Davos Consensus: World Coming Out of the Doldrums With Relapse Potential

“The global financial elite don’t want to be fooled again.

Scarred by the worst banking crisis since the Great Depression (INDU) and the hubris that preceded it, bankers, investors and policy makers who gathered in Davos, Switzerland, last week gave a guarded welcome to signs of recovery in the world economy and the endurance of the euro region.

“Optimism, but with a sober tone,” was how Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihancharacterized the mood pervading the World Economic Forum’s annual meeting, even as investors were lifting the Standard & Poor’s 500 Index above 1,500 for the first time since 2007.

The mood in Davos was “totally different” when stocks last reached that peak, said Harvard University economics professor Kenneth Rogoff, 59. This year, executives fromDeutsche Bank AG (DBK) and Goldman Sachs Group Inc. (GS) were quick to couple upbeat assessments with warnings that economies remain fragile and prone to policy error. Some bankers fretted that credit bubbles may be forming as central banks pump out cash.

“The crisis gave them a bit of an inoculation psychologically because they can see what can go wrong,” Rogoff, a former International Monetary Fund chief economist, said after a Jan. 26 private session with IMF Managing Director Christine Lagarde and Deutsche Bank co-Chief Executive Officer Anshu Jain. “They’re not as euphoric as they’d usually be when the stock market went up as much as it has.”

Credit Crisis

Such humility was rare in Davos on the eve of the credit crisis that engulfed markets in 2008…”

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