Posts on economics, wall street, and general money matters. The laws of supply and demand are a lot like the laws of gravity... you don't have to like them, but you really should understand them. I read a lot of books on economics... I'm still waiting for a really good one.
CMS Report has an interesting rant about micropayments, and how they never got off the ground... many people have tried to convince me to pay a quarter or a nickle to view their online content, but I've never done so. Every few years, somebody comes up with some master plan based on the theory that "this time it's different!!!" But sadly -- and totally predictably -- they failed.
Why don't people pay for news? Because the most powerful word in marketing is "Free." No matter how little you charge for "quality" content, if somebody else is offering a reasonable substitute for free, you will always lose.
The latest "big idea" in this history of failures is Rupert Murdoch's attempt to charge for their online content. Some folks see Apple's new iPad as a game changer here, perhaps shaking up the market and getting people to pay for quality content. I'm skeptical... Yes, the iPad is pretty, and yes it is probably the best possible platform that "paid content" could ever hope for... but that doesn't change the economic realities.
Yes... the Wall Street Journal's articles might be exceptional... they might be light years better than what you can find for free on blogs and Bloomberg.com... but how can Murdoch prove to a skeptic that "paid-for" content is worth the extra cost? Unless they give away the whole article for free, nobody can judge it's quality. Also, just because one article was great, does not mean future articles will be great... Finally, if it really is a great article, people will blog about it, or editorialize about it, after which I can find a decent summary elsewhere.
People just don't have much brand loyalty to information sources anymore... Whoever gets it to me in the way I want it, will win my loyalty for today... but once you're boring, or ask me to login, or ask me to pay, then I might take my eyeballs to one of the other bazillion sites out there.
News is a commodity, and therefore subject to the economics of commodities. There is a little bit of profit in their creation, but much more in their distribution. In the past, the newspapers owned their distribution channel: printers, packers, delivery trucks... heck, the New York Times even owns their own forests and paper mills! The majority of their expenses are spent maintaining their distribution channel, not in paying people to write quality content.
Rupert Murdoch whines very loudly that his content is valuable and Google should have to pay to spider it... what he's really saying is that he's mad that the internet has made his distribution channels less profitable. If Fox truly cared about creating "quality content," they'd probably drop half their sitcoms.
Is there a way to save newspapers? Sort of...
Obviously, companies with good content need to get into the new distribution channels if they want to survive. The NBC/Comcast merger is a good example... although as a consumer I'm not a fan of so much power being in one single entity. I hope other companies get into the residential high-speed internet business so we have more competition... I'm happy to see that Google is getting into the residential ISP business, and I hope to see more competition soon...
In other words... The New York Times and the Wall Street Journal will survive... but their distribution channels will not. The sooner they get out of the dead-tree-scattering business, the better!
A friend of mine was on a flight a few years back with a Business Process Management (BPM) expert, who had done a lot of consulting for various car companies... the fellow told an interesting tale about how one single bad business metric made him swear off GM cars forever... and it just might be a major reason for their downfall.
The business process seemed innocuous enough at first glance... GM wanted to control costs on their auto parts. So, the process stated to test every auto part, and look for the most expensive parts that were the most reliable. Next, ask suppliers for a cheaper version of that part. Sure, the cheaper version of that part might fail more often... but so what? These are the parts that were severely over-engineered. You don't need space shuttle quality parts in a minivan... so what's the harm?
Notice the problem? If not, don't worry... neither did the millionaires who ran GM.
Now, consider how a rival car company dealt with the same problem. They would also run tests on every car part. They would also keep metrics on which car part failed the least, and which failed the most. However, they did very different things with the data. The rival company took the parts that failed the most often, and either demanded higher quality versions, or searched for a new vendor. Sometimes these changes would increase the price of the part, sometimes it would decrease.
Now do you see the problem? Each business process had an overall side-effect to the quality of the cars produced. As rival companies made their cars more and more reliable, GM was making theirs less and less reliable! Instead of focusing cost cutting on the overall finished product, they decided to tie cost cutting directly to making lower quality cars!
After realizing this, and being completely unable to get anybody at GM to change their metrics, the gentleman decided to swear off GM cars forever...
Peter Senge warned about similar problems 30 years ago in his famous book The Fifth Discipline. Side effects, negative feedback loops, and simple delays in cause-and-effect can wreak havoc on any business process you put together. No matter what your metric, there is always a case where a "good" result is a very bad thing... The key is to try to predict how that could be possible... otherwise, by doing your job better and better, you just might be dooming your company to mediocrity.
Naturally, its probably unfair to blame this all on one single business process. There are also the armies of people asleep at the switch who should have done something to correct it. Unfortunately, the folks who design the business processes are usually unable or unwilling to accept this harsh reality... and if they are politically powerful, bad processes remain. This is why we need "nice" tools that help gather information about these negative consequences that are outside of the model, and make it clear that its time to change...
That's one of the stated goals of Enterprise 2.0 tools... but even they can't help you unless you first try to build up trust and camaraderie in your company. Only then is it easy for people to accept the harsh reality.
People have a tendency to behave differently when they have insurance... they are a tad more careless than they should be, because its suddenly "somebody else's responsibility" to pay when things go wrong.
Auto insurance? If somebody scratches your car the insurance company has to pay for the paint job... even if you yourself scratched your paint job a dozen times prior to that. Theft insurance? Maybe you care less if somebody steals your 3-year-old computer, because then you get a new one. Health insurance? Well, then you might demand a CAT scan for every headache, an MRI for a sprained ankle, and expensive drugs instead of just taking a walk once in a while...
If "somebody else" is paying the repair costs, people tend to stop taking care of their stuff... This is what economists call adverse selection, and its a common reason why insurance is more expensive than it should be...
As we move towards health care reform in this country, a lot of people are concerned about this kind of behavior becoming more widespread. We need some kind of system that prods people into being more responsible with their health, but it cannot be coercion, nor can it be preachy nagging. This is the paradox about us: Americans love telling people what to do, but we hate being told what to do.
My solution? Bribe people to stay healthy. It sounds silly, but similar projects have shown promise for different kinds of insurance...
Take a classic case of unemployment insurance. In general -- and barring a widespread economic downturn like today -- most unemployed people find work within the first 2 months of being unemployed... even though they are receiving unemployment benefits. After this, there really aren't many people who get jobs in the 3rd, 4th, or 5th month of unemployment. That's because unemployment insurance lasts 6 months. At the last moment -- right about when the free money dries up -- there's another huge surge of people getting jobs.
