Thoughts on transparent banking: Trust, a traditional currency, revisited

Mr Cahan began his speech by explaining social entrepreneurship as:

- A career

- Using Ethical Values

- Taking Action

- Listening

He said that we all have the choice of deciding who we are. The choices include culture, religion, physical characteristics, etc.

He reviewed the historic ways that the economic systems allocate wealth in society: Exchange supported by market rules, redistribution of resources administrated by the Government, and reciprocity or gift exchanges. He said that nowadays 95% of the existing money of the world is not in cash, but consists of loans or other financial instruments created and held by banks and other institutions.

Mr. Cahan then spoke about the credit crisis: He showed that home prices and value of bank stocks were directly related. He gave a partial analysis of the crunch by explaining what he called “The bankers’ version of the prisoner dilemma” that student learn in Economics Class: If one bank sells a package of loans to another one, without telling the second bank of the potential problems with those assets, the first bank has the chance to either receive a profit of $6 or $0, rather than being assured the profit of $4 from fully-disclosed due diligence, the transactional information transparency would require. For the banking system as a whole, having each of two banks (the buyer and seller of the loan portfolio in this example) each earn a $4 profit (totaling $8), is preferable to one bank receiving $6 for selling assets with undisclosed known risks and the buyer of those assets receiving $0 or losing money on holding the assets. This is the cause of financial bubbles. And this emphasizes the need for transparency.

Illustrating the financial losses of the 2008 Credit Crisis, Mr. Cahan cited the figures of the number of US banks that had closed (25 in 2008 and 106 so far in 2009), the US 10% unemployment rate and other statistics. 2008 was both a financial and ethical disaster in the US, including:

- Banks and AIG using US government bailout money for partying, paying bonuses, acquiring competitors, reducing consumer and small business lending, etc,

- Car companies seeking help in DC, while their CEOs jetted into DC on private corporate jets.

- Bernard Madoff’s multi-billion Ponzi scheme that inflicted massive losses and destroyed Jewish families, foundations and organizations.

Referencing the Madoff Affair, Mr. Cahan shared his own struggle as a Jew to make sense of it, and shared his discovery of a wide basis of Jewish business ethical teachings in the Bible. Mr. Cahan urged all religious faiths and indigenous cultures to review their ethical business precepts, and for purposes of specific teachings shared what he had learned as common ethical business roots:

-Man was placed on earth to work and protect it (Genesis): The concept of sustainability is not new.

-Thou shalt not steal.

-Competition must be fair.

Published by Manuel Merlino

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Group Dynamic – Organizational Tipping

José Luis Roces – Vice Rector ITBA

Andrés Agres – Profesor ITBA

10h15 – After some minutes the auditorium is full and the speakers are introduced to their audience.

10h18 – José Luis Roces greets the audience and presents a short video where many balls, different sizes, tap rythmically on metal pieces creating a perfectly tunned melody. He explains that this is an example of complexity and let us know that in the role play that we are about to play under his directives, we’ll see that due to several factors, it could be complex to make changes.

Andrés Agres explains the game to the audience: Everyone received the explanation of the role they have to play in a closed envelope. They are sent outside, to the main hall, to have a coffee and “play the game”.

10h25 – Downstairs there are groups of people avidly discussing, they look concentrated and excited!

Foto: Pablo Mekler

Published by Erika Samano

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The Global Financial Crisis – Current Situation, Outlook and Opportunities for a Multilateral Institution

Pablo Verra – Hub Leader for the Southern Cone for the Department of Financial Institutions at the International Finance Corporation

09h51 – Participats arrived, all ready to start!

09h55 – Mr Verra thanks the SABF for inviting him to this edition of the forum and thanks the attendees for participating. He starts the conference commenting: “Sorry I’m not wearing a tie, but you know, it’s Saturday”

And he continues: What to talk about today? Crisis today creates a lot of challenges therefore we should get creative and come up with new ways of doing business.

The speaker explains the structure of the lecture:

• First he gives an overview of the IFC (International Finance Corporation)
• Then he’ll give a snapshot on current situaion of the global financial crisis
• To finally present a set of challenges and opportunities that the crisis “brings” to a multilateral institution.

Mr. Verra starts by telling us that it’s precisely during crisis situations that “clients” look at IFC, looking for help and advice, and we get into the topic.

Published by Erika Samano

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