Monthly Archives: February 2009

Nature Rules Even The Economy

The Storm Is Back

You may have noticed that we are out of the eye of the storm.

As I mentioned in my last post on the economy (Rules of Nature), the current process of economic unwinding is going to be long and painful, and we are still in the early stages of the process.

The headline issues of the last few weeks – the “stimulus”, the “nationalization of the banks”, and Obama’s “housing plan” – do little to change this reality.

Primary Driver = The Housing Market

The primary driver of our current economic situation remains the housing market. I will not bore you too much data about  where we are, but this article indicative: Housing Prices in 20 U.S. Cities Fall a Record 18.5%.

Unfortunately, these declines are only the beginning.

We must remember that the record mortgage issuance of 2005-06 continued through 2007 and that this was at the end of a massive levering-process at the household level that had been going on for decades. In other words, there is a massive wave of people with underwater mortgages who will continue to default and be foreclosed upon unless something is done to facilitate rational pre-foreclosure restructurings.

Unfortunately, it appears this is not going to happen.

Change Is Not Coming

The primary reasons why proper reform is not happening are: 1) most people don’t understand how important this issue is, 2) most people who do understand the economics let half-baked moral arguments about “bailing out” homeowners get in the way while at the same time talking out of the other side of their mouth about how we need to keep the Banks and GM out of bankruptcy, and 3) when we finally do get a proposal that makes enough people happy to satisfy the lobbyists, it is watered down and ineffectual.

As a result, I am fairly certain that housing prices will continue their steep decline, that this decline will continue to spread to commercial real estate, that the balance sheets banks and other financial institutions (including the Fed) will be even more severely strained, that consumer spending will continue to fall, that consumer defaults will rise, that corporate bankruptcies will spike, and that these results will spur second-and-third order effects around the globe.

Call it a depression or a recession or whatever you want, but it is almost inevitable at this point. But this is nothing new. The writing has been on the wall about this for nearly two years.

Ineffectual Responses Don’t Help

There are so many bad ideas coming out of Washington right now, I am reluctant to even begin dissecting them in specific terms, but the TALF is a good example of governmental attempts to control nature and the markets.

The now $1T package is discussed in this article:
U.S. Tries a Trillion-Dollar Key for Locked Lending

That the credit system needs thawing is obvious, but providing below-market loans, funded by taxpayers, to encourage under-water risk takers to bet the bank in order to get these markets going to me is beyond the pale. And more than that, it just won’t work. It is too small and too late.

Real Hope

All of that being said: I remain optimistic about innovation and the long-term success of the American Economy.

There is a lot of exciting stuff going on in the world of social-networking, medical technology, biotechnology, clean tech and digital media. These and other areas will continue to drive the engine of innovation in this country and subsequently the world.

I am grateful to go to school with entrepreneurs who are taking the plunge to do something creative in spite of the dark reality in which we find ourselves.

But that is unsurprising.

A half-melted, rain-soaked, bloody-mouthed American Dream is still the best promise and hope that the world has ever seen. And years from now, that dream will continue to be worth fighting for.

In the meantime, keep your umbrella handy and be patient. This one will be around for awhile.

Why I Like Twitter

As Twitter grows in popularity, a number of my friends who have heard me talking about it have started asking me why I like Twitter so much. Although I enjoy chatting about the topic and am glad to do so anytime, I thought writing a post on it might be helpful.

Here are a few of the meaningful ways I have integrated Twitter into my life.

1) As a way to interact with and meet a diverse group of people.

I am able to do this on a scale that is impossible with other services – this comes from Twitter’s one-to-many structure (i.e. each one of my “Tweets” is seen by all of my followers). This also creates the ability to have semi-public “conversations” that others can “listen” in on or participate in.
In addition, by reaching out to new people on Twitter (primarily friends of friends) and through the new “followers” I get each day, I have access to an entirely new and diverse source of social connections.

2) As a way to get the News.

It turns out that if something is interesting, people like to talk about it with their friends. Thus, I share and receive all kinds of news through Twitter in a way like never before. The service has virtually replaced my other news services for everything but financial news (for which I primarily turn to mobile Bloomberg and blogs). In addition, Twitter usually has most news stories hours or days ahead of traditional news outlets, which keeps me ahead of the curve in terms of being in touch with the world outside of the HBS-HLS bubble.

3) As a way to keep in touch.

My mother is probably reading this blogpost and so are a number of my friends. In fact, many of you probably stumbled upon this post through Twitter. Thus, you know that I regularly post what I’m up to – ranging from relatively trivial stuff to the places I am traveling. Many of my friends on Twitter do the same, and as a result we are able to keep up to date on what is going on in each of our lives. That I can better stay in touch with my family and friends while maintaining a busy schedule is a great benefit of the service.

4) As a means of self-expression.

One of the things I have enjoyed most about blogging over these last couple of years is that it gives me the ability to express what is on my mind and share it with others. Twitter does the same but on a more real-time basis. As a result, I find myself opening up to an “audience” of friends about the way that I see the world. Of course opening up your life to a new level of transparency is daunting, but I think putting myself out there has brought more than enough good – in conversations, new friends, and insights – to make up for any discomfort that it might create.

If you are new to Twitter.

I suggest giving it a go for a month or so. Like most communities, you reap what you sow, so try to participate in whatever way feels right. There is no one “right” way to use the service. Hopefully my thoughts on it are helpful, and please let me know if you ever want to chat about it more extensively.