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October 20, 2008
I was reading Kang`s (Louis) entry on his blog about greed. I`m sure he was inspired by the lecture we attended on Friday about the credit crunch (by the way, great lecture this time the tutor spent quite sometime explaining some basic economy concepts that are fundamental to the understanding of the whole thing). I have my personal opinion about the CC, but I wanna talk about two things I`ve seen in my life, real stuff, real experience that will help illustrate both what the professor and Kang said.
1st. I`ve been working in banks for quite some years now. I`ve always worked on international Banks from different countries. I`ve worked in several different areas and projects. I`ve worked in some different cities as well. All these things change people. For example, working for a British bank is very different from working in an North-American one. Several differences in recognition policies, pace, style, priorities, etc etc. But there`s something that is ABSOLUTELY the same in every bank (and from my experience it is the same all over the world). The traders (these are the guys who really decide what to make with the banks money, were to lend, from whom to borrow, what rates to pay, what rates to accept, etc etc ) are young, addicted to gambling and taken risks, self-confident and VERYYYYYYYYYYY well paid. I`ve seen people with 28, 29 years old, little experience and no managing of people getting paid as much as people with a 25-30 years career, managing structures with hundreds of people, etc etc. They usually don`t have a high paycheck, but they`re bonuses.....It`s funny because most of them don`t stay that long as traders. They usually make a lot of money in a few years and them go to open they`re own business, go to work in other areas of the financial industry with a different profile (Mergers & Acquisitions, counselling, etc etc). I `ve asked many people (and human resource professionals as well!) why there was such a difference. The logical explanation is that it`s hard to find appropriate and qualified people from the job, and there are only very few spots. I think that explanation is not complete. It sure has it`s logic, but I don`t think it fully explains this because even though a certain profile (personality wise) is needed, the technical knowledge itself can be learned by anyone with a reasonable background in maths. The rest is pretty much a consequence. There`s another interesting explanation. It says that people are paid not for the amount of the money they bring to the organisation, but by the amount of money they can make the company loose. In the light of the credit crunch recent facts, that second explanation does make a lot of sense, doesn`t it?2nd. I had a brilliant teacher on my MBA. He is a reference in finance in Brazil and currently he is living in China, working as the head of the office for the second biggest Brazilian bank, working with corporate finance (http://en.wikipedia.org/wiki/Corporate_finance). He lectured us on International Iinance. In the place where I had my MBA we used the Harvad method, therefore we had a case to be studied for every class. We had 13 lectures with him, and 11 case studies, all of them about countries and companies that had somehow been through crisis. In the last day we did some discussion about the common causes. In this day he said something that I always remember when I think about the credit crunch He got to us and he sad: "We are all very clever now. Pointing the mistakes of several government officials from all over the world, several very senior economists. We must all been thinking that we would have been able to avod it because we are hear criticising it. But it`s not. First because each crise has it`s own dynamic, and as we all know history is really a mirror looking at the past. And besides that, that`s not how things work in real life. When these crises arrived, people knew there were problems coming but they could not do much to avoid it. First because we are eternal optimists, but mainly because all companies are driven by results, that`s not what they say and how they would like it to be. But when you look at your competitor making money, even though he`s taking more chances and risks, you just can`t say you are not going to make money because you think that this is dangerous., that can bring additional risks (off course respecting the law and all the banks regulations). That`s not how most companies work. You are always compared to your competitor. And don`t think another crise is not about to come, they`re always about to come because we are always relaxing our controls and thinking we are safe" And he went on and talked about several potential crises we could face including the risk of a buble burst in the housing market in America (even though I`ve been hearing about the chance for YEARSSSS now..).. But the point is, companies are frequently driven by short term greed in here too. Well, that are two real stories I saw/heard that I hope will help illustrate Kang`s points. Francisco