WHAT went wrong in the West?

A climate of government deregulation, that financial institutions can regulate themselves, prevailed. It was fashionable to consider that any additional restraints on financial institutions would be irksome, would curtail healthy financial entrepreneurialism, and would stunt economic growth.

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Without being aware of it, many financial institutions created a disconnect between themselves and the customers/clients, both depositors and borrowers.

Even during "good times," Lehman's was notoriously hard on client investors.

Depositors were asked to take their business elsewhere when they declined Lehmans aggressive salesmen's request to engage in "churning"--the process of buying and selling equities with excessive frequency where Lehmans, profiting on buying and selling commission earned on each trade, was the only beneficiary.

American banks have been particularly hard on borrowers, often abruptly cancelling or curtailing lines of credit, even from reliable borrowers. This shortsighted behavior fomented subsequent problems by inducing panic.

Fortis, a European bank that needs to be saved by governmental funding, had the bad habit of taking over smaller financial services companies and then imposing different and more onerous rules (e.g. doubling the level of deposits required) on its newly acquired clients and then dumping them if they failed to comply.

So we have no time for Lehmans, neither, apparently, did the US Government because it, surprisingly, allowed Lehmans to fail whereas it bailed out all the others. In fact, we experience some schadenfreude, a fine German word, which means that we are not entirely dismayed at Lehman's woes.

There is no single English word for schadenfreude, although the Ilonggo word 'marisi' comes close.

There was plenty of schadenfreude in Japan last month when the NHK newscasters described the AIG debacle with palpable glee. We are living in a time when we get past the diplomatic veneer and really find out what country A thinks about country B.

North Atlantic Treaty Organization (Nato) member Iceland (population 320,000) sought financial help from its fellow Nato member, the UK (population 61,000,000) but was rejected by British Prime Minister Gordon Brown. In the end, Iceland received a bailout from Russia (not a Nato member). Time will tell what concessions the Russians have obtained.

Another visible manifestation of first world economic confidence loss is the sudden and alarming drop of advertising in its news magazines. Only an eight page special advertising feature from the Philippines (Pagcor, SM, Tourism (including medical and retirement) saved last week's Time magazine from being acutely anorexic.

And this begs the question: Can the Philippines escape the financial problems of the West? After all, with a 2007 GDP per capita of $1754 (and about the same in 2008 due to the weakening peso offsetting lower than originally predicted growth) we don't have as far to fall as US/Europe.

The story has, as my journalist friends put it, legs. The story is just beginning and will continue for at least a year.

The Future

We predict a kinder, gentler era when financial institutions operate with greater care and courtesy towards its clients, particularly depositors. No bank ever went bankrupt from accepting deposits. It is recalcitrant borrowers that cause the problems.

Already, the large British bank, Barclays, has noticeably improved its customer service in the last year or so. Many customer enquiries are now dealt with in-house instead of inadequately by a Mumbai-based call center.

Barclays was the un-disappointed (as it turns out) under-bidder when a consortium, including the Royal Bank of Scotland, acquired the Dutch bank Amro-ABN (aka Amsterdam- Rotterdam Bank-Algemene Bank Nederland) in 2007 for US100 billion. We know that Fortis was unable to digest this deal and we wonder about the Royal Bank of Scotland.

For the Philippines, we regretfully predict that banks will give more credence to the perceptive comment of Bob Hope: "A bank is a place that will only lend you money if you can prove you don't need it."

For more Philippine news, visit Sun.Star Manila.

(October 27, 2008 issue)
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