I think what is different today is coming out the crisis, what youve seen banks do, is go back to their basics or go back to the areas they believe they have a competitive advantage. And that competitive advantages oftentimes steeped in scale. When we think of scale and whether scales in markets or Business Bank its or many business. Todays age of Slower Growth and more regulation, if you dont have scale, the odds are you cant buy it. You are not seeing big banks get bigger through acquisition. You have to build it. Slower growth, its tougher to do. ,hat weve seen is the industry in many ways, pull back to areas of strengths. Youve ended up with very different Business Models, which in itself are far more resilient. We can use different examples of firms out there in terms of how they change. Examples, cities as we are not an insurance company. We are not an asset manager. Were not a hedge fund. We are not any of those things. Were simply a bank. Thats the scale that we have pulled back to. Banks and and look at see the virgins of Business Models. I think thats quite powerful and what means for resiliency for the system. Tom how do you keep track in the scale . Had a court may your global bank if you have bigger and bigger scale . The endless Conference Calls doesnt do it. How are the Communications Going a given within institution if we scale up. Side,the institutional and business and others are great examples, is they are scaling as well. Its not that we are necessarily covering more clients. Or not, actually covering less. Its not that we are entering more countries are doing more things. We are just doing more with what we have. Were using the benefits of scale. We are not adding complexity. In fact, we have taken complicity out of the system. You and i were talking and you said that you would like to respond to what is clearly part of the western zeitgeist in this january of 2018. Its not that its about china or its chinas fault, but that china is the number one risk. We enjoy with bloomberg surveillance working with Eurasia Group early in the year. They did place china as the number one risk of the number that they had. Through their annual review. You take real issue with that. Why is china not a risk . Before i answer your question, let me say, since im here, i thinkator as a regulator you have to always stay alert. Any financial risk that is coming up. Although the economy is doing quite well, globally, we cannot be complacent. Risk, i of financial almostvery crisis is seeming to be associated with some kind of asset bubble. That, it could be Something Else. This is the sign that we should look around here. Are there any asset bubbles . Some emergingd asset bubble and its a regulator, you have to do some big about it. This is my opening statement. Question, it your seems the chinese economy is so large. If something bad happens to the chinese economy, the rest of the world will be affected. The concern about china is justified. We realize that we have some problems. Quite some years ago. With a problem is mainly lot of debt. We have too much debt in our system. Macro in debt and this ratio. We are using nonFinancial Sector debt and its rising of time. Its now to order 50 . Agoealized that some time and we began to take action two years ago. The good news at this point is that that ratio, for the first went down in the last quarter of last year. It did not rise. Furthermore, into, divided by gdp, is also not rising. The growth rate of them to in china last year was only 8. 2 . Its almost two percentage lower than nominal gdp growth rate. You can see the effect of taking actions. Htening since the macro debt level is so high, so people will still be worried about the consequences of something happening in the Financial Sector, and i can tell system, ifese something bad happens to certain small Financial Institutions, what we will do, and this is a lesson we learned from the u. S. Financial crisis, what we will do is that we will move very swiftly to contain that risk. To make sure that whatever panic is caused by this Small Institution does not spread into the entire system quickly. That risk andtain make sure the panic is not spread, then the entire Financial System will be ok. The way that we move swiftly in china is, im on the sure Something Like that happens, the central bank in china will come in immediately. Some of the large, healthy Financial Institutions will be brought in to take care of that immediately. The interbank lending does not freeze. The system can still function. This is something that the Chinese Government always does very well. Our system can function really quickly. Of course, the larger problem is so big. Even if you move swiftly we will not be able to move to the bigger system. Its a big risk in the system. We work earlier to contain the scope of the entire system. The risk of the entire system is so important. As i said, we made some progress in that area. Tom i left David Rubenstein for last because i think he can provide us with a terrific perspective. I was thunderstruck by Richard Trust barometer released yesterday. Every year is different and i think its incredibly important. The fracture is the word of the moment here. Within ourtured nations. It really shows, as you mentioned, the geopolitical mix that we are in as we speak the bankers and managers of money. It speaks to me, David Rubenstein, about shocks that get us out to the next crisis. Im most worried about is these lights. They are very hot. I hope theyre getting vitamin d into me at least. Very very hot. E Global Warming is coming here. Right now, the biggest concern