KEY POINTS:
Sub -prime crisis, credit crunch - call it what you will - but the problems facing the global banking sector are of such a magnitude that a co-ordinated, multinational response is needed to prevent the world's economy stalling, says Sir Anthony O'Reilly.
Sir Anthony is the CEO of
Independent News & Media, a major shareholder of APN News & Media, which publishes the Herald.
"The American sub-prime crisis: that in my view is a gross understatement," he says.
"It is an American crisis that is part of a world crisis, which is caused by systemic over-reaching and imprecision in the banking system."
While US Federal Reserve Governor Ben Bernanke and President of the European Central Bank Jean Claude Trichet will do their bit do try to free up the flow of capital, the scale of this crisis may be too big for any one institution, argues Sir Anthony.
"I think in the rest of the world there will have to be, pretty urgently, a collective effort by Bernanke, by Trichet, by the Bank of Japan, by the Chinese, and by a group called the - not the G7 or the G8 - call it the G-whizz group. We'll form a new group and that G-whizz group better get to work, to make sure that interbank lending is returned to normal."
America would keep cutting its interest rates to try and stave of recession - but traditional mechanisms were being sorely tested.
"If America has to go to 2 per cent, then America will go to 2 per cent.
"But I will remind you that during the depression of 1932 and '38, American money was at 2 per cent. So that's not the answer necessarily to the crisis, it's money supply and money interchangeability and money velocity.
"When you've got these SIVs and CDOs and complicated derivatives, and nobody actually knows the underlying values of them, banks are afraid to trade in them."
When banks were afraid to lend, the world had a problem.
The boom which saw private equity and highly leveraged buy-outs dominating the corporate scene was now dead in the water.
The days of valuing businesses at 8.5 times ebitda and beyond are history, Sir Anthony says. "It was an over-reach. It was greed.
"I could give you a hundred moral reasons why it was wrong. But the fact is, it was done. We are where we are. Now let's get out of the goddamn thing.
"There hasn't been a leveraged deal that has been done at anything above six times earnings in the last 12 months."
Fuelling the frenzy of deal making were complicated lending systems which allowed people to take ridiculous risks on the basis of pass-the-parcel, he says.
"I buy it from you, you buy it from me, he buys it and sends it on to somebody else, etc - only the world got caught with the parcel."
Sir Anthony cites a study which suggests the total amount of loans that are no longer capable of being properly valued by the market is now about US$400 billion.
Of that figure, only US$180 billion has been officially recognised by the world banking system in various write-downs.
That leaves a whopping US$220 billion out there that is unaccounted for. In short, it suggests the worst of the crisis is yet to come.
"You look at the demise of Stan O'Neill, the demise of Chuck Prince - Citigroup and Merrill Lynch - whoever thought the CEOs of the two major banking houses in the United States would lose their jobs almost in the twinkling of an eye?"
While thus far America has had most of the victims, the consequences will effect us all.
"I think something has to be done, and done very quickly. We're in trouble. It's not America in trouble, it's not Germany, it's not Britain. We are all in trouble.
"People will have to stand up, and, lets call it the G-whizz group, will have to get together and they will have to take action and they are the lenders of last resort."
These problems are more than just big business problems, they flow all the way to your local bank, to the ordinary man on the street looking for a mortgage, he says.
We were increasingly going to see governments forced to provide guarantees to banks in order to restore confidence. The Northern Rock collapse in the UK was just one example.
Ultimately that came down to an issue of public confidence, he says.
"Money, in its absolute sense, is a creature of confidence," he says.
"We've all had it. We've been on a football field, we're full of confidence. We'll win. We lack confidence and we lose."
Despite his sense of concern about the global economy, Sir Anthony does feel there are still opportunities for businesses. Particularly in Asia where INM is increasingly focusing its attention.
There are still portions of the world where "if you take small risks, there are high rewards".
Indonesia in particular - where he has just visited - is an area where Sir Anthony sees great potential for expansion.
