Realigning the deck chairs

The next month is not going to be pretty. While I hate to be the bearer of bad news, I predict we are going to see a post-tsunami tidal wave of derivative failures deliver trillions of dollars of writedowns.

This will force the government to act. In the next few weeks I think we are going to see (and it may be wishful thinking) a major realignment of the roles of government agencies from pump primers to partners with SMEs. Hopefully that will actually create rather than destroy wealth.

We are also going to see the retrenched from the financial sector begin to look at establishing their own small business operations, creating new customers and finding out why we need to stimulate innovation, creativity and entrepreneurship rather than throw more good money after failed institutions.

We all now know that the Titanic was sunk by the excesses of those that invested in it without adequate concern for risks and contempt for advice from the captain and an undersupply of lifeboats for those who were neither affluent nor American.

Hedge funds and other risk management devices are becoming endangered species as investors come to accept that they got all the benefits of higher payouts on the accurate assumption that they will lose all of their capital unless bailed out by big government.

Today we learn that a meeting of these captains of industry are meeting with our own ministers to see how the companies that are “too big to fail” can be subsidised to stay afloat a little bit longer.

As we swelter under a climate change supportive heatwave, the representatives of the affluent are meeting in the snows of Switzerland to consider four challenging, long-term scenarios for the future of the global financial system it is well worth downloading the full report at: https://www.weforum.org/financialarchitecture

Throughout 2009, The World Economic Forum proposes to hold a series of workshops (in the Northern Hemisphere) on The Future of the Global Financial System; A Near-Term Outlook and Long-Term Scenarios. (The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.)

The report explores a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector and some restructuring by alternative investment firms. Over the long-term, the report finds that a range of external forces and critical uncertainties have the power to significantly shape the industry.

In particular, the World Economic Forum’s study finds that the pace of geo-economic power shifts from today’s advanced economies to the emerging world and the degree of international coordination on financial policy are the two most critical uncertainties for the future of the global financial system.

By employing scenario analysis, the report explores the impact of these and other key driving forces on the potential governance and structure of financial markets from today until 2020.

Those who have been aligning the deck chairs or global stimulus packages, including many of our business leaders and cabinet members who are enjoying their annual Davos pilgrimage, now want us to believe that it will take a couple more bailouts, stimulus packages and of course significant tax cuts to help.

Today we see the business community suggesting that the PM gets together with Wayne and Lindsay and find them a spare ten billion more tax payer funds. We also note that a raft of economists are beginning to understand that doubling the numbers of unemployed on benefits is unlikely to produce more qualified workers without substantial public investment in training, education, and infrastructure spending.

However we can not truly move on until we see an acceptance of accountability for advice that has lead to trillions of dollars of write downs, nationalisation of banks, escalating under employment and exposure of Madoff types of cosy alliances at the expense of truth, trust and transparency.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.