Weathering a Perfect Storm

Early this week, I received this random and surprising call from Ms. Malou Tiquia who invited me to speak today. She explained that she had asked for my number from common friends after reading a commentary I made about Wall Street that was published two Saturdays ago.

I wasn’t really sure if I wanted to come because there was little time to prepare and the timing is rather challenging with everything that’s going on right now. But after giving it some thought, I knew I have to be here because there is an urgent message that needs to be conveyed; and the best time is now.

The commentary I wrote was a prognosis of what took place in the global financial markets, leading to the mess that the US got the whole world into. The article was very candid, because it was just an email comment written for some friends of mine and was never meant to be published.

Anyway, in that article, I discussed the three most critical factors I thought that led to the financial implosion happening in the Western markets, and lessons that can be learned from such a fiasco.

The first and the biggest factor is the loss of an effective moral compass for the US government, its regulators, the credit rating agencies, a large portion of corporate America, and even the US academe. This led to a classic case of people pretending to know and to understand what was really being offered on the table by handsomely dressed and smart-looking investment bankers.

What many didn’t know, nor did they bother to know, was that a number of investment products being sold to them became way too exotic to see that they were backed by worthless assets. These triple A-rated derivatives popularly known as CDOs or collateralized debt obligations turned out to be just a pool of mortgage loans, extended to some people who had no income, no jobs and no assets. There were even loans that didn’t require deposits. As can be expected, it was just a matter of time before major defaults would surface.

Interestingly, reforms as early as 2000 were already being pushed in the US Congress to correct the system. But for unknown reasons, these efforts were blocked. Consequently, the problem just got bigger and bigger until it ballooned to a level that paralyzed the US government, leading it to an even more dangerous route: to bailout the whole banking system, including those that helped create the mess. And guess what, that bailout is worth a minimum of US$2.3 million per capita in the US.

Second is the double standard approach that the US Fed adopted for many years. While the US is an advocate of free-market economies; domestically, they suppressed interest rates for so long, that is, even when times called for some tightening and correction. This practically erased from the minds of global banks the risk perception that the US can also be vulnerable. In fact, we saw this behavior hurting the Asian economies in the mid-nineties when countries like Thailand, Indonesia, and even the Philippines pegged their currencies, that is, until the huge hedge funds got wind of how overvalued they were. And guess what the IMF prescribed to us back then: NO BAILOUTS.

Interestingly, as I was preparing for this speech, former US Fed Chairman Alan Greenspan admitted to what he called as "flaws" in his policies. He finally admitted that this controlled environment created unimaginable greed and excesses in Wall Street and other financial centers. It also bred fraudsters in the banking world to keep coming up with more and more exotics to satisfy the insatiable thirst for bigger profits and capital gains. What that created was a monstrous financial bubble that is now imploding, although ever so slowly because of palliative measures being taken ahead of the US Presidential elections. This palliative measure is the bailout plan – so as we can all expect, that money will all go down the drain and still drive the US down to its knees. This, again, is just a matter of time.

Third is the long denial that the bubbles were bursting. The subprime crisis already manifested itself in a big way back in August 2007. But many large funds sold down Asia instead of unloading Wall Street stocks, when in fact, Asian fundamentals were much better. Only when the US government had no choice by let Lehman Brothers go bankrupt did things finally sink into the minds of everyone that this crisis is a clear and present danger.

Many of those fund managers are now paying the heavy price. Their funds are dissipating and tens of thousands of jobs are being cut in Wall Street, of which a number are our own overseas workers.

What could happen next is still quite unnerving: a recession, or a slowdown of economic growth, which if not arrested, could yet turn into a depression, or negative economic growth.

We are in the era of the unknown where a paradigm shift may happen and bring with it new mandates, and new ground rules for global financial management. This requires moving out of comfort zones that can heighten emotions much further. Already, executive compensations are under probe while business models of banks are being reviewed and restructured. There is an ongoing witch hunt for the big time culprits of this crisis, among them Greenspan who just turned himself in. Even the essence of capitalism is being questioned as many banks are now being nationalized to prevent total collapse of the US banking system.

To quote Greenspan himself, “The crisis has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount.” You may not know it yet, but the US is still on the brink of a major financial collapse which can lead to the closure of many banks. That means cash may run out for awhile, in which case depression looms by next year. I think we will only see the full extent of this crisis after the US Presidential elections.

That leads us to the next most important question: How will this affect our own economy and what role can we all play to help mitigate the impact of this crisis?

Here at home, well, we just need to brace ourselves for a bit more chaos and global tension before calm finally sets in. We need to stay grounded and take stock of what we’re truly worth. Because, amid all this chaos lies golden opportunities to gain back lost ground and rise above the negative emotions that are gripping the hearts of many – especially those who have lost their jobs and millions of dollars worth of life savings.

Like blessings in disguise, many events in our country prepared us for a crisis like this. The Asian crisis in the late 90s made us clean up our banks and focus on credit risk. The lack of jobs and extreme poverty pushed our countrymen to look for work elsewhere even at risk of separation from their loved ones. Systemic and institutional inefficiency has taught us to depend less on government and instead make the most of our own resources and God-given skills. And not too long ago, we experienced years of high inflation and interest rates which taught us to be financially prudent and ready to downgrade our lifestyles if need be.

All these have probably made us among the most tenacious and flexible people who just want to make a go of life even with the most meager of resources, and regardless of where we are in the world. I’m not sure if you are aware of this but nearly 40 percent of our working population is in different parts of the world, of which many are at sea or on air. Interestingly, we have already conquered the world and we don’t even know it.

As a nation, we are seldom in our comfort zone because of our explosive political environment. Every now and then it creates big waves of change in our economic landscape. Yet we have learned to move on in grace and in quiet demeanor, going on with our daily lives as if disturbing newspaper headlines mattered little to what we do.

