Tuesday, September 30, 2008

Crisis what crisis? Everyone’s become so boring…

Regular readers will know that my blogs are (more often than not) either inspired by a situation I encountered or by the people I have met during the previous week. But in the last few days my business acquaintances have become so boring. It’s not that they themselves are boring, it’s just that the enormity of what is happening in the world’s financial markets is so overwhelming that everything else seems to shade into trivia and insignificance.

Of course, if I switch the conversation to the crisis (which isn’t difficult) then everyone, including myself, wakes up and has an opinion. But the whole thing is very bizarre. Here in Brussels, now that two of the household name banks are in deep trouble, people are beginning to feel a sense of doom. However, I get the feeling that they are either trying to ignore it (like a family embarrassment) or are simply refusing to believe that it will have any effect on them.

The quote of the week for me comes from BBC 4’s, ‘News Quiz’ radio program when contributor Jeremy Hardy quoted John McCain “This is no time for politics” – well excuse me, if ever there was a time for politics, it is now! With the apparent collapse of capitalism (albeit temporary – one hopes) in the US, one might imagine that it is time for the politicians to do what they are paid for? It’s weird how the word ‘politics’ has been so much over used by business people that it now has come to mean, ‘plotting’ and ‘underhandedness’, when according to the English Chambers dictionary it actually means ‘the art or science of government’.

The whole scene reminds me of the image I have of Pompeii at the moment of Versuvius’ eruption – in a modern context you can imagine Mum and Dad and their two children in the car park of Delhaize supermarket loading ready made meals into the trunk of their Porche Caynne.

Everyone is an expert but no one knows for sure what to do – and those with the loudest voices are often taken to be the wise ones, until someone in a quiet voice calmly suggests a total other alternative that spins your imagination into another unwelcome direction.

I train my teams to think out of the box and to be creative but this advice is not given for crisis situations that have been predicted and when there is a well thought through risk analysis strategy that has been painstakingly prepared and tested beforehand. Or am I wrong? Was today’s situation so completely unpredictable, were there no warning signs at all? In ICT we are trained to ask the big ‘what if’ questions and to build complete solution scenarios for them, so I find it kind of weird that the US politicians have no such risk strategy prepared and in place, especially as there are ample previous examples of similar situations, albeit on a smaller scale?

Hopefully next week everything will be back to normal, and my blog will be back on the topic of everyday management issues? I just hadn’t thought that risk strategies might end up being one of them?


matthew said...

The question is whether today’s situation was so completely unpredictable or not? In order to answer, it’s important to realize that it all started with the outbreak of a crisis in the sub-prime mortgage sector in the US more than one year ago. During the unfolding of events thereafter, today’s situation could have been predictable. For instance, Jean-Louis Duplat, former chairman of the CBFA (Commissie voor het Bank- en Financiewezen), says that, given the financial markets developments during the summer of 2007, Fortis should have shown the courage to have stopped the purchase of ABN-AMRO. If they would have done that, I strongly believe that the partly nationalization of Fortis was not needed. In order to understand why so many banks were exposed directly or indirectly to the sub-prime mortgage sector, one should read the following confessions of a risk manager: http://www.economist.com/finance/displaystory.cfm?story_id=11897037

Philippe said...

This crisis was not only predictable but predicted. Even ordinary business people have been commenting repeatedly in the past few years that an economy driven by financial bubbles in which the alpha and omega had become “shareholder value” at the exclusion of any other goal was seriously out of kilter. For those interested in an in-depth analysis of the driving forces behind the current crisis as well as a detailed prediction of its likely manifestations, I could recommend “Der Crash Kommt” by Max Otte published in 2006 (a book that has obviously not been translated into English - what for?).

As far as Europe is concerned, there is no reason to rejoice and blame the Americans for their recklessness. First, the debt-bubble is at least as large in the UK. Second, major structural imbalances (an over-bloated, inefficient and over-indebted public sector) prevent the large continental European economies from becoming growth engines of the global economy, now that the US engine is faltering. Our only hope is that the Asian economies are already stabile enough to resist and that they will provide the pull necessary to get us out of the mess.

Those who currently call for the State to take a larger role in the economy should reflect on the abysmal record States have – historically - in anything but waging war. The role of a modern State is not to intervene directly in the economy or substitute itself to private initiative, but to maintain a level playing field, a system of checks and balances that allows private initiative, i.e. the market to thrive.

The danger is that private initiative (the market) will be blamed for all current evils and State initiative will be boosted as a corrective measure. That will merely swing the pendulum in the opposite direction. Instead, States should apply themselves to maintaining the delicate equilibrium in the complex system of checks and balances that is the prerequisite for private initiative to produce fruits for individuals as well as for the public good.

Which politician nowadays understands even the basics of economics and, conversely, which private citizen understands the basics of politics? Why have we all become boring? Because we cultivate a blissful ignorance of each other. Politicians doggedly refuse to learn about economics and the private citizen refuses to take part in the affairs of the city. Worse, we, modern businessmen – the elite of society! - are left with but one concern: to generate cash, for ourselves and our shareholders... at the cost of the quality of our products, of the wellbeing or even existence of our workforce, of the trust of our creditors, of the respect of our colleagues and business partners, of our role in society, etc. How boring indeed!