“He hates to say 'I told you so,' but historian foresaw crisis”
  Margaret Wente
  November 15, 2008

Long before the subprime meltdown, renowned Scottish historian Niall Ferguson began warning that the world was not immune from a great liquidity crunch.

Prof. Ferguson is a Harvard and Oxford-based expert on the history of economics and empires and has written many bestselling books, including The War of the World. His latest, The Ascent of Money: A Financial History of the World, explores the power, achievements and monumental failures of finance throughout history. Although he finished it more than six months ago, it is well timed to supply the nerve-racked among us with some much-needed historical perspective.

Prof. Ferguson will be speaking in Toronto at the Grano Series this Thursday. I spoke to him about the meltdown, what lies ahead and why he switched his allegiance from John McCain to Barack Obama.

Okay, you were right. You saw this coming.

That's true. I don't really like people who say, "I told you so." But a knowledge of financial history can prepare you for this kind of crisis. Back in 2006, I went around giving talks at investment banking firms saying a liquidity crisis is something very nasty, and when it happens it will be quite devastating, particularly given the high levels of debt held by households and banks. And everybody just said, "Forget about it." I was struck by this collective euphoria. So I decided to write a book that would anticipate this crisis, or at least make sense of it.

How come so many smart people didn't see it coming?

They drank their own Kool-Aid. In 2004, Ben Bernanke, the chairman of the U.S. Federal Reserve, gave a lecture called "The Great Moderation." He argued that central banks were so good at their jobs that the world was becoming a wonderfully smooth ride. The central bankers ... believed their own increasingly narrow doctrine that all you had to do was target core consumer price inflation, and you could ignore what asset prices did. You didn't have to worry about the stock market or the housing market. Derivatives were wonderfully innovative things and so were hedge funds. And economic theory tended to reinforce this approach.

Why were the economists so wrong?

It has to do with the way that economics operates as a discipline. Once you drift away from history and into mathematics, once you try to model the world as if it were another planet - where markets are always liquid, and behaviour is always rational - you're really unlikely to get Planet Earth right. You didn't need to be that learned to know that really big crises tend to strike when people are most complacent. That's when they borrow too much and have unrealistic expectations about future profitability. My scenario is 1914. People thought everything was great, until there was a sudden seizure in the credit markets. There were massive injections of liquidity, and huge amounts of money were thrown at the banks. And then the war started. What's happened today has been remarkably like 1914, without the war.

Have we learned nothing?

The one thing we have learned from the Depression is that you must avoid massive bank failures. It was really the collapse of the banks that caused the great contraction. We've managed, through the aggressive efforts of the Fed, to stave off that nightmare scenario. We've repressed this crisis. That's why I call it the Great Repression.

How bad do you think our Great Repression is going to get?

I think we can safely assume this will be a longer and deeper recession than anything since the early eighties - perhaps since '73-'74. You can repress a crisis, but you can't necessarily generate economic growth, because we're going through a great deleveraging. People have to shrink their balance sheets. Most people will reduce their consumption and probably save more, and I'm not sure there's a policy cure for that.

What we could be facing is the Japan scenario - real-estate crisis followed by banking crisis followed by a massive bailout and zero interest rates - followed by a decade of extremely low growth. At best, we have two bloody years. At worst, we have a lost decade.

Are you confident the authorities are doing the right things to avoid future calamities?

There's always a rush to shut the stable door after the horse has bolted. Regulators are often like generals fighting the last war. What we don't need is to have politicians specifying how much investment bankers are paid.

I think this can be kept quite simple. Banks cannot have too much debt or else they will be chronically vulnerable. We've failed to come up with a credible international regime on capital adequacy. it wouldn't hurt to have a simple acceptable norm that's really enforced. Perhaps we need something like the WTO [World Trade Organization] - something called the World Capital Organization, which has the power to say when a country's national regulations are out of whack. We need something that would prevent a country's financial system from being run like a Ponzi scheme.

How much should we blame the U.S. for this mess?

It's really important that this should be seen as a Western financial crisis, not an American one. The great illusion is that it all fell apart when the butterfly flapped its wings in the U.S. subprime mortgage market. But Europe is implicated as much, if not more. They have been equally enthusiastic proponents of deregulation and globalization, and European banks have been managed much more recklessly. I think the crisis will be worse in Europe than in the U.S. The United States can write a cheque for a trillion dollars, but European governments don't have the fiscal tools to deal with this. And those countries that have really a big financial problem - Britain Switzerland, Spain, Germany - are really going to struggle.

Is the downside of creating one world market that it periodically blows up? Isn't this a damning indictment of capitalism?

Well, it's not as damning as the judgment on communism. Capitalism is the worst financial system, apart from all the others that have been tried from time to time. My book is very much about this. This system has spread globally because of its overall superiority. But it is very volatile, just as we human beings are. It is by its very nature prone to crisis because of human psychology. We really have to admit that the rational economic man doesn't exist. It's also unstable because of the uncertainty of the future. We're never always going to be right about that.

You take an essentially Darwinian view of this collapse. How does evolution apply to the global financial system?

If there were no deaths or extinctions or sudden changes in the climate to sort out the fittest, there would be no progress. We had the Burgess Shale of financial innovation. All kinds of one-eyed worms crept out from under the rocks and started leaping around the capital markets saying, "I'm a collateralized debt! Buy me!" Hedge funds proliferated in vast numbers. We had a hundred trillion dollars' worth of derivatives. That looks to me like an overpopulation problem. And then the asteroid hit the Earth.

Except that in the financial world, the crises are endogenous. We produced our own great dying by taking the financial innovation process just too far. Even I wouldn't have imagined that investment banks as a species would disappear. But that's evolution. Their place will be taken by better-run, better-conceived business models.

Wait a minute. By blaming Darwin, aren't you letting a lot of guilty people off the hook?

There are some villains. We will look closely at the way some of these outfits were managed. There was fraud in mortgage markets and maybe ratings agencies. This is all about drawing the line between what was dumb and what was illegal. Maybe they'll shoot someone pour encourager les autres - especially since all these Democrats in Congress won't have as much to do as they think. They won't have any money to spend. So they'll just have to fill their days with congressional inquiries.

