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BIIA Informs Users of Information
The BIIA Forum 2008 was preceded by a conference on the state of digital content and future trends. The key note speaker was David Worlock, Senior Research Fellow of Outsell Inc., a founder member of BIIA. David Worlock’ presentations can be accessed on http://www.biia.com/library.php#162
NEWS FROM THE BIIA FORUM 2008
Leaders of business information, credit management and members of the academia met in Hong Kong on January 23rd to discuss a wide range of issues relating to the NEW WORLD OF RISK caused by the credit crunch.
Dr. Hans Belcsak, President of Rundt Associates (country risk specialists) stated that the financial services sector is still hemorrhaging, with losses of unknown magnitude still in the pipeline. This has created a crisis of confidence and is starting to bite into the trade credit sector in the US and Europe.
John Rumpler, Group General Manager, Credit & Surety; QBE Insurance (Australia) Limited and President of the International Credit Insurance and Surety Association (ICISA) led a panel of experts to discuss the effects of the current credit crunch on the trade credit and the implications on information services: “Businesses experiencing an increase in payment delays and bankruptcies are on the rise. The crisis has not quite reached Asian markets, but it will eventually. It will become more difficult to collect trade receivables; export credit insurers will experience a rise in claim volume. For the trade credit and credit information industry, and credit managers, the credit crunch is an opportunity to engage governments and regulators in improving credit information, transparency and disclosure, to support risk assessment. However, let’s not forget that it will be a challenge in itself and more so we will all be facing challenges as the fall out starts to really develop.”
Dr. Chris Kuehl of Armada Corporate Intelligence was a presenter at the BIIA Forum 2008 and had an opportunity to listen to a whole host of expert commentators discussing their impressions of the credit crisis that has gripped the world over the last several months. His observations and assessment are outlined below:
The discussions at the BIIA FORUM 2008 were wide ranging and dealt with the most recent moves by the US Fed as well as the origins of the problems that now threaten to bring down the whole world economy. The most important messages communicated in this group were those that pointed out how much of the current crisis would have been avoided or ameliorated if there had been better information made available to everyone from the borrowers to the bankers, brokers, investors and governments. The US was sliding in a dangerous direction over a year ago but too few took heed of the warning signs.
Dr. Kuehl's Strategic Assessment is as follows:
The financial crisis that has engulfed almost every region of the world had fairly humble beginnings but when the situation is examined closely it can be seen clearly that the process contained the seeds of its own destruction. One of the first presentations in the conference was made by Dr. Hans Belcsak, President of Rundt and Associates. He made several key points regarding the origins of the sub-prime crisis in the US and how the failures in this somewhat obscure sector managed to cascade to affect the entire financial market.
The most important of these points is the reduction of risk exposure in the average home buying plan. The process outlined by Belcsak held that the borrower starts the process by contacting a broker. The broker then looks for a lender that will service the loan and takes a fee while absorbing no risk should the deal go south. The banker then makes the loan and promptly sells the loan to an investment bank, usually the same investment bank that loaned money to the smaller bank in order that they pursue property deals. The banker manages to charge a fee and then off-load most of the liability for a bad deal onto the investment bank. The investment bank then packages these mortgages and other obligations and sells them to investors who are ultimately left holding the bag if something collapses in the process. The entire set of participants collect fees for their efforts but maintain no responsibility for failed deals. This created a sales-driven culture within banks, investment banks, investors and others in the sector and the progress was measured by how much business was acquired and developed as opposed to more objective evaluations based on collected receivables end even profit margins. The incentive to enroll people without the skills to succeed in the financial sector became the driver in many sectors and almost anybody with a pulse soon found themselves eligible for a home. This dramatic upgrade comes at a cost. Sales overwhelmed any other business motivation for lenders at all levels and soon the offers started going out to people whose credit would have ordinarily earned their expulsion.
The point made by Belcsak was that the end result of the crisis could be, and was, foreseen at the start but these warnings were not believed and soon the impact of the admonitions faded. Essentially everyone was making a hefty fee on the process moving forward as everyone was charging consultation time while the markets remained hot. The position of the economy as a whole has been rendered very precarious by the surge of greed that followed the wide open spigot that was monetary policy under much of Alan Greenspan last few years. The bottom line was that the Fed lowered rates too much as it stemmed the 2001 growth shortfall and started the US economy towards the boom years that follow. There are now many parallels between what happened in the beginning of the decade and what is happening now. Other commentators through the day reiterated this key message. There were many critics pointing out what could go wrong and where the next credit crisis might be but few believed them when they said that location would be the US. The fundamental conclusion of the speakers that followed was that greed pushed this crisis into high gear but the lack of good information on credit histories and potential ability to pay crippled the system from the start.
The large number of innovative financial deals should have been tempered by the need for accurate personal data but access to this data was denied and inhibited. The information that shows a person’s proclivity to observe financial obligations are critical to the decision making process that was supposed to be in use. The entire system was suspended to one degree or another as people and institutions scrambled for information that would inform their decisions. The search was fundamentally unfulfilling. At the end of the day the delegates to this meeting spoke with one voice – information is the key to building trust and without trust there are no financial deals. The consensus view is that there has been sufficient breakdown in that trust to cripple the system and companies will have to work very hard to regain it.
Courtesy Armada Corporate Intelligence E-mail: intel@strategic-briefs.com
Presentations from the BIIA Credit Management and Information Forum 2008 can be viewed by accessing http://www.biia.com/library.php#167
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The 3rd BIIA Forum will be held on January 23rd, 2007 in Hong Kong. Venue: Marriott Hotel.
Interested parties who wish to participate and contribute to the BIIA Forum should contact Joachim C. Bartels ieijcb@attglobal.net
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