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What happens next?  'Dubya', Gordon Brown, Hank Greenberg, Warren Buffett, and the crazy guy on the street corner all seem to have about the same insight. Well, maybe not Warren Buffett - because he's the only guy who's buying. But everybody else is stymied.

      Looking facts squarely in the face - not Dubya's strongest point - some people had been warning, five years ago, about the idiocy and foolishness of sub-prime lending. Others rang alarm bells about the new-fangled investing process of 'bundling' of financial packages; valuing these bundles as brand new real assets; and then selling them - and others buying them - as if they were real. These people were warning that investors and banks - and accountants - should hold on to reality and not keep on trying to dream up and create new forms of financial wealth.

      Those big CEO's and CFO's, surfing on the crests of waves of rapidly rising stock prices, really did get to thinking that they were 'masters of the universe' and could simply ignore plain old-fashioned commonsense. Now with big banks crashing, big investment houses falling, and big insurance companies tumbling into the dirt of near financial ruin; the whole world is witnessing and painfully experiencing the return of plain old commonsense!

      Here in Bermuda, we're getting our first dose of it with the Continental Airlines staff firing and out-sourcing.

     Continental Airlines has to survive. To survive, its expenses must be less than its revenues. If, keeping expenses down means Continental must dump staff, then Continental will dump and some Continental staff will lose jobs. It's either that or Continental itself goes belly up and all - not just some - employees lose their jobs.  Remember ZOOM and Lehman Brothers. All ZOOM and most Lehman Brothers employees lost their jobs.

     Within Bermuda's tight little niche economy, the impact of this global meltdown could be felt in a rather curious way. Two ways, really.

      The first is at the top end. The high pay, high skill end.

Downsizing

Here, if economic conditions mandate downsizing, then given the combination of Bermuda's Term Limits policy; the difficulty, complexity, and time lags involved in recruiting from overseas; the incidence of high-end expat workers in Bermuda; those businesses who employ these high-end expat workers may find that a particular process works best for them.

       One, evaluate the importance of each employee in relation to the corporate objective. Two, determine what kind of down-sizing is necessary. Three, weigh the complexity and time lapse factors involved in dropping and then later re-hiring expats against the more instant availability and replace-ability of Bermudians. Four, make a corporate determination regarding the corporate sense of dropping instantly available Bermudians as opposed to dropping less available expats.

      Thinking through, it would appear that in Bermuda's overall banking and financial sectors where high skill-sets are required; where business conditions mandate some element of downsizing; and where skill-sets match; the best corporate answer would appear to be to drop Bermudians first, expats second.

      It makes complete business sense and it isn't discriminatory. It's just an unintended consequence of the workings of our national rules as they mesh with the absolute laws of economics.  

      At the other end of the pay scale, the 'global pay' factor is supreme. Here, expat workers from Lesser Developed Countries [LDC] predominate and this creates a different dynamic.

     Businesses employing LDC people can offer a reduction in wages in lieu of laying-off or being returned home. However, the LDC worker can easily deal with a 5% or 10% pay cut by working extra hours. But, even if he cannot recoup losses by working extra hours, the financial hit is not as great as it would be for a Bermudian in the same pay grade.

      That's because every dollar saved and sent home by an LDC worker is worth five to fifteen times as much in his home country. This means that if an LDC worker accepts a pay reduction, he might send home only BD$8,000 a year instead of BD$10,000 a year.  But when that BD$ converts to his home currency's buying power, he will be sending home 800,000Sri Lankan Rupees instead of 1,000,000Sri Lankan Rupees.

     In Bermuda, a two-bedroom condo costs about BD$700,000. In Sri Lanka, a decent  middle-market three-bedroom house costs the equivalent of BD$55,000. So you can see that one BD$ sent home can buy what twelve BD$ would buy in Bermuda.

      So what will LDC workers do? They'll grumble, but they'll stay and work on.

What will a Bermudian do? He'll scream, cry, and bleed. He'll bleed because with Bermuda prices rising in the same way that Stock Markets are falling, he simply cannot afford a pay cut. But his alternative is no job at all!  So, he'll scream, he'll cry, he'll bleed; but he'll work on. Again, it's just another unintended consequence of the way that Bermuda's real economy really works.

Trouble is, not too many Bermudians really understand how much Bermuda's national economy has changed and how it really works. As this global meltdown - this "perfect storm" - continues, we'll learn.[[In-content Ad]]

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