Revista MBA

Background
In the early nineties, we had a global economy with closed borders and a cash-rich group of developed countries and cash strapped third-world. Essentially clearly differentiated worlds.

The slick-haired, pin-striped-creaseless-shirt wearing, MBA’s who presented cashflow forecasts to their wrinkled, graying, white-haired overlords, who then approved of investments, when emerging markets began deregulating consumer industries too optimistic.

Fundamental Causes
Essentially the “Alexander Cabots II” of the world thought then that the rest of the world were malleable enough to accept and imbibe American culture. This is not a bad thing. American culture has distinctive qualities such as independence and enterprise. The rest of the world actually did accept those qualities as their markets opened up. But what they did not accept was the “buy now, pay later” maxim.

I would jot down the following underestimations in their models.
a. Extent of IP piracy
b. Tenacity and ingenuity of local competition
c. Natural inefficiencies due to crumbling infastructure
d. The callous, street-legal acceptance of corruption at all levels of authority as a way of life
e. “Hardwired” conservative, insular cultural values
f. The democratization of information due to the Internet and mobile technology

My hypothesis
I think that the recession today can be simplified as the result of (1) incorrect projections (as argued earlier) resulting in (2) increased number of competitors vying for a share of the consumer wallet resulting in (3) overcapacity resulting in a (4) supply glut resulting in (5) increasing cost of sales resulting in (6) lower earnings margins resulting in (7) longer than estimated breakeven points on projects/businesses resulting in (8) commercial credit expansion resulting in (9) more nervous banks resulting in (10) desparate measures to make bigger, riskier bets to please shareholders.

The final result: A deeper, prolonged recession causing structural changes in certain markets.

But, all is not lost.

A final word: Don’t believe what you read. Newspapers play the ratings game too.

Oil prices, a key barometer that has an equivocal impact across all sectors and regions of the global economy, has come down to realistic levels. Why?

I strongly believe that the Alexander Cabot-led investment banks of the world also tried to speculate their way out of the US sub-prime crisis by betting on oil prices. Think about it. How did oil prices soar 250% in less than a year when there were really no big ‘events’ like an embargo or sorts? On the contrary, even Iraq was seeing steady recovery indicating more taps were ready to be piped into the market. Some folks working in classy office buildings with scenic views around Canary Wharf and Wall Street realized that they were fucked.

Their bets on the US housing market and a ravenous credit-reliant American consumer providing much needed steam to the US economy was not going according to plan. Points a-f above, actually lets say points a, b and f were still decimating the competitiveness of US industry, thanks to freer markets and trade agreements. On the other hand, the same factors along with point e pissed all over their dreams on the demand side.

Anyways, these Alexander Cabots are now on Dump Street and thank god for that. Assuming that these creeps don’t follow the FILTH policy (Failed in London Try Hong Kong) that I am told so many ad men did, other markets should be safe.

The more populous, self-sufficient markets with a bounty of natural resources need not worry. As long as oil prices are in check (and they possibly will be due to a slow restoration of international order), as they say in saying goes in hip hop, “it’s all good!”.

For the developed markets, I think Barack Obama is doing the right thing. He’s now moved on in the right direction. He’s working on Quality of Life 2.0. A cleaner, safer environment. A higher ideal, a higher version of the quality of life that newly enriched folks in the underdeveloped world are begining to realize due to the cost of progress – pollution, resource contamination etc. Once the USA gains expertise in Quality of Life 2.0 compentences in the form of scalable, trasferable, efficient solutions, they are open again for business.

Until then, they better hold on to their dollars, discipline their younger generation and curb their excessive ways.