Deal: The Epitome of Fate?

The financial turmoil has unravelled into an oscillating malignance. From nationalisation of banks to high-profile bailout packages, nothing has stemmed the flow of this unprecedented downturn. However, the performance of stock markets is so inconsistent with underlying economic principles, it borders on the comical. Angered investors and laid off workers have voiced their continued concern over government efforts to counter these financial calamities, but admittedly all propositions have failed to materialise. Ultimately, we have become victim to our greatest human frailty, greed. Large scale corporate greed accounted for the collapse of investment banking giant Lehman Brothers. It encapsulates our inability to acknowledge failure and take responsibility for the remedial process. Instead, the conglomerate was left in tatters due to CEO Richard Fuld’s mind-boggling decision to refuse its buyout from Korean Development Bank for $26 per share. Losing personal touch with reality through preposterous executive pay is comprehensible, but to put the company at risk with the option of resorting to safe haven is despicable. Its share price fell heaps and bounds over the past two years, and accepting this deal may have sparked a revival in the wider economic framework. Unfortunately, the perpetrators did not pay the price for their notoriety; we did!

Although many heads have cited loyalty and prestige as reasons to veto company buyouts, their disapproval marks the intrinsic source of disrepute. Similar to Fuld’s actions, Yahoo Founder & Chief Jerry Young refused the $47.5 Billion offered by Microsoft. In a nutshell, this would have increased the market share of both companies in the online search sector and simultaneously enable them to compete heads-on with market leader Google. It seems that the highest order of Chiefs have carved a niche for themselves as ruthless individuals who pride themselves on exclusivity rather than sustainability. Yang was left to rue his decision amid heightened pressure from shareholders and Yahoo’s continued stagnation in the commercial online search market, with Google continuing to propagate its stronghold. His resignation as CEO followed shortly, and marked a gloomy end to a generally prosperous reign. His failure was magnified when Microsoft resumed negotiations, however, with a comparatively lower offer price of $20 Billion. Moreover, in light of their under-par performance Microsoft’s offer had more strings attached to it. Agreement on such a buyout would oversee Microsoft revamping Yahoo’s management structure and corporate culture to correspond with the doctrines of their own company. Effectively, the remnants of Yahoo’s own corporate culture would remain concealed, with cross-cultural coordination simply a delusion.

The significance of such offers may be understated in times of prosperity, but in times of crises a company should not view it as an undermining of their cultural values. Customs may be pre-eminent, but even they evolve with time. Promoting flexibility requires adjustment, and adjustment is aligned with change. Importantly, cultural heritage cannot be overshadowed by any corporate buyout, but an obsolete culture calls for innovation, and Microsoft may be that critical driver to mutual success. The question beckons whether Yahoo will relinquish to the power of the “deal”? Contemporary history suggests they would be foolish not to.

Denial: The Adversary of Conscience

Denial has long been seen as the source of repetition, repetition of history. History is a benchmark for change, but even history cannot be the sole informant for future actions. A perfect financial market is characterised by its incompliance to historic movements. Information cannot be filtered through to stock markets to effect substantive change. However, our utopian desires have been slapped by the financial hurricane we find ourselves in right now. The mounting unrest has left many authorities concerned, particularly China, as the looming recession has threatened job security immeasurably. Social imbalance has been instigated by denial of recession, and once again the continued downturn has been a self-infliction by Government officials. It appears that high-rank executives and government authorities are eschewing accountability, but how does this bode for the wider economy. Are we seriously entering into a world of anarchy, because accountability is an embodiment of power, but this power is no longer manifold?

The sub-prime market was a jack-in-the-box endeavour for quick cash, but such pursuits are short-lived. The high credit risk of borrowers was growing amid rising inflation, but we were blinded by the euphoria of unprecedented returns, and now the domino effect is being felt across several sectors worldwide. China has been the latest economic powerhouse to be hit by this downturn, seeing its exports plunge to record lows as a result of falling demand from the West. The government has voiced there concerns, citing the possibility of social unrest should China fail to sustain its current growth rates. Simultaneously, several export companies have filed for bankruptcy, leaving several blue and white collar workers alike unemployed. Export is the engine of their industrial economic growth, and this crisis has put them in a highly precarious position. The Baltic Dry Index below illustrates the fall in commodity confinements i.e. ore and coal.


Since May exports have experienced a massive drop. This cannot be termed a slight blip in their remarkable performance, and validates the jitters of the Chinese government. Their stimulus package of $586 billion may soothe the worries of investors slightly, but their overall fate lies in the performance of global economies. An expansive resource base is essentially futile without corresponding demand, and the fading prospect will inevitably leave officials in doldrums. To acknowledge the current state of our global economy is the key to future development. China has publicized their anxieties, setting a precedent for those who have become infatuated by their own denial. Hence, it is time to follow suit!

The Rise of the Credit Grinch

The trickle-down effect sparked by the credit crisis has affected a plethora of business sectors, most notably the financial, property and oil markets. Complex derivatives and a wide array of other incomprehensible financial instruments have undermined economic fundamentals, with the real economy not being eschewed either. High growth rates among developing countries, particularly tiger economies, have been offset by regional multi-billion bailout packages in a bid to overhaul liquidity shortages. China, as the world’s fastest growing economy, has also begun to feel the effects of the crisis through a considerable fall in demand for their export markets. Their main export hub, Guangzhou, witnessed 130,000 job cuts to correspond with the difficult trading environment in addition to the collapse of several key entities. Although China still has reserves within the trillion-dollar bracket, it is evident that their lauded success may not be sustained should their exports markets continue to swivel in decline. Companies who derive their greatest profits from the Christmas season have also been hard-hit as retail sales have fallen to record lows. The Christmas forecasts do not appear to buck the trend either as consumers begin to tighten their belts amid the unprecedented volatility of the global economy.

The prospect of a fairytale Christmas appears bleak, and reality has inevitably succumbed to the dogmas of the infamous Grinch. The credit crisis has paved way for potentially irreparable gloom, ensuing in an influx of negative energy among investors, consumers and all other stakeholders concerned. Our structural ambiguities and social negligence has brought about the rise of the so-called credit “Grinch”, and the question beckons how he will steal Christmas from us this time round. A study conducted by Ernst & Young forecasts the Austrian population to reduce their Christmas expenditure to € 288, down from €326 in 2007. This represents a 12% decline in sales, also reflected by the woes of the retail market. Furthermore, the age bracket of 46-65 years is predicted to spend an average of €338, a hefty sum relative to the €192 forecasted for people aged up to 35 years. It further exhibits the discrepancies in the level of impact for different age groups, and notably the young are bearing the greatest brunt of the current mayhem.

The inability of Christmas, as an emblem for hope and prosperity, to upstage the current economic conundrum illustrates our deep-rooted problem. Conglomerates have got us into a severe mess, with executives cashing out their earnings and deserting their company into insolvency. Consequently, corporate greed has set center stage for our greatest Christmas adversary.