Financial Engineering and Nana Israel’s wisdom

In the climb up life’s financial ladder, some people crawl, some walk and some jump.

When I was growing up, I had an uncle whose sole reason for living was to impress. He called it “show.” He had nothing much, yet had a high need to show off. The danger was that his showmanship was financed through unethical means. It was important for him to scream from any rooftop that he had arrived. Arrived where? Success-land, whatever he thought the onlooker perceived success to be. Periodically, he paid visits to the village cloaked in the appearance of success. And when he came, he really came – with flamboyant looks to announce his arrival in success-land.

Here is a description of the look of success. He wore “Bank Shoes” that I learned quickly are black polished shiny shoes, laced up for good effect. With the ground-level flamboyancy taken care of, he wore fine clothes – trousers and buttoned shirts and a coat – to complete the clothing ensemble. What really completed the loud statement of success were a large black suitcase and a bunch of keys that was not concealed in a pocket or the suitcase. Rather, the keys dangled noisily behind the back-pocket.

It was generally rumoured about that the individual in question did not have an office, or a real job. Yet, he self-described as a ‘Businessman’! My grandfather – the late Samuel Ansah Israel of Obosomase, Akwapim in the Eastern Region – described such people as thieves. From his deep sense of wisdom and well-informed vantage point, the keys, briefcase and businessman claim were buttressed on emptiness financed through unlawful means.

The more audit reports I study of the way Ghana is being managed (mismanaged?), the fresher the memories of my grandfather’s wisdom rushes down to the front of my memory. In this memory lane, I’m distrustful of bundle-key carrying folks. Although I love beautiful shoes, I shy away from wearing anything that looks like ‘bank shoes.’ But most of all, I flee when I hear of made-up professions like “Sanitation Engineer”, which is an upgraded ‘boola man’ or a Security Man who is your watchman of yesteryears with a uniform upgrade.

Enters Financial Engineering:

Is a Financial Engineer simply the modern-day equivalence of my grandfather’s perception of a Businessman as a common criminal, a mere thief? Not all that glitters is gold, right? Right!

This Financial Engineering nonsensical nonsense entered our national lexicon of professions at the close of last year. It was the professional address by which the senselessly humongous gargantuan financial bleeding of Ghana to the tune of GHc58,000,000 (or less/more?) occurred as reported in the Auditor-General Mr Richard Q. Quartey’s 2010 report. The carrier of the new profession is the now infamous but still filthily incredibly insanely wealthy Alfred Agbesi Woyome.

So my curiosity has peaked to understand what financial engineering is. Is this profession financial or is it engineering or it’s the engineering of finances? Or – is it the financial scheming of hard-core hustlers with pedigree?

One definition of Financial Engineering is: “The creation of new and improved financial products through innovative design or repackaging of existing financial instruments.” Investopedia explains that financial engineers “use various mathematical tools in order to create new investment strategies. The new products created by financial engineers can serve as solutions to problems or as ways to maximize returns from potential investment opportunities.”

Financial engineering is also known as computational or structural finance. I conducted an Internet search for academic programmes in financial engineering. The reputable Columbia University in the USA offers an MS degree in Financial Engineering. Here is the way Columbia describes its academic program.

It says, in part: “Financial Engineering is a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming. .….training in the application of engineering methodologies and quantitative methods to finance. It is designed for students who wish to obtain positions in the securities, banking, and financial management and consulting industries, or as quantitative analysts in corporate treasury and finance departments of general manufacturing and service firms.”

In short, financial engineering entails going beyond basic financial instruments and designing complex products that are tailored to specific needs. It’s like the difference between a trader who buys and sells tomatoes and a sophisticated trader who pays the tomato farmer ahead of time before the harvest season. If he predicts rightly that as a result of good rainfall, the crop yield will be higher, he can pay low upfront to the farmer and at harvest time, stands the chance of making more money than the straightforward tomato seller.

Oh, you’re confused, right? Right! This is exactly my point. Now do you see the depth of my grandfather’s wisdom about briefcase-carriers who wear bank shoes, dress well, have no offices but self-describe as ‘businessmen’? So let me break it down here with this loud ‘gong-gong’ message: There is no profession known as financial engineering oooo tong! It’s a course of study and NOT a profession.