The easy thing to do is just blame Alan Greenspan. But the trial would be strangely unsatisfying. He wasn't selling collateralized debt to municipalities. That's why we need to look at things more broadly. At some level, we were all involved. The temptation to treat your house as an ATM is clearly a part of the story.

Barack Obama is going to inherit a colossal mess. What's your take on an Obama presidency? I recall that not so long ago - last May, in Toronto for a debate - you were a vigorous supporter of John McCain.

Six months ago, I was making as strong a case as I could think of for him. And in the course of the summer I found my mind changing. What changed it was that the facts changed. The intensification of the financial crisis suddenly made me very uneasy about the way the Republican campaign was going. And it seemed to me that in this time of intense financial crisis, with such high stakes, the imperative was to have an incoming president who was cool, calm and collected, who was able to inspire confidence, and didn't seem likely to act impulsively, and didn't admit that he didn't know much about economics.

It became painfully apparent that if this election was about the economy, McCain wouldn't win. And watching the debates, I felt myself moving away from McCain and closer to Obama. What most impressed me in the debates was his restraint. He was never ruffled. Plus, he had a fantastically well-organized campaign.

I even had that feeling that night in Toronto, to be honest.

And Obama is an extra-potent historical symbol. The sense was overpowering that the U.S. was about to achieve a supreme act of atonement for centuries of injustice. There's a point at which the historian has to be deaf, dumb and blind not to be moved by that.

So how well will he handle this?

He's only the second president to inherit a financial catastrophe. The campaign offered tax cuts, increased spending, medical insurance, all that stuff - but the money's already been spent. [U.S. Treasury Secretary] Henry Paulson wrote cheques for a trillion dollars this year.

His problem is he's inheriting a deficit already north of a trillion. And you can't say, "Why not make it two trillion?" because there comes a time when the credibility of the U.S. as a sovereign borrower becomes questionable. We don't know where that point is. The central problem is deflation. The Fed funds rate will soon be zero, and the world bond market will soon say, "Two trillion?!" If international investors think the U.S. dollar might not be the currency to hold its value, then this really will be a perfect storm. A disagreement with the bond market in January or February will be very, very bad news. We all have to hope that the Democrats won't go loopy with their spending plans, and that the Chinese and other sovereign investors continue to be willing to absorb quite large amounts of debt.

That's the big story. If the Chinese save and Americans spend, the world keeps going. If that stops, it gets scary.

Last chance for forecasting. Give us a couple of scenarios.

There are always at least two futures. Right now, there's one future in which Barack Obama is a cross between John F. Kennedy and Martin Luther King. He's got it all. He's politically shrewd, charismatic, and actually has answers to the Big Repression. And eight years from now people will say, Isn't it good we got rid of term limits so Obama can have a third term.

In my nasty future, we have a lousy economic scenario and a weak president. This economic crisis turns out to be like the Japanese crisis. It's intractable. Nothing works. Keynesianism doesn't work, and monetarism doesn't work, because the deleveraging process is something that just takes time to play out. And remember, Pakistan hasn't yet been taken over by J.P. Morgan. Those ghastly people are all coming soon to a news program near you. We'll see if being a community organizer is a good preparation for being president. Or we could get a reasonable economic scenario and a weak president.

Which do you think it will be?

I'm praying it's the first one. I think it's the most probable.

Margaret Wente is a columnist for The Globe and Mail.

“Clever Talk At The Club”
  Karen Mazurkewich
  November 1, 2008

Christopher Hitchens, the loquacious and opinionated writer, was in Montreal in September exciting and insulting a select audience of the city's elites at Ex-Centris, a hip media centre on Saint-Laurent Boulevard. The event, which drew the likes of billionaire investor Stephen Jarislowsky and Daniel Langlois, founder of Softimage Inc., kicked off the 357c Speakers Series in Montreal.

On a crisp autumn night, another salon was born.

The concept of a "salon" to discuss the issues of the day dates back to ancient Greece when influential people met in an egalitarian environment, to create stimulating dialogue and generate great ideas and movements, according to Benet Davetian, assistant professor of sociology at the University of Prince Edward Island.

The French Revolution may never have occurred if not for France's rich salon culture. The United States had the legendary Algonquin Round Table.

But with television and the Internet, the notion of community has diminished as we take on virtual lives. The current renaissance of the conversation salon is evidence of a desire to reconnect.

"They offer an opportunity to hear intelligent, informed, thoughtful people speak about issues and ideas," says author Ann Shortell.

Four years ago, when Rudyard Griffiths and Patrick Luciani kicked off the first Grano Speakers Series in Toronto, with U. S. political analyst William Kristol, they had no idea just how popular the event would become.

Now, not only are they able to land such high-profile names as Paul Volker, the former head of the U. S. Federal Reserve Board, who will be speaking in Toronto in February, but they have also lined up such heavyweight patrons as Galen Weston, Joseph Rotman and Calgary financier Murray Edwards. The Grano series has now extended its brand to Calgary and Montreal, along the way forging media partnerships with the National Post, Globe and Mail and La Presse.

In an Ipso Reid poll of 1,073 adults conducted in March, 77% of respondents expressed concern over a lack of substance that has crept into public discussion, while 79% complained Canadians are too reserved in tackling the issues of the day.

Donna Dasko, senior vice-president of Environics Research, attends a number of speaker series each year. The reason? "I'm a political junkie," she says. Ms. Dasko, who attended several of the Grano speakers dinners in Toronto last year, including the night U. S. political pundit James Carvelle hit the stage. "I don't like platitudinous speakers on a big stage. I like speakers of substance," she adds.

For all the high-brow ideas and lively discussions, salons have also become the place to see and be seen. "It's a socializing element; people want to live a life that gives credence to critical thought," says Mr. Griffiths, adding his Grano dinner series is becoming a "schmooze" event, and he has been forced to cap the invited crowd at 100.

Not surprisingly, salon fever is picking up steam across the country. While institutions like the Canadian Club of Toronto and the Empire Club have provided a platform for speakers for more than 100 years, there was a fatigue with the large "rubber chicken" conference style.

In addition to Grano, a handful of new speakers series and debates have taken root -- some of which charge participants big bucks to attend, while others have cultivated corporate sponsors.

