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Friday 12 May 2023

The rules of instability periods..

It’s this period of the economic circle, once again so one more American bank went bust !

Fragility of the financial system is increasing all over the world, even in the United States.

And as experts predict, the party has just started.. We saw it previously, we see it at the moment, we will see it again, again and again. 

The pattern is the same and the mistakes also..

We currently have the United Kingdom in a situation between stagnation and flirting recession.

Inflation is still high and interest rates are getting higher and higher..

Leadership and management prove completely incompetent to fix anything,

like the previous circle turnpoints. 

Management in an important number of companies varies between below average and inexperienced, pushing the companies straight to the bottom..

This month, Cyprus celebrated 19 years since joining the European Union.

For me, personally it is a reminder of periods that a dream becomes a nightmare.

The European Union project , soon after, proved to be a huge failure.

Cyprus, Portugal, Italy,  Ireland, Greece and Spain flirted and danced with bankruptcy..

Citizens of Cyprus and Greece lost access to their deposits, seeing banks closed for weeks..

The most recent, political incident, the evacuation flights from Sudan showed the chaos of the so-called Union for one more time..

The time the European Union was designed I was studying for my Bachelor, with classes related to European integration, the stability and instability of the project..

The flaws of the system were part of my assignments and based on my experience even predictable.

Nobody paid attention to those assumptions, during that period.

Not even my professor believed that those assumptions would become reality soon.

A lesson I got years earlier, from the period I was analysing the Stock Markets is that whatever you see may not be accurate, whatever you analyse could change in a second, whatever you start investigating may show more than expected.

That period taught me that companies under strong leadership and management last longer than those with weak leadership and management, but all of them are fragile in some period of time.

So, the most valuable lesson of that period was that I learnt to make assumptions for the worst and be prepared for “IT”.

That applies to business and politics equally.

For those who heard of Hyman Minsky, “IT” happens..

During 2008 “IT” was related to the Minsky Moment.

The time that the flaws are exposed on the highest levels.

Both organisations (strong managed and weak managed)  face financial challenges and struggle to survive.

In addition both categories (strong managed and weak managed) are vulnerable due to political factors.

Based on my experience more that 50% of the companies I was related to, in the last thirty years, have gone bust not because of their management but because of politics.

If we examine the latest Greek drama, it wasn’t normal or expected for all those companies of the latest gilded period ( that all went bust ) to collapse due to internal factors of incompetence.

All those companies collapsed due to high debt and that high debt was connected with 

wrong political decisions affecting wages, social contributions and international competitiveness. 

If we look at Cyprus, the design was more or less the same like Greece but political fraud and casino economics were multiplied.

There was a huge party by the politicians increasing taxes and loans for their own benefit and looting the social security fund, in order to keep their wages and secret bonuses.

Similar models are followed by the United Kingdom and France and so many other countries. Based on what it’s published, British politicians benefit from their position and connections and that reflects to lower performance of the NHS and the quality of life for the less lucky. People and organisations pay the real cost by direct or indirect devaluations so recently French people realised that they have to work more years, in order to cover the gap that was exposed. 

Also valuable to note that in the long term Greece was not able to compete with Turkey, a country with similar resources and production but with continuous devaluation of their currency.

In the long term, Cyprus was not able to become too expensive because they would lose the British tourists that moved to the occupied Northern part or Turkey.

In the long term Greece should be tuned with Turkey and Egypt in order to look attractive instead of trying to be tuned with France or Scandinavia.

In the long term Cyprus should be aligned with the United Kingdom in order to seem attractive to British visitors.

First Republic bank was the latest financial player that faced devalued assets and had to close.

For me, the story is repeated from the period of Barings. Later, the story involved Laiki, Bank of Cyprus and the Co-Op bank.

Laiki and Bank of Cyprus, fifteen years ago, invested heavily in the Balkans, Ukraine and Russia.

For the periods they faced losses they needed fresh capital.

In the end of the period, both old and new  investors kept away so there was no white knight available.

The outcome was existing investors losing their investment, the closure of Laiki and a series of repeated recapitalization for Bank of Cyprus.

The Co-op banking system collapsed a few years later due to political games, fraud and incompetence.

That was the most healthy arm of the Cyprus financial system so the total collapse of the so-called Cyprus miracle was inevitable.

That was the arm that could allow the rest of the system to become healthy again!

During the same period of time I was investigating a money-laundering case, involving the University of Cyprus.

After two courts and relevant paperwork that were released, it was clearly shown that it was an inside job. Recently missing funds had to be announced. Ten years later!

Inevitably, Brexit followed. People wanted to take back control.

They already suspected or knew of similar cases all over Europe and they had to put an end to the joke.

They actually said that they preferred to see their taxes going for better causes than money-laundering.

And suddenly here comes downshifting to complete the movie!

People stopped being attracted to fake careers and immoral activities.

Imagine yourself, in a top corporate position covering bullying and sexual harassment.

Yourself, in a middle level position, having expectations that will not be achieved by working with below average colleagues.

Yourself, in an entry level position, knowing that if you continue in that organisation will sooner or later lose a few fingers or your hand because of the low levels of health and safety.

Active and professional recruiters are still wondering though, why new hires fail in two years time..

If we take these valuable  lessons we can eliminate the upcoming repetition..

BUT.. Are we willing to do that?

Definitely not. Human nature is not changing so easily.

In the best outcome, leadership could inspire but in order to do that you need to have genuine leadership.

Management could train, guide and allow excellence, but in order to do that you need to have already experienced managers with high standards set.

Strategy could put milestones for problem solving, but in order to do that you need people that understand strategy, monitoring and evaluation in depth..