In the 1990s, there was something called the Illinois Reemployment Bonus Experiment, where unemployed people got a bonus for getting a job within 60 days. Instead of waiting around for 6 months, most people worked hard to get jobs in 60 days, just to get that bonus. About half of them applied for different jobs with their previous employer. Overall, this decreased the costs of insurance, because they didn't have to pay the extra benefits for the other months. Critics say it could use some more fine-tuning -- many people quit the new jobs right after they held it enough to qualify for the bonus. Nonetheless, they proved their point, and saved a lot of money, despite the cheaters.
Why not try similar experiments with health care? How about instead of wasting money on preachy public service announcements that never work, you give $500 to anybody who quits smoking? How about a $1000 bonus for marathon runners? How about if your health care costs are significantly below average, and yet you still qualify as "healthy" in an annual physical, you get a little bling? How about on your income tax return, you can get a deduction of 300 minus your blood cholesterol?
Naturally, I'm not a doctor, nor an insurance guru, nor a biostatistician... and my friends who are experts seem divided on whether this will work. There are problems with setting the right "bribe," caching cheaters, general fairness, and a feeling that genuinely sick people shouldn't be doubly punished. All valid points, but I'm not talking about individuals; I'm talking about the aggregate.
All I know, is that if we have universal health care -- in ANY form -- there will be no direct economic incentive to stay healthy. Given how generally unhealthy Americans are already, and how we like to overspend on doctors, that's a recipe for big financial problems. I know people "should" just stay healthy because its the "right thing to do," but we also all "should" eat 5 servings of veggies per day. We don't, because the payoff is too vague.
But what if your health insurance provider gave you $500, if you could prove you ate broccoli every day?
I would bet anything that a lot more people would suddenly become more interested in their health...
This is a pretty good visual analysis of the credit crisis... its 10 minues long, but it explains everything better than anything else I've seen:
Like playing hot-potato with a timebomb... Overall, this is very good, but it is missing answers to the following:
- What amount of leverage did banks have in the past? The 100-to-1 ratio of credit-to-cash is a bit of an exaggeration... Investment banks and lending banks used to be legally separate entities. Lending banks were careful with cash (10-to-1 leverage), investment banks were free-wheelers (30-to-1 leverage). When Clinton repealed the requirement that they be separate, dangerous levels of leverage were inevitable... but it never got as bad as 100-to-1.
- Why don't people understand that homes are HORRIBLE investments? The common wisdom that being a homeowner was a good idea only worked because of the demographic shift of the baby boomer generation. Suddenly there were a bunch of well-off families that wanted a home, and demand exceeded supply. This drove prices up, and fooled people into thinking that home ownership was a good investment. Home ownership in America will never be that great of an idea... unles we all have tons of kids, we import a lot of immigrants, or your local area has an equivalent demographic shift of new people.
- Why did Greenspan steadfastly refuse to raise interest rates, when the economy was clearly overheated? He himself said Wall street demand for bad mortgages drove the financial crisis... He could have stopped all of this if he raised interest rates in 2004. Why did Greenspan do absolutely nothing useful when he was in charge? A bowl of soup would have done a better job...
- Where were the credit ratings agencies in all this? The only reason sane investors purchased these crappy bundles of sub-prime mortgages was because folks like Moody's and S&P claimed sub-prime mortgages were "safe." If it weren't for the idiotic ratings agency, everybody would know it was a time bomb, there wouldn't be much demand for them, and we wouldn't be in this mess. These folks should be fired, and legally barred from from doing any job that requires math.
- What is the size of the "credit default swap" market? The last estimate was about $44 trillion dollars: more than all the money in the world! The only reason Wall Street used such odd terms was because if they called it "insurance," then it would be regulated. Some government official would have audited their books years ago, and said "hang on a minute, you don't have enough cash to repay your obligations if something REALLY bad happens. You can't sell this anymore!" In effect, folks like AIG made "promises" to repay people if their stock market investments lost value... but naturally, AIG didn't have $44 trillion dollars in cash to cover all their promises... selling insurance when you cannot pay claims is FRAUD, thus every executive at AIG belongs in jail.
- Finally... why do all sub-prime mortgage owners smoker cigarettes???
This is a pretty concise presentation about the stock market... it puts the current downward swing into perspective:Get Rich Slowly)
I've been reading a lot about economics and finance lately... Retirement planning gets a lot more complex when you run your own business! In any event, I've learned several things that made me highly skeptical about commonly held advice about retirement savings plans. In particular, I now believe that nobody should ever invest in a Roth IRA. This probably goes against what a lot of financial planners say, but I have my reasons.
Why? First, lets go over the differences:
- Traditional IRA: This is a pretty good deal... these let you purchase mutual funds of stocks and bonds, and take a tax deduction when doing so. Your money grows tax-free while its in the fund. At age 59.5, you can take money out of the fund without penalty, and you pay federal taxes on it as income.
- Roth IRA: This is a relatively new idea... identical to the Traditional IRA, except for two things. First, you cannot take a tax deduction when you put money into it. However, since you paid taxes up-front, you can take money out of the fund, and not pay taxes on it! Wow, sounds pretty good, huh?
For example... let's assume some dude named Bob Lemonjello is 30 years old, and puts in $5,000 per year into a IRA. This is the current maximum Bob can put into his account. We could assume a reasonable 8% growth over the next 30 years, yielding a total of about $610,000 by retirement. If Bob did this as a traditional IRA, that $5000 would be tax-deductible every year... saving him about $50,000 in taxes before he retires. Not bad... but when Bob takes out money from your IRA, it will be taxed... so the government will probably get $150,000 of his nest egg.
If Bob instead did this as a Roth, he wouldn't get a tax deduction, so he'd wind up paying approximately an extra $50,000 in taxes during his working years... but then he has $610,000 of tax-free cash! Woo hoo! The government can't touch a dime of that! Even better, he could have a traditional IRA, then do a rollover immediately before retirement. Sure, he'll have to pay $50,000 in back taxes when doing the roll-over, but for that $50,000 investment, he gets to avoid paying any taxes on his $610,000 nest egg!
Bwa ha ha ha ha!!! Bob is free... FREEEEEEEEEE!!!
I have one question: does anybody actually believe that the future US government would let Bob keep his Roth money, and not make him pay any taxes on it? Does anybody actually believe that the US government will never change the tax laws, and that they will sit idly, and not demand a piece of that easy money?
Reality time: Roth IRAs and Roth 401Ks are amazing tax-free investments, which have become wildly popular amongst people in every tax bracket... which is exactly why future governments will not keep their promises.
