The IMF announcement of a toxic asset hole of probably $4 Trillion is shocking but not unexpected. Some of us believe that the statement is a ‘warmer’ and that there will be more to come. It is said that worse figures have already been presented in Washington.

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American citizens are justly angry at their taxes being used to bail out the reckless and fraudulent money-go-round of the financial system. The badly squeezed middle-class all over the world are already carrying the bulk of the costs since they pay most taxes, support young and old and work nineteen hours a day to produce the incomes on which society depends. In our attempted correction of the damage that has been done we should be supporting not punishing them.

Here’s how to turn adversity into sanity:
What goes down must come up – even if we don’t know when. If the earnings of companies you might invest in are not as susceptible to recession as most shares, buy them. You may have to sit tight for a couple of years but they will come up again.

If your job is threatened – or lost – consider what you’d really like to do. We succeed best when we enjoy what we are doing. A look at your career, past and future, is something you can profitably do now. This may also be a good time to start a business. You will find it difficult to get finance from the bank, but that in itself is a good discipline. If you cannot persuade them to believe in your project ask yourself harder questions before starting.

What is the opportunity for capitalism now? The old model has failed but it wasn’t all bad. It financed the world we live in with its high-tech, high mobility, high quality medicine and high education. Many have benefitted from this. Can we re-stimulate the economic cycle, omitting the faults and making it work better for everyone, not just for the few?

What can we learn from the Grameen Bank? Muhammad Yunus started it to micro-finance the very poor. What about a version of it higher up on the financial ladder to provide capital and loans for new and developing entrepreneurs? Every society needs to encourage its young. There is no reason why governments shouldn’t be involved in this on behalf of their citizens. If you think Governments should not be involved in business study what has just happened in the money markets.

Look beyond public money for this pump priming, too. Business has a life cycle; why should it not finance the early stages of the next cycle? Corporate Social Responsibility (CSR) could have no greater aspiration than to see future generations flourish. Why shouldn’t you and I invest, too, perhaps with some modest level of safeguard and guidance?

Above all, why shouldn’t the people who have been hit hardest by the financial scandal determine the regulatory process for the future? If we put discipline back into the hands of the regulators who landed us in the mess they will do so again. Fresh thinkers won’t be perfect but at least they will see the wood for the trees, something the present lot failed to do.

There are pitfalls to be avoided. By merging banks we create an even bigger cartel than we already had. We must prevent the power that is being put into the hands of very few bankers from becoming another weapon of mass destruction.

Regulation must not become so overwhelming that business grinds to a halt. A bank with whom I have banked in credit for over ten years wants me to present myself, my passport and my NRIC in person at their counter to open a new account. No wonder trillions went missing; they were probably stolen while bank managers were examining the dental records of established customers. Let’s not fall straight back into that

Not as important as your health or your soul, looking after your money is still high on the list of things you want to get right. That is why bankers, finance and fund managers are paid more than most people – more, certainly, than doctors and priests.

Most doctors and priests are pretty good. Not all, of course, but the majority stick to their vows and fulfil the obligations of their profession. So, it must be said, do many bankers. Although doctors’ and priests’ behaviour is somewhat regulated they are generally left to make decisions based on their consciences – and the results are mostly satisfactory. So they should be. They are teaching healthy physical and moral behaviour. They know the best teacher is example.

Were our medics and pastors to become over-regulated, problems like those in banking would emerge. Substituting conscience with guideline is the fastest way to hell on earth.

Do you think your money is being well and trustfully cared for? If your answer is ‘no’ then you may like to consider my following ten requests to the finance industry.

1. Drop the jargon. Use language we can all understand; treat us as literate but ordinary human beings.
2. Cut the “Products” by 95%. You only have one product. It is called money. There are no other “Products”. There may be some opportunities that a bank or fund is willing to guarantee 100%. We’d like to know about those, but they’re still money.
3. If a bank wants to act as broker for other investments let it have a broking division (or use its existing one) and let it charge those who use it for that service. At present we are all being charged for brokerage services whether we want to use them or not. We want basic banking.
4. Treat us as customers. At present your customer treatment is confined to your advertising. None of the things you promise in your commercials or press ads comes true for the normal customer. Ban the mind-blowing menus and the egregiousness. Being polite is conducive to good business; being egregious isn’t.
5. Be transparent. Your charges are so complicated that no normal customer can understand them. Obfuscation is a well-used tool of doubtful businesses but you are handling people’s hard-earned money, not selling baked beans. Your customers have other things to do than deal with their bank. Help them, don’t confuse them.
6. Make your charges realistic. Many charges are for sums of money so small that the cost of collection must exceed the revenue generated. Neither you nor your customers benefit from that.
7. Re-examine your “Relationship Manager” practice. It is obviously necessary to change relationship managers from time to time but having seven in two years – quite common – is hardly conducive to a relationship or to even discovering correct contact information.
8. Reduce your paper chase. We get more paper from our banks than we do from any other source. The vast majority of it is unnecessarily damaging the planet. Your words of commitment to green corporate social responsibility must be carried through to your paper-creating practices.
9. Look at your bonus system and your profits. The former is geared totally to selling and hardly at all to service. But you are a service, not a sales outlet. Are your profits commensurate with those of service businesses?
10. You are already over-regulated. Why? Has it worked? It happened because people lost their trust in bankers, not just over sub-prime but over a long time. It has failed because control without trustworthiness can never work.

