Saturday, July 3, 2010

A New Breed of Bankers

The economic crises that hit it's public view when Lehman Brothers collapsed in September 2008. Economic crises are not immediate, before Lehman Brothers collapsed the sickness in the global economy was obviously building for years, nobody really wants to acknowledge that fact.

One invests in products according to risk, bankers are usually the most conservative investors, in theory at least, this is because they must repay the depositors with some interest. Banks and bankers obviously all want clients who will pay them back their money, all bankers will first chase the less risky investments, when these less risky investments run out they go down the scale until finally they are at the riskiest category. The riskiest category obviously leading to the banking chaos was the US subprime market. Why would bankers take such a risk. The answer is simple, they have to pay depositors with interest, deposits have to be active to earn the interest to pay back these depositors. Once the less risky investments go, bankers have to take the risky investments. There was no choice but to create a sub prime market, and as the less risky investments where competed away, more money poured into sub prime products, this was the nature of the banker then and now, that is what they are taught one presumes, to find a market and keep the money moving.

The current banking thinking is not entrepreneurial, it is more aristocratic, they feel they don't have to run around, the depositors come to them and the clients come to them, bankers feel they do not have to rub around. With scarcity of less risky alternatives, bankers will have to think more and more like entrepreneurs for their idle cash. When banks phone you at dinner time offering you a credit card they are trying to move idle cash, in order for it to earn interest.

All bankers understand the four types of economic markets, it is this understanding that should allow them to become more entrepreneurial in thinking. There is the markets described as perfect competition, imperfect competition, oligopoly, and monopoly.

Unless a market structure is legally monopolistic, there is always a way in to a market. The government is not efficient in organizing markets, even the anti competitive laws are usually not enough because they leave behind an oligopoly structure, that may or may not be competing. An oligopoly being better than a monopoly in that in theory there is competition.

Bankers need to be there to help start ups that have a future, that will compete profits from already established players. One is not talking about an idea being a start up, but the product must be available. This should be the highest risk bankers take. One will laugh this off, but what is better, financing sub prime where the chances are slim or a product where the chances are slim but there is a product. The product must be out there. Where does one find these products, well a banker merely looks at science magazines, goes to science fairs, a banker sees the latest in innovation, not as sketches but as real, less risky than investing in a sketch, but still risky, a cell phone made by small scale G phones needs a lot to be able to fight and make it's mark against the likes of Iphone, Samsung, Nokia, but with finance Hypothetical G phones cod do well with finance from Bank X, better than calling people and offering a credit card or wasting money on the sub prime rate. Hypothetical G phones has a better chance of paying back money and being a client even to the Investment banking side. Financial instruments that create nothing are not beneficial in the long run, good profits and bonuses at first, but as risks increase an entire financial system can collapse whilst G phones could create profits, jobs, jobs people will spend money and if bankers remember the more money people have the more that will be deposited.

It's time bankers read the likes of popular science and get in tune with what is happening, Forbes always talks about latest gadgets, so do the likes of GQ, go to science fairs, think geek, these are less risky than the likes of the sub prime rate, one success would cover 10 failures.

Bhekuzulu Khumalo

1 comment:

Anonymous said...

i have a report on this....
eeeepppp very confusing stuff



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Bhekuzulu Khumalo

I write about knowledge economics, information, liberty, and freedom