Not so long ago, I facilitated a week-long graduate recruitment programme for my employer (Ernst & Young Inc.). Mostly, this was because I got to eat free lunches, avoid the boring work, and finish early on Friday. The programme is ostensibly intended to promote the firm, but these programmes are also a form of social experiment. Prospective employees are placed into teams and given a number of tasks to complete every day. Each task is designed to give the facilitator insight into the individual personalities; identifying strengths, weaknesses and the level of “fit”.
During the week, one of the activities that we ran was a quiz. This served three functions:
- It was quite time-consuming (a week is far too long a time to shamelessly self-promote – we were running out of things to say);
- It was relatively entertaining; and
- We very quickly get an idea of how up-to-date our potential employees were.
Sadly, the answer to that question is “not very”. In fact, “not at all” may be more accurate. And this got me thinking: because recently, I have found myself having to translate the business world for my friends and family. And it’s both amusing and terrifying to think that, for most of the world:
- America’s debt ceiling is something on a graph;
- Mortgage-backed securities are something to do with buying a house;
- Sub-prime mortgages are ones with lower interest rates than normal;
- Credit-Default Swaps are a blurred haze of words; and
- The Greek debt crisis is baffling, with the fuss even more so.
This – this is madness.
At the risk of sounding pessimistic, I would suggest that the prospect of a financial Armageddon in the immediate future is a concrete possibility. The speed with which financial systems evolve is often beyond the reach of legislation: and the world’s political systems tend to be reactive rather than proactive in their regulation. And when financial systems are driven by wildly fluctuating waves of greed and fear, current forms of regulation seem somewhat futile.
If I can use a metaphor, the current climate feels like hurricane season. The alternating currents of hot air (greed) and cold air (fear) create high and low pressure zones. As time passes, the pressures build into storming vortices of increasing force and frequency. Inevitably, hurricanes begin to come ashore; each one different, but each one seemingly linked to the one that came before it.
And in the face of these storms, people should be aware that the thunder is not just a loud sound in the sky; that the wind is not just a breeze; and that the first raindrops are not simply a light summer shower. In my opinion, looking to the political systems to change the status quo… Well, it’s a little like expecting the forces of nature to quiet down because we’re introducing a legal limit on wind speed. Human nature on a globalised scale appears to be outside of our control.
The solution then, on an individual level, is not to berate the clouds. The solution should be to look for signs of the storm coming, to batten down the hatches, store up the tinned food and board the windows. Or the solution may be to move out of the path of the storm. For the truly entrepreneurial, it’s probably time to invest in large underground battery banks and a windfarm. After all, the electricity is the first thing to go in a hurricane. In the aftermath, the owner of batteries is king.
And that, in many ways, is the point of this blog. Economics and finance have the greatest day-to-day impact of all fields of knowledge. We use it constantly. But we need to be aware of how it works. To be unaware is to be caught offguard. And that awareness can be the difference between being a victim and being a survivor.
Also, it’s fun to talk in metaphors.
Gareth Crosland January 25, 2012 at 19:23
I think there is also a difference between understanding a concept when you read about it in a finance textbook and being able to write and talk about a concept. I need to get to this level…soon! Good job JaysonReply