 Good morning, my name is Moises Naima, I'm with the Carnegie Endowment and I'm delighted to be chairing this session today. Ebola, the Russian invasion of Crimea, the plummeting oil prices, the surging ascent of ISIS in the Middle East. Which of these things were part of the conversation last year in Davos? And they changed the world. They defined 2014 and they also pointed to the fact, two facts, to how difficult it is to predict these trends and also how they come from, in contrast to prior years, in which many of the risks that were at the center of our conversations had to do with markets and financial crisis and all of the economic financial dimension of global risks. This year, paramount in our minds and paramount in our discussions here in Davos are geopolitical risks. Risks that are not derived necessarily from the behavior of markets, financial institutions, economic agents, but risks that come from decisions by governments or non-governmental organizations or surprises like a pandemic like Ebola, for example. So the question is, how are markets pricing these risks? Are markets assigning a correct value? Are these risks being underestimated, overestimated? We're going to debate. This is a highly controversial issue and we are going to have a very spirited debate with four very distinguished panelists. Two of them are going to argue that, yes, markets are misunderstanding and mispricing these risks, and two others are going to argue that markets are, in fact, capturing the consequences and that pricing is accurate. To do this, we are lucky to have with us Natalie Anjarensko, to my right. She's the minister of finance of the Ukraine. Minister, pleasure to have you here. I'm not going to read the very long, very distinguished list of achievements of our panelists, but you have them in your books. Then it's Nuriel Rubini, who needs no introduction. He is a professor of economics at New York University and well-known for his understanding of global economics. Paul Singer is also well-known. He manages the Eliot Fund. It's a hedge fund. He's a founder, chief executive officer and co-chief investment officer of Eliot Manager. Welcome Paul Singer. Martin Sen is the group chief executive officer for Zurich Insurance Group in Switzerland and is a member of the International Business Council. Welcome and delighted to have you with us. Before going with the debate, we have been asking the world what they think about this through social media. We have had some results, mostly 67 percent of the people that answered through social media agree that markets are mispricing geopolitical risks. But also we want to ask you and we are through your cell phones by very easily conveniently logging into that page, wf.ch forward slash vote. You can agree or disagree with the notion that markets are mispricing political risks. So I'm going to ask you to do this twice now and then after the debate as has concluded. And let's see if the debate has changed the mood and the opinions of this room. So let's really start to vote. See if you can log into that page and see if you can vote. We're going to take a few minutes to let you do that. This session is also being broadcast and it's also being widely discussed in social media. You can go, if you're in Twitter, you can go on hashtag wf15 and that is the sessions for the World Economic Forum and this one is also there. And it will also be broadcasted in YouTube. It means disagree, right? Yeah. So let's take a look at what are the results. 37 people have answered. And again, 70, 30 agree that markets are mispricing political risk. And let's hear the first panelist that is going to agree with that, is going to defend the notion that markets are not doing a good job of capturing that risk. And for that, we have Minister Jarensko from Ukraine. Thank you very much and thank you for this opportunity. I do agree that history has shown that markets have often mispriced the risk. I think there are several reasons why that happens and I think Ukraine is an example of that today. So I'll just walk through that argumentation. Hopefully, when I'm finished, the statistics will be in my favor and I won't have convinced you otherwise. I think that history has shown, for example, a 2008 global crisis that the markets weren't ready for what the systemic effect of that crisis would be and they mispriced and in fact that in fact contributed to the size of the crisis because the markets underpriced the risk that the system was going to collapse and that the turmoil would occur in the way it did. I think the Eurozone collapse has been also misjudged and overpriced in time. I think that it's overpriced because the expectations were not being achieved in the end and the Eurozone is today basically where it was before, despite all of the overpriced risk. I think there are three reasons why you're seeing this mispricing happen. First and foremost, I think investors are reacting to their own market appetite, not necessarily to the specifics of what's happening. They're looking at their own portfolios, their own managed risk and what they would like to achieve and where they are at that given moment. So in some cases, for example, with Eurozone periphery countries, it's gone back and forth. For my country in Ukraine, at one time before the crisis, perhaps that was risk that was underpriced. After the crisis, it seems that anything outside of the Eurozone has been overpriced. The second reason is it's a perceived risk. There is no objective risk to be priced and it's perception. It's the press, it's market sentiments. It's who does a better or worse job of presenting their case in the markets and how it's read. This emotional element is impossible to quantify perfectly. And finally, I think to a great extent investors tend to move en masse in directions that they move together both in and out of markets and in the pricing. They could be right or wrong and not many people are willing to buck the system. There aren't many Nouriel Rubini's willing to go against the masses in the market. Ukraine in essence has often seen this in the pricing of our risk. If you look at our real economic situation, it's been systemically overpriced from my perspective since the 2008 crisis. Our CDS spreads were extraordinary