My understanding of financial engineering is that a practitioner must have a firm grasp of finance, and ideally, be able to use the power of computers to manipulate figures. The engineering part of it is the wheedling, swindling and dealing, the ability to make something out of nothing. It’s the creativity and ability to contrive and concoct and make money by any means necessary.

On the lowest totem pole of society, most women have functioned admirably as financial engineers without making claim to a title. From time immemorial, our mothers have conjured meals for families with token or zero ‘chop money’ that in any jurisdiction, must be declared criminal. But then, out mothers our magicians! Unfortunately, no one honours them with trophies!

But the high-level big-shot financial engineer under discussion here was engaged in gargantuan deals. And oh, some synonyms of the word gargantuan are: huge, large, gigantic, enormous, vast, massive, colossal and immense. Tiny and miniscule are the opposites.

Any Lessons Learned?

One day one day, the corrupt instant gratification-seeking elites will sell Ghana for cheap and keep the change, and Ghanaians might not demand the change. Education bestows enlightenment. But for some, when the darkness wears off and they see a little light, they use it ‘nyafu nyafu’ for themselves to brighten only their corners instead of the dark corners of society. Greed can swallow up conscience.

Let’s face it: there are tricksters in the system who would not stop at anything to do Ghana harm because they do not care a hoot about the common good regardless of claims of super-Christianity. Pure Fire, Holy Ghost, St Paul, Evangelistic, Charismatic claims may just be pretence.

As a society, we don’t seem to ask enough tough questions so people can come to town, make some lie-lie claims and take us for granted. And we smile back. We use titles so loosely. Such a posture spells vulnerability. I’ve always wondered when some of our elite go to the backyard somewhere and re-emerge as Doctor this or Professor that and we quickly fall in line and address them by the titles with reckless abandon. That’s how come we quickly acknowledge some people as Luminaries, Gurus and now, Financial Engineers – no questions asked. Then they take us! Case closed!

So what if Woyome crosses the Togo border and leaves this sticky stinky matter behind? INTERPOL, right? Right!

The police, CP and others took from the national soup pot

Although the Auditor General’s reports are in the public domain, most of us never read them. I started paying attention to these reports last October when the German development organization – GIZ (formerly GTZ) engaged me to moderate a panel discussion of the Public Accounts Committee of Parliament and key stakeholders of the Central and Western regions on the A-G’s Consolidated Account of District Assemblies for three financial years ended 31 December 2007.  I shared some aspects of the report with you in this column. Ours is a systemic problem.

The report of the 2010 Auditor General’s public account currently on heat in public discourse is the Consolidated Fund – the large pot into which our money is dropped and taken out. The Consolidated Fund can be likened to the family’s pot of soup. When the soup is dished out, some family members get more soup and meat/fish than others. But periodically, some family members (and common criminals) wake up at night to steal from the pot by dipping their hands into the soup. The remaining soup goes bad. So we must protect the pot and all its content, and push for equitable sharing.

To move beyond the Alfred Agbesi Woyome matter, let’s look at some other equally nation-wrecking matters of dipping hands into our pot of soup.

Construction Pioneers chopped 70 million Ghana!
As raw cash goes, Construction Pioneers (CP) also received some obscene amount of judgement debts in five (5) bunches to the tune of GHc70,071,704.99 in the year of Our Lord 2010, much more than the Woyome takings. Yes, CP is a corporate entity and not an individual like Woyome. Yes, CP is engaged in a lot of construction works in Ghana. But why does it deserve to dip its hands into our national pot of soup?

A kalabule sanitation company took some:

A certain CCW Ltd. took away from our pot, a total of GHc9,000,000 in three loads as settlement against the Accra Metropolitan Assembly (AMA). On the surface, nine million Ghana cedis doesn’t sound like much. After all, what is the essence of a few drops of water when we’re discussing rivers and oceans!

