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Greed and Complacency - The Twin Enemies of Every Financier

Tim Levchenko-Scott October 10th 2008




The current financial crisis highlights the two bitterest enemies of the financier, both of which exist only in his own emotional state - greed and complacency.

At a conference a couple of years ago in the US, one of my American colleagues was speaking about the problems that invoice discounters can run into. He commented that our two biggest enemies are greed and complacency. This got me thinking. So many of us in the finance world get caught up in the technicalities and legalities of what we do, and yet the biggest threat to our financial health is within us.

How aware we are of our feelings and emotional drivers, and how we handle those emotions will have as big an impact on how successful we are as any technical or legal aspects.

The current events in the US and around the world show that this holds true not just for invoice discounters, but for everywhere.

What led some of the wealthiest investment bankers in the world to create financial instruments based on bad loans to non-credit worthy people ?

What led the senior people in dozens, if not hundreds, of banks and other financial institutions around the world to then purchase hundreds of billions of dollars worth of prettily packaged, and supposedly sophisticated, financial instruments, that were in fact just a bunch of bad loans ? These are the sort of bankers who wouldn't dream of allowing their staff to lend money to these sorts of customers normally, but package them up as 'Collateralised Debt Obligations', make them sound terribly clever, and of course profitable, and bingo, otherwise conservative and sensible bank executives agree to part company with billions of dollars of the banks' money to fund mortgages for folk who should never have been given the mortgages in the first place.

The answer of course is greed and complancency, our twin enemies. When the bankers see how much paper profit can be made, and how that will effect their bonus, they are so blinded by the sophistication of what's in front of them they don't think to ask some basic questions and take a common sense approach to their decision making.

In invoice discounting we should always be asking ourselves, 'whose at the end of the chain here ?' 'Can they pay, will they pay ?' If they don't pay, what will we do ?' The same principles apply to other kinds of financing. These are the kind of basic financier questions that these bankers didn't properly ask or answer because of greed and complacency.


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