BEIRUT: An internationally renowned economist said on Wednesday that banks need to review their banking strategy following the global credit crunch, noting that the world has not yet recovered from the financial crisis. “One look at banking is that banking is accepting credit and lending money,” said Souhail Elia, chairman of the ABC anti discrimination league in Nevada and chairman of Asian American leadership council for president Obama, speaking before a panel of Beirut’s top bankers and economic experts. 

“To me, this is not the true definition of banking. To me, banking is the business of buying and selling money.”

Elia gave his speech at the Union of Arab Bankers building in Downtown Beirut. In pointed terms, he tackled the many of the most pressing economic issues of the day: The global financial crisis, inflation, and the future of the US dollar as an international currency.

In his opening statements, he asked his audiences to look be­yond the prospect of recovery. “Where are we now?” he asked. “There is a shortage of credit, loss of confidence, decrease of consumer spending … all these things we know. It is a financial crisis, in a nutshell.” These challenges can no longer be considered symptoms of a trend, he said, but must be viewed as realities and dealt with as such.” 

A number of economists, in­cluding former US Federal Re­serve chief Benjamen Bernanke, have predicted that the world is now in recovery, he said. 

But Elia said a bottoming out” of the world economy is hardly  a cause for celebration.

“The absence of something is not the presence of something else,” he said. “The absence of war is not the presence of peace … The absence of backward movement does not mean you are going forward. It might mean you are stationary.”

To have a true recovery, he said, will require a new approach to the financial system and a general restructuring of banking strategy. “We need two things,” he said. “First, we cannot have more toxic assets than productive assets.” Institutions cannot hold their ground when they are based on assets that are not allowing them to grow, he added. 

“Second, we cannot allow any institution to qualify as ‘too big to fail.’ Because if an institution sees that they can fail, they will, again and again. Einstein said that anyone who does the same thing many times and expects change is a fool,” he said, referring to the commonly cited “Einstein’s law” stating that the definition of insanity is trying the same thing over and over again and expecting different results. 

Rectifying these two features of the financial system – both of the key factors in the global financial collapse – will be necessary before true recovery is achieved, he said. 

Consumer spending is down, the stock index remain low, and by all accounts we are still in a crisis, he said. So how should financial industries proceed? 

Banks, at their most fundamental, follow a basic formula, Elia said. Banks loan money, and collect interest on the return – in effect, their business is to sell money for a return. Banks’ only assets is money: so naturally, the question arises: How do banks protect their assets from inflation?

“Inflation is the only thing that erodes the value of money,” he said. “So money has to be closely monitored.” 

To gauge the health of the market, look at inflation, he said. He told the panel that to his mind, there were only two reliable methods of monitoring inflation: the Consumer Price Index and the GDP deflator. However, both indexes are lagging indicators, he added. 

“But you know what isn’t?” he went on. “The price of gold. There is no institution that will tell you that the price of gold is not a forward indicator.” 

Gold closed out the day at a record $1091.33 an ounce.