Let me remind you... until 1983, Social Security benefits were considered tax-free income... then Ronald Regan signed a law which made half the recipients pay taxes on their benefits! Bill Clinton later boosted it, so that 85% of Social Security recipients pay some kind of income tax. Face facts... When a government wants money, it will find clever ways to tax you. They will be called "Roth Withdrawal Fees," or "Conditional Rollover Fees," or just plain "We got all the guns! Gimme Gimme Gimme!"
The entire benefit of the Roth IRA rests on the belief that the government won't change the tax laws. I for one have zero faith that the government will keep their promises about the Roth. If you want the sure thing, go for a Traditional IRA. This has an immediate tax deduction at exactly the moment when you are in a high tax bracket, along with tax deferred growth. You'll pay taxes when you take money out, but in retirement you'll almost certainly be in a lower tax bracket.
So what do you think? Will the US Government keep it promises? If the tax laws change, will a Roth IRA be worse than a Traditional IRA?
I was just watching Ford's CEO Alan Mulally on CNN... Ford is actually doing fairly well, and doesn't need much of the bailout money, so a lot of people were confused about why he would stick up for GM or Chrysler went bankrupt. At first glance, you think it would be great if your competition went bankrupt, because then you could gobble up their market share... but Ford was actually very concerned.
Initially, I suspected something of an old-boys-network thing. Mulally is sticking up for other Detroit car companies, simply because they need to stick together if one of them needs to go to Washington to ask for help against Japanese or German car companies... so it might be just cynical, political self interest.
Mulally's explanation was oddly different...
He stated that the majority of the auto industry is in the suppliers, not the auto makers. Since all auto companies use the same suppliers, and suppliers are hurting as well, then one bad company puts the whole thing at risk.
For example, if GM goes bankrupt, then Delphi might go bankrupt, and not be able to supply parts to Toyota, Ford, or Volkswagen. That puts them all at risk if a company as large as GM goes bankrupt.
What shocked me was that during the interview, Mulally called his own company an "original equipment manufacturer!" This is a common term in both software and manufacturing, usually shortened to just OEM. It basically means Ford doesn't manufacture anything; it wraps pre-manufactured products with its own brand. They don't make engines, doors, wheels, brakes, transmissions, or pretty much anything anymore... they just slap together other people's stuff, put the word "Ford" on it, then sell it through their distribution channels.
I was wondering how long it would take them to admit this... and how folks would react... The CNN guy just brushed it off as "auto company speak," so I don't think they actually understood what Mulally meant.
Cringely brought this up a few weeks ago in his article What if Steve Jobs ran one of the Big Three auto companies? He suggested the same thing... Car companies should act more like Apple: let other companies do the dirty work of creating the "parts," then focus the big 3 on design, sales, marketing, and customer services. The whole article is very good, I recommend reading it.
Hearing Mulally openly admit that Ford is nothing but an OEM is very telling... and it gives me hope that some folks in Detroit "get it," and might actually be able to turn around the industry... but it might take a while longer for the folks at CNN to "get it."
There have been millions of technological innovations since cave men first invented the wheel... many of them -- such as the printing press, the sewing machine, and the robot -- have put people out of a job. However, it is completely illogical to state that technology eliminates jobs. If that were true, then 10,000 years of innovation would mean no jobs left on the planet... The relationship between technology and jobs is much more complex than that.
Put simply, innovations may be disruptive, but they can never replace a human who actually gives a damn. This may be difficult to believe -- especially if you recently lost your job because a robot/computer could do it faster... but innovations don't fire people; managers fire people... and both labor and management use technology as a scapegoat.
Here's my theory on how this all works:
- For better or worse, the majority of people are motivated by economic means. Not entirely, mind you, but significantly... and everybody would prefer to have more money if possible.
- The primary thing that keeps an economic system growing and creating new wealth is increased worker productivity.
- Technological innovations make workers more efficient.
- This means a short-sighted employer can purchase new technology, lay off workers, and maintain existing production levels... however, this trick is easy for the competition to replicate, so its a terrible long-term solution.
- Alternatively, workers could learn how to work with new technology, and become phenomenally more productive than just technology alone. This is difficult for the competition to replicate, because it relies on a culture of training, sharing knowledge, and institutional learning... so its a great long-term solution.
- Therefore, employers who use new innovations plus retrained labor will always be more competitive, and the first to find and cultivate new markets.
- When this happens, overall worker productivity increases, and more wealth is created for everybody: investors, innovators, managers, and workers.
Scribes lost their jobs when the printing press was invented... but cheap books created huge demand for new kinds of books, and the printing industry boomed. Tailors lost their jobs when the sewing machine was invented... but cheap clothes created huge demand for new fashions, and the clothing industry boomed. Naturally, this doesn't always work for low skilled workers, and all this amoral capitalism is painful for people who lose their job... so a smart government would provide its citizens with temporary unemployment pay, education, and jobs programs to help them through the disruptive phase. But, that's a blog post for a different web site ;-)
This same rule applies to knowledge workers... don't think of them being "replaced" with software, think of them being "empowered" by software.
I am personally highly skeptical about "Enterprise 2.0" software that claims to help people effortlessly find content, seamlessly connect with people, and make effective business decisions as a "crowd". That's not to say these tools have no value... but they are no replacement for people who know what they are doing, and have a desire to get better at it.
Neither Wikipedia nor Google can replace people who intuitively understand a subject, and can weed out "false" information from the mountain of badly written presentations, reports, and blogs... Neither LinkedIn nor Facebook can replace the people who genuinely love connecting with thousands of friends, staying in touch, and helping people out... And nothing, nothing can replace a manager with leadership and consensus building skills. All these people have a genuine talent for discovering useful information, connecting people to each other, and managing a group.
If you have talented employees, you can never replace them. If you don't have them, then software is a stop-gap solution; not a substitute. Technology can only raise the bar a little... ordinary folks will use technology to become slightly better than average at a task... but those with talent can use the exact same technology, and leave everybody else in the dust.
President elect Obama announced parts of his economic recovery plan in his weekly "radio" address. There are a lot of good pieces to it that should help America's down economy, and some that will be a huge boon for the Enterprise Content Management industry:
In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet. That is why the economic recovery plan I’m proposing will help modernize our health care system – and that won’t just save jobs, it will save lives. We will make sure that every doctor’s office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.
Gee... Obama says medical records should all be electronic to help save the economy? I agree! And there's nothing like a presidential endorsement to boost your industry, eh?
