Monday, 15 December 2008
Worse Than 1990 , part II
"The Chairman of the Board of Finnair, Christoffer Taxell believes that the economic situation now is worse than during the recession of the 1990s and that the state should share in the risks needed to keep companies in business
Interviewed on YLE TV1 on Saturday, Taxell pointed out that the economic crisis is a global one, and no one yet knows how deep the recession may be.
He noted that as a country highly dependent on exports which account for about half of the national economy, the crisis will hit Finland hard. He warned that the squeeze on financing may lead to bankruptcies.
"Indeed, I feel that the importance of commercial financing right now is greater than imagined. Working capital, that is a lack of cash, is starting to become a problem in many companies,”said the Finnair chairman."
I think I have highlighted many times that we are currently in the same time-point as 1990. So I have warned you (but not refrain you) to be very careful in taking huge investment today- Assess the risk and wait until the fog dissipate-
I have been saying, all along, that what we are currently observing is worse that what we have witnessed in the past two decade. What we have, instead, is not a local banking crisis that was restricted to the Nordic region in 1990 but instead we have in our hand a wide spread global financial crisis, the worse that has occurred in the past century.
At last, one courageous guy - The chairman of Finnair- is saying out loud what some have known for a quite long time. Some have been downplaying the risks, this was either for self-interest or politically motivated.
Nowadays it seems that everybody is aware of the problems. For some I think it's a bit late to know now, due the investment they made in the past. Nevertheless it's a very popular subject of discussion.
Regarding those discussions, I had last week a very interesting discussion on the cause of the current and older financial crisis. One very interesting finding and somehow original was the fact that around the turn of the previous century in 1900, one major innovation was electricity. This had contributed in an acceleration and modernization of factories which led to a massive reduction on employment in manufacturing as machine replaced workers. It brought as well, a mismatch between the amount of product that was created and absorbed due to rising unemployment. Somehow that could be among one of many causes the 1929 crisis.
The same similarities could be drawn at the turn of this century, the year 2000, with the wide spread use of the internet or ICT technology in general, that effectively allowed an acceleration of productivity and cost reduction through resource delocalization allowing on the way massive amount of service/manufacturing jobs to be lost (or to be).
Nevertheless, the cause and effect are always different and could come from unexpected sources.
Anyway this blog I hope has allowed you to understand the seriousness of the situation a bit earlier than it was reported in the Finnish media.
It allowed you to understand that what some say is not necessarily true, even if they have high profile reference- Some have mastered the art of spinning off: switching camp as the situation evolved and playing with words. Basically be critical although don't fall into those conspiration theory (At the end, don't lock yourself in A scenario)
On the other hand , I will warn that some will try to portray the situation worse than it is currently in order to achieve business or political point. You could assume, if you read between the line on what Finnair chairmain is saying, that he is preparing the public on a wider public support or bail out. This idea is not new. When the economy is doing well, no body put any brake and all the gain are privatized (some get massive bonus, some make a fortune).
On the other side of the coin, when the economy reverse gear and deteriorate, then public funds are called upon rescue in order to socialize the losses (read it as tax payer coming at the rescue of private company directly or indirectly. I would agree to do that, after assets of shareholders and directors are seized to repay the cost of the bail out, after all during good time they didn't create enough "cash assurance" for the company in case of bad time, instead use it to build lavish offices, and for some, boats, cars and houses. Why tax payer will have to forget that? if politician do, then the consequence will be harsh as minority political group will rise in strengh. At least it's what History has been telling us).
So in this current environment, you have to understand that the situation is serious but thing can change any time. You have to be pragmatic and not static in the way you see things: neither over optimistic or over pessimistic- you need to find the right balance. All in all you have to manage risks better than the latter two decades as today situation, if not stabilized, could turn to the worse.