The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘lehman brothers

How much do we understand the meaning of less GDP now and forseeable future

The fall in GDP for Japan appears nothing short of catastrophic, yet on a visit there last week by Nobuyo, the effects of this change are not obvious to the everyday Japanese person.

One change that was noticeable in Tokyo is less foreigners (Gaizin).  The area around Roppongi and Azabajuban is normally where one can expect to see many western faces in the restaurants and bars.  No more.  Companies such as Lehman Brothers, Merrill Lynch, and AIG as well as numerous other western financial services companies had representation in Japan, however that is quickly shifting.

This still does not appear to impact the average Japanese, at least not yet.  In fact as the country ages it almost seems to fit with a reduced economy.

Japan’s economy down 15.2% | Economist

The data, released on Wednesday May 20th, showing a 4% contraction of GDP on a quarterly basis, and a 15.2% annualised slump, reflect a continuation of Japan’s worst economic performance since the mid-1950s. Not only were the first-quarter figures bad. The previous quarter’s horrendous fall was itself revised downward by more than two percentage points, to an annualised 14.4%.

Researched by Nobuyo Henderson

Written by Colin Henderson

May 21, 2009 at 00:00

Systemic Risk | Was Lehman Brothers too big to exist?

Here is a blog concept from Harvard Business that might be interesting to you.  The idea is to focus on summarising new evolving big picture themes for business people.

Behind the breaking business news is often a management idea gone right or wrong. That’s where the Conversation Starter comes in. With this blog, we hope to shed new light on major events and trends in the business world by helping unearth the bigger ideas at work and discussing how those ideas are shaping our lives every day. We hope you’ll join the conversation.

This one caught my attention.  It speaks about the difficulty in identifying systemic risk – risk of the entire system collapsing.

Too Big to Fail? How About Too Big to Exist? | Harvard Business Conversation Starter

If yes, the firm could be required to downsize or shed business lines until regulators are satisfied that its failure would no longer pose a risk to the whole system. Correspondingly, proposed mergers and acquisitions could be reviewed for their potential to create an entity that would then be too big to fail.

CitiBank, Lehman Brothers, Bank of America.  One of the three went down, and arguably brought the world system to its knees.  What if others went down?

The blog poses the right question.  “What would happen if X went down?”  This is a better question than “what is the likelihood of X going down”.  The latter question will always be answered based on knowledge of the status quo, and invariably answered with ‘no likelihood of going down’.

But if we ask “What would happen if X went down?” we are forced to look into the window of the impossible and consider implications too serious to otherwise contemplate.

The blog speaks about a power outage in Western US as an example.  A more recent example was the 2003 outage in NE North America when one part of the power grid in Ohio went down, and within seconds 50 million people had no power for 36 – 72+ hours.  The blog makes the point that power grids and financial systems are the same.

These are unusual times we live in, and we need different and better ways of assessing risk.  Some say we are evolving to a market economy, that is more based on pragmatism, and opportunity, that will build on the older traits of welfare and security, and offer better results.

Relevance to Bankwatch:

Maybe in the next economy, being too big or too tightly integrated is a flaw that the market economy cannot contemplate or allow. If the market economy is about opportunism and offerring the best environment for people to succeed, then one might ask why we would allow a member of the financial system to become so large as to represent a significant risk to its continuance.

“No more business as usual” is easy to say, but what difficult decisions does that entail?

Written by Colin Henderson

February 23, 2009 at 23:36

%d bloggers like this: