DSK interview on CNN (July 9th, 2013)

Given the disappearance of the original video, and to prevent CNN to delete it from their website, there you will find a written version of the first english speaking interview of DSK after the Sofitel scandal.

Compte tenu de la disparition de la vidéo originale, et afin d’éviter qu’elle ne soit plus disponible si CNN la supprime de son site internet, vous trouverez ci-joint une version écrite de la première interview en langue anglaise de DSK sur CNN après le scandale de l’affaire du Sofitel.

Mon point de vue sur DSK est assez mitigé. Je n’ai pas connaissance d’interviews ou de documents devant justifier une reconnaissance particulière de ma part. La longue interview privée entre Charles Ferguson et DSK figurant pour partie dans les bonus du film Inside Job, et dont j’ai pu me procurer la version intégrale en passant directement par le réalisateur, ne me semble pas être un élément suffisamment intéressant pour être mis en avant. La réticence de DSK à parler de ce qu’on appelle “les externalités” ou tout simplement dans l’interview suivante “l’union bancaire” laisse supposer qu’il cherche trop à vulgariser sa pensée et son analyse lorsqu’il est en face de journalistes ou réalisateurs.

Dans son interview l’essentiel est dit : “the basic principle of investment banking which is evaluate the risk of every investment to adjust the interest rate demanded by creditors was in fact broken by the use of derivatives (mostly CDO, Collateral Debt Obligation) and insurance derivatives (CDS or Credit Default Swaps, AIG for instance). A derivative is just a financial bundle composed of hundred or thousand of loans (some quite secure, some quite tricky). It gets a rating from rating agencies but the risk it carries is quite mysterious to the investor who purchase it. This is a quite difficult scheme to understand and DSK had his own sentence to make it clear and understandable to the average listener : 

This guy in Germany has no idea at all of what’s going on the local mortgage market in Connecticut. So the basic principle of banking is broken.

But nothing more than that (these are my own words)… Quite few notions to understand all the underground mechanics of this quite opaque world of derivatives.

For a presentation of derivatives, I strongly advise you to read either Satyajit Das “traders, guns and money” or Gillian Tett “‘l’or des fous”.

In his first English-language interview since his arrest in May 2011, former IMF chief Dominique Strauss-Kahn sits down for an exclusive, wide-ranging interview with CNN’s Richard Quest

RQ: In 2010, when you were still head of the IMF, you were part of the first Greek bailout. Several years later, we are on the ump-teenth bailout, they’re getting the latest tranche of money and things have never looked particularly worse. So tell me, sir, what went wrong do you believe?
DSK: Many things. First, something which has been already disclosed by the IMF, which is that we, and when I say “we” I mean the IMF, underestimated what we call the multipliers, which is basically the effect of austerity on growth. So the result was that what has been asked of Greece in terms of rebalancing their budget had more of an effect on growth than we expected. But that’s not all the story. What is really interesting is that, you know, there was a team called troika –

RQ: Which the IMF now admits was a poorly-constructed way of moving forward
DSK: Exactly, exactly. Because, maybe you remember, before 2010, or at the beginning of 2010, the European Union did not want a loan to see the IMF come into Europe. “Never” they said “never, we don’t want-”. So when we came in, we were a general partner. The other partners were the ECB, the Central Bank, and the Commission. And we were a junior partner. And we argued for more growth. We were clearly the pro-growth people within this group. But with little success.

RQ: Why has the Eurozone crisis been such a failure to solve?
DSK: Because they fail to do what, in my view, they had to do. Ahh, Restructuring-

RQ: They?
DSK: Yeah, they, the Europeans. Including me as a European, of course. Ahh, failing to restructure the debt, ahh, failing to- the cleansing of the banking system, and failing also to redistributing well. The story is that ahh, when you are facing such a disaster, you need to clean up, pay what you have lost and go ahead.

RQ: Are you prepared to say now that they have completely botched the Eurozone crisis?
DSK: You are too hard, a little too hard. But, I’m not that far from what you are saying. Frankly, everybody knows in the business side, that when you have a loss, you have to take it. And start again. What the Europeans tried to do was to buy time- for political reasons, not to admit the losses so they were unable- still now they are unable to have a plan for the future. They just try to buy another six months and another six months and that’s a catastrophe because the cost today is much higher than the cost, what would have been the cost two or three years ago.

RQ: And when you see the way they put together the original Cyprus, bailing-in ordinary depositors?
DSK: Very good example. Cyprus was another disaster. As is history. There is no lessons. How can you expect that the Cyprus economy, which is such a small economy, will start again when you are squeezing all of the companies, all of the firms, keeping all of that money out?

