Would it be better all round if the two troubled US car giants, Chrysler and General Motors, go into bankruptcy?
Both are teetering between restructuring and going bust. With regard to debt, although, Chrysler's main lenders have accepted $2bn cash in lieu of $7bn secured debt, GM's more diverse lenders have not proved so easy to get together in one agreement. With regard to other obligations, both companies have contracts to fulfil with a network of dealerships which is just too big for the current market.
Bankruptcy would have its advantages for the companies: not least, the protection afforded would enable them to downscale operations, reducing the number of dealerships with fewer legal repercussions.
Thursday, April 30, 2009
Friday, April 3, 2009
Should bankers be forgiven?
The new chairman of the Royal Bank of Scotland wants to draw a line under the past; the former chairman apologised last November, and the argument is that we should now move on. But, as recent public protests in London show, it is proving hard for people to forgive bankers for their role in the current financial crisis. There are two aspects to forgiveness here: the banks' wish to regain goodwill, and the public's need to see the past resolved.
What did the bankers do to lose goodwill, and how can they therefore regain it? They prioritised reward over risk management. In the quest to generate short-term wealth, they overestimated the longer-term sustainability of the growth mechanisms they were using. Many bankers knew the growth was unsustainable, but continued because the short term gain was so attractive, and because their competitors would get the business if they did not. They can only credibly regain goodwill if they show they are putting in place a new corporate culture of lower reward and lower risk.
And for the people, what still feels wrong, and how could it be resolved? An abiding feeling is that the main parties responsible have not shared equitably in the suffering they helped to create. This finds its expression in a wish to challenge the generous pension deal given to retired RBS chief executive Sir Fred Goodwin. The people might have forgiven more easily if Sir Fred had voluntarily given up a significant part of his benefit. But the legal deal in this country is that, unless reckless or dishonest, a director can take what is contractually agreed for his efforts, whether a company is successful or not. Those who were so generous to Sir Fred are themselves being challenged, but again, unless they were reckless or fraudulent, not a lot can be forced upon anyone. The best that can be hoped for, is that the government, on behalf of the people, wins fair repayment for its support for the banks.
Earlier I mentioned the two aspects of forgiveness: the banks' need to retain goodwill, and the public's need to see the past resolved. The best hope of both of these happening is for banks to introduce a new low-reward, low-risk culture, and for the government to exact proper repayment on behalf of the public.
What did the bankers do to lose goodwill, and how can they therefore regain it? They prioritised reward over risk management. In the quest to generate short-term wealth, they overestimated the longer-term sustainability of the growth mechanisms they were using. Many bankers knew the growth was unsustainable, but continued because the short term gain was so attractive, and because their competitors would get the business if they did not. They can only credibly regain goodwill if they show they are putting in place a new corporate culture of lower reward and lower risk.
And for the people, what still feels wrong, and how could it be resolved? An abiding feeling is that the main parties responsible have not shared equitably in the suffering they helped to create. This finds its expression in a wish to challenge the generous pension deal given to retired RBS chief executive Sir Fred Goodwin. The people might have forgiven more easily if Sir Fred had voluntarily given up a significant part of his benefit. But the legal deal in this country is that, unless reckless or dishonest, a director can take what is contractually agreed for his efforts, whether a company is successful or not. Those who were so generous to Sir Fred are themselves being challenged, but again, unless they were reckless or fraudulent, not a lot can be forced upon anyone. The best that can be hoped for, is that the government, on behalf of the people, wins fair repayment for its support for the banks.
Earlier I mentioned the two aspects of forgiveness: the banks' need to retain goodwill, and the public's need to see the past resolved. The best hope of both of these happening is for banks to introduce a new low-reward, low-risk culture, and for the government to exact proper repayment on behalf of the public.
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