These two stories above highlight a few key fact of the financial world which we are now faced with: unlike the stock market back in 16th-18th century (still focused on the sustainability of the companies and their cash flows and viability of the company as going concerns, now due to intra day trading & hedge fund's our capital market is focusing on (for some) more profitable short term trading.
As power rests with companies that has money, focus naturally would put stress on their people to 'perform', typically by creating newer/more exotic securities, or an instrument {fundamental or derivative})... Nothing wrong with derivative instruments, mind you, as I would have loved to be the whiz kids/quants to create them and sell to other securities/wealth management houses.. as there is nothing wrong with selling to other sophisticated investors who should understand (or can afford to hire someone that understand).. the challenges comes when these same securities are then re-packaged and sold to another unsuspecting financial firms with support of a AAA rating.
I am watching with amazement when regulators worldwide keep talking about tighter monitoring/regulations/capital/cash ratios...as ..
Surely, it is time now not to look at how the gears not worked and how best to monitor and oil the gears..!? Could it now be the time when we look at potentially changing the automatic gear box to a manual gear box??
that is we should focus on longer term outlook of securities/market, of say, duration of the company's life time, or godforbid, indeed the 'career lifetime' of the CEO/chairman/even the securities trader!!? i.e. make the Officers to be accountable even AFTER their appointments ... that would surely change the dynamics if just a little bit?
These forms part of the reason why I created my company GamBond® (yes our first test market is the insulated remote gaming gambling market, but with probably more profitable/vs cash flow) in the first place back in 2004. We aim to cut through the rubbish and 'see through' potentially messaged figures and go back to the fundamentals of how best to rate a company's viability as a going concern, by focusing on the potential default risks of the targeted industries. We do this by identifying the Key success factors of each targeted industry sector (what drives it's growth, likely KPI that affect it's future growth or potential death traps or decline triggers..) and put a price on the potential default risk of companies, after specific rating, disclosures and monitoring (direct or via value chain).. and also we put our money where our mouth/rating is.. (by creating the insurance and re-insurance sector)
Surely, this would cut through all the 'talk' and sabeponas and witch hunting.. as sadly now in 2010, it is NOT the time of looking back, but forward, what are the lessons learnt and what we can do from within and outside of the industry to ensure that this will NOT happen again?
sadly, I have been barking up the wrong trees so far, and real supports for creation of the default risk insurance market are scarce (yes, we are re-defining multiple industries and in fact mindset but hey, lets not hope that only warren buffet might be able to understand! and yes, if he is the only guy that can help us to make it, please someone help us to make the introduction!)
I personally think/recognise that the future of the securities and financial market is definitely of back to basic: cash flow, outgoing, industry risks, plus some nifty monitoring (active disclosure or value chain/3rd party disclosure) so that one can really monitor the risk and have early warning systems..
Key is cut through the noise and support the Gems.. thats what I call 'Global Trust & Confidence'.. as sadly we do not trust anyone or organisations now, and not likely for the short to medium or long term future!
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