SEBASTIAN MALLABY: Thanks for coming, and I'm Sebastian Mallaby. I direct the Center for Geoeconomic Studies here at the council. As a reminder, this is on-the-record, this meeting. Please turn off those electronic thingys that go beep, because they mess up the sound system. We meet at a time when there is nothing going on in Europe, Chinese growth is steady, Brazil is absolutely rocking along and the outlook for the U.S. is crystal clear. So I think we can go now.
We meet with Lewis Alexander, the chief economist at Nomura, who was at the New York Fed last time he were here, and at the Treasury before that; Diane Swonk, who is chief economist and senior managing director at Mesirow -- am I pronouncing that right?
DIANE SWONK: Yup.
MALLABY: -- Mesirow Financial, in Chicago; and Rich Bernstein, former chief investment strategist at Merrill Lynch and now chief executive officer of Richard Bernstein Advisors.
And Rich, I think I'll start with you. And the kind of question I want to pose to you as a markets expert is, what's going on with this rally? I mean, the rally in the -- in the sort of -- in the 10 days or so or eight days or so leading up to roughly Tuesday, was that about euphoria over Italy doing its own thing unilaterally, or is that more about an expectation that, collectively, the Europeans are getting their act together?
RICHARD BERNSTEIN: Well, Sebastian -- good morning, everybody -- I would say it's a number of different things here. But I think what people don't realize is that what we're seeing is kind of the second round of the deflation of the global credit bubble. I think a lot of people thought the credit bubble was just a U.S. event. It's clearly not; it's a global event. It -- we saw it in the United States -- we saw the beginning of the contraction in the United States. We're now seeing it in Europe.
And my personal guess is that the story in 2012, 2013 is we will see it further contract in the emerging markets. And so what's happening is, obviously the markets don't particularly like the downside of a credit bubble. The markets very often like a lot of credit, and that's not what we're looking at longer term. So any time we get something that stands in the way of that contraction of the credit bubble, you will see markets rally. And I think that's what's happening.
And I think, from our point of view, the story -- one of the big stories for 2012 will be this tug-of-war between the contraction of the credit bubble, in which you'll get very risk-averse investing, and politicians who will try and stymie that contraction, in which case you'll get what like -- people like to call the "risk on" trade. And that's going -- that's really what we see as the risk -- the reason for the risk on/risk off.
So right now we're getting a little bit of risk (off ?), because what's happening is politicians are standing in the way of that contraction, and I think that's why you're seeing this rally. So, you know, it's welcome. I think -- look, I'll be honest with you. I think fundamentals, especially here in the United States, warrant a much better market than we've seen. I think around the world it's still quite questionable, but I think that's really the simple explanation as to the why the markets are rallying where they're rallying.
MALLABY: But Diane, as I watch it, we've got a situation where the Germans have said no to eurobonds, so that's no to one source of finance. When this idea about having two bailout funds operating in parallel came up, that was shot down within about 12 hours. And in terms of sort of triggering liquidity from the central bank, they seem to be -- you know, they hear that the central bank says we need a compact before we can come and intervene, and yet Merkel insists on talking about treaty change, which makes it harder to meet the standard that she set herself.
So why do you think the markets -- or are they just wrong -- why do they expect that we'll have a rush of liquidity, as Rich is saying?
SWONK: Right. You know, I think that's an excellent point, is the issue of timing. How long will it take to actually -- I do believe there's no choice for the euro. I've misquoted "Hotel California," you can check in but you can't check out. Apparently, "you can check out, but you can never leave" --
SWONK: -- is the actual quote from The Eagles song. But the eurozone is kind of like that. There is no exit strategy. And it is in all their best interests to maintain the eurozone and defend it, because it cost more to dismantle it than it cost to maintain it.
That said, up until now we've seen very, you know, sort of pinky-swears and, you know, sort of these plans. I do think there's more teeth. It's interesting, is the most recent iteration that we're hearing -- and we'll see more tomorrow -- is dealing with current treaties and loopholes in the current treaties that would allow them to have more teeth and to get more fiscal union that would maybe open the door to the ECB -- we still don't know, a lot of uncertainties. And it's only an additional 400 billion (dollars), which is, you know, a small drop in the bucket of the trillions they need. But it does look like they're working now within the treaties that exist, and it would only take parliamentary votes and not all these referendums that would take years. We still don't know if it's constitutional. There's a lot of questions.
But I do agree. I think the markets have rallied on the hope that there's an easy fix when Europe is in a marathon. And you know, I hate the analogy because the first marathoner, didn't he die in Greece -- (laughter) -- you know, at the end of the marathon? So it kind of -- unfortunately it fits as a metaphor.
But, you know, I think there is this issue that, you know, we're on a marathon that's on a very long road, that you're going to have a lot of missteps along the way. And I do believe they'll get there. The question is what kind of shape they'll be in when they get there. And the market is looking -- the market's making a yes/no bet every day, and the market gets ahead of itself on the hope of what can happen quickly. And so I do think that there's this lag -- and we've talked about this before, about how long it took just to get the eurozone the eurozone. And so I do think the timing is a bit odd in terms of how quickly markets react, and it makes me nervous about how quickly markets could react in terms of volatility on a downside with a misstep.
MALLABY: And so, Lewis, I mean, as Diane says, there has been talk, I think, especially from the European Council, of nontreaty-change ways --
MALLABY: -- of getting towards fiscal discipline, which would then enable the central bank to intervene more. But at the same time, Merkel seems to be saying treaty change, treaty change. Or do you read it differently? It feels like she's moving the goalposts in the opposite direction to the one that you'd expect her to want to do it if she actually wanted to keep this thing together, but maybe she doesn't.
ALEXANDER: Look, I think there's a fundamental question about how far the Germans want to push this until they essentially agree to allow the ECB to get in and to allow, in some sense, an easier response to it on the credit side.
I don't think we exactly know the answer to that question. I think the agreement between Merkel and Sarkozy last weekend could be a -- could be a sign that they have essentially reached the limit and what we're going to see, at the end of this week, is the beginning of this turn. That would involve sort of agreeing on sort of the changes that you can put in place relatively quickly. I believe that sort of what they're talking about now is something that could be implemented within three or four months, if they really acted quickly enough; and if that's sort of sufficient from the German perspective to allow the ECB to be more aggressive, then this could be the beginning of a turn.
