What lessons can we learn from the financial crisis of the past 5 years? How can we avoid making the same mistakes in the future? Einstein famously quoted, “we cannot solve problems using the same thinking that originally caused the problems.” How can we think differently about personal and corporate finance in a vulnerable economy. It is also said that money will not solve financial problems – only alleviate the symptoms for a short time – and that the financial crisis is, at its core, a problem of the human heart, not a technical problem. We need a new way of thinking, both collectively and individually, which changes our behaviour.
But how can we change in the midst of a crisis? And I think we are still right in the middle.
Last month in Prague, I spoke to Bruno Roche, chief economist of Mars Inc., one of our speakers, and asked him what he thinks of the economic recovery we seem to be in and does he think that it will last? His answer: This recovery cannot last. He, and others who he knows, are expecting another downturn. This will most likely occur in 2015.
He then went on to say that this next downturn is going to make what happened in 2008 look like peanuts because the world is much more in debt now than it was then.
Seldom have our fınancial markets been so close to collapse or our institutions lost so much value and trust. Seldom have so many individuals and businesses faced such an uncertain fınancial future. Seldom have our Governments had to borrow such vast sums to fıght the fear of an economic depression.
We know we should not go back to how things were before, although the danger remains that we will. Let us be honest enough to examine the personal shortcomings and structural diffıculties that had locked us into a system that did not deliver. We can no longer allow the system to drive our values. Our values must now drive the system
It is true that our personal and national fınances have been buffeted before. Stock market crashes are nothing new, and certainly in the UK we have survived a boom and bust economy many times in the past.
There is a feeling though that this time something is different. It is not often that quite so many of us have failed to make the right choices, and seldom have so many failed – quite so comprehensively – the test of both character and competence.
J.F. Kennedy is quoted as saying, “When written in Chinese, the word crisis is composed of two characters –one represents danger, and the other represents opportunity.”
The chief of staff to Obama said in 2008 … let’s not let a good crisis go to waste. It is an opportunity to do things we have never done before!
We need to look ahead and consider the lessons arising from the crisis and we need to decide how we are now best going to build a prosperous and sustainable future for all of us.
I will share two important crises in my own business life and then where some solutions which have taken me through times of crisis.
One of the major financial causes has been the creation of ‘easy money’ which has let loose the demon of greed.
What has spread around the world, is the continuing effect of 9/11. The Monday after 9/11, the FED slashed the interest rates to extremely low levels, creating and era of ‘free money’ — at least for those wanting to borrow and speculate – cheap loans, easy borrowing and easy mortgages. This would cause the housing market to explode beyond all economic fundamentals, creating an unprecedented housing and construction boom. This caused house owners to borrow against the rising prices of their homes, creating debt bubbles throughout the economy. What we have is a highly speculative economy. If He is judging the banks and financial institutions for systematically creating profits from “money transactions” in various forms, without any other “added value attached to it”
Gordon Gecko – said during his famous speech to students in the film Wall Street 2 “….Someone reminded me the other day that I once said, greed is good. Well it appears greed is not only good, it is legal. We are all drinking the same cool-aid. But it is greed that makes my bartender buy three houses, he cannot afford with no money down. And it is greed that makes your parents refinance their 200,000 dollar mortgage for 250,000 dollars. Now they take that extra 50,000 dollars and go to the shopping mall so they can buy a new plasma TV, cell phones, computers and an SUV. And hey, why not a second home while we are at it.”
Greed is never good, nor does it serve to work any good purpose. Since we will never be able to attain everything we desire, greed offers us dissatisfaction. Our greediness ultimately destroys us as we harden our hearts, ignoring the needs of others. Ultimately, greed motivates us to pursue poor choices that plunge us into destruction.
While few of us are millionaires, it is easy to fall victim to greed. When our yearning for another’s possessions takes seed, we produce covetousness. Our materialism becomes insatiable as we attempt to acquire objects that are upgraded or more impressive than our neighbour’s.
