The Players

Cover Story: U.S. Economy at the Guillotine

2008-01-27T19:05:44Z

Illustration: Thomas Fuchs for Newsweek

When a group of community volunteers rang the bell to signal the close of trading at the New York Stock Exchange last Friday, it brought to a close one of the most tumultuous weeks in global markets since the fall of 2001. On Tuesday, the Dow Jones industrial average, already down 9 percent in 2008 on glum economic news, plummeted nearly 600 points (5 percent) before rallying after the announcement of an emergency three-quarter-point interest-rate cut by the Federal Reserve, the biggest such reduction in 24 years. Wednesday was like Groundhog Day, with the Dow falling more than 3 percent before closing with a gain. "Yesterday was a s--t storm and today really isn't any better," said a glum broker in a green trading jacket outside the New York Stock Exchange. Cari Maher, who works in an office building on Wall Street across from the exchange, noticed a sign of market stress—an unusual number of nervous smokers outside, huddling on the cold sidewalk.

Investors also sought solace in nicotine outside a branch of Zheshang Securities in central Shanghai. Several elderly men, barred from smoking indoors, peered through the doorway at the big screen inside showing stock prices. "It was pretty scary earlier this week," said Zheng Xiaosheng, 68, puffing his cheeks against the cold. The Shanghai Composite index, which has quadrupled in the past two years, fell more than 10 percent in 48 hours—the biggest two-day fall in Shanghai's stock-market history. The same day, stunned Indian investors, angered that Mumbai's benchmark Sensex index had fallen 5 percent for two straight days, staged a protest outside the Bombay Stock Exchange, chanting "Death to [Finance Minister Palaniappan] Chidambaram."

In Davos, Switzerland, the volatility derailed the agenda at the World Economic Forum. Participants were disembarking from the rustic train that chugs into the Alpine ski resort just as all hell was breaking loose back home. Instead of discussing malaria and microfinancing, many big shots spent their time anxiously hunched over computer screens and fingering BlackBerrys like prayer beads. Treasury Secretary Henry Paulson canceled his planned visit and stayed in Washington to help hammer out a stimulus package.

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Talking About Islam and the West

2008-01-26T19:16:37Z

By Stefan Theil

Each year the World Economic Forum inundates participants with a
deluge of reports -- from "Bahrain and the World - Scenarios to 2025"
to "The Potential for Public Private Partnerships in Water."
Especially popular these days are country rankings - simple to
understand, easily digestible for journalists, which is why their
number has inflated in recent years. When done well, like the WEF's
Global Competitiveness Report or the OECD's PISA education rankings,
they can condense crucial information, jump-start public debate, and
provide useful benchmarks for shaping policy.

It's not clear whether that holds for the WEF's newest product, the
"Annual Report on the State of Dialog between Islam and the West."
The ranking shows Bangladesh and Saudi Arabia coming out on top of a
"dialog index" based on surveys by Gallup. Brazil and Russia are at
the bottom. It's not clear how the degree of dialog readiness in
Bangladesh according to Gallup is going to serve as a benchmark for
Muslim-Western policy issues such as Iraq and the Middle East, the
role of Islam in Europe or the tolerance of non-Muslims in Turkish and
Arab lands. The report reaches the somewhat hopeful yet completely
unactionable conclusion that "majorities in populations around the
world believe that violent conflict between the West and the Muslim
world can be avoided, but they also share a great deal of pessimism."

Still, there were some really interesting bits buried inside the 156-page
report. In a section on media and attitudes, research conducted by
Bonn, Germany-based Media Tenor found that countries with the most
negative attitudes (Westerners toward Muslims, and vice versa) were
also the ones with the most negative media coverage. Whether reporting
reflects attitudes or creates them is of course another question, but
Media Tenor chief Roland Schatz says the most negative reporting of
"the other" was found in Iran, the Palestinian Territories, Denmark
and Germany - and those countries showed a high degree of pessimism
and distrust as well. In Germany, for example, Schatz says the
majority of TV and other coverage of Muslims was about crime, with
Muslim immigrants either the victims ("honor killings") or the
perpetrators. Then there was reporting on terrorism, and beyond that very
little else. Generally, media in Muslim-majority countries reported
more negatively about the West than vice-versa. Another finding of the
report was that greater interaction with the Muslim world is seen as a
threat by 60% of the citizens in many European countries--but not in
America or Israel. That suggests that some of the most divisive issues
are between Islam and Europe, not Islam and "the West." That ought to
set off some fruitful debate.