in 2009, predicting a default which never occurred. Ukraine maintained its payments and continued to be a good borrower. And I think to a great extent a lot of this mispricing occurs with Ukraine because outside of Ukraine people don't recognize or price in the resilience of the nation, the strength of the people, their willingness to pay the costs of change, which we saw during our Revolution of Dignity and thereafter now in the unfortunate war in Eastern Ukraine. I think also there's a misperception with Ukraine right now and when you look at our CDS spreads as to how large of a financial support package the country may need and or what that means. If you compare it, the numbers that have been in the press in The Wall Street Journal, the London Financial Times, the $15 billion in comparison to what Greece required on a per capita basis, this is a tiny, tiny sum of money. It is not an amount of international financial support that is so incredibly difficult to raise. It is a reasonable amount of money for a country of 45 million people. I think it's also important to note that the economic crisis is not simply a financial calculation for Ukraine. The economic crisis is in Ukraine created to a great extent because of both the war and the legacy of the corrupt regime that ended its term last winter a year ago. And today the Ukrainian government addressing all of these issues. It's addressing number one the corruption and moving very quickly and very meaningfully with an anti-corruption bureau with changes in the judicial system. Number two, we're moving very quickly and doing everything possible to support and end to the conflict in the east. Our president has said over and over, he is a president of peace. That is our goal. Our goal is peace. We are, yes, investing 5% of our GDP this year into rebuilding our military, but that is all to be in the proper position to defend our country, nothing more. And finally, the fundamental structural reforms that have not occurred in the past 23 years of Ukraine's existence are starting today with a very capable government, with a very reform-oriented government, and with changes each and every day that are being implemented. All of these elements, I think, are hard for the markets to price. They look simply at the statistics, simply at the numbers and not at the human element, which in Ukraine has been probably one of the key factors that make the markets wrong in their pricing of risk. As a nation today, Ukraine is stronger than the markets are pricing it. Thank you. Thank you, Minister Jerezko. Professor Rubini, Uriel, do you disagree with this? Well, you know, I'm some of the usually things that markets are not efficient, that the bubble can occur, that tail risk like financial crisis can occur, but I would make the following arguments. There are booms that are busts, there are mispricing, but the question is, do market misprice worse or worse than otherwise, geopolitical risk as opposed to economic and financial ones? And I'm not sure about that. I mean, there are some, first of all, unknown unknowns that are really major tail events. Last year in Davos, people said there might be a war between China and Japan. Markets were not pricing it. Guess what? That war did not occur, and so far, the tension had been reduced. The tensions in Asia between China and many of these neighbors, but that risk of a major thing is not going to happen. Think about terrorism. Yes, there was a terrible attack in Paris that had been attacked in London, in Madrid before. What's the chance of another 9-11 type of attack? I think it's very low. So if you have a very low probability of a major event, like a major war, a major terrorist attack, the fact that Ebola could become a global pandemic as opposed to be a regional one, are the markets really mispricing these things or not? Guess what? SARS, Ebola, and so on. Terrible. Thousands of people have died in Africa. It had not a global economic impact. Take the risk of a war in Asia has not occurred, and so on. Take another major terrorist attack. So things that are really major tail events that are very low probability by high impact. The question is, should markets price them in? Usually, when their probability is very low, probably markets are rational not to do so. Now, there are other events. Last year, you have the Middle East is a mess. It's not just ISIS, Syria, Iraq, but what's going on all over the Middle East, including, guess what? All prices instead are falling. There's been the Russian-Ukraine conflict and the potential global spillovers. There's been Ebola. There's been other tensions in many parts of the world. Now, the way I think of it is this way. Take, for example, the situation in the Middle East. What has happened last year is a paradox because all prices have collapsed in spite of geopolitical situation, but it is becoming worse, but compared with the past. In 1973, we had a global supply shock that was Yom Kippur War between Israel and the Arab Strait, embargo, all prices tripled. In 1979, we had Iranian Revolution, and other embargo, all prices tripled. In 1990, we had the Iraqi invasion of Kuwait, shock to the supply of oil, all prices spiked. This time around doesn't happen. Why? First of all, in spite of the mess in the Middle East, take even Iraq, 90 percent of the production is in the South, Shia control, or the Kurdistan, and even the 10 percent of this module, nearby control of the ISIS, these guys are producing and trying to smuggle oil. So there's not been a supply shock to the supply of oil. Take Russia, Ukraine, terrible geopolitical impact, terrible on the economy of Ukraine, even on Russia, but there has not been yet a shock to the supply of gas from Russia to Western Europe. If that were to occur, of course the economic and financial implication will be severe. And not only there hasn't been a supply shock to oil in the Middle East, but now because of the shale gas and oil revolution, U.S., North America, because even the problems in the Middle East have led to more production this year in Iran, in Iraq, in Libya, there's a glut in the supply of oil. And guess what? Oil prices collapse because the basic balance between demand and supply is supplies growing much more than demand. And demand is