Subba’s Serendipitous moments

June 21, 2009

Will Singapore learn the lessons from the financial crisis?

Just finished reading Daniel Gross’s book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation. It is available as an e-book too. It is a book that I recommend to all executives and civil servants who are responsible for developing policy and strategy because it is important to place emphasis on perception tools as much as we do for analytical tools. There are similarities between the actors in the dumb money operation and in the Singapore civil service.

Dan writes:

“The Dumb Money creed rested on four pillars: perpetually low interest rates, perpetually rising asset prices (especially for housing), borrowers of all types remaining perpetually current, and perpetually strong markets for debt. The high priests of this cult were the nation’s central bankers.

In 2007 and 2008, each of the pillars of Dumb Money began to crumble. The rules of physics still applied to finance. Interest rates, it turned out, could rise. Asset prices could, indeed, fall. Borrowers, having seen no income growth in a decade, fell behind on their debts. All of which helped cause the markets for securitizing debt and derivatives to break down”

The people who blew up the system weren’t anarchists. They were members of the club: central bankers and private-equity honchos, hedge-fund geniuses and Ph.D. economists, CEOs and investment bankers. And the (overwhelmingly legal) con they perpetuated on themselves, their colleagues, their shareholders and creditors, and, ultimately, on us taxpayers makes Madoff’s sins look like child’s play.”

Looking back, the investors who believed the stories told by Madoff and Stanford—that they could deliver steady, positive, market-beating returns in any type of climate, despite the manifest failure of virtually every other money manager to do so—were obviously foolish. But our best financial minds also spun tales and theories with great assurance, making seemingly irrational and unprecedented activity seem completely sensible. And we bought them.”

So, Why do the best and brightest get it so wrong? One easy way to explain it is here.

The arrogance of power. Combine that with great wealth, quick progress, a group think syndrome, limited thinking style and big responsibility at a relatively immature age and you have a potent mix. It invariably leads to hubris. Hubris was typically responsible for the downfall of heroes in Greek tragedy.

In addition, people in positions of great power and/or wealth will often interact primarily with people like them, both at work and in their social life, most of whom share a similar world view. They start believing that they are the only ones who understand what is going on and what needs to be done. Everyone who disagrees with them is just plain wrong or worse downright stupid. When problems occur, they tend to circle the wagons and become even more isolated.

Now Singapore’s civil servants are intelligent people, but they have become ensconced in their ivory towers. There is too much group think and there is rarely a marketplace where ideas compete. Most Ministers and civil servants come from the same elitist institutions and often have a tendency to very much function like a club. I do not know how much debate happens during the cabinet meetings, but after observing Parliament proceedings closely I have rarely seen a good debate or alternate viewpoints being pursued.

More importantly, having seen civil servants and executives in Ministries and statutory boards interact, the “group think” syndrome just continues to strengthen because they don’t want to be left out of the club. Worse, any alternate view is interpreted as a challenge to the authority, not just to a point of view. Has kowtowing the superior become the SOP (standard operating procedure) or is it a “survive and grow” strategy or worse the natural default behavior? With so many Minsters and civil servants coming from the military side, I would not be surprised if compliance fetches a better premium than creativity.

The Singapore media has never had a track record of triggering new ideas or debating current ideas. It has always served to propagate official thinking and giving it a spin.

Now, can the top honcho always get it correct? And what’s the risk of his reading the situation wrong or coming up with the sub-optimal solution? I shudder to think.

If the financial crisis has one thing to teach the Singapore government and civil service, it is that systemic failures of massive proportions are possible. And the best and the brightest (in Singapore they are judged when they are 18 years old based predominantly by their school leaving scores) with their group think cannot be the fountainhead of wisdom.

Wisdom and government dominance have been strange bedfellows. And incompatible too.

June 18, 2009

What ails Singapore entrepreneurs?

I am not talking about the entrepreneur who sells red bun and starts yet another coffee shop. I am talking about technology entrepreneurs who create products, services, generate jobs and stimulate growth.

Singapore is probably the only country in the planet which has a Ministry of Entrepreneurship staffed by eminent and scholar Ministers. The first to head the Ministry in 2003 was Raymond Lim a Rhodes and a Colombo Plan scholar. Subsequently it was headed by Dr. Vivian Balakrishnan for a very short time before Lee Yi Shyan took over.

Despite such scholar Ministers, Singapore has had limited success as entrepreneurs and very less of technology and new media entrepreneurs. The Government has put in all kinds of incentives and generous funding.

My own assessment after having done some serious thinking is as follows:

  • Few angel investors or Series A investors
  • Start ups don’t collaborate and create partnership networks themselves
  • Start ups don’t think global – they depend too much on the local market
  • Big Singapore companies are not encouraging about start ups
  • Start ups build business the traditional way – Not disrupting anyone
  • They try to copy other successes blindly
  • Clearly no game changing ambition
  • Less idealistic, hence do not get the new business models.
  • Excessive focus on making money quickly – No big picture or long term picture in mind
  • Focus on sales, not on a compelling value proposition
  • Start ups don’t even do simple, free marketing – blogs, viral marketing etc.

James Chan has some interesting observations and I would agree with all of them.

Does anyone have anything to add to this?

Isn’t is a paradox that we were once a nation of entrepreneurs? Our forefathers from China and India arrived here without any support with barely to survive and set up businesses. Even today the Chinese and Indians have successfully set up businesses not just in their own countries, but all over the world.

Where and how have we lost the spirit?

February 23, 2009

The Greenspan shift

Filed under: Business,Perspective — Subbaraman Iyer @ 2:07 am
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What goes through the mind to change one’s ideology — from a high priest of free market and laisser-faire capitalism to becoming an advocate of nationalism?

I wonder about Alan Greenspan’s — the former Fed Chairman recent recommendation of nationalising US banks on a temporary basis.

Is it the extent of  crisis when this whole thing started unfolding under his watch and that there’s no other option left but to nationalise some of the banks?

Or was he truly ‘shocked’ that markets didn’t work as he said in the Congress testimony a few backs back? His exchange with the Congress representative is crisp, clear and honest:

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Initially I wondered whether he was being naive about Wall Street being self-regulating, that it was in the interest of the financial world to protect the consumer and the shareholder’s equity.

However, later, I think it is the hallmark of a truly wise person to admit one’s limitations and endorse the right solution for the problem. It only means that he is not a prisoner of his own view. Standing up and owning an error in front of Congress is not easy. He is the only person who has admitted some culpability. No CEO in Wall Street or anyone in the Government have done so.

One should also not ignore that Alan Greenspan steered the US economy though one of its largest booms in history.

The common view is that people tend to be stubborn as one age. It takes a rare mind to abandon what you have believed in all your life.

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