Jeffrey Sachs, Gillian Tett & Hugh Hendry - 27May2010

27 May 2010 BBC News

Background: Greece may be in trouble and the Euro may collapse.

Presenter --
Are we heading for a banking crisis?


Gillian Tett --
We're not in a banking crisis but certainly the atmosphere is getting very nervous in the markets. Investors are saying that they can't tell what the level of exposure and risk is in the European banking system.


Jeffrey Sachs --
Well clearly there is a lot of worry and a lot of uncertainty. But markets also have a way of jumping to conclusions. Suddenly saying they are not going to pay, it's all going to be restructured, looking at worst case scenarios -- I don't think we are anywhere near worst case scenarios of sovereign defaults at this point.


Presenter --
So this is just the market being too panicky?


Jeffrey Sachs --
{Smiles} I think the market is panicky by nature. I think there is uncertainty so the downsides can happen but I don't think they are inevitable.


Presenter (looks at Hugh Hendry) --

Okay panicker.... panic!




Hugh Hendry --

I would recommend you panic.
The European banking system is in crisis. Banks today are refusing to lend to each other. That's a reality. Banks' share prices have been collapsing. And we have no ability to gauge the credit-worthiness of the banking sector.




{In five sentences Mr Hendry has managed to summarize the crisis in the European banking system.}




Presenter --
Well if you're right, let's suppose there is a banking crisis. The question is what can you do about it?


Gillian Tett --
I think what you need to do now is to consider that you may have to restructure Greece, that you may not be able to repay the debts of Greece in full. And you also need to press the European -- and the German and French banks in particular -- to start coming clean.
Although this enormous €750bn package essentially has bought Greece time, maybe two or three years, when that package comes to an end the concern is that Greece still won't be able to repay and it's better to bite the bullet now and face reality.




{Gillian Tett delivers here a perfect prescription for debt restructuring when the situation is judged to be severe and why it is important to do it earlier rather than later. }


Hugh Hendry (he agrees with Gillian Tett) --
Don't pay them! Don't pay, don't reward folly. The banking sector is responsible for gross folly. When you bring in a professor or a politician they are not accountable.
Let's purge the system of its rottenness. Let's take on a recession. It's going to be tough. People are going to lose their jobs. They're going to lose their jobs anyway. We can spread this over 20 years or we can get rid of it over 3 years.


Presenter --
And you get rid of it over 3 years by purging the banks that have made bad judgement?


Hugh Hendry --
Indeed. By having honesty. You make a mistake and you pay for it.


Presenter (to Jeffrey Sachs) --
What is your reaction to that? Why can't you do that?


Jeffrey Sachs (he struggles to find the words) --
I find it really an incredible exaggeration that an issue that wasn't even on the radar screen two months ago all of a sudden the only solution is the most draconian one that one can think about. And this [Points to Hendry] is the mass jumping to one corner, bouncing off the walls, it's gotta be this, it's gotta be that...it is completely in my view without foundation.


Presenter --
The response of governments so far has been to turn a banking crisis into a sovereign debt crisis! That's what has happened!


Jeffrey Sachs --
Of course they are large deficits, they need to be brought down under control. The conclusion from that you therefore must default on your debt is really a jump that is unworthy.
It's time to get the deficits under control. That's for sure, there is no doubt about that. Greece, the United States, the United Kingdom. Let's do that, that's what economic adjustment is, that's responsible policy. Rather than saying it's all lost, it's all a disaster, purge the system.


Gillian Tett (she is interrupted by a frustrated Jeffrey Sachs) --
The problem is in the last few years....


Jeffrey Sachs --
How long have we been at this? How long has this Greek question been on the table? About ten weeks maybe?


Hugh Hendry --
It is the height of absurdity!! Speculators who are alert to dangers in the market were calling for these potential threats to the viability of the system last year, not 10 weeks ago.

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• Jeffrey Sachs

[MrCitsidas]

i really hope Sachs sees this and rings Hendry to apologise and then quit being a professor of economics maybe work in teaching maths in primary school.....

[MrNChoudhury]

@MrCitsidas

I am almost 100% certain he has seen it. Some of his articles now in the Financial Times are probably written with it specifically in mind!

But no way on earth he Sachs will phone up Hendry and apologise. I know the type - these academics are able to carry a grudge for a long time. Whether they admit things in private though is possible. I'd love to see a follow-up interview with Sachs and Hendry. If it could be arranged it would be fantastic.

[BotRots]

A Professor demonstrating that education is a system of imposed ignorance.

[HillcrestCapital]

What a difference 18 months makes.

[batsondceiling]

This video should be edited to remove Sachs, what a ...

[sandyj321]

@optionsupdate sachs and friends has done this indeed, yet somehow it looks like Greece has been chosen to be the scapegoat. Who would have thought all the facts of what they did while be all washed away with Greece, Italy, Possibly the Euro. I'm pretty sure the new "World Rescue Currency" will not even have 1 drop of gold. It'll just be bigger. Alot more control is coming. Liberty,,,,eh,, not so much.

[optionsupdate]

ft journos need to be horse whipped

[optionsupdate]

sachs has destroyed many countries with his eco bull