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Couldn't agree more with your analysis. Check out this story in yesterday's Independent:
Bear bet that netted £141 million throws fresh suspicion on collapse.
Now wonder almost 60 percent of European and US institutional investors are expecting another large financial firm to collapse within the next six months,
according to a survey by Greenwich Associates.
Thanks for voicing your trepidation without mincing words. When Warren Buffett called derivatives as financial weapons of mass destruction, it was easy to dismiss it as an old-fashioned old man's closed-mindedness. Each new scandal starting from the Barings
debacle to Enron to SocGen, is categorised as a special one-off event. There seems to be a haziness in understanding the difference between sophistication and undue complexity.
Despite feeble attempts to strengthen regulation, such events seem to recur with increasing frequency. Along with the other accounting scandals of the past decade and the inordinately high severance package episodes, we are clearly looking at a wider societal
problem requiring remediation on the ethical-moral front. Such things are glibly talked about from the podium but get closer to any of the movers and shakers, it is a combination of wink-nod and helplessness to bring about change.
I see the following as offering a glimmer of an almost silver lining (couldn't make this a more definitively optimistic phrase at this point):
1. Many unethical practices, long considered BAU, have been somehow uncovered and acted upon
2. While traditional print and broadcast media have seen too much of consolidation and polarisation, blogs and other media are opening new channels for multiple perspectives and beginning to become reliable watchdogs
3. FWIW, the spirituality business is booming worldwide and could possibly help
4. Governance and CSR are entering the mainstream business jargon.
Excellent insight as always, Stanley.
It's been said before, but these financial institutions will never have incentive to clean up their act, as long as governments are always there to step in and bail them out.
Is the answer a combination of protection of depositors and non-speculatative investors and stopping the practice of preventing investment banks from becoming bankrupt?
To do this, a clear separation of investment and non-investment banks would need to be defined and enforced. The non-investment banks are then protected, but prevented from trading in derivatives and similarly abstract instruments.
Would this actually work? Or might this sort of archaic regulation cause a worsening of liquidity in the already damaged credit market?
Citadel Advantage Ltd
09 Oct 2006
This post is from a series of posts in the group:
A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.