RQ: So let’s just be blunt about this. Is this a case of Germany
DSK: No-

RQ: -pushing austerity, or the hard-liners- you’re a socialist, so is it a case of the hard-liners on the right pushing austerity to the absence of anything else?
DSK: No. If it were a question of Germany, you have gross austerity and pro-growth in those countries in France and Germany and other countries too. The problem is that it’s not- the problem is not the question of austerity or not. It has been too much…, I agree with this, and if I were a Greek man, I probably would be demonstrating in the streets as are others. But the question is not, is not the main question. The question is that more or less 70- what the economists call the policy mix between fiscal policy and module policy- is not quite the problem. The main point is competitiveness. And I mean that you need to have less deficit or more deficit- less than or more than is an interesting problem. But it’s not the main problem. The main problem is that Europe is not competitive anymore.

RQ: Then what has to happen to make Europe competitive?
DSK: Well, you have to work on the competitiveness. The history is too long to be said today, but a country, like France, like UK, like Germany also, has lived for a century or more on the fact that they keep the technology for themselves, leave the rest of the world. And that’s over.

RQ: But then today’s-
DSK: -and they have to rebuild it.

RQ: -today’s leaders are not up to the task.
DSK: Well, I think most of them don’t really understand what globalisation is. They have been educated, trained, they have, had a political life in one country- in only one country- and they don’t realize that Europe is not that big, it is a small part of the world. And the problem is, to solve the European problem, in the globalization, not against the globalization, against the globalisation.

RQ: They’re not up to it! Come on Dominique, if we, we’re talking here about a situation where four or five years, nearly six years after the crisis began, and Europe is still in recession, with high unemployment-
DSK: Well if you wanted me to tell you, if you want me to tell you that there is a crisis of leadership, I will tell you, there is. You know, there is some Arabic saying which is that an army of lions led by sheep will always be defeated by an army of sheep led by lion. And that is exactly where we are.

RQ: Sheep? Where you have lions being led by sheep?
DSK: I’m afraid that, um-

RQ: The commission’s not up to it.
DSK: Some, ah-, you can’t be that generous. Some leaders in Europe are perfectly up to date and know what they will have to do, but most- the European system is built in a way that no decision is made, that no hard decision can be made.

RQ: The euro is a classic example of exactly what you are talking about. It was a, it’s, to continue your analogy, the horse built by a committee which becomes a camel.
DSK: You can say that. Look at the banking union. It’s a bit technical, I don’t want to elaborate too much on that.

RQ: It’ll never happen.
DSK: It’s not going to happen. For years, and we need absolutely, but the different elements of the banking union are not on the table. Just because most countries do not want, they say declaration, blablabla, okay, you pronounce it, we make decision, but then nothing happens in the feeling. And that’s the point. Most decisions which are made by the European leaders are broadcast as “big success”, but afterwards nothing-nothing. And that’s the point. Years after the beginning of the European crisis, we are still there with zero growth, close to zero growth and it is going to go on for years in the same way, just because tough decision are not really implemented.

RQ: Are you frustrated that you are not there to be able to have an influence on this crisis?
DSK: No, it’s my fault-

RQ: We’re getting to that in a second.
DSK: -we all know that. Ah, I’m not frustrated. I’m just, ah, desperate to see my country, and my continent, because Europe is not only a money, a currency, or a market, money is civilization in Europe, Europe is a civilization and, and to see the civilization just going around without being able to solve problems, which are small problems, Greece is a small economy- 2 percent of the Eurozone GDP, Cyprus is just ridiculous. I met sometime, an American CEO talking about Europe, and he said how can it be confident with those guys? How can it be confident with CEOs which are unable to solve a problem of 2 percent of the turnover? That’s exactly the point.

RQ: there’s no easy way to ask any of these questions-
DSK: There’s no easy way to answer them.

RQ: Fine. So I’m just going to ask it straight-out. What were you thinking that day in New York?
DSK: Firstly, I don’t remember it exactly. And it depends if you’re taking that day before the event-

RQ: Before the event… before the event which led you to the event.
DSK: I wasn’t thinking anything. It happened, something happened, which is a private thing and I still say what happens in a room is a private thing unless the prosecutors find something to tell you that you are going to be charged for something and they have proof of that and when prosecutors, after having charging you tells, okay, finally we don’t have enough to charge you, it means that it is privacy and nobody has to say anything about it.

