Saturday, 14 February 2015

Root Cause of Rogue Culture in Banks

The Wall Street Journal reported recently that the US Fed in order to rein in high risk taking aggressive banks, which had to be bailed with tax payers money for their rogue deals which landed them in high losses, has advised banks that they need to get deep into the culture and behavior patterns of their employees in order to ensure there is no recurrence of high VAR outages. Actually this issue is not one which is restricted to banks and can be resolved by simply weeding out a few so called aberrant employees. Neither can it be rectified by trying to ingrain ethical behavior among employees of financial services sector nor trying to doing employing surveys for tracking rating ratio of happy employees to grumpy employees over time! Wells Fargo, arguably the best bank in US also does culture surveys among its employees.  

The issue of culture cannot be studied in isolation in banks only. The issue is a far more deep seated societal malaise. The high risk taking and aggressive streak runs much deeper through the veins and aortas of society in general. Hence the analysis is required to be done over the entire canvas of society.

Today the violence which is pervading society has the same root causes, whether it is the action of a few rogue traders in banks, or a disturbed adult on a shooting spree at malls, or terrorists holding to ransom dozens of innocent people, or even a na├»ve three year old shooting his parents with their gun. Though these action points may seem random, but there is a high correlation between them and a common pattern which can be traced to the development of a hyper competitive, acquisitive, materialistic, conditioned society. The greed and avarice neurosis is running through all walks of life. It stems from the so called rush for “higher, faster, bigger, richer, better” right from school to families, corporations, and nations.

Recently three of the top four banks in US reported weak earnings for Q4 of 2014. Overall the banks in the developed economies are still to recover fully form the disastrous meltdown of 2008. In fact, US and European banks paid $65 bn in penalties and fines to regulators in 2014, 40% higher than the previous year. Credit rater S&P had to pay almost $100 mn in penalties to regulators and $1.5 bn to the justice departments for inflated ratings.

It is so ludicrous to see regulators wanting banks to do culture, behavioral and psychological tests of their employees after several financial meltdowns mostly due the crony nexus between banks, credit raters, stock markets, money markets, regulators and corporates. Agreed there is a boom and bust cycle in the financial markets, but conducting micro level research on employees is strange to say the least. Most of the weapons of mass destruction of the financial system were designed by rocket scientists who sat in their ivory tower rooms in the same floor as their CEOs corner rooms. The complex math algorithmic models of the derivatives and mortgage backed securities were not understood by the CEOs of the banks or even by the credit raters and regulators. The blind faith of most of us in complex modeling even without understanding them is frightening. If these models were made with reasonable assumptions and stress tested for all possible scenarios then we would not have been in the soup we are in today. The VAR models had never built in the worst case scenario combinations properly nor even envisaged the bunching of events.   

Another frightening nexus has been created within the health care industry where there is deep connivance between pharmaceutical industry, doctors, hospitals, health insurance and the regulatory authorities. Profit is the key to all the developments in this network. Hence we humans are mere guinea pigs in their search for higher profits.  

Aggression, cheating, corruption and violence in society are a deep seated phenomenon since times immemorial. But with the proliferation of guns, science, technology, wealth, cars and mass production, social dimensions of meum and teum, endless gratification, instant karma, etc have taken up ugly contours. Often the so called advanced societies in the developed world are found to have deep neurosis, psychological disorders, and mental sickness. The number of  psychiatrists and psychoanalysts in the these societies is the highest per head. The very norms of sane societies have changed. There are deep, dark and crazy desires which can only be fulfilled by transgressing upon the happiness of others. There is no inner peace. Hence since the 60s and age of flower power there has been an yearning for yoga and Buddhism and other oriental practices  

The vicarious lifestyles prevalent in highly developed societies have resulted in mindless high energy lifestyles, technological progress, hyper competition, mass consumerism and mall cultures, infinite varieties of food, clothing, electronics, etc to provide pleasure to the jaded, blunted and desensitized senses and taste buds. All this has lead to the plundering of all natural resources, carbon emissions, and irreversible climate changes. All these anthropogenic acts have emanated from plastic culture we have embraced and spread all over the globe thanks to media and internet. Now virtually half of the world owns smart phones and have become digitized zombies. A surreal sick society is the hotbed which has bred the financial monsters of Wall Street.  

Indeed, there is an urgent need for a, which provides solutions for the deep rooted malaise at the individual, society & economy levels which would eventually lead to a societal and climate collapse.

Monday, 9 February 2015

till debt does us apart...

Greece is reaching a stage where it is on the verge of reneging on its loan commitments to the EU. strangely enough because its people in a democratic election have voted against the anti-austerity measures imposed on it in the wake of its bankruptcy by its creditors the EU mainly led by Germany. greece is actually the tip of debt iceberg which engulfing the world both economies and also individuals. debt is actually ravaging the world tearing it asunder with its baleful influence. debt is more of a means to an end. the end is living the good life with all the toys of modern life and technology. the debilitating malaise has insidiously affected the very entrails of individuals, families, nations, societies and the entire globe.

this cancer of debt has pervaded all the pores and glands of our body politic. there is simply no cure no chemotherapy no radiation for cleansing us of this intoxicating pleasure cancer. all the so called addictive trappings of modern life like fast cars, energy intensive big gadget filled houses, multi internet devices, jet travel, infinite foods alcohol drugs, multidimensional entertainment, et al have a price tag and have fueled the crises - financial, environmental, psychological and physical both the individual level and society.

now what has happened as a result of this heady over leveraged existence entire nations and individuals are mired in deep debt from which they are not able to extricate themselves as they do not have the moral strength. discipline  or willpower to practise some degree of austerity, lowering of standards of living, going back to basics, simple living or cost reduction. everyone engulfed in a massive debt trap bubble which is ever expanding like the universe dangerously hovering over the dark holes of space on the verge of been sucked into the interstellar interstices leading to TMAs a la 2001 a space odyssey.

this burgeoning debt has become endemic. nations, people and companies are living perpetually in the future. most businesses are including successful startups are living off the future with perpetual funding from banks, private equity, VCs. similarly economies are living on life support systems of ICUs, euphemistically termed as stimulus especially the developed ones like Japan, US and Europe. some countries like US have run up massive deficits of $ 18 trillion and still counting. most high debt economies have reach the state where fresh loans are issued to pay back interest of earlier loans and principal amounts are not repaid. time comes when even they start defaulting on interest repayments.

national debts are mainly sourced from deficits run by country's fiscal budgets, printing more money and increasing money supply, issuing internal bonds which are bought by banks which reflect these as part of their investment portfolios and reserve requirements, external borrowings by issuing international bonds to other countries and international financial institutions. defaults in debt repayments could result in weakening domestic banks, negative interest rates, increase in inflation, adverse currency fluctuations, downgrading of credit ratings, fall in imports, possible rise of exports, outflow of currency, weakening of economy, sharp rise in prices of essentials, economic unrest, interest rates declining and fall in GDP growth rate.

in a macro sense, today most of the global economies are living on the future ie perpetual loans which will never be repaid in the future. a gradual descent into global bankruptcy. a new paradigm will emerge where all govts will renege on loans, evergreen loans to 2050 ie shifting the denouement to a distant future when most of the people above 40 may not be there. in real term a much smaller amount will be something which conveniently dealt with then. new financial shenanigans which we need not worry are heads off today. a new time...a new the long run we are all dead as Keynes had said.

Post Covid World

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