart. If they *were* really smart, then we wouldn't be in this mess. Put them all in prison and throw away the key.

Paul Everett

January 29, 2009 7:32 AM

You might wish to ask:

What questions are we NOT asking, that if asked, might lead us to insightful realizations?

“Prudens quaestio dimidium scientiae”

To ask the proper question is half of knowing.

Sincerely,

Paul Everett

Delano Price

January 29, 2009 7:37 AM

If the people running the US banks were
the best and brightest of the elete
Ivy league how could have they make so many missteps?

Being an engineer from a plebian NY State
university, I am able to balance my check
book, and know better to carry a 30:1
leverage ratio on my balance sheet.

Delano Price

January 29, 2009 7:37 AM

If the people running the US banks were
the best and brightest of the elite
Ivy league how could have they make so many missteps?

Being an engineer from a plebian NY State
university, I am able to balance my check
book, and know better to carry a 30:1
leverage ratio on my balance sheet.

Non-Rocket Scientist

January 29, 2009 7:48 AM

Investor’s money is more worthless today than ever. I've read that 18 to 33 percent value losses are a good indicator of the misplaced value "responsible" investment houses placed on that equity. It is time to reign in "profits" and reinvest the money into the people and companies that employ them. The money "spent" on the vehicles that employ people will find its way back into the economy. Investments paid out disappear or are irresponsibly squandered.

Bottom line: Cut Investor profits and add to the value of the employees. They are the ones that will always dig you out of this hole. We're already nationalizing the banks...

Philip Moyer

January 29, 2009 8:10 AM

The Citigroup 10k is over 1,200 pages long. The reports on asset backed securities are 5000+ pages long.

Why isnt the entire finanical world using a financial technology like XBRL in this crisis to bring clarity to these toxic assets in stead of just pumping money into a flawed standard like mark to market??

It seems we are not solving the root problem - - we dont understand the assets we are trading. We only understand what someone else is willing to pay for them???

Philip Moyer, CEO
EDGAR Online

Rajat Bijur

January 29, 2009 8:17 AM

one should most certainly want to know from these people about how the situation will fare over the short term, and how long will it take for the storm to tide over!! A lot of these may be policymakers who will be able to answer questions of this nature easily!

William

January 29, 2009 8:18 AM

How about you ask whether bailing out ailing banks "to get credit flowing again" is simply throwing good money after bad? Why don't governments set up new banks to get credit flowing?

Amar

January 29, 2009 8:27 AM

Get some really honest opinions about the stimulus package. I believe that the stimulus today will leave a unintended bad after affect. It will help to know what that might be. Specifically, are we going to face a hyperinflation bubble with all that money printed into the economy?

Firozali A Mulla

January 29, 2009 8:37 AM

Fear in Davos.
Remember the phrase; cowards die many times before their deaths, Brave die but ones. The poor have been left out then we expect all sorts of problems from the grassroots. On one side we have The House of Representatives approved an $819 billion economic stimulus package. The other side poor have no food.
I thank you
Firozali A Mulla

Rashmi Krishna

January 29, 2009 8:47 AM

Hi Bruce,

A couple of questions I'd love you to tell me the answers to by asking the Davosians:

1 - With the impact of the meltdown of the financial services industry in US spreading to places as diverse as India & Iceland, do the votaries of complete unchecked globalization still stand by their cause?

2 - What about China's condition? No one really knows what and how this all has impacted their economy? Any clues??

Damian Palmares

January 29, 2009 8:52 AM

How do they plan on working on reaching a general consensus of financial regulation between all of the countries in at least the G20, regarding international differences between regulation and whether or not that will have a positive effect on global markets and the necessity to force the larger banks to start lending again? Will the U.S. government finally realize that throwing money at the banking system and propping it up temporarily is not the answer and instead try to attack the root cause of the financial crisis here at home...toxic loan portfolios that are nowhere near the end of their cyclical drop, loss of employment, small business sector in dire straits because banks aren't lending, a middle class that has no money to spend, etc... Will we realize that creating jobs in the U.S. economy, to bring back the middle class here in the U.S., should be of utmost importance. Will they see the negative effects that outsourcing has caused to our middle class in the U.S.? Will there be a focus on creating a middle class in other countries throughout the globe that could purchase U.S. exports? Since there is no middle class in China that could afford our exports as of now Will China stop relying on exports alone to stimulate growth and will there be any push to improve the trade imbalances between China and the U.S. and throughout the globe? I think everyone there is finally realizing how connected each of our economies are and that growth throughout the world will come to a screeching halt if we do not come together and work this crisis out as fast as possible.

Ian

January 29, 2009 9:18 AM


Foreign demand for US services/exports is way down, because Asia and Europe are hurting enough against the US dollar at this point.

My worry is, don't China and possibly the sheiks in Dubai own some US debt? What happens to the US if they call it in?

Then you'll probably have unemployment riots in the US soon.

So... what is Asia going to do now that we don't import their stuff as much and they don't use/can't afford our products/services?

