AT8 has recently launched into the world of Twitter and it has been a fascinating experience. Our initial aim was to create a news service to share information amongst our existing contacts – from IFAs and other intermediaries to Insurance Providers and Technology companies. Twitter is, as you may know, a simple micro-blogging site where you comment on what you are doing, thinking, reading or learning about. The beauty, and often the frustration of it is that you have to do this in 140 characters or less – forcing the author to be brief and concise. The rapid flow of information then begins. Perfect for news dissemination we thought.

However, the reality was that in the few days we have been running the service, only a small number of our existing contacts have signed up. Often they are cynical that Twitter is just a fad, or they simply don’t have the desire to sign up to a new social networking site. It’s understandable, but a real shame as they are missing out on a wealth of information and contacts.

The surprise has been the number of new ‘friends’ that we have made with people who already use Twitter. Indeed, in the last week alone, with a little work, we have moved up from a handful of followers to nearly 100 – and this is now growing daily. The great thing is these are nearly all directly in our market domain.

So what is the benefit of having these contacts? Well, the wealth of thoughts and ideas to which we have been exposed is immense. We have seen people discussing the financial issues of the day, reviewing IT systems and financial planning tools and choosing between Wrap platforms. We have exposed our brand and ideas to a new audience and we now have access to a potential research and problem solving forum. Used productively, it’s extremely powerful.

We have begun to see more corporate activity on Twitter as well. A number of IFA organisations such as Informed Choice have a presence. Software and services companies to the financial services industry are beginning to explore the service as well – Leadbay announced their Twitter service this week (although at the time of writing, it is still without content) and Mortgage Brain already have a presence. A few other IT companies serving the financial sector are also present including IRESS and IMAPX. Surprisingly though, many of the mainstream IT companies are yet to embrace Twitter – personally I think they are missing out.

You can follow AT8 on Twitter at www.twitter.com/at8group.

With its references to:
• Macro imbalances
• CDO + CDO- squareds
• ‘Haircuts’
• VAR
• CDS
• MBS
• RMBS
• ABS
• ‘Rational and irrational exuberance’
• Swollen – ‘illusory’ -Trading Book profits
• Tier 1, Core Tier 1 Capital Adequacy
• Procyclicality
• Counter cyclicality
• AND many, many more

The Turner Report is a very comprehensive and competent assessment of the Banking and Financial Crisis. However, for the average reader it is pretty technical and requires some degree of concentration to keep up with the terminology and meaning along with the interdependencies and their consequences. As someone who has been accused of liking three letter acronyms and esoteric terms, Turner’s report exceeds my range by a factor of 10 – to the power of 10!

Without taking anything away from this professional appraisal, many have argued that it boils down to ‘Borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent’.

In his 2008 report to Berkshire Hathaway investors, Warren Buffet said ‘investors should be sceptical of history-based models, constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of ‘geeks bearing formulas’. Buffet is not infallible and he readily admits his mistakes. However, his investment philosophy that says ‘don’t invest in something that you don’t understand’ resonates with common sense and honesty.

The problems identified by Turner have evolved slowly over the last 15 – 20 years, but rose dramatically over the last 5-10. The original idea that securitization would diversify and reduce risk for the institutions was pretty sound. However, the expansion of this approach and increasing complexity of the packaging, the application of increased leverage and creation of investment vehicles that capitalised on the apparent value spreads that they could create, progressed steadily by a process of apparently unseen osmosis. With globalisation of the banks and their expansion from retail to investment banking, meant that these institutions were not just originating the securitised debt vehicles (for other investors to pick up the risk), they also became consumers (investors). In doing so, they demonstrated the term ‘irrational exuberance’, used by Turner to describe the growth in this activity to a point that was unsustainable and eventually fell like the proverbial ‘pack of cards’.

With hindsight, it does ‘beggar belief’…

• No deposit required… or you could ‘borrow’ one…
• High (and ever increasing) valuations justify high sale prices AND high commissions/bonuses…
• Higher and higher income multiples to support impossible repayments… or why not just self certify that you can pay…
• All this is then packaged as ‘securitized’ investment assets… bought by ‘investment [casino] bankers and then by pension funds [and others] – even more commission/bonuses… !!!

