‘There is no Wall Street or main street, there is only one street and we are all on it’
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What struck me when it blew up was how many people who had bet early on the dips got it wrong. So for instance, the Prince of Saudi Arabia bought into the recapitalization of Citibank a year ago in January. He paid $30 dollars a share. He felt he stole Citibank -- one of the smartest investors in the world had missed it. The Prince may have thought Citibank would go for $27 or $20 -- he didn't think that it would go for three. So everybody who bought early completely missed something. That told me, as a reporter, that something was going on there. What was going on? I realised that we got a combination of things that we have never seen before. You have never seen a financial crisis that was built up to this much leverage – 33:1. It wasn't just that financial houses were leveraged, individuals were leveraged too, which is unprecedented: 15 British police departments had all their money in Iceland in isave.com. Who knew that Iceland was a hedge fund with glaciers? So we have never seen so much leverage on top of so much globalisation and wrapped up in so much complexity that started in America. This didn't start at the periphery of the system, it started at the epicentre of the system.
What we are doing now in America? It's like Obama has got a shovel that he puts in the hole and he listens -- did it hit the bottom yet? We are praying that we find the bottom. And that's scary. We don't even know if we have got it right. That's what makes it so unusual, so unprecedented. It brings together a cocktail that we have never seen before. So this is not going end that easily, quickly or painlessly – you have never been to this place before.
Abhineet Mishra: In an article, you blamed America's deteriorating infrastructure more than the declining finances for the present scenario.
I don't blame America's infrastructure very much. For me, the idea that you can have the American dream -- a house, a car -- with no down payment and nothing to pay for two years, when did we ever think we can have the American dream for nothing down and nothing to pay for? We became a sub prime country and we started living on borrowed time and borrowed money and we started making money from money. So, as long as everything was going up, up, up and up, everyone just rode along, even if they knew it was unsustainable. In the world of the blind, a one-eyed man is the king. To me, it was like going back to the Reagan era: you can have tax cuts, you can have American greatness and nobody has to pay for anything. But we can't be shy about it: this was a terrible moral breakdown at every level. People who never should have been taking mortgages and who didn't have the income to sustain them were given them. People who shouldn't have been buying homes were buying homes. People were giving mortgages to people they knew could not pay mortgages. People were then bundling them into huge packages of A B C and Standard & Poors was blessing them triple with As because they were getting huge fees. So, there is a deep moral breakdown. It is not sufficient to blame the complexity of the system. We got away from the basics, basics of the hard work from our parents' generation, What will our kids call us? The greediest generation? The dumbest generation? The most selfish generation? The brain dead generation?
What struck me at Davos this year, was that everyone was looking for `the guy', the guy who would be able to tell us what this crisis is all about, how do we get out of it and what exactly we should do with our money. It was really scary because there is no guy. Everyone is hoping Obama will turn out to be that guy. I am hoping that too. I do think our solution is to get back to the basics. We have to get back to building an economy the old-fashioned way, by making products people really want and not try to make money from money. There's a parallel here, with the climate system. Like the climate system, you have to combine two things that are hard to combine in your head – humility and certainty. The climate system has enormous natural variability and you have to be very humble about that but you can be certain about one thing: the more CO2 you put into the atmosphere, the greenhouse gas blanket around the earth will get thicker, temperatures will rise, ice will melt, sea levels will rise and there will be enormous weather implications. It's the same with the economy: you give a $750,000 ????million mortgage to an immigrant who has no passport and no ability to pay and bad things will happen. Big institutions are gone -- Bank of America, Citibank have been devastated, Lehman Brothers has gone. It's like a war and they have been devastated. Someone will have to reinvent them.
Vinay Sitapati: In one column, you have made a passing reference to Satyam and Raju. You made the larger point that there is a huge trust problem. Are you collapsing old-fashioned fraud like Satyam's and bad investment issues which has taken place in America? The trust problem of Satyam and Lehman Brothers are completely different.
I don't think that Lehman Brothers was a trust problem per say. I think it was an unsustainable business. On Wall Street, things go on and on until they don't. Lehman Brother's just got caught up in that. As did so many companies that got over leveraged.
I got to know Ramalinga Raju because he reached out to me,originally, to tell me about Satyam's outsourcing to villages and that was the first time I wrote about him. The second time was when I wrote about 9/11 and the Raju Foundation working in villages. He seemed very intelligent. He had to be pretty intelligent to pull this off. He was a very smart guy and I don't mean in a crafty way, I mean you can have a really interesting conversation with him. This has left me very sad. Was the charitable work he showed me a fake too? I have no idea. I never had any real idea about Satyam's business.
