No second half recovery

Crossing your fingers for better times? There are more productive efforts you need to tackle. Extract those digits – here’s what to do. COLIN BENJAMIN

By Colin Benjamin

Watch for the next diversion as we take one step forward and two steps back. The Swan/Henry tax reform (minus GST and plus Keating super plans) is a diversion that takes attention away from the systemic failure to address the need for greater truth, trust and transparency in the equities and financial instrument markets.

Finally, we are seeing ASIC looking at insider trading, but comments from Doug Clark, policy exec with the securities and derivatives industry points to the real need for greater ASIC scrutiny of financial instruments that have been generated to create consistently high unregulated profits for the financial institutions that are now savaging the growth of the small business sector.

As the Financial Times states, it would be unfortunate if the lack of trauma on the scale of the Great Depression means a weak regulatory response, because the financial flaws and perversions exposed by the credit crunch are on a par with the 1920s.

I agree with the FT, which argues that the moral hazard that allowed lax mortgage lending, because the risk would ultimately be sold on to a third party via securitisation, must be addressed. So must the widespread use of off-balance-sheet accounting by banks – through structured investment vehicles and their ilk – in order to take on more risk.

Isn’t it interesting that Citigroup can suddenly pledge to fully compensate small investors who sold auction-rate securities (ARS) at a loss after 12 February, when the market collapsed within days of being threatened with a lawsuit by Andrew Cuomo, the New York attorney-general,

Now we are being to told that in a key settlement with state and federal regulators, Citi has also agreed to buy back within three months $7.5 billion of ARS held by individual investors and small businesses When the credit crunch hit the financial sector hard again on Thursday, Citigroup and Merrill Lynch could suddenly find funds to buy a total of up to $20 billion in ARS

When will we learn the true extent of the trillion dollar writedowns as hundreds of banks and financial institutions in the US, Europe and Britain dribble out into the market media.

What this means for smart companies is that they can no longer rely upon “the second half recovery” as we will find the rollout of undisclosed smart deals being wound back extends the credit crunch into the new year.

It’s time to take drastic action and plan for a reconstructed business environment.

First go through your inventory of good customers and identify those that are in financial risk and see if there are ways that you can work together to provide credit policies that confirm longer-term relationships.

Next identify the sections of the business that can expand into the faster growing BRIC economies with locals from those countries that can act as door openers and gatekeepers for expansion.

Then get some of your smart kids and staff on to the web to find new opportunities to extend the profitable elements of your business into related industries that rely on your knowledge, skills, and experience and brand reputation.

Finally, focus on longer-term profitability rather than on short-term cash flow so that you can fund your own growth while governments and regulators let the crises continue.

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. 

For more Futurist blogs, click here.