Many ECM experts have been preaching this for years... in fact, a lot of them have recently reminded folks about how much hard cash you save with a coherent, electronic, information management system. Just recently, over on the AIIM Blog, John Mancini's most popular posts are all about using ECM to cut costs. Oracle recently started their Survive Or Thrive with ECM web conferences, which give hard data from customers about how ECM made them more efficient. There should be one or two per month for a while... The presentation by Emerson Process has some especially useful statistics for Return On Investment.
Aside: I know some free-market fundamentalists hate the idea of government spending, but this kind of initiative is necessary. The economy is in the early stages of a deflationary spiral... which makes banks are scared to loan cash, consumers hesitant to spend cash, and debtors without cash will find themselves deeper in debt. Deflation may be a good thing for gas and house prices... but the spiral soon forces business to sell products for less than the costs of production. In order to stay in business, they are usually forced to lay off workers...The best way to stabilize deflation is for the government to purchase a wide range of commodities.
This month, there is a great article in Forbes about deflation... what are its risks, and how to we stop it? Instead of throwing money at banks and wall street, the best option is for the government to purchase glass, steel, concrete, computers, light bulbs, and stuff like that. This drives up overall demand, which reduces supply, which stabilizes prices, and ensures businesses don't have to lay off workers.
The Forbes article questioned whether Obama could launch an initiative of sufficient size and usefulness in time... but I'm hopeful, because everything Obama proposed -- make government building more energy efficient, launch a large-scale broadband initiative, repair broken school buildings and bridges, and force municipalities to "use or lose" their federal grants -- all sound practical and swift. The government will soon be buying up a bunch of commodities, and using them to make America more efficient. This will create new jobs, stabilize prices, and get the economy going again. More projects are needed, but this is a promising start.
The potential extra business for my industry is just an added bonus ;-)
James had a curious post about the Wall Street meltdown... and how some of the blame lies with bad programs from IT.
Did you know that a significant portion of all trades executed by Wall Street don't have human intervention and are submitted by computers? Did you know that you can write your own trading algorithms and put computers directly in the NYSE data center to avoid the latency of network hops to make your bad programs execute even faster?
Would we have had a subprime crisis if Wall Street banned algorithmic trading? The notion of Quants has the ability to take a bad situation and make it even worse. More importantly, many used quant strategies as a way to hedge their other bets but never considered that the logic behind the programs might be flawed...
Interesting thesis... but I think James is asking the wrong questions.
The problem was not in the software, or in any of the algorithms that IT implemented... The problem was inherent in the financial models themselves. The IT folks simply implemented those models... and the software programs were simply dumb agents that did exactly as they were told.
Now... if we banned computers from trading, would we have avoided this problem? Absolutely not. If we banned computers, then the financial "wizards" who got us into this mess would simply use different "dumb agents" to do their bidding... in other words, stock brokers.
Back in the 1980s, there was a classic book on how Wall Street was completely crooked... called Liar's Poker. It was an autobiography of a stock insider. The author was right out of college, and was paid huge sums of money to give stock advice to millionaires... despite the fact that he had neither the training nor the desire to do so. Recently, the author came out with an excellent article on the sub-prime mortgage crisis, and the few folks who saw it coming... it was utterly chilling to read how reckless, irresponsible, and deeply stupid some wall street financiers were. They weren't just liars; they were idiots.
For example... one huge reason why this crisis came about was because people were turning risky sub-prime mortgages into bonds. Not a bad idea... but somehow they would take a collection of highly risky BBB loans, smash them all together, chop it up, and claim they were now ultra-safe AAA bonds. The entire point of bond credit ratings are to prevent this kind of crap... Since a BBB bond is high risk, it usually pays a large interest rate. In contrast, since AAA bonds are "safe," they pay a low interest rate... so if you could claim a BBB bond was AAA, your fake AAA bond would pay a much higher interest rate than actual AAA bonds, and thus be in huge demand... you would make a killing, and it would create pressure to make more and more of these sub-prime mortgages, just so you could sell them as fake AAA bonds. Just like Alan Greenspan said, the "demand for paper" drove this crisis, because Wall Street demanded that lenders lower their standards, so they could get more crappy loans.
It was a complete and total con, and the guys from Marketplace have a great video describing how it worked. But what was more shocking was how the ratings agencies went along with the scam. Naturally, you can't just claim your crappy bonds are rated AAA, any more than you can claim a R-rated movie is a G-rated movie. No... you have to get the bond ratings agencies (Standard & Poor, Moodys, etc.) to agree that you bond is AAA... essentially, the bond rating agencies didn't do their job:
[Moses Eisman] couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to [mortgage] default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative [growth] number. “They were just assuming home prices would keep going up,” Eisman says.
In other words... The frigging ratings agencies were using financial models that assumed that house prices would never drop in value.
Whiskey. Tango. Foxtrot.
Wall Street has been flying blind for the past 2 years. Its a mistake to blame automatons for this... the blame rests squarely on the deeply stupid people designing these models... and the equally stupid people who refused to regulate the markets.
Author and entrepreneur Tim Ferris has been contemplating how to invest his millions... he put together a pretty nice post on rethinking "common sense" investment rules. He even quoted some advice I gave him a while back... Happy to be useful, Tim ;-)
Since he's looking for still more input from the lunatic fringe on the 'net, and he's a bit risk-averse, I thought I'd share the most important piece of advice to new investors: THE STOCK MARKET IS COMPLETELY RIGGED.
This is basic human nature. Any time there is a financial incentive to cheat, people will cheat... and insiders know both how to cheat, and how to stay out of jail. I've read a fair share of books about how hedge-fund managers make their millions... It goes something like this: barely legal bribes for barely legal insider information. Most of our current financial woes are because of Wall Street cons that outlived their usefulness, or went too far.
Does that mean its hopeless? Nope... you just need to know how to make money on a rigged game. This means you need to take a hard look at anything that is currently making money (even index funds), figure out how somebody could rig them, then invest in such a way to minimize the rigging. Don't expect a money manager to give you this advice: that would force him to admit that he's involved in a totally crooked industry.
For example... take Warren Buffet's standard advice to people who want to invest, but don't have the time to monitor individual investments: "buy an index fund, and get back to work!"
Not a bad idea... index funds make a lot of money, especially if you have the cash to invest right now. But first think how could an index fund be rigged? This is simple. Consider the most common index, the Standard & Poor's 500. Next, imagine you're a big company, but the S&P committee judges that you lie just outside the top 500 companies. If only you could do a tiny bit better, you'd be in the index. Why should you care? Well, because if your company makes it to number 500, then suddenly a bazillion computerized 'buy' orders will go through, because your stock is now on the S&P 500 index!