"I have described Indonesia as one of the best kept secrets in the world. People think about India and China as being the holy grail, and they are, because of lots of things. But the fact is, Indonesia has 200 million people. It's a modern Muslim country, it's got a very good workforce, it's got a very good work ethic."
And it is following the pattern that has been set by India and China.
"The people of Indonesia aspirationally want a better life, they are going to get a better life, there's going to be more money around, advertising is going to go up, and we'd like a piece of the advertising market," he says.
Growth in the Indonesian economy is such that the TV, newspaper and magazine advertising spend rose 17 per cent in 2006 and 2007, he points out.
Investing in the Indian economy has already paid good dividends for INM in just three years.
"We have put in approximately - in New Zealand terms - let's say, $60 million, and today it's worth $320 million," Sir Anthony says.
The group now owns a major daily paper - Dainik Jagran (The Morning Awakening) - which sells 2.5 million copies per day.
"That's 28 editions from Rajasthan down through Punjab, through Madras, through Uttar Pradesh across to Maharaj Pradesh and across to Calcutta."
Advertising revenues there are increasing by 25 per cent per year.
"People want a better bicycle. They want a better toaster. The aspiration has been released and India has the people."
China holds less appeal for Sir Anthony because the lack of press freedom curbs the appeal of newspapers, he says.
But there are still avenues for growth, mostly in the outdoor advertising sector.
"So, there are pockets of opportunities," he says of the business outlook for 2008.
"If you ask me, what's going to happen in INM: certainly our banking lines are such so that we are not in any way overgeared, so we are not looking for money from anyone.
"Secondly, we are going to be frugal and we are going to be nimble. I think our businesses are doing reasonably well round the world, we are on budget for this year."
There is no country where the media will prosper if business activity decreases, he warns. "We can certainly survive and do well, but it will not be a stellar year for anyone."
In the UK and Ireland, where INM publishes the broadsheet newspaper The Independent, Sir Anthony is upbeat about the health of the group.
"We are one of the best performing media stocks in our peer group." He is fiercely proud of his papers.
"The Independent in London is the best paper of its type in Britain today. It's centrist and it's open, and Britain needs that."
Criticism of its financial performance (the paper doesn't generate net profits) isn't grounded in financial reality, he argues.
Like the Times of London, "it is one of the most tax effective in the world."
Sir Anthony believes New Zealand is better placed than many to ride out the current economic storm.
As a former CEO of the Irish Dairy Board - launching the Kerry Gold brand in competition to New Zealand's Anchor - he is well aware of the value of the dairy boom.
"Ireland will do well from a dairying point of view and New Zealand is going to do very well from a dairying point of view, if your weather allows it.
"There's a terrific world out there for eco-friendly New Zealand produce," he says.
"You can market New Zealand. You are a country that is blessed by distance in this case, not oppressed by it.
"You fly over China and you can see the smog which you cannot see over the skies in New Zealand.
"So I believe you are the purest nation in the world in terms of production characteristics, and therefore you should make absolute hay of that from a marketing point of view.
"And I believe the cowcockies in the Waikato and Southland - who used to kick us up and down the field - will be in good shape, if they can get volume to the market. "
Sir Anthony first visited these shores as a member of the touring Lions team in 1959.
He recalls a country that was rigidly structured and insulated from the global economy.
But now the ropes are off, he says.
"From being a closed, monastic order - which I wasn't too worried about as a footballer; your girls looked as pretty then as they do today - you've moved into a society where to say you've got to be quick-footed is to understate the case.
"So the winds that buffet the United States can be picked up in a day in Auckland or Wellington."
SIR ANTHONY O'REILLY
* CEO and largest shareholder of the Dublin-based publisher, Independent News & Media Group.
* Born May 7, 1936
* Educated at Belvedere College and went on to study law at University College, Dublin.
* An international rugby representative with 29 caps for Ireland between 1955 and 1970. He also toured twice with the British Lions, in 1955 to South Africa and in 1959 to Australia and New Zealand.
