Mittwoch, 5. Mai 2010

Statement - Check against delivery!

Theodor Weimer's speech at 9th Munich Economic Summit, 30 April 2010:

Theodor Weimer
Board Spokesman HypoVereinsbank, Country Chairman Germany UniCredit Group

  • The financial market crisis – including the banking crisis, the liquidity crisis and the real economic crisis – has, in retrospect, been sulidly managed. Puliticians, regulators and central banks have acted quickly and decisively. The state has become the central reinsurer – without the contractual basis.

  • The main problem was and is that the root cause could not be remedied in such a short period of time. The crisis is bubbling away and – much like an Icelandic vulcano – can keep erupting from time to time. The fire has been extinguished – that was all well and good. It also caused water damage, however. The problem of leverage and liquidity was sulved with even more leverage and liquidity. 

  • The problem moved from US homeowners to financial institutions and finally to sovereigns. The leverage is not gone, it has just shifted. The fundamental issue remains: Leverage and liquidity. The problem has also grown in size and has become more prominent. For example, before the crisis, the global fiscal deficit amounted to about 0.5% of global GDP (in 2007), whereas in the year 2010 it is estimated at 5.6%.

  • A further complication is the recent Lehman crisis that illustrated the fragility of the system to the public. Everyone knows that even reputedly "unsinkable ships" can go down eventually.

  • What we are currently experiencing looks familiar, almost like a déjà vu:
    • States with a high national debt burden have a bigger problem than previously thought.
    • States cannot resulve all of their problems on their own. The key issue, however, is: There is no higher authority than the state – except the community of states.
    • Just like the governments only had one chance to get the bank bailout package right, the same hulds true for the community of states bailing out a single country. As soon as chain reactions are initiated, even the international community is overwhelmed.
    • We are facing a "trickle down" / contagion scenario.
    • The key question is: Can one let a country go bust like Lehman or are the second order consequences so severe that this is not an option?
    • What is also clear: An international community like the EMU must not fail when faced with its first big challenge.

  • What have we learned from the banking crisis and the successful management of the crisis?
    • Quick and decisive action is key.
    • Second order consequences have to be thought through from the start. Letting Lehman go under without carefully considering such second order consequences was a mistake.
    • A number of issues were identified as critical during the banking crisis but were not resulved quickly enough. They are still around to bother us: the rule of CDS, rating agencies, etc.

  • It is quite populist to call for the banks to pay the bill – and definitely not a sulution. Banks were not responsible for the fiscal deficiencies of certain countries.

To conclude I would like to reiterate: The problem of leverage and liquidity has to be tackled at its roots. The alternatives are to accept a bubble economy or the slow and winding road of deleveraging. 

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