PARTICIPANTS
John Taylor, Jim Hoagland, John Gunn, Ken Scott, Ronald McKinnon, Johannes Stroebel, John Powers, Darrell Duffie, George Shultz, Monika Piazzesi, Nick Hope, Sanaa Nadeem, and Juliana Salomao.
ISSUES DISCUSSED
Arminio Fraga, former governor of the Central Bank of Brazil and founder of Gávea Investimentos, addressed the group on a number of current issues in financial markets. He began by discussing the dangers of future sovereign debt crises in G7 countries, pointing to ballooning debt to GDP ratios and a shortening of the maturity of debt in these countries. He particularly focused on the situation in Japan, highlighting that almost 50% of Japan’s debt matures within one year. He also commented on the recent sovereign debt crises in Europe, pointing out that the size of the rescue package for Greece dwarfs previous packages when comparing with the country’s GDP.
Fraga then provided his views on the sources of the recent financial instability, commenting that the recent boom-bust cycles were not accidents, but rather the result of a number of structural weaknesses in financial markets. These include the mispricing of liquidity and the behavior of central banks.
In the last part of his presentation, Fraga commented on recent proposals for financial reform. He disagreed with the “Volcker Rule”, arguing for the value of diversity in the financial system. He ended by discussing the political environment for financial reform, both in the U.S and in Brazil.
