Tag Archives: economy

Big Picture, Economy and Fun

Big Picture: Imagine that your financial records were being held by your financial planner (and if you had more than one, each in a separate system) that you were not allowed to view.  You trusted your financial planners, but if you asked questions of them, they would reply “Now, who is the financial planner here?”.  If you ever did get to see your records and noticed an error, you could not find anyone who was responsible for fixing it.  Doesn’t sound like my financial planner, thank god.  But change the subject to your relationship with your physician and you aren’t so surprised anymore.  Well, you may be surprised about how your medical records are actually kept.  In his excellent blog, e-Patient Dave talks about his adventures in Electronic Medical Records and what we can do to make things better.  Attention, open source software folks, we may need your help soon.

Economy: What is your take on these 12 iconic brands that 24/7 Wall Street believes will disappear in the next 12 months?

Fun: I thought I knew how to make a baby, but as usual, I didn’t have all the steps down right, at least according to this video.

The Pendulum

Peaks and valleys.  Reminds one of a bucolic Colorado vista, perhaps Pike’s Peak and the San Luis Valley.  But our lives are driven by patterns that look like peaks and valleys.  For example, this is a graph of the stock market for the last 25 years.

S&P 500 1984-2009
S&P 500 1984-2009

Notice the number of times that the chart has significant ups and downs.  This is a way that we as humans tend to operate in our domains.  We push the level of an activity until it goes beyond a breaking point (or some external event, like 9/11, causes a breaking point) and then instead of slowly returning to an equilibrium level, the system quickly regresses back to a point well beyond a median and we start the cycle all over again.  While it is painful to go through these cycles, our historical precedents do tell us that we will come out of the valley and start to rise again within a reasonable time.  Over time, these boom-bust-boom cycles have been getting shorter but steeper.

A current example of the boom-bust-boom cycles have to do with credit.  The credit markets have acted like a pendulum, swinging from high availability, low rates to low availability, high rates.  Some of these changes were due to changed economic policy by our government and the Federal Reserve. A large part of our current credit problem is related to the reticence of banks to take on additional risk, so they have tightened down the requirements for getting credit, to consumers as well as to businesses.  I wrote about the changes that Chase has made in their lending to small businesses here. Will this get sorted out?  Yes.  How soon?  Much bigger question.

But not all peaks and valleys correspond to economic events. It has always been instructive to me to watch the technology curves.

My technology journey started with the mainframe.  Everything you could want was on the mainframe.  It had to be since you interacted with the mainframe via punched cards (yes, I am that old). All by one manufacturer, all guaranteed to work the same way, the only way.  Kind of like Ford’s Model T, in any color as long as you wanted black.  But soon, we got PC’s and things got colorful fast.  Lots of different programs, different interfaces, different data storage, little interaction.  Businesses had a hard time utilizing these PC’s; actually IT (or Data Processing as it was called in those days) had the problems.  Everybody did things differently.  So, they decided to purchase integrated ERP solutions that allowed the entire company to work together cooperatively on planning and executing, counting and selling, paying bills and receiving cash.  These also included the support software to ensure it would all work together, the databases, the communications manager, the security systems and the scheduler. Back to the mainframe mentality – easier to manage, but limited in flexibility.

But of course, people wanted their own solutions.  So, along came Unix and other open systems.  Now it was possible to pick the best of breed solutions for each system need.  Flexibility to pick and choose, difficult to integrate and make sure that Program A fed Program B the right data in the right format.  It was costly for the software companies to support – they had to have every possible combination of systems to test with and provide their tech support staff with. I likened it to going to a race track and having to make the right choice to win for 10 races.  Difficult for anyone and not efficient for the IT staff.

Yesterday’s announcement that Oracle is going to buy Sun is bringing this whole technology cycle full circle.  Now one company can sell you the database, CRM Software, ERP Solution, security and hardware to be able to guarantee that all things will work together.  IBM and HP are also looking to provide a full course solution. What could happen to companies like Dell, Cisco and Fujitsu?  Where does Microsoft play in this arena?

