"How could this happen?" - the big question in two parts:
- What was wrong prior to the crisis.
- What triggered the crisis.
Why bother with "what triggered it"; is it not fair that you react and sell all your too expensive shares when you find out? When you're oblivious then see the obvious shall you not act quickly? And anyway, any reasonable construct should withstand a sneeze.
As a good friend of mine puts it - "why all this use of "Panic"? It's nothing but good sense kicking in!"
What was wrong is slightly more interesting. Of course something was skewed, off-balance, out-of-whack: In 87 share prices had gone up faster than ever and to scary P/E ratios, in 1998 many Asian states were into bubbly growth with precious little currency reserves to withstand even the smallest pin prick, the dot-coms and their eyeballs became eventually too ridiculous for common sense, as did 100% mortgages without a credit check this last time.
But then, nothing new in that, off-balance is the normal, it is the nature of things and the reason for having markets. Actually off-balance drives us forward so do not change that.
In reality there is the only one important question that should be posed:
- Who were confused by the sudden reality shift and how did they get out of confused mode again?
Confusion often leads to participants acting alone and against each other. Confusion leads to short term action steered by self-interest without taking the usual long term or global views into account.
In 1987 it was the investors and share "market" that got confused and yelled "sell, sell, sell" even if it pushed all prices even further down. Financial institutions and governments kept a reasonably cool head and the whole thing stabilised itself in short time when the confusing lags in the systems were overcome and new and reasonable price levels were established.
In 1998 it was the financial institutions that became bewildered and confused. The process took far longer than in 1987 as financial institutions played, undermined and gamed against each others for a long while (as they're supposed to do). The turning point seemed to be when the US authorities (cool heads) pressured the largest Wall Street players to sit down, physically in one room, and bail out Long-Term Capital Management in a concerted effort.
In 2008 the confusion took one more step up the ladder, this time the governments became bewildered by the need for an immediate de-leveraging of a huge imbalance, and confusion ensued as politics entered the game. Financial institutions had to be saved and money supply increased (only universal consistent acts so far). But then the local industries became an issue, crisis-wise irrelevant but politically even more important. And that's when I see the parallel to the earlier crisis' when the players acted with short term self interest that inevitably worked against the interest of others and ultimately themselves in the long term - something that prolonged the crisis every time.
I wish I could read about something else than bailout of local industries (inevitably counter to the interest of other countries) or dramatic one-sided lowering of VAT (again, same potential negative effect on other countries).
When I hear no more "local or national interests", only about concerted global actions without a trace of short term self interest I'll declare the crisis as over.
The Long Tail is a great image for a strategy to get the most out of large and mature markets like music and books.
But what about new and virgin markets? When a product is new and unknown and uptake depends on understanding, which is inherently slow? When the product "creates" the "new" market so to speak?
Like the car that did not "take off" until (with the T-Ford) 30 years after the first patented automobile. Like Lotus Notes that took about 7 years in the market and version 4 before they started to talk about "explosive growth".
What could be the image for this strategy be (if indeed any strategy existed)?
That's what I'd call "The Long Snout".
[Hat tip to Thomas who got me thinking this morning]
[Update: Not to be confused with the classic "Hockey Stick" that all start-ups show VCs - the snout has a "rather" longer time scale required to "create" a new market, not merely getting sales and distribution up to speed. Serving a "snout" would send the start-up packing.]
If it goes down a recession is declared and all hunker down, stock markets tumble and worse happens.
GDP is defined as the total market value of all final goods and services produced within the country in a given period of time. It includes government as well of course. By the way, GDP is in principle same as GNP, differs only in how the import - export equation is worked out.
So how to stop a recession from happening? Simple, very simple, here's the answer:
You write a paper (you choose the theme, it does not matter what) and call it a Report. Slap an invoice (any sum, big is fine) onto it and send it to me.
Upon receipt of your "Report" I'll add some notes and scribbles on the bottom. Then I'll send it back to you with another invoice for "services rendered". Your invoice is balanced by my invoice by the way.
Now you slap more notes to the thing, add another invoice and send it to me again.
Rinse and repeat as fast as we can.
At the end of the quarter we'll add up all the invoices and send them to whoever do the GDP calculations.
Voilà, GDP miraculously increased and we've done our duty.
Obviously this is not what an economist would suggest, too easy to criticise. No, some have a much better idea: Consume more!
You hire me to produce some consumer goods and pay me for that.
I use the pay to buy the product I just produced so you have funds to pay me next month.
Rinse and repeat.
Voilà, we all do our duty.
To help kick start such cycles Mr Darling of the UK has lowered the VAT and his colleagues in the US are using all the tools in their tool box to get the US consumers going. And all rejoice when the not-too-bad numbers from Black Friday came in.
Not the smartest of moves this, pure self delusion to be honest, but what to do?
Wealth creation is the crux, real increase in wealth creation is even better.
Go back in time and see what really made a difference in wealth creation: Every time we did a leap in productivity. Every time the equation of value created per resource unit spent increased.
It happened when agriculture and domestication of animals started, it happened when industrialisation happened, it happened when IT made it's impact on production and logistics.
And now, in one dramatic moment everybody stopped up, is looking around declaring loudly "we have to rethink our strategy", "we have to revisit our plans", "we have to do things differently". And the best part, corporate purchase-on-autopilot just because we always did is history.
Excellent. Bravo. That's what it's all about, do things differently.
Better agriculture, slicker production or tweaking IT to refine logistics or sales processes will not deliver the needed leap any more. They've done what they can. Thank you, but now is the time to look elsewhere.
We've done what we can with how we plough and harvest, with how we move stuff around efficiently, in how we produce with less resources, in how we move people into shops to keep the money flowing ever faster. All good, but we left one small item behind: How people work, how they spend their time, how to increase knowledge and it's use (aka innovation), how to create much more in less time while making the resources (people) even more enthusiastic and happy so they'll become even better.
Funny really, as that is where most of the resources go - not only when you're at the office, after all you have to live and consume when not working as well. We cannot shut you off after work hours and save resources. So getting more out of people while they work is a double whammy - and I'm not talking longer office hours, I'm thinking of innovation, less waste of time, smarter decisions, smarter processes, less fluff and much more.
There are billions of people delivering services - directly as a value to the consumer, to other firms or to their own firm. And they all work using paper based methodologies in millenniums old frameworks. And with "paper based methodologies" I include current crop of IT as they're still documents and forms based, include business rules and hierarchies, and reports by transactions as has been the method for hundred of years.
Business Models (as in how to use resources to deliver a value), workflows and methods are in for a change.
The best part is that not only is it the objective right way to move, it's now subjectively seen as the right way as other alternatives do not have the promise required in such scary times, and most important, the lull allows for the time and space to give it a go. When all was at 100% of capacity and nary a cloud was in sight nobody wanted to do anything different, neither did they have time for it.
With the cold shower and dark clouds all over all of that evaporated and a new tune can be heard.
I'm elated as suddenly the obvious becomes visible. And now, roll up your sleeves and get going.
Luckily my little project is built for precisely that, so I'm reasonably happy.