I -- while I think that's possible, I'm kind of deeply skeptical in the sense that what's on the table now really doesn't address an awful lot of the big problems. It doesn't address how are you actually going to get growth. It's really all about austerity. It doesn't really do anything to advance setting up a real ring fence around the sort of financial system; it doesn't advance capitalization of banks; and it doesn't fix Greece. It really only deals with the governance part of the equation. And so I -- we may look back and decide that this is the moment when things turn, but I'm not convinced.
MALLABY: So, Rich, one aspect that Lew just mentioned is bank recapitalization --
MALLABY: -- and the fact that, you know, there's been this terrible double act between weak sovereigns and weak banks feeding back on each other.
MALLABY: I guess two questions: I mean, how weak do you see the European banks being, and how much trouble does that cause even beyond Europe in terms of contagion into, say, the U.S. financial sector?
BERNSTEIN: Right. I think the word "weak," when you refer to the banks, is probably not the right adjective, and the reason I say that is that you have to remember bubbles create capacity, right? And so if you think about -- if you don't understand it, think about the gold rush in California, right? Everybody's running to California to go mine gold, you get all these towns -- gold rush (inns ?). All of a sudden, you have all the ghost towns -- no need for the capacity anymore.
In a credit bubble, where that capacity picks up is on bank balance sheets. And banks build bigger and bigger and bigger balance sheets because they want to lend more and more and more, and then the credit bubble ends, and you don't need this big balance sheet anymore. And so, of course, bankers don't like that. Bankers want big balance sheets; they don't want their balance sheets to shrink.
And so that -- I would argue that's one of the big issues that's going on right now, is the tug of war, again, another tug of war between the bankers who don't want the shrinkage of the capacity and the economies that actually need that. You don't need all this capital in the financial economy anymore; we need it in the real economy, and getting the financial sector to not lend to each other and start lending to the real economy is a very difficult to actually transact.
So what's happening and the way you see this in Europe right now, I would argue, is you hear politicians talk about negotiations with bondholders. Well, the bondholders are the banks and -- but the politicians can't say "banks" -- we're negotiating with the banks, because obviously that's not politically palatable.
So what's happening, I think, is that we are at the beginning of a period -- a secular period of tremendous shrinkage of bank balance sheets. And that's -- we're starting to see that in the United States. There's even an article in the FT today, if you happen to pick it up, about how private equity in Europe is having trouble getting access to capital. This is the beginning. That's what should be going on here, is that we should see this contraction in lending around the world.
So are the banks weak? I -- I'm not sure the banks are necessarily weak in that sense, although certainly their balance sheets are not what everybody thinks they are, but the key thing is they will become smaller.
MALLABY: On that point, incidentally, I think there's -- there could be a new leg in the political battle over the implementation of Basel III capital requirements, where there are a lot of people who want the capital; the borrowers saying, don't do this to us; if you insist on enforcing these rules now --
BERNSTEIN (?): Absolutely.
MALLABY: Are you picking that up too?
BERNSTEIN: Yeah, absolutely. And that's -- I would argue that is the underlying battle in Dodd-Frank right now. We can talk about all these things we like or don't like, but really the lobbying that is going on and the purpose of the lobbying that's underneath is not to allow the constraint on bank balance sheets. That's ultimately what's going on here, and I think this is going to be a battle that goes on for a decade.
MALLABY: So Diane, let's pick up on another thing that Lewis said, which kind of slightly goes back to the beginning, which is, you know, we've got to think not just about European-wide rules, not just about the strength of the banks, but whether the individual countries are on track to a path where their debt could be viewed as sustainable, and that's partly a story about their competitiveness.
MALLABY: And, you know, Ireland famously has done an internal devaluation of maybe 15 percent. What about Italy? Because that's the big game here. If 80 percent of the problem ex Greece is Italy just because of its size, and Mario Monti can fix Italy, are we some of the way there to a solution?
SWONK: Well, we're some of the way there. But I think it deals -- gets back to what -- the point Lewis made is we're dealing with some of the austerity issues, but we're not dealing with the fundamental structural issues. And the structural issues are where Italy could make a lot of changes with Monti -- I think, you know, making it easier to hire people, changing the labor laws in Italy, increasing the competitiveness. Unfortunately, what the eurozone was supposed to do was increase the competitiveness of these least -- less-competitive countries, and instead, they took on more debt rather than meet the competitiveness of Germany.
And so that's where the key is, because the greatest concern I have -- and it'd be interesting to hear Lewis' view on this as well -- is that we get caught in a vicious cycle of austerity that then only builds your debt problems. It doesn't really clean it up because if you don't grow enough as you're trying to restructure your economies and bring down your deficit, you're going to get in this very bad cycle for the region and contracting bank balance sheets continually in overshoot on the other side. And I think that's one of the biggest obstacles I see.
I think Italy has a lot more resources, a lot more credibility than Greece. That's not hard to say. (Chuckles.) The threshold is kind of low. But you know, Italy has brought down its deficit fairly dramatically over a nine-year period of time, not over a -- you know, it's done it before. It's got taxable revenues that it could tax, and it does have major structural reforms that I think Monti understands. But I'm not sure if just solving Italy alone will alleviate the problem. I think it needs to be more holistic in terms of across the region in terms of these structural changes.
And I think some of that is what I thought Lewis was referring to when you said this is partly an austerity program -- this gets us towards the austerity -- but austerity loan doesn't get you out of the fundamental problem.
MALLABY: Let's just think about the really bad scenario. I mean, supposing Greece leaves the euro or some other country leaves. What does that actually look like? How do we think about the amount of chaos that it does or does not cause? What -- how do you play that?
ALEXANDER: First point is there is no sort of legal structure in which this would happen in a nice, neat way --
ALEXANDER: -- and so it would inevitably raise a lot of questions.
Having said that, there are some people that argue that it can't happen because there is no legal mechanism. I think that that, frankly, is just wrong. The obvious way you could see this playing out is say, for example, if you think about Greece, we came very close around the dispute over the referendum to a point where relations between the EU and Greece could have broken down. If that had happened, Greece would have defaulted, probably this month, on its debt obligations. At that point, it is likely that the ECB would have essentially cut Greek banks off from the liquidity provision that they had been providing, which would have essentially meant the Greek financial system would have been -- would have been blocked from participating in the euro. At that point, a euro in a Greek bank would not have been freely transferable into a euro anywhere else, and the currency separation would have happened.