Video: Wikipedia Founder at Davos

2008-01-26T04:59:47Z

Video: Voices of Davos - Social Activism

2008-01-25T23:05:38Z

How to Play the Status Game

2008-01-25T21:36:51Z

One of Davos's biggest parlor games is working out who fits where into the hierarchy of players. Color-coded name tags are one way to decide if someone is worth buttonholing in the hallways; mode of transport (limo vs communal shuttle bus) is another. Then there are the hotels. The World Economic Forum forces participants to book through a centralized booking agency, which enables the organization to control who goes where. Given that most of the hotels here are not exactly the five-star accommodations usually occupied by top executives, Davosians (yup, they really call themselves that) have devised their own ranking systems: A guide:

If you're in a hotel with a metal detector at the entrance, then you've made it--you're staying in a hotel with heads of state. If your hotel has special computer terminals linked to the WEF intranet--enabling you to sign up for sessions just by swiping your ID card at it--then you're also pretty important. No terminals, no metal detectors, but there is a shuttle bus stop at your door--phew, you just make it to the A minus list. Then there's proximity to the conference center. You may not be as important as you think if you aren't within walking distance. When should you worry? If you get stuck in neighboring Klosters, a charming little town favored by Britain's Prince Charles--but, in Davos terms, the equivalent of Siberia. Better luck next year.

Goodbye to the Bulls?

2008-01-25T20:57:08Z

Fifteen key economists, strategists and policy makers weigh in on a week of volatility and economic turmoil.

'A Meltdown'
Nouriel Roubini
We know booms and busts are aspects of capitalism, and have been so historically. Many of them have been driven by a technological innovation--whether it was the railroad or the Internet--and they may create bubbles, fraud and eventual losses. But they are also driven by real innovation. This latest crisis we see today differs from such historical examples in two important elements.

'Financial Folly'
Kenneth Rogoff
What's happening now is not at all special, but follows the well-trodden paths of past financial folly. As my work with Carmen Reinhart of the University of Maryland shows, the most important determinant for the depth of a financial crisis is the size of the initial hit to the system.

'U.S. Recession'
Stephen Roach
It's pretty simple--you either believe in globalization through increased border-trade linkages, or you believe in decoupling. But it's intellectually dishonest to believe in both. There's no region of the world that is more externally driven than developing Asia, which is where I live now.

Read the full report

Best of Davos: Party Favors

2008-01-25T18:17:47Z

Guests at corporate cocktail parties tend to come away with books or CDs. Coca Cola, though, went a step further by giving away black sweatshirts with a politically-correct tinge of green. According to Coke, the fleece garments are made of 55 percent recycled assorted plastic bottles (converted into polyester, so there are no scratchy bits.) "This jacket contains approx. 9 20 oz. bottles inside," proclaims the label. And to carry it away? A re-usable cloth grocery bag. We're not sure how many bottles went into making those.

Whither Mideast Peacemakers?

2008-01-25T14:32:16Z

If ever there was a symbol of shifting global priorities, it was the empty seats in the main hall of the Davos conference center during a panel discussion on Mideast peace. That hall usually fills to overflowing when a big name speaker is scheduled to give an address. This time, even the presence of former British Prime Minister Tony Blair wasn't enough to draw the usual capacity crowd.

As for the discussion: a mixture of boilerplate interspersed with (Israeli) optimism and (Palestinian) pessimism. In spite of recent developments in Gaza, Israeli President Shimon Peres was upbeat about the fact that both sides recognized that war was not an option. "The agenda is full, problems are still existing, but hope has today a greater chance than ever before," he said.

Salam Fayyad, prime minister of the Palestinian National Authority, said he could not share the optimism given the "absolutely disastrous situation currently prevailing in the Gaza Strip." "It is currently moving from bad to worse," he said. Fayyad's call on Israel to ease the pressure was met with a gentle rebuke from Tzipi Livni, who said that Israel needed some time to do things "the right way." "We hope to do it this year," she said.

Livni's main message: that the threat from Iran was greater than the threat from Hamas--and that the powerbrokers in Davos should be use their influence to shape policy on Tehran. "Iran is a global threat and Iran can be stopped by you," she said.

