RUSSIA FORUM BUZZ. Towards a New Financial Architecture: Beyond Blowing Bubbles

Klaus Schmidt-Hebbel: Mr. Schmidt-Hebbel opened the panel with an analysis of the reasons for the global financial crisis. He mentioned savings imbalances, flawed macroeconomic policy and market imperfections. In his view, the crisis will lead to a deep global recession, which may last a rather long time. The importance of counter-cyclical fiscal policy was underscored by the current crisis, which can be classified as one of certain aspects of macroeconomic policy, but not of capitalism itself.

Hernando de Soto: In his brilliant presentation, Mr. de Soto said that the current global financial crisis was the result of disregard for the quality of information. As a result, modern capitalism has lost its connection with reality. When the market realized this had occurred, it ground to a halt due to a lack of trust. The global economy will start growing again only when it focuses on improving productivity.

Joel Kurtzman: Mr. Kurtzman is convinced that, due to the nature of the financial business, the current crisis will eventually repeat itself. Bankers are usually too aggressive in extending credit, and pay less attention to collection. This was one of the reasons for the crises in Latin America in the 1980’s and 1990’s, as well as the current crisis. However, he is rather optimistic about the future of the world economy, as it can draw upon its experience in coordination and resources.

Richard Clarida: Mr. Clarida focused on the problem of quality of analytical tools. Very often, the description of reality in economic models is very far from accurate. As a result, economic agents’ reason is biased, and risk diversification is poor. Analysts should bear in mind that market participants do not properly estimate risks, which increases the risk of bubble creation. He shares the view that the current crisis is not a crisis of liquidity, but rather one of solvency. This problem cannot be resolved anytime soon, which is why the crisis may last for a rather long time.

Nassim Taleb: Mr. Taleb criticized central banks for their policies that encouraged traders to hide risks. This created a system with imperfect information flows, while the structure of the global economic system was itself fragile. He proposed a Darwinist approach to economic policy, which implies that an ineffective system should disappear.

Erik Berglof: Mr. Berglof stressed the need for coordination of global economic policy and the creation of a system that would be able to deflate bubbles.

Nouriel Roubini: Mr. Roubini was rather pessimistic. He expects the crisis to become deeper and last a rather long time. He mentioned the risk of deflation and a liquidity trap. He also agreed that macroeconomic policy would affect liquidity, but not solvency. He underscored the problems of excessively generous fiscal policy, as fiscal deficits worldwide will increase credit risks.

Raghuram Rajan: Mr. Rajan discussed the need to create a world economic board. In his view, the IMF does not have enough influence or power to satisfy this need. Global finance ministers and the heads of national governments should meet regularly to work out a balanced and coordinated economic policy.


Sergey Guriev, Rector and Morgan Stanley Professor of Economics, New Economic School
Richard Clarida, Global Strategic Advisor, PIMCO
Hernando de Soto, President, Institute for Liberty and Democracy
Joel Kurtzman, Chairman of the Board of Directors, Kurtzman Group
Raghuram Rajan, Professor of Finance, University of Chicago Booth School of Business
Nouriel Roubini, Professor of Economics, NYU’s Stern School of Business, Chairman, RGE Monitor
Klaus Schmidt-Hebbel, Chief Economist, Organisation for Economic Co-operation and Development
Nassim Taleb, Distinguished Professor, New York University Polytechnic Institute

Troika Dialog

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