All I can say is that given our history with peaks and valleys, you can expect that this phase of single company providing a full suite will have a reasonable lifespan and another model will come into play. It will be fun to watch this change over time.

Economy, Entrepreneurship and the Government

Economy: Nassim Nicholas Taleb, author of  The Black Swan: The Impact of the Highly Improbable writes today on the Financial Times about 10 things that would help us to grow beyond our current economic crisis (and prevent another).

Entrepreneurship: Paul Graham writes about an interesting way to get entrepreneurship jump started in the US: change immigration law.

Government: Here are some factoids that I learned by looking at this chart:
The FBI costs half as much as the FAA.
We spent almost twice as much for Mine Resistant Vehicles as we did to fund the entire National Science Foundation.
The Office of the Secretary of Defense costs 11 times more than to run the Office of the President.

What did you find that was wacky?

Bad Economy

From time to time, I will give the floor to a guest blogger.  Today is one of those times.  Meet Howard Bender.  Howard is my friend and also the owner of the only Jewish delicatessen west of Chicago, Schmaltz Delicatessen.  Today, he talks about the need to look for positives in the current economy.

In a world filled with miserable attitude, bad economic times and lots of self-fulfilling prophecy of failure, an attitude as a small business owner and entrepreneur to be a survivor as opposed to a victim is everything. I just want to point out one trashy note today that can snowball and lead to a bottom line of success for me. I have never in my lifetime seen such a buyer’s market. Our vendors are scared of losing us, we are scared they are mistreating us, our customers are looking for more value with the same quality, our bankers are scared and our families are nervous.

In our business, we have driven down on our expenses to re-evaluate each and every line that sends cash out the door. We began about 45 days ago, re-bidding out everything from food and supplies to garbage and toner. Today, I sat down with our bookkeeper and looked at 3 competitive bids on garbage removal. Each and every one was 30% less than our current vendor. Shocked, dismayed and thrilled all at the same time! But wait, our current vendor’s service is superb. Let’s call them too! After reaching our current vendor, putting it on the table in a honest and real manner, I am pleased to say we now pay 30% less for superb, consistent service.

Now, there was a time when I would have felt I had been screwed for many years and no matter what,  I will switch garbage vendors just for that. But having spent the last couple of decades in this business working for hotels, restaurants, bakeries, and even on the other side as a foodservice distributor, I am convinced I have not been getting screwed. In fact, up until just months ago, I was paying a very competitive price. We bid this service out a few times over the last few years and all vendors were around the same price that I was paying up until today.

The rules have changed. They have changed for me, they have changed for my vendors, and they have certainly changed for my customers. The concept of competitive pricing is swinging on the pendulum. Always competitive but only the price changes. So in the inflated economic times of a few years ago, the price was competitive… and high. Now our competitive price is on the other end of the pendulum and is very low. The trick is to get a contracted price at the end of the pendulum… I’m working on it. I’m also opening my eyes a little wider to asking every vendor for a break… everyone knows they will charge more when they can. When I was a sales manager for a foodservice distributor, I used to tell my sales staff that if your customers are not complaining or questioning your price, you are not charging enough. Today is a really, really good day to question.

Entrepreneurship, Urban Studies and Grammar

Entrepreneurship: For anyone who needs to give a killer presentation or just to prepare a cool way to show mixed media, check out Simile Widgets Exhibit.  It is open source and free to use. For a helpful introduction, see what LifeHacker has to say.

Economy: Based upon the news media, it would seem that the whole country is in a deep recession.  However, Joel Kotkin writing on NewGeography.com talks about a swath of middle America that doesn’t seem to feel the pinch as much as the rest of us.  The article also takes an in-depth look at the center of this swath, Kansas City.