RQ: So what do you think was the … for making the accusation?
DSK: I don’t know. We can imagine several things. I don’t know I don’t want to have myself in that position now. But eeuuh many hypothesis have been put in the press. I’ve seen in the press that it could be for money, it could be for some secret services… I don’t know. I don’t know what was really the motivation, the reality is that I have been charged for very very euuh difficult crimes that at the end of the day, the prosecutor, the district attorney said okay there’s nothing anymore.

RQ: Why did you settle the case against her?
DSK: That’s very simple. The US is very specialistist.. In my country, in most European countries when on the penal side, penal say there’s nothing then you cannot be sued on the civil side. In the US, you can. So the prosecutor may say, we have nothing against you but still you may have a civil trial. And I was ready to go to the trial, but my lawyers told me okay it’s gonna take you 4 years. It will cost you much more in legal fees than you have to pay, even if you win so you better … and I decided to pay and go on with my life.

RQ: Do you give any credence to the conspiracy theorists? The secret services, the missing… Do you give any credence to the fact that you were set-up?
DSK: Credence maybe. Proof no. So I better say nothing.

So you do get some credence… When we talked one of the most controversial aspects of such a behavior was of course the fact that you had to perp-walk and this made much noise in France. How do you now view the perp-walk?
DSK: As the most terrible thing, frankly. Not only because it’s difficult to live; there are many things which are difficult to live with. The problem is it’s a moment where in all European, American society you suppose to be innocent, you suppose to be innocent and feel you’re convicted. And the perp-walk takes place at the moment where you suppose to be innocent. And so what happens is you just show to everybody as if you were a criminal, at the moment no one knows whether it’s true or not. Maybe you’re a criminal, maybe you’re not. And then you prove later on that it is just unfair to show people in that way to the rest of the world when you just don’t know what they have done.

RQ: did you feel that at the time?
DSK: Well I was, I was angry. Because at this moment I didn’t understand what was going on, I didn’t understand why I was there. I was just understanding that something was going on that I didn’t control.

RQ: The problem with all the allegations about you sir; whether it is the Sofitel incident or the young lady in France or the libertine soirée. The problem is that none of them, underneath them all there’s an element of behavior that is not expected of men or women of high office.
DSK: I agree, I agree. So I made this mistake to believe that you could have a public life doing what you had to do in the public life and …. And that you can have a private life. And my mistake was certainly to believe that you can have these two things together without any connection between. It was wrong. It was wrong in the way you say because people are not expecting this kind of heterodox behavior from somebody having public responsibility.

RQ: Were you an accident waiting to happen?
DSK: No I wouldn’t say that. I won’t say that. I had in mind that I could do what I want as long as nobody was hurt or some legal problem appeared. Without a legal problem, I could do what I want as everybody could do what he wants and that I would be judged by public service just by what I do in the public. Again it was a wrong thing. And I understand now that you cannot detangle the two in that way.

RQ: And finally on this, as one reads about you… Everyone says you have a problem with women “DSK clearly has a problem with women”. In his attitude to them, to way he behaves towards them, the way he views them as sexual objects.
DSK: No, I don’t actually. I don’t think so. I don’t think I have any kind of problem with women, I have a problem with understanding what is expected from politicians of highest level. It’s different from what can do Mr. and Miss in the street.

RQ: That’s the price of being at the top.
DSK: Exactly, I didn’t want to pay this price. So finally I paid it twice.

RQ: You said that you had missed your rendez-vous with the French people – I believe it’s the phrase – you were going to be presidential candidate. Was It a case of aurevoir or adieu? Are you gonna come back again ? Everybody wants to know. It’s a basic question, isn’t it? Do you have aspirations to be president of France?
DSK: No, no.

RQ: Is that a politician’s no? Never, maybe or perhaps?
DSK: It’s a no. I’m not wording it for convenance euuh some in developed countries some in underdeveloped countries, they ask me for advice, I’m happy to help. Sometime I make some money, sometime I don’t make some money, for free, just because I want to help. And I like it. But put this problem of French politics behind me.
DSK: I think the situation is very difficult and I think he’s doing his best

RQ: In that scenario, if he can’t solve that problem in that French environment, it has to be a European environment, it doesn’t bone well.
DSK: To solve a problem together you need to be a team. The problem is that you don’t have the European team.

RQ: And you don’t even have an agreement between France and Germany.
True, true… In my view, I don’t want to be pretentious and say that but they don’t understand that they cannot solve their problems alone, that’s true for euh for Merkel, it’s true for Hollande, it’s true for the Italians, it’s true for Cameron, it’s true for all of them.

