Business Case Studies, Executive Interviews, Lord Meghnad Desai on Government and Business

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Executive Interviews: Interview with Lord Meghnad Desai on Government and Business
January 2010 - By Dr. Nagendra V Chowdary

Lord Meghnad Desai
Lord Meghnad Desai, is an Indian-born British economist and Labor politician

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  • While the Wall Street thought its firms to be ‘too big to fail’, for themain street ‘too big to fail’meant a financial institution cannot be allowed to fail. Do you agree with those who say that Lehman had to fail in order for Congress to have the political will to pass any kind of rescue package?
    Many more banks and financial institutions should have been allowed to fail. In my view the mistake was not letting Bear Stearns fail. In the case of a retail deposit taking bank, you should guarantee the depositors but then let the bank fail so that the shareholders and bond holders are not protected. It is better to let banks fail and suffer immediate consequences than to pile up a debt which will take a long while to pay off.

  • I What did US Financial Crisis mean to global economy and the business? How do you think the governments and the businesses have responded?
    The global economy was enjoying the fruits of American profligacy and hence should have expected to pay some of the price. Governments and banks have responded much better than they did in the 1930s.

  • What can be the lessons from this crisis for – governments and businesses – especially from the point of view of public policy, globalization, financial coordination and information sharing? And also from the viewpoint of developing countries – especially for the emerging and BRIC economies – and developed countries?
    This is a repeat of many questions above. The lesson is that one must be aware of the nature of globalization and expect that periodically there would be crises like this. It makes no difference whether you are BRIC or not.

  • How has Wall Street changed during the past year, and what will these changes mean for the stock markets and the investors? Not changed at all. Why should it ?
    Intelligent players in markets should be ready for the odd meltdown.

  • A lot has been said in the past 12 months about financial sector reforms. In his speech (September 14, 2009), President Obama called it, “the most ambitious overhaul of financial regulatory system since the Great Depression.” What new financial regulations have been put in place, what has been accomplished so far and what remains to be done as far as financial reforms go?
    The reforms are still being debated in the US and elsewhere. But they are unlikely to be drastic. It will take two or three more years before they take shape.

  • It’s hard to talk about reforms without talking about the reformers.Could you help us evaluate the policies of Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke? Is there anything that the regulators could have done differently?
    NO. Life is too short for that.

  • A year after the global economic system collapsed, many companies are finally finding ways to increase profits under the new conditions. However in a recent McKinsey survey (September 2009) almost as many expect profits to continue falling and executives also indicate that their broader financial hopes remain fragile. Many expect government involvement in economies and industries over the long term. Should that be the only way out?
    No more firms should fail. Fewer should be rescued. Capitalism can only work if companies undergo market discipline.

  • A powerful tension is at work today in global economic sentiment. The financial markets, pundits, and policy makers think the global economy is out of the woods, but executives aren’t so sure. What should be done in the short term and in the long term to restore the confidence and not get sucked up in such hubris?
    Nothing should be done. The economy has recovered enough for banks to be making profits again. Output will revive and then employment. You cant speed things up too much. You only store up trouble that way.

  • Governments have responded vigorously with their bail out packages and that meant in one sense private losses being funded by public money. Henrique Abreu cited a lesson of the late Milton Friedman that “it is a different thing spending your money on someone else (Warren Buffet) or spending someone else’s money on someone else (government intervention). What is the efficacy of government bailouts, especially for the scale of bailouts doled out?
    We will find out their efficacy in the near future. I am against bailouts in general.

  • American taxpayers have become shareholders in AIG, GM, and so forth. What’s the exit strategy?
    Sell when the companies recover.

  • Regulatory reform will mean higher capital requirements for financial institutions. Won’t that limit GDP growth?

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