What this whole crisis between Citibank and Lehman Brothers has done is that now you have to live with much more uncertainty in your life. I have a phrase, 'Are you Madoff proof?" He has become an adjective, he deserves to be an adjective.
Mihir Sharma: At what point will the rest of the world take a look at USA and say, `Why don't we have Europe instead'?
I think the fact that Europe is in much worse shape than we are is the real story here. Which is why the dollar is going up against the euro. I mean, Great Britain is the city of London and the city of London just went away. It's taken a huge hit. So it's not surprising that the pound is sinking. Europe was on a bigger binge that we were.
We are at the most pivotal point in the crisis right now. We have laid down the stimulus, we will come up with a bank plan and let's see if it's going to work or not. And if doesn't, there isn't another stimulus and there isn't another bank plan. What scares me as an analyst is that the world's record or any country's record, for spending large amounts of money wisely in short periods of time is not very good.
Unni Rajen Shanker: When you first realised that there was crisis, as a chronicler of the `flat world', did you think it was going to hit the rest of world so fast and so hard?
Last year at Davos was the first time I heard the term `decoupling'. And I thought it was complete nonsense. I see that the world has become so much flatter that a tiny variation in yield between Iceland and Britain, prompted people from Cambridge University and the British Police and municipalities to put their money in isave.com.
When everything went down, people got hammered, they had to sell their good stuff in order to compensate for the losses of the bad stuff and in the end everything turned out to be co-related. Stuff that might not have been co-related -- mutual funds, stocks, everything -- got correlated. The speed of the whole thing was pretty staggering. What strikes me about this moment is that there is nobody who is standing tall. India will be hurt less because yours is a more regulated economy and you are a little less connected.
Mini Kapoor: After Iraq, America's leadership has been in question. Now, under Obama, do you think America will be called upon to lead and how will it respond?
The most important thing Obama has to do is prevent us from becoming protectionist. We become protectionist, everyone goes protectionist. What made the Great Depression great was not the crash of 1929, it was protectionism. We had a terrible problem during the financial crisis: we had a president who couldn't speak English --and this is not cheap shot at Bush. When the House of Representatives voted down the first bail out what we lacked was a president who could understand this and explain it to the American people. What we lacked was a president when the Lehman Brothers happened, who could go on national TV and do the following: take out a dollar bill and say my fellow Americans -- this is a dollar bill. Last year, you were wondering where to put this dollar bill, and you saw a money market called Reserve Primary???, the oldest money market in America and Reserve Primary said, if you give us this dollar bill we will give you after one year, a dollar and 6 cents. When your bank said that too, you and your family took all your dollar bills and put them in the Reserve Primary. Then Lehman Brothers happened and then Washington debated whether we bail out the Lehman Brothers. You watched that on the evening news and you called your Congressmen and said, Lehman Brothers? Off with their heads. The next day you went to your ATM machine to get your dollar and a little sign came on the screen 'Money not available' and you said, what does that mean, this is a money markt? You know why your dollar wasn't available? Well, the reason why Reserve Primary was paying you a dollar and six cents was because Reserve Primary was holding $785 million of Lehman Brothers commercial paper. Ladies and gentleman, do still want us to chop the Lehman Brothers' head off? But nobody explained the connections to people.
So we had people in the House of Representatives who could not balance their own cheque books, making decisions and voting on huge financial issues without the simplest understanding that there was no Wall Street or main street, there was only one street and we were all on it. The Wall Street guys were the last to know that: they thought that they could have their private jets, have their bailouts, etc.
So now we need a president who can really educate people, because we are making very big decisions. I pick up the newspaper and feel that I am going to watch elephants flying. We just took an $800 billion dollar stimulus that was decided in a week. That's watching elephants fly. We don't realise that we are going to be studying, living, paying for these decisions for the rest of our lives. And if we get it right, it will be the opportunity of a lifetime. If we get if wrong, it will be the burden of a lifetime.
Alia Allana: The troop surge in Afghanistan is similar to the one in Iraq. Do you think it will work?