So there's -- you know, there are ways this can happen that are not anticipated in the treaty, and the treaties are the -- treaties are the laws. People will obviously have to deal with it. If you've got to that situation, you would fundamentally have a problem of any contract that bridged the Greek border. So if a -- for example, a Greek exporter had borrowed money from a German bank, the fundamental question of what currency denomination is that obligation in -- there is no quick, easy answer to that question. And that would cause a lot of disruptions.
Now, if we're only talking Greece, as disruptive as that would be, it's probably manageable. The more you expand that, the more countries that become that -- you sort of have to deal with that is, the bigger the problem. Obviously, if you -- if you bridge into either Ireland, which is -- has a big -- its big own financial center, or Spain or Italy, the scale of that problem blows up. So it's a -- the practical issues are large, difficult to manage, potentially very disruptive.
MALLABY: And the risk of the contagion is pretty acute, right, because people in Ireland or Portugal will have been given an object lesson about how you think your deposit is a euro, and one fine day it can turn out not to be.
MALLABY: So there'll be a bank run in the other --
ALEXANDER: Yeah -- no, no, I think in the -- in the Greek scenario, the biggest problem in some sense is on the day Greece gets cut off from the -- from the euro-era payment system and the Greeks have to impose payment restrictions on their banks, what does a depositor in Portugal do? What does a depositor in Spain do? What does a depositor in Italy do? And the answer is probably try and get their money to Switzerland. Obviously, that's a very acute kind of contagion that the ECB would have to essentially throw all its resources at trying to contain. If they were not prepared to do that at that point, then you could see the whole thing unraveling.
So I mean, the -- I believe very strongly that the ECB is thinking through all these issues now, and hopefully, they are reaching understandings with all the relevant governments about how they would have to deal with that situation, because I actually think we came pretty close to this around this dispute over the potential Greek referendum. Merkel and Sarkozy were more or less explicit about saying, you know, if you guys -- if Greek (sic) goes ahead, then -- and that they could be cut off. And so I think that this is -- this is a real possibility.
MALLABY: That's interesting, because, I mean, one possibility, as one thinks about the future here, is that, you know, the Germans don't want to make a decision to definitively bail out these peripheral governments that they view as sort of feckless, and they think politically with their own voters they can't get away with that.
On the other hand, it's tempting to assume they don't do the opposite, either. They don't want to look, you know, off the cliff and then jump. And what Lewis is saying is that they almost did that, right; that they pretty much said to Greece: Well, we will let you go. I mean, do you think that in their heart of hearts they're cliff jumpers? Rich? Diane?
BERNSTEIN: No. I don't think so. I think that -- many reasons. One, you know, it's not like Germany and France haven't benefited from the ultimate -- from the eurozone and the relationship as well. I mean, I think the last thing Germany would really want is to end up with a currency that's like the Swiss franc. So it's not like they haven't benefited either.
I think there's a good deal of gamesmanship going on. I think to some extent all the people complain about American politicians and how slow and ineffective American politicians are. I think it's endemic to the industry, globally. (Laughter.) And so, you know, I think that's what we've just seen.
Now, whether they come up with a solution that the markets like -- which is really my area of expertise -- you know, ultimately, that I think is still very much open. I think that that's a real question.
SWONK: Well, I --
BERNSTEIN: But I don't think they're going to cliff-jump.
SWONK: Right. I mean, to underscore that, I mean, you know, Germany has been one of the biggest beneficiaries of this. And, you know, to cut your nose off to spite your face and to lose so much, to not be a part of this zone that you have benefited from dramatically, would be just suicidal, and I don't think the Germans are suicidal.
That said, you know, I think we have to take a larger -- I actually think, you know, it's interesting when -- we've had a lot of -- you know, Geithner's over there now. We've had -- much more quiet this time than he was last time, Tim is, but -- which I think is -- you know, they called him over there last time, and then they criticized him. I mean -- (chuckles) -- that was kind of an interesting position to be in.
But I think the reality is here in the United States of America, we're the United States of America, and we cannot agree. And I find that appalling. You know, this is -- this is, you know, 27 countries in the EU, European Union, 17 member countries in the eurozone, and this is a 50-year project. And I think what we're often ignoring in the United States is the nuances of the politics over there. This isn't just a lack of political will; I think they actually have a lot of political will. There's of course going to be brinkmanship, of course going to be gaming of the system and trying to get the best of what Germany wants, because they dominate. But on the other side of it, I am really impressed that they're still -- you know, that they understand that this is -- they put this zone together to avoid world war III. They don't like each other; they hate each other. (Laughter.)
And so, you know, the fact that they're working at all, it's sort of -- to me, it makes, you know, our tea party and what we're doing here -- I mean, we don't seem to like each other very much, but we're the United States. These are different sovereign countries, giving up their sovereignty. And I think, you know, to put it in that context, to understand what they're trying to do, it's -- not been overly impressed at how rapidly they've done it and what they've done. But on the other side of it, I'm impressed that they're still moving forward, and they're not giving up on this main issue of keeping the area more -- going towards more unity, rather than splintering. And so I think that's a nuance that we often forget here in the United States.
MALLABY: So one more question about, you know, what would be the trigger to make this unravel. Because there's one category of risk that one can see coming, which is that -- say, for example, Italy has a very large amount of bonds it has to roll over in January-February. We know that that's out there. We know that if they --
SWONK: I know.
MALLABY: -- if the bond auction fails, we have a huge problem. So that's the enemy we can see. And the question there is, you know, would the German government really be willing to block that successful auction in the way that -- (inaudible) -- presumably is the Italian government says to Italian banks: Here, you buy this, then you give it to the ECB on repo, and then we're fine. So if the ECB refused to play that game, you -- but that's the -- that's the enemy you can see.
There's also the enemy you don't see, which is Dexia, which is an unexpected bank failure someplace that just goes boom. Which do you fear more?
ALEXANDER: I worry about them all. (Laughter.) I mean, frankly -- no, no, seriously, there are so many ways this could blow up. You talked about Italy. Obviously, the current government is a good technocratic government. Italy has a history at being quite successful with those sorts of governments in the past. But politics are always difficult. The road to reform is never a straight path.
You could easily find ourselves at a point where Monti would propose something that would be perfectly sensible, but that would take some organization to get the politics around it, and you could get a moment where people would question whether or not Italy was really on the right path. That's a kind of an obvious one.
