COMPARISON OF INTERVIEWS AND SPEECHES
AT THE BIS BETWEEN YEARS
SVEN ANDRESSEN 1999 45 minutes
Discussed what the FSF is and who the players are.
Discussed the global structures: who speaks for who? What should be the pre-imminent overarching Board? Candidates are:
Group of Seven
Upgraded IMF add Interim Council with WB /WTO or
New Broadly based world financial governing [board] FSF bridges the gap for above. Brings relevant bodies together
--Will eventually extend to all countries membership
Informal groups with pooling of information
SVEN ANDRESSEN 2000 45 minutes
The recommendations of the FSF will be implemented: (1) by IFI's like the WB or IMF, (2) by implementation by national authorities whether they need action by governments or (3) implementation by domestic regulators/supervisors.
FSF way of bringing macro and micro-economics together.
No one can predict what will bring the system down. Any kind of combination of factors at a bad time or the right time might or whatever might be sufficient to trigger a set of reactions that have very adverse consequences.
The Forum seeks ways of instilling incentives that go in the direction of behavior which is compatible with sound financial institutions and sound financial markets.
There is a herd mentality in financial markets which goes back to the Dutch Tulip Mania. Today investors have much greater direct control with their marketable investment positionsability to trade, buying shares, and so on. More individuals are making their own decisions about money. Then you have the technology which has made it all available. All of this creates the basis for there to be herding types of reactions.
We cannot have volatility which causes bankruptcies and crashes. Need to raise standards of safety and soundness.
Concerns with tech stocks and the New Economy: (1) we have new possibilities for trading which is easier (20 you have had a whole lot of new stocks traded which unlike the new stocks traded in the old days, do not have a sound or accepted valuation methodology to them. In the old days to be listed, a company had to demonstrate they had a quality of earnings, they had a whole year of disclosed profits. You were not permitted to be traded until you had demonstrated criteria.
With tech stocks stocks there has been a tremendous desire to facilitate these companies access to capital and listing requirements in various stock markets have come down to make this possible. SO YOU HAVE THE BASIS FOR MUCH MORE VOLATILITY. I THINK IN THE TECH STOCK MARKET, THE MARKET HAS NO PARTICULAR ANCHOR SO THE TECH MARKETS ARE ALL DRIVEN BY PEOPLE'S OPTIMISM AS THERE IS NO MIDDLE.
COMBINE THIS WITH VERY LITTLE SUPPLY OF THESE STOCKSCOMPANIES ONLY ISSUE 10-18% OF TOTAL STOCK. THAT MEANS THE CONDITIONS FOR THE DAY TRADERS ARE BEING SATISFIED BECAUSE THEY NEED VOLATILITY TO MAKE MONEY.
IN TODAY'S ECONOMY WHEN THE REAL RATE OF GROWTH IS 4%, 10-12% IS A LOT OF MONEY.
IF YOU HAVE TOO MUCH DEBT, YOU HAVE TOO MUCH LIQUIDITY AS ALL MONEY IS DEBT. LIQUIDITY ENABLES SOMEONE TO REALIZE SOMETHINGWHETHER THEY HAVE SAVED UP OR BORROW IT. AFTER A PERIOD IN WHICH YOU HAVE A LOT OF EASY MONEY WITH LOW INTEREST RATES, INDEBTEDNESS BUILDS UP AND WHEN THE BUSINESS CYCLE MATURED, JUST AT A TIME THAT THE BUSINESS STARTS TO TURN, TO GET THE BUSINESS CYCLE GOING AGAIN, BUSINESSMEN HAVE TO BORROW...
COMPARISON OF BIS PRESS BRIEFINGS WITH ANDREW CROCKETT
1999 Press Briefing With regard to a question on too much world debt, AC said, "different between countries. Some EU countries have high level of indebtedness. Debt level in U.S. not satisfactory but now have surplus in their account.
Financial restructuring does not involve absolution but restructuring with government taking it. Government capable of doing it with taxing power.
With regard to hot moneyflows mergers plus volatile. How Deal? When interfere with markets, it leads to other problems. Need greater transparency as to where flow is going. Financially positioned lendersleads to bank supervision.
Japan is stable. Don't think serious risk of deflating. Present situation is sustainable.
Question on Euro/dollar: No free lunch
DAVOS - FINANCIAL STABILITY WORKSHOP
with Lawrence Meyers, Fed Reserve Board Governor and Andrew CrockettVeon: What guarantees do you have even though you have established the G20, FSF, the Financial Stability Institute, make major changes to the IMF/WB and established the Basle Capital accords that you will not repeat the same mistakes since we are now increasingly going to e-money and commerce?
Meyers: (He talked very fast and loud) "There are no guarantees. There are no guarantees in this world and the whole premise of this discussion is that the hard work begins now. We have set ideas out there for dealing with improving the framework in many of the domestic economies which face crisis and there are movements in the appropriate direction but they are slow in being complete. That means we remain vulnerable to triggers that don't appear on the horizon...we don't' know what the future will bring and very sharp increases in oil prices, sharp increases in interest rates in developing economies, a slow down in developed economiesall of these are risk factors at a time when the process is complete.
2000 Press Briefing Volatility over the last year has increasedAsian markets and foreign exchanges. The liquidity of market is not as strong as it was which means volatility could well continue because the capacity to absorb changes in demand is not there.
World Economic imbalances cannot be indefinitely sustainedbalance of payment imbalances and associated exchange rate pattern.
We need the need for greater integration to use JV's word, is in the nexus between macro economic policies. To be more mindful in an integrated, open global economy of the way in which the macro economic situation interacts with the situation of individual institutions.
One of the imbalances which we fact is on the current account side with the U.S. current account deficit. The U.S. current account deficit has been covered by even larger capital inflows putting upward pressure on the currency and those larger capital inflows have been driven by the perception of profit opportunities in the United States either through physical investment or through investment in financial assets. No country goes on indefinitely with a large current account deficit.
There are factors which would cause the U.S. economy to change: (1) INCREASE IN PROFIT OPPORTUNITIES IN THE European economies (2) a change in investor expectations with regard to asset prices (3) the slowing of the U.S. economy to a more moderate rate.
I think there is a potential risk if every time the economy shows signs of slowing the interest rate implications cause stock markets to rise because that means that what you are seeing by evidence in slowing is going to be counteracted by the wealth creating effects in stock prices. If every time the economy slows, the market rises, I think we are in a potentially unsustainable situation.
WHAT WE WOLD LIKE TO SEE IS A SLOWING IN THE ECONOMY TO WHAT IS THE LONG-TERM SUSTAINABLE SITUATION WITH AN APPROPRIATELY VALUED STOCK MARKET WHICH IS NOT SOMETHING YOU CAN DEFINE OR ACHIEVE.
YOU CANNOT DISCOUNT THE POSSIBILITY OF A HARD LANDING. MANY PREVIOUS EXPANSIONS HAVE ENDED WITH A HARD LANDING.
In a June 1998 interview with Charles Lakewood who was with the Basle Committee on Banking Supervision, when I asked "I always think of the BIS on top of the worldyou have more gold than a lot of central banks. You are the core of all the world central banks, who takes order from who? Lakewood: "Well we definitely take orders from everyone but we definitely do what we like."