is that most people dont think theres any problem with a likely recession this year or even for the next year. Generally, when people are happy and confident, something wrong happens. As you know from your own research. I am nervous that the conventional wisdom is that we have no recession problems around the world. Everyone is doing quite well. As the famous faculty member said, the conventional wisdom is usually wrong. What would produce a recession this year . What is the thing that im most worried about . I am worried that governments maybe have a little bit too much debt and maybe they have too much entitlement programs that there not ultimately going to be able to honor. At some point, people wake up and see the u. S. Governments 20 train dollars in debt. 20 trillion in debt. I worry about geopolitical things we cant anticipate. An unanticipated 9 11 type of event. Dirty bomb goes up russian insides decides to invade a place. The middle east gets hot and parts that are not yet hot area we dont know. Maybe something between china and japan. You never know its good to happen or it could be a pandemic. When everyone is complacent, thats when you have to be nervous. While the lesson of the last recession . By your own debt back at a discount. Those who bought their debt back a discount made great fortunes. If you cant, hold on, hold on, hold on, dont get back the keys to the banks. If you hold on, you will make a lot of money. The people made the most money or people who bought their own debt back or managed keep the banks away and hold onto the assets. What happens. Grace fortunes were made and great rotations were made while you want to assets or buying your own debt back a discount. When the economy starts going this way, dont run for the fences. Hang around the hoop. Youre going to buy some things at great discounts. We are tom streaming. I think bloomberg for their commitment to this. Around once. It can go a lot of different ways. I want to delete it off. With a more open discussion about the things on your mind. I want to keep this open as we look at the crisis. Just expand further please. It all seems a rosy at 4 Global Economic growth. I think we saw the economic calamity when we missed the last financial crisis and the damage that was done globally. I do think one thing that is different this time, that we need to utilize. , i think the connectivity and the collaboration between regulators and academics and private equity firms and investment firms and banks is a whole mother level than it was precrisis. And 2006,k to 2005 your bank would meet maybe once every quarter. The bank everyday. Tom to the british to this better . I think its both sides of the atlantic. Of innovation or work between the regulators and the banking community. Donnelly to fix what happened last time but most of the corrections through Bank Relations have occurred and it really is we need to work collaboratively with the regulators to avoid the next crisis. On one level, pre2008 and 2009, the regulators were there just of their witness. Witness. O bear they would try to course correct the economy in realtime. Have, the political body told the regulators, i want you to regulate the systems so you avoid the next financial crisis. Career, weve never financiale next crisis. I think what is incumbent upon banks and asset firms and academics is to work collaboratively with regulators to avoid the next financial crisis. Rightly so, political costs of the banks have endured because what happened 10 years ago. We need to sit down and forms like this. What could we be missing . What could be happening in a nonbanking Financial Markets . Is it levels of debt . How much Short Interest is there. In volatility. Much are we trying to enhance yield by volatility. If this thing turns, hold onto your hat. Tom are you worried about this . Damped ink at the volatility thats out there. It you have to Pay Attention to it again. We went through Government Shutdown over the weekend in the market is up. You go to these events and you have to ask question. The challenges, from the Asset Management with investing side, is along the way, he saw brexit. If you sold President Trump, you bought it back higher. Andes a numbness out there an ambivalence out there that is concerning. When the next turn comes, and it will come, its likely to be more violent than it otherwise would be. As you mentioned, the new bank, if you will, with all the trading and jobs, you see a new trading process in banks as we go to the next financial crisis . And commodities going to be Something Different for the banks . Certainly different than what was in 2006 . Talkedof the things we stop talking about is the Central Banks taking on the role of being the significant liquidity provider. Bank Balance Sheets around the gold are much stronger inc. Terms of their dedicated capital and risktaking tolerance. When the great science fair project ends around qe, and were talking potentially that, the science fair project. And we see full liquidity to tighten. Next year we see things start to change. What is liquidity going to look and feel like . It hasnt really been tested . How can you send . Is wonderful Banking Experience . Chairman powell has some challenges. Inflation could come on us suddenly. I think u. S. Inflation will exceed 2 this year. We may start seeing it elsewhere. If they start typing faster than markets expect, how are Capital Markets could take it . Mention what david said about geopolitical risk. Normally when we are reaching at what could go wrong and we are pointing a geopolitical risk, things are pretty good. Your