No. I have argued that there is a war on terrorism and a war on terrorists. To me, Iraq was about the war on terrorism. It was about how we can collaborate with the Arabs and the Muslims in the very heart of the Arab world, in one of the great capitals in Muslim history – Baghdad. This part of the world has only known vertical top-down monologues – from dictators, kings, general to their people. They have never known a horizontal dialogue. There's no Arab country today that is actually built on the basis of a horizontal dialogue with the constituent elements actually writing their own social contract. That's why I was for the war in Iraq. I believed that Arabs are capable of and desirous of democracy. And we made a total mess of it. One of the columns that I am writing from India (published in NYT on ??? February) – is about something so impressive for me: how Muslims of Mumbai refused to allow the nine??? 26/11 terrorists to be buried in any Muslim cemetery. That is really impressive. I don't know anywhere else in the Muslim world today where we can find that except maybe in Iraq. The fact that Muslims in India live in a democratic context even with all discriminations and bias they have to deal with at an economic and political level, that's the difference. Their willingness to say that these guys are suicide bombers, murders, these guys are not acting in an Islamic way and they will not be buried in a Muslim cemetery, that is really impressive. The only thing that is equally impressive to me is that it last September an Iraqi Sunni Muslim Parliamentarian ???XXXX decided that he was going to Israel because they were having a conference on terrorism and he wanted to go. When he came back the Shia-led parliament said, you had gone to an enemy country, we are stripping you of parliamentary immunity and we are going to try you. He took the case to the Iraqi Supreme Court and eight Supreme Court judges ruled in his favour, threw out the case and ordered the Speaker of Parliament to pay all his court costs. That could not happen in Egypt or Jordan – two Arab countries at peace with Israel. To me democracy – the context within which people live their lives -- really matters. So, for me the Iraq war was about terrorism.
In Afghanistan, it was a war on a terrorist; we went to Afghanistan because a terrorist organization, Al-Qaeda, had taken over the country. I just fear that the idea of nation-building in Afghanistan is something we don't know how to do. President Karzai looks to me to be as corrupt as anyone. I have been arguing that we should keep our footprint there as small as possible. The idea that we are going to transform Afghanistan, I think, is really a fool's errand and it could be Obama's downfall. In America, Iraq is a bad word, Afghanistan is a good word, Iraq was Bush's war but Afghanistan was a consensus war. I think we have got it exactly wrong.
Mihir Sharma: Do you feel that in the Middle East —in particular Israel and for the first time in the moderate Arab world there is an understanding that this problem has to be solved?
This is the pivotal year because basically, we have seen the end of the two-state solution now for very concrete reasons. Jewish elements in the West Bank are just getting more and more enmeshed and rooted. And what the Hamas is actually trying to do is destroy the two-state solution. To have any negotiation now, you have to do nation-building first, you have to take a critical mass within each side in order to negotiate between the sides and I think this is very frustrating time to be a Secretary of State. I think it is not the best one to be dealing with Pakistan right now: you are dealing with a struggling state – I will not say a failing state-- with a very weak civilian leadership, a very strong army and atomized population. We are so used to our Secretaries of State managing strength – first it was managing our strength and the Soviet Union's strength and then managing our strength and their weakness. But now we have to manage weakness everywhere at a time when we are weak. And President Obama has three priorities: banks, banks and banks and none of them are the West Bank. So I think it is going to be a very frustrating time – who knows what the next few months have in store for us?
Maneesh Chhibber: Do you think America needs to revise its policy towards Pakistan, considering the latter's role in fomenting terrorism?
I am sure they do but I just don't know what the new policy would be. What do you do when you have a new civilian leadership trying to say the right things but which is very weak? We all know how weak they are. Iin that context I want to say I am impressed that India has not invaded the country even after 26/11. It is actually unprecedented on the world stage today, so outside the norm in the post 9/11 world. Partly, I think it is a sign of strength. It's like India is saying - we know who we are as a country, we are growing at 7 per cent a year, maybe 6 this year maybe 5, but we are right on track on a pathway to building a better future for our people. And this thing, this Mumbai thing, is so grotesque that it does not even merit retaliation because there is no retaliation. Some day you must take a certain pride in it.
D.K Singh: After 9/ 11, you went to Peshawar and wrote after that, "Let's get out of here, nobody wants us here." Do you still hold the same opinion?
My impression was that we were somewhere we don't belong. I said, 'We should get out with our troops and come back only when we can open schools.' At the end of the day, people have to find their own way. Only Pakistanis can reframe and reshape Pakistan's future. Civil society in Pakistan is very healthy but the politics is so encumbered and the leadership is so weak. In the end, it's about people standing up to their own society and saying, "No, we are not going to do that; I am not going to kill my neighbour, my brother, my cousin -- we are going to do things differently''. And if people are not ready to do that themselves, our billions and billions and billions cannot do it.
Shekhar Gupta: You started out as a foreign affairs columnist, you have since moved on to energy, climate change and now suddenly economics, finance and banking. How does a journalist manage to make such quick transitions?