slowing down because of the slowdown in Eurozone, in Japan, in China, and other emerging markets. So when you compare to the past, every misprice, the shock that comes from the Middle East in terms of oil, now there are other fundamental reasons why these things happen. Same thing with Russia and Ukraine. Actually, the market has been pricing significant impact on the economy of Russia and Ukraine. The currency have weakened, the stock markets have downed down, spreads have widened. The minister correctly says that maybe the CDS are mispricing, but guess what? Under some scenario, your public debt to GDP ratio might be closer to 100%. Under some scenario, the international community may not be willing to give a full package. Under some scenario, some form of orderly bail-in or extraction or reprofiling of debt could occur. I was in the White House when in 1999, we did one of the first examples of a reprofiling of debt, sovereign bonds, was Ukraine after Pakistan. So these events can occur and the market is saying there is some probability that the orderly restructuring of your debt is going to happen. It's not just the bail-in or bail-out. Some bail-in, some PSI can occur. I can see your argument why it shouldn't occur, and it's a legitimate argument, but markets are pricing a meaningful probability that the international community is not going to give you enough money and there's an orderly case for restructuring. So when you look at these risks, you have to think about them. Are they so large and significant that they have an economic and financial impact that the markets are not pricing them correctly? Of course, there is overshooting on the way up, on the way down, but markets are pricing these risks. Thank you, Nuriel Rubini. Paul Singer, you disagree with that? So far, we've been talking about markets as if independent actors, millions or tens of millions of investors are pricing the markets. This is not actually true in today's environment, and there are two major reasons why markets are mispricing geopolitical and other risks. The first one is very straightforward. The largest by far investor in the world's stock and bond markets, all on the buy side, of course, are the major developed world governments, the central banks. And what they've done is distorted the prices of financial assets so that you don't know what the actual price is. So I would actually put the word markets in quotes in this resolution. In fact, the United States central bank, the Fed, has been purchasing, has purchased the majority of the issuance of government a medium and longer term debt in the post-crisis period. At first, of course, under emergency conditions. But second, as is the case in Europe and Japan, because the fiscal authorities have not been taking the steps that every economist knows, would be pro-growth steps on taxes, regulation, trade authority, education. In Japan, currently the central bank owns one and a half percent of the capitalization of the Japanese stock market and they are about to embark on an even larger program. So if it doesn't work, meaning restart growth or restore growth to pre-financial crisis conditions, the solution is so far buy more, double down. And Europe seems on the verge of doubling down. So the first reason is you don't know what the price is in the absence of that buying, that buying is not millions of informed investors or investors that are trying to inform themselves about the correct price. And so what we have is, for example, in Europe, as we speak, the 30-year swap in Europe is trading at around 1.27 percent. And if anyone thinks that that price is A, the price that is a reasonable or fair price to invest, to meet your investment assumptions, your actuarial assumptions, your liability assumptions over the next 30 years, I think that's just wrong. B, giving, if you accept that price as, okay, that's the price that I can invest in 30-year bonds in Europe and there's a lower price, lower yield in Japan and somewhat higher in the United States. What about inflation? What about the possibility of inflation? Well, inflation is a byproduct and partially a byproduct of some of the geopolitical risks that have been described and that we all know exist. And 1.2 percent in Japan and 1.27 in Europe and 2.3 or something in the United States don't give you much room. The second part of, the second major reason why markets are, I believe strongly, markets are mispricing geopolitical and other risks is related to the first, but it's actually a different point. And it is given the pricing and given the still opaque and overleveraged financial system, the sensitivity because of herding, interlocking, and samely positioned investors, the sensitivity to risks is extremely high, and I'll give you an example in a moment, and the cushion to withstand risks is very low. And the example, of course, is the Swiss franc. It's because of this positioning that from 1.2 when the cap broke in the Swiss franc, it went directly in 10 or 15 minutes to 0.85 and then 15 more minutes back to 1.0. So these are two major forces. Thank you very much, Paul Singer. Martinsen, Paul Singer says that actually it's hard to talk about markets, that it is the big institutions. It's a big central bank, and you probably didn't mention, but also big institutional investors in the private sector. And that there is a concentration of power there that drives what we call markets, and that leads to misperceptions and mispricing. You disagree with what he said, right? Yeah, let me first stress that the risk report published by the World Economic Forum every year, and just been published again, has shown that geopolitical risk is seen as the number one threat now. This is the first time ever since we published this report that geopolitical risk is being positioned as prominently. Interstate conflict, governance failure, it is about state collapses are the main sources when you talk about geopolitical risks. And for us as a large-scale institutional investors, we managed 220 plus billion dollars and a couple of hundred billion more for customers. I must say that looking at the current positioning, I do not see any mispricing with regards to what the expectation is in the market versus our risk profile versus the expected