Credit Crisis demystified by Jonathan Jarvis

Here's an excellent educational video on the credit crisis by Jonathan Jarvis. The video explains how the whole mortgage & credit system works and what went wrong with the system leading us to the present crisis. This is a "must watch" video for folks who are closely following the credit/economic crisis and wondering how this all happened and why no one has caught this earlier.

I loved the way Jonathan has demystified this complex issue and presented it in such a simple and entertaining way. I've spent countless hours reading up numerous articles/blogs & discussing with my friends in financial world to understand the credit crisis, This is the best and simplest explanation I've seen till date. Hope you like it:-)

For those interested in reading more, here's an stirring article from Orin Woodward on why government shouldn't get involved in this credit crisis and use taxpayers money to bailout banks. He says that this is creative destruction and this would help us evolve much stronger from this crisis. While I do agree with Orrin's reasoning, Govt sitting back and letting things take its own course is definitely not an option given the current recessionary conditions & scale of this crisis. Some of the banks/bankers who were the prime reason for this crisis might stand to gain from this Govt intervention, that cannot be prevented and its part of the deal. The risk of Govt not intervening and letting the country/world go into prolonged depression is way too high. It is going to be more expensive to clean up later and people will have to go through more pains (similar to 1929 depression) before we get the system back on track.

The real crisis? We stopped being wise - Barry Schwartz's speech at TED

This is an excellent speech by Barry Schwartz at TED 2009. In this speech he says that the real crisis we are facing is our loss of wisdom. He talks about the importance of values, virtues etc and says that putting rules and more rules is not the solution. He also says that virtues cannot be taught at school nor can be put as an instruction sheet, it needs to be practiced by people and imbibed as part of our values.

This seems to echo my thoughts on one of my earlier blogs regarding the ethical/moral crisis reg Sathyam.

There are some excellent speeches published in TED website. You could check them out if you are interested.

How Twitter changed my life!

I came across this excellent presentation on Twitter and how to use it. Just wanted to share it with you folks. For those of you who dont know about Twitter its a micro blogging service where you share updates with your friends/followers on key happenings/updates in your life.

How Twitter Changed My Life

View more presentations from Minxuan Lee. (tags: micro twitter)

Personally in my case i started using Twitter close to 3 months back. Initially I was not sure how to use it & didn't see much value in it. However over the last couple of months I've really started to love twitter. The key is picking the right set of people to follow and start interacting regularly with your network. Quantity doesn't matter, quality does else you will get overwhelmed with junk.

Twitter has helped me build a good social network and interact with them in a meaningful way in addition to increasing the quality of my browsing time. One word of caution of using Twitter though, it can be pretty addictive and will eat away your time if you don't do good time management. Here again you don't need to browse all tweets, instead pick the tweets you want to read & respond back. If you try to read everything that comes your way it will overwhelm you. You might also want to use tools like tweetdeck, twhirl etc to organize and browse your tweets.

Here's another good video about Twitter.


Twitter in Plain English from leelefever on Vimeo.

For those who are in Twitter you can follow me - @Shogun1947. For those who are not yet in Twitter you might want to get started quickly and start building your social network!

Future of Newspapers

Who said anything about newspapers being history!! Here's an interesting discussion on future of newspapers by Charlie Rose - Award winning show featured in PBS. Key participants in this conversation are industry bigshots like Walter Isaacson of "Time," Robert Thomson of "Wall Street Journal" and Mort Zuckerman of "The New York Daily News".

The discussion talks about the need for newspapers to re-invent themselves to survive in this internet world where news is delivered free in net. Its covers interesting topics like micro-payments, Delivering premium content through Kindle/eReaders, All color newspapers etc. Overall they are concluding that online will not replace traditional print versions, instead it will augment it.



If you like this you might also want to check out the following article:

How to save your newspaper by Walter Isaacson

Layoff by Profitable Companies - Is it Ethical?

Jan 2009 has been a bad month for US with around 598k jobs being laid off. This is on top of the 2.3M layoffs in 2008. One of the trends that we saw during this cycle was lay-offs by profitable companies like Microsoft, IBM, Intel etc. This garnered a lot of press coverage and prompted a big debate on whether layoff's by profitable companies is ethical.

IMHO layoff by profitable companies is ETHICAL. Here's are some of the reasons why i feel it is ethical:

• Shedding excess baggage: Most large companies over a period of time build up a lot of fluff (redundant positions, over staffing etc) in their operations and this typically goes unnoticed when they are growing well and are profitable. When the going gets tough and margins are starting to take a hit they wake up shed lot of these excess baggage, trim down their operations in order to be more efficient & competitive.
  

• Rollback of excess hiring for anticipated growth: It normally takes between 6-12 months to induct a new employee and have him fully productive in a typical enterprise. Lot of companies do anticipatory hiring based on their targeted growth. When a downturn occurs, most companies realize that a slowdown is occurring only when they start feeling the pinch. When growth suddenly starts tapering out and they don't have sufficient work for the folks that were hired ahead of time. Hence leading to lay-offs.

• Declining Demand/Consumption: One of the key reasons for economic slowdown is decline in consumption. People tend to spend lesser due to risks/tough market conditions and this leads to worsening of the condition. A lot of industries take a hit due to reduced consumption/demand. Its only natural that they reduce operating expenses(shutdown factories, layoff workers etc) to remain profitable.
  

• Weeding out the Non-Performers: Weeding out the bottom x% of non-performers is a standard practice in most enterprises. When the going is good the tolerance level in the system is higher and non-performers get more leeway and lesser folks are laid off. Non-performance related lay-offs also get very little attention/coverage. During difficult times, companies utilