SPIEGEL: Do you expect an anti-American mood as a fallout of this crisis?
Wolfensohn: What has surprised me is that we had a $100 billion forgiveness of African debt done largely by the Europeans and by the Americans significantly. So far as I know, there has been no thank you for that. And immediately China and India come in, China with a $10 billion program and India with a much smaller program but a visible program.
Three years ago, if you remember, the African leaders went first to Beijing and the African businessmen went to New Delhi. And at the same time as all the debts were being forgiven, they're claiming that their new best friends are the Chinese and the Indians, who are pushing also to build political relationships between the East and Africa as well as access to natural resources. And so you see this new dimension, but the amount of money which they're putting up is still significantly less than what the West is doing and what western NGO's do.
But we're losing the battle down there because the Chinese and the Indians are just better at it. They're better publicists, they are building the president's homes, soccer stadiums, they're building roads and hospitals and you now have 750,000 Chinese living in sub-Saharan Africa.
SPIEGEL: To contain the crisis there are numerous stimulus packages, and rescue and bailout plans. The financial crisis is still not under control, though. What do you expect next?
Wolfensohn: Well, I think you've got about $9 trillion of announced packages, from which about $3 trillion have been drawn down.
SPIEGEL: Worldwide or only in the US?
Wolfensohn: Just the United States. We've got in addition to that $6 or 7 trillion in Europe and other parts of the world. What I expect is that we need to understand precisely what this is for. Governments cannot buy all the bad assets of banks because the shareholders have to suffer, and it's not the responsibility of government to go and bail out all the banks. They get nationalized typically before that with the shareholders wiped out.
SPIEGEL: Are governments taking the correct action?
Wolfensohn: What they've done this time is what they did not do in the 30's. In the 1930's they did not provide liquidity to the banks, so the banks went under very quickly. This time, Ben Bernanke, the chairman of the Federal Reserve Bank, is an expert on that area -- it's what he did his thesis on -- and he has provided liquidity to the financial institutions. The government is trying in some elements, notably mortgages, to try and rewrite the mortgages, to stretch them out, to make them sustainable for individuals so that you neither have a human crisis in terms of housing nor a bank crisis. So all that seems reasonable, but if we were to have a crisis in credit card debt or a crisis in loans to industrial companies or loans between banks, it is not the responsibility or the authority of the federal government to come and bail out every financial institution.
It was thought when they had the $700 billion package that the banks would re-stimulate, they would increase their lending. Quite the contrary happened. What the banks have done is to try and strengthen their capital ratios. And so every bank that I know in this country is looking inwards to try and see how they can strengthen the capital of the institution because what they're worried about is the next wave of disasters and bad debts.
SPIEGEL: You sound very skeptical. But is it not a good idea for banks to ask their clients about their business plan and whether they will be able to repay the loan?
Wolfensohn: Even good companies that have previously had credit lines are being restrained because they have to pay back some of their credit lines because the banks are contracting. In that event, the good companies become more limited in what they can do. The companies that are marginal probably go under or are weakened, and the companies that are bad get nothing. So you have this downward pressure on economic activity as a result of very necessary conservativism on the part of the banks. Now President-elect Obama is trying to put a trillion dollars out there to re-stimulate economic activity. This is what was done by FDR during the period of reconstruction in this country, and it is what was done in your own country after the Depression -- governments have public works programs, to put people to work.
SPIEGEL: Will it work nowadays?
Wolfensohn: Well, it will get some people to work, and it keeps them off the streets.
SPIEGEL: But will it be a sustainable business model for all countries?
Wolfensohn: I personally am not smart enough to know how long it will take for confidence to return, both to the consumer, which is what is necessary, and then to the companies.
SPIEGEL: Can one buy trust in the market?
Wolfensohn: No.
SPIEGEL: But that's what governments are trying to do.
Wolfensohn: You create a situation where you can rebuild a certain measure of trust. It's easier to do that with 8 percent unemployment than with 12 or 13 percent unemployment.
SPIEGEL: Everybody in the United States is talking about Obama taking taxpayers' money. But isn't it foreign money -- Chinese money, Indian money?
Wolfensohn: He is not going to be able to raise a trillion dollars in extra taxes. But it's very conceivable that the federal deficit will move from $11 trillion to $12 trillion or maybe more.
SPIEGEL: The Fed is said to be determined to print as much money as needed to stimulate the US economy.
Wolfensohn: I saw that headline in The New York Times, and I hope that no one said it. There is a very good financial team coming in. Tim Geithner as secretary of the Treasury is first rate, Larry Summers in the White House is first rate. You've got Paul Volcker who was my partner, in a sort of advisory capacity with a bunch of other people. Everybody that has got anything to contribute intellectually is around and ready to help. But it's not just an intellectual game. It is a game that is now being played out at a level of uncertainty that we've not seen since the 30's. This is not another adjustment as we had in the 80's. This is a shift in the earth. This is an earthquake. It is not a tremor.
SPIEGEL: How long is it going to take to get out of this mess?
Wolfensohn: I don't think anybody knows, frankly.
SPIEGEL: And there's no alternative to the government's attempt to do everything which might be helpful in order to solve this crisis?
Wolfensohn: No. To the extent that private sector will do it, the government would be thrilled, and I'm sure that they will come up with every conceivable incentive for individuals to spend and for the private sector to grow because that's the nature of American capitalism.
SPIEGEL: Are you confident that Obama is the right president in this period of time?
Wolfensohn: First of all, I don't think any single man could do this whole thing, and so you have to look at the cabinet that he's put together, and I think his choices have been, from what I can see, very admirable.
SPIEGEL: But he's the one who has to make the decisions after all.
Wolfensohn: He does, and that is a challenge that he faces, and the reason he was elected is because people think he has the balance and the judgment to do it. Just as John F. Kennedy was elected at a young age, and I think in retrospect people would say to his period as president he performed pretty well.
SPIEGEL: Do you know Barack Obama?
Wolfensohn: I've met him, but I don't know him.
SPIEGEL: Will a new form of capitalism arise when the crisis is over?
Wolfensohn: I would hope that we come out of this with a free enterprise system continuing without a lot of trade barriers and with a more enlightened government in terms of control of excesses. That will work for a while, and then there'll be some other set of excesses which hits the next generation, and that's the way it works.
SPIEGEL: Mr. Wolfensohn, thank you very much for this interview.
Interview conducted by Gerhard Spörl and Gabor Steingart.
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