HC Global

First - you may have noticed 'a bit of market mayhem' last week - it was hard to miss and a little ironic that CIPD's last time at Harrogate should be completely overshadowed by events going on all around......

But let's get a few cards on the table and hopefully provide some intelligence rather than ignorance which seems to be spread throughout the media....

1. It's actually NOT a credit crunch but the bursting of an overvalued asset 'bubble'. Much of real estate across the world has been overvalued with the UK, US, Ireland and Spain being at the forefront.

2. Too much cheap credit has fuelled an unsustainable boom. The result being that as assets become revalued (down), lending has naturally begun to dry up. When loans turn bad in large numbers nobody knows the true position which exacerbates the issue of lending (i.e. nobody wants to do for fear of losing money).

3. Thus the 'credit crunch' is a symptom not a cause. The bottom line is whatever the banks have done wrong in underwriting and securitisation - the fact remains that people have defaulted on their loans. Too much easy money in the system and misunderstanding of value.

4. I'll say it again, real estate (particularly in this country) is a giant pyramid selling scheme as it requires new entrants to sustain the market. No entrants and the market collapses, and just like any pyramid-selling scheme, some benefit but those last-in lose the most. The fact that market experts used in the media have never acknowledged this is gross negligence.

5. The UK government has been very culpable knowing full well the consequences but has continued to promote this pyramid scheme to raise more tax. It is still doing so now - totally irresponsibly in thinking that it can revive the economy.  .

6. As much as banks are at fault for lax lending policies and now been labelled wrongly as pariahs - remember - UK corporate taxation over the last decade has relied on this sector for 25% of the money - a considerable sum - we're talking tens of billions. The Government, and we all, would do well to remember it. Blaming the banks is short-sighted and plain daft.

7. Short selling was not the cause of HBOS demise. This has been officially recognised. The use of shorting has been seen to be an efficient market mechanism (though it can be manipulated). I'm not an advocate for it but that doesn't mean that it is wrong. Thus it's the wrong target. Yet another knee-jerk response. It was panicky investors - individuals, pension funds etc because one of the issues being HBOS' over-exposure on receiving market funding (similar to Northern Rock).

(A thought experiment - to 'short something' means that you have to borrow the shares from institutions who already own them - why would they lend them knowing that to do so would mean that their value would be significantly reduced? Yes - good one that - but nobody seems to have asked this?)

8. Where the banks were mightily wrong was in their individual reward-performance linkage. Too much short-term reward against potential long term gain/loss with plenty of risk. On several people management evaluations we've carried out this has been issue raised along with the prevailing operating culture. I have mentioned this before. Interestingly, I have scoured the pages of HR press and can find no reference to this issue. So my question is - where was the HR profession here? If HR isn't evaluating - who is? Interestingly most recent HR comment in financial services has been on equality/diversity and CSR/sustainability i.e. its PR driven (again).....SPOT THE DISCONNECT HERE............

9. The massive US bail-outs and any half-baked measures we come up with over here will not correct the underlying problems - so expect more downwards pressure. There's a lot more to go yet. You don't get free lunches - otherwise we would have tried this before. The correction is going to take a while yet. My concern that any 'protective measures', though well-meaning will only delay the recovery. To have bounced so high means we've got to dive very low before coming back up to the surface. Its just the way it is.

10. This isn't the death of capitalism it's just a brutal correction. That's a market for you. Efficiently correcting an imbalance. Unfortunately it hurts. The real learning is that for the vast majority of us - accumulating wealth is actually quite difficult and is not helped by various 'get rich quick schemes' like the real estate ownership game it has become'. 

11. The UK economy is out of kilter - big time. we all need to do our bit to correct it. Unions - take note.

12. Finally, was I the only one who 'winced' at the media coverage of headhunters actually visiting the pubs in Canary Wharf on the day of Lehmans' demise. It may be business but it caused a negative reaction in me. Is this professional? Has the CIPD got an official comment on this?

As president of the HCMI I would say that this practice is to be discouraged as it could be deemed unprofessional and likely to cause 'disrepute'. I certainly wouldn't encourage interviews in the press admitting it. It comes across as sharp practice. What do you think? Let me know......