The Economic Meltdown –Would you put this in the category of Oops?

The 1940’s German Nazi SS war criminal Adolf Otto Eichmann is considered a psychotic butcher by history. But it is sometimes put by criminologists who look back on his day of reckoning in 1962 and fear an even more frightening scenario that he was just thoughtless.

The Holocaust body count in the millions is long over but what of the 2008 meltdown? Can we look forward to a return to prosperity soon or is there more to come? And in the day of reckoning who was to blame and was it an oversight or a criminal act?

An Al Jazeera series called Meltdown, looks at those responsible and the global conspiracies were behind the world financial collapses of 2008.

In the first of the four part series it is clear that by time the fire alarms and tornado sirens began their deafening call, it was all too late.

In March 2008 the US Government bankrolled a Bears Stearns takeover by J P Morgan to avert time bombs of imminent default,. These in turn were caused by failures of toxic real estate market financial products and highly questionable banker practices.  The US  knew such a failure would trigger an unprecedented financial crisis. But this wake up call went unheeded. Instead greed driven bankers took it as a message that US Banks would not be allowed to fail.

Rampant greed with deal value stacking, sub prime mortgage scams continued until the Lehman Bros fall. When the British Government refused to underwrite a US Bail out plan. Lehman bankruptcy at 2am on September 15, 2008 triggered the world to plunge into an economic crisis with predictions in 2011 of worse to come. A depression surpassing 1929 levels that did not see prosperity until the late 1940’S become no longer unthinkable, It was then we see the ultimate flight to safety with gold prices soaring .

It has been said many times that the capitalist economic systems that leverage future value are corruptible and untimely is unsustainable. Before 2008 that was laughable wasn’t it?

That so called “All American” revered value we now describe as Avarice was founded on a cultural prowess that now sees the western world,with a generations of debt to pay back passing economic power irreversible from west to east.

The meltdown has hurt us all.  But how did all go wrong and who was responsible to let it happen?

There are versions being circulated. This Al Jazeera one on YouTube seems to work well .

( This is the first of a four part series and I suggest may be well worth the time to watch it )

Do we need to be even more aware of Scorpions in business?

clip_image001Even though we may be commercially savvy, under pressure we can be vulnerable.

To retain and win business, paying attention on quality of service offerings, and following the customer is always right rule, is still a most important mantra. But as we buy, sell or deliver our services, vetting and constant due diligence is equally important to stay in business.

The 1991 musical hit “Wind of change”, by clip_image002the German band “Scorpions”, celebrates the political changes in Eastern Europe at that time. Fundamental economic changes now going on in the world also remind me of their namesake, the predatory venomous arthropod that features in the fable “Scorpion and the Frog”.

Being a romantic, my version substitutes the frog with a Princess and goes something like this:

The blind princess was reluctant to carry the Scorpion over the river ford in exchange for him guiding her to safety away from the dangerous rising flood waters. But she agreed when the Scorpion said “Don’t worry, if I were to bite you we will both die”.

Half across the scorpion bit her.

As the poison sent her into a dying coma, though her vacant eyes, she looked at him and asked him, “Why did you do that, you know we will both die now?”

“I could not help it” he said.” after all, I am a Scorpion”.

We know what happened to the Princess, but the fable only leaves the impression the villain met a watery fate too. But Scorpions we know too are one of the planets longest surviving creatures The oldest known scorpions were around 430 million years ago and that’s a lot of birthdays.

clip_image003Rising waterlines of damaged and changing markets now see them out in abundance. In the chase to win business, Scorpions are lurking everywhere, waiting with plots to be no less than just to be good at being scorpions.

Naïvely believing that corporate governance laws, trade relationship commonsense and commercial fair play makes Scorpions harmless is naive Trying to outsmart them is just as dumb.

Aside from being fantastic survivors Scorpions maintain a role to kill to keep natural balance of nature. But other than that they add no other value. So why do business with them?

Whatever your role be it, buying or selling, it seems is vital to have set up fail-safe ways to recognize the tell tale signs of who we are dealing with to be sure Scorpions don’t get into deals.

And if they do you need tools and resolve to decide to just walk away.

They will survive, but then so will you.

How can business overcome the challenges to get a lender to say yes?

imageWhen investigating capital raising and loan funding, the biggest challenge is to have a compelling story and financial reporting to satisfy the needs of an lender or investor.

With this alternatives can be considered, such as private equity in addition to debt.

Here are some ideas from a debt advisor to increase the chances of getting the capital you need for your business.

The Good Story. A robust and realistic bottom up business plan stressing stability and financially feasible growth. Include a projected income statement, balance sheet, and cash flow with a working capital analysis

Get to Know Your Lender. Maintaining close contact with your lenders to let them know you will always be is an ace in the hole. And having more than one is better.  You should then also understand their typical loan size they offer  what kind of businesses do they focus on and their terms approval and decision making process?

Consider Receivables Based Lending. Typically, such  lenders advance against the current assets of a business. While interest rates are traditionally higher, it is a viable alternative.

Private Equity. When considering , ask how involved will the equity provider be in the daily operations and will this firm have a exit strategy that matches our goals.

Hire an Ex-Banker. It’s the closest thing to an unfair advantage you’ll get, if you have someone with lending and credit experience. Or ask your accounting firm if they have a Debt Advisory service?

imageSources: Web article at web article & and interview with Paul Wright – Debt Advisory Services Partner at Matthews Steer Charter Accountants