SPIEGEL Interview with James Wolfensohn Global Downturn 'Is an Earthquake, not a Tremor'

Former World Bank President James Wolfensohn talks to SPIEGEL about the global financial crisis and his hope that Barack Obama will be the right president to lead the US out of recession.


SPIEGEL: Mr. Wolfensohn, you are known to be an advocate of socially responsible capitalism. How do you view the Wall Street community these days?

Wolfensohn: Well, I think the Wall Street community is preoccupied by survival. We're having a downturn of unprecedented proportions, and so it's not surprising that issues of global social responsibility are pushed to the back. That doesn't mean that it is correct and it doesn't mean that we are still not better off in this country than in many other countries.

SPIEGEL: By the way, did you take part in this wild game? Did you lose a lot of money?

Wolfensohn: Personally?

SPIEGEL: Yes.

Wolfensohn: The answer is no because when I got out of the World Bank and became special envoy to the Israeli-Palestinian negotiations in the Middle East for a year, I got very liquid, and I've never gotten into debt since then. So I've had a very balanced portfolio. Having said that, I learned today that one of the investments that I made with quite a trustful and elite firm is being affected because that firm made an investment in the gentleman who lost $50 billion. And so I had never heard of him, and I never was informed that the investment manager that I had given money to was doing business with him.

SPIEGEL: The gentleman you are talking about is Bernard Madoff, who is alleged to have run a $50 billion Ponzi scheme. You never met him?

Wolfensohn: No, but I was given the good news today that unknown to me I had a small part of my investment in assets at that terrible firm.

SPIEGEL: German President Horst Köhler, former head of the International Monetary Fund. ...

Wolfensohn: ... I know him extremely well ...

SPIEGEL: ... asked bank managers to apologize for their role in the financial crisis.

Wolfensohn: Horst Köhler is a remarkable man, and a very close friend, and it's exactly what I would expect him to demand because he has a very high moral standard. I'm not sure that the people that he is talking about would feel it was necessary to do that. It would be a sort of catharsis but in this country they would have to word their apology very carefully for fear that they would give grounds for legal action.

SPIEGEL: Our former Chancellor Helmut Schmidt says it's all a matter of so-called predatory capitalism. Do you agree?

Wolfensohn: Well, it's not the system, the system did not drive it. It was driven by individuals, and the individuals created a capitalist system that was full of excesses and not regulated. So it wasn't because there was a system; it was because individuals took advantage in the absence of appropriate regulation.

SPIEGEL: Has it to do with the American way of doing business, the American way of life, the American dream?

Wolfensohn: Well, your banks -- also in their international activities -- engaged heavily in this practice and had substantial losses as a consequence of this crisis.

SPIEGEL: But they didn't invent this business.

Wolfensohn: Avarice is not contained only in the United States. So if something is making money here, it's very apparent from the reports of your financial institutions and your investors, as well as other foreign banks, that sophisticated investors were investing very heavily in this system. So I give you that it was invented here, but I must say that there were some willing buyers and participants in other parts of the world.

SPIEGEL: Europeans love to feel morally superior to Americans. You grew up in Australia, you became an American citizen…

Wolfensohn: … I'm an American citizen, I ran Carnegie Hall for 20 years, the Kennedy Center for five years, and I've done lots of things for social causes here and abroad. And there are many like me. The perception in Europe of these money-hungry Americans is wonderful, but it's not true. I don't think you hear people in the United States talking down Europe. I hear more criticism in Europe of the United States, but I don't think it matters. We're in the middle of a crisis now which is global.

SPIEGEL: You're right, of course.

Wolfensohn: It's hitting China, it's hitting India, it's hitting the Middle East.

SPIEGEL: And it is hitting Russia, where you just returned from.

Wolfensohn: They lost $150 billion in reserves in six weeks, which is a quarter of their reserves, so the ruble is under intense pressure. There are frailties in many parts of the world, and a lot of the people that lost money are not innocent victims of the activities of the United States and Alan Greenspan. They are active participants in the markets. You have a few examples in this country and a few examples in your own country of institutions that have been more sophisticated. Take (German private bank) Metzler Bank, which I happen to know very well. It was not in any of this stuff, but that's because Fritz Metzler is very conservative and smart, and there are a few people here that are equally conservative as well.

SPIEGEL: Our government-owned banks are heavily affected.

Wolfensohn: That's what I'm saying. They still have not determined what is the extent of the loss.

SPIEGEL: You are personally focused on the emerging markets. How will China or India feel the pain?

Wolfensohn: I think pain is widespread. We had here just a few days ago the visit of a Chinese delegation that was meeting with a few people in this country, both to inquire and also to project an air of confidence and competence, which certainly exists in China. I think you have extremely good management teams in China. But the scope of the problem is just enormous. For years it has always been the assumption that if you drop below 7 percent growth in China, the country will be in trouble in terms of civil disturbances and they will not be able to hold it altogether. Now they're talking about 5.5 percent growth for next year in China. There was a three day meeting in the Politburo to consider this challenge. They have the capacity to re-stimulate, of course, because they have $2 trillion of reserves.

SPIEGEL: What about India, which has less room to maneuver?

Wolfensohn: The mind of the public in India has been taken off the economics at the moment by the Pakistan confrontation. This does not diminish economic pressure but gets the population angry at the country next door. My biggest worry I think is the 53 countries in sub-Saharan Africa that have depended significantly on natural resource exports and where the prices in everything from iron ore to bauxite to oil have dropped hugely. And you do not yet have the internal market in sub-Saharan Africa. It produces maybe 1.5 percent of global GDP at the moment, with 800 to 900 million people, but by 2050 it'll be 2 billion people.

SPIEGEL: Do you expect a human crisis on top of the financial crisis?

Wolfensohn: Well, the best estimates put out by the World Bank, and they've drawn on other research, is that by 2050 the average per capita income in sub-Saharan Africa, in today's dollars, will grow from $700 per capita to $1,700 per capita. In China and India, in 2050 the per capita income will be above $40,000 per capita, and in Germany and the United States it will be $98,000 per capita. So you have this enormous gap between Africa and the rest of the world.

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