How could we have been so stupid?
"How could we have been so stupid?" That was the refrain of several experts at a session of the World Economic Forum last week about "What Went Wrong" to produce the global financial crisis. Not that they had been wrong, mind you. It being Davos, the chosen commentators had mostly been right in warning several years ago of disaster ahead. But there was at least a note of collective chagrin.
Davos doesn't do humility, normally. These are the masters of the universe whose winter gathering has come to symbolize the process of economic globalization. But this year, with the global economy in the tank, there is a kind of corporate self-examination. Beyond the panel discussions, you could hear a collective sigh of "Oops!" and a plaintive "Now what?"
One reason for the self-reflecting tone this year is U.S. officials mostly stayed away. The Obama administration's absence gave a "post-American" feel to the session, but that's deceiving. Barack-o-mania is as strong among the global titans as it is everywhere else.
The most upbeat presentations here were from the capitalist "newsies," Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin. Wen said he saw small signs of "hope" in China's increased bank lending and domestic consumption. Putin talked like a born-again capitalist, saying that Russia had seen the damage caused by too much government control of the economy, and that it would never go back to the policies of the Soviet Union. He sounded most enthusiastic when he talked about tax cuts in Russia. He took a few shots at the United States for creating the "perfect storm" that hit the global economy - citing the happy talk from U.S. officials at Davos a year ago and the "low quality of management" at U.S. banks. "Such a pyramid of expectations should collapse," said the former communist, now a true believer in free-market discipline.
How could the giants of capitalism have been so stupid? That question ran through Davos all week, and the blunt discussions were reassuring. The global economy may have gone to hell, but people haven't lost the ability to think critically about it. One of the most articulate critiques came from Niall Ferguson, a professor of history at Harvard, who repeated his argument that the American "debtosaurus" is following Britain down the path of imperial exhaustion and decline. The rock stars here this year were economic analysts Nouriel Roubini and Nassim Nicholas Taleb who saw the disaster coming before most everyone else. Roubini argued that the skewed incentives of the old system almost guaranteed the eventual crackup. Mortgage companies had offered dubious subprime mortgages; banks had underwritten them; investment banks had turned them into exotic securities; rating agencies had given them artificially high marks - all for a fee. The system "worked," you might say. Taleb, a former trader who wrote "The Black Swan," argued that Wall Street's models - supposed to prevent bankers from taking excessive risks - were actually a big part of the problem, since they created a false sense of confidence about the future. Rather than seeking reassurance in models, he advised anxious traders to go have a drink, or take up religion.
"It's easier to say 'God knows' than 'I don't know,'" said Taleb, in what might be a motto for this year's Davos meeting.
© 2009, Washington Post Writers Group