It wasn't as quick as a transition, as it looked. I was hired for my first job by the UPI in London in 1979, the year of the Iranian revolution. UPI at that time did not have an oil reporter. I became their oil reporter; since I had gone to Oxford and spoke Arabic, they thought that it qualified me to be an oil reporter. Then I was hired by New York Times??? for the same beat. I always had an interest in the environment and my wife is on the board of Conservation International. As a columnist I took a trip every year to a bio-diversity hot spot -- Brazil, Venezuela, China. Then 9/11 happened and that was when I started to merge a lot of these things together. I just looked at 9/11, and said wait a minute: we are in a war and we are funding both sides of the war. We fund the US Army, Navy and Air Force with our tax dollars; we fund the Al Qaeda's Islamic Jihad and the governments that support them with our energy purchases. How stupid is that? So I have been working on what kind of energy policy can get us out of this.
The climate issue simply arose and I am still doing my bio-diversity stuff. The book, The World is Flat really brought all that together. As for the financial stuff, I started at New York Times as a business reporter. I was comfortable with all the issues though I didn't know much about banking. So I got back into the reporter mode and tried to learn from others. I love people to teach me, I love to learn. People ask me what I do for living. I tell them I am a translator from English to English. I sit down with that banker who really can only speak in the tongue of the financial market and I take that and I turn it into something simple that, hopefully, readers can understand. The trick is to make something much more readable without losing the complexity. To simplify something accurately you have to understand it very deeply. I always tell people that in all my years in journalism, I have never had a reader come up to me and say that column about the complexity of the banking system that went down too easy.
We are in the communications business and sometimes we forget that. We are not in the obfuscation business and I have never written for my colleagues. I don't want to win the journalist of the year awards from my colleagues. I want to win it from my readers The reason why you should never read your critics is that if you do, you start writing for them and your reader picks up the paper and says, what the hell is this about?
Shekhar Gupta: You were once told that you will never be right if you are afraid of being wrong.
When I started as a columnist I got a postcard from one of my predecessors -- Tom Wicker - and the postcard simply said, don't be afraid to be wrong, otherwise you will never be right. You have to take chances in the business. There are just five kind of columns which must produce one of the following responses in the reader. The first response is 'I didn't know that, that's a good column'.
The second is, 'I never looked at it that way, that's a good column. The third is ,'You said exactly what I feel, but I didn't know how to say it'. The fourth is, 'I want to kill you dead, you and all your offspring'. And the fifth, this is really hard. 'You made me laugh and you made me cry'.
Rajkamal Jha: What is your view on predictions of the imminent death of the reporter and an institution like the New York Times? Secondly, why do you need the New York Times: you can start your own website and you will make more money. So what are the things you get from the paper?
I don't think the New York Times is going away. We are in an absurd situation: our website is the third most popular news website in the world after CNN, MSNBC. We are the most widely read newspaper on the Web, by far now, we have left The Washington Post way, way behind and we are losing money faster than ever. People don't want to pay, they love what we are selling and they don't want to pay for it and the technology allows them to have it for free, and almost compels us to give it to them for free. We have not found a way around them -- that's a real problem. I wish I had the answer. No one so far has the answer.
As for me, I am flattered when someone says, `you don't need the New York Times'. My answer to that is you don't know what you are talking about. Do you think I want to go around the world, from being Thomas Friedman to Thomas L Friedman.com? The New York Times frames me, elevates me in ways that I could never buy or pay for or explain. And if you are really good and if you have New York Times, then you are just that much better.
Subhomoy Bhattacharjee: You said that next six months will be very critical from the financial point of view. A large part of capitalism works on trust. But you said the trust quotient is down. Is it something which can be restored?
I have to believe it can and will be, because it has to be. But what it means is that we are going through a period when people are going to try to take risk-taking out of capitalism. That scares me. Right now there are start-ups going under all across America. Many of them involve solar, wind energy Meanwhile, what are we saving? General Motors. People who presided over the greatest wealth destruction in the history of the world; people who couldn't make a car that anyone wanted to drive but became experts at lobbying Congress. We are going to save them while hundreds of start-ups that you have never known or heard of are slipping under the waves. And we are going to pay for that: jobs won't be created and jobs that would have spilled over to India may be in the back row now. This is what happens when you try taking risk out of capitalism. There is such a fine line and we crossed it, between the risk-taking and the recklessness. you want people to take chances, to make mistakes.
Subhomoy Bhattacharjee: During the first year of the Great Depression there were far more bankruptcies but it probably ended much faster whereas this time it seems to be dragging.
I am really worried about that. My wife says. `don't invite Tom to dinner party; he is really down these days, and that can really ruin your dinner party'. So I am hoping to hear something from the hole. Big transformational changes are happening in our lives. I hope it ends well soon.
Transcribed by Moumita Chakrabarti, Monalisa Sen and Sarika Malhotra
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