Israel’s Jordan River remains a source of life as it flows into the Sea of Galilee and then travels to the Dead Sea. The Sea of Galilee’s gives generous irrigation as well as abundant fishing resources. In contrast, the Dead Sea has no outlet, greedily robbing the arid region of moisture. Both man and animal refuse to drink from its acrid waters
Some of the issues we are all having to deal with form a formidable list of challenges …
• Falling house prices
– mortgage scarcity
– Negative equity after selling a house for less than its cost
• Declining stock values
– Pension decreasing
• Vanishing credit
– Business difficulties
• Failing banks
– Large bonusses
– Anger at greed
– Betrayal of trust
• Job insecurity
– Will I have enough?
– Future provision
• Anxiety leading to stress
• Burden of debt
• Disappointment of inability to buy
– ‘want it, and want it now!
What lessons can we learn from the crisis?
We have learnt some important lessons. Together, these are a profound shock to the philosophical and economic assumptions that have underpinned the West for the last 25 years.
Here is a list of seven lessons, inspired by James Featherby, a well known figure in the City of London.
1.We are more prone to temptation than we thought. If left to our own devices we often do not behave either rationally or well. Deregulation has proved unwise. The ‘invisible hand’ of the market has not guided us so well!
We have been unable to deal with greed!
A businessman came to a rabbi asking for advice. … “look through the window, what do you see? “Well. I see the world … trees, grass, flowers … a beautiful view.”
Now look at this mirror … what do you see now?”
“I see only myself.”
“That’s what happens when your world view is coated with silver … you see only yourself.”
2. We have learned that people who are solely focussed on money become narcisistic, and individualistic and greedy.
This greed has alienated us from business leaders who line their own pockets while laying off hundreds of their employees – who receive salaries hundreds of times greater than their employees. From bankers who leave unsuccessful banks with large bonuses. From politicians who choose corruption rather than honesty.
3. However, we have learned that regulation alone is not suffıcient. Passing more laws does not deliver responsible behaviour any more than it delivers profıtable business.
4. We are not as clever as we thought. We have created ‘expert’ structures we do not understand and cannot control, and we have realised that the future is more uncertain than we imagined. Death of the Expert!
Credit Default Swaps, repackaging mortgages – no- one understands what’s going on. Someone said there are only 75 people in te world who know what all these exotic financier derivates are!
“our autonomous intelligence is permanently creating systems of such a high degree of complexity, that our learning and controlling capabilities are getting increasingly overstretched.”
‘man is too stupid for his own intelligence’
5. The prosperity of each of us is more connected to the well-being of others than we thought, rather than money or possessions … `the pursuit of profit as an end in itself has led to individualism and this by definition destroys relationships.
6. Maximisation of shareholder value as a strategy for business has contributed to the problem, not solved it … when focused only on money, people are relegated to the second place, and become eventually means to an end – not the end themselves!
Pope Francis said to the Davos web site ” ‘Humanity must be served by wealth, not ruled by it’
7. The market does not protect us from disaster and, when economic shocks do occur, the market will not save us.
These lessons have left us in uncharted waters with no reliable means of navigation. They have ignited, for the fırst time in a generation, real interest in discussing the best principles upon which to base national and international business and fınance.
I would like to share with you two crises in my business life during which I learned a lot. These lessons learned from these crises have helped me through many subsequent crises.
The first was when I was 30 years old, director of a chemical company. We were enjoying success in business, but I discovered I was being a failure in life.
My success came at a high price in three packages.
1. My health
2. My marriage
3. My faith
The cost was too high. I was climbing the ladder of success, and when I reached the top, I discovered that my ladder was leaning against the wrong wall. I saw openly disillusionment around me. Poor health, a failing a marriage and a faith in God which was had no practical relevance to my business and private life.