Last May, Peter and Melanie Munk kicked off their international debate series at the Royal Ontario Museum in Toronto. The Fraser Institute has launched two series in the past two years, the upscale Illuminismo/ Dialogues dinner series in three cities (Vancouver, Toronto and Montreal) and the hipper Behind the Spin cocktail series, which targets younger audiences in five cities. The Ottawa chapter was launched last week.

The growing number of clubs and lecture series has led to some healthy competition and inevitable rivalry. On the upside, success has meant the Grano Speaker Series could upgrade the wine at dinner to a good Amarone. But when organizers were forced to cull the guest list by almost one-third to keep the event intimate, a few noses were out of joint at the snubbing, particularly those who had supported the series during its lean years.

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“Society: Grano Speakers Series”
  Deirdre Kelly
  October 4, 2008

The launch of the Grano Speakers Series, now in its fifth year, is usually a festive occasion. But this year most of the 100 attendees, including former lieutenant-governor Hal Jackman and Tridel deputy chairman Elvio DelZotto, wore black and spoke sombrely of the economic downturn.

It couldn't be helped, really. Headlining the event was a Harvard economics professor and adviser to John McCain, Martin Feldstein, who lived up to his reputation as a "pessimist." (That's how Allan Gotlieb, former Canadian ambassador to Washington, introduced Mr. Feldstein.) Mr. Feldstein called his country's crisis "the worst economic situation that I have experienced both as an observer and as a participant in many decades."

The crowd's reaction? Guzzle wine and insist that Bay Street is nothing like Wall Street. "In Canada, we still believe in saving and paying off our mortgages, whereas in the U.S. they believe in leveraging everything they've got," Mr. DelZotto said.

“U.S. in the poor house, crisis for the White House”
  Martin Feldstein
  September 24, 2008

CAMBRIDGE, MASS. -- Less than two months before the U.S. presidential election, much attention is focused on the state of the American economy and the challenges it will present for the next president.

The United States is in the midst of a financial crisis caused by the serious mispricing of all kinds of risks and by the collapse of the housing bubble that developed in the first half of this decade. What started as a problem with subprime mortgages has now spread to houses more generally, as well as to other asset classes. The housing problem is contributing to the financial crisis, which in turn is reducing the supply of credit needed to sustain economic activity.

Indeed, the financial crisis has worsened in recent weeks, reflected in the U.S. Federal Reserve's takeover of quasi-government mortgage lenders Fannie Mae and Freddie Mac - which may cost U.S. taxpayers hundreds of billions of dollars - as well as the bankruptcy of Lehman Brothers and the sale of Merrill Lynch. Ultimately, these financial failures reflect the downward spiral of house prices and the increasing number of homes with negative equity, i.e., with substantial mortgage debt in excess of market values.

Negative equity is significant because American mortgages are generally "no recourse" loans. If a homeowner defaults, creditors can take the house, but they cannot take other property or income to make up any unpaid balance. Even in states where mortgages are not "no recourse" loans, creditors generally do not pursue the assets or income of individuals who default.

We cannot be sure about how much further U.S. house prices will fall. Experts say another 15-per-cent decline is required just to return to the pre-bubble price path. But there is nothing to stop the decline from continuing once it reaches that point. The growing gap between mortgage debts and house prices will continue to increase the rate of defaults. Many homeowners who can afford to make their mortgage payments will choose to default, move to rental housing and wait to purchase until house prices have declined further.

As homeowners with large negative equity default, the foreclosed homes contribute to the excess supply that drives prices down further. And the lower prices lead to more negative equity and therefore to more defaults and foreclosures. It is not clear what will stop this self-reinforcing process.

Declining house prices are key to the financial crisis and the outlook for the U.S. economy because mortgage-backed securities, and the derivatives based on them, are the primary assets that are weakening financial institutions. Until house prices stabilize, these securities cannot be valued with any confidence. And that means that the financial institutions that own them cannot have confidence in the liquidity or solvency of potential counterparties, or even in the value of their own capital. Without this confidence, credit will not flow and economic activity will be constrained.

Moreover, because financial institutions' assets were bought mainly with borrowed money, the shortage of credit is exacerbated by their need to deleverage. Since raising capital is difficult and costly, they deleverage by lending less.

But the macroeconomic weakness in the United States now goes beyond the decreased supply of credit. Falling house prices reduce household wealth and therefore consumer spending. Falling employment lowers wage and salary incomes. The higher prices of food and energy depress real incomes further. And declining economic activity in the rest of the world is lowering demand for U.S. exports.

The Federal Reserve has responded appropriately by reducing the federal funds interest rate sharply and creating a variety of new credit facilities. The low interest rate helped by making the dollar more competitive, but otherwise monetary policy appears to have lost traction because of the condition of the housing sector and the dysfunctional state of the credit markets.

The U.S. Congress and George W. Bush's administration enacted a $100-billion tax rebate in an attempt to stimulate consumer spending. Those of us who supported this policy generally knew that history and economic theory implied that such one-time fiscal transfers have little effect, but we thought this time might be different. Our support was, in the words of Samuel Johnson, a triumph of hope over experience.

In the end, our hopes were frustrated. The official national income accounting data for the second quarter are now available, and they show that the rebates did very little to stimulate spending. More than 80 per cent of the rebate dollars were saved or used to pay down debt. Very little was added to current spending.

So that is where things now stand: in the middle of a financial crisis, with the economy sliding into recession, monetary policy already at maximum easing and fiscal transfers impotent. That is an unenviable situation, to say the least, for any incoming president.

Martin Feldstein was formerly chairman of president Ronald Reagan's Council of Economic Advisers and president of the National Bureau for Economic Research.

“Market may swing but guru still sees gloom ahead”
  Margaret Wente
  September 20, 2008

The turmoil on Wall Street has spread fear and desperation throughout the global financial system.

The crisis that began 13 months ago has entered a new and far more serious phase, as hopes that the damage could be contained have evaporated.

The past two weeks have seen the government bailout of private-public mortgage holders Fannie Mae and Freddie Mac; the failure of Lehman Brothers.; and a virtual government takeover of American International Group (AIG), the world's largest insurance company.

Finally, on Thursday and Friday, came a broad U.S. rescue plan to buy up bad assets and regulate other trade.

Martin Feldstein, one of the world's leading economists, was an adviser to U.S. president Ronald Reagan in the early 1980s. He is now a Harvard professor and an economic adviser to Republican presidential candidate John McCain.