return. Don't forget, the driver of return is risk. And as we have that as a notion, we have to always be aware of that, that this is factoring and pricing in, in the market as we move forward. Now, however, what is to say is that there is a growing geopolitical uncertainty. Naturally, we see that in the wards here, and we see that in the risk report, which cannot be effectively priced. Geopolitical risk cannot be effectively priced, and this ignorable has made one of these other points. When Ukraine crisis, and I just take that as an example, emerged the first time. We at Zurich, we took a meeting and we said, what are we going to do with our European equity holdings? What are we going to do with our German holdings? Because that potentially has an impact. And we decided not to move on the back of that because there was just sort of an uncertainty. You cannot capture and translate into a risk. And guess what? The German equity market and European market is at the moment trading at a high because you have to see that in relation to investment alternatives. It is not just one asset class against the other. It is all asset, it is all investment opportunities all together. And the major problem on the back of that is that the global economy is still very fragile, and there is limited availability to absorb major shocks, which we are seeing. Now, what the global risk report makes clear is that the very nature of geopolitical risks is changing. And it's not just interstate conflict, war or terrorism, which has impacted its economic policy. It is natural resources. It is cyber statecraft. It is populist sentiment in elections. This year, we're going to have within the G20, 45% of the G20 electorate is going through elections, naturally posing fairly drastic uncertainty on the back of that. And as and sure, we look very much at those micro-level risks because these are the ones which do affect the real economy players. And the real economy players, this is you, our customers, many of you, our customers. And obviously, you have this exposure to the capital markets. But what is very important when we talk about geopolitical risks to look at is, what is the impact on the business, not just on the financial market, how are you positioned with regards to the supply chain exposure and with regards to the impact on the balance sheet of an organization and not just of the financial markets? And there are a lot of businesses out there which are through this geopolitical risks, keeping in mind, again, risk is the driver of return, should see that as well as opportunity, if managed effectively, and not just only as a downside exposure. And what is on the back of that, absolutely essential, is obviously to have a full understanding of the exposure to geopolitical risks and to take the necessary steps to build up respective resilience. At the micro-level, then, these risks pose actually in front of our doorstep three forms. It's political risk. It is cyber. And I would also say what I've mentioned, very important supply change. And these take many forms. It is political violence and terrorism. It's increasing, Eastern Ukraine. It is social unrest, which is looting. It is exploration. We just had a metal firm in Bolivia putting up large claims as a, we are largest insurer for political risk, so we see these movements very effectively. It's about currency in convertibility. We have claims in Venezuela. On the back of that, non-honoring of server and contracts, Vietnam-based shipyard just posts similar claims to us as well. So there's a lot of movements on the back of that, and there's proof that geopolitical risks are growing. I should say that 2013, and most likely as well, 2014, we have seen the highest amount of claims out of political risk exposures. Having said that, it's also the highest capacity, but we do not see any demand of more risk mitigation. So there's more interest in the topic, and I would imagine on the back of the risk report that to increase further, but there's no more insurance is being bought at this time. So companies of all sizes are now victims to massive criminal or state-sponsored cyber attacks. Cybers, of course, the other nature which is sort of a result of this geopolitical uncertainty, and this means, of course, one has to prepare effectively for that. At the moment, about 43 percent of U.S. companies are expected to have suffered data breaches. 43 percent of all U.S. companies have suffered data breaches on the back of cyber activity in 2013. Now, in closing, what I should say that all of these exposures as well as others are captured in the supply chain. In fact, cyber attacks are within the top five supply chain's concerns. Companies prepare for it. They factor it in. They price it, which flows back into the real economy. And you must understand that each and every link of these exposures do, obviously, as well flow back to capital markets and financial markets if they then emerge, as we believe that financial markets are, say, reasonably efficient with substantial time-lapse. And we have to really differentiate between the short-term impacts and the long-term impacts of such a volatile in the market. And to me, the question is really is not whether the markets are mispricing geopolitical risks, but whether we have a full understanding of those risks and whether we are taking the steps to build resilience of finding the full understanding as these risks are more and more intercorrelated. They are more and more transported. They are very transportable on the back of globalization. And the full understanding of that is the basis then to build resilience and as well look to mitigate these risks. And on the back of that, I'm not surprised about the outcome, but I would make a strong argument that we have to differentiate the volatility short-term and the impact on financial markets, which is reactive. Financial markets are reacting. The example you took with the Swiss National Bank's action and the impact on the currency market, that was pretty clear response and effective pricing in. And we will find now the right balance as we move forward. Thank you very much, Martin Sen from the Zurich Insurance Group. So we have heard two very eloquent and well-argued positions concerning that markets are