Published in the American Banker, April 8, 1998,
page 4.
"Global Alliance Called for to Fix Year-2000 Bugs, Avoid Recession"
By Scott Barancik
International bank regulators were warned Tuesday
that year-2000 computer problems will cause a global
recession unless extraordinary steps are taken now.
The industrialized nations must create a global,
military-style alliance to contain the computer problem
and appoint General Colin Powell or someone of
similar ability as its commander in chief, said Edward
Yardeni, chief economist for investment bank Deutsche
Morgan Grenfell.
"Let's stop pretending that y2k isn't a major
threat to our way of life," he said in a speech to the
Bank for International Settlements in Basel,
Switzerland. "The current y2k global battle plan is
virtually guaranteed to fail."
Mr. Yardeni's recommendations were part of a
seven part plan that includes a freeze on regulatory
and statutory changes affecting information technology
and a mandatory holiday during the first week of
January 2000.
Of particular interest to financial institutions,
Mr. Yardeni recommended the creation of "industry
alliances" that would help assure key activities, such as
banking services, would not be disrupted.
<snip>
Mr. Yardeni, who gained attention earlier this
year by winning a Wall Street Journal contest on
economic forecasting, began assessing the impact of
the year-2000 problem last July. At that point, he gave
the year-2000 problem a 30% chance of causing a
global recession and has since raised the estimate
steadily.
In his speech Tuesday, Mr. Yardeni said the
likelihood of recession would be "closer to 100%" if the
G-8 nations do not act at their May 15-17 meeting in
Birmingham, England.
Even if G-8 does act, he said there is a better
than even chance of a recession as severe as the
1973-74 one, when U.S. gross domestic product
dropped 3.7% from peak to trough. He said U.S.
nominal GDP and stock market capitalization could
both fall $1 trillion.
"Information is just as vital as oil for running our
economies," he told the Bank of International
Settlements Conference, which was also attended by
members of the Committee on Payment and Settlement
Systems, the International Association of Insurance
Supervisors, and the International Organization of
Securities Commissioners.
In an interview before the speech, Mr. Yardeni
backed off of an earlier prediction that 20% of small
financial institutions would fail due to the year-2000
bug, saying it was an off-the-cuff "guesstimate" with no
basis in econometrics.
But he did say the 20% failure rate is a plausible
worst-case scenario: "If there are going to be business
failures, there are going to be nonperforming loans."
