It's become almost obligatory for the world's most important economic people, at the beginning of each year, to travel joylessly to the base of a Swiss ski slope and worry. And to worry not privately, with dignity, but publicly, to anyone who will listen.
"The system is becoming very complex. The risk of some crisis happening is rising," says Nouriel Roubini, chairman of Roubini Global Economics. "The world isn't pricing risk appropriately," says Steven Rattner, co-founder of Quadrangle Group. "Excessive borrowing and risk-taking," intones Juergen Stark, chief economist for the European Central Bank.
"The last time we talked," says William Rhodes, senior vice chairman of Citicorp Inc. (in case you didn't hear him the first time), "I mentioned we're going to get some adjustments some time in the future. So this is a time to be prudent." To which Stephen Roach, chief economist of Morgan Stanley adds, "What's occurring right now in markets and policy circles is a dangerous degree of complacency."
Then is now
Actually, it was last year that Roach said that at Davos. But does it really matter? Examine the public statements extruded by the World Economic Forum any year and you'll find the same warmed-over prudence, the same dreary feeling that someone is about to punctuate the nebulous tedium with a proposal to create a commission.
In 2004, former International Monetary Fund Chief Economist Kenneth Rogoff, newly arrived in Davos with a brain full of positive economic data, was asked about sentiment of his fellow elites. "I was surprised when I got here," he replied. "The mood is surprisingly cautious given the data we're seeing from around the globe."
Surprised? A man of Rogoff's stature should have known better -- just as he should have known that Davos has little use for positive economic data, or global financial health. Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do. Davos Man needs to sit in judgment; Davos Man needs to brood. So great is this need that he will brood about virtually anything, no matter how little he knows about it.
Derivatives seem to be this year's case in point. Davos had hardly been up and groaning about the dangers of being alive before Bloomberg News reported what appears to be the general Davosian view: "The surging demand for derivatives is making financial markets more vulnerable to any slowdown in the global economy."
The piece came with supporting quotes from European Central Bank President Jean-Claude Trichet, Bank of China Vice President Zhu Min and the deputy chief of India's planning commission, Montek Singh Ahluwalia -- but not a worrisome fact in sight. None of them seemed to understand that when you create a derivative you don't add to the sum total of risk in the financial world; you merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about. They're just -- worried.
But the most striking thing about the growing derivatives markets is the stability that has come with them. More than eight years ago, after Long-Term Capital Management blew up and lost a few billion dollars, the Federal Reserve had to be wheeled in to save capitalism as we know it.
Last year Amaranth Advisors blew up, lost more than LTCM, and the financial markets hardly batted an eyelash. "The financial markets in 2007," some member of the global economic elite might have said but didn't, "are astonishingly robust. They seem to be working out how to absorb and distribute risk more intelligently than any member of the global economic elite could on his own."
Once the laughter subsided -- and someone took down his name to make sure he didn't make next year's guest list -- he might go on to point out that in spite of a great deal of political turmoil the markets have remained calm.
The Sarbanes-Oxley Act sticks a wrench in the American market for initial public offerings, and the capital-raising business simply removes itself to London and Hong Kong. Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight -- again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana's debt is now more highly rated than Italy's. Oil prices double, the U.S. housing market tanks -- no matter what happens, financial markets adjust quickly and without hysteria.
There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn't one of them.
Waste of breath
So why do these people waste so much of their breath and, presumably, thought, with their elaborate expressions of concern? Even if these global financial elites knew something useful that you and I don't -- that, say, 50 hedge funds were about to go under and drag with them half the world's biggest banks along with a third of the Third World -- they would be unlikely to do anything about it.
And if they really believe the markets mispriced risk, or were about to adjust, they must also believe they could make vast sums of money if they quit their day jobs and opened a hedge fund to take the other side of stupid trades. But they don't really believe that, or at least some of them would be off doing it, rather than spilling the beans to Bloomberg News.
Is perhaps the only point of standing in the snow and expressing your doubts to a television camera to prove that you are the sort of person whose doubts matter?
Michael Lewis, the author most recently of "The Blind Side," is a columnist for Bloomberg News.