Unfortunately, after three decades in the business environment, in several countries and positions, the most valuable lesson I got is that people tend to ignore and avoid crucial actions because it’s more convenient.

Inexperience is more and more widespread and sooner or later we will face another perfect storm. And for as long as we ignore and avoid doing our real job, we make the exact same mistakes.

Based on an assignment where I got a huge “F” , during my MBA studies,  in the end we will all do the right thing.

BUT..Based on history, it will happen after we follow every other direction. Never forget that !

Monday 27 March 2023

Do not do it like Cyprus..


It is that period of the financial circle.. Again..

History repeats itself, first as tragedy, then as farce.

When you investigate a pattern and you see it happening again, 10 years later, it is more than frightening..

This month is full of memories. Bad memories.. Scary memories..

Ten years ago, the Cyprus citizens lost their access to their savings.

It was Saturday morning. 

I was going to shop and I decided to withdraw some cash.

The ATM rejected the transaction but I knew I had money in my account so I tried once again.

The transaction was rejected again !

In the area, I could see a few more ATMs. People tried to withdraw money. With no success of course..

Then my phone rang. We had an emergency meeting at the Cyprus Green Party.

The country was bankrupt and they needed all possible suggestions.

I was a member of the Cyprus Green Party, that time.

I was actually a Member of the Finance Committee.

We have been informed of this possibility since 2012.

We spent that weekend on models. We spent the next weekend on new models.

I still keep all those documents.

Hundreds of pages.

Central bank documents. Parliament documents. Banking documents. Emails. Thoughts.

Every March I have the habit of reading them. Again, again and again.

What went wrong ?

The Central bank was asking for explanations. 

The Bank Governor was not part of the oligarch system that was developed.

He even ignored crucial issues of what was happening before he was appointed.

Based on the evidence, the crime was well hidden for a couple of years.

They pretended that there was nothing wrong.

There was too much wrongdoing but who cares..

The oligarch system was protected by design.

Unofficially, it was always obvious, we all expected “IT” to happen..

“IT” refers to Hyman Minsky..

He published a few very interesting books that most people would never read or understand..

I first heard of Minsky during 2013 and I got lucky to buy his books regarding Ponzi financing.

Till 2013 I was having experiences from Ponzi practices through the stock exchange.

You don’t have to call it a Ponzi scheme.

It may not be a Ponzi scheme but it is something similar..

It's a Ponzi pattern or a Ponzi behaviour.

Based on history, Ponzi finance, Ponzi patterns and Ponzi schemes are well known throughout the centuries.

You just need to have a look at Charles Dickens reading “Little Dorrit”.

Whoever invested at the “Miracle Bank” went poor.

The Bank made just one miracle, making the depositors poor ! 

Silicon Valley Bank ceased operations this month.

The next discussion was for Signature Bank.

Then it was Credit Suisse.

Now we have rumours for Deutsche Bank.

The mistakes, the possible crimes, any wrongdoing will take time to be revealed..

Exactly 10 years earlier Cyprus faced the perfect storm.

Somebody removed the money from the system.

It was expected as another Minsky moment.

Funny thing, politicians tried to avoid it.

The people who stole the funds expected to be rescued by the people that were warned !

Cyprus was and still is a perfect ponzi pattern example. Even today !

The money we saved to the social security fund, were instantly supporting the public sector expenses.

That was how they got their salary, their pensions, their benefits.

This is exactly how they still get paid.

Our savings are their salary. 

Lessons gained from training ourselves. Whoever wants to save themselves they leave Cyprus.

Because the pattern will be repeated. Sooner or later..

Bank of Cyprus and Marfin Laiki bank made huge investments in Ukraine and Russia.

As the investments were devalued, they needed new funds.

Until investors’ money was not enough to support their plan..

Lehman memories, Barings Memories Ponzing memories..

15 September 2008.

It was not a huge shock !

Based on my experiences from the Stock Exchange, the behaviour was expected.

I already noted similar patterns both in Cyprus and Greece stock exchange but nothing similar in a worldwide size..

26 February 1995. The Barings issue.

That time, for me, it was clear curiocity.

I never expected to read that a bank collapsed and sold for a pound!

How can it be true?

You just dig. You make assumptions. Then you find the evidence.

The first mistake, in the case of Cyprus, was actually a legalised crime.

The Social Security funds were never invested, they were continually devaluated..

The Social Security funds were(  and still are..)  transferred to the government’s expenditure.

The time we needed funds, we realised that we needed to beg from abroad.

Because of the robbery..

The second mistake was the design of the next day.

Laiki closed and the good part was transferred to the Bank of Cyprus.

I noticed the mistake a few months earlier.

You need to make smaller pieces and let capitalism do the rest.

If not, you increase the instability of the project and in addition you send too many people to the unemployment service.

Why not keep good assets separate and seek for a serious investor.

I still remember that HSBC was one of them.

The third mistake that was repeated this month.

Good assets were all transferred to the Bank of Cyprus, increasing the instability of another institution that sooner or later will ask for recapitalization..

The Swiss government followed the same pattern this month  !

Not pleasant to realise that the mistake is repeated..

A too big to fail model could be soon too big to be saved..

Based on evidence, the design failed 10 years before.

It was a waste of time. It was a waste of money.

Because of the wrong solution, soon we demolished the Co-Op, the healthier part of our financial system.

A few more billions of public money, wasted.. Another crime !

When you see the pattern you really don’t want to be there..

When you observe this behaviour, you need to design your own solution.

It is that period of the financial circle.. Again..

This time, I am far away.

This reading is a reminder not to do it like Cyprus..