Citigroup's shares suffered during the week, as investors showed increased nervousness about the banking group's ability to weather a downturn. Vikram Pandit, Citi's chief executive, may have a point in blaming Citi's recent share price falls on false rumours and scaremongering. However, at the moment, rumours and fear can change a company's financial position overnight. If enough people think you are in danger, then you are in danger.
One day, a famous man was walking in Wall Street when a rumour spread that he had fallen over and knocked himself unconscious. Everyone rushed into the street to see what had happened. The man was knocked unconscious in the scramble to see what had happened to him. Whose fault was that?
Saturday, November 22, 2008
Saturday, November 15, 2008
Why is spending the answer?
At the moment, the answer to the current financial crisis proposed most frequently is to stimulate spending with financial incentives to the public.
Just yesterday the Chief Executive of JC Penney in the States called for the new U.S. administration to step in and help boost the amount consumers spend. He said that people are not spending because they are 'concerned about the lack of visibility to '09 and beyond'.
He has identified an important problem - lack of certainty, lack of visibility of the future. But the solution should match the problem. Short term financial incentives may simply add to the uncertainty by destabilising the economy once more. Perhaps we should stop trying to give short-term stimulation, and think more over a ten- or twenty-year time frame.
In a crisis, it is the constant change, constant attempts to revive in the short term, that are exhausting, and stop the wider world from functioning. To enter a period of good, extended recovery, we first need to accept that some parts of our infrastructure may not recover in the short term. Then we need to identify a long term plan to make the most of what will be left. We are spending a lot of time hanging on to what is gone, what is spent. Let's start from where we are. The beauty of crisis is its ability to create something new.
Let's stop trying to reverse autumn by sticking leaves back on the trees. Spring comes without our desperate help.
Just yesterday the Chief Executive of JC Penney in the States called for the new U.S. administration to step in and help boost the amount consumers spend. He said that people are not spending because they are 'concerned about the lack of visibility to '09 and beyond'.
He has identified an important problem - lack of certainty, lack of visibility of the future. But the solution should match the problem. Short term financial incentives may simply add to the uncertainty by destabilising the economy once more. Perhaps we should stop trying to give short-term stimulation, and think more over a ten- or twenty-year time frame.
In a crisis, it is the constant change, constant attempts to revive in the short term, that are exhausting, and stop the wider world from functioning. To enter a period of good, extended recovery, we first need to accept that some parts of our infrastructure may not recover in the short term. Then we need to identify a long term plan to make the most of what will be left. We are spending a lot of time hanging on to what is gone, what is spent. Let's start from where we are. The beauty of crisis is its ability to create something new.
Let's stop trying to reverse autumn by sticking leaves back on the trees. Spring comes without our desperate help.
Tuesday, November 11, 2008
Why has Vodafone changed its strategy?
Vittorio Colao, who has been Vodafone's CEO since July, has announced a change in strategy to focus more on two key goals: cash flow generation, and operational execution. The opposite of these two is: using up cash, and failure to deliver on operational promise. In the last decade, Vodafone has been on a sometimes cash-hungry acquisition and expansion path, whilst sometimes failing to deliver on the original promise of those acquisitions, particularly in saturated parts of the European market.
The old strategy seemed appropriate in an expanding global market where market share and global presence matters. However, it always needs to be balanced against the availability of cash in the financial markets to fund that expansion. And it is here that Colao's change in strategy has its root. Global investors have stopped buying the future, and want to see performance and cash results now.
The old strategy seemed appropriate in an expanding global market where market share and global presence matters. However, it always needs to be balanced against the availability of cash in the financial markets to fund that expansion. And it is here that Colao's change in strategy has its root. Global investors have stopped buying the future, and want to see performance and cash results now.
Saturday, November 8, 2008
Indian suicides
Recent reports have suggested an increase in financially-related suicides in India. For example, a Mumbai couple last month killed themselves by poison after their son and daughter had hanged themselves. The family had at least 73 credit cards, and the children had a bank loan to start a new business.
Unpleasant stories, but with a very real human point. One of the worst aspects of being in financial trouble is the inability to see a way out. Those who are proud may see bankruptcy as humiliation. But equally, they may see it as impossible to earn their way out of a crisis. In the coming year, we would do well to adapt our global culture to allow a responsible, socially-acceptable path to rehabilitation for those caught in impossible situations.
I suggest that when a person or business defaults, a bank threatening action should be legally required to offer a referral of the defaulter to an independent agency which can represent them and offer them alternative courses of action. This would remove the aggressive one-sidedness of the default process, and perhaps lead to fewer emotional casualties.
Unpleasant stories, but with a very real human point. One of the worst aspects of being in financial trouble is the inability to see a way out. Those who are proud may see bankruptcy as humiliation. But equally, they may see it as impossible to earn their way out of a crisis. In the coming year, we would do well to adapt our global culture to allow a responsible, socially-acceptable path to rehabilitation for those caught in impossible situations.
I suggest that when a person or business defaults, a bank threatening action should be legally required to offer a referral of the defaulter to an independent agency which can represent them and offer them alternative courses of action. This would remove the aggressive one-sidedness of the default process, and perhaps lead to fewer emotional casualties.
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