In 2005, he was a leading candidate to succeed Alan Greenspan as the chairman of the U.S. Federal Reserve, although the position ultimately went to Ben Bernanke.

Mr. Feldstein, who will appear at the exclusive Grano Speakers Series in Toronto on Wednesday, spoke to me last week about the state of the U.S. economy. He couldn't discuss the AIG takeover because he is on the company's board, although according to The Wall Street Journal, he believes it is not the government's role to buy private companies.

We spoke again late this week to catch up with events.

What's the scope of this financial crisis?

It's very big and very deep.

Are the U.S. Federal Reserve and the U.S. government on the right track?

In a certain sense, they are doing the right thing. They are providing liquidity to the system. But the specific ways in which they are handling these transactions raise some serious questions.

Have they really got control of this? It seems as if they're in reactive mode.

[They are] simply reacting to the financial crises that are brought to them.

They are an emergency room, not a preventive medicine department.

Is it the end of Wall Street as we know it?

Certainly the world of investment banking has been dramatically changed. With Lehman Brothers and Bear Stearns gone and Merrill Lynch acquired, there's very little left.

Are there more shoes to drop?

There certainly could be. The more general problem of the commercial banks and the credit markets has not been solved. Certainly dozens of small and medium-sized banks will fail. And the sharp decline in house prices has not been significantly affected.

How long might that take?

We don't know. The sad fact is that in order for this credit crisis to come to an end, house prices have to stop falling. The financial institutions that hold mortgages - or that hold these more complicated derivatives based on mortgages - will not know how much they're worth as long as house prices are still falling and the rate of foreclosures is rising.

Mortgage contracts are very different in the U.S. than they are in most other countries. As a general rule, they are so-called non-recourse loans, which means that if an individual stops making payments, the creditor can take the house - but if selling the house doesn't provide enough money to pay off the mortgage, the creditor cannot go after other assets or the income of that individual.

That's very different from Canada or virtually any other part of the world. It gives homeowners who have negative equity [i.e., mortgage debt bigger than the value of their house] an incentive to default because they'll lose less. They'll be able to walk away, rent and wait for prices to come down, and they will have escaped the full cost of the mortgage. Until that process stops, the crisis will not end.

So how bad could it get?

Right now, our best guess is that about 20 per cent of homeowners with mortgages have negative equity. That could easily rise over the next year or so to 40 per cent. More foreclosures mean that more houses are put in the market, and that depresses prices, and that means there's more incentive for more people to walk away. It's a vicious circle.

We don't have those mortgage problems here. Why should we be worried?

Because of trade between Canada and the U.S. Even if Canadian banks don't hold paper, the decline in consumer wealth, and in credit, and the slowdown of the U.S. economy means that we will import less from Canada.

A lot of people used to think that former Fed chairman Alan Greenspan could do no wrong. You disagree. Why?

The problem was that in the early part of the decade he brought interest rates very low - about 1 per cent - and promised to keep them very low. They did it because they were worried about deflation. What they didn't take into account was that this could contribute to the kind of house-price bubble we have seen.

I think he should have foreseen that possibility - although I can't say the rest of us did either. Back in 2002, the impact on house prices was not at all apparent. But as they began to rise very sharply, he didn't do anything about it.

Was the takeover of Fannie and Freddie inevitable?

Yes. It's amazing that the U.S. Congress and the administration allowed Fannie and Freddie to go on expanding their capital as they did.

So, where were the regulators for all those years?

The supervisors should have been looking at the capital and the asset quality of the banks. They figured these banks had enough capital - and we don't count the so-called SIV [structured investment vehicles], which are off-balance-sheet items. They were authorized to take that view by the Basel rules. The international banking community and other wise men got that wrong. They were judging the asset quality by what the rating agencies were saying. They thought, "Well, these are Triple-A bonds, so we don't have to worry about them."

It seems that there's been quite a lot of financial recklessness around. We also have George W. Bush to thank for pointing the U.S. toward a trillion-dollar deficit.

The most recent number is $400-billion, and that's enough. That will be significantly increased by the slowdown in the economy, which will bring a slowdown in tax receipts. We're looking at a federal deficit of 3 per cent of GDP.

But the real problem is that social security and medicare costs are going to explode in the next decade. So far, the political process has not been willing to deal with that.

Why haven't America's political leaders come clean with the public about the looming entitlements crisis?

Both [Bill] Clinton and Bush kept telling the public: Bush proposed a solution in the form of a mixed system of social security that keeps the automatic payment but adds a universal-investment component. But the Democrats wouldn't even sit down and negotiate. It looks as if we are going to get closer to the crisis point before the political process can act.

You're an economic adviser to John McCain. What are you telling him is the single biggest economic challenge facing the U.S. today?

I haven't put it to him in those terms, although we've talked about all these issues. Personally, I think the housing issue is the most important short-run problem. We've also talked about the size of the federal deficit and the trade deficit. All those issues are important.

John McCain has admitted that the economy is not his strong suit. Critics say his economic strategy looks a lot like Bush's. Why should we think he's the best guy to steer the U.S. out of this mess?

He has emphasized the problem of excess spending. He's talked about it throughout his career in the Senate and he's been willing to vote against popular spending programs. He went to Iowa and told folks there he's against the ethanol subsidy. He is willing to square with people - that popular programs have to be cut back. He's also said that social security can't continue in its current form. And he wants to negotiate changes in a bipartisan way.

How about Barack Obama's economic platform?

That's a tough one. It keeps changing, so it's hard to summarize. If you'd asked me two months ago, I would have said he's a man who's committed to very high tax rates in order to finance spending programs and tax cuts for some targeted groups. Then he decided that wasn't such a good idea. ... He's trying to pull in middle-class voters [by] saying that only a few rich people will pay higher taxes and 95 per cent of us will get tax cuts.

But he will discover if he becomes president that the math doesn't work. You can't get all this money just by pushing up the tax rates on high-income people.

No matter who's elected, you think the dollar will inevitably keep on falling. Why?

Because of the very large trade deficit. The dollar coming down over the last several years has made us more competitive internationally. It's given a tremendous boost to our exports, and it's our exports that are keeping the economy as a whole in "plus" territory.

Are you worried the world might stop buying U.S. debt?