Go on, you tell your financiers, too.

Half the people alive today have never experienced serious inflation. They will shortly. At the end of it, many will have starved to death. Those remaining will live in a very different world from that of the past fifty years. Cheap food, easy personal mobility, considerable leisure time, increasingly high medical standards. All these are going to be severely dented by ‘the enemy within’ – inflation.

Can we prevent it? Can we cure it when it happens? How can we cope with it?

Societies wake up to threats quite suddenly, having long ignored the warning signs. Those who predicted problems were castigated as pessimists, ignored, mentally pilloried. “Optimism will solve our problems. Let’s be positive.” Yes, indeed, but let’s be realistic first.

The planet is not short of food or energy. It can support more people if we conserve a responsible amount of the natural habitat and don’t pollute ourselves to death. But many populations are more short of money today than they were ten years ago. Can that be right – by any standard?

Inflation used to be localized; it is now international. The big demands of rapid growth, fuelled by expectations of people who know how the other half lives and want a slice of it for themselves, mean the market mechanisms draw speculators into hoarding against the expected price rises. As I write this article available oil freighter tonnage is in short supply because so many tankers are being sailed deliberately slowly across the oceans anticipating better pickings when they arrive.

Are the speculators to blame for inflation? No they are not. They are fulfilling a function the market demands, although we should examine whether the controls on them are adequate to prevent informal cartels from artificially raising the costs. After all, hedge finds and derivatives were doing a job for the market, too. Their sordid demise led to much suffering and quite a lot of the world inflation now beginning.

Finding guilty parties is not going to solve the problem. Indeed, most of us are partly guilty. Our natural greed, whether motivated by the desire to secure others’ futures or simply to demonstrate our ability to win, is at the root of the problem. A competitive society demands competition and that means winners and losers.

As long as the law of supply and demand operates – forever – there will be inflation when something vital to human existence is scarce. Energy, food, water, air, medicine are all going to be in short supply in the future. When two or three shortages occur together horrendous inflation follows. We can only use our resources as prudently as possible to mitigate it.

If we work hard at transparency in business dealings we will solve some of the problems. Being open will discourage speculative hoarding, especially if there are rules against it, and corrupt marketing can be reduced. The world is aware of the need for transparency but is not yet committed to achieving it.

We must now do two things to cope with inflation.

Price increases must be lower than cost increases. That will reduce dividends but will make the value of those dividends greater in the medium term. One of the worst accelerators of inflation is the desire to profit in an inflationary market – and the ease of doing so.

We must also borrow more sensibly. Borrowing to invest is wise. Borrowing to indulge is foolish. When we learn that tomorrow really does come we will prepare for it properly.

Until then we shall have what we are about to see and experience – serious inflation.

Think that the financial crises encompassing the globe have little to do with you and me? Wrong – we are the people who are paying for them all.

How do we pay? In significantly increased prices of goods. Soaring prices are pervading every aspect of our lives. They give rise to that scourge of prudent people who save for the future, inflation. The cost of living goes up. The value of our savings accounts goes down.

Can anybody stop it?

Those who have accumulated a little money now find that they cannot trust the stock market to maintain its value. A bank deposit will earn perhaps 1% or 2% – but with worldwide inflation at over 6% that means that their money will be worth half what it is today in less than twelve years.

Some aspects of life are even more inflationary than others. Notice how much your healthcare insurance is increasing – on average 9% a year; the cost will double in eight years even without making provision for the more expensive health technologies being developed. Fuel is rising in price daily; a developing world needs more and more energy to satisfy new demands. Greater affluence brings with it a requirement for more food and we are already seeing some basic food prices – for example, wheat – trebling in less than a year.

What will be the impact of world population increase to nine billion by 2050?

Why has our money become so vulnerable when financial managers have more information and easier processing than ever before?

The answer is disarmingly simple. We have rewarded those in charge of our money, and of business generally, on the basis of instant performance, not on the basis of future stability. They have responded by pursuing short term returns, sometimes mortgaging the future and invariably leading to greater risk-taking and overstretched borrowings.

Who made those demands? We, as shareholders, have taken a dangerously short term view, demanding maximum dividends now, forgetting that future value is more important than present return.

The result is that a relatively few people have acquired huge wealth by risking other people’s capital while not bearing any of the risk themselves. A good example is the “sub-prime market”.

“Sub-prime” means, and should be called, the “Desperately High-Risk Market”. And the risk has dramatically failed. But not for those who have already taken their commission and salted it away. Their rewards are a one way street. They enjoy the profits but do not suffer the losses. Losing their reputations, they will console themselves by counting their dollars.

How are we to protect our modest savings?

I wish I knew. Smart dealing on the stock exchange seems a risky business even for those who know what they are doing. Investing in funds provides no guarantee of continuity. Managed funds might seem to be an answer except that almost every prospectus is written in such a way as to be totally incomprehensible, even to the people selling it. Some funds, including some that were misleadingly sold, have already gone bust.

Currency dealing is a dangerous game as every expert admits. Commodities can produce a tidy profit – or a gargantuan loss. They are not for the feint hearted.

Looking for people to blame for the present situation is less useful than trying to find a solution to it. Perhaps we can ask our banking and fund management wizards – those people who are so highly paid because of their great financial knowledge and wisdom – to present us with some practical solutions. By doing so they will be able to demonstrate to us their undoubted value to society.