We are going to have an election in Greece in February. If everything for Greece goes as planned from here, we are talking about an election between February and April. That election is not going to be good, right? And so, you know, in some sense, you know, people talk about, oh, well, February; if we can just get to February, or like, I'm not going to worry about it because it's only in February. But that's one.
You're absolutely right that the failure of a major -- or pressures on a major financial institution is, I think, another very acute thing. The fact that the central banks got together and did these swap lines and the fact that you had $50 billion taken up on this yesterday by 50 banks is indication that there are real funding pressures there.
And while it is true that the national governments stand behind those things, just remember that the thing we're all worried about is the viability of the sovereign finances. And if ultimately what you're relying on as a backstop for the Italian banks is the Italian sovereign, that's sort of a problem. So, you know, those are kind of three broad categories of things.
I also worry that, frankly, on the path we're on literally this week, we haven't really heard from the Bundesbank about the deal that Merkel and Sarkozy cut. I have to admit, when I saw the details of it, I -- it kind of didn't look to me like Merkel had gotten all that much. And I am -- I -- my -- one of my questions is, from the Bundesbank's perspective, is it enough for them to essentially support a much more aggressive role by these --
MALLABY: You're saying Bundesbank, not European Central Bank.
ALEXANDER: Well, I think the way --
MALLABY: You really think that Weidmann has a veto?
ALEXANDER: Well, look. I think the way to think about the ECB at this point is, if Draghi took some big bond-buying program to the ECB board, I personally believe he could get a majority. But there would be a very substantial minority that would include the Germans, maybe the Dutch -- I'm not sure about that anymore -- the Fins, that would oppose it. And frankly, if you started down the road of Germany being in the minority in the ECB, that's not a stable scenario. That -- an ECB with Germany essentially on the outside is not really a viable option. So it's not technically a veto, but to have them go forward with the Germans overtly opposing the direction they're going, I just don't think it's a viable option -- so effectively, yes.
So I could imagine, for example, we go through the summit this week and, you know, we get to Monday, and the ECB's in there buying bonds without having made a statement, and then you get to Wednesday and you get some unnamed source from the Bundesbank says this isn't enough.
MALLABY: Or quite possibly a named one. I mean, Weidmann is right out there. You know, he's saying that trying to fix the problem by quenching your thirst with this bond-buying program is like -- is like seawater, is what he said.
MALLABY: He says that it's not just bad idea for the moment; he says it's illegal. And if we try to reconstruct eurobond on the basis of breaking the law, we don't have -- I mean, he's been pretty -- painting himself into the corner with some pretty stick paint.
ALEXANDER: I would agree, I would agree. And the fact that we haven't heard anything from that side of this since the Merkel-Sarkozy thing came through is a kind of deafening silence.
MALLABY: No Weidmann is good Weidmann?
ALEXANDER: Well, no; I'm not sure. I'd like rather (know ?). I mean --
MALLABY: You'd like --
SWONK: (Inaudible) -- we could work with this.
MR. : Right, right.
ALEXANDER: Yeah, but if it's not enough, I'd rather know sooner rather than later, frankly.
MALLABY: In a couple of minutes I'm going to go to the members to ask questions. I want to give due warning. I think we should have a vote before the beginning of the questions: Do you think that in three years time there will be 17 members of the eurozone like there are now, 16, 15, 15 or less. We'll give you three options. So we'll vote on that in a second.
But Rich, I want to just come quickly to you for a quick take on emerging markets. We've seen Brazil didn't grow at all in the most recently reported quarter.
MALLABY: Our emerging market equities going to set off even more, or how do you see that?
BERNSTEIN: Well, I think -- Sebastian, you and I were talking about this earlier. I think one of the great -- or probably the most interesting but least known statistic is that the S&P 500 has now outperformed BRIC equities -- Brazil, Russia, India, China -- BRIC equities for four years -- for four years. There is a huge change going on in the global financial markets right now, and nobody wants to believe it's actually happening, but it is happening. And I think we're only beginning to see some of the problems that are going on in the emerging markets. You know, people in the United States have been very worried about inflation.
Look, we're already on the downside of our credit bubble. It's really hard to get excess inflation without excess credit. They tend to go hand-in-hand. Where do you have the excess credit? You still have it in the emerging markets. They have some of the highest inflation rates in the world right now. The BRIC countries have some of the highest inflation rates in the world, highest rates of money growth. So they're trying to figure out how to solve these problems.
And in a case like Brazil -- by the way, the major BRICs have all had either inverted or very close to inverted yield curves for a good portion of this year -- not a sign of great growth. And so they're trying to figure out how to deal with it. And you know, Brazil -- you'd think Brazil would be acting like the Bundesbank; you'd think the central bank of Brazil would be, you know, saying, well, inflation was the downfall of Brazil; we're never letting it back. They've just eased three times with an inflation rate above their target rate.
Now, if the Fed did that or the Bundesbank did that, when there was a Bundesbank, we'd all say, like, what's going on? Everybody is saying, in Brazil, this is wonderful, this is fantastic. Why? I will submit to you Brazil has accepted inflation again. The Brazil that we know over the last 10 years is a thing of the past.
India has decided to accept unemployment. Their curve is still almost inverted. And China is telling us everything is going to be fine; they will have no unemployment and no inflation. And you know, we're seeing what's happening there, that already their economy is slowing.
So if you think about it from an investment point of view, we've got an area of the world where people love these markets -- they think they're infallible; they're just the place to be -- and meanwhile they've been underperforming for four years, and their economies are starting to unravel. I'm not making it sound like there's got to be a hard landing, soft landing. I think that discussion misses the point. The point is: landing. The adjective is absolutely immaterial. The question is, will they -- are they landing. And I would argue that the valuation of the assets imply no landing.
MALLABY: I'm going to come -- you had a two-finger --
ALEXANDER: Yeah, I totally agree with what he's saying with respect to emerging markets, in the sense that they've had a tremendous run. They -- you know, they are very dependent on commodity prices in a world where the global economy has been slowing. That's going to impose real headwinds.
I take a little issue with how -- quite how extreme you characterize it in the sense that -- I started my career working on the Latin debt crisis in the '80s, and I followed Brazil for most of my career in one way or another -- the fact that we are talking about Brazil in this way, in the sense that, oh my God, they could actually lower rates in the midst of a crisis. I just tell you, as somebody who's spent 20 years looking at Brazil, it's extraordinary that that's even on the table. And it speaks to how far they've come.