Therefore... the leaders of this company have a strong incentive to engage in sketchy -- if not downright ILLEGAL -- accounting practices to make that happen. This doesn't meant that they would, but there is a strong incentive to do so... if the CFO indeed cooks the books, then the company appears on paper to be healthier than it really is, which pollutes the value of the index... Likewise, company #499 has even MORE reason to cheat... if they had a bad quarter, they fall off the index, a bunch of computerized managers sell the stock, and the stock plummets further. Those who have been on the index for a long time have an even larger incentive to lie, cheat, and steal to stay on that index!
Instead, be like Goldilocks! Have a nice blend of the 400 (or so) companies that have been there for long enough that you know they're OK, but not so long that they have to worry about dropping off. Others have run the numbers, and its true that an index like the Goldilocks 400 makes significantly more than the S&P 500, and could be managed with a very small shell script. Naturally, this advice only works if not many people follow it... luckily nobody reads this blog.
Investors, please line up to the right ;-)
I came across this video on the mortgage crisis... it does a better job of explaining the credit derivatives market than I did last week. I said credit derivatives are a fine idea, provided you do the math right... but they didn't do the math right... and everything fell apart. Here's how:
Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.
(Hat tip Cordell)
I'm gonna put in my 2 cents about this economic meltdown... I've been following it since 2004, mainly on The Big Picture and The Agonist. There are good reasons why I started saving a majority of my income as cash way back in 2006, and avoided the stock market... one of them is that I came to realize that the game was rigged, and I didn't want to get caught in the inevitable crash.
I've read a lot on the subject... I'm not an economist, but I'm going to try to put this into my own words.
Why the hell did this happen?!?!
Essentially, both Washington and Wall Street starting acting like a rabid pack of free-market fundamentalists instead of pragmatic capitalists. The deregulation and tax cuts that spurred the economy back in the Regan era were a pragmatic reaction to the sluggish, over-regulated economy. But, tax breaks and deregulation are neither necessary nor sufficient for economic growth. Don't believe me? Then please explain this evidence: in 1990, we had more regulation and higher taxes, and the economy BOOMED... but in the 2000s we had less regulation and lower taxes, and the economy CRASHED.
No matter how you look at it, tax breaks and deregulation are merely tactics to be used when appropriate. Saying that they are always good is woefully ignorant... Only a fool keeps using the same tactics over and over, especially when it comes to something as complex as the economy. If you still don't believe me, ask arch conservative Francis Fukuyama for more reasons on why Republicans who merely coasted on Regan's achievements have only succeeded in destroying them. Our banks are becoming nationalized, and we're effectively socialists, all thanks to those dense dittoheads.
Some industries -- like technology -- don't need much regulation... whereas others -- like banking -- need LOTS of regulation.
Blame The Poor!
Its popular amongst free market fundamentalists to blame this problem on the poor... especially for the Fannie May / Freddie Mac meltdown. They blame Clinton for lowering lending standards, so lower income people could be home owners. Now... I have minor technical objections to Clinton's plan, but according to the mortgage brokers I know, this was never the problem. Low income lenders paid back their loans faster than anybody else. Besides, even if Clinton's plan had bad side effects, Washington had plenty of time to fix it if they were actually paying attention... Blaming Clinton for the current mess based on something he did 10 years ago is as pathetic as blaming your parents because you hate your job. It might make you feel better, but its a whiny cop-out, and doesn't solve the problem.
No... the true problem was the middle class overextending their credit with complex, hybrid mortgages. Suddenly, individual lenders were incented for making bad loans!
For a long time, the banking industry wanted mortgage brokers to be more regulated... because these brokers kept hiding the real risks of the loans. Mortgage brokers eventually started doing NINJA Loans. This means No Income, No Job or Assets Loans... and making tons of money on fees and closing costs. People didn't have to prove they owned anything in order to get a loan. Eventually, after Washington refused to regulate, many normally sane banks decided to get in on the action. The ones that didn't are the ones that are currently still solvent...
As one former mortgage broker told me, "it was like a competition between the brokers and the bankers about who could make the stupidest loan!"
The poor could not have caused all of this problem on their own: there simply aren't enough of them. Yet.
Eventually, people weren't able to repay their loans... and the money that the banks expected to get in monthly payments simply didn't arrive... which means less capital to work with. Banks get skittish, and the ones that don't fail want to hang on to their cash for longer and make fewer loans.
When foreclosures increased, then the bloggers started screaming about what was going to happen next: the derivatives market was going to crash and burn...
Now we get into crazy land... What is a derivative? The Week has a good was to describe it: legalized gambling.
Now, this isn't a bad thing... probably the most common derivatives are stock options and commodities futures. The former is pretty common for tech people: they bet that their company stock will rise, so they hang around at a job they hate, for the "option" of selling their stock at a higher value. Commodities futures allow farmers to sell crops now when they don't have them, so they can get quick cash to improve the productivity of their farm. These are both fine...
The bad boys of the derivatives market are credit derivatives. In essence, this is simply "insurance" that you will get money back if a stock goes down, a bond goes down, or somebody doesn't pay back their mortgage.
Offhand, these sound like a great idea... and they are! But only if you do the math correctly... which they didn't!
Part of the problem was that a lot of these credit derivatives promised to pay insurance money if somebody didn't pay back their home loan. But, instead of individual loans, they made promises on mortgage-backed securities... which are thousands of loans bunched together as one. Again, these aren't a bad thing... as long as you do the math right. Which again, they didn't!
The idea behind these securities is that if any one person defaults on the loan, the security is still mostly OK... Even if everybody in the security defaulted on the loan, the security would still be valuable, because you bought "insurance" to guarantee its value! But there were problems... Since a mortgage-backed security is a mystery bundle of mystery loans, its nearly impossible to measure the actual risk! In most cases, the people measuring risk did a decent job of accounting for market risk, but they completely neglected capital risk. Basically, this is the fact that capital can sometimes get more expensive when the economy is bad, and banks are hesitant to lend.
In effect, they didn't charge enough money for the insurance they sold, because they measured the risk incorrectly.
Well... so what? As we all know, there is only a finite amount of capital in the world... and if you are a bank that lost money on a bunch of bad loans, and you also have to pay insurance money for people who bought your mortgage backed securities, where will that money come from? And because you sliced up all those loans into a million pieces, not you have a million creditors for each bad loan... so negotiating with your creditors in a bankruptcy court is an impossibility.