mispricing geopolitical risks. And we also heard two equally compelling and interesting and persuasive points of view to the contrary. So that's the debate. I know that each of the four panelists is eager to jump back and rebut and talk a little bit more about the issues. But before we do that, let me ask you to please hold it for a second. And let's take a few questions from the audience and from social media. And then we will go back and give you time to go back to this. So please raise your hands and let us know what's your question if there is any. Then while we get that, let me read you one that came from social media. Concerning Mr. Frank Ludwig just tweeted, he says an optimum in Gini brings therefore the highest wealth of the nation and therefore reduces instability. Let me change that question and present to you the issue of inequality. Inequality is present in this conversation, has been present in the last couple of years in ways that was not there in the past. The whole distributional dimensions of policies and all that. Inequality is creating social unrest, is creating difficulties in governance, is creating and is driving and fueling some of the geopolitical risks that Martin St. mentioned that are identified in the World Economic Forum Global Risk Report. So let me then ask you and not to all of you, but just one of you or two, just say something about how a heightened awareness, first higher inequality in some countries, but also a heightened intolerance. The peaceful coexistence with inequality has ended, ended a few years ago. In the past the inequality, economic inequality was accepted, tolerated as a fact of life and it was not a very important issue. Today it is a very important issue around the world and that in some instances is fueling geopolitical risks. Nuria? A certain issue of inequality is an important one even if it's more of a slow motion kind of train wreck rather than a major tail risk that explodes that has significant market impact instantaneously. We're first to understand why it's happening and I think it's a combination of factors. First of all, technological innovation is becoming increasingly capital intensive, skilled buyers and labor savings that even these extreme views that robots and artificial intelligence are going to replace most jobs are going to get into singularity where you know Stephen Hawking say we'll have to go and colonize other planets because the machines are going to replace humans and replace the human race that might take a hundred years, but that's a risk. Secondly, trade and globalization, whether you like it or not, reduces jobs and incomes of low-skill and unskilled, initially manufacturing jobs, but now that services are becoming tradeable, many of those jobs are being off-short, but tomorrow instead of being off-short, today radiologists in Mumbai can do the same job as a radiologist in New York or looking at x-rays for one quarter of the salary, but tomorrow will be a piece of software we can replace it and those are going to be replaced. Third of all, we have also these win-or-take-all effects, the superstar effect that implies that the superstars in every field get more of the profits coming from the market of billions rather than millions. So all these things are happening. What are the consequences? I would say increasingly social and political unrest and instability, that's one economic and political consequence. Secondly, inequality can even reduce economic growth because you are redistributing income from those who have a higher marginal propensity to spend that are low-income or middle-income individuals to those who have a higher marginal propensity to save that are essentially high-income individuals and or corporations. I mean, there's an extreme Marxian view that say the capital is going to self-destroy because you'll have this inequality of wages falling and profits rising, reducing eventually consumption. It's a slow-motion movement, but some of the weakness we've seen in consumption growth, even the U.S. may be driven by that. So you have to worry about it, but I don't think it's something that has a direct market impact. It's something that evolves over time. Paul Singer, inequality increases geopolitical risks. We should keep in mind that the interaction between the driver of economic stability in the world and economic growth, quantitative easing and zero percent interest rates, has as its goal, its primary goal, the boosting of asset prices. The secondary effect is a boosting of an attempted boosting of inflation or growth. Growth may be a third order effect. And so what is happening is that the mispricing that exists in worlds of financial markets because of the forces that I described is exacerbating inequality and at the very time that investors are doing well to very well and the things that investors and successful investors who own bonds, stocks, all kinds of stuff that's going up as a result, direct result of asset inflation, government policy, they're doing great. The middle class in the developed world is not doing great. And so the inequality is a function actually of government policy and social unrest is a function of the inequality and the seeming growing distortion. So you give more governments a role in driving inequality. Nouriel was more emphasizing technology globalization and other trends. Can you make a comment on what Paul said? Yes, asset deflation helps more the rich that they have more of those assets. But if you had not done the QE and these economies like the US ended up in a double deep or a triple deep recession, then losses of jobs and income for the low income individual would be more severe. So more of the benefits have gone to the wealthy, but the idea that this QE have helped onto the wealthy, think about the alternative would have had another recession to us and therefore the impact is different. If you had had more pro-growth policies in the fiscal tax trade area, you wouldn't have the need to support the global economy by 0% interest rates for six years and quantitative easing. Thank you. Martin, and I think also you wanted to chip in. Inequality is nothing new. We had inequality for a long, long time and we will continue having inequality. What I think is very new following