Smart companies that have been following the suggestions in recent columns now need to rebuild connections with the commercial lending section of their banks. COLIN BENJAMIN
By Colin Benjamin
Unless we strike another bout of clear air turbulence with an unexpected collapse in world commodity prices, following the expected crash of a few more major broken hedge funds, financial institutions and a couple of hundred more banks, there will be plenty of opportunities for global expansion for the rest of the financial year.
Smart companies that have been following the suggestions in recent columns now need to develop their implementation programs and rebuild connections with the commercial lending section of their banks.
The gnomes in the central banks have put away their eyeshades and studied focus on moral hazard to concentrate on learning from Bernanke’s study of the Great Depression.
At last there is an acceptance that allowing the collapse of the banking, insurance and auto giants has knock-on effects that create crises of consumer confidence and business implosion.
Bank failures have at last become a conscious responsibility of the irresponsible regulatory institutions as it is finally becoming accepted that the equity market is a lousy indicator of the economic health of national interests.
The 21st century has now demonstrated that hundreds of banks and new forms of financial institutions have made money for the short sellers and non-productive labour forces in the hedge funds that have finally been turned out on the streets even with billions of bale-out dollars from the central bankers.
The number of major commercial bank failures averaged less than seven per year for the 30 years from 1950 to 1980 and went to over 150 a year for the next two decades.
The era of unlimited faith in market forces and laissez-faire economics has demonstrated principles long cited by Lord Keynes: “In the long run, we are all dead.”
There is an unfortunate pattern of denial by the neo-conservatives who are still encouraging governments to let the market work and thereby punishing the entire population rather than demand accountability from the millionaire makers who sleep in satin sheets while workers and retail investors say goodbye to their jobs and lifesavings.
Surely it’s time that the regulators acted to focus on protecting the liquidity and productivity of the small and medium enterprises that generate both jobs and wealth and for governments to accept their responsibility to create a climate of business confidence.
The government needs to get back to fundamentals of market maintenance and learn from the classic autopsy of national bank failures of Horace Secrist (National Bank Failures and Non Failures; An Autopsy and Diagnosis, 1938, Pricipia Press, Bloomington). This study examined 741 national banks that failed at the time of the last equivalent global collapse in the 1920s and 1930s, compared to 111 that did not fail prior to 1933 to “secure indications of likely survival or death”.
Goldman Sachs CFO David Viniar, who is facing a 70%+ drop in profits, says that it’s not the business model but performance that matters, rather than accept any responsibility for the social consequences of this type of accounting practice unlinked to any form of corporate social responsibility beyond their own bonus structures.
Viniar says that Goldman manages risk by avoiding concentration exposures or hedging against them and calling for daily margins and in the long run, the asset backing will justify their investment decisions. As far as he was concerned (or rather unconcerned), the collapse of major banks was immaterial to Goldman’s orientation. Viniar says: “You will never hear from us that we are reluctant to make a sale because we do not want to take a loss. If we have a problem we deal with it, and the first loss is always the best loss.”
Give Bernake his due. He has adopted a creative and accountable approach to the G9 deliberations and managed to shift the central bankers thoughts towards generating underlying stability and promoting the release of credit to the banks so that they have the confidence to support each other’s lending to genuine business interests.
But what has not been addressed is the failure to promote corporate social responsibility in the boardrooms that have been totally unprepared for the loss of billions of dollars of equity value and the potential write down of trillions more dollars of assets.
Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.
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Nathan Keating writes: You quite right to encourage business to befriend their commercial banker. To add to this, I would also encourage business to befriend other bankers as well. Many businesses are finding that their bank all of a sudden turns on them, and often the reason for this is not evident (could be an aversion to an industry, could be that the business is displaying warning signs in its account management practices picked up by the banks credit/behaviour scoring systems).
Another strategy is to secure a banker (or commercial finance adviser) on your team. Experienced bankers are available to employ either directly, on contract or as a broker. The value of having an experienced banker on your team is that they are better placed to judge reasonable behaviour by a bank, as well as reasonable pricing, covernants, levels of security.