Current Affairs
Greensill – The Real Danger
We’ve probably all read by now about the failure of Greensill Bank and the connection between Lex Greensill and one of England’s “Glorious Leaders”.
I’ll put aside the political/ethical questions here as they are adequately covered in my fictional works, but would like to explain this mysterious “Supply Chain Finance” (or SCF) at the centre of the fiasco.
What is it and why am I talking about “danger”?
Prime Revenue, one of the leading SCF providers describes it as:
Supply chain finance, also known as supplier finance or “reverse-factoring”, is a set of solutions that optimizes cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their large and SME [Ed: Small to Medium Enterprise] suppliers to get paid early. This results in a win-win situation for the buyer and supplier. The buyer optimizes working capital, and the supplier generates additional operating cash flow, thus minimizing risk across the supply chain.
In 2011/12 I designed and built the system that got Lex Greensill started in SCF. My business partner (not the brightest tool in the box) gave Lex unlimited access to our DropBox documentation, which Lex has now imagineered into an “Eureka moment” while working on his parents’ farm. But with no access to our secure technical documentation, Lex’s vision rapidly diverged from mine. My view was that Alan Kaye (the real visionary), Causeway (our business guide) and Prime Revenue (the market leader) were on the right track – a “win-win-win” actually for large corporation, small supplier and investor. Even insurers were offered a “win” in my final design, being able to analyse the risk of any package right down to the individual debts.
That last point is the key. In those post-Global Financial Crisis times, ordinary people were being asked to dig deep in order to socialise the losses for the billionaires who had gambled in the sub-prime market. The GFC was a direct result of bad debt being packaged as safe investments, then traded as if it were gold. Lipstick on a pig billions of times over. Complete visibility of risk (and appropriate rewards and punishment for those who choose higher risk) is the secret sauce to preventing another GFC – and we had it.
But those traders who had caused the GFC didn’t buy into that philosophy. They saw Supply Chain Finance as another way of hiding bad debt and reselling it. We all now know that Greensill Bank’s SCF solution was simply another sub-prime style scheme.
“So what’s your point?”
With no negative repercussions for the parasitic gamblers in our financial systems, they will continue to invent “products” just like sub-prime. Donald Trump has shown us that massive and repeated bankruptcies are a great path to wealth. When are we going to do something about it?
