I moderated a panel on "fat tails" today. The general idea being that however optimistic the baseline (and reasonably consensus) expectation for the global economy, there's much more volatility in potentially extreme outcomes -- the fat tails of the distribution. Which can be dangerous, but can also represent opportunities.

Four CEOs on the panel (Swiss air, Aviva, Third point, AMEC) and the new South African finance minister, so a nicely broad/comprehensive group. Ther were some interesting points.

1) A clear distinction to be made between fat tails (which are intrinsically knowable and, at least in principle, manageable) and black swans (the literal bolt from the blue). Possible that black swans "should" be fat tails when companies have their eye off the ball. Nice in principle, but it doesn't usually work that way.

2) There was surprisingly little concern raised about Europe. The euroskepticism is really the hallmark of the europundit crowd, not the business community, which means it tends to get over-egged. Consistent worries about the environment, and the move from mitigation to adaptation. Where there's some good work being done around understanding the impact of the dramatically changing energy mix, less so on business impact of dramatically changing climate patterns.

3) Cybersecurity a big ominous worry across the board, but much more of a black swan. Folks don't know what they don't know ... and it unnerves them. They feel like they need to resource it, but aren't sure how.

4) Too many people have been saying that chief executive officers are also becoming chief risk officers.  nonsense.  they may be becoming more sensitive to and aware of risk. But chief risk officers are generally folks that try to tell you how you can lose money -- and so are themselves treated as a risk to be mitigated internally, by executives driven by growth.

5) I very impressed with Pravin Gordhan the South African minister. He was mostly concerned about protectionism and currency controls (externally), social dislocation and broad income disparities (internally). With a few words for the U.S.-China conflict. Fair enough.

6) My buddy Dan Loeb (third point) is now sympatico with obama policy (which was decidedly not the case six months ago -- Obama's not a fat tail.

7) I cold called two friends in the audience with tough questions. Ex-PWC CEO (and WEF trustee) Sam DiPiazza, and starwood CEO Fritz van Paasschen. Both responded gamely. My appreciation.

Just spent a fun hour at the annual BBC World Debate. This year the topic was the question of global leadership, presenting grist for lively discussion. The format is pretty standard here -- they have four on the panel and another four in the front who they turn to for debate and questions. I was one of the latter. Originally I saw U.S. congressman (and Davos fixture of late, oddly enough) Barney Frank listed to sit next to me… but when I bumped into him beforehand, he said he wasn't showing up to sit in the audience and ask questions. Sad, as he usually causes some trouble. No dearth of status issues at Davos. 

Speaking of last minute substitutions, U.S. House Majority Leader Eric Cantor was supposed to be on the panel, which also would've mixed it up. But he got stuck/snowed in back in Washington. So, the Council on Foreign Affairs President Richard Haass stepped in, and actually did an extremely credible job last minute. Mostly because he was so balanced, standing solid ground on core policy principles while coming across as a thoroughly reasonable American (as opposed to, say, JP Morgan's Jamie Dimon, who a couple of hours later got thoroughly flogged as a rapacious and repugnant banker type by French president Nicolas Sarkozy).

Panelist Christine Lagarde, French minister of Economic Affairs, was mostly talking G-20 with France hosting the next summit meeting. Which provided the me-too plug of the forum so far, as Polish Minister of Foreign Affairs Radoslaw Sikorski stood up with an impassioned plea that the G-20 could be really effective and show leadership if only we brought in a few other of the world's key countries. Like Norway and the world's 21st largest economy… Poland. Say what? At which point I stood up and said it would be great if we could actually get to a G-20… or a G-21 with… (derisive pause) Poland. The challenge was that we didn't actually have either. Lagarde actually laughed. Which gave me the chance to kick off a fairly lively debate on values and leadership.

Victor Chu of First Eastern Investment provided the China line -- China's still a developing country. Give them time. The train has left the station on Chinese leadership. And with great velocity. But it hasn't actually arrived anywhere yet. More G-zero. I'm having fun with this.

There's an interesting distinction to be made between Davos and the G-20. The Davos agenda is much more coherent. That's largely a matter of self-selection -- the people who come to Davos are largely folk that accept/support a Western-led globalization model and the values that accompany it. So, you get lots of talk about support for open borders and concern about immigration policy, lots of support for free trade, much worry about the threat of protectionism.

