Davos Diaries — The Next Financial Crisis
82% of Wealth created last year went to the richest 1%. Billionaire Wealth has risen by 13% a year since 2010
— Oxfam International
The richest 1% of Planet Earth congregate every year at an Alpine town called Davos and deliberate over how to make more & more money in the coming years and decades. They also invite political leaders from around the world, who deliver elevator pitches touting as to why one should invest their billions in that country.
The World Economic Forum at Davos this year (Jan 23–26) saw the marketing wizardry of real-estate mogul turned American President, Donald Trump, who espouses America First at every given opportunity. Going by what’s written in the press, he apparently charmed his skeptics who are firm believers of globalization.
While we definitely wished we could have been there, rubbing shoulders with the who’s who of the world and to report to you from ground zero like a Bloomberg/CNBC, the fact that we are a startup and it costs $60,000 just for a ticket + flights/hotel, we realized the theme of this year’s conference, “Creating Shared Future in a Fractured World”, was kept keeping us in mind!
But thanks to technology our friends at Silicon Valley invented, we caught most of the discussions/debates through live webcasts sitting at the confines of our homes. We were on a binge-watching spree the last couple of days catching politicians, business leaders, economists et. all go yada yada on various issues our little planet earth is facing.
But what caught our attention was this little session hosted by Bloomberg TV’s Tom Keene titled “The Next Financial Crisis”. The panelists were Michael Corbat, CEO of Citigroup; Fang Xinghai, Vice-Chairman of China Securities Regulatory Commission; Anne Richards, CEO of M&G Investments; Kenneth Rogoff, Professor of Economics at Harvard; David Rubenstein, Co-Founder of Carlyle, and Jes Staley, CEO of Barclays.
As someone who has no clue what the world will look like an hour from now, it was fascinating to watch what they view the world to be in the coming years. The premise of the discussion was if the overheated markets are headed towards another financial crisis and what could be the triggers for it.
In this hour-long discussion, that talked about Technology and cloud as a risk factor, the ballooning debt crisis, and an open admission that nobody really knows how QE tapering will play out, what stood out was the sparks that flew between Mr. Xinghai, the Chinese Securities Regulator, and Carlyle’s David Rubenstein. What ticked off Mr. Xinghai was Rubenstein’s tips on how people can make money during a financial crisis, apparently hinting at shorting China.
“If they bet that China could somehow have a financial collapse, and during the collapse, they could make some money, I’m going to tell them that they are wrong again. The nature of the Chinese system prevents a financial collapse from happening, we always move quickly to contain the risk. But of course, as the Govt moves to intervene — there’s always a cost — more govt money spent on unnecessary things, slow economic growth, unequal income distribution in the society etc. Nowadays regulators are working closely with financial institutions to prevent this from happening and that’s something we are doing.”
After saying the above-quoted text, Mr. Xinghai pulls out a chart and says “To say something about the United States — as I said, regulators should always watch out for Asset Bubbles. There’s something called cyclically-adjusted price-earnings ratio in the US markets and it’s only lower than Dec 1999 levels. It’s higher than September 1929! And there’s a risk there” Basically, he was questioning the fact whether the US regulators can get its act together and move fast if needed.
The Moderator quickly interrupts and cuts him off and jumps to Mr. Rubenstein who steers the conversation away to talk about gravity!!
Have we learned our lessons from the previous financial crisis? Is deregulation, printing more money and letting the elites make money off of another financial crisis the way forward?
Unfortunately, the only one on the table who had a plan to stop the next financial crisis from happening was China’s Fang Xinghai.