Amit Paranjape’s Blog

The Clueless Global Financial Leadership?

Posted in Current Affairs, Financial Markets/Economics by Amit Paranjape on October 10, 2008

  

 

 Rarely has one seen the entire global leadership of the financial world, so utterly clueless. The leadership comprising of the elected officials, finance/treasury heads, central banking heads, regulatory heads, Company Board of Directors and CEOs – all seem completely lost!

 

They say one thing, do another…talk about being globally coordinated, then do things in isolation…swear by ‘free market’ principles, only to violate them the next day, they agree to vote on a plan…and then reject it, only to approve it later…,bailout one bank, but not the other. In the mean time, the markets keep tumbling…trillions of dollars worth of market cap is just vanishing in thin air!

 

Everyday, there are parallels being drawn to the ‘Great Depression’. Everyone, including the leadership is in denial…This was not supposed to happen! Over the past seven decades, we have seen a World War, a Cold War, Oil Shocks, 9-11, and on and on. Over this period mankind has survived one great crisis after another, including the possibility of M.A.D. (Mutually Assured Destruction – that doomsday scenario so commonly speculated; especially at the height of the Cold War). Even during these darkest of dark times, it felt that someone had some control. We may have not liked the direction of that control, but at least someone was affecting it.

 

This current financial mess was not supposed to happen! But it did…The modern world was supposed to have a robust system of monitoring, checks and balances. There were safety factors, reserve ratios, rate cut options, liquidity injections, and an array of other weapons in the armory of the leadership to combat such problem. The CEOs having precipitated this crisis, by amongst other things their ‘greed’ and ‘aggressive business practices’, had many options to limit the damage…but either they were embroiled in their own stubbornness, or just totally oblivious?!

 

One thing is for sure – right now ‘we the global population’ are losing this battle; and losing it badly! We had lessons learnt from the ‘Great Depression’, the 1980s crash, the Asian crisis of the 1990s, the dotcom crash and the WorldCom/Enron saga. And yet we got completely blind sighted. We have probably the most qualified US Treasury Secretary and yet he seems as lost as everyone else! Just recently we had a comprehensive Sarbanes-Oxley regulation that was supposed to force ‘companies’ to disclose their risks & exposures in a proactive fashion. European banks (which haven’t been immune to this problem) had spent years coming with BASEL II regulations to do a better job of ‘risk management’ and yet we end up with this? Has the ‘system’ failed so miserably? Or the companies creating this mess were so terrific at ‘hiding’ their actions? Or the ‘system’ was so utterly totally incompetent?

 

The current scenario is more like a global pandemic – the kind of massive epidemics that use to ravage cities prior to the 20th century. So called ‘experts’ and doctors use to try various things, but to little avail. Often times, their ad hoc methods (in those days, detailed causes of many of these problems were not known…) creating more damage.

  

How did this happen? That is going to be a multi-trillion dollar question! But who knows where the ‘Dollar’ will be after all this is over? And where will be the Euro and the Yen be? It might be safe idea to now refer to everything in gm/kg of Gold (Ounces/Pounds for those who prefer not to use the metric system). ‘Experts’ and ‘Pundits’ of the modern capitalist system have discussed ad nauseam the current problem and the only thing I can gather is that they are as confused as the leadership and everyone else.

 

Maybe some day, we will know what happened! Clearly that day is nowhere near! Till that day, all we can do is wait and wonder…what exactly happened? And why?

 

[You might want to read these related posts, ‘The Illiterate 21st Century Consumer’ and ‘US Financial Crisis – Who Is To Be Blamed’ ]

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9 Responses

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  1. sandeep said, on October 12, 2008 at 4:34 pm

    good one. Some links to the terms like Basil, Images, MAD would have been useful.

  2. hemant said, on October 13, 2008 at 10:55 am

    Good commentary on the confusion that has surrounded this matter. Ship is moving in all directions (sinking?) – so someone puts in more fuel, someone adjusts sails and others blame it on currents (and fish movement!).

    But what else can they do, since “it was not supposed to happen”. Nobody knows root cause. In fact there aint a single root cause. It looks like the effect of multiple factors gone amiss. I think it is going to take a bit of time for those factors to correct “organically”, only then can we hope for sustained stability.

  3. Amit Paranjape said, on October 13, 2008 at 12:42 pm

    Hemant, Good analogy.

    All, Do check out this nice article by Farid Zakaria on a similar topic. http://www.newsweek.com/id/163449

  4. Shashank Jogi said, on October 13, 2008 at 1:52 pm

    Nice.

    When markets crash, not everyone loses. Those who are short make money. Those who are out, stay dry. So not everyone is losing the battle.

    But, it is very easy for us to criticise the actions or inactions of governments and central bankers stating that they lack leadership or such. What do you think they should be doing to solve the immidiate problem? Perhaps you could write an blogpost on this topic.

  5. Peter Meldrum (Empirica Consulting Ltd) said, on October 14, 2008 at 10:21 pm

    Hi Amit,

    Hope you’re well. Interesting articles on your blog.

    Looks like most of the European leaders, and more recently USA, are now following what could be described as Gordon Brown’s lead on solutions for this crisis. Brown’s solution is obviously ongoing, after shoring-up the instability (which seems to be working at present in UK and knock-on elsewhere) it looks like the next phase is to try to work towards new regulations to attack some of the root causes of the problems within the financial institutions. With partial ownership of key banks, they will also have a stronger position to push through reforms. There have been a few sound bites from Brown and Darling about lack of ethics/morals within the financial sector, although I think they know that problem is spread wider.

    Kind regards,
    Peter

  6. gabhijit said, on October 16, 2008 at 8:01 am

    @shashank,

    In this kind of markets its even difficult for shorts to make money.

    The basic problem with us, as a race is that we never ask “Why Me?” when thigs are all well. We only ask “Why Me?” when the tables are turned the other way.

    To answer Amit’s grand question in one word or rather two words, I think the answer is “Allan Greenspan”. (where it all started?)

    Why the leaders are clueless?

    First, they are not as smart as we think they are, atleast in a democracy. (People deserve the Government they get?)

    Second they believe or rather they want us to believe that they believe that “they can control the state of affairs”. This is again one of those instances of what I call a sheer disrespect for mother nature. Let me give a simple example. Let’s say you are living in Mediterranean somewhere and summer is the most pleasant season. If you wish for it to last all twelve months, is it possible to have it thus, through acts of government “intervention”? Perhaps, it may even be possible, but the costs may be prohibitive (sorry atrocious) or it might have some unforeseen consequences somewhere else like 40inch rainfall in New Delhi say. Just like nature, there are cycles in economy and when you try to interfere with them, the inevitable happens and that is extremely unpleasant.

    I think this will be over as well… (Hopefully sooner if Government stops interfering). Surprisingly, I am one of the most optimistic persons at this juncture.

  7. Amit Paranjape said, on October 16, 2008 at 11:11 am

    Abhijit,

    Thanks for your comments.

    Recently, it has become a ‘fashion’ to blame everything on Greenspan! While his policy of low rates did have a role to play, it is not that simple in my mind. He was another one of those ‘catalysts’ in a series of contributors.

    Probably, will post something on this in future..

    Amit

  8. […] [Continue onto the 3rd part in this series: ‘The Clueless Global Leadership’]     […]

  9. […] might want to read these related posts; ‘US Financial Crisis – Who Is To Be Blamed’ and ‘The Clueless Global Leadership’ […]


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