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Blogs
By promising things we could patently not deliver we have manged to obtain the blogging services of two
eminent professionals. A management consultant who prefers anonymity and the economist Sir Reginald Doom-Laden.
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Each week
our celebrated economist, Sir Reginald Doom-Laden gives us his thought on the economy through the medium of blogging. Sir
Reginald, the son of the illustrious thirties economist Lord Laden and the famous socialite Lady Penelope Doom, has been Chief
economist and Strategist at some of the city’s most prestigious banks most of which are still solvent
Doom-Laden on WriteDowns; We have failed
Capitalism
I can remember exactly where I was when Merrill’s
made their second write down announcement in the space of weeks. I was in the bath (in fact considering the following week’s
column) and despite the piping hot water a shiver ran down my spine. For me, it was the coming together of the crisis, the
moment when I fully realised what was happening. One of the basic tenets of our modern capitalism is risk management. Everybody
needs to be doing it, from five years old in school, determining how much exposure they want to M and Ms, to investment bankers
in bars. Here was stark evidence that one of the major investment banks, with millions of dollars invested in risk management
could not do it. But the disease was much wider spread. It showed that individuals could not risk manage their own world,
and took out mortgages they could not afford. Money market funds took positions in instruments they did not understand. But
worst of all the rating agencies, who are so important in our risk management framework as the guardians of good investments,
completely failed to understand what they were doing.
Our capitalist economy is a wonder, it is fantastically flexible and incredibly subtle. To me it is the greatest achievement
of mankind. But what I realised as I sat in the increasingly cold bath was that we were failing the system. The system has
everything we need, it will allocate resources efficiently, reward success well and so much more, but only if we work properly
within it. What is needed isn’t moral rectitude or amazing bravery, but some level of intelligence. A level we, as a
species have failed to achieve. Put simply we are not smart enough for capitalism.
What does this mean for us? Do we need to find another system, one that caters for our stupidity? Sadly I think the
answer is no. Capitalism is the system, the system that will lead to greatness.
But not with us. We are but a stepping stone on path of evolution, destined to be cast aside as more able species develop.
In prior epochs it has been the ability to adapt to changing weather conditions and environment that has led to success as
a species. But now that it has been developed, it will be ability to use the capitalist system which will determine the fate
of the most advanced species.
So this is the crisis that has signalled the beginning of the end of our species. It may take some time, it is in fact
likely to be a long drawn out affair. But it is inevitable nonetheless. Those writedowns that so many are dismissing as meaningless,
could not have greater import.
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Monolines-
oh my GOD!
These are indeed hard times for economic forecasters like myself. The continual downbeat information coming out of
government organisations and financial institutions is relentless. After a while it saps the soul. Each day it gets harder
to get out of bed, but I persevere, because you need me. You need me to warn you of the impending doom. I just thought I’d
let you know that before I started on this week's entry.
With so many assaults on the health of the economy it is easy to miss the most
virulent. Today I want to look at the monolines. The basics of monolines are described in Finance Explained. Fundamentally
they are essential to helping states and cities in the US provide financing. They also help
to provide financing for public-private partnerships in the UK.
Without them many of the states and cities would not be able to get financing. So if some of these monolines get downgraded
it will make getting new financing impossible for two reasons. The monoline downgrades will cause the bonds issued by these
states to be downgraded. A lot of investment institutions will then have to sell them because they have guidelines about the
sort of ratings the bonds they hold must have. This will cause a glut of bonds on the market and make it hard to sell new
ones. Also the new ones will have trouble getting themselves wrapped because there are fewer monolines about. Even worse rating
agencies and investors will be highly sceptical of the monolines left. This will cause the people who normally buy these bonds
to stop. States and cities will be unable to obtain financing. There will be too much money required for the central government
to be able step in. The basic services provided by the states and cities will have to be stopped. This will cause the destitute
to become desperate. At the same time local law enforcement will be cut back. The results will be devastating. Violence will
increase, it will not be safe to go out on the street. Basic functions that we take for granted, like shopping, will become
impossible. With no buying going on the general economy will fall apart. People will not be able to get food, so they will
be too weak to work. Goods will not be produced and worse power will stop. Computers will not be able to go on working. Our
whole way of life will be crushed beneath the weight of economic inactivity. Thousands of years from now aliens will chance
upon our planet and discover the wreckage of our society and wonder how it happened. Few will guess, I imagine, that it was
all caused by a monoline credit rating being downgraded.
With the holiday season rapidly approaching I wish all my readers, and in particular
their families, a wonderful week at this great time of year.
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Each week our world famous,
though anonymous, management consultant uses the skills he has built up over a lengthy career in management consultancy to
help solve your every day problems
Our management consultant has taken
a few weeks off to commune with sparrows in the north of Scotland. We expect him back soon. Here
is an older posting to tide you over.
Religion
Spiritualism
is an often neglect part of humanity. One of the things I used to stress when
I was a consultant was a holistic approach, but also a complete one. We would perform holistic reviews thereby covering all
of a firm’s activities. If one neglects one part of the whole it can cause damage quite out of proportion to its size
and general contribution. I remember visiting one company which was very well run and making substantial profits. It was a
smooth efficient machine running at peak performance. However it neglected the cleaning staff. They were de-motivated by a
lack of real appreciation from senior management, poor pay and not being invited to the Christmas party. The quality of their
work deteriorated, dirt spread closely followed by disease. Half the staff died of a particularly virulent infection. This
had a sudden and sustained impact on profitability. Staff morale dropped significant, and those staff still alive soon left
for other companies. Eventually the firm went bankrupt. It was soul destroying to see, a good company, with strong fundamentals,
ruined by a basic mistake.
I see human spirituality as the cleaners of the human mind; too often neglected to
the detriment of the whole. So the first recommendation I have is do not neglect spirituality.
Of course spirituality is an individual thing. Each person interacts with it differently.
So choosing the appropriate forum for displaying your spirituality is important, each different method has benefits and drawbacks,
constraints and outlets. You must choose the one which has the constraints where you do not feel them and outlets where you
most desire expression. Organised religion as a method for expression of spirituality has many benefits. It is highly structured
building a cocoon around its members protecting them from the world. Some may however find its dictates too constraining.
For these people there are a myriad of different choices available.
So in summary, and also by chance my rule number two for this session, spirituality
is complex. It is closely linked with personality and I will return to it in later months.
MCB rules from this session
- Do not neglect spirituality
- Spirituality is complex
These are available for this and
many other sessions in a handy calendar format at all discerning bookshops.
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Blogging is an art
Regulators, they're better than nothing...well almost
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