The opposite seems to be happening, at least at this point. People who are nervous realize that you can't do better than U.S. government bonds.

Is the U.S. facing a longer and deeper-than-normal recession?

It's been a very peculiar decline since the beginning of the year. Employment has been falling, industrial productivity is down, construction is down terribly, incomes are down, retail sales are down. So if you didn't look at GDP, which is heavily influenced by the export numbers, you'd say this economy is in recession. The Fed has not been able to turn it around as in previous recessions.

The last two recessions were short - eight months from peak to trough. This time is different because the origin is different. First, there's the collapse of the house-price bubble. Second is the general mispricing of risk in financial securities. So we have a financial and a housing crisis at the same time. That's just totally different from before.

I'll be very surprised if in the end we don't have a formal declaration of a recession.

Could it be more prolonged and more serious than usual?

Absolutely.

In August, you said you were "much more pessimistic" than you were a year ago about the outlook. So how do you feel now?

It's gotten worse.

Thank you, Mr. Feldstein. I think I will go hide under my bed now.

 
“Salon or mosh pit? Grano opts for more elbow room”
  Patricia Best
  July 9, 2008

This week, the always-thinking minds behind the Grano Speakers Series are sending out their coveted invitations for next year, along with the program of speakers they've lined up. And bad news, Bay Street hopefuls: They have cut the list to 100 tickets because of uncomfortable overcrowding last season. Clearly a case of excess success.

The Toronto salon's organizers, Rudyard Griffiths and Patrick Luciani, hit pay dirt last year with their bet on the U.S. election, attracting beyond-capacity audiences to evenings with James Carville and David Gergen and others. (Indeed, even with Toronto's biggest snowstorm hitting the night of Mr. Carville's appearance, the crowd was at capacity.) This season's series of four schmooze-nosh-and-listen evenings will focus on the future of the global economy and will feature talks by some big names (and they are asked not to speak from notes) in an intimate restaurant setting. The speakers? historian Niall Ferguson, former Fed chairman Paul Volcker, and economists Hernando de Soto and Martin Feldstein.

Last year, the crush of attendees from Toronto business, academic, political and media circles made the predinner reception and the scramble for the dinner's open seating something of an extreme sport even for boldface biggies like Gerry Schwartz, Hal Jackman and Hilary Weston. "We cut back this year on our numbers in order to create the kind of atmosphere our members like and not turn it into a kind of mosh pit," Mr. Griffiths says.

Guests aren't the only ones clamouring for admittance. The organizers have also expanded their sponsors' group because of eager approaches by aspiring supporters. Long-time backers Peter and Melanie Munk, Sandra and Joe Rotman, law firm Bennett Jones, the DelZotto family's Tridel and financial firms Burgundy Asset Management and Gluskin Sheff are moving their chairs over to make room this year for Genuity Capital, TD Bank and law firm Torys.

But just in case the fires need further fanning, Mr. Griffiths and Mr. Luciani are planning to put one Series ticket, with a sticker price of $1,000, up for auction on eBay tomorrow. Bidding will close at 1 p.m. EDT Friday. The inspiration for this stunt came from a Speakers Series ticket they donated as a charity auction item for the Stratford Express in May. (That's an annual fundraiser held by the Stratford Festival involving well-heeled Torontonians boarding a train at Union Station and riding to Stratford, Ont., while dining, imbibing and bidding on a silent auction, then seeing a show before returning by train later in the evening.) The Grano ticket, worth $1,000, went for almost four times its face value at $3,700 - purchased in the silent auction by a partner from law firm Borden Ladner Gervais.

 
“Onex CEO Schwartz didn't stand for this”
  Patricia Best
  May 6, 2008

The room was jam-packed even more than usual for the final instalment of the 2008 Grano Speaker's Series in Toronto last week. And there were a few more luminaries than usual. Liberal party deputy leader Michael Ignatieff was there to introduce the speaker, U.S. political uber-insider David Gergen, a former Harvard colleague. And Joshka Fischer, former foreign minister of Germany, attended as a guest of former foreign affairs minister Bill Graham. Onex CEO Gerry Schwartz arrived late and couldn't find an empty chair. He stood looking around until an extra seat was hurriedly squeezed in beside former First Marathon Securities honcho Lawrence Bloomberg. When he rose to speak, Mr. Gergen acknowledged the little spectacle: ''Where but at the Grano series?'' he said...

 
“Top Spin; David Gergen's career has spanned scandals
  and successes through four U.S. presidencies”
  Joseph Brean
  May 5, 2008

TORONTO - If you wanted to make a Canadian David Gergen, whom The New York Times once called "the perfect flower of the insider species," you might start by gathering DNA from Garth Turner, Eddie Goldenberg, Hugh Segal, Karlheinz Schreiber and David Frum. And even then, you would probably need John Kenneth Galbraith to ensure your cloned political operative was, like the original, an imposing six-foot-six...

 
“In the U.S., 'ordinary leadership will not be sufficient'”
  Margaret Wente
  April 26, 2008

As an adviser to four presidents, David Gergen is uniquely positioned to size up the men and woman who would be president. He is also an expert on leadership, and has written and lectured widely on the qualities a leader needs to navigate through perilous times. Next Thursday, he will be appearing in Toronto as the last speaker in this season's Grano series...

 
“James Carville in T.O.”
  Amoryn Engel
  February 16, 2008

Neither winter's most brutal snowstorm nor a flight diverted to Buffalo could keep political-spin maestro James Carville away from his gig as featured guest at Toronto's Grano Speaker Series. Nor could it keep guests from turning up to get the Ragin' Cajun's fiery take on the U.S. Super Tuesday primary elections that had taken place the previous evening.

"This is not historical. This is not unimaginable. This is not transformational. This is incomprehensible! What you're seeing in U.S. politics, presidential politics, has no precedent anywhere. In this cycle, we've had the first credible woman run for president, the first credible African American, the first Hispanic, the first Italian American. This election is incomprehensible, totally incomprehensible!" exclaimed Carvill...

 
“Runnin’ with the Ragin' Cajun”
  Deirdre Kelly
  February 9, 2008

Thick dollops of snow clogged roads this Wednesday, but blustery weather didn't dampen spirits at the latest night of the Grano Speakers series. The elite by-invitation-only crowd braved slush hills to hear political pundit James Carville expound (in that spicy Louisiana accent of his) on the ongoing U.S. primaries...

