I heard James Espey give an wide-ranging and entertaining talk last week. It was unstructured and meandering, and all the better for it: Espey was riffing on the themes in business and management that interested him, and he had a lot to say. I was thinking about this today as I read in the paper about John Thain, formerly of Merrill Lynch:
…Mr Thain spent $1.2m (£865,000) to redecorate his office even as Merrill’s losses were skyrocketing… He signed off on the purchase of an $87,000 rug for his personal conference room, a 19th-century credenza costing $48,000 and a “parchment waste can” worth $1,400, among numerous luxury items. The work totalled $1.2m, including an $800,000 fee for the celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.
What planet does he live on? You might have thought a little restraint would have been called for with Wall Street’s greed-fuelled antics accused of having brought the world economy to its knees. Public anger over the robber barons of banking is already at fever pitch. This was not the time to be flashing your money about.
Espey is a non-exec of Whyte & Mackay, whisky distillers, A.G. Barr, makers of Scotland’s second national drink, and Fullers; he has spent most of his career in drinks’ marketing; and has recently launched the Last Drop, a rare, blended whisky. (Unfortunately, he brought samples of Irn Bru – but not the Last Drop! Still, the Irn Bru hit the mark, too!)
Espey said that he thought the recession had in part been brought about through the corruption of money – a bonus culture brought about by a moral failure that rewarded growth at any cost and saw money as an end in itself. He mourned a society where greed and the desire for possessions had pushed aside all other considerations – and he was worried that we had nothing to fill the gap once the credit tap was turned off.
It isn’t often one hears successful businessmen describing their world in such moral terms.
It was very refreshing; but I worry it is too late.
Last week, the management School hosted the third of its talks on climate change . James Cameron – no, not that one, this one – of Climate Change Capital gave his views of life after Kyoto.
It was a wide ranging discussion, covering all sorts of areas – politics and policy, economics, and, given his firm’s interests, business and investment. It was a very different approach to either Nigel Griffith’s or Richard Dixon’s – more concerned but hopeful, rather than apocalyptic.
This morning I was listening to 5Live, and Robert Peston came onto to discuss the latest figures from Royal Bank of Scotland. RBS was writing down up to £8bn for 2008. Peston also said that this meant that RBS had written off about £47bn in total. He said the same thing on the Today programme.
Forty seven billion pounds is a staggering amount of money. It is about $70 bn. It is about 2.5% of the whole of the UK GDP in 2007 (about $2,770 bn).
One of the things that David Cruikshank mentioned in his talk on the credit crunch and which I failed to mention (because I forgot!) were the listings of houses in USA on eBay; he showed some pages of houses for sale for $1,000 (about £670).
Now Boing Boing has a post about house prices in Detroit, with some on offer for $500.
That is a very scary market indeed.
I have described the orthodoxy around the credit crunch: that it was essentially caused by problems starting in the US housing market and spread around the world through interconnected financial institutions, the uncertainty of the assets owned by those institutions and how this stopped them lending to each other, resulting in the pricking of asset bubbles.
I don’t doubt this; but I think that contrary to what Gordon Brown keeps saying, it isn’t just a global problem: a lot of the problems faced in the UK are homegrown, and the solutions proposed and acted on by the Government don’t seem to be likely to help solve them.
A lot has already been written about the poisonous confection that is the credit crunch: a quick google produces nearly 12 million references (a quarter of them originating from the UK). The phrase has been on the lips of newsreaders on radio and tv, and pages and pages of newsprint have been produced about it.
But none of it by me, so I thought I would add my tuppence worth. I doubt anything I have to say won’t have been said by others, and, not being an economist, some if not all of my economics may be wrong… I have split this over two posts, because it got too long!
Back in late November, I went to a talk by David Cruikshank of Deloittes, where he is chair of the UK part of the firm and head of tax, on the credit crunch, what went wrong and the implications for business.
He started from the orthodox view that the credit crunch was started in the USA as a result of Asian (predominantly Chinese, who were saving 50% of their GDP) money looking for a home – that money had to go somewhere. With relatively low interest rates – money was cheap as a result of the “Greenspan put”, when interest rates were cut following the last asset bubble in 2000 (that time, it was technology shares in the dotcom bubble) – investors (individuals and institutions) sought to invest in riskier and riskier assets to provide the yield they desired; this of course pushed up asset prices and reduced the yield for investors – who then sought riskier, higher yielding investments. A vicious circle.