Tuesday, September 1, 2009

Predictions And Lessons Learned

Our blog is a member of the Forbes Business & Finance Blog Network. Member blogs were asked to consider writing a post on the following question:

September 15, 2009 marks the first anniversary of the fall of Lehman Brothers and the global financial meltdown.What is your economic forecast for 2010? Are there specific economic markers that you find particularly useful and upon which you rely on in making your prediction? As background reading, here is a link to a recent StreetTalk column on a related topic by Bob Lenzner, published by Forbes on August 21: Lessons Learned A Year After Lehman's Demise.

With respect to the question about economic forecasts, here's some information from the most recent FEI-Baruch College Quarterly CFO Outlook survey, (2nd quarter 2009). The survey, conducted jointly by Financial Executives International in conjunction with Baruch College's Zicklin School of Business, showed that an overwhelming majority (90%) of the 266 respondents anticipate an economic recovery by the first half of 2011, or before.

The more detailed findings in the survey showed that while spending is still being treated conservatively, CFO's see a light at the end of the tunnel, with a slow movement from pessimism to growing optimism. For example, over a quarter of our survey respondents report increased interest in making acquisitions, close to one-third reported positive earnings for the first quarter, and one-third expect to report positive earnings for the second quarter. An increase in consumer demand is also expected by over 10% of the CFOs we surveyed.

Separately, reflecting on the subject of lessons learned a year after the fall of Lehman, the Lenzner article cited above, cites in turn some recommendations as to 'lessons learned' as written by Richard Posner, a federal judge and University of Chicago law professor. Posner's recommendations seem reasonable, and a particularly interesting suggestion Posner makes is to form "a financial counterpart to the CIA to aggregate and analyze information, assembling a mosaic from scattered pieces" of information, since the financial system today is highly fragmented.

Lenzner closes his article: "We cannot turn back the clock, but risk-control systems must be the No. 1 priority of Wall Street--more crucial than growing top-line revenue. Survival of the fittest requires it. "

On the subject of risk management, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is expected to release a document on Sept. 1 relating to the role of the board of directors and risk oversight. The document will highlight key points relating to the role of the board of directors from COSO's 2004 Enterprise Risk Management (ERM) framework. Check COSO's website www.coso.org for updates. FEI is one of the founding organizations of COSO, updates will appear on FEI's website, www.financialexecutives.org as well.

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