The Davos Virgin

2008-01-25T10:07:49Z

Those attending this gathering for the first time are known as Davos virgins--and they're easily spotted by the anxious map-clutching and touching belief that the shuttle buses will get them to their destinations faster than trudging through the snow. Colleague Barbara Kantrowitz--co-author of our Her Body health column--shares her experiences (and her photo of the "cool girls" who are Davos regulars.)

By Barbara Kantrowitz

The first thing I notice is that everyone is staring at my breasts and then very quickly turning away. No one makes eye contact. This is disconcerting until I realize that my Davos ID badge falls just at the center of my cleavage, and I am being scrutinized not by my cup size but by my power status. And in that respect, I am falling flat as a pancake. My badge has just my name and picture on it, no affiliation, which marks me as the spouse of a participant. In other words, I am nobody.

In a way, this is kind of a relief. I don't have to worry about networking every single second and I can wander without any agenda. Although this is my first time at Davos, it feels oddly familiar. As I walk through the halls, I suddenly realize why. Davos--this idyllic village high in the Swiss Alps--is actually a nightmare version of high school. Instead of the standard mix of jocks, freaks and geeks, the halls of the Congress Centre seem to be largely populated only by legions of suck-ups.

This was never my crowd of choice so I head over to the "Additional Activities" desk to see if I can sign up for outings planned for spouses. Here, spouse obviously means female since the offerings include a day shopping at St. Moritz, a visit to a cheese factory and a ride on a horse-drawn carriage to a luncheon at a restaurant up the mountain. I pick the carriage ride, which turns out to be a brilliant choice. As about a dozen of us squeeze into the carriage, I have another high school flashback. I have finally landed at the cool girls' table. Most of the women are Davos veterans and they decode the place for me, explaining how to get into sessions even if they're full (just go to the door and ask - no-shows are common), which hotels are the most interesting (one woman is staying in what was once a TB sanatorium that sheltered Thomas Mann), and whether the bus or the train is the best way to get back to Zurich airport (it depends on the time of your flight).

Later, I even manage to have a few celebrity moments. In the bathroom, I wash my hands next to Maria Bartiromo of CNBC. Emma Thompson walks down the opposite side of the street and I manage to catch a glimpse of the back of her head. In the lobby of my hotel, I see Homeland Security Secretary Michael Chertoff, away from the homeland but still surrounded by security personnel.

At night, I have a sudden craving and score an inexpensive chocolate bar from the Davos version of 7-11. It's amazing and then I remember --- Switzerland, chocolate. Yes. This is good. I might return next year.

Swallowing China's Party Line

2008-01-24T22:46:25Z

By Elizabeth Economy, the Council on Foreign Relations

I have been searching in vain for some fresh faces and thinking in the Chinese delegation to Davos. Representatives from other countries typically bring a broad range of perspectives on world affairs and some feisty commentary on the situation in their home countries to the table. The Chinese delegation, in contrast, seems overpopulated with senior officials and business leaders who simply serve up the party line.

It is a sad state of affairs when a senior Chinese speaker can do little more than repeat official dogma on democracy and China's policy of non-interference in other nations--a fairy tale long put to bed by more than a half century of meddling in Africa and Southeast Asia. There are plenty of people in China who would be more than willing to help the Davos movers and shakers understand how the country has changed and how it needs to change. If any of them are at the gathering this year, I hope they come out of the woodwork. Apparently, there is a lot of talk at this year's forum about a power shift from west to east. But until the Chinese government is legitimately powerful enough to withstand some divergent opinions, people inside and outside the Davos tent will be reduced to swallowing the party line.

Best of Davos: Soundbite(s)

2008-01-24T14:51:07Z

Shimon Peres lived up to Tony Blair's billing as master of the sound bite when the Israeli President delivered the opening remarks at a panel on the future of the Middle East today.

"I've just come from a discussion about [how] the world needs a conductor," he said. "I'm not sure. I think the world needs a composer, because conducting is about the past, composing is about the future."

Blair too proceeded to show how he'd earned his reputation for quotable quotes. Prior to taking the stage, Israeli Foreign Minister Tzipi Livni had told him that both her parents were arrested by British authorities during the British mandate of Palestine before Israel was established in 1948. Quipped Blair: "That's the thing about being a British prime minister--you go around the world apologizing to people."

After Subprimes, the Next Mess?

