The morality of meltdown

Apologies for breaking away from my usual broadcast-orientated comments but, when looking at the micro of our own world, sometimes big macro economic tsunamis crash in – and can have hugely damaging effects on our own small, flat, micro economic island.
I’m writing this over the weekend when the US Congress is deciding whether it should bail out the US banking system so that their financial world, and then (as they believe) the whole world’s economy, doesn’t suddenly go into meltdown. And it’s the weekend when Bradford & Bingley, and perhaps Fortis Bank, became the next generation of nationalised institutions here.
By the time this article is published, we will probably know the answers to all their questions and the consequences of their decisions. However, from my point of view – and, trust me, I don’t stand on street corners bearing sandwich boards and quoting religious texts – this is about morality.
To bail out or not to bail out?
Huge numbers of people in America, especially, but also in the City of London have been making obscene amounts of money for years from financial instruments that most of us don’t understand – from their names, let alone how they work. Derivatives, top splice or bottom sliced risk, selling short, selling long, bull or bear, pinky or perky … OK, not the last one, but, for all their skill and expertise, it could be how they have been underwriting business: by sticking their little fingers in the air and seeing which way the wind is blowing.
So here you and I sit. Generally, in an industry behind the camera, we are not overpaid, we do not reap excesses. And, in the last few years, it has been pretty tough, especially in the mid-range of our industry. Now we have to listen to how the US should put $700 billion – more than the US defence budget for a year – back into the banking economy to ring-fence bad debts created by people who have received more in corporate bonuses than you and I will probably earn in our lifetimes.
It is, however, a tough call because, if we do bail them out, then how will the industry ever learn any lessons? And if we don’t, no-one knows what might happen though, almost inevitably, there will be a recession and probably on a big 1930s scale.
No bail out for us
At the end of last year I wrote about Northern Rock and how that issue was pushing up the costs of borrowing and creating a squeeze on credit. Since then we have been on the verge of recession as a nation though, in the broadcast world, we have probably already gone into recession.
Banks are no longer lending to businesses that could be considered risky. I have witnessed deals which, six months ago, would have walked through credit but are now being turned away because “we don’t like the industry” and/or “this is too risky” and/or “there’s not enough security” and/or “there’s no cash cover”.
Dear old Alistair Darling has yet to rock up (sorry about the bad pun) to save any of the weekly receiverships that are causing you and me real financial pain, yet he is saving the businesses that have caused the mess.
Survival of the fittest
So, in my books, let them sink and let’s go back to Freidman not Keynes. Let Darwin’s theory on evolution be applied to industry and then, after cleansing, after rationalisation, after all of this … won’t we have a stronger economy? There will, of course, be casualties but, as an economy and in our industry, it means we will be leaner but fitter at the end.
Morality back in the bag, what should we do, whether the government does or doesn’t bail out the financial world?
Invest in self-protection
It could be as simple as trying to trade within yourself to give you as much self-built protection as possible. Be aware of where your income comes from. Look at the ability of customers to pay – it may seem counter-intuitive but it is better to be paid for a £10,000 job than to do a £20,000 job that never gets paid for. Ask for more up front, chase your debts harder and, unless it’s a no brainer, don’t go investing heavily and expanding at the moment.
Cash is king so consider using credit or finance facilities a bit more than you normally would – borrowing to have cash in the bank is better than busting an overdraft limit. Negotiate hard on all terms.
In short, be aware and be smart. And if you are not sure what’s best for your business, ask an expert. This is not a sales pitch for our consultancy but spending £500 on a financial specialist to look at your cash flow and your business model is wiser than putting your little finger in the air or sticking your head in the sand. One thing is for sure, if you do go all ostrich on us then there will be only one result – and no great federal reserve will bail you out.
Good luck.
If you would like to comment on this article, or any in the series on running a broadcast business, write to peter.savage@azule.co.uk or contribute to the blog at www.azule.co.uk/articles.asp where you can also read previous articles on financial issues that affect your business.