Bears or Bulls? Winners or Losers? What is going on out there? The Time Online today has a nice overview of various takes on the global economy. Below are some choice quotations, the first being my favorite:
“Yachts,” he [Terry Smith of the broker Tullett Prebon] said. In previous summers the ruling families of the Gulf came to Monte Carlo to tie up next to western bankers. This summer, Smith said, western financiers are taking their yachts to the Gulf to curry favour with the families overseeing Middle Eastern sovereign wealth funds.
“I ring my contacts and they’re all in Abu Dhabi,” said Smith. These are not bankers but men who own and run large private companies. “These are the guys the sovereign wealth funds want to work with – guys so far off the radar they make the hedge funds look transparent.”
Here are some others, certain to raise debate:
Smith breaks a City taboo and mixes his economic analysis with politics. He traces the cheap money to Alan Greenspan, the former Federal Reserve chairman, and his refusal to raise interest rates to bring surging asset prices under control. “Greenspan was part of a new political culture that started in the 1990s and violated the integrity of his predecessor, Paul Volcker,” said Smith.
“Feel-good politicians like Bill Clinton and Tony Blair started telling people only what they wanted to hear.”
Robson [Steve Robson, a former Treasury official]wonders how America and China will stabilise their unhealthily symbiotic economic relationship. America relies on Chinese savings to fund its deficits, he said, and the Chinese rely on the American export market to sustain their high growth rate. “The yuan is too low against the dollar,” said Robson. “If the Chinese won’t revalue it, the US needs to talk about import tariffs.” In hock to the Chinese, however, America is in a weak position to get tough.
“Regulatory reform, proper incentives for bankers . . . these are valid issues,” said Robson. “Ultimately, though, they are displacement activity.”
Wonder what he meant by “displacement activity”?
The rest of the article is a Bulls-Bears point counterpoint. For the Bears:
Bears say global finance remains out of control and is likely to produce further bank failures as a new round of defaults on debts — ranging from credit cards to loans for leveraged buyouts — overwhelms the system. “We don’t have a sub-prime mortgage crisis,” said New York University economist Nouriel Roubini in a recent interview. “We have a sub-prime financial system.”
For the Bulls:
Bulls say the unravelling is over. Passing through London en route from Beijing to Italy for a short break, Citigroup chairman Sir Win Bischoff last week made the case that banks were now healing themselves. Banks still face billions in mortgage-linked writedowns. But Bischoff said “the final tally will depend in large measure on US house prices and the broader stabilisation of the credit markets”.
And then there is this choice remark from a former Middle Eastern sovereign wealth fund manager:
Laughing off questions about the pattern of yachts moving through the Suez canal, he said western leaders should redirect public attention to the issue of how industrial economies relate to the emerging economies. “How you deal with the coming changes — say half the General Motors assembly line moving to China — will determine where the downturn comes out,” he said.
Is that where G.M. is going? Will anyone be surprised?