See the financial crisis as a chess game with 4 pieces
20 Sunday Nov 2011
Since the Northern Rock crash, when was it, 2007? I’ve been using the Kubler Ross Grief Cycle to track where we are in dealing with the financial crisis.
Kubler Ross Grief Cycle and the Financial Crisis
- Denial took a looooong time. We got Lehman’s in 2008. I think people have got it now. We know we are trouble.
- Anger started kicking in when? At first we were vaguely angry with Lehmans. Then we muttered when our own incomes were affected. And possibly we took our anger on targets as various as local corner shop and politicians.
- Bargaining is next . . . if I do this, then . . . then the problem is going to go away. A well-educated experienced American knowledge entrepreneur over here in UK looking for backing put the mind-set well. “Promises were made”. “The middle-class were promised . . .” That is what bargaining means. We think we can still make the problem go away and with very little effort at that.
- Depression should follow in this rough order of psychological states. We might have thought that Western countries have been depressed for a long time with most people “sleep walking” through life, nursing a hangover and waiting for early retirement. So I am not looking forward to seeing what that looks like in a more severe form. At the rate we are going, next year maybe?
- Adjustment . . and eventually we get sick of being depressed so we get out of bed one morning and decide to get on with it.
Being positive in the face of the worst financial crisis
Being an impatient soul, I’ve kept an eye out for simple models that can help people Act, Do, & Get On With It.
On Al Jazeera today, there is a blog by Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and author of When Markets Collide.
El-Erian finishes his article reassuring us that we
need not be paralysed by uncertainty and anxiety. Instead, we can use this simple framework to monitor developments, learn from them, and adapt. Yes, there will still be volatility, unusual strains, and historically odd outcomes. But, remember, a global paradigm shift implies a significant change in opportunities, and not just risks.
A framework for understanding how the financial crisis will unfold
So what is the framework? El-Erian suggests that each country, or large community, will decide for itself what it will do about four things. Each community will make a move. Then we will watch how it goes (and what everyone else does). And then we will make another move.
We don’t know the outcome of our collective actions in advance but we can think of this as a game of chess with four pieces each (instead of 6) and many many players (not just 2).
The four pieces at each community’s disposal
We have overspent and “borrowed from the future”. Whatever we cannot pay to the future, the future must write-off as a bad debt. That’s the stark situation that we are in.
In a large community, we are going to divide up the bad debt between us. The question is who should pay more and who should pay less.
Countries squabble at home about the formula for dividing up the debt, and the formula is important, but this squabble goes under a separate heading below.
First, the country as a whole must deleverage. If we don’t take responsibility for our overspending (sins of the fathers visited on the sons etc), then our creditors will take charge of our assets. This is called getting a bailout from the IMF. If you have ever seen this in play, you don’t want to go there. Believe me.
OK, we got into debt because we were partying and spending more than we earn. How are we going to earn more?
Sometimes the problem is structural. It is hard for me to get off my proverbial backside because I am locked into a system. So what is locking down the energy in a country? That is the question we ask.
Sadly sometimes, lack of growth is not economic. It is psychological. A tweet went the rounds this morning: nothing will happen while we hope to become members of the billionaire club. When the easy life is the focus, we ain’t going to be growing. If our goal is early retirement – enough said?
So let’s hear from the economists. And while they have their arguments, the rest of us can focus relentlessly on what can be done and work with people who want to work. And I mean focus relentlessly. It is so easy to get distracted.
Now the biggie. Social justice has declined in the west. And there we were selling democracy to whoever would buy. So the Occupy movement use as their catch phrase: we are the 99%.
The real issue is still economic. In my naïve economic take, the issue is how do we accumulate capital and what do we use it for?
When a government makes good free schooling available for a child from year 5 to year 16, we are investing our savings in that child. And we expect a return. When they are older, not only will they join in sophisticated businesses that already exist, they will invent new businesses and keep the show on the road when we are old and are slowing down. Education is just capital accumulation one person at a time.
Much of the problem in the west is that money has gone into partying at all levels. Money accumulates were it isn’t doing the work of capital – by which I mean taking from the present to invest in the future. We’ve been doing it backwards. Leaving money doing very little while we borrow from the future to pay for today’s party.
The talk is presently of who gets what. That is still partying. We must put our shared capital where it can make a difference. Education and health are no brainers. We also have to look at all our assumptions about where we invest and why. Simply, if you underpay a parent, you are stripping them of capital. So don’t talk in the next breath talk about investing in early childhood education. You are frankly talking nonsense. Why not create the problem in the first place? Personally, I’d look at all the laws that help keep workers insufficiently paid. The simple test is could you run a household on the same income. Could you? If not you are running down the capital base of the country.
But the problem seems to be large and the real key seems to be to start to move forward somewhere. The #occupy movement is people beginning to unravel the mess. As El-Erain says, watch them. And don’t feel powerless. Make your choices. Where ever Occupy ends, it is part of this piece on the board: Social Justice.
The fourth piece that we have to play with is leadership. We complain endlessly about our politicians. El-Erain doesn’t say much in his blog. Maybe he talks about them more in his book.
Personally, is suspect that our leaders are not the piece. It is our attitude to leaders that is the piece. I believe our leaders reflect us. Maybe when people become more accustomed to being politically active, then we will get better leaders. OK. You tell me.
So if you are impatient waiting for people to move through the grief cycle, try seeing the world as chequer board with 4 pieces and many many players. Track the apparent confusion and perhaps we can see what is happening, what is going to happen and what we can help make happen.
- Are we done ‘bargaining’ about the financial crisis? I wish, but I don’t think so.
- Tighten your seat belts. Good overview of next installment of the financial crisis
- 3 steps for citizen leadership during the financial crisis
- Denial, anger, depression, bargaining, adjustment: put the banking crisis behind us
- Little known secrets about what a work and organizational psychologist will do for you in a recession