the economic crisis is to have a very deep crisis of confidence. People losing hope, people questioning leadership, the question of political leadership, the question of business leadership. And you think that drives geopolitical risks. Which is naturally leading to more short-term reactions and response. It leads to populism, as I mentioned, very short-term. And that is obviously one where I should say inequality as such cannot be taken after cause of the volatility we have. It is rather to concern on how we deal with it in terms of bringing stability into the system with regard to geopolitics. The basis for that is let's be clear, if you talk about hope and expectations going back on integrity, say what you do and do what you say. And do that for the good and for the long-term and not just for the short-term and that's what we're confronting it with. And that's where financial markets keep responding to it and that's why we see this volatility. Thank you. I will just add that from our historical perspective over the last year, the inequality issue for us was about corruption. In Ukraine, the heightened awareness of this inequality of a certain segment of the population that was corrupt and the rest of the population that was suffering through this corruption, the fact that we've heightened our awareness, the fact that people were willing to die on the streets in order to stop this corruption is a positive thing. The strength of civil society that comes out of this heightened awareness is now to check and balance on any new government, post-parliament elections, post-presidential elections, to ensure that the next government doesn't follow in the footsteps of previous governments. And so that heightened awareness, although it increases risk to some extent, it actually reduces risk in the sense that now the demands of civil society because of technology, because of knowledge awareness, the demands of civil society are so much greater that the next governments, our government, the government after us, will not be able to act in the same ways that previous governments have. Everything's been opened up to the public and that civil society's check and balance is a very positive thing for reducing risk going forward. So, and let me extend that point from Ukraine to the world. The point is that the heightened intolerance with inequality that we have seen in recent years is also combined with a heightened intolerance for corruption. You could also argue that corruption has always existed, but you can also argue that in recent years we have seen a higher intolerance. People are not willing to take it anymore in places like Ukraine and others. And also, your point to the fact that in discussions about the drivers of inequality, there is a lot of conversations about macroeconomic factors, QE, or fiscal policies and taxes or technology and trade and all of that. But I think it's very important to add the factor that the minister has mentioned that it's in a lot of countries inequality is driven by corruption. And that is a very important issue that also drives geopolitical risks. Let me ask again, if there is anyone that has a question or points and just, sir, in the back, just tell us your name and your affiliation, please. I'm Sushil Vadwani from Caxton Associates. I wanted to take issue with Paul Singer's point that QE should necessarily be accompanied with rising inequality. It's the current precise design of QE that has the effect Paul talks about. Instead, if QE had been used to provide money to finance fiscal expenditure, that it need not necessarily have had that effect. So for example, in Europe, if the ECB were to finance infrastructure spending through the EIB, A has a bigger stimulative effect on growth than buying bonds, and B doesn't necessarily have the inequality raising effect. Second example, some of us argued some years ago that QE should be used to essentially mail vouchers to everyone in the population. That, again, has a very different impact on inequality. Thank you, Paul. That was for you. Yeah. Talking about the design of QE and what to do with the money is interesting. And of course, all of these governments have the opportunity to create infrastructure and voucher and other helicopter money outcomes. But that doesn't cancel the point that if you're discussing inequality, one of the main forces exacerbating inequality at a time, it's not unique inequality. In fact, global inequality is narrowing as hundreds of millions of people, as you know, join the middle class across the globe. But it's widening to close to record levels, particularly in the United States, in the face of economic uncertainty among the middle class. And that kind of inequality growth is something that makes people edgy. And I think that's the point. In the 1970s, I believe, the last peak, depending on how you measure it, of inequality in the United States, it was a different relationship between investors and the middle class or the investing class, the beneficiaries of quantitative easing. So I think inequality is exacerbated by quantitative easing. I want to go back to geopolitical risks and their pricing. You had something you wanted to add to this, Nuriya? Well, you know, on what Paul Singer said, yes, all advanced economies need to do structural reforms to increase potential growth, regulation, taxation, you name it. But what's a constraint to low growth in the eurozone in Japan, U.S., is not the supply of goods because output is well below the potential that might have fallen. There is a problem of aggregate demand. So in the short run, you need to do monitoring fiscal stimulus and credit to boost aggregate demand while you're working on doing the structural reform to increase potential growth. So the two things are not inconsistent in each other. Abinomic was monitoring fiscal stimulus and structural reform, Terdaro. Dragonomics is about having structural reform. But even Draghi says, we have a problem with aggregate demand in the eurozone, and therefore we did not have the right monetary and fiscal policy. On the geopolitical risk or political risk, if I look around the world, yes, there is political risk. Syriza could win in Greece. Podemos in Spain, Renzi could fail in Italy. Le Pen could win in France. You