Thursday, December 25, 2008

What Lessons Can We Learn?

First of all, Merry Christmas and Happy New Year!

The world economy is in a mess, and a lot of economists are predicting the worst is yet to come.

I could still recall when the sub-prime morgage crisis just reared its ugly head a while back, there were 'experts' and even banks claimed this issue was limited to individual institutions. The disclosed amount of poison assets was far lower than what actually turned up to be, and the rest was history.

If we inspect this string of incidents, step back, and think for a while, we can draw some observations:

The tip of iceberg: when a financial institution fails due to exposure to questionable assets, it can't be an isolated case. There must a systemic problem that manifests in the background and I even argue it is safe to say most of the institutions with similar nature will be affected, those not affected are rare exceptions.

So what have been hot beside banking and finance in the last few years? Answer is: Outsourcing.
Both of them are Irrationally hot: some point in time everyone was rushing or considering to do banking, and every company was rushing to outsource, or at least thought of outsourcing.

It seems outsourcing, too, rears a pretty ugly head: Satyam Computer Services, from India, is banned by the world bank from doing business with it for 8 years. News is here.

If we apply the lesson we learned from the banking system failure and assume the lesson can be applied, I will check my accounts and the deliveries very carefully if I had dealt with these outsourcing companies before.

Luckily, I haven't.

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