The Coming Financial Ice Age

After hearing Bush declare war on terrorism I now see Obama is declaring war on CEOs. This may well usher in a financial ice age. I can feel the chill already.

Many new leaders find it helpful to identify investment bank mammoths may return a group to vilify in order to rally the people to their cause in times of crisis.

Obama has some incredible challenges ahead and obviously wants to capitalise on his popularity right now. But CEO bashing is really cutting your nose off to spite your face.

No matter how bad many CEOs have performed they are necessary to our future prosperity. We just have to make sure our laws and regulations provide the right level of control with business opportunity and rewards. It’s all about balance and transparency.

Obama has sent a signal that CEOs are bad people and must be controlled at all times. GITMO here they come! Now I know he was referring especially to those taking public money. But that will not be where it ends.

This year too at Davos, that gabfest where governments, big business and celebrities partied in recent years, heralded in the coming financial ice age. The key-note speaker this year was – wait for it, Putin the new Russian czar 🙁

How can an unemployed KGB guy who has taken over his country and acts like a czar be a keynote speaker at the premier world economic event? The mind boggles. Both he and Wen Jiabao, both of whom have benefited greatly from western trade and investment took a swipe  at the West and their version of capitalism.

The German Chancellor, Angela Merkel wants the United Nations to form a world financial authority like the security council. We can all see how well that will work? Central control by the state or the UN is a recipe for more and bigger financial disasters.

However we can look forward to a very harsh financial winter of regulations that will stifle investments and as such diminish future investment returns for some time to come. Private money will hibernate for a time. It can afford to – don’t governments get that?

It could be the beginning of a financial ice age. A time where any private money not hibernating is iced up with over-regulation and cannot flow to where it can provide the best returns. A time when public money will be spent like water and freeze up all rivers to prosperity anyway.

No one knows how long this financial ice age will last.

If they regulate without restructuring the banking system this time around, surviving investment banks which were responsible for the excesses of the credit crunch will be frozen for a while. If these investment banks remain intact with their integrated banking model they will walk the financial earth again unlike the great mammoths of the ice age.

It won’t take smart money men long to crank up their money making machines. As the regulatory ice melts the investment banking mammoths will awaken. If their integrated  banking systems are still in place in a few years, they will again be able to grease the palms of government and once again start up their money machines.

Governments will eventually need big profits to bail them out of their massive debts if they cannot inflate their way out. The public will become restless if there is no growth and no investment returns. So Governments will trade regulations for tax revenues windfalls to stay in power. And so the circle turns.

So don’t believe the US Investment Banking Era has ended until you see real changes to the financial regulations and structure take place. There are a whole bunch of second tier Investment Banks in the wings looking for CEO’s who want more than $500,000 a year government salary.

That could be the investment, ere I mean trading opportunity of a lifetime as aggressive risk taking again becomes the norm with no checks and balances. Only this time you will have an exit strategy won’t you as you will understand the risks this time around.

If we come out of the financial ice age with a new banking structure that is well regulated with checks and balances and transparency, you may get lower returns but you will be able to bank on them rather than bet on them.

So now you have two strategies and it’s a just a matter of watching and waiting to decide how to react depending on which event comes to pass.

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