The chain of folly just couldn’t last!! However, if you wrote this story a couple of years ago, they would not believe you. Let’s hope that ‘past performance is not an indication of future performance’… However, we should not forget that ‘prices can plummet as well as fall’

I like the analogy of ‘the boiling frog’, in that, if you put a frog (cold blooded animal) in boiling water, it will react immediately and jump out… however, if you put the frog into cold water and slowly boil the water, the frog will accept the changing temperature as normal and eventually die!! So it is that the evolutionary development of risk taking against increasingly suspect assumptions and complex products was to gradually simmer the local and global economies.

We now look at the crisis with the benefit of hindsight and utter disbelief that we could have been so naive and stupid. The challenge is to ensure that the response proposed by Turner (in DP09/2) is not a ‘swinging pendulum’; it must be measured, appropriate and effective. Indeed, he has acknowledged that there is a risk that early implementation of some of the changes could be counterproductive.

So what is proposed and what are the potential consequences? See our brief overview summary of the Turner Report’s proposals in an extended version of this Blog. You can download the document here

Earlier this week the Local Government Association published a list of words that it recommends are no longer used by local councils and alike.

Below is the complete list of the ‘banned’ words and/or phrases:

Across-the-piece, Actioned, Advocate, Agencies, Ambassador, Area based, Area focused, Autonomous, Baseline, Beacon, Benchmarking, Best Practice, Blue sky thinking, Bottom-Up, CAAs, Can do culture, Capabilities, Capacity, Capacity building, Cascading, Cautiously welcome, Challenge, Champion, Citizen empowerment, Client, Cohesive communities, Cohesiveness, Collaboration, Commissioning, Community engagement, Compact, Conditionality, Consensual, Contestability, Contextual, Core developments, Core Message, Core principles, Core Value, Coterminosity, Coterminous, Cross-cutting, Cross-fertilisation, Customer, Democratic legitimacy, Democratic mandate, Dialogue, Direction of travel, Distorts spending priorities, Double devolution, Downstream, Early Win, Edge-fit, Embedded, Empowerment, Enabler, Engagement, Engaging users, Enhance, Evidence Base, Exemplar, External challenge, Facilitate, Fast-Track, Flex, Flexibilities and Freedoms, Framework, Fulcrum, Functionality, Funding streams, Gateway review, Going forward, Good practice, Governance, Guidelines, Holistic, Holistic governance, Horizon scanning, Improvement levers, Incentivising, Income streams, Indicators, Initiative, Innovative capacity, Inspectorates, Interdepartmental, Interface, Iteration, Joined up, Joint working, LAAs, Level playing field, Lever, Leverage, Localities, Lowlights, MAAs, Mainstreaming, Management capacity, Meaningful consultation, Meaningful dialogue, Mechanisms, Menu of Options, Multi-agency, Multidisciplinary, Municipalities, Network model, Normalising, Outcomes, Outcomes, Output, Outsourced, Overarching, Paradigm, Parameter, Participatory, Partnership working, Partnerships, Pathfinder, Peer challenge, Performance Network, Place shaping, Pooled budgets, Pooled resources, Pooled risk, Populace, Potentialities, Practitioners, Predictors of Beaconicity, Preventative services, Prioritization, Priority, Proactive, Process driven, Procure, Procurement, Promulgate, Proportionality, Protocol, Provider vehicles, Quantum, Quick hit, Quick win, Rationalisation, Rebaselining, Reconfigured, Resource allocation, Revenue Streams, Risk based, Robust, Scaled-back, Scoping, Sector wise, Seedbed, Self-aggrandizement, Service users, Shared priority, Shell developments, Signpost, Single conversations, Single point of contact, Situational, Slippage, Social contracts, Social exclusion, Spatial, Stakeholder, Step change, Strategic, Strategic priorities, Streamlined, Sub-regional, Subsidiarity, Sustainable, Sustainable communities, Symposium, Synergies, Systematics, Taxonomy, Tested for Soundness, Thematic, Thinking outside of the box, Third sector, Toolkit, Top-down, Trajectory, Tranche, Transactional, Transformational, Transparency, Upstream, Upward trend, Utilise, Value-added, Vision , Visionary, Welcome, Wellbeing, Worklessness

I did think I would take a look through previous AT8 blogs and see how we fared in the use of such vocabulary – I decided not, as being Consultants I thought the paradigm in the use of an holistic, value-added taxonomy such as the one described, might affect the way in which we are able to describe our vision to you, our stakeholders.

Anyway, more sense in an extra blog coming soon, when we shall be discussing in more detail our thoughts on the Turner Report and the FSA’s DP09/02 and how we see its impact on our core markets.