Grammar Police: Those of you who know me well, know that I have, occasionally taken my red pen to a document.  Most often, I use Microsoft Word’s track changes.  But if you want to know what is right to write, check out this comprehensive site by Paul Brians.

Business, Economy and Fun

Business: Seth Godin put together a good resource page to help those of us who are graphically challenged find our way in the world.

Economy: Normally, I wouldn’t take Penn Jillette’s economic advice, but he does have some good points about skidding and crashing and hoping that our leaders know the difference.

Fun: As the father of a 19 year-old and a 14 year-old, sometimes I wonder where the time has gone.  Amy Flanagan sure helped me remember how far technologically we have come in 16 years.

Economy: Several weeks ago I wrote asking why corporate CEO’s weren’t going for the PR play of telling the world that they would not lay anyone off this year.  Mark Cuban tells us the reason and what we can do about it.  Granted he is only one voice, but it makes sense.

Unemployment Ideas

You just never know.  I happened to be at a family gathering recently and was seated next to a woman who I did not know.  She mentioned that she worked for her state’s Department of Labor and was an unemployment counselor.  We got to talking and I found out a bunch of neat things that I didn’t know about unemployment.

(Disclaimer: I am not an attorney or unemployment counselor, so you should check out what I say with your state’s Department of Labor or a real labor attorney.)

  • Depending on your situation, you may be able to shop your unemployment claim to a different state.  If you have worked for employers in different states or even, sometimes, if your corporation has its headquarters in a state, you may be able to file there.  Why is this important?  Unemployment is handled as a state matter.  Therefore, each state has its own limit on weekly benefits. A list of 2008 maximums by state can be found here. The differences can be staggering.  Florida was at $275, but if there is some chance that you can collect from Massachusetts, your weekly maximum could be $900.
  • You can file for non-contiguous time frames.  Say that your boss lays you off, but then offers to pay you half your salary for half time.  You are better off working one week on and one week off.  In this case, you can file for unemployment on your off weeks until you get a job.  Do not work half days because any day that you show up for work cannot be counted towards unemployment.
  • If you do get laid off, look for opportunities to go back to school. Unemployment compensation can sometimes extend throughout your academic program, even if it exceeds the normal time frames.  In addition, there are often state grants for retraining that can be applied for to pay for tuition.
  • There have been many changes to unemployment law and practice in the past year due to the economic conditions.  Make sure to do your homework or talk to an employment counselor at your  Department of Labor to see about the $25 Federal increase and the extension of unemployment benefits.

Certainly, no one wants to be on unemployment, but if you or someone you know has been affected by this economy, it pays to know the rules at the Department of Labor.

Economy, Politics and Fun

Economy: Here is a really neat idea to help small, local, independent businesses.  It is one way to Pay It Forward.

Economy: I have written a lot about the employee bonuses at AIG, but a professor at Columbia University looks at the bonus situation as a “missed opportunity“.

Politics: I am sure glad that the US Congress has all of the other problems of the country solved, so that they can devote their time and effort on this one.  Especially since they did such a good job on the last sports related one.

Fun: I love to watch MythBusters on the Discovery network.  One of the co-hosts, Adam Savage, sat down with Lifehacker to talk about the show.

Technology and Economy Cubed

Technology: I have been a big fan of Google Docs for users for a while now.  It makes sense to me to have the documents that you need whereever you are, not to mention the ability to easily share documents and collaborate on editing. Google today announced two changes to Google Docs.  The first is a full find and replace function that replaces a totally anemic one.  The second is the addition of a drawing module.  The drawing module will work in Docs, Spreadsheets and Presentations.

Economy: Speaking of Google, they seem to be the only firm that has a solid PR plan regarding the economy.  Read this article on the salary structure of the Google leadership.

Economy: Ever wonder about the huge contracts that sports stars get and how that works for them?  Sports Illustrated has a great story on the answer — not so well.