Fernando Rodrigues

January 29, 2009 9:20 AM

Dear Bruce, thanks for the opportunity to place a question. Right now I travelling by train, heading to Lisbon, Portugal, to my workplace. In the seat next to me two men, 50's, talk about the world crisis. In fact, the world crisis for them means the loss of their jobs. They are talking about rights, about the reasons, about the pros and cons of outsourcing, about the future, about "ethicless" company owners, that with big personal fortunes don't gave a second thought about closing the companies. Reading your post, I'm trying to think about a smart question! More than answers, people need a source of inspiration! More than ever, what those guys should be are role models for the common people, not only by their words, but by their actions! Day-by-day, week-by-week, ask them not to convey to easy paths...usually it will lead us no where!!

Theo

January 29, 2009 9:24 AM

Ask the CEOs of big coorporations if they now will skipp their bonuses not to upset the workers or will they go on as they dont care? How will they motivate so high salaries when people will be starving? Ask them if they will become affraid of the big mass if they take the streets? Or will they not care? Most likely...

Hugo van Randwyck

January 29, 2009 10:12 AM

Hello Bruce. Maybe part of the fear is that these are the leaders who caused the mess - and they need to make way for new leaders! Maybe a question is: what industries are expanding, and how are you helping them? E.g. renewable energy. Is it time for governments to spend more time on being the referee, and not the player? E.g. try school vouchers, so freeing up government time. Has too much computerisation been part of the problem? Losing human feedback? In effect, outsourcing management? Losing flexibility? E.g. how many companies ask their employees which is the better software choice, a large system or simpler system?

Tom E.

January 29, 2009 10:34 AM

How do they justify labor, tax and regulation arbitrage when times are good, but when profits get hit; they run to their national governments and expect to be bailout?

albert

January 29, 2009 11:16 AM

aside from the stormy weather last week, there has been no shake up of whichever kind in spain or portugal. - rioting in greece yes. but the iberiean peninsula is calm.

MS

January 29, 2009 11:27 AM

Bruce,

Thanks for blogging the WEF - very interesting.

Transformation does not come easily in difficult times - as you note, leaders revert to tried and tested approaches that won't get us to where we need to be. The easy answer from those on the podium in Davos is "let's just get through this" - the hard and far more complicated answer is "let's rethink and re-architect the way we respond to these challenges", effectively what's needed for transformation. The first response is band-aiding/quick-fixing the economy; the second is to look at what can be done to address current challenges while creating a foundation for future growth. Perhaps the first is necessary in the immediate term, but the second is essential for the longer term.

While we recognize that innovation and design are necessary for transformation, receptivity is low right now to this kind of nomenclature. There is much skepticism about "innovation" – after all, it is irresponsible financial innovation that precipitated this mess. The fact that design has been marginalized in Davos confirms that it is unlikely that it will be seen as a vehicle for substantive change without putting it in a “relevant” context.

So how do we get global leadership beyond the “let's just get through this” syndrome? We probably need to speak the language of the moment and get in their frames of reference. These times about economy, society, financial meltdown, unemployment, shortages, etc. So ask what new “transformational” initiatives and approaches need to be taken to kick-start economic recovery and revitalize society? Ask how they will ensure that fixes that are implemented now will contribute to building a platform for growth and competitive advantage when the upturn comes? Ask how important revitalizing education, infrastructure, etc., is to recovery... My hunch is that the discussion will soon turn to one in which innovation and design can be identified as strategic enablers of economic success and societal well-being.

Sally in Chicago

January 29, 2009 11:46 AM

First, I believe all the crooks should be hunted down and convicted. Are these countries actively going after the thieves and scammers that caused this downfall?

LL

January 29, 2009 12:00 PM

Is there an end in sight?

Michael King

January 29, 2009 12:11 PM

Why do governments not make the hard choice of writing down the assets, taking the losses and closing the truly insolvent banks instead of propping up the system with more debt and doing nothing but prolonging the crisis?

Why are political considerations all of a sudden preventing the DOW from removing the 6 companies below $10 which should be removed thus insulating any true significant movement in the DOW?

How is any amount of stimulus going to fix the shadow banking system which is frozen because secondary markets have no confidence in the so called assets the banks are holding?

Why do politicians think stimulus will help work off all the excess capacity in homes and autos when people cannot now qualify for loans since lending standards have been raised so high.

Lastly a note: I was in TOYS R US the other day and all 6 lines were backed up with 4 ppl per line but store was not busy. Found out when I got to register. Chase was offering store credit card VISA and every person who applied was not qualifying making mgr make calls. The people who could qualify did not apply. This is a snapshot of World. Lines of consumers cannot purchase anything on shelves because no one can qualify for credit to buy goods nor pay their bills. We must fall down before we can get up. Why won't the governments let us fall so we can begin to get up? Ask them that.

miltownkid

January 29, 2009 1:23 PM

I almost never pay any attention to the ads that pop up in Gmail, but this noe caught my eye.