have had the troubles of Russia and Ukraine, Argentina, Venezuela, Thailand. There are plenty of countries in trouble. But you look at the markets, every time this political risk, even national, let alone geopolitical rise, stock market correct, currency weakened, bond prices are adjust, CDS spreads widen, whether it is excessive or not, we can debate it. But actually markets are actually quite sensitive to the fact that more than just economic news, political and policy news and policy mistake have an impact on the economy and have an impact on the market. If anything, they've been more than fully priced in, I would say. Let me talk about another major geopolitical risk and how is it being priced, mispriced, understood or misunderstood, and that is low oil, low oil prices, something that has changed the world, that was not anticipated here last year or anywhere, in fact, and that is having consequences. The most obvious ones are in countries that are highly dependent in oil exports and are going to be destabilized or being destabilized by that. The usual list is well-known is Iran, Venezuela, Russia, others. But there are second-order consequences for low oil. There are consequences, for example, there is a wide variety of projects that are being canceled, postponed, that full exploration and all development energy projects that are no longer viable at the current prices, and these are also transforming the nature of risks. I don't want to go back to market risks. I want to center the conversation on non-market risks driven by political decisions. So I would like each of you to comment on the political consequences of low oil, beyond saying that all these countries that are oil exporters and big spenders are going to be stressed. We know that. So what are some of the second-order geopolitical consequences of low oil? Paul. It's not an accident that what our energy traders think is a one, roughly one million barrel a day shortfall in demand has caused more than a 50 percent drop in the price of oil. There's a case to be made, a good case to be made, that it's an engineered drop meant primarily to jostle not only alternative energy industry companies, but geopolitically actions against Iran, Russia, perhaps others that it has geopolitical impact. And I think that's very important. Let's talk about the United States just for a moment. The energy industry, the alternative energy industry is perhaps the growth story or the capital spending story, not that it's the bulk of it, but it's a major source of growth in the United States. The fact that the rug is being pulled out suddenly from the alternative energy industry in the United States has consequences that will radiate out. I don't think we can, at this early stage, just weeks after the collapse, days, weeks, whatever. It's just been in the last few weeks, assess all the follow on effects. But I think it's going to be very meaningful. Would you like to keep into this, Nuriya? I certainly disagree with Paul on what are the motivations of Saudi Arabia. Of course, people argue Saudi Arabia is trying to hit his enemies, whether it's Russia because they're not playing ball on Syria with Assad as opposed to Iran. That is the major geopolitical threat to Saudi Arabia. But if you think about it, having a loss of maybe 100 billion dollars of the reserves in Saudi Arabia because you want to hit Russia, you can spend 10, 20 billion of that, arm the rebels in Syria, and you can get more out of it. And the behavior of Russia is not being changed. The paradox with Russia is, by the way, that with sanctions and low oil prices, Putin is becoming more aggressive, rather than less aggressive. Why? Because his perception is that the West is out for regime change like we had with Saddam in Iraq or with Gaddafi in the case of Libya. If that's his perception, he's going to become more aggressive in the Middle East, in the Baltics, in the Balkans, in the case of Ukraine. So first observation. In the case of Iran, same thing. The threat is coming from Iran. If Iran reaches a deal with the United States, Saudi Arabia will be a big strategic loser. But low oil prices make more likely that the regime in Tehran is going to be likely to do a deal with the West on the nuclear stuff because they need to have the reduction of sanctions. So, paradoxically, it will be in the interest of Saudi Arabia to have high oil prices. So the regime in Tehran doesn't want to do a deal with the West. So this argument that the Saudis are out for geopolitical reasons, I don't think so. My view is that the Saudis are having just a typical behavior of an oligopolistic leader who's doing predatory pricing. You keep prices low for a while. You get rid of all the high marginal cost producer, shale gas guys, Venezuela, you name it, and you commit to a schedule of fixed investment and capacity so that everybody else is going to under-invest in capacity for the next few years. If you do that, in the short time you have low prices, but in the minimum term you'll have slightly higher prices in a larger market share. It's an economic argument. It's not a geopolitical argument for Saudi Arabia. I'll just add though that I think that the reaction of Russia, the reaction of President Putin to low oil prices is not necessarily predictable. What's happening today, his reaction today and his reaction two months from now may be very different. So I would say that low oil prices in this case potentially will have a positive effect, increasing the cost for him to continue this very expensive war that he started and he may begin to think twice at some point about the economic costs even though he doesn't like, as you say, some of the signals that he sees in that. From the other perspective it hits Ukraine in a negative way because as you say shale gas now becomes something that we had hoped for to help us with our energy independence and now becomes much less credibly profitable for those players in Ukraine and they're starting to step away from some of those projects. So there's a balance and it's unclear how to actually define in the end where these lower oil prices will take us. For a central point about the geopolitics of low oil is that a lot of these governments that are stressed fiscally and otherwise by your