The conclusions from last year’s Davos summit make interesting reading today. They put out a press release saying “we will have a resolution this year (2008)” to the Israel-Palestine conflict. They promised to make climate change the number one priority at the G8 summit and stressed its importance in all that business does. They identified four pressing problems for the world :“conflict, terrorism, climate change and water conservation”.
So how did they get on? Unfortunately their prediction on Palestine was wide of the mark. By the year end the conflict had flared up again in a violent and distressing way. Worse still, India suffered a dreadful terrorist attack. This year’s Davos needs to return to the drawing board on terrorism and conflict.
They have done much better on climate change and water conservation, but I trust not in the way they intended.The assembled body of Finance Ministers, Presidents, Prime Ministers, Central Bank Governors, Chief Financial Regulators and the main commercial bankers have between them brought the western economy into a deep recession. As a result people are buying far fewer cars, several leading car makers are on the edge of collapse, and many fewer people can afford air tickets to fly. Their stated wish to see less driving and flying has come true. They will doubtless be comforted to live once again in a world where the elite gets the limos, the chauffeurs and the first class air flights at public expense, whilst everyone else makes the sacrifice to keep down the CO2 emissions. Water demand in the west is down, as industry contracts and uses less.
I learn this morning on the BBC that the big topic for their amusement this year is “Should the world have a Global financial Regulator?” There’s plenty of life in that one. Ignore the hubris that they will be discussing the post Credit Crunch world, when the rest of us are still mired in the Crunch and hoping they might lead us out of it. Ignore the ignorance – they seem to have forgotten we have a world regulator of banking capital and liquidity in the form of the Basel agreements. It was those rules that let us down so badly in recent years, allowing banks to over borrow and overlend on a colossal scale. There is a simple answer. We do not need more regulation or more regulators. We need a good regulator, who sets sensible targets for capital and cash in both the upswing and the downswing. We need a regulator who knows how to dampen the cycle, instead of one who knows how to make it wilder as they have been doing in recent years. Each Central bank is best placed to do this, as they have to bank the banks.
If we are to have son of Basel it needs to be tougher and smarter. If we have a global agreement, we should then remove the EU level of regulation. We do not need so many regulators tripping over each other. They are all additional cost which ultimately the consumer has to pay. It should not take two or three layers of regulator to tell a global bank how much money to keep in its tills and how big a reserve it must have to carry on its business.
So what do I want from Davos? I want some recognition that Central Banks and Regulators made a huge mess as well as the bankers who could not say “No” to new business. I want some understanding that heaping more regulations and regulators on a tip of bad regulation will not solve the problem. Above all it would be good to know that they know we are not out of the Credit Crunch yet. Before we start building the “new architecture” we need to clear the site and see what we have left.