Famous Last Words: Trillion$ Might Have Been Saved
When I saw this lede in Lucy Kellaway's Mar. 28 Fincancial Times column, I blanched:
On the lavatory wall of a colleague's flat in Hong Kong hangs a framed letter. It is written on HSBC notepaper, and dated Jan. 22nd, 1998.
Please note that we have had occasion to return your cheque due to insufficient funds in the above account.
This state of affairs is most unsatisfactory and the practice of issuing cheques without first ensuring that there are sufficient funds to meet them must cease forthwith, otherwise it will be necessary for your account in our books to be closed.
After 50 years of writing letters—for renewals, billing and collections—I couldn't imagine an international bank employee deep in the bureaucracy and low in the pecking order being allowed to scold a customer that way.
With a supercilious attitude, I continued reading Kellaway's column and quickly came to the conclusion that this letter was a masterpiece. Kellaway writes:
For all its stiff wording, it is the best letter to a customer I've ever seen. It sums up everything that used to be good about banking, but which has got hopelessly lost. Indeed, if all bankers still behaved like P Mandal, there would have been no financial crisis.
For him, banking was a solemn matter, where prudence was all- important. In his world, there was none of the dodgy stuff that all banks now routinely engage in: pretending the customer is king while fleecing them if they go into the red, and investing their money in incomprehensible and ruinous financial instruments. Instead, recalcitrant customers were given a thorough telling-off—which made them behave better.
Spot on! P Mandal's letter was (and is) a takeaway that should be hard wired into the DNA of everybody in the financial services business.
All business is the business of redlining—avoiding customers who cannot pay their bills. I immediately remembered two other takeaways that could have protected investors from losing trillions of dollars:
The Dot-Com Bust
When the Internet came onto the horizon, few people besides Amazon.com's Jeff Bezos understood it. It was fueled by two mantras: 1) Everything on the Internet must be free, and 2) the object is to attract eyeballs and somehow the money will follow.
In 1997, I wrote a cover story for Target Marketing on William Bonner, founder of the sprawling Agora Publishing. Over dinner in Baltimore, I mentioned to Bonner what I thought was a Nutsy Fagan business model—attracting eyeballs.
"The only bank that takes eyeballs is the eye bank," Bonner said.
Subprime Mortgage Funds, Collateralized Debt Obligations, Credit Default Swaps
The business model was pinned to slicing, dicing and selling off loans made by greedy bankers to sad sack homebuyers who ultimately could not pay their bills. Lucy Kellaway rightly called these "incomprehensible and ruinous financial instruments."
Etched in my brain was a takeaway by the great guru of Fidelity Investments, Peter Lynch. If memorized and heeded by the entire financial community, the great meltdown of 2008 could have been avoided.
"Never invest in any idea that you can't illustrate with a crayon."
Lynch's corollary: "Go for a business that any idiot can run—because sooner or later, any idiot probably is going to run it."
Denny Hatch is a freelance direct marketing consultant and copywriter, and author of the e-newsletter Denny Hatch's Business Common Sense. Visit him at www.businesscommonsense.com or www.dennyhatch.com, or contact him via email at firstname.lastname@example.org.