2008-01-24T13:05:02Z

As if the subprime crisis weren't bad enough, at least one expert here is already predicting the next big crunch area: credit cards. Ken Rosen, a UC Berkeley professor in Davos as a special adviser on real estate for the World Economic Forum, says that the industry has been pushing credit cards "to all sorts of unsuitable people." As with the mortgage crisis, he says, lenders aren't checking to see if borrowers can afford to re-pay the money. And that trend could affect car loans as well, he says.

While Rosen waits for the credit crash, he's expecting the mortgage situation to get worse too. The current delinquency (foreclosure) rate on the $1.2 billion outstanding in sub-prime loans is 10 percent; he predicts it will rise to 30 percent in the next 18-24 months. "It's going to get worse before it gets better," he says. "And if you add a recession to that, it's going to get very ugly." Nor does he think the rest of the world can be immune because "decoupling is a myth."

Does Rosen agree with the view among some European executives that the problem was caused by American greed combined with the Bush administration's bad policies? "I wouldn't say it's greed," he says. "It was the system of securitized finance that led to a misalignment of interests." Still, he doesn't want to let U.S. consumers--or regulators--entirely off the hook. "What we've done," he says, "is bought things we don't need with money we don't have." Not a habit that's easy to break.

New Establishment Meets Old Establishment

2008-01-24T11:02:23Z

Google, founded well into the Davos era, has quickly emerged as a blue-chip company, a member in good standing of the global elite. And as such, it has established an interactive presence at Davos. In an alcove in a key spot in the Congress Center, Google has set up a series of computers equipped with web cams. It brings leaders and participants by and poses the Davos question: What one thing can people, companies, and governments do to make the world a better place in 2008? It’s very Google—intent on doing good, totally digital, and willfully quirky. It’s funny to watch older leaders coping with new media. Bono’s answer is likely to get a lot of hits. But one of the first big gets was former Secretary of State Henry Kissinger, who seems to be growing shorter and rounder—he rolls through the center like a bespoke-suited bowling ball—to peer into the web cam. (Click here to watch it.)

Also check out former Israeli Prime Minster Shimon Peres greeting YouTube viewers and waiting for questions to be posed by the web cam.

Sex, Showers and AIDS

2008-01-24T10:11:20Z

So does South Africa's likely-president-in-waiting really believe that taking a shower can prevent AIDS? No, says Jacob Zuma, the controversial choice to succeed President Thabo Mbeki as leader of his country's ruling African National Congress (ANC). Zuma's election as ANC head last month makes him an apparent shoo-in to take over the national presidency when Mbeki's term in expires in 2009--provided Zuma isn't first convicted on possible criminal charges arising from a long running local corruption scandal.

Zuma, though, is best remembered for his infamous shower comment during a previous brush with the courts: when he faced a charge of raping a young HIV-positive woman who said she'd considered him her mentor. Zuma said the sex was consensual and was acquitted of rape, but his remark about a post-coital shower has continued to haunt him in a nation afflicted by one of the world's highest HIV infection rates. Today, though, Zuma told an informal "media coffee" at the Rinaldi Hotel that his quote had been taken out of context after a series of persistent questions from the prosecution about what had happened when. "I'm aware that during the trial--the rape trial--I gave a particular answer in passing," he said. "People picked up on one element of it, the issue of the shower. They put it as if I said that a shower cures AIDS. I never said so."

According to Zuma, the South African government--long criticized for Mbeki's initial skepticism about whether HIV caused AIDS and his subsequent slowness in responding to the HIV pandemic--has effective initiatives in place to combat the spread of HIV. "Our policy on AIDS has been undermined by the politicization of AIDS," he said. And is he concerned that the possibility of an upcoming brush with the courts could cost him the leadership of the country? "The legal problems are there; they've got to be dealt with," he said. "[But] charges do not mean you are guilty."

Best of Davos: Dining

2008-01-24T09:53:29Z

Despite the stellar clientelle, dining in Davos (like lodging) is almost always sub-standard. VIPs reconcile
themselves to meaningful conversation over rubber chicken and mystery sauces. So last night's dinner at
the Schatzalp Hotel, cooked by Chez Panisse founder Alice Waters with ingredients sourced from local
farmers and merchants, was a revelation. The packed house devoured stewed goat and root vegetables,
Jerusalem artichoke soup, apple tart and handmade chocolates while listening to Michael Pollan
(best-selling author of "The Omnivore's Dilemma") rail against the evils of industrial farming. Waters dreamily pronounced the dinner table a starting point for world peace. Diners were just happy to enjoy adecent meal without hearing the word "decoupling" once.