March 11, 2016PlantPress

Hamburger trust metaphor

  • Hamburgers – not just tasty, also helpful

Let me give you the hot tip – I have a toolbox full of acronyms that someone has read out to me from a Microsoft Powerpoint, in Calibri size 14 font, with a soothing corporate gradient footer plastered across the bottom – and I can’t remember what any of the letters stand for. Yep, CPORTS, 5 P’s, 6 P’s, AID, SMART etc. they’re all in a metaphorical toolbox that lives in the dark recesses of my mind and I have no idea what they stand for, or even what some of the concepts they’re related to are. Give me a good metaphor or analogy any day to help understand a concept or just make sure it stays present in the common body of knowledge I draw on without having to try to remember.

So when I clicked on an article by Daniel Roth, the Executive Editor at LinkedIn this morning and read this little gem by Dr Mohamed El-Erian I had to share it. It’s a great metaphor to why the banks didn’t trust each other in the 2008 GFC:

“In California, we have the most efficient McDonald’s and Burger Kings. You drive up in your car, the minute you order a stopwatch starts and within 30 seconds to 45 seconds, you’re out of there. Why? Because the system assumes that you are willing to take a risk. You order, you go to the first window, you pay, and then you go up 10 yards to the second window and you get your Big Mac.

Here’s what happened in 2008: Imagine you’re the person and you go to the first window and they say, “It’s going to be five dollars.” And you’ll say, “Fine, where’s my Big Mac?” And they say, “It’s 10 yards.” And you say, “I don’t trust those 10 yards because I heard what happened to Lehman. People lost money on this. I’m not going to give you my money unless you give me my hamburger.” And they say, “I’m sorry the system is built on the assumption that you will trust that.” So what happens? You go away hungry even though you can pay for it and at the next window, they throw away the food even though they have it.

That is what happened in 2008. It was a great kind of what’s called the Payments and Settlement. You pay and then you settle. Today, that is not a risk. The central bankers have realized that the Payments and Settlement system, if it fails you’re talking about a global depression. The risk is different.”

 

It’s a great metaphor to help explain and remember an important part of Chapter 1 (which hopefully you’ve read now) in Martin Turner’s ACCT11059 course :

“Trust underpins all of business. We saw the importance of this in the global financial crisis (GFC) in 2008. When banks stopped trusting each other because they could not assess the risks in each other’s businesses they stopped lending to each other.” (Turner, page 11)

The paragraph explains the foundations of trust in business and the role of double entry accounting as a mechanism or medium in which equity owners can trust a firm in which they have entrusted their resources.

Follow Mohamed El-Erian and Daniel Roth on Twitter.

Note: I’m sure acronyms are really helpful to some people – they just aren’t for me. What kind of techniques or tricks do you employ to help you remember or understand something? I’d love to hear from you in the comments.

 

image credit: Juno MacGuff (actor Ellen Page) in the movie juno (2007), directed by Jason Reitman and written by Diablo Cody

13 comments

  1. Brilliant post – that is exactly the message. Trust is central to business. And this concept of trust in business is embedded in accounting. It is, indeed, the reason for double-entry accounting … debit (to owe) and credit (to entrust) … this trust relatonship is at the heart of the accounting model or view of business.

    And I just love the Macca’s/Burger King version of the GFC.

    Trust is central to everyting in society. It is amazing how much we trust every day, in so many ways. And business is embedded in so much of what we do in society.

    And trust is so fragile.

    I’m really enjoying your blog.:)

    Martin

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    • Thanks Martin, I appreciate it. And I’m enjoying your writing too – it really makes concepts easier to remember. Also, loving my company – Oroton. I have lots of their products unfortunately I didn’t bring my favourite jacket over from Perth because its a bit useless in tropical Mackay! Look forward to working with them this semester.
      A.

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      • Amy,

        I love ‘stealing’ ideas from students in our courses, particularly analogies people find help them understand some of the concepts, and incorporate them into the readings.

        Quite a few of the analogies have found their way into the study guide this way.

        So many analogies … the Kinder Surprise analogy when we look later at the difference between operating and financial activities … and many others … have been analogies students used to help them understand and explain some of the key concepts in our course.

        My dream is that eventually the Study Guide will have been written by past students, a sort of wikiaccounting … 🙂

        I think your hamburger is definitely finding its way into the Study Guide… hehe.

        And I hate to tell you this, there are a lot of acronyms to come in our course … a real lot of them! Not acronyms to use as a memory aid, just a short way of referring to some concepts.

        But I will be giving out a glossary to help you decipher them …

        Martin

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      • Hi Martin,
        Wikiaccounting sounds like an awesome idea. Might download a brain training app to help get my memory in shape for the acronyms.. Or better- hopefully other students will come through with the goods (questions) on Peer Wise!
        Amy

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    • Hi Martin,

      I have really enjoyed reading your blog. I really did not like accounting earlier but after studying this course I have really improved my knowledge and learned about accounting numbers. I am learning about my company, Global Construction Services and the kind of business operations that company is involved in. I feel reading the blogs of other students and sharing ideas has allowed us to learn from each other.

      Warm regards,
      Yin

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  4. Hello Martin, I like how this course it put together on Moodle, the best I’ve seen so far. It looks like you put a lot of thought and work in it to make live for students easier. Everything is well sorted and good explained which makes it easy to follow especially if you are new in the accountant world. Thank you!

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