Thursday, September 18, 2008

Crisis & Opportunities

The demise of Bear Sterns, Lehman Brothers, Northern Rock, Freddie Mac, Fannie Mae and a string of others are the results of excesses of Capitalism.

There is no one best system; be it capitalist or communist. In every society, there is a need for checks and balances. What happens now is a result of lack of political will to rein in excessive economic expansion; besides institutions like AIG lives her life beyond that of an insurer and provided services not unlike a bank!

The other problem is with the grader. S&P grades the issuers of bonds and institutions; who police S&P to ensure that impartial, true and fair views are expressed consistently. Or that the grading is made on sound postulations.

Also, writers and originators of CDOs, derivatives and secondary issues have moved beyond the reaches of the arms of Laws. Laws and Regulations are often by-products of actions. Many instruments were packaged together and traded, first between institutions, then marketed to unwary players without an iota of wisdom or consideration of consequential failures.

In simple term, growth was powered by borrowings and greased by imaginative instruments; caution was thrown to the wind and profit was the primary motivator.

The need to perform, the accolades given to successes and the rewards were simply too good to factor in the fallouts of consequential failures. Most, if not all, decisions were commercially driven.

Afterall, most corporate honchos and CEOs are professional managers and their term of office has a limited shelf-life.

Was this current financial armaggedon preventable? The answer is yes.

Will it be repeated? Unfortunately, the answer is yes too and in greater intensity. History repeats itself because few will learn.

In the meanwhile, be patient and live honestly and humbly. Like the Law of nature, growth and declines are part of a natural force.

In a crisis, there are also opportunities; Be prepared and be there when opportunities surface.

Good luck

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