Five Blind Men (media, rating agencies, banks, contractors and analysts)

Long ago, I read a story of five blind men who went to SEE (view, observe etc.) an elephant. I do not remember the story in exact terms, but I do remember their experience. Obviously, none of them saw anything, but on their return to base, they discussed what they thought they saw.

The first one said that elephant is like a big wall (because he had only felt the big belly of the elephant). The second said that it is like a tree (interestingly, he had only felt the giant leg of the animal). The third person’s observation was that it is like a stick (referring to the tail), fourth said it was a wide sheet (assuming ‘an ear’ was all that the animal was) and the fifth said it was like a big pipe (due to the trunk). Individually, or collectively, they did not get the full picture, and the outcome of their own understanding was not proper either.

Lets apply the story to the current situation. The elephant is Dubai (and its colossal projects), and the five blind men are the media, rating agencies, banks, contractors and analysts. Issues of the elephant are littering the press all around. I am covering the blind men.

1.   Media was enchanted by Dubai, and kept on projecting its amazement of Burj Dubai, the Palm, etc. Though they are now highlighting issues with the Dubai dream, yet they fail to accept and acknowledge their own failure to identify them upfront. I do not want to name them, but there were multiple projects that were destined for disaster from day one. The media hype was so great, that President Bush visited Dubai (when probably, he never visits multiple cities in one country) and one must not forget Gordon Browns visit to Dubai, to seek contributions for his idea of an expanded International Monetary Fund (IMF) as a bailout package in the global financial crisis (how ill informed was the prime minister of UK).

2.   The rating agencies did what they do best: rate without knowing/understanding the reality of enterprises (everyone knows of the ratings fiasco that led to the credit crunch and the world wide financial crisis). If anyone reads their reports on Dubai, more than half of what they say are based on assumptions, speculations, possibilities and the data they present on debt is only what is available in public domain and hence, their analysis and conclusions are no better than those of the blind men.

3.   Banks continued lending as if there was no tomorrow, i.e. lend short term for projects that were clearly long term. To top their incompetence, they lend for projects that did not make sense. E.g. how on earth did their credit committees accept that almost 4.5 million people will live in the Waterfront area when the current population of UAE as a whole is not more than 5 million? What was their expectation from Dubai regarding business opportunities and job creation? Anyways, this is a long debate. By the way, one must not forget that many of these banks had already demonstrated their weak investment policies and pathetic credit risk management elsewhere around the world (some took TARP funding, some got nationalized and so on) and are a burden on tax payers of their respective countries. After busting all corporate governance matters in their own entities, after cheating and deceiving their own shareholders and their nations, and after being responsible for the financial crisis, many of these banks are giving lectures on transparency and communication. What a shame.

4.   Contractors just followed the Nike philosophy i.e. “Just Do It”. There is no detail available in public domain about them, so I cannot comment as such. However, if I was a contractor, I would be highly critical of doing any logic defying project on credit, unless the basis of my decision making is gambling rather than rationale.

5.   Analysts lured investors, but mostly speculators. In hindsight, one can see that most of the economic outlook reports, capital markets related equity reports and comments on tv etc. were incorrect. Many of the analysts/economists were as clueless as the blind men I mentioned above. To a large extent, their analysis and reporting led to speculative buying of stocks and property. In fact, the same analysts continue to produce reports. But this time, all is negative. The way I see it, it was not until the system derailed, that they reported negatively. In Hollywood terms, Terminator 1 and Terminator 2 were both played by Arnold Schwarzenegger, but once a bad guy and once a good guy. In terms of analysts, they played the good guys in part 1, only to follow up with a bad guy role in part 2.

I will write again. May be, with exclusive blogs on the each of the 5 blind men.