But my research on CCW reveals stench. It’s a company that entered Ghana during the NDC1 administration as experts in sanitation. The hitch is that they really didn’t bring much that qualifies as money to invest. But in no time, contracts of local contractors were cancelled and Accra’s ‘boola’ management was handed over to CCW Ltd. Some equipment was purchased – with our loan. Long bizarre story…..the contract was cancelled during the Kufuor era. And, viola – Zoomlion was born!

My Internet search did not bring up this company. How can a major company that possesses hard solid balls and a good dose of impudence to sue Ghana and win nine million Ghana cedis and more (the 1^st judgment debt was paid to CCW in 2009) not be a company of any consequence and a player in the sanitation business on the Internet – the World Wide Web? Something doesn’t fly. This thing of taking loans to manage our waste for our children to inherit the debt doesn’t also fly well. Meanwhile, GHc9,000,000 later, the quagmire known as Accra waste management has not been resolved.

Police Brutalities cost us some:

Beyond the big money payments, citations of police and military brutalities, negligence and instances of power drunkenness of public officials cost Ghana a lot of money. There were instances of “Compensation for unlawful dismissal from Ghana Railway Authority”, “Official vehicle knocked down the plaintiff on the Nkoranza/Techiman highway leading to the amputation of the lower left limb”, and we paid good money “Mainly due to the negligent manner in which a demolition exercise was carried out by MOT.”

There were 13 cases in the report of police brutalities and show of power that resulted in settlements and financial loses against Ghana. Here are a few of such mentions: “Beating to death by four police officers at Tutuka-Oboase”, “Compensation to Kwadwo’s estate for his death through police brutality at Akim Ofoase”, “Compensation for the loss of life of S Danomah who was in a taxi cab when the police negligently fired into it,” “Subjecting suspects to severe beatings with belts and wires by the police at Gambaga police Station”, and “Compensation in respect of accident caused by a reckless police driver on the Nkawkaw-Kumasi road.”

The stories of police brutalities and recklessness is at once shocking and annoying, considering the fact that the institution is no longer known as the Police Force, but instead, the Police Service. Besides, the days of ‘buga buga’ policing must be over for after all, we’re in a democracy. But then, some of these police officers cannot spell democracy so resort to brutality! The cost of police brutality to the nation’s purse in 2010 amounted to GHc599,924.06. Imagine if this money had been put into the police single spine or the Titanic STX housing scheme!

In the 2010 Auditor General’s report is a story that has Asamoah Boateng (former minister of Information during the President Kufuor era) smeared all over it. You might recall the story of one Kojo Hodare-Okae. On 3^rd March 3, 2010, he was paid GHc237,558.85 as “Settlement of claims ….for wrongful transfer from GIS to GFZB.” Fascinating! If someone is transferred from one government agency to another (not fired), he could sue the same government of Ghana (his employee) and receive this much money?

Why is it that for the “Shooting by the police and military resulting in the death of an innocent person”, the family of Simon Narh was paid only GHc10,000? Is a transfer from one government organization to another more dislocating and painful than the brutal beating and subsequent death of an innocent person? I don’t understand the law but I can say for sure that something is just wrong with these two judgements. But then, life, they say, is not fair!

Ghana is at the excruciating receiving end of poor stewardship. She is not being taken good care of, as she should. She is our beloved, or must be because this is our country. Part of the content of a vessel cannot be in good shape while the vessel itself and its other contents are rotting away.

Apart from the raw cash that was given out to individuals and corporate entities, the report cites moneys that were not paid into the Consolidated Funds, the national pot. This implies that institutions prefer to tempt themselves by ignoring the large national family pot and instead, create their own small pots on the side. The total I added up is GHc16,523,367.84.

All in all, my position is that Ghana must stop going for loans. If we have enough in our national pot to be dishing out foolishly, then we must declare a time-out on loans and grants, clean up our acts and survive on what we have. Domestication at its best!

But in this public discourse on judgement debts, the one thing I’m itching to hear is a ‘boom’ speech from Flt Lt His Excellency former President JJ Rawlings. I believe he must be very disgusted. Please Sir, boom for us.