However, years before, in the sixties, I had had an encounter with Jesus of Nazareth which I never forgot. This was a time of free love, experimenting with drugs, rebelling against all authority and a search for meaning in life. Jesus showed me that He, amongst many other gods on offer at the time, was the way, the truth and the life. As a student I embraced Jesus and started to follow him. He became the centre of my life. But I had never learned to apply this faith to my business life. They were two different realms.
During this first crisis, I discovered again the foundation of my faith which was that there was God who loved me and wanted me, and who sent Jesus to show me the way to a life of fellowship with God. My wife also embraced this faith and we set out on our marriage together. Had 3 kids, the last one with a Caesarean. She was at home all the time and `i was away travelling with a fat expense account. We drifted apart.
But Jesus would not let me go. He was there in my life, speaking to me.
I got help from some fellow Christians in business to re-order my priorities. I discovered again the Bible which has so much to say about life and work.
The second crisis was just a few months after I had taken over as CEO of a space services business.
First of all we survived a scare when during a launch in Baikonur, Kazachstan, a Proton rocket came crashing down and almost killed one of our employees.
Then, in February 2002, the space shuttle crashed on its way home to Cape Kennedy over the Texas plains.
We had experiments on board and we knew the commander, Rick Husband. He was a Christian and had left a series of messages for his family ‘just in case’ he never returned. He didn’t.
In one of these messages he said, ” if anything should happen, don’t worry. I will be going even higher!”
His funeral was a celebration of his life, family and friends thankful for him and his testimony to the faithfulness of God. Jesus was at the center of his life and his family had a strong core of faith which saw them through the crisis.
On the Sunday before the men went into quarantine for their space flight, the congregation at Grace Community Church prayed for the astronauts. Said fellow astronaut Mike Anderson at the time: “Rick and I have prayed for a successful mission, but also that somehow God would allow everyone to see our faith in Him.”
His prayer was answered.
So, how can we weather the storms of crisis? So, how can we organise ourselves so that we can weather the future storms?
Ron Blue went before a congressional committee and told the chairman who was a US Senator his solution to remaining strong in a crisis. 5 Points which will see you through in any economic situation. Ron Blue, when giving these 5 points was almost apologetic for their simplicity.
- Work as a steward – not an owner! s – good managers, responsible, transparent and accountable with the use of other people’s money!
- Spend less than you earn over a long period of time
- Steer clear from debt
- Build reserves, liquidity
- Set long term goals …
The senator replied, ” if only our nation could embrace these simple truths … we would be much better off!
Gandhi said, “Be the change that you wish to see in the world. As human beings, our greatness lies not so much in being able to remake the world – that is the myth of the atomic age – as in being able to remake ourselves.”
How can we remake ourselves?
The apostle Paul writing to Roman Christians, said, ” Do not be conformed to the pattern of this world, but be transformed by the renewal of you mind, so that you may know what God was – the good, acceptable and perfect!”
But how can we be transformed?
That is what Jesus of Nazareth came to do. How can He help you and I?
Firstly, He gives us a fixed core – a rock which does not change in the centre of my life –
He has promised to give us the Spirit of God the Father who will enables us to do what we can not do ourselves.
You cannot pull yourself up with your own shoelaces! Need a force outside yourself which gives the necessary help to deal with the changes occurring all around us.
One of the key success factors in business today is the ability to deal meaningfully with change and adapt to the changing circumstances.
Secondly, He helps us develop Loving relationships from which we receive the necessary support, advice and encouragement.
Thirdly, we do not know what the future may bring. Economic prosperity again? Disaster?
Jesus will help us develop a healthy financial basis, so that we can be content in any economic condition. The apostle Paul experienced the miracle, the secret of contentment, blessed peace, in any circumstance. …. Philippians 4:11-13
“Not that I am speaking of being in need, for I have learned in whatever situation I am to be content. I know how to be brought low, and I know how to abound. In any and every circumstance, I have learned the secret of facing plenty and hunger, abundance and need. I can do all things through him who strengthens me.”