So I -- look, I -- you know, the Brazilians have a long, tortured relationship with inflation. Arminio Fraga, who I consider one of the -- one of the best central bankers of recent memory -- I don't think he ever hit the Brazilian inflation target. One of his great, you know, acts of levitation was to build the credibility of the Brazilian central bank with never actually meeting the inflation target. (Laughter.)
So look, I agree totally with the direction that Rick was describing. I worry a lot about emerging markets in this world. I do kind of think -- let's, like -- comparing the Central Bank of Brazil to the Bundesbank -- that's a great thing, but just remember that that speaks to how far they've come.
MALLABY: Diane, let's go to you for our last point. And put all this together and relate it to the U.S. outlook. How do you feel about the U.S. right now?
SWONK: Well, it's kind of like --
MALLABY: Small questions -- (chuckles) --
SWONK: Yeah, I know. It's kind of like trying to make a forecast in quicksand. I mean, I've redone my forecast and recut it five times in the last week alone.
I do think we are -- economic fundamentals are improving -- some of it is catch-up -- and there are -- we're going to get an acceleration off of a growth recession in the first half of the year. So that doesn't say much. Our thresholds are pretty low. Next year I have growth around a little north of (2-3 ?) (percent) or so. That's not exactly stellar -- does whittle down the unemployment rate a little bit. But the reality is that, you know, the headwinds are still there of uncertainty.
And I actually think -- this gets back to the political will issue -- even if we -- I mean, the idea that we wouldn't extend the payroll tax cut at this point in time is a little bit mind-boggling to me. I think we will. But even if we didn't have a stimulus program within the context of austerity -- which now needs to be 5 trillion (dollars) because of the shortfall in growth last year; over 10 years we need a $5 trillion deficit reduction, not 4 trillion (dollars) anymore; that's not widely -- that will come out in the next CBO estimate -- what I worry about is that the uncertainty that we're dealing with, the volatility and all these sort of landmines that could be out there, that causes hesitation.
And that further exacerbates the hoarding of cash on corporate balance sheets, the more than 2 trillion (dollars) that we've got on the sidelines. And it creates a headwind that's unnecessary because of our own political impotence. And even if we did not have more stimulus, if we had a plan for the next 10 years in the United States, if we were -- which I think is -- the only time I can even imagine them passing it in the next year is a lame-duck Congress of 2012. But if we at least had that plan, we're in a remarkably flexible economy. If we know where the potholes are, we can either brace ourselves for them or negotiate around them. And corporations and households alike have that ability to do that.
Without knowing what the next step is and with all the, you know, warning shots being shot over the bow from Europe, it's -- it just seems ridiculous to me that, you know, we don't have a better political environment to let these things happen and that we would risk what I think three or four years down the road could be some pretty high risk premiums on our own debt. I'm not worried about inflation in the near term, but I am worried about competition for credit worldwide and what would happen.
And so, you know, the economy is reaccelerating. It could be derailed by all the things that Lewis talked about, by all the things that Richard talked about. There's a lot of potholes and a lot of headwinds out there. But we are regaining some momentum, and that's the good news. And we're also recouping some losses from Japan and things like that, which are helping us now. And the question is to be sustainable, we need to get a little more certainty. And that's -- and it's still subpar, but it's better than the alternative.
MALLABY: OK, so hands up if you think that in three years' time the euro will still have 17 members. OK, hands up if you think 16. Hands up for 15 or less. We have quite a polarized thing, but I think 17 narrowly had it.
OK, so let's go to you guys for questions now. Raise your hand.
I see one question right here. Microphone is coming, I think. Yeah. And please say who you are and --
QUESTIONER: I'm David Beim from Columbia Business School. No matter what else happens, isn't it virtually inevitable that the ECB becomes the lender of last resort very quickly, due in part to the scenario that you just described -- auctions happen, they fail, who else would there be? And they fund their growing balance sheet by printing euros. I can't see -- no matter what else goes on, I can't see any scenario that doesn't involve that. Can you? Is there any way that we can avoid -- or Europe can avoid -- a very substantial inflation of the euro in the medium term?
MALLABY: So I guess the question is, if they print money, will there be inflation? Diane, what do you think?
SWONK: Lewis wanted to start on that one. (Laughter.)
ALEXANDER: Remember that -- that nhat happened -- I mean, what happens when you go through one of these crises and you have a lender of last resort is responding to a shift in the preferences of the private sector. So what happens in a crisis is people decide they don't want to hold risky assets, they want safe assets. And what a central bank does by acting as a lender of last resort is effectively to just stand on the other side of that.
The notion that expanding a central bank's balance sheet in a lender-of-last-resort context generates inflation, I don't actually believe that, like, history would suggest that that's what happens. So if the question is, is it going to generate inflation, I don't think that's obvious. Is the euro going to go down? Probably. That's our forecast. That's my expectation. But that's a slightly different question.
I don't think -- I don't think the issue is really inflation. I think there is a sort o fundamental question about what role the ECB needs to play, is willing to play. There is an important distinction between are you lending to the financial -- to financial institutions or to sovereigns. Those are different things. Usually the phrase "lender of last resort" applies to financial institutions, not to sovereigns.
And so in some sense, the ECB is willing to support the financial system, it's not willing to support sovereigns. And that's really sort of the crucial question. And, look, I think they will get there. I think there is a good case for them getting there. I am not as worried about it as they seem to be, but that's the central issue.
SWONK: And to underscore the inflation issue, you're talking about Europe already in a recession, and the risk is the vicious cycle of deflation here, not inflation. And so the central bank acting is to counteract that, which I think, you know, is one of the important lessons of what we learned where Keynes was wrong on the zero boundary back in the Great Depression. He said when the zero boundary hits, there's nothing more for the central bank to do. And of course, central banks around the world have said that that's wrong. After Japan and restudying the Great Depression, it doesn't, and our experience so far is it doesn't generate a lot of inflation. In fact, the issue is you want to reflate a deflating economy.
MALLABY: Another question. OK, right here.
QUESTIONER: Marshall -- is this on? Marshall Sonenshein, Sonenshein Partners. Before the credit crisis in the United States, too -- we simply often heard statements about -- the state of world information and credit was that, A, if the United States followed the SEC's accounting rules, it would have to put all kinds of liabilities on its balance sheet that aren't actually there, but at least we knew what they were. And I forgot what the second one is, but trust me that -- we didn't need the second one to make my point.