 
“The Ragin' Cajun heats up wintry T.O.”
  Patricia Best
  February 7, 2008

James Carville, Democratic motormouth and savvy Washington backroom player, let neither snow nor sleet nor Super Tuesday stand in the way of his appearance last night as the featured guest at the Grano Speakers Series in Toronto. His flight from New York was diverted to Buffalo because of bad weather so he motored it the rest of the way, determined not to spoil his perfect record of never having missed a speaking engagement...

 
“A ‘gaffe” could decide election”
  Joe Breen
  February 7, 2008

James Carville -- the Ragin' Cajun of network news, architect of Bill Clinton's presidential victories, and family friend to the most powerful husband and wife in America -- was lying in his underwear on a hotel couch last night, ready to greet a reporter and photographer.

Evidently comfortable as the centre of attention, he dressed gradually as he opined about the American election campaign, with particular attention to the strategies of his successors in the Democratic war rooms. First came trousers, eventually a shirt and tie, but not before he made a number of controversial pronouncements in his trademark Louisiana drawl.

 
“Bring out the Coke and the cacophony!”
  Shinan Govani
  February 4, 2008

On Wednesday, political spinner James Carville -- star of a new Cola ad that aired during the Super Bowl -- is scheduled to descend on Toronto. Slated to be here near Yonge and Davisville for the who's-who-and-who's-not Grano Series.

Carville, the rabid Clintonphile who's often called the Ragin' Cajun, will be appearing just one day after Super Tuesday, the all-important date in the U.S. primaries calendar.

Says an egghead who's going to the dinner-talk, "It should be very, very interesting." I say: Add another very...

 
“A close encounter James Carville”
  Michael Valpy
  February 2, 2008

This week, just after the 24-state presidential primaries on so-called Super Tuesday, Mr. Carville will appear at the exclusive Grano Speakers' Series in Toronto.

The Globe and Mail's Michael Valpy caught up with him on his cellphone at his daughter's school in Alexandria, Va., to pick his brains on the state of American politics, the presidential race and what's to be made of Mr. Clinton morphing - as the media would have it - from statesman to attack dog on his wife's behalf.

Can we start like this: What's a Canadian to make of what's unfolding in the United States?

If Canadians can make any sense of this goddamned thing, tell them to let me know...

 
“A Man for All Seasons”
  Globe and Mail Staff
  February 2, 2008

James Carville does not hide his light beneath a bushel. His website says he is "the man who has devised the most dramatic political victories of our generation."

He lists as his clients - in addition to former U.S. president Bill Clinton (but not Senator Hillary Clinton) - the presidents of Panama, Brazil, Honduras (two of them), Bolivia, Ukraine and Nigeria; the prime ministers of Trinidad and Tobago, Greece and the Dominican Republic; and the British Labour Party...

 
“Carville 2.0: Cajun still ragin'”
  Sandro Contenta
  February 2, 2008

Democratic party strategist James Carville, often considered the father of "war-room" politics, isn't one to disown a political offspring.

While some cringe at the attacks and race-tinged innuendos levelled by Hillary Clinton's camp against Democratic rival Barack Obama, Carville embraces them as the stuff of hard-nosed politics. Last week, he even proposed bumper stickers aimed at those who can't stomach it: "Stop the whining."

"Running for president of the United States is a big job," said Carville, in Toronto next week for the Grano lecture series on the American race for the White House...

 
“An evening with Shelby Steele”
  Marni Soupcoff
  October 30, 2007

There were many jaws left gaping at Toronto's prestigious Grano Speaker Series last Wednesday evening when American author Shelby Steele delivered a talk about U.S. presidential candidate Barack Obama.

Mr. Steele is a black conservative, alternately loved and loathed in the United States for his willingness to excoriate the reverse-discrimination policies and welfare programs he believes have destroyed American black culture. No polite speculation about the merits of diversity programs. Just frank talk about white guilt and black insecurity...

 
“Controversial black author believes Obama a 'bound man'
  Mary Vallis
  October 27, 2007

The crowd could not contain themselves as they listened to Shelby Steele lay down his controversial views.

One of America's most controversial black thinkers was calmly and methodically addressing the state of race relations during a speech at the Grano Speakers Series this week, when some members of the prominent crowd began whispering behind cupped hands. And when Mr. Steele suggested that women have not suffered the same degree of victimization as blacks in response to a question, some laughed openly and challenged him.

Mr. Steele said that after their initial victories, the women's movement and the black movement both hurt themselves "to the degree that they become victim-focused movements."

"I think women were victimized, but I don't think it was to the same degree," Mr. Steele said, without losing his composure...

 
“Salon sparks great debate”
  Deirdre kelly
  October 27, 2007

Shelby Steele, in his lecture on race relations at the Grano Speakers Series on Wednesday night, got the capacity crowd hopping on the subject of affirmative action.Mr. Steele, a fellow at the Hoover Institution at Stanford University and a published author whose books explore a central thesis of white guilt, expanded on the issue to the crowd at the Grano. "As a black American, I dislike today's liberalism because it fails to see blacks as free men and women; rather it exploits us as a means to an impossible national redemption," he said. As most in the room were white, many may have found Mr. Steele's pill hard to swallow...

 
“The age of white guilt”
  Shelby Steele
  October 25, 2007

In America, our racial history broadly defines the terms of our politics.We may think of "liberal" and "conservative" as ideological designations that refer, ultimately, to a classic battle of ideas - social engineering versus free markets; group entitlement versus individual freedom, and so on. But in the United States today, political ideas like these, and the political identities of liberalism and conservatism, have moral reputations that are often more important than the ideas themselves. And these reputations come almost entirely from the idea's association with, or dissociation from, America's long practice of white supremacy...

 
“Why 'vanilla-nice' Obama will lose to Clinton”
  Margaret Wente
  October 20, 2007

Race-relations scholar Shelby Steele is among the boldest thinkers in America - and also one of the most controversial. His recent book White Guilt: How Blacks and Whites Together Destroyed the Promise of the Civil Rights Era is a brilliantly argued and uncompromising condemnation of self-serving white liberals and self-victimizing black leaders. It is also a moving meditation on his own journey from the racist world of his Chicago youth. His forthcoming book, A Bound Man, focuses on Democratic presidential contender Barack Obama.