low oil are going to pick fights abroad to distract from problems at home. You will have more incentives for leaders to start using international frictions and international conflicts to take away from the very difficult situation at home due to budget cuts and all of the fiscal adjustments that they will have to face in reaction to low oil. So we are coming to an end and there are two things that we have left to do. First I'm going to give you two minutes to each of you to summarize again your points perhaps add a new perspective for and against the motion that markets are mispricing geopolitical risks. This is what your last shot at trying to persuade the audience and then we are going to take a vote again to see which side did a better job of persuading of changing perspectives on those around here and around the world. Minister. I'll just repeat that I think many of these risks are no longer market risks that are able to be priced. I think your comments Mr Sen about cyber attacks for example are such a there is such a great amount of unknown the reactions of individual political leaders to these changes in commodity prices and how they react whether whether they react in one way or the other. I think that the the risks the geopolitical risks that we're talking about are practically impossible to be priced properly. The markets are guessing but the markets are as often wrong as they are as they are correct. Nuria. Well some of the most extreme tail risk geopolitical are things on which we cannot assign a probability. What's a probability of a cyber attack that really destroys our economy. Is it one percent zero point five or five percent. What's the risk of another 9 11 type of attack as opposed to terrible episodes of terrorism that are contained. What's the risk that after SARS and evolves and other cases you get really a global pandemic rather than a localized kind of pandemic of one sort or another. What's the risk that you'll have a major war among great powers like between China some of the else. I think that first of all those risks are still extremely low and they're not easily priced and markets are worrying about these things and companies are taking action to deal with for example the risk of cyber warfare. So there is policy reactions and there are market reaction to try to ensure yourself against it either the operation or financially or otherwise. So we live in a world in which lots of very extreme and ugly stuff could happen but it's not obvious that markets are mispricing. Take even 9 11 9 11 did not cause the recession of 2001 that recession started with the internet bust at the beginning of 2001 and by the end of 2001 in spite of 9 11 because of the monitor in the fiscal stimulus we were already out of the recession. Yes the market for a few days panicked the fed flooded the markets as they should with liquidity because you would have had the run and guess what even the biggest geopolitical shock of our times 9 11 I was there I was going to teach at NYU that morning and I saw the towers in fire and collapsing even that in the amount of three months led to a huge economic recovery the United States and paradoxically the policy response monetary fiscal led to the buildup of the bubble that had started in housing in credit led actually to the global financial crisis. So even an extreme geopolitical event like a major terrorist attack may with the right policy response be contained and lead to economic recovery as opposed to a financial meltdown. So are we really mispricing this risk as opposed to knowing that are contained or containable even when they do occur. Thank you Paul Singer. There's no question that central bank policy over the last post the post crisis period has in adding the better part of 15 trillion dollars to the central bank balance sheets and zero percent interest rates throughout the developed world has caused a major distortion in asset prices distortion upward. Risk is mitigated as an investor by price and yield. If you have a margin of safety a cushion of protection in price and yield it's it's meaningful. There's convexity and bonds and the absence of yield and the absence of good value in equity markets exacerbates risk. And so my point is that I think by definition the actions of government which you could say and you might be right that it would have been worse in the absence of just quantitative easing without the appropriate fiscal policies. But in fact these policies have not this combination of policies has not restored growth and therefore I believe strongly that financial asset prices market markets are mispricing risk throughout the world. Thank you Martin. The risk report from the World Economic Forum has shown this year clearly that the chair politic risk is being seen as the number one threat. It is being recognized as the number one threat in all its components. It is being translated and we know that it has a high uncertainty and without the potential volatility which again is factored back into the financial markets. Every market participant every agent in the economy has the opportunity to act or not to react and is doing so and with that it is flowing back into the prices. Be at a different margins be at a different volatility but it is collected in the prices at the short term leading to high distortion at a longer term smoothing out and with that geopolitical risk is factored in the markets at the moment. Thank you very much. So let's see what the audience think. Please vote you again. You can go to that website and just say that if you agree or disagree with the notion that markets are mispricing your political risk. Yes agree no disagree please vote. We already have 22 votes 23 and let's see how this compares with the first vote. Okay there it is. So there is a slight change but we're still getting votes but an evenly divided audience now and it was not evenly divided when we started. So we have now a conclusion of which of the two sides was more persuasive. Natalia Anjarresco is the minister of finance of Ukraine. Uriel Rubini is a professor of economics and international business at NYU. Martin Sen is the CEO of Zurich insurance group. Paul Singer is the CEO of Elliott management. Please join me in thanking them for a wonderful job.