Financial Recovery: When and How?
Monday, April 27, 2009 / 8:00 am - 9:15 am
 
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Moderators
Michael Klowden, President and CEO, Milken Institute

Speakers
Mohamed El-Erian, CEO and Co-Chief Investment Officer, Pacific Investment Management Co. (PIMCO)
Steve Forbes, Chairman and CEO, Forbes Inc.; Editor-in-Chief, Forbes
Kenneth Griffin, Founder, President and CEO, Citadel Investment Group LLC
John Micklethwait, Editor-in-Chief, The Economist

When is economic recovery coming? That's "a bogus question," declared Mohamed El-Erian of PIMCO, who insisted that we should instead focus on what the new normal will be once we emerge from the crisis.

"The one thing that would speed up the recovery is the mindset that you don't kill the innovation but you update the infrastructure to allow the innovation to get going," said El-Erian, echoing the view of the other panelists that entrepreneurial innovation is the key to a rebound.

The U.S. government's involvement in the insurance, auto and banking industries was more of a concern than the country's ability to recover for Kenneth Griffin of Citadel Investment Group. Steve Forbes of Forbes Inc. agreed that more government involvement in the private sector would be detrimental, causing recovery to take years rather than months.

El-Erian insisted that recovery will not be a simultaneous process, since initial conditions in various industries and nations were very different to begin with. He projects a sequential recovery in the coming quarters, during which some sectors and countries will resume growth, but fears that protectionism may help some groups at the cost of others.

While he agreed that more government ownership and regulation are not part of a long-term solution, John Micklethwait of The Economist pointed out the political reality that the public is demanding these actions. The panelists agreed that the U.S. government needs an overarching framework and direction for regulation and other actions rather than applying ad-hoc fixes.

"We've spent 200 years developing good law. This is not the time to rewrite it," stated Griffin. Rather, he suggested that regulators should recommit to adequately enforcing current rules. He pointed out that although Fannie Mae and Freddie Mac were heavily regulated agencies, regulation did not prevent them from incurring catastrophic losses.

While the panelists disagreed on whether to eliminate mark-to-market accounting and specific exchange-rate policies, they all agreed that the free market will ultimately provide the most desired long-term outcome. "We want to move the government out of the role of picking winners and losers and return that to private markets as fast as prudently possible," concluded Griffin.

When polled, more than 50 percent of the audience at this session stated that they believe the United States will emerge from the current recession by the first half of 2010.