A Creative Insight Into the Banking Crisis

A Creative Insight Into the Banking Crisis

If, as discussed last week, the eurozone is a mish-mash of politics and economics, then the banking crisis is even more of a hot potato.

On the one hand, the word 'bank' comes fraught with vitriol. On the other, we seem prepared to alienate anyone to save our precious 'financial services' industry.

How can financial services be good but banks bad? Aren't banks financial services?

To make things more complicated, are all banks bad or just some of them?

Again brutal simplicity of thought is required. Indeed, such is the mess the banks have caused, we need innovation. We must think the unthinkable. We must be creative.

The first thing is to unbundle the good from the bad.

Let's start with the wider area of 'financial services' that is not banking.

For example, insurance is vital to our economy. Insurance spreads the risk of disaster. If x% of cars are likely to crash then we all pay a little bit towards the cost of this eventuality occurring, hopefully not to us. This applies to all manner of things including houses, ships and our lives. Nothing wrong with insurance.

As to the narrower banking sector, certain elements of banking are elementary and harmless. These are the 'High Street Banks' which take lots of little piggy banks of money and lend big bellyfuls to other people at a higher level of interest, thus creating a profit. Capitalism in its purest form.

In both of the above examples, an insurance company or a bank collects little bits of money out of all of us with the aim of making financial gain from the lump sum that is created. Please note the word collects.

For this is not the case in the nasty side of banking.

This is called 'Investment Banking'. We do not like investment banks at all. They have played a significant part in the creating the national debt. What is more, the employees of investment banks benefit from salaries and bonuses far out of scale to everyone else in the economy.

Many investment banks have their European if not worldwide bases in London. This makes the countries in the eurozone doubly angry. Lots of people make lots if money over here but then we, pointedly, walk away from them over there.

I know banking is boring to marketing people and those interested in behavioural insights, but please stick with me. I am close to revealing a creative solution to the monetary crisis in which the Western World now finds itself. Well, actually I am afraid I am not. But I can tell you how we can stop getting into this mess again.

First, let me explain the role of the Stock Exchange. The Stock Exchange allows me to make a very important point. Here, 'investors' buy shares in so-called 'quoted' companies, whose share price goes up and down according to their own performance and the general state of the market.

The important point about the Stock Exchange is that the people who buy and sell shares, humble pensioner or gargantuan pension fund, have to pay to buy the shares - and get the cash back if they sell them.

Now we come to the 'traders' in Investment Banking. Here, a new vocabulary ensues. Hedging, derivatives, short selling, put and call options, securitisation, leverage and, most important of all, risk.

This is not the place for me to explain the meaning of all of these terms (even if I could).

But there is one principle I would like to establish.

Do you remember Nick Leeson? Have you heard of Alexis Stenfors, Jérôme Kerviel or the mighty Yasuo Hamanaka? No? Get Googling!

Between them, these people (and many more, some of whom have been kept under wraps) have lost billions. Dollars, pounds or euros, it does not matter - any which way, it is billions.

Do you think their employers owned these billions for these people to lose?

You bet they didn't.

It is like being let loose in a betting shop and told: 'Gamble all you like. If you win, you get a share of the cake. If you lose, um, yes, er, well, hmm, if you lose we'll worry about it later.'

We need a regulatory system and, preferably, legislation to control people who gamble money they do not have on the future price of goods, commodities or even money itself.

For this is the problem behind the financial crisis we are in.

At the moment, if they win, these people get very rich but, if they lose, all of us - from Athens to London - lose too. This situation must not be allowed to happen.

In a capitalist state, where 'financial services' are so important to our economy, these people are out of control. But, because the rest of us are paying the price, they must be controlled.

Indeed, as a sophisticated capitalist economy, and as I argued in my last post, because of the importance of our 'leadership' in financial services, we must take the lead: think harder, think better, be more creative - not just walk away from the table.

When I managed Ogilvy Thailand, every single Ogilvy Worldwide office had to send a daily report of its cash-at-bank position back to WPP in London. If Sir Martin Sorrell can make this sort of thing happen, why can't our far less able politicians?

Why shouldn't people who are gambling with money they do not have be compelled to make a daily statement of their exposure to the Bank of England? There may be better executional or more creative ideas, but let's work them out because the key behavioural insight is vital.

People are being allowed to spend money they do not have and, because we pick up the tab if they lose it, we need to know how much it is.

The current position is very wrong, very wrong. We must stop it now.

A prosperous New Year to you all.

First posted on Brand Republic.

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