Tuesday, October 14, 2008

Monday, October 13, 2008

Bailout, round 4

Another component of the problem:

Junk mortgage originators, not necessarily fraudulent, pool loans that have either zero or very minimal down payments.

The loans are carved into tranches and compliant rating agencies rate the tranches at AA or higher. These tranches are more attractive to banks and produce more paper income than the bank originating a safer mortgage by itself.

The credit agencies profit from higher fees, the banks have to keep less capital on hand to offset what should have been lower graded securities, and everyone profits from regulatory arbitrage. Certainly not the only reason for the continuing credit issues, but a useful example of how poorly crafted regulations and spotty enforcement lead to actual problems.

Sunday, October 12, 2008

Iceland

Some links regarding the truly amazing crisis playing out in Iceland:

Near-bankruptcy: http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20081007/Iceland_bankruptcy_081007/20081007?hub=TopStories

UK uses anti-terrorism laws to freeze 6.8 BN in Icelandic assets. Also, Iceland, a founding member of Nato, is likely to lease/sell military bases to the Russians in exchange for 4.5 BN: http://www.businessweek.com/globalbiz/content/oct2008/gb2008109_947306.htm

For sale on Ebay. Bid level at 31.00 USD at time of posting. Bjork not included: http://cgi.ebay.com/Iceland-Predator-Country_W0QQitemZ320309633199QQcmdZViewItem?hash=item320309633199&_trkparms=72%3A141739%3A166%3A265%3A12240%3A1318&_trksid=p3286.c0.m14

Monday, October 6, 2008

Google adds anti drunk dial tool

Official Gmail Blog: New in Labs: Stop sending mail you later regret

A cell-phone firm in Australia did a similar thing to try and stop drunk dialing a few years ago. I think the real value-add is to team the Google service up with http://www.hollywoodiscalling.com/

That kind of crossover service could take the drunk dial to some truly awesome places. Horrible, to be sure, but you'd have to expect some amazing comedy when a frustrated drunk unleashes Larry Holmes or Horshack on his unsuspecting ex-girlfriend.

More economics doom n' gloom anon. Problems in Iceland, the potential collapse of the European Currency Union, and why credit segmentation really really matters.

My prediction: We'll all need a drink or two by the end of the week and drunkenly getting Horshack to call folks is only going to sound smarter and smarter as the month goes on.

Thursday, October 2, 2008

Bailout, round three

This blog is rapidly turning into my thoughts on the macroeconomic crisis, a shift in focus which would likely amuse my econ professors no end.

In any event, the current macro crisis has real-world implication for marketers and business. Just among my friends and associates, businesses from jet brokerages to bike shops are experiencing significant issues as the credit crunch dries up liquidity and with it their room to maneuver.

It's an aphorism that small business drives the American economy. If so, we'd better hope that the (very) small sample of my friends is not representative of the economy at large.

As for marketing, I think times of fear are also times of opportunity. The current crisis strikes me as an excellent time for working on brand awareness. In times of flux, people change their buying behaviors and are rather likely more receptive to new messages as they seek information. In short, when times are tough, marketers should be aggressive-not just to preserve market share, but also with an eye toward expansion.

In semi-related blog news, I'm going to try and jazz up the format here, especially with links. If you've got a favorite marketing site or are also blogging, please mention it in the comments or email me.

Wednesday, October 1, 2008

Bailout, round 2


Like a lot of people, I've been all over the place on this subject. I'm not crazy about the absence of moral hazard in any government bailout, but am/was concerned enough about the financial health of the system to see the Paulson bailout plan as a necessary evil.

Even absent a bill, the market and the dollar rallied yesterday and stabilized today after a dip in the morning. Always remembering that the street may be anticipating a bill to be passed and building that expectation into prices, this seems like unadulterated good news that may mitigate the provisions of any bailout.

New regulations from the SEC regarding accounting valuations for assets likely played a huge role in today's market action-nice to see the government effecting positive change for once. I think the next (small) step is to ban teaser rate mortgages, as it's hard to see them as anything other then financial traps for the unwary and uneducated.

However, none of this positive news should be seen as reason to avoid the bailout altogether. We can pay for this problem with a recession and associated high unemployment or we can pass a version of the Paulson bill, which may not even be big enough, terrifying as that prospect is. The time to effectively deal with the mess around Fannie and Freddie was in the 1990's or in the post-Enron time period.

What I'm most concerned about are the inevitable riders to the bailout plan. For every salutary idea like patching the AMT, there's Dodd and Frank attempting to lard up the bill with literally billions for nebulous housing justice trusts.

It's this kind of thinking that got us into a regulatory situation where the net effect of Sarbanes Oxley is an obsession with the minutiae of document retention, instruction manuals, training sessions and other non-helpful procedures. In the meantime, not one government regulatory agency seemed to notice that the whole idea of tiered capital was no longer valid and that leverage ratios were through the roof.

My (entirely merited) shot at Chris Dodd and Barney Frank aside, this crisis is one of the few non-partisan things to come out of Washington in some time. If you're railing about bandit CEOs, or banging the drum about how the CRA act is solely responsible for this crisis, then I will politely submit that you are over-indexed on partisanship and should instead concentrate on how we're going to get out this crisis instead. It's that bad