In short, these big, bad, financial geniuses never anticipated how the entire economy -- mortgage banks, investment banks, hedge funds, and insurance companies -- would completely collapse if a very small minority of people couldn't pay their mortgages on time... and then they proceeded to make loans that they knew people would not be able to pay back.
There's a reason why Warren Buffet called these credit derivatives financial weapons of mass destruction back in frigging 2003. They are a decent idea, but very poorly implemented, and completely unregulated... one bank failure will almost always cause another. Back in 2000, the market for credit derivatives was under $100 billion dollars... which is essentially $100 billion in promises to pay back money, if something bad happens to the economy. By 2007, this unregulated market has ballooned to $44 TRILLION dollars... which is approximately the amount of money on the entire frigging planet. Nobody knows how big it is today.
This market produces nothing, feeds nobody, and doesn't foster industry one bit... Its just insurance payable when something bad happens. The only way you can make money in this market is by making huge bets... so again, these geniuses decided that nothing bad would ever happen, so they collectively bet all the money in the world!
And they lost...
How Should We Fix This?!?
First we must recognize the truth: there is no room for fundamentalism in good fiscal policy. We'll need a blend of free market ideas, some tax hikes, some tax breaks, some government control, and basically a return to pragmatic capitalism.
The best options I heard thus far came from The Agonist. The fundamental problem is a lack of transparency. In the past, banks would loan each other billions and billions every hour, but these days they don't know who they can trust... so the Fed is forced to step in and make loans. This can't go on forever, so the banks need to step up, ask for the regulations they need to safely lend to each other, then get to it. Its what some people call a shot of adrenaline, and it goes like this:
- Give the FDIC an injection of cash to buy out banks that are too insolvent to lend. "Too sick to lend is too sick to live." You would be amazed at how many will start lending in preference to working for their Uncle Sam.
- Sell short term bonds and give these to the Fed to extend lines of credit. About 150 billion in addition to the Fed's already eased credit will do.
- Back the bonds long term with "fat cat taxes," which include taxing wall street for every trade they make, and additional taxes to the top 2% of American earners.
- Signal that the policy of allowing banks to be bought up cheaply is over
If Wall Street wants a bailout, they are going to pay dearly for it. They are going to have to take some risk, a lot of regulation, and accept the long-term consequences for their actions.
And the fundamentalists should be chased back to their caves...
Lots of people these days are nervous of embarrassing online profiles on Facebook... I've blogged about this before (Take My Privacy, Please!), and mentioned that any company would be idiotic to implement such a "don't hire" policy.
Why? Any company that fires kids for acting like kids is a horrible place to work... and not only that, but they would be totally shooting themselves in the foot. Companies need these kid who are talented with social software, searching, and sharing... otherwise, they will suffer greatly in the upcoming global talent shortage.
60% of new jobs in the 21st century require skills that are currently possessed by 20% of the workforce
That quote is thanks to a YouTube video that Billy Cripe found about hiring trends.
Ever notice how difficult it is to find cheap, competent programmers in India these days? The good ones know their value, and are charging 60% - 80% of what their counterparts in California make. For those prices, you're better off outsourcing to Indiana or Idaho. If you must use global workers, check out Brazil, or Bulgaria... but their cheap rates will only last for a short period of time.
When even China is having labor shortages, something very disruptive is happening... If you want to stay ahead of the curve, embrace new ways to empower your talent, and for the love of god have a strategy to retain talent before its too late.
Here's a half-baked idea inspired by a Freakonimics commenter: failing industries should help homeowners finance renewable energy.
The logic goes like this:
- Ford's business of selling cars has not be profitable for some time...
- Ford Credit -- which helps people finance the purchase of For cars -- has been incredibly profitable, so much so that it keeps the rest of the company in business... therefore
- Ford is actually in the banking industry. They help ordinary people purchase expensive manufactured equipment, which in turn help benefit the lives of ordinary people. Now,
- Alternative energy, such as Solar Panels, home-grow biodiesel, and cogeneration, also benefit lives by reducing the expense of energy for ordinary citizens.
- Alternative energy systems require expensive manufactured equipment, which many people cannot afford.
- Alternative energy creates a return-on-investment -- less monthly costs on electricity and gasoline -- which offsets the costs of making monthly payments. Therefore,
- If Ford got into the business of financing the sale and installation of solar panels, it really wouldn't be much of a shift in how they do business, but could be insanely profitable.
Ford, GM, and Chrysler are all touting how they plan on using alternative energies in the next generation of products... I say, why stop there? Don't integrate solar panels into cars... purchase a solar panel manufacturer, and finance solar panel installations in people's homes! Set up some local biodeisel co-ops... and make your money the way you always did: financing the sale of manufactured equipment. Use your leverage in Washington to get tax credits for people to install solar panels, and make it even cheaper for your customer base.
This initial step will also help the auto manufacturers get to understand the nature of alternative energy... before completely shifting your manufacturing process to create biodiesel cars, make sure there's a market for it. Use your financial influence to create the initial market, profit from it, and finance the rest of the endeavor. Purchase the best companies, learn from them, and make your cars more efficient as well.
To me, that strategy seems much more doable, and much more profitable...
Banks like Ford are the future, not the past... modern banks that focus on hedge funds, derivatives, and sub-prime mortgage financial vehicles are ignoring the sacred purpose of the financial industry: to spur the growth of industry that improves the well-being of the public. If you are a bank that is also into manufacturing (cars and solar panels), services (repair and installation), and perhaps agriculture (for biofuels), you have an edge that few could match. That won't happen overnight, but financing solar panels would be a good start.
Anybody know the CEO of Ford?
So I'm out having dinner with some friends last week, discussing all manner of things, when the talk turns to economics. I gave my usual anti-economist rant... when one of the chaps asked a simple question:
HIM: If I flip a coin 99 times, and it lands heads each time, what are the odds it will land heads the 100th time?
ME: Well, the obvious answer is that it doesn't matter how the coin landed the previous 99 times... the odds are always 50/50 that it will land heads again. However, I have a problem... its extremely unlikely that a fair coin would land heads 99 times in a row... so I'd estimate 90/10 that it will land heads again.
HIM: ...you are the first person I ever met who answered like that...
This is one of the reasons that I don't like traditional economic theory... all games involving money will some day be rigged. Poker, major league baseball, the Olympics, sumo wrestling, sales predictions, the stock market, everything! The Freakonomics guys look into cheating, but not many others do... and if it weren't for their fame, they'd still be mocked as not being "real" economists.