racking your brains. We havent had President Trump before, and that i think introduces a certain randomness. We got 32 minutes into the panel before he mentioned to word. Im torn between a crisis and china and an artificial crisis in the United States. Way, ick market, by the dont think an equity market collapses nearly as bad as adept christs debt crisis. Its not pleasant but it wont be as bad as a debt crisis. It is not hard to imagine a stock rice collapse. I think the stock prices are built on the highgrowth. I dont know how everything from art and bitcoin to stock prices will react. Tom im sorry ive ignored you. You are the one who has to sit and actually make investment decisions. How was your decisionmaking changed . When we come out his crisis . Listening to all that conversation, if we are talking really about a financial crisis rather than an equity Market Correction, and i think you have to look at what is systemic. I think, listening to this conversation, the one thing that hasnt been mentioned at all, i dont buy the political arguments. Geopolitical stuff happens all the time. It has to be something that fundamentally changes the way people react to events rather than the event itself. In us to change the animal spirits in some way. The evidence points to the fact that there are relatively seldom geopolitical stuff. We have not talked about Systemic Risk from the cloud. We have not talked about the fact that we all have businesses that are reliant on a very small number of people who provide the pipes that we all put our businesses through. What that is happening that is systemic, its a technology thing. Its interesting to think how markets would respond. If none of us could actually trade for one or two or three days. The other thing that has changed fundamentally, you have the point about the banks being risky and terms of the Balance Sheet. But the things that have become more connected is regulation. There is a certain Systemic Risk. Are effectively looking the same sort of things in their stress test. All Big Insurance Companies are sort of regulated by the same rules. Of ising you can be sure that the scenario isnt one of the ones that features anybodys stress test. It never happens like that. I think there are systemic challenges out there. But maybe none of us is looking at the right place for it. You try and look right through to the fundamentals and find stuff that the hayes differently through the cycle. Geopolitical events geopolitical events can affect the economy. Thatnk its unfair to say if you have a major geopolitical event that is unanticipated, the economy would just move on. We cant anticipate these events. You can prepare for them but when they happen, you should this expect the economy will act differently. Mood of sayinghe something is going to happen. I dont know what it is but it will happen. I think we frighten people a bit and they pull back. We dont know what it will be. Too think that it is harder figure out what is going to cause the recession and figure out how to make money from it. ,eople who are good investors and people who are watching us to take advantage of this, the best way to take inventor this is to wait for things to settle by, a bit and then probably to get the bottom is never possible, when you recognize there are fundamental strengths you do make investments along those lines, the geopolitical events go away and the economies come back. The people who made the greatest fortunes are people who bought things know the bottom and wrote them to the top. I suspect that will happen again. Tom last year we had president xi speaking here. Thursday and friday, the president of United States is coming. What would you anticipate from President Trump within the new International Relation that is upon this valley. The idea here idea here is the washington consensus. Where is it . Do you see a regime that the president can address in International Relations . When it was announced i think jobs dropped because it was not seen as his crown. This was the center of the Globalization Movement and he hasnt been seen as the biggest supporter of globalization. I think he is coming here to do one of two things. Ander to say he was right globalization is not such a great thing and we ought to accommodate his views and change our views or he will say he has been misinterpreted and he actually believes in some the things that people here believe in. Not communicated adequately but he actually believes in many of the things here. I dont know what message he will have. I believe itll be a message that is carefully thought through. What is the message of china one year on from the historic moment with present g last year . Its so interesting to see the different themes. Is the simple message in the theme you see day today from your home in shanghai and working now in beijing . China needs a Global Trading system with its own economy. Realizes that as the economy grows bigger and bigger, challenges open up more. Thats a president she said last year here. Thats something china is doing. Trump visit china last november, he announced that the Financial Sector would be opened up in a very big way. The details are coming out soon. So we continue to see globalization and worldwide Trading Systems that are good for china and a system that china wants. If china has a demonstration of present so distrustful china, and we talk about this with mr. Macron, the most quoted namely a scene in the first two days of davos. What does china need from the United States as part of the government . We just want a normal relation with the United States. Good l