While he is praised by conservative thinkers such as George Will, many black intellectuals charge that Mr. Steele is politically naive at best. Princeton's Cornel West argues that Mr. Steele's ideas apply only to "a very small slice of black folk" and risk minimizing "the degree to which racism is deeply, deeply seated in Western civilization..."

 
“Starting off with a bang”
  Deirdre Kelly
  September 22, 2007

Camille Paglia wasted no time telling the crowd assembled to hear her speak at Grano this week what she thinks of Hillary Clinton.

"She has no emotional intelligence; everything is by rote," she complained of the woman who would be president. "Hillary will abandon a cause and take on a new one. She's no Margaret Thatcher, who just hammered away."

As Ms. Paglia opened the fourth annual Grano Speakers Series on Tuesday night, the self-professed Democrat's relentless critique of Ms. Clinton - whom she also derided as elitist, locked in a false marriage and psychologically flawed - made many of the 150 or so in the audience, representing both the right and the left, question her loyalties...

 
“Unpredictable 'prankster'; From feminism to comedy,
  Camille Paglia is defined by her contradictions”
  Joseph Brean
  September 22, 2007

Two of Canada's most powerful men tried to pin down America's most enigmatic feminist this week, and failed just as surely as if they had tried to grab a greased piglet.

Michael MacMillan, executive chairman of Alliance Atlantis, asked Camille Paglia why she is a Democrat, while the mining magnate and philanthropist Peter Munk wanted to know why someone as "open-minded, knowledgeable and intelligent as you could not join the Republican Party."

It was the same question from opposing angles -- define yourself politically -- and neither man got a particularly enlightening answer in the discussion after Ms. Paglia's appearance on Tuesday night at the Grano Speakers Series, a Toronto supper club that is soon to expand, as the Salon Speakers series, to Vancouver, Calgary and Montreal...

 
“Sally afield; The tart-tongued Camille Paglia has no
  sympathy for a former Flying Nun's Emmy speech”
  Shinan Govani
  September 19, 2007

Can one dream of a better lunch companion than Camille Paglia? The Peter Pan-haired pundita -- by turns tremulous and fabulous -- was shopping around so many opinions during lunch yesterday at the Royal Ontario Museum that at one point I worried that the famous Crystal just might shatter.

When we weren't talking about the vintage antics of Princess Stephanie we were mulling the meaning of the tango. When we weren't discussing the ageing of Madonna -- Paglia can't wait to see what happens when her daughter, Lourdes, starts acting out -- we were discussing the chances of the GOP's star-spangled Mormon, Mitt Romney...

 
“Camille Paglia: Hillary Clinton can't win - and shouldn't.”
  Margaret Wente
  September 15, 2007

Camille Paglia, writer and firebrand, is in a category of her own. She first made waves in the early 1990s with her book Sexual Personae and her denunciations of "political correctness," but in a unique way: As a feminist who hates affirmative action; an atheist who respects religion; a Democrat who thinks her party doesn't get it. She believes global jihadism is a threat to the West and also believes the invasion of Iraq was a reckless mistake. She is a bisexual who celebrates military ideals, heroic culture and manly men.

Named one of the world's "Top 100 Public Intellectuals" by the journals Foreign Policy and The Prospect in 2005, Ms. Paglia is speaking this week in the Grano lecture series in Toronto about American politics and Hillary Clinton's run for the presidency. Margaret Wente spoke with Ms. Paglia by phone at her office at Philadelphia's University of the Arts, where she teaches a full course load...

 
“The race to the Grano Speakers Series”
  Deirdre Kelly
  September 8, 2007

On any given day, the view outside Grano is of parked cars, pedestrians and pigeons flapping over Yonge Street.

But later this month, when the Italian restaurant launches the fourth edition of its annual Speakers Series, the perspective enlarges considerably, broadening to Pennsylvania Avenue in neighbouring America and, by extension, the world.

Moving the intellectual horizons forward is a quartet of controversial U.S. thinkers who, during four dinner-lectures unfolding at Grano over the next nine months, will apply their own mind-expanding powers to this year's theme, The Race to the White House...

 
“On Europe and why the U.S. is not a democracy”
  Gore Vidal and William Thorsell
  June 10, 2007

The following is an edited transcript of author/playwright/ screenwriter Gore Vidal's conversation with ROM CEO William Thorsell last week as part of the Grano lecture series. The topic: whither Europe?

William Thorsell: Is there a Europe? I mean, this whole idea of Europe has got so diffused. The EU gets bigger, and so on. We talk about Europe as though there were a place or a society. We're not talking about foreign policy or anything, just is there a European civilization any more that can pick up if the United States falters?

GORE VIDAL: Oh, sure there is, and every bit of it is like my fellow illuminata here. It is the Europe of the la lumiere. And it is a great Europe since the Protestants' appearance at the Renaissance. One other thing that we neglected to do, and we could have done in '45 when the mandate of heaven, as Confucius would have said, came to us after World War II, we had a chance to develop a civilization. We were number one in everything, really by accident: ballet, something nobody had known about before; literature, poetry particularly; theatre. I mean, it was extraordinary...

 
“Blood and Gore”
  John Allemang
  June 9, 2007

While awaiting the truth - will we even know it when we see it? - we'll happily settle for Gore Vidal. The truth hurts, so the sages say, and no politician ever saw value in needlessly inflicting pain. But when leaders spare us the facts, when wars are made from patent lies and power is rooted in myths of faith and ideology, his candour becomes a hot commodity...

 
“Vidal Gores Grano”
  Patricia Best
  June 7, 2007

Critic, provocateur, essayist and author Gore Vidal was in Toronto this week for a couple of public appearances - and he lived up to his formidable reputation as an intellectual and master of the stinging one-liners...

 
“Gore Vidal still firing”
  Vit Wagner
  June 6, 2007

You can add presidential impersonator to the long list of talents possessed by Gore Vidal, the 81-year-old American literary lion whose impressive CV ranges from authoring novels, dramas, screenplays and essays to running for political office to acting in the occasional movie and making cameo appearances as himself on The Simpsons.

