Is it better if the giants fall?

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.

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.

Financial crisis and people-protest

The cycle of work and personal reward keeps people busy and well-behaved. If you have a job, it keeps you out of mischief. If your job is gone, you have more time on your hands. Time to question and argue. Time to challenge the status quo. With less reason to keep your mouth shut. As more people lose their livelihood, recession is likely to involve more protest.

Even in China, employment is becoming more of an issue. China's growth has been helped by huge exports to other countries - countries which are not now buying goods at the same level. As demand evens off or falls, growth in the cities dwindles. The Financial Times today suggests that China may now face up to 27m newly jobless people returning to the countryside. They are returning to an agricultural sector already shocked by downward pressure on prices and production. This year, 6.5m graduates will leave China's higher educational system: those who cannot find jobs could become a voice of unrest. The government may already be seeking strategies to manage potential protests. Of course in China, the power of government, and restrictions on press freedom, may dampen down protest, at least in the short term.

But in other places, recessionary pressure is already seeing an increase in protests and their reporting. People alienated from the economy have less to lose in protesting against perceived unfairness; journalists in a threatened economy will spin copy from sensationalising perceived injustice. In the UK, at the oil company Total, workers are feeling threatened by contracts which involve the use of overseas labour. This story has been given significant airtime by journalists, many of whom are pushing it towards a people-versus-government issue.

If unemployment continues to rise in many economies, we can expect more protest, more unrest. Governments - particularly those with greater press freedom - will be working overtime to make sure they themselves are not put out of a job.

Citigroup - the spiral of lost confidence

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?

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.

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.

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.