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.
"As representatives of the world's banking and financial community, you are in a position to prepare the public for the coming upheaval," he told Bank for International Settlements members.
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 the G-8 does act, he said there is a better than even chance of a recession as severe as the 1973-74 one, when the U.S. gross domestic product dropped 3.7% from peak to trough. He said the 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 for 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."