Our modern way of thinking appeals primarily to management theories and a system of prudential regulation, which wax and wane in correlation with the bull and bear markets which bear their footprints.
When sudden large losses materialize, as they always will, such as what happened at the end of a period of reckless Asian bank lending in the late nineties, the accompanying credit crisis caused markets to go into a spin and for regulators and officials to intervene to tighten prudential standard in an attempt to avoid future occurrences.
Currently we have a capital crisis, caused primarily by sub prime lending in the USA and which has once again sent stocks into a sudden panicked tailspin all over the world.
Banks emotionally reacted, at times indiscriminately curtailing their lending to other banks because of lack of trust, concerned over non disclosure, fearful and hurt by what they thought was AAA rated securities backed up by real estate loans, but now realizing those borrowers were unable to repay the loans and unable to ascertain a clear picture as to the extent of the problem.
This was understandable as the securities were traded through many entities who all took varying percentage risks in the event of default. Regulators have reacted quickly by reducing rates and making available a larger borrowing pool of central bank credit to restore confidence.
China and the oil rich Middle East countries have also come to the rescue and injected large amounts of capital into the troubled financial institutions most effected in the USA and who have operations globally. Those investments are owned by the sovereign State, so we have an interesting cocktail of future investors. Will Governments intervene on the internal affairs of the company? probably not.
The sub prime housing foreclosures have also exasperated the bulging stock of homes for sale in the USA equivalent now to 10 months future supply.
The underlying theme is a lack of integrity, Securities were never AAA, Brokers were paid much greater commissions to influence borrowers to purchase sub prime mortgages over the more conventional lower cost type and Banks and regulators didn’t exercise any prudential standards. Those entering into the loans either did not know, or want to consider, the huge escalation of rates after the initial honeymoon rate period and in some instances it was fraudulent. In its earliest stages the idea had tacit support from the regulator. So what will the regulators do? Pass more prescriptive legislation about disclosure? They already have.
I prefer briefer broad descriptive type legislation that doesn’t need updating, as I think imagination is much more powerful and an effective means of communication and adapting to the spirit to the law is essential for to achieve the societal objectives to which the law aspires.( my submission is here to our own market authority )
I think we have entered into a phase of the current crisis which is purely emotional. Emotions tell us the truth about ourselves, if we dig down and find out what are all of these feelings about. I suggest in the current context there is a lack of trust? Fear? Anger? Even revenge? But it’s hard to put your figure on any one feeling. What do you think?
I think markets are always driven by emotion, it never been any different since their first inception. You will never rationally be able to define them in the short term. In the longer term however the fundamentals come into play just as I think organizations of integrity underpin the market longer term. The others are in danger of collapsing when the emotional temperature is turned up high.
This crisis I think may be over in year or so, nobody knows exactly? , maybe we will now become worried about what China will do, and then there will be further panic and so on.
Currently there are a small but growing number of organization leaders who are not afraid of their feelings and are confident enough to become vulnerable by talking about how they feel and how they are empowered by the trust they place in the integrity of others. You can always recover from genuine mistakes, they need not hold our fears, but you’re likely to become very emotional when faced with widespread mistrust and deception which leads to unintended consequences.
What’s your experience in the workplace and how important do you think are our emotions?