These are the kinds of qualities that will matter most if and when the US crisis hits us. Because we are experiencing a perfect storm that will spare no one, it won’t matter if we come from a developed or an emerging country. Nor will it matter if we are rich or poor. The effects of this storm will be felt by everyone, one way or another. What can set us apart as a nation is how we cope and rebuild our lives once the storm has left our shores.

The most important preparation we need to make is to protect our own banking system, because that is the heart of any economy. We have one that is relatively sound and fundamentally self-sufficient, that is, if we all stay calm. Let’s take stock of what and who we are, and trust that we know ourselves best. Because it’s that kind of knowledge that will keep us afloat and help us weather this storm.

We should reject fear and the emotion contagion that’s now spreading like wildfire. This contagion feeds on the herd mentality in the market which, when run over by fear, could cause a stampede and ruin even old and strong institutions. If we let emotions rule our land, the carnage we are now seeing in the stock market will be but a prelude to what can happen to the real economy. And if that happens, we will have no one to blame but ourselves, because as early as now, we already know that our government can do little to help us with its meager resources.

The only thing we can do is to busy ourselves in looking for new opportunities. As I say this, I take a lot of inspiration from my current employer, Mr. Henry Sy Sr. who is a true contrarian in the field of investments. In the last fifty years, he grew his business from just a Php1-million shoe store in 1958 to a staggering Php230-million conglomerate as of end 2007. He did this with discipline and focus in pursuing opportunities for growth and expansion, even at the worst of times. We all saw how he built the first SM Mall in North EDSA in 1983. That was a dark year that triggered the first people power revolution in 1985. Yet amid much skepticism, he proved his mettle. Now, SM North EDSA is undergoing its fifth expansion and will become the largest mall in the country and the third largest in the world by next year, outranking SM Mall of Asia.

SM now employs over 62,000 nationwide and continues to hire aggressively for its new malls, stores, bank branches, and property projects. This does not include those that find work from our mall tenants, store suppliers, and project contractors. The economic contribution of SM is unquantifiable and indispensable, because we live and work in a country where population grows fast and jobs are hard to find amid limited foreign direct investments.

So when I was requested to address this need to effectively brand the Philippines, my mind actually went blank for awhile. Modesty aside, I tried to market the Philippines with enough success during my stay in government. Our efforts enabled the country to continue tapping the global financial markets despite a serious fiscal slippage early this decade. Lately however, such an effort has become more and more challenging as our government is mired in a lot of controversy.

But there are always a few things we can do if we put our minds to it.

First is to reject negativism and affirm only that which is positive and enriching. After all, that’s how the controversial law of attraction works. This law is much talked about in the book and the movie The Secret by Rhonda Byrne. What the law of attraction says is we create our own reality with our own thoughts, and the words that we profess. What we think, and what we say, is what and who we are.

So when we indulge in bashing our own country and our government, guess what, the universe say, “Your wish is my command.” Similarly, a campaign that is ‘pro-poor’ is like signaling to the world that we embrace poverty. Instead, why don’t we build a campaign that is ‘pro-wealth’ or we can initiate ‘enrichment programs.’ Likewise, we don’t need to glorify corruption by saying we don’t like corrupt officials. Instead, we need to start a program that promotes honesty and transparency in government service. These all sound a bit corny at first, but I can personally attest to its effectiveness because I have been doing positive affirmations for many years, even long before The Secret became popular. And these affirmations did wonders for my life.

The key aspect to an effective affirmation is knowing what it is that we want. And then, say it as if it’s already there. Too many Filipinos are saying that we are settling for what we have right now because there are no better alternatives. You know what, that is the wrong thing to say and think, because the universe will come back to us and say, “Your wish is my command.” Instead let’s believe that “We have a national leader who is honest and holds the vision to bring out the best that this country can offer.” Because if we keep saying and wishing that, the best person for the job will most likely emerge and win the Presidential elections in 2010.

The other thing we can do is to look for gems in this country and promote them aggressively. The objective is to get people to go to these places based on their natural and man-made attractions regardless of where they are located. Gems like Boracay, Cebu, Puerto Princesa, Coron, Puerto Galera, Banawe Rice Terraces, Bohol, Tubbataha, among many others.

This is a bottom-up, costumer-centric, and aspirational approach to selling our country because we cater to what our customer likes to experience in seeking a destination, and addressing those aspirations.

This goes without saying that before a campaign is launched, one has to make sure that everything that has been promised can be delivered, because credibility will ensure the longevity and sustainability of any campaign. Among the things to consider for tourists and business travelers are regular flights, smooth connections/transfers, nice and clean accommodation, excellent food and service, Internet and cellphone connectivity, proper orientation of the place, and a set of activities that make the trip very memorable. The place that I know comes very close to all these qualities is El Nido Resorts which is already being frequented by foreign tourists all year round.

I guess the key here is that in spite of how large and disturbing the external crisis can be, we need to stay focused in protecting our own environment and carrying out our own plans, desires, and dreams. As a people, we’ve fought enough battles to strengthen our spirits, our minds, and our resolve. We just need to trust ourselves enough to keep doing and saying the right things, and then listen to the universe say, “Your wish is my command.”

Let me end with that note. I hope my thoughts help you in some way.

Thank you very much.

Corazon P. Guidote is former managing director of UBS Securities Philippines Inc. and Citibank Securities Philippines Inc. She was also former chief operating officer of ABN-Amro Securities Philippines Inc. and has served as presidential consultant on investor relations of the Arroyo administration. This think-piece was delivered during the Professional Development Seminar series entitled “Branding the Philippines: Dito po sa amin, may Special Halo-Halo” of the Public Relations Society of the Philippines on 24 October 2008.

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