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Thursday, September 24, 2009

With all eyes on Pittsburgh, some experts try to lower expectations

So many people are projecting so much onto the Group of Twenty Summit in Pittsburgh, it was good to see Carnegie Mellon University trying to put the spectacle into context.

At a conference Wednesday, professors, policymakers and businesspeople described many urgent global issues, but acknowledged that the heat needed to do something is off: The financial crisis that panicked the world last fall is over. The recession is fading as well.

Still, the G-20 is working off last November's playbook trying to tackle the underlying structural issues that created the conditions that produced housing bubbles and overuse of leverage.

As Mark Sniderman, executive vice president and chief policy officer of the Federal Reserve Bank of Cleveland, said, "Like all the king's horses and all the king's men, they are in charge of putting all of it back together again. The question is how?"

Sniderman, who made it clear the views he was expressing reflect his own opinion, was the latest Fed official to support the creation of a systemic risk regulator. The Cleveland Fed official would say only that the Federal Reserve has a great deal of expertise, but Congress will have to decide if it's the best vehicle.

But the G-20 is far from agreement on any similiar concept globally.

With an agenda that runs dozens of pages, how is the general public to get handle on what the G-20 nations are really trying to do?

One thing these experts expect the summit to produce is some consensus on compensation. France's Nicolas Sarkozy and Germany's Angela Merkel have been very vocal that executive compensation practices must change. The U.S. doesn't disagree, but they differ on the details.

The question is whether it's appropriate for world leaders at an international meeting to be setting executive compensation levels at financial institutions. After all, the Obama administration in June has introduced its own priorities on limiting the use of inappropriate incentives that can encourage reckless lending and investing.

For his part, Timothy Adams, managing director of the Lindsey Group, worried about the G-20 committing to things that nations, particularly the United States, can't deliver. President Obama can set the direction on financial regulatory reform, but Congress has to make it come to fruition, he said. And Washington politics thwarts many well-intentioned efforts.

David Marchick, managing director for global government and regulatory affairs at the Carlyle Group, said what makes economies go is foreign direct investment, and the financial crisis greatly diminished those flows. The U.S. needs foreign investments to propel its economy, especially China's level of support. But that has made many in Washington uncomfortable. Marchick said the G-20 meeting will have a "big impact" on letting other countries know whether "their capital is welcome" in the United States.

We'd better, because Adams said the United States is going to need to sell $9 trillion worth of debt over the next decade to function.

The result of those bad loans and investments was clear when Carlyle's Marchick talked about the banks the private-equity firm has looked to buy over the last two years. They were shocked at the "unbelievably poor decisionmaking" at many of them.

At one Florida bank that Carlyle acquired with other investors, two-thirds of the mortgages were issued with no documentation. Of course, it had failed.
Posted by Mike Armstrong @ 2:05 AM  Permalink | 2 comments
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  • Comment removed.
  • 0 like this / 0 don't   •   Posted 3:12 PM, 09/24/2009
    Nobody should receive $10 million per week, regardless of what s/he does to earn it. The wealthiest one half of one percent of the population used to be taxed at 70% on the highest portion of her/his income. Was that Communism? No, it was capitalism during its longest sustained prosperity, 1947--1973. Tax cuts for the rich have led to our current problems.
    — Delaware Jim


2 comments
About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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