It doesn't matter how grand your economic theories are... or how perfect the math looks. It doesn't matter how many metrics you have, or how grand your enterprise business intelligence system is. There's always something hidden from the model. Hidden assets, hidden liabilities, intentionally incorrect data, etc. Anyone with street smarts will be able to rig the system... and it will take another with street smarts to notice.
Unfortunately, people with street smarts are more likely to cash in on the rigged system, instead of fixing it... especially on Wall Street. The term there is IBGYBG: I'll Be Gone, You'll Be Gone. Find the scam, don't rock the boat, cash in, and leave... this gave us the tech boom, Enron, insurance broker scams, the Housing bubble, etc... at least we have short sellers who cash in by exposing rigged systems.
I hope and pray that these short sellers will rescue us from the latest tech bubble... Facebook is valued at $15 billion: almost as much as Ford! That smells like fraud... and Fake Steve Jobs illustrates how it works. All Captain Fleece has to do is spread around stock to the tech analysts, and they swoon over how Facebook will change the world. The IPO happens, dittoheads like Scoble get rich, and everybody else loses.
The game is rigged, my friends... and you're not in on it. Stay away from the latest tech boom, especially Facebook, unless you fully appreciate how rigged it is...
When I hear people talking about Web 2.0, I'm constantly surprised how few people really "get it." Its not about technology, its about empowering people. Its about giving people access to data, even if they are outside your domain. Its about jump starting innovation with scary new ideas. Its about tools that are easy to use -- perhaps even fun -- so a greater number of people can join in the process.
Setting up a wiki for your company is vaguely web 2.0... but what's really Web 2.0 is a blog with comments that allows instant feedback between customers and R&D... even tho it allows the public bashing of your product. Heck, an email listserv that connects customers and developers is more web 2.0 than an internal wiki... but do you see Google Groups getting any buzz? Maybe a little... they are Google, after all.
Now... when folks talk about Enterprise 2.0, you hear a lot of talk about technology: Service-Oriented Architecture, Complex Event Processing, BPEL, and Enterprise Service Buses. These are all great, but what matters is what you do with them. Each plays a vital role, but they are just pieces of the puzzle. What matters is the whole... and the whole needs to be people- and context-aware.
Do you plan on using the latest technology to securely connect users, data, and applications, to allow scary new innovations? Hooray! You're Enterprise 2.0! Have a cookie.
Are you BPEL-ifying every process and turning humans into mindless scrambling automata, afraid to use their judgment instead of "The Process", thus becoming alienated, terrified, and demoralized? Boooooo! Bad architect! No biscuit! Go back into the Kafka book from whence you came.
Lemme break it down for you... the economy is an evolutionary process. Not all business ideas are great... you have to see if they thrive in the market. No matter how well designed your idea is, the world changes under you, and your good idea might flop. You need to adjust you idea, hedge your bets, and change with the market.
The same holds true for any business process in Enterprise 2.0. Its not about what you're doing now... its about ensuring that you know when its time to change... Small changes can be automated, but many others can't be. This is the paradox of using technology to replace people: once something can be automated, soon everyone will be doing it! As soon as everybody does it, it's no longer a competitive advantage, no matter what.
Relying on process instead of people is a rapid race to the bottom... To survive, you need much more than just process. You need people who know how to survive without process. You need to constantly search for ways to add value to your business, and make it a part of a bigger and better process.
Web 2.0 increased the pace of idea evolution... Online collaborative encyclopedias ensure constant improvement of content... Blogs allow ideas to spread virally, turning the Blogosphere into a giant meme-incubator. Comments allow instant feedback, whereas links and trackbacks create these wonderful overlapping zones of connected ideas... Most web content is garbage, but that's not the point. Every once in a while you'll find an idea that changes your life...
This has little to do with the "wisdom of crowds" semi-nonsense... its just a numbers game: more minds, more ideas, better odds for brilliance.
If you dare to call yourself Enterprise 2.0, you had better be increasing the pace of business evolution. Forget uber frameworks that claim to solve every problem: design small stand-alone apps, and tie them together with SOAs, ESBs, and Mashups. Forget locking your information away in rigid silos: get identity management, risk management, and content management, then open the floodgates! And forget trying to design a "perfect process": tie together multiple small processes, and let experienced employees use their judgment to help the process evolve.
Face facts: evolution is smarter than you. If you want to be Enterprise 2.0, you had better not get in its way...
I was always fascinated by economics... but every time I tried to study it I was put off by the sheer idiocy of it all. Pretty much every founding principle of economic theory is complete and utter crap, and it infuriated me that educated people bought into it. Economists totally tarnish the nobility of the Nobel Prize...
That was before I picked up the amazing book The Origin of Wealth, which is about a new field called complexity economic theory. Complexity theory states pretty clearly that "traditional" economic theory is crap... and replaces it with a vastly more enlightened model. The economy cannot be modeled with automatons with perfect knowledge buying widgets; its based on the principles of complex, dynamic, evolutionary systems... and has many emergent properties that are impossible to predict, although clearly not random. Its pretty academic, but if you have a basic understanding of physics, computer modeling, and evolutionary biology, its a must read.
Anyway, In the book the author tries to answer the only economic question worth asking:
- How is wealth created?
Traditional economic theory states that by specializing in a trade -- or a product -- you can create wealth... I make axes, you make clay pots, we trade, and wealth is created... but why? What is this thing we call "wealth," and how exactly does trading and commerce create it?
We should emphasize here that the economy is not a zero-sum game... Many used to believe that there is a fixed amount of wealth in a country, determined by the natural resources a country has, its labor, and its ability to turn the two into wealth through technology. Nope. The economy is not a big pile of gold. People shouldn't have to lie, cheat, or steal to get their share... That philosophy is called mercantilism (thanks solistics), and is rejected even by traditional economists... although tradition economists could never get the math to work out to explain how wealth was actually created...
To illustrate further... On occasion, a king, a country, or an organization stops innovating, and simply coasts on the capital from previous glories. At this point, the local economy does resemble a zero-sum game, and no economic progress is possible. In fact, if the competition (ie, other countries) continues to innovate, the organization will get poorer. Throughout history, closed societies (North Korea, Fundamentalist Muslim nations, Ancient Sparta) failed economically, whereas their "open" counterparts (South Korea, Dubai, Ancient Athens) became economic powerhouses.
Throughout history, zero-sum thinking has caused wealth to stagnate... whereas sharing, cooperation, and innovation always generated new wealth. By following win-win situations, new wealth can be created almost by definition... But how on earth does it work? What could explain it all?
