January 24, 2008	Thursday	Muharram 14, 1429

DAVOS, Jan 23: Recession fears gripped the annual gathering of the global business elite in Davos on Wednesday, with heavy criticism of action by the Federal Reserve to ward off a US contraction.

A day after the US central bank slashed interest rates to calm panic on world equity markets, early sessions focused on responses to the problems caused by the subprime crisis in which banks invested in complicated and misunderstood securities backed by US mortgages.

The US central bank slashed its main interest rates by 75 basis points on Tuesday -- its biggest cut since 1984 and the first time it has lowered rates outside of its regular meetings since the attacks of September 11, 2001.

Stephen Roach, a star economist as head of investment bank Morgan Stanley in Asia, criticised the “reckless” and “dangerous” policy and he blamed the Fed for helping fuel the housing bubble at the source of the problems.

The action “could create another (asset price) bubble-induced recovery” which was “the last thing the world and US needs,” Roach said.

New York University economics professor Nouriel Roubini was equally scathing, telling delegates: “The Fed got it wrong on the economy. It didn't understand how these housing problems were going to affect the economy.”

Banks such as Wall Street giants Citigroup and Merrill Lynch have been forced to write off tens of billions of dollars in bad debts as a result of subprime-linked investments, leading to tighter credit conditions for companies and consumers.

Veteran financier George Soros called for new global regulator to overlook the global financial system, a call echoed by former US treasury secretary Larry Summers.

“I think the present crisis is the end of an era based on the dollar as the international currency. And we need a new sheriff, not the Washington consensus,” Soros said.

Summers added: “George Soros is right. There does need to be somebody and some authority doing what hasn't been done as this crisis has gathered for six months.”

He said there was a need for a coherent explanation of the subprime crisis and proposals for its resolution.

Returning to the Federal Reserve action, Roach said: “What worries me about the Fed is that, by easing aggressively on the basis of no new information other than the fact that equity markets were in trouble, they are sending a message that they're there once more to protect the markets.”

Roubini said “the Fed cannot prevent the (US) economy going into recession”.

He added: “The point is not about a soft or hard landing, but how hard the hard landing is going to be.

“I believe we are going to have a severe (US) recession lasting for four quarters.”

Indian Trade Minister Kamal Nath suggested that the rest of the world, and in particular emerging economies like India and China, may be more sheltered from a US recession than in previous years.—AFP