Wednesday, April 09, 2008

Numbers crunching

It must have been an extremely difficult and tedious exercise to project the expected multibillion dollar losses arising from the subprime mortgage mess, the toxic collaterals, and the rejected IOUs of Wall Street stockbrokers and banks. Most projections had bandied around billions, later tens of billions before two analysts from Deutsche Bank came out with a damning forecast of between 250 to 500 USD billions.

The US Federal Reserve whom many believed would be more aware of the real damage quoted a ballpark figure of 100 billion dollars. Soon others including OECD joined in the bandwagon to talk up the figures perhaps trying to reach the Hall of Fame. But none exceeded or dare to exceed the Deutsche Bank’s forecast of 500 USD billions.

In comes a lowly Chinaman named Allan who resides in an emerging market economy, who seemingly knows nothing about high finance especially those in the global financial markets, and who unashamedly made a prediction. This one man army had finally found what he wanted about the total sums of the subprime mortgages, of the toxic collaterals and some of the outstanding IOUs. With real figures to work on, crunching the numbers in the mind was amazingly easy and simple.

Give or take tens of billions, in an entry on November 24 2007, he forecasted an overall loss of 900 Billion US dollars as the worst case scenario. The projected loss about doubled the highest provisions that then existed in online publications.

Probably readers who had read the entry in his blog sniggered. What does this Chinaman know when the highly paid army of professionals in the world don’t? He provided the figures but not the workings to dissuade plagiarism. If readers had privately thought he was a fool, it did not really matter.

Perhaps they did not realize then that the team of analysts and professionals in Goldman Sachs who are the best paid in the financial world would one day by coincidence ‘agree’ with his forecast? Last month, Goldman Sachs forecasted a global loss of a trillion US dollars arising from the financial ‘fiasco’.

Yesterday, the World Bank perhaps provided a closer and more accurate forecast since the renowned financial institution with its highly paid army of professionals, technicians and advisers do not like rounding up or down of figures like what Goldman Sachs, and Allan did. The World Bank forecasted an overall loss of 945 Billion US dollars.

A figure between 900 billion and a trillion US dollars provides a good safety margin, don’t you think?

Having worked in international accounting firms, one can understand why Goldman Sachs and the World Bank took longer to come up with their forecasts. They are more responsible and obligated than Allan, which is why they took longer in the numbers crunching. Being responsible and obligated does not mean other equally renowned institutions with their big army of professionals can get their forecasts right.

Like the Chinese of old there is never any necessity to convince anybody of your wisdom. We just plod our way and move on. For Laozi had once indicated:

Without stepping outside one's doors, one can know what is happening in the world. Without looking out of one's windows, one can see the Tao of heaven.
[TTC 47 LinYutan]

Detractors would still disagree; they can always presume that they know the forthcoming overall losses or Tao better. How would I know?

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