When we look at Europe and this strange 50-year experiment in monetary union absent fiscal union, do we also have another problem, which is we don't really -- oh, I remember the second one, was Ben Bernanke at the Economics Club saying I wish I knew what those damn things were worth, meaning the SIVs.
We don't really know, I think -- and I'm wondering whether you all agree -- enough about what is actually there inside the balance sheets and financial statements of sovereign governments. Greece was a famous example of what I think would be called outright fraud.
QUESTIONER: If you could put the Greek government in jail for deceptive and misleading practices, you probably should. But it seems to me that if you're going to have a monetary union, understandably from a historical perspective, without a fiscal union, and you're going to set thresholds and targets for 3 percent of this and 1 1/2 percent of that, and all the rest, and you realize that you can't enforce those targets and that the very moment when somebody falls short of them, that's when -- you can't just penalize them, because they have no money to pay the penalties -- if you realize all that is true, don't we have an information gap here and shouldn't we try to put our heads around the question, how do we know what's actually inside the sovereign credit financial statements?
MALLABY: So, earlier it was being suggested, I think by Rich, that in China we have a full processing of no unemployment, no inflation and therefore no data. (Laughter.) Now the question is -- now the question is, are we all Chinese?
Diane, what do you think?
SWONK: I actually think we're not as Chinese -- we're not all Chinese. That's the good news. I have a lot of questions about whether the rating agencies have any expertise in sovereign debt analysis. And that is something that is highly questionable, and I have some questions about their ability to assess muni debts, as well.
But I think that we do know -- there is a real concerted effort going on, certainly within the Fed and within the central banks around the world -- one of the lessons we did learn from 2008, and it's far from perfect, was that they didn't know; and now they're trying to know everything they can.
And I know -- Lewis probably knows this as much as I do -- the people that are actually looking at counterparty risk right now, that they didn't look at this back in 2008. That wasn't part of what they did back then. But now they're looking at counterparty risk. Whether they have a handle on all these things, they're looking at it within the institutions that they oversee, which is banks, not sovereigns. It has to do with the sovereigns, but, you know, you're right, there still is an information gap there.
I think that the situation outside of Greece is not as bad as Greece. And, you know, anyone who spends any time with their own budget, you know, it's not rocket science. I mean, you can actually spend time and understand a lot of it in a pretty short period of time, and it's amazing how little financial markets spend in actually understanding what's in our own situation here in the United States, what our own demographics are and how these things could actually work and be phased in.
So I'm not sure it's as opaque as that. I am somewhat reassured by the efforts by central banks around the world to start at least understanding in the financial system where the counterparty risks are, where they didn't understand them before. That doesn't mean they can necessarily stop them.
And I also -- I'm fascinated by the fact that -- you talked about the ECB talking about this, having the scenarios in place. The scenarios are being talked about all the time within the Fed. The scenarios are being talked about with each other about what they would do under Case B, Case -- you know, A, B, C, what will we do. That's the good thing, is they're all talking to each other, because they weren't prior to the 2007 situation.
Now they are talking to each other. They're trying to find these counter-risks. So that's better than we were. They have less tools to deal with this than they once did, and there is interesting issues that Lewis points out, as, you know, although we think they have to do it, they're not going to deal with the sovereign debt issue. We don't know what they can do with that.
So I think there's this big gap. I think we're better than we were, but I think in terms of the financial system and understanding where the counterparty risks are, Greece was a special case, but you may be right, there may be stuff in the sovereigns we don't understand. I do think we have a better idea, when you put in people like Monti, of what the structural reforms are necessary to balance out some of the austerity and --
MALLABY: To your point, Diane, so a friend of mine who spent a long time as an economist at the IMF -- and these guys really are the people who go look at people's budgets and sort of figure out public sector finances -- has the view that, you know, S&P knows nothing about this, so when they threaten to downgrade a bunch of European sovereigns, you should just ignore it. Now, the problem is he's now moved from the IMF to a hedge fund, and when he says this, every time the markets move on an S&P threat.
So what's going on? Is the market just overestimating its ==
BERNSTEIN: It's incredible. I mean, the S&P -- there have been many studies that go back a long, long way, especially in the U.S. junk bond market and things like that, about when the rating agencies finally get around to downgrading bonds, it's usually a signal that the worst is long over and you should be much more bullish. They're a very good contrary signal.
And I actually found it kind of humorous yesterday that you had this, you know, potential downgrade of all these countries. Like, where have they been -- (laughter) -- you know, for the past year and a half or two years? It's really quite extraordinary.
So all I would say about this -- look, I'm not an expert on Greek sovereign balance sheets, but I will tell you that I think this lack of transparency goes two ways. One, it's terrible from the point of view -- I mean, I'm always one who wants as much transparency in financial markets as you can possibly get. I think it's one thing that we in the United States don't focus enough on, is real transparency in the financial markets.
On the other side, the lack of transparency provides tremendous opportunity if you're willing to do the extra work. So I'm always torn between these two things -- you know, being self-interested and not.
MALLABY: Right. They want a really, really, really inefficient world so that we can trade on -- (laughter).
BERNSTEIN: Right. Exactly.
SWONK: Behind every good capitalist is -- (inaudible).
MALLABY: Another question. Another question. Anyone got a question? If you don't have a question, I've got a question, which is to -- oh, let's go right here.
QUESTIONER: What do we think about the Robin Hood tax?
MALLABY: Which particular version?
SWONK: Yeah, there's enough of them.
MALLABY: There's plenty of them out there.
QUESTIONER: (Off mic) -- taxes on all financial transactions.
MALLABY: Transactions tax. OK.
QUESTIONER: And it would have to be global to work, but it could fund quite a few things in quite different places. It certainly is politically appealing here --
QUESTIONER: -- I would imagine, though the financial lobbyists would certainly oppose it.
SWONK: They're pretty strong.
QUESTIONER: But the public could --
MALLABY: Anybody want to take that?
ALEXANDER: I'll take it. Well, first of all, I think they would be extremely difficult to implement in a practical way. The simple point that the location of trading at this point is pretty arbitrary and could easily move. People don't recognize the fact that the floor of the New York Stock Exchange at this point is only a prop for CNBC. (Laughter.)
SWONK: (Laughs.) (Inaudible.)