Vidal, in Toronto for a public talk last night as part of the Grano Series and another tonight at the Elgin Theatre for the Luminato Festival, enjoys a well-deserved reputation as the staunchest, longest-standing critic of his country's imperial aspirations...

 
“Will one Gore gore the other?”
  Shinan Govani
  June 5, 2007

In what is one of the more captivating calendar clashes in some time -- the equivalent of, say, Dylan McDermott and Dermot Mulroney co-starring in the same flick -- both Al Gore, the global statesman, and Gore Vidal, the towering man of letters, have gigs in Toronto tonight.

The Gore who used to be the vice-president of the United States, and remains intriguingly undraftable for the top job, is starring at the Beth Tzedec Synagogue on Bathurst for something called the 2007 Spirit of Hope Benefit. And, meanwhile, the versatile Vidal? He's the best man at the dinner on Yonge, occurring as part of the invite-only Grano Series, a.k.a. Salon Central...

 
“An evening of sparkling conversation”
  Deirdre Kelly
  May 19, 2007

In Toronto now there are at least six regular salons: Salon Voltaire, which meets at the Gladstone Hotel; New Radicals Salon at the Hotel Intercontinental; Influency 2: A Toronto Poetry Salon at the University of Toronto; the Kama reading series at the Royal Ontario Museum; the Grano Speakers Series organized by Rudyard Griffiths and Patrick Luciani at grano; and Cafe Scientifique at the Ontario Science Centre.

Mr. Griffiths comments on the popularity of his Grano Series (the next event featuring author Gore Vidal is June 5): "It is about bringing together a mix of opinion leaders and trendsetter in Toronto business, arts, media and academic communities... to engage with thinkers who have international influence and impact..."

 
“Grano packs them in to hear Washington Post columnist”
  Patricia Best
  February 14, 2007

The third installment in this year's Grano speakers series dinner in Toronto was more than usually packed out, with bold-face notables present and talking rather loudly over vino da tavola, we might add...

 
“Watching history unfold”
  Lynda Hurst
  February 12, 2007

Anne Applebaum, the Pulitzer Prize-winning author of Gulag: A History, spoke at Thursday's Grano lecture series.

"That's the great thing about computers," Anne Applebaum says with a laugh.

She is explaining how it is that she can be a columnist for the Washington Post while living outside the Beltway. Far outside - as in Warsaw, Poland, where she is the wife of the minister of national defence.

Or rather, her husband, Radek Sikorski, was the minister until last Monday, when "ongoing issues" with the Polish prime minister persuaded him to resign. Sikorski, a former Solidarity activist, remains a senator, however, and Applebaum, 42, recently committed to living there full time with their two young sons...

 
“Russia's latest export: 'managed democracy'”
  Anne Applebaum
  February 11, 2007

The following is an edited transcript of Anne Applebaum's talk at last Thursday's Grano lecture. Applebaum is the Pulitzer Prize winning author of Gulag.

One of the things that one learns travelling around Eastern Europe, in particular, is that the past continues to matter in contemporary politics and lives on in all kinds of ways.

Something that happened to me in Moscow a few years ago brought this home to me very explicitly. I was there for a few weeks, and a friend of mine at the American embassy said, "You know, we have this speaker's program. And I know you're here doing other things. You're doing research. Would you mind, as a favour to the embassy, coming and giving a speech to something called the Institute for Democracy?"...

 
“'Best-dressed brain': Be very wary of Russia's spreading 'Putinism'”
  Peter Godspeed
  February 10, 2007

The night communism died in Germany Anne Applebaum and two Polish journalists jumped into her tiny car in Warsaw and drove all night to reach Berlin.

A young freelance reporter who had just spent a year covering the triumph of Solidarity in Poland for Britain's Economist magazine, Ms. Applebaum was determined to witness history.

But little did she and her friends know, as they raced through the night along the crowded two-lane roads of Poland and East Germany, past Russian army trucks spewing black smoke and sputtering Trabant cars, that the world was about to be transformed...

 
“This man could only be French”
  Joespeh Brean
  December 9, 2006

Anna Porter, the former publisher and co-founder of Key Porter Books, asked the most revealing and yet ridiculous question at a recent dinner in Toronto in honour of Bernard-Henri Levy, the celebrated French intellectual.

"Why are you not depressed?" she asked, to which the diners at the uptown trattoria Grano muttered their assent, as if to say, "Yeah, why not?"

It is true Mr. Levy had just argued a depressing thesis before this distinguished crowd --which, in addition to a natty filmmaker and several sharply tailored financiers, included a former ambassador to the United States, a Nobel Laureate, a newly former minister of intergovernmental affairs, and an embattled press baron whose glamorous journalist wife sadly could not make it -- about why Europe is "so weak, so hesitating, so fragile..."

 
“Europe and the culture of scapegoats”
  Bernard Henri Levy
  December 3, 2006

When I was a young man, 30 years ago, I remember it was sort of acknowledged that Europe was a work in process, and that this process would go on to the end. The sense of history was that Europe would build itself, and that this federation of states, languages, nations, memory, and so on, would make itself. It was that sense of history that allowed us to go to sleep. God was watching us, working for us, and the invisible hand of providence had taken the shape of the European machination...

 
“Philosopher, dandy and polarizing force”
  Lynda Hurst
  December 2, 2006

Few people live up to their reputation. Bernard-Henri Lévy exceeds his. The scent of the French philosopher — author, journalist, adventurer, filmmaker, cultural icon, intellectual provocateur — precedes him as he crosses the lobby. And there it all is, the stuff of the Lévy legend: the studiously coiffed hair, the designer suit, the trademark white shirt unbuttoned a little too far.

In an instant, it's clear why the French are so divided by him. No one is neutral. You either adore or despise him. But it's all the same to him...

 
“The owl and the ostrich”
  Ayaan Hirsi Ali
  October 14, 2006

In Africa we sometimes used animals to say things on sensitive issues to avoid discussing the messenger instead of the message. So I shall use the ostrich and the owl to sketch the two most important positions on the issue of immigration and pluralism in Europe.

The view of things, as the ostrich sees them, in Europe today is bright. He sees an open market of 450,000,000 people with an amazing potential. He sees a thriving economy and the free movement of people, goods, money and services. Immigration, to the ostrich, can only be viewed as an opportunity for an aging native population...