Economy: Heard this week from a small business banker at Chase that they are not lending to companies without three years of solid financial statements, up from 2 years.  I am not sure how they are making money if they are not lending it out, but the pendulum is definitely swinging back to the cautious side of things.

A Rebuttal to Jake DeSantis

Yesterday, I published a link to a resignation letter by Jake DeSantis, an executive vice president from AIG Financial Products that was sent to the New York Times as an Op-Ed piece.  After rereading the letter and thinking about it way too much, I believe that his letter deserves a rebuttal.

Dear Mr. DeSantis,

Thank you for writing your clear description of your feelings.  As an owner of AIG (now that the US government owns 80% of the firm), I wish to respond to you regarding the issues brought up in your letter.

As an executive vice president of the AIG Financial Products group, I fail to see how you can be totally without blame for the economic mess that your teammates left us with. As a senior manager with responsibility for business development for commodities, you had to be aware of the shenanigans that were taking place in your own groups.

I know a little about this.  In the late ’90s and 2000, I worked for Computer Associates.  There were times that many of us in management talked about deals that came in on March 34th.  We chuckled and thought that somehow the powers that be had figured out a way to get more sales revenue.  I guess it is not as funny today with 5 former executives (including the CEO and CFO) behind bars for fraud.  I left the company in 2000, in part because there were too many corners cut, too many ethical dilemmas.  I wish today that I had had the fortitude to confront those with ethical lapses directly.  It might have made a difference to the people that I worked with.  But enough about me.

You are a smart guy, MIT, years on the street. You had to be aware in years past — the good years — that some of the rewards that came to you, both financial and career-wise were due to corporate (and divisional) behaviors that were wrong and possibly even were company threatening. But you assuaged your conscience by the thought that “at least my hands aren’t dirty”.

Now, you worked hard for 11 months to close down AIG Financial Products.  During this time, you accepted a $1 salary.  But you were promised a bonus for staying on.  The problem is that AIG Financial Products is bankrupt in all but the court of law.  If the Federal Government had not stepped up and invested billions to prop AIG up, AIG would be under the leadership of a bankruptcy trustee and all contracts would be open to cancellation or renegotiation by a bankruptcy judge.  This would most likely include your contract for retention.

Clearly, for the past 11 months, you have been doing better than a majority of Americans.  You have had a job and benefits. Compare this to the many people who have lost their jobs because of the havoc wrought by AIGFP.  Think about the folks who have lost their homes because of your company and others on Wall Street that created magic to hide the financial risks that they were taking.  There are many people in America today, who like your parents are working multiple jobs, who have it tougher today and have a cloudy retirement future because of this magic that your group peddled.

Think for a moment about the auto workers.  I am not a big fan of either auto manufacturer management or unions, but there haven’t been retention bonuses like yours for people in Lansing or Flint.  There are a whole lot of people who have it much worse and are being asked to take it just a little longer.  If the auto examples don’t work, check out Circuit City, Linens ‘n Things or Lehman Brothers. Think about others who contracts have been changed on a one-sided basis — forced furloughs, auto worker’s contracts, pay cuts. It is bigger than an AIG thing.

It amazes me that the folks within AIG are so tone deaf with regard to the PR aspect of this.  They are surprised that there are a lot of people in this country (aka the owners of AIG) who have a problem with $165 M being paid to the people that had a hand in the crisis that they are living.  Even Mr. Liddy, who should know better, seemed caught off-guard by the vehemence of the public response.

I guess my main message to you, Mr. De Santis, is to Grow Up.  You have been richly rewarded by a company that failed on so many levels.  If the company had succumbed to bankruptcy, most likely you would not have received your bonus.  The message that the financial industry has always put out was that the pay was so high due to the risks involved. Now, Mr. DeSantis you get to see up close what risk reciprocity means in the bad times. So welcome to the growing team of folks that has been screwed by AIG.

I wish you luck in your upcoming job search and hope that you can put this episode behind you where it belongs.


Al Herbach