Financial management 101

Watching Obama’s speech last night it struck me again that he is a charismatic CEO. He has all the soaring syntax and passionate pleas. He can inspire and pull us around by the heart strings. He makes you want to believe in a better future. The trouble is apparently he has no real world, technical experience of his own and has had no sage Chief Financial Officer (CFO) to balance some yin to his yang.

Every successful company in the world needs a visionary leader and a realistic financial manager. Sometimes they are one person. The most successful restaurants that thrive through years of good times and bad are most often run by owners who are also chefs. Chefs that know how to wine and dine us and also watch the bottom line to control waste and run an efficient, profitable kitchen behind the scenes. To say that a person or leader doesn’t care about money is not a good thing in this context. For effective leadership someone has to do the math and balance the books. When the visionaries start to spend too much, someone has to pull them back to the numbers. No one has been doing this for a long time in most countries including the US. Certainly not the Republicans who talk like fiscal conservatives but act like suicidal spendthrifts on their own pet projects and tax cuts.

The root of the problem has been credit availability. When one does not have access to a line of credit, one is forced to live within one’s income. For the past 20 years, the governments and their leaders have been increasingly advised and populated not by conservative CFO’s but by credit sales representatives from the financial sector. The dominant agenda has been to sell debt to promote and scale their own profits. They have recommended it to individuals and countries as a way to afford everything without having the actual excess savings to pay for it. In the past 10 years this “add debt” formula went to historic extremes and fulfilled its inevitable conclusion: insolvency and the downfall of our global economy.

Recently I have been reading the Stock Exchanges Practices Report of 1934 following the Pecora Commission investigation into the practices of financial firms buying, selling, borrowing and lending listed securities. This is the investigation that finally afforded the government enough momentum to enact the Glass-Stegall Act in 1933 and other key legislation that was needed to de-tangle the tentacles of the finance sector which had asphyxiated the US economy during the 1920’s. Here we are again 78 years later. You can read the testimony and conclusions here at this link. The deja vu to our present time is overwhelming to say the least.

There is a tendency to put great weight on which CFO a country hires. And yes a strong, inspirational visionary is helpful to galvanize followers. But whether its Obama or Romney, the most important question today is who will have the tenacity and wisdom to act as the pragmatic CFO’s? In order to be useful in this crucial roll, the CFO’s will have to be committed only to the financial health and sustainability of the nation’s finances over the longer run. To do this they will have to cut off all allegiance, obligation and later career prospects in the financial services sector. They will need to declare debt the cancer not the treatment. It is simply not possible to serve allegiance to one’s country and to the financial sector at the same time. For Romney this may well be impossible–financial services after all, is from whence he comes. But Obama too will have to step back from his cozy counsels with the debt-salesmen and surround himself with a team of conservative CFOs if he is to be any use at all to his country. He has done a very disappointing job at this in his first term. If he continues in this vein a second term, history will doubtless judge him very harshly indeed.

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8 Responses to Financial management 101

  1. Debman says:

    Sensible but wishful.

    What hides in the fog of the future?
    More of the same? Then run for the hills. (I suppose this means getting rid of one’s cash as politician and bankers will not be done till they destroy the currency itself).
    A reversal in trends? Then duck down and take little risk as possible.

  2. John says:

    Obama pledged he would cut the US deficit in half by the end of this first term. I believe he made this “pledge” sometime in ’09 after the crash of ’08, TARP, and all that. So, how’s his deficit-fighting plan been working, eh?

    Danielle, I agree with your assessment, but it’s couched in somewhat naive terms, IMO. There is plenty of evidence to show that “Wall Street” bought the US government. This did not happen in ’08. It’s been a long, protracted process that started in earnest with the creation of the Federal Reserve. No conspiracy needed. Human history is all about class struggle, vying for power, tribalism, and greed (which can be thought of as the extreme expression of the natural need for material wealth).

    I have no faith that any leader today would, of his or her own conscience, eschew Wall Street and do what’s actually right for the country. This is largely a political problem. What needs to happen is the people must take back their government, and wrest it from the hand of the Wall Street oligarchs. The politicians will only once again work for the people once the people actually demand it. The government is the ultimate power because they have the armed forces and lots of real wealth. Wall Street can be easily put back in their banker boxes if the will was there.

    But this will not come easily. Things would have to get much worse before that kind of change can occur today. We may just have to be reintroduced to Madame La Guillotine, but I hope not. Either that, or change will also have to be in the oligarchs’ own interest, e.g. they can’t make any more money fleecing the people or stealing their assets so real wealth will once again have to be generated and the people must be allowed to prosper once again. But I wouldn’t hold my breath for that one. If we are on the road to neo-feudalism, we have a long, long way to go before that would play out. The trick is to stop it before it becomes too entrenched. Unplugging the X-Box, turning off CNBC and smashing the pipe might be a good start.

  3. Harry says:

    Obama is a con pure and simple. Do you honestly want four more years of him or Romney/Ryan who have real world experience.

  4. aliencaffeine says:

    Meanwhile gold and silver keep chugging up, up and possibly away. Still no comments from the management here?

  5. Roberta says:

    Quote: “The root of the problem has been credit availability.”

    That’s a problem alright, but that is not the root of the problem. Many people could borrow to the hilt if they wanted to but instead they choose not to do go into debt. Why is that? For many people it is because they have enough common sense to know that debt is bad and do not want debt hanging over their heads. They understand that they could lose their job and would not be able to pay their debt. They are responsible enough (or stupid enough) to think they SHOULD pay their debts.

    Many of the other people who are heavily in debt and/or default on their debts do not have self discipline or any sense of responsibility or even basic common sense. Why is that? Whatever is the cause of this way of thinking is closer to being the root of the problem. Perhaps it is poor schooling, or lack of parenting, lack of discipline when behavior is bad, etc. Obviously many politicians suffer from the same lack of any sense of responsibility. Obama is their poster child.

    The liquor store is full of booze. Some cannot stay away from it, others indulge until they are ruined. Why is that?

    I think some people are born with an innate sense of responsibility and others are not. Some will stop at nothing to make a dollar, no matter how immoral the method; others have a moral compass that says that is wrong and I am not going to do it. Why is that? Maybe some people are “evil”? I’m guessing……….there must be books on the subject…….

  6. Roberta says:

    Come on people, don’t worry, be happy. Trust Obama and his team to lead the nation:
    http://www.youtube.com/watch?v=5PolNsDxUGY&feature=related

    Please trust our leaders in government:
    http://www.zazzle.com/trust_the_government_poster-228717069038642571

  7. Kerry Fitz-Gerald says:

    I enjoyed listen to you today on money talks and I immediately looked up your web site. The association you have made with President and a CEO is interesting. I wonder how people would vote if the title was changed from President to CEO.

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