ALEXANDER: No, seriously. The real action is in a server farm in New Jersey. And people do not fully appreciate the degree to which electronic trading means that you can locate this stuff anywhere. The numbers that people project on those things are based on volumes of trading -- that are based on a market structure which is driven by this very high-frequency trading that could collapse in a heartbeat. And so the notion that you could raise a lot of money on this, unless literally you had it everywhere, and I mean including the Caymans and all the potential offshore places -- which I just, frankly, don't think is practical.
I think this raises a different but sort of important issue. When I look at kind of trends in the financial sector, the things that jumps (sic) out at me is the impact of information technology. And it's driving an awful lot of things, and I don't think we think enough about how that's driving things. But it constrains us in all sorts of ways, and this is -- this is one of the most -- is one of the most obvious ones. But when you think about evolving systemic risk and how the financial system is going to evolve, nobody has repealed Moore's Law.
And to the extent that that is driving -- I mean, we do things today that are -- that were inconceivable just a -- you know, a few years ago. My iPhone 4 is a more powerful computing device than any mainframe computer that was commercially available before 1994, and that includes the Cray-1. (Laughter.) And we are just living in a very different world, and that's driving an awful lot of things. But you know, we -- it is an aspect of systemic risk and the opacity and all of this stuff that we just don't think enough about. But I think, frankly, financial transactions taxes, as appealing as they are, are just fundamentally unfeasible in this world.
BERNSTEIN: Can I -- can I answer -- (off mic)?
MALLABY: OK, just quick, sure, yeah.
BERNSTEIN: Just very quickly, I wrote something about this many years ago, because I'm -- I hate day trading. I hate high-frequency trading. I think we've gotten away from the purpose of what the financial market is all about. The financial market is supposed to be a tool to build capital in the real economy. And what's begun to happen is we're just trading for the sake of trading. And I think that's very detrimental to our economy.
And so what I wrote several years ago was that you should penalize short-term trading, like a tobacco tax, and -- but reward people for holding onto assets longer. And so the longer you hold an asset, the lower the capital gains tax rate; the shorter you hold it, it gets -- you know, it goes -- the capital gains tax rate is the same as -- there's none, there's the same as income, but if you're day trading and you're holding -- (inaudible) -- you actually pay a penalty, like a -- and I disagree that it's based on location. I think it's based on investor. And investors have got to be somewhere. They're filing taxes somewhere. That's where you apply the tax. And it can be -- I think it can be done.
MALLABY: Ken Brody had a question.
QUESTIONER: Ken Brody of Taconic Capital. Another question for Lew, given the fact that he's a banker. (Laughter.) Given the risk rewards today, other than inertia, why is anybody keeping money in the banks of Greece, Portugal, Spain, Italy, Ireland?
ALEXANDER: I wish I had a better answer to that question. It's something I think about all the time. In 2001 I was following Argentina in the six months that ran up to its disaster. And we were watching it literally every day. And the greatest -- and one of the greatest mysteries to me is why people kept their money in the Argentine banking system. A month before it blew up, you could go to an ATM in Buenos Aires, and if you had a peso account, when you put your card into the ATM, it gave you a choice of whether or not you would take -- get out pesos or dollar bills at 1-for-1. And you could do that a month before they defaulted.
I think to a certain extent there are -- there are some people that are captured. So for example, there are things like state-owned enterprises in Greece that really have no choice. I think a lot of that has all already happened. You've seen the sort of slow drain, certainly on Greece for a year and a half, and it's happening more broadly. But I think the history would tell you that the thing you don't see is a kind of macrodriven run. So in other words, you don't see people -- the dynamics that you would identify as a bank run, like what happened to Northern Rock, that are driven by kind of macrofactors, I just -- I can't point to one. When you get a real run, it's because of a question about an individual institution.
So I -- you ask a very important question. I, like, think about it a lot. I wish I had a better answer. I think there's some stickiness that comes from kind of institutional constraints. But I think it's a big issue because if you went down the road I described for Greece, I think the most important question is how bad would it be in Portugal, Spain and Italy. And in some ways, history would tell you maybe it's not as bad as you would think. But I agree it's hard to reconcile.
MALLABY: You have a question, over there.
QUESTIONER: Thank you. Herbert Levin. Is this the first time there has been a substantial international financial crisis where there's no U.S. role? In other words, the fact that the U.S. is broke -- we're not going to put more into the IMF -- is this the real signal for the relative decline of the U.S. and the end of U.S. leadership because we're out of it? That's the first question.
The second question is with all of the technical problems that you've pointed out within Europe, isn't the fundamental problem that the Europeans are having that the Finns are not going to take higher taxes to save the Portuguese? They wish them well, but they don't feel that they are responsible for them. And if they have to pay to get rid of them out of the euro -- which the Finns find very convenient because they're great traders -- well, they'll pay it to get rid of them because they don't feel any responsibility for them. Thank you.
SWONK: I -- in the first question, the U.S. does have a more diminished role because the -- we don't have the fiscal policy tool; that's absolutely right. But we do have monetary policy still. It's more limited than it once was, but the role that the central banks play -- coordinated efforts to do the swap lines -- I thought it was interesting that, you know, they also accepted euros and -- against the Swiss francs. They opened swap lines where they don't usually need them, but that was sort of a confidence in the euro going forward.
And so I think the U.S. -- I think the only way out of this is actually -- what we learned in 2008 is, this is a global economy, and it's a global financial market, and the only way out is when we all put our oars in the water at the same time and row in the same direction. And so I do think the U.S. has a critical role to play.
Are they going to fund the IMF more? Well, no, they're not. Is it time for, you know, some of the emerging markets like China to play a larger role? Well, China would if they could get more intellectual property rights in Europe, which -- Europe doesn't want to sell their ownership rights of their companies to China. So, that's a real point of tension.
So China's not been more aggressive, and they've been playing a game. But let's face it: They're already suffering by the fact Europe is weak, and it's their largest export market. So I see it more as there is a coordinated effort under way and the only way we're going to get out of this is not just by Europe figuring out its problems, but by all of us working together because we all are at risk.
And I do think we still have a role, but you're right: It is more diminished because we're not willing to deal with our own fiscal policy issues, which diminishes our role. Even if we were able to put together an austerity program, I think we would raise our credibility globally to deal with the issues. I mean, this is one of the issues that Tim dealt with when he went over to -- when he was called in the first time to go talk to the Europeans, and they're like, what are you talking to us for? You know, you guys have not put your fiscal house in order, so don't talk to us -- after he was called over there. So he's been very quiet about the whole issue now.
