Wednesday, October 15, 2008

How...Not Just "How Much"...

(Panama union construction workers clash with police in Feb 08...over work standards and pay)

Once again columnist Tom Friedman sheds some reality thinking on the world's current financial crisis. HIS ARTICLE rightly points out some basic realities of high flying economies tied to mass movements and false realities...that continue to drive markets. His summary paragraphs bear repeating here...

...Charles Mackay wrote a classic history of financial crises called “Extraordinary Popular Delusions and the Madness of Crowds,” first published in London in 1841. “Money ... has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

And so it must be with us. We need to get back to collaborating the old-fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications and thinking about how — not just how much.

This points to some of the core reasons current markets are upside down. Some traditionally "sober" and conservative countries and economic systems, including the USA, who were flying high on macros and debt that was unsustainable are now experiencing the reality of flying on thin air...and the engines of unrealistic expectations have sputtered out and are facing the "laws of gravity" when facing mathematical equations and scientific realities. While emotions obviously affect markets, this time it is the math that is catching up to us as well.

Many people are asking me these days how this all is affecting or WILL affect Panama economically. I don't claim to have a crystal ball or any inside track on all of Panama's future expectations, but I DO live and operate here and try to keep a broad ear to the ground and eye on the activities in this small country. The banks have been tightening up here for a while now, a bit before the actual crashes happened internationally. To me that is a good sign for Panama financial institutions. They never did have the free for all offerings to the masses we saw in the USA. While that was a complaint of developers and real estate marketers, it has kept the institutions here more liquid and with better reserves than many of the big boys on Wall Street.

Of course, now we have to ask who is going to buy and live in all these mega condos, hotel and office building developments that dot most every corner of Panama City, the new "Singapore of the Americas". It is quite obvious that purchases have slowed considerably the last quarter. Prices are either stabilizing or coming down a bit. What activity remains is mostly at the high or super high end offerings in the market as the wealthy always seem to retain buying power in bad economic times. Panama is also arguably a nice port in the storm based on its offshore privacy and low taxes on profits in addition to competitive incentives for foreign retirees and investors. One could build a solid case that Panama could profit from these globally uncertain times, but there are many unknowns here as well. Some points to consider:

One...we are looking at new elections this spring which typically brings about many changes in administration of the country...and its financial management. This country just like the USA has seen tremendous increase of national debt, and cash flow via tax collections are way less sophisticated and effective than most first world systems. Being in the middle of some major infrastructural projects like the widening of the canal and new locks on each end, a new highway to run alongside the canal zone, a new coastal bypass in the downtown area tied to improved waste treatment challenges to support the huge growth of city condos and their just seems obvious to me that we need to keep an eye on where all the money is going to come from to continue or complete these projects. Just like elsewhere in the world, money in the hands of government bureaucrats get siphoned off quickly to mysterious mazes of various funds with malfeasant intents. Wolves are in the hen house everywhere it seems. attracts money. There has been a lot of big money flow into this region the past 3-4 years with names like Trump, Gates, and many big Oligarchy families from all over Latin America fueling these projects and putting money in these offshore banks. If Panama handles and serves them well, those funds should stay long term, circulate and profit well. Of course, Panamanians seem to be quite inwardly focused and they could do some bonehead things legislatively to make investors uncomfortable. It would be a shame, but it is not unviable that government here could turn more "leftist"...which would not bode well for investment/investors. Chavez DOES have his thoughts and some fingers in the "Panamanian pie". can have all the money in the world come here, but it would not change much unless it positively affected the culture and inherent poverty that pervades this small country. There has to be a rational plan to help ALL Panamanians improve their way of life during these growth years and handle the rapidly rising cost of living. Otherwise, you will continue towards class war and conflict internally that could get ugly and immediately stunt the growth perspectives for this marketplace. will take a ton of education and training to get a country like Panama to continue the growth and progress we have seen these past 5 years. While we see all this progress and economic growth, we are NOT seeing advances and more money for education of the young and work training for the not so young. And based on realities of culture, it is not going to be an overnight result from training and education. You are going to have to train the teachers first in many cases. The public universities here are very Leftist leaning and many of the professors/teachers have questionable or false credentials. Meanwhile the government continues policies of protectionism for jobs during a time when there is a vacuum of qualified, highly trained and experienced workers. Just live here for 30 days and you will see the general lack of service and capabilities in even simple operations. You cannot have 4 or 5 star service in tourism without people who understand and perform that 4-5 star service. I am convinced even top management at many of our most popular Hotels and resort here "don’t get it". You can put all the billions you want into land and structures…but without qualified people it will go to ruin without sustainable customers.

So, as you can see, my point is it’s not just about the MONEY, but it is HOW that money goes into action and what it produces. Just paying someone an executive salary doesn’t make them a qualified executive. Just look at the track record of these hideously overpaid Wall Street "executives" who never saw the train coming.

As Mr. Friedman says, you can’t just "engineer money from money" needs to fund and improve "human endeavor". The money has to get down to the people...whether in Panama or force them on to their feet...with vision and hope for better things to come. Things THEY can control and affect. That my friends are what will turn our worlds down cycles around.

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