Monthly Archives: April 2012

Banks Need To Carefully Reconsider Their Approach To Lobbying

History shows that lobbying is extremely counterproductive but it does not appear that banks have learned their lesson.

Lobbying is a permanent feature of the US political and regulatory scene. All industries participate and engage in it but some more than others. The question is, are these industries better off as a result of the often aggressive lobbying of the Congress and regulators? Does lobbying add value to an organization or industry?

The omens are not good.

During the 2000s a very curious thing happened. Three of the biggest industry lobbying groups experienced outcomes that would have been completely at odds with their business objectives. They were the oil industry, the auto industry and the banks.

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The Change that Banks Need Can Only Come From Within

Since its inception, this blog has consistently maintained that the idea that more legislation, more regulation, more governance and more controls could forestall another financial crisis was at best ridiculous—that strategy has already been tried and has failed too many times.

Well, it appears that at least US Treasury Secretary Geithner has seen the light on that subject. Speaking at an event in Oregon, Reuters reported Geithner as stating that:

“Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope,”…

In the article Geithner then goes on to say that:

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The Disastrous History of Financial and Market Dogma

Like alchemists on an eternal quest for a method for turning base metals into gold, the financial markets have proved susceptible to one dogma after another—with disastrous consequences.

One of the primary causes of the massive growth in the subprime market was the idea that if you took a well-diversified portfolio of sub-investment grade loans you could convert them into AAA securities. Some market professionals were even of the opinion that the level of risk reduction that could be achieved through diversification could effectively, with the aid of a few credit derivatives, immunize banks from any significant losses whatsoever.

While acknowledging that was the prevailing view, Alan Greenspan the former Fed Chairman had another perspective. In a column in the Financial Times of March 26, 2009 Greenspan stated:

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Are Banks Truly Innovative? It is Time for a Rethink

The way in which banks focus on innovation is crucial for their long term survival. However, are they focusing on the right things?

There are times when you are writing a book and your mind, body and soul get drawn into directions that you neither dreamed nor envisaged when you first started out. It is a wonderful thing when it happens because it means your passion for what you are doing is driving your thought processes and stirring your imagination beyond the realms of cold logic.

It is a very nice feeling.

In the middle of writing Clearing The Bull questions about what it meant for organizations to be innovative and whether or not banks were truly innovative entered my mind. I was grappling with the idea that in general, organizations that were truly innovative were both economically and competitively sustainable. However, given that I was writing about the banking industry and the financial crisis, it had occurred to me that given such a definition, banks were clearly not innovative.

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PRMIA Webinar: Clearing the Bull on the Financial Crisis: Before Placing Reliance on Mathematical Models Banks Should Look at History

Presented by Jonathan Ledwidge, Author

April 18 at 12 p.m. U.S. Eastern Time

The subprime financial crisis is but one of a series of banking-related financial crises that have arisen in the past 40 years. These have included the LDC debt crisis of the 1970s and 1980s, the junk bond crisis of the 1980s, the Japanese asset bubble of the late 1980s and early 1990s, and the dotcom crisis of the late 1990s to 2000.

The webinar will demonstrate how a thorough analysis of each of these crises at the micro level would have enabled banks to avoid the worst of the subprime crisis long before their mathematical risk models exploded. Yet, the micro indicators were not the only warning sign.

Thus during the webinar we will explore how banks could and should have reduced their exposure to the subprime crisis if they had also examined the macroeconomic and geopolitical indicators surrounding each of the previous crises. Finally, we will look at what both these macro and micro indicators tell us about the current risk climate.

Use this link to register for the webinar.

Is Ecclestone Putting The Formula One Brand At Risk?

The decision to go ahead with the Bahrain Grand Prix could have significant adverse consequences for the global Formula One franchise—it is time to rethink both mission and values.

During the lead up to the Chinese Grand Prix, Formula One supremo Bernie Ecclestone was asked by a reporter if the Bahrain event was going ahead. Ecclestone’s reply was an emphatic yes. However, what he said next was even more interesting.

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The Arab Conquest and Democracy: A Response to Professor Chaney on Zakaria’s GPS

Dear Professor Chaney

I am a great fan of Fareed Zakaria’s GPS on CNN. On his program of April 8 he featured a proposition put forward by yourself, and which is also stated in his blog entry Zakaria: Explaining the Arab world’s democracy deficit as follows:

“The democracy deficit today exists in lands that were conquered by Arab armies after the death in A.D. 632 of the Prophet Muhammad”.

While very clearly stating that Islam as of itself cannot explain this deficit, the argument still focuses on things Islamic and it leaves me puzzled as to the nature of and the reasons for its omissions.   Continue reading

Americans Have Noone To Fear But Themselves

Politics is the new religion in America but unlike other religions it is not about right and wrong, it is about right and left—and that makes it highly destructive

There is no power on earth that can overcome America neither economically nor militarily—not al Qaeda, not China nor any other adversary. Like any great power the greatest threat to the US lies within—from its politicians and its people. Given that people deserve the politicians they get I see no reason to make any distinction between the two.

The fact is that the nation is being ill-served by both. The main source of the problem is that Americans are singularly insular in thoughts, actions and beliefs in respect of what America can or cannot do. That insularity has also made them blind to the realities of a changing world.

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Clearing The Bull on the Financial Crisis – Part III

This is the third in a three-part series of articles on the financial crisis. The links for Part I and Part II can be found here and here respectively.

A New Strategic Business Model – The Human Asset Bank

Our analysis in Part II demonstrates that the financial crisis was from beginning to end about human failings and the values, or lack thereof, which gave rise to those failings. As such, an appropriate remedy must be based on the human ecosystem that surrounds each bank and the industry as a whole.

I call this human ecosystem of banks and the values necessary for them to achieve economic and competitive sustainability The Human Asset Bank. However, the change we seek can only come about if banks, and the industry as a whole, show wholehearted and genuine commitment to making such a change. This is entirely consistent with our opening proposition in Part I – that more legislation, more regulations, more governance and more controls are not what banks need.

Thus, a commitment to change and to The Human Asset Bank would be as follows: Continue reading