So I do think there is still a role in -- (inaudible) --
MALLABY: On this question, by the way, about the monetary tool that the U.S. still has, I took a group recently from the council to go speak with people in Beijing -- people from the central bank, from the Chinese Academy of Sciences -- and to talk about their efforts to turn the RMB into an international currency and ultimately into, potentially, a reserve currency.
And when you start to think about that issue, what strikes you is that so long as private markets -- and Rich may want to come in on this -- as long as private markets are funding themselves in dollars -- because the dollar is the liquid, efficient funding vehicle -- in a crisis you need dollars --
MALLABY: -- as a central bank to replenish the drying up of a money market-type of situation that you might get.
MALLABY: So the dollar will be the reserve asset to protect against crises so long as the private markets choose to use the dollar to fund. And I don't know whether Rich has a different view, but I don't think one sees a lot of evidence that the markets are moving away from the use of the dollar. And you see again in Europe --
MALLABY: -- that a dollar swap line was needed.
MALLABY: I don't know whether --
BERNSTEIN: No, absolutely. I mean, as much as we -- the way you see that, Sebastian, I would say, is, as much as the Treasury bond gets maligned, it is still perceived as the highest quality asset in the world --
SWONK: Safe haven.
BERNSTEIN: -- and it acts as the highest quality asset in the world despite what the political rhetoric may talk about.
SWONK: And to your other question, about the Finns, my colleague was just in Stockholm at a summit with the Finns participating. And you know, Finland really feels that it had to become part of the European Union and the eurozone because it had the Soviet Union breathing down its back. And they do feel a part of this; it's not just that they're willing to just cut off Portugal.
So I think your -- again, the nuances of the politics are less understood over here. When you get over there, you get a very different answer.
And what amazes me is everyone in the U.K. thinks -- because they feel validated -- that the eurozone was not an (optimal ?) zone. They say it can't -- it can't survive. But when you get within the eurozone, they all say it has to survive.
And so there really is this dichotomy, and the nuances of the politics are -- it's much more nuanced than I think us looking outside actually see it. And it was amazing to me to hear this: You know, the Finns were saying, no, we have to save the euro. So, you know, the exact opposite of what we think, and I think that's important. So I would add that.
The other one little point that I think is really important is although S&P -- everyone says, you know, if I hear on CNBC one more time, well, the downgrade meant nothing -- did anybody see what happened to municipal bond markets or anything that wasn't AAA after the downgrade?
The spreads widened quite dramatically. So it made credit much harder, in some cases maybe added risk where it should have been added back in. But the residual effects of these downgrades on non-AAA, on noninvestment-grade upside of the Treasury sector did have some effect, and that's what I worry about in terms of, you know, there's talk of downgrade. Everyone says, well, it doesn't really matter. We don't care about the rating agencies. But that's something that I do worry a little bit about is, the kind of credit availability that it has in terms of the broader economy.
ALEXANDER: The U.S. role is -- has been evolving, and I don't think there's any question about what direction it's going. I frankly saw this change between Mexico and the Asian crisis. In Mexico, we had a lot of money. We kind of -- it was our money. We threw it at it. When we got into dealing with Thailand and Indonesia and Korea, there was a constraint that came from the fact that we did not have a large part of money that we felt we could sort of throw at that problem, and you had to manage it differently.
I think it's inevitable that we're going to kind of evolve to a different equilibrium. Ultimately, the U.S. dollar replaced sterling. And if you just look at the trends that are going on in the global economy, I think you kind of have to pose as a question whether or not the dollar's role and the U.S.'s role is going to continue forever.
I think we're a long way from the point when you're going to see it switch over. And one of the points about --
MALLABY: Switch over to --
ALEXANDER: Something other than the dollar being the center of -- the center of the system.
SWONK: There's alternative at the moment. So -- (inaudible) -- there's no better alternative.
ALEXANDER: I mean, well, but one of the points I would make is, there can really only be one reserve currency, because it's all about, in some sense, the economies of scale of what happens in a crisis. You can only really have one market that sort of rallies in scale. I mean, the reason -- it's almost -- the logic of why it's treasuries is almost circular, in the sense of people hold them because they rally in a crisis.
SWONK: Right, right. (Laughs.)
ALEXANDER: Well, if they -- if everybody holds them and that's what people want to hold when things go bad, then they will rally in a crisis.
ALEXANDER: But that's sort of an inherently kind of unstable thing. I think --
MALLABY: Well, just to push back on that, so if you had to predict, in 30 years' time, what will be the global language, I think most people would say English, because it's spoken across borders, and so there are network effects and everybody wants to learn English because other people already learn English. So if we don't expect there to be a flip with the English language, isn't the -- isn't the currency that markets choose to fund in a similar thing?
ALEXANDER: Yeah. No, no, we're saying the same thing. There can only be one. But the question is what is it going to be.
I would -- I would note just the following trends. We are continuing to rent current account deficits. Moreover, if you look at the absolute volume of financial activity in the world and just simply project out the growth that's going on outside the United States, our -- the dollar share of kind of native financial activity is shrinking, not growing. And I don't know when it's going to happen. I don't know necessarily if it -- (inaudible) -- I'm not saying it has to happen. But I think the notion that we will look up in 50 years and still have a financial system that is as centered on dollar assets as it is today, I don't know what the probability is, but it's certainly less than one. And in some sense, you know, this is just kind of an inevitable part of the way the world's changing.
I -- it's interesting in the -- around the time of the Asian financial crisis there was a lot of talk about international architecture and all those things. You know, those of us who were kind of involved in those debates I think thought of it in terms of the rest of the world is going to get rich by being like us.
The big interesting thing that's happened since then is that the rest of the world has gotten an awful lot richer without becoming like us. And in some sense, the challenge for the system that we face is, instead of having a world where you have a kind of common set of rules about investment and all of that stuff and how it's going to work that's all based on a kind of common understanding of how this system should work, we're kind of evolving in a world where frankly, where the growth and the strength and all of that is coming in there, is (they ?) don't necessarily share to the degree that we thought they would a common set of assumptions about how the system should work.
And I think there is going to -- like, one of the challenges we're going to face down the road is, like, how do we kind of reconcile all of that? For the moment, you know, the dollar is the center of the system, and that gives the United States sort of -- it's still the most important, you know, part of the system. But all you have to kind of just think about the trends, it's -- you have to, you know, think about alternatives.
MALLABY: Well, we -- I think we should stop there. We're out of time. I just want to say thank you to all the panelists.
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