THE PRIME MINISTERS WEIGH IN; WHAT IS THE PROPER ROLE AND SOCIAL FUNCTION OF A BANK?
The panel on which I am speaking today is titled “Rebuilding confidence in financial markets: financial regulations, budgetary discipline, monetary stability.” Fellow panelists include Danuta HÃ¼bner, Member of the European Parliament and former European Commissioner (equivalent to a former presidential Cabinet member in the US); Ingrida Simonyte, Lithuania’s Minister of Finance; Jacques Delpha, a member of the French prime minster’s economic advisory committee; Olivier Lacoste, Director of Studies, Confrontation Europe; and Ross Walker, UK Economist at Royal Bank of Scotland. This panel got really down in the weeds about the nitty gritty of financial reform, but for my 10 minute contribution I had decided to take a different tack. I pulled back to the 30,000 foot level to survey the broader landscape, titling my talk "Principles to live by during an economic crisis."I delivered a somewhat tongue-in-cheek perspective, hoping the humor would translate across the Atlantic. “We live in a time of great uncertainty,” I began, “and so we need some principles to guide us. But I must warn you, these principles may turn out to be completely unreliable. So use them at your own discretion.” From the mostly blank stares I received from the 100 or so people attending that panel, I’m not sure they “got” the irony. My comments were being translated into six languages simultaneously, and the translation can take a couple of seconds, so it’s hard to say. No matter, I plunged on.
My first principle: Only trust those economic experts who tell you “I don’t know what’s going on”. I proceeded to make the case that the economic profession has been discredited. “Keep in mind, the ‘experts’ missed an $8 TRILLON housing bubble in the U.S.” They clearly have a shaky handle on how the economy actually works. “Economists are like a chef who not only burned the meal but burned down the entire restaurant, yet the cook wasn’t fired. How many economists have lost their jobs?” I then laid out a two decade long track record during which economists have been wrong more than they are right on the big issues (here’s a link to an article I wrote about this theme called “Shorting Economists: The Economists Keep Getting it Wrong”. “We are flying blind, lost in the fog, when it comes to redesigning the financial architecture, and it is important that we admit this.” The room of course is filled with economists, as I knew it would be. Do I detect an uneasy shifting of chairs?
The heart of my speech was this principle: Values-based banking and finance - what are the right values for a banking and financial system? I explored how we could turn banks and the financial industry away from the casinos they have become and make them into responsible institutions. “What is the proper role and social function of a bank? It seems that as a society we have lost sight of the crucial difference between productive investment and gambling, between the banker and the bookie, and between the insurer and the speculator.”
Watching the audience’s faces from the podium, it didn’t seem like my comments were going over real well. I felt suddenly like a comedian who was dying up there, not connecting with his audience. But during the Q and A I received a lot of head nods from the audience, and afterward quite a few people thanked and even praised my comments for “telling it like it is.” In particular they liked my suggestion that Europe should employ traditional means of public relations, including advertisement in US newspapers, TV and radio, to help Americans appreciate “Brand Europe.” European companies employ about 2.5 million Americans throughout the United States, and have invested more than $50 million in the state of Texas alone, more than U.S. businesses’ investments in all of Asia. Yet no Americans know about it (You can read more of my thoughts about this at this article). So all in all, it was a “good show,” as they say.
Spotlight on the Prime Ministers and the European Parliament President. The highlight of this day’s events undoubtedly was the final plenary session featuring most of the heavyweights at the conference. These include Jerzy Buzek, President of the European Parliament from Poland (the equivalent of U.S. Speaker of the House Nancy Pelosi); Yves Leterme, Belgian Prime Minister, now holding the rotating presidency of the European Union; Viktor Orban, Prime Minister of the Republic of Hungary; Joseph Daul member of the European Parliament and chair of the European People’s Party Group; and Jaime Mayor Oreja, member of the European Parliament, Vice-Chairman of the European People’s Party in the European Parliament.
Hungary’s Orban is a particularly interesting figure. Ruggedly handsome like the former football/soccer player that he is, he swept into office earlier this year with a populist campaign that brought him an unprecedented two-thirds parliamentary majority. This is one European leader that stimulus hawk Paul Krugman would love, since Orban has resisted the International Monetary Fund and is the first major European leader to challenge the German-led orthodoxy of budget cuts and structural reforms that has swept Europe since the Greek debt crisis. Orban has won public support by announcing plans to reverse an IMF-imposed increase in the retirement age, proposed a one-off tax on the country’s banks and trumpeted a mini-stimulus plan. His criticisms of foreign banks, speculators and most recently the European Union and the IMF certainly are more in tune with the sentiment in the European streets, as protests have swept across the continent in opposition to budget cuts and bank bailouts. While such an approach is crowd-pleasing in Hungary and elsewhere, it also runs the risk of alienating European allies and foreign investors. His policy choices are an explicit rejection of those trumpeted by most of those in the room, so I am curious to hear what he will say to this audience.
“Europe has changed before our eyes,” begins Orban. He calls for greater regulation of financial speculation and says economic growth and job creation should be the main goal of Europe and the EU. He cautiously treads familiar center-right turf, saying nothing controversial and playing the role of local host to leaders from the corners of Europe. But in one small jab at the European Union he says “People are fed up with grandiose plans that mostly lead nowhere,” and combines that with an appeal for an acceptance of each country steering its own independent path. But then he lapses back into “diplomat speak,” keeping things polite. Hungary is not using the euro, having retained its own currency the forint, but his prescription is exactly contrary to the tenor of the times in Europe, since the eurozone nations have been promoting greater fiscal union, i.e. convergence and harmonization of budgetary rules as a reaction to the Greek/sovereign debt crisis. Indeed the speaker right before him, Joseph Daul, who is a member of the European Parliament and chair of the European People’s Party Group, calls for greater convergence over retirement age, number of hours worked, and more. “We need a balance between security and liberty,” says Daul. But this difference of opinion will have to be argued through another day, since this evening everyone is on his or her best behavior. That is often the case in these forums, a diplomatic exchange of differing viewpoints. And with the economic “experts” themselves divided over stimulus vs. deficit reduction as the best strategy at this point in the economic crisis, there is little point in being too fundamentalist or passionate in one’s opinion.
European splendor along the Danube. That night, the conference has a private dinner inside the fabulous Hungarian Parliament building. Like its impressive exterior, the interior of the Parliament is a masterful work of architectural design. Once inside, visitors walk up a grand staircase and are suddenly uplifted inside the womb-like ambience of a stunning grand hall, glittering with gold artifacts, archways, trim and ceiling. Very impressive. Between the gold craftsmanship are stained glass and glass mosaic paintings. As one ascends the stairs, one is greeted by all the magnificence that the Austro-Hungarian empire once had to offer. The effect is dazzling.
At the top of the stairs is a famous hexadecagonal (sixteen-sided) central hall, with huge chambers adjoining it, including the Lower House (where the National Assembly meets) and the Upper House. Other rooms shoot off to the left and right, the whole effect like a regal honeycomb. The Holy Crown of Hungary is displayed in the middle of the rotunda of the central hall, inside a glass case. The food is as exquisite as the building -- these European leaders know how to treat themselves well at these conferences.
This marks the conclusion of this conference, and tomorrow, I am off to give a lecture in Luxembourg, followed by Paris
—Steven Hill 1:14 PM