November 13, 2008
Recession? Raise Your Rates!
Here's a cheerful contrarian argument in The New York Times. If you're weary of all the miserable economic news, it's a tonic and a reminder that at least some of the gloom is in the perception and that there are always reasons to act positively, particularly if you're a small business owner.
October 23, 2008
McCain on Taxing the Rich
John McCain on taxing rich people. A must watch.
October 03, 2008
Women 2.0 on Staying Cool During Financial Meltdown
Topic of discussion and questions to pose include: how does the future for startups seeking funding, and what are alternatives to traditional sources of funding? Is this a good time to launch your dream venture? Event sponsored by SVB Capital.
Shai Goldman (Director for Venture Exchange, SVB Capital)
Rebecca Lynn (Principal, Morgenthaler Ventures)
Prasanna Krishnan (Associate, Draper Fisher Jurvetson)
Betty Kayton (CFO, high tech startups & early stage firms)
Greg Schmid (Director, Managing Uncertainty Group)
To register, click here.
October 02, 2008
Money as Debt
Money as Debt, a short film by Paul Grignon. To get you started, it starts off with: One of the last things John F. Kennedy did before he was assassinated was declare his intention to reform the central banking system of the United States. No connection between these two events?
September 24, 2008
I Have a Financial Dream
In Thursday's New York Times is a very useful story, the first story I've seen that actually digs into the investments of a particular firm, using numbers to explain the challenges of arriving at an accurate value for the homes underlying the mortgage-backed securities.
But I think we can do it.
I'm thinking about the country's response to the terrorist attacks seven years ago, and the mobilization of the private sector and citizenry when the governments failed us in Katrina. I lived in downtown Manhattan in September 2001. The way that we responded will stay in my memory more strongly than the attacks themselves.
You can't tell me that we would not be able to come to a fair valuation for most of these assets if it was the highest priority. We could supply enough credit in short-term no-interest loans to keep the oil in the financial engines for a week or two while we put the country on an economic war footing and flooded the housing markets with unbiased experts called on to serve, to come up with a fair medium-term value for every house at risk. Then feed that information up the chain.
A massive project, but doable, especially with modern information technology. This is the same country that 67 years ago totally transformed its economy to equip the Allies with the materiel required to win World War II. This country has so many great stories to offer the world - let's give it another one.
But it's not a high priority, because if we can actually arrive at a fair number, it's likely that the number will be too low for the financial companies' liking. The administration wants to be able to get away with buying assets from the firms at a price near the firms' most wishful valuations. Fed Chairman Bernanke said that we should be buying assets not at current value but at hold-to-maturity value, or what we think they might be worth when the markets recover.
That gets the financial companies more off the hook and gives them more money to put back into the credit markets (or, we worry, their pockets). An argument can be made that if the Treasury buys these assets at bargain prices the firms won't get enough cash to be able to recover. So then find some creative path, mix a sale package with loans that have repayment terms such that companies have a chance to recover and then re-pay the Treasury at higher rates down the road when the firms are able to profit on more sound risk-reward decisions.
This is a much more sensible way to "punish" the financial firms than to try to restrict or take back the compensation of the CEO's, which is understandable emotionally but can't be legal and would certainly lead to lawsuits that would drain energy and probably cost us all a lot of money. Don't banish the financial leaders to their villas in Grand Cayman. Compel them to become part of the solution.
There is an opportunity here not only to cleanse the markets of all the garbage from the last six years but in fixing the problem to choose a path that demonstrates a new and better way to mix government and the private sector, to pull us together, to make all of us richer in more ways than one.
How Stupid Do You Think We Are?
Imagine you have a cousin, Merrill, whose idea of an investment strategy is to go to the track with $100 of his own money and then borrow another $10,000 so he can bet on a horse called Five-Year ARM in the third race.
The horse finishes out of the money and your cousin's mortgage payment is due tomorrow. So he goes to collect a $10,000 debt from your other cousin, Bear, who unfortunately is coming out of a casino where he just left his last $100 plus another borrowed $10,000 on the blackjack table.
Bear's car payments are due, along with the first installment on yet another gambling loan. So they both go to your third cousin, Morgan the bookie. But along with earning an honest living he's made bad bets every NFL Sunday and owes his brothers about $10 grand each plus the next guy up on the bookmaking ladder a lot more than that. And this guy is calling your cousin Morgan on his cell phone as we speak.
Your cousins realize that there is no money left to borrow, so it's time to beg and steal. Merrill and Bear and Morgan march to your Dad's house. They tell their Uncle Sam that unless he takes on their debts that his nephews and grandnephews and grandnieces will all die or be killed, that the family as he knows it will collapse.
Your Dad says, "Sure, boys. Let me talk to my boy John Q."
Your Dad calls and says, "You need to bail out your cousins."
"Why, Dad? Did some tragedy befall them, some hundred-year financial flood? Was there a quantum exception to the laws of risk-reward or supply-demand? Were they true and just in their actions but fell upon unforeseeable hard times?"
"No, son. They just thought they had a chance to get a lot of something for next to nothing and now they're broke without anything even a pawnbroker would want."
" Not sure I can do that, but I'd like to help. What do they have as collateral?"
"They don't have any assets?"
"Yeah, but there's no way of knowing if they're worth anything."
"Sounding better all the time, Dad. Well at least I might be able to buy cheap and make a profit if things turn for the better."
"Not exactly. They want to value them on the high end if you're going to pay them off, and then if there's a market for them later they want to keep the proceeds."
"So you're saying that if their assets are worthless I should pay them and if they are worth something I should pay them. And they keep the assets. I'll just take responsibility for them and they'll collect the dough."
Would you say A.) Sure, Dad. It's only fair and there but for the grace of God and a few brain cells, a conscience and a bottomless margin account go I. Or B.) Um, no. Blood may be thicker than water but it ain't dumber.
Your government is hoping you'll go with A. Oh, and they expect that you're ok with adding six to twelve zeroes to the end of those numbers.