There are guests who don't share the agenda, some of whom are a seriously big deal, largely to be assessed/engaged by the WEF community. And there are some appointed gadflies here to stimulate debate. But it's a very coherent/cohesive group; there's really something to the whole "Davos man" (and yes, largely still men, different debate) thing.

But the world increasingly doesn't reflect that. Which provides a backdrop of very serious uncertainty to the pervasive economic optimism that's infusing the place. How long is the U.S. dollar able to remain the world's reserve currency? How long can the West attract the world's top talent? What happens as the leverage continues to decrease and the players making the key decisions affecting the world (even while not leading it) no longer share the same values in the halls of Davos?

For this year, at least so far, there are no answers to those questions. But they're not going to go away.

* * *

I bumped into my colleague David Rubenstein, the Carlyle founder, this morning. The biggest surprise for him is that nobody was interested in blaming the business community for anything this year. True enough.

I asked whether he was surprised about the underlying optimism from the business community, given how much of the global economic burden in the West has just been shifted to the shoulders of the public sector. He said he was amazed anybody's still buying U.S. Treasuries. A stronger response than I expected. But directionally what I was wondering about.

Big plenary kickoff today was Russian president Dmitry Medvedev. Aside from the "will he, won't he" scheduling snafus behind the scenes, there was a bit of a dustup when he apparently hammered his chief economic advisor, Arkady Dvorkovich, for implying that the trial of ex-Yukos CEO Mikhail Khodorkovsky could negatively impact the investment perspective on Russia in Davos. Didn't seem the wisest move for the (relative) liberal advisor -- Prime Minister Vladimir Putin explicitly said this fellow should stay in jail. I wouldn't be crossing him. Wonder how long Dvorkovich lasts.

For his part, Medvedev explicitly avoided talk of the trial. He started with a pointed mention that Russia shouldn't be lectured. He went on too long, ended with a 10 point agenda for Russia's reform/investment-attracting plans. It was generally ho-hum -- the audience was skeptical, likes the charisma and almost indifferent arrogance of Putin, but is increasingly uninterested by the softer, less effectual side of Russian power.

Other interesting bits:

I sat down for lunch with the Arab League secretary general, Amre Moussa. He overheard me talking about Netanyahu's meeting with Vice President Biden ... his ears perked up, and we ended up breaking bread. Good fellow to talk with at Davos, not much of a Middle East contingent here ... so he's not all that busy (more on the WEF's western orientation later--there's a lot worth considering there). My main takeaway: I came away much more concerned about Egypt's stability/trajectory than I was entering the meeting.

Most amusing bit: he's the first person I've ever met at Davos who asked me about my identity before answering a question. It was something about Israel/Palestine and he stopped and asked ... are you Jewish? From Israel? I gamely replied that I was at Davos, isn't everyone? (Ed note: I'm German/Armenian Catholic from Boston. Go Celtics!) To which, give him credit, he chuckled. 

Davos is now in full swing -- the Congress Centre is heaving. One of the temptations confronted with such a crush of folk is to hang out with the people you already know ... and the more you come here, the easier it is to do it. But you don't learn as much that way. So when I remember, I try to push myself a bit.

That was the decision this morning. It's breakfast time, Harvard economic guru Ken Rogoff is sitting in the hotel cafe with his meal, and so I start walking up to say hi and coordinate a dinner we're doing together tonight. But then I notice someone who looks oddly familiar sitting by himself in the corner. Turns out to be Capt. Chesley B. Sullenberger, hero pilot from the "miracle on the Hudson." Not who I expected to bump into (turns out he's doing a speech on leadership tomorrow night).

He introduced himself as Sully, and we ended up having a thoroughly lovely breakfast. Don't know exactly what his leadership speech is going to be, but a few pre-speech thoughts from the captain in a Davos context.

1) Individuals matter. Sully understood he was in the position to have meaningful national impact after the crash, and it strikes me he's taken his spokesman/"change agent" role as seriously as his role as a pilot on that fateful morning. In an environment where the American political system -- to say nothing of the global political landscape--can seem incredibly resistant to productive change, that's an inspirational message for the Davos attendees. 

It reminded me of Mikhail Gorbachev and the collapse of the Soviet Union. And, more skeptically, why we're not likely to see that kind of a move from the more consensus-oriented of China's leadership. Committees rarely reform themselves out of power.

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