RQ: Does it worry you that Hollande and Merkel do not get on that well? I mean, they might get on personally, but politically they are not ..?
DSK : Absolutely. I think the only way for Europe to overcome obstacles… is to have a great cooperation. And more than cooperation: a great understanding between France and Germany. It happened in the past, sometime. And that was the period it went well. It’s not the case anymore and… that’s certainly a problem.

RQ: If we talk about the banks – nevermind the subprime crisis that got us into all this mess – good old fashioned greed, bankers’ greed, bonuses. Trying to do something about it, are you more on the Anglo-American approach or the Michel Barnier European approach.?
DSK: None of them. The Anglo-American approach is hypocritical. The Barnier approach is uneffective. Even if Michel Barnier himself is a very good man trying to do his best. But it is an environment which makes it difficult to… to… to.. really succeed. The point is, it is just unacceptable for most of the people on Earth that some others will earn that much money and on top of that, earning this money, will take risks that they won’t support themself but the rest of the world will have to deal with. So, of course something has to be done, but it’s not just capping the income or something like this. It’s much more deep to change the way the financial institution are working.

RQ: In the same way that Libor… they managed to defraud… Libor. They managed to fix Libor for many years. Were you horrified by that?
Well… horrified is a bit too strong, the word. But… I am not sure if/about the right way to do things… Look. The Banking system in Europe … is… is sick. Very sick. Much more than people say. It has to be… really, er, cleaned up before growth will come back. And because most of the leaders are unable to make this decision … beyond the question of how much money traders, people, how much money they will make… that’s only a small part of the problem. If you don’t solve the problem of the banks in Europe, you won’t have growth anymore.

RQ: We have two more areas to talk about. Free trade agreements between the EU and the US. It’s just getting underway now.
DSK: trade is good.

RQ: Ah! Everyone says trade is good.
DSK: no no ….

RQ: you put any economist in the room, everybody will say “free trade is good” and you…
DSK: that, that’s fantastic! Mostly you say you put two economists and they’ll have different opinions!

RQ: But you know from the Euro-round, the Doha round…
DSK: the point is… let’s go to the core of it. An agreement is good thing. The problem is, disagreement so far is look at something that is much more beneficial to the US than the for rest, especially for Europe. The US already had an agreement with Pacific minus China. They want to have the same kind of agreement with Europe. And then will be able to define the standards. And the biggest question in this ??? is if you are able to define the standards as yours then you dominate the world. And that’s what the US want to do and I think the Europeans should not be that… that naïve.

RQ: Naïve? The Europeans are gonna get turnover here aren’t they? I mean France might keep its cultural exception …
DSK: That cultural exception is a very interesting thing and I’m totally in favor of that but that’s a small thing. A small part of the business. The real part is not there.

RQ: Overall the Europeans are gonna get turnover, the Americans are gonna get… take a walk out of the European???
DSK: We’re gonna see, we’re gonna see. I hope that we’ll be able to have a fair agreement with the US. And what I see today in the papers and … not only newspapers but also ??? that are circulated is that it’s absolutely unfair. There are no reasons why the Europeans would accept it. The only point is that they’re… divided. A united Europe will be able to resist. A divided Europe , that comes back to what we said before, will not be able to resist.

RQ: You know well, as a politician of experience: divide and rule.
DSK Exactly. But that’s a reality you know. Europe could be one of the leaders of this world, if Europe was able to speak with one voice. It’s absolutely not the case.

RQ: Finally, what are you gonna do next? Alright, you said you’ve got your consultancies in various countries, you wanted to be a president … But you are a man steeped in public service and you’re not just about to pack up and head off.
DSK: I spent all my life trying to help my people in France to have a better life. It appears to me while I was working that I could do this at the global level. Again, I must be humble. I cannot change a lot of thing but I can help. And when I ‘m working for a country like South Sudan for instance, which is an new republic of 18 months old, that needs everything and that I’m doing it totally for free because I want to help them. I’m happy to see the government of South Sudan tell me “come to us and help us, we need you”. That’s much more rewarding than any kind of election in any country. People looking at you and say “we need you”.

RQ: Which is the opposite of people looking at you and say “no thank you”.
DSK: Exactly. Exactly. Some people may have reasons not to like me and I totally respect that and they don’t want to see me anymore. I can respect it. The problem is … there are a lot of people, right or wrong, but I think they’ right, that wants me to help them. Why should I do that? And to do this you don’t need to be politicians. You just need to know what your advice are. And if people like it and if it succeed, then they will ask you more and more. That’s exactly what I wanna do.

RQ: Dominique Strauss-Kahn, thank you.

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