Wealth Is "Fit Order"
The author put forward a pretty cool theory: wealth is fit order. By this, he means that wealth has little to do with natural resources, capital, or labor... its not even so much about technology. Instead, wealth and knowledge are fundamentally the same thing!
Note: raw data is insufficient to create wealth... This difference is partially semantic, but it's important. Knowledge needs to be transferable and useful to others. Thus your religious faith and supernatural beliefs have personal value to you, but no economic value... In fact, they can have serious negative value if you listen to shady preachers or TV psychics...
True wealth only occurs when a piece of physical technology and a piece of social technology mix into a "business plan." In addition, implementing the plan needs to create higher levels of order from available raw materials... pedantically speaking, a plan must be thermodynamically irreversible, decrease local amounts of entropy, and thus consume lots of energy. I have my doubts if this is a requirement -- deleting embarrassing emails and demolishing buildings can alone increase wealth -- but for now I'll agree.
In the next step, the information -- or "order" -- is tested out in the "economy" to see if it is "fit". Beinhocker provided a wealth (har!) of data demonstrating that the economy is an evolutionary system, which means it adheres to a basic evolutionary algorithm:
40 GOTO 10
This is survival of the fittest. Most ideas are slight variations on existing ones, and on occasion you see radical new ones. The radical ideas are more likely to fail, but every once in a while they completely change the economic landscape.
If the business plan is copied by others, it replicates. Now, sometimes the business world is trendy, and people copy ideas for no good reason... but if the idea lasts over a few years, it can be considered fit. Fitness, naturally, is dependent on your environment: a polar bear is a rock star on the ice, but wouldn't survive long in the Sahara...
Fit order creates wealth.
Skeptical? Consider this: did the invention of marketing create wealth? How about public relations? What about customer service, or human resource departments? Do any of these things produce physical objects of material value? NO! But do they produce wealth? YES!
How do we know? Well, corporations that adopted good practices in these "service" areas outperformed their competitors. They got better employees, better customers, better products, and better market capitalization. In the dog-eat-dog world of capital markets, companies with these services attracted and generated more capital. If additional wealth wasn't generated by these activities, no corporation would implement them for long.
Clearly, service industries generate wealth just as agriculture and manufacturing. Simple as that!
All of these are examples of fit order. Marketing is a good way to make a bad piece of technology sell better, or to help inform people about good technology. Public relations keep you out of trouble when the news is bad, and helps you toot your horn when the news is good. Customer service ensures your customers are happy, and willing to pay a premium for your product. Finally, good human resources ensure you locate and retain the best employees.
The job of a computer geek is even more abstract... we string together ones and zeros into applications that make our customers feel stupid, then we mock them. By some bizarre chain of events, the economy appears to prize this career over the creation of food... Similarly, school teachers are vital for our next generation, but they don't make nearly as much money as sports stars... Adam Smith called this the diamond/water paradox: water is essential to human life but is nearly free, whereas diamonds have little to no value and yet cost a lot... Price is all about supply and demand, and has little to no bearing on the actual value of something.
Ummmmm... So Why Does Google Owe You Anything?
If Beinhocker is correct, and there's a direct correlation between wealth and knowledge, then public data stores like Google are modern wealth-creation engines... This idea in general was covered by The Economist and Jimmy Guterman at O'Reilly recently, but I don't think either understood the full implications...
When the modern banking industry began, very few people saw it as the wealth-creation mechanism that it was. Many saw it as a wealth protection and re-distribution system. Investors saw them as a "safe" place to put their money. Bank managers understood profit, loss, and risk... which meant charging the right interest in order to make a profit for the bank and its investors... however, many still regarded the economy as a zero-sum game.
Since Google stores so much information, they can mine it to find new kinds of ideas, new concepts, and create new knowledge. Thus, they can sift through the cruft and chaos on the web to find the order. Since Google tracks everything, they can watch trends, and monitor the popularity of certain ideas. Thus, they have their fingers directly on the pulse of what kind of order is fit.
If wealth is actually "fit order," then giving information to Google is like putting money in a bank, but not getting interest! That's why Google owes me money... or at the very least they owe me a few good ideas. However, I already have more ideas than I need, so I'll settle for a pony.
The Economist compared Google to some of the original banking families... not because they do the same things, but because they both wield tremendous power. Well, Google indeed holds the same power... not by coincidence, but because Google is creating wealth in the same way the Rothschilds and the Warburgs did. It by no means a coincidence that they wield the same power: if Google was not instrumental in the creation of wealth, they would be on the ash-heap of history by now.
An older article in The Economist asks how a company like Google can be so big, and yet claim to not be motivated by money. I believe the answer is simple: Google isn't motivated by cash; Google is motivated by wealth. Cash is only one mundane variation of wealth, which becomes less and less useful every year. What use is your gold in a world with Star-Trek replicators? It isn't worth nearly as much as your ideas are... and desktop replicators are closer to reality than you may know...
As such, Google might just understand things about the new economy that others fail to grasp... or perhaps they just stumbled ass-backwards into one of the greatest wealth generation systems since J.P Morgan.
Either way, good for them.
And gimme my pony.
The entire airline industry is facing serious management problems... union trouble, aging pilots, bankruptcy, canceled flights, and the like. Their software is woefully outdated, and the latest security laws are causing people to check twice as much baggage... which naturally leads to significantly more lost luggage...
Now, logistics ain't rocket science, but I am sympathetic that it's difficult to get right. However, there are dozens of industries that have made a significant profit by simply getting things from point A to point B reliably... so I'm mystified why the airline industries are struggling.
Ask around... it isn't easy being a Northwest Airlines customer... just talk to anybody who has to travel through Chicago. A lot of their pilots are nearing 60, which is bumping up against the mandatory retirement age. There are also strict rules about how many hours a pilot can fly in the month. Therefore, if you want to minimize chances of a canceled flight, book it no later than the 15th of the month.
You'd think that Northwest could have seen this coming five years ago and hired more pilots... sadly no.
Seriously, it could be a good move. FedEx already has all the software and a good chunk of the infrastructure. They have a brand name that screams "reliable," and relationships with airplane manufacturers. They just need a handful of the best and brightest execs from Northwest so they can learn the nuances of the travel industry... then they could be the 100% business infrastructure solution.
They'll print out your reports, ship a crate of them to your destination, and even pick you up from the airport in one of their stylish trucks! And if you can fit into their one-size-fits-all travel pod, they can guarantee delivery.
Like I said... not fully baked. Just the rantings of a frustrated customer.