There are DEFINITE solutions to these problems. If you haven't already do some research on barter/trade exchanges or LETS (Local Exchange Trading Systems). If countries had working trade exchanges in place already, when a shortage of money happened the trade exchange would take care of the lack.

Google "Argentina Barter Fair." This thing people fear has already happened somewhere and a solution was found.

People should be really pissed at their governments and these huge banks for allowing things to get like this though.

fmarc

January 29, 2009 1:41 PM

These countries youth are in revolt because they know deep in themselves what the older generation want to ignore, that the financial crisis is a warning that the economy cannot sustain a yearly 15% return to pay retirees to stop working for 20, 25 and more years. We live longer, we cannot stop working expecting less and less ( in Europe, Japan, India and soon China) workers supporting more and more retirees. We cooked the books, inflated the value of assets to make believe we were yielding enough return to pay for the pensions. We know the result and are back to reality.

Mark Whiting

January 29, 2009 2:00 PM

I think something worth talking about is why speculation is upheld so strongly in the economic system and what could happen if it was dealt with differently.

philN

January 29, 2009 2:05 PM

" really smart people " . Is that so! How come we are in this mess ? Reminding me of JFK 's " Best and brightest" leading the US into the Viet Nam quagmire .
Since this is a world crisis, I 'd like to see a concerted effort from all major nations to address and solve the problem.

ike raoul

January 29, 2009 2:44 PM

How can we create meaningful jobs for people with no hope of a better future that lets them take an active role in creating a better future for themselves and all of us together.

Can thousands, millions be put to work making and laying fiber, cable, hardware to help build a new grid? Can thousands, millions be employed to help build sewage and water treatment plants?

Small, doable things add up.

sam

January 29, 2009 3:45 PM

The most important question: What to you SEE in the future. They need to get a copy of "The Art of the Long View" by Peter Schwartz and get busy. Most of these people represent the conventional wisdom, and that won't work this time. They used to be the New World Order. Now they are the Old World Order. They will stick to their beliefs until they are pushed out.

Niki P.

January 29, 2009 4:00 PM

There is a huge amount of arrogance still around all of this and those Wall street and financial people who in part created this mess. They defend their actions. And they continue! (the Merrill Lynch bonus mess -- banks holding on to bailout money). As long as they continue this behavior they become and obstacle and a threat to getting out of this mess. What do we do about this behavior?

Bruce Temkin

January 29, 2009 4:04 PM

Bruce:

First of all, stick with the sweater; don't let everyone else pull your mood down!

I'd ask the question: How can we take advantage of the the collective global malaise to find new opportunities for international cooperation and collaboration? Rather than focusing on the downside (which is easy to spot because it's so much in front of everyone), I'd like to hear some discussion about finding opportunities in this environment.

Enjoy Davos!

Best regards,

Bruce Temkin (http://experiencematters.wordpress.com)

Paul Hobcraft

January 29, 2009 4:07 PM

From this conference "transformation" will become like "innovation". A smoke screen. We need a fundamental shift in thinking and it has to revolve around growing more dynamic capabilities: identifying them, nurturing and putting them to new challenges. We need to treat the firms as currently in a transformation process at this time, not locked into the current decaying market related exchange process called global trade, the steady as we know approach. We need to finally make the shift to knowledge accumulation and translation through 'tighter' network arrangements that become more dynamic in their capabilities and forms, so innovation discovery can focus upon niche creation, revolutionary and architectural approaches. We need a new theory of business to emerge and evolve around a more dynamic capability set. Now how do you explain this to people at Davos in 15 minutes?

Michael

January 29, 2009 4:13 PM

When is the world going to dump the dollar?

Observer

January 29, 2009 4:14 PM

First, it is not "impoverisation", as you write above. It is "impoverishment". I think it is time to invest in a spell-check program when writing for a magazine like BusinessWeek. Otherwise, it leads to a drop in credibility, and people wonder if BusinessWeek sent a college intern to cover this important event.

Next, it is a journalist's job to provide a unique angle to a story they cover, and to follow those leads, which will make for good copy. Instead, asking readers for what questions to ask of attendees at an event looks like a moderator's job rather than that of a journalist.

But in any case, here would be my suggestions.

1. Try to determine if there is an exit strategy among the politicians regarding this crisis.

2. Ping some financial types as to what regulations are forthcoming, which would impact cross-border capital flows.

3. Find out if anyone is talking about pricing commodities in a currency beside the US dollar. Chat up some Arabs, Russians and Australians and see what they say privately.

Develop sources during this event and get under people's skin when you have to. You never know what kind of meaning off-hand remarks convey when people get irritated. Good luck.

Jp

January 29, 2009 5:20 PM

Will China's soft power of cheap manufactured goods only get more power full in this environment, thus strong posting from companies like walmart?

Andre Budianto

January 30, 2009 9:45 AM

So many kind of crisis would shape crisis of confidence arround us.

Angry one

January 31, 2009 5:02 PM

Hello mainstream media a** lickers - these are not 'smart' people, just crooks, smooth talkers and con-men in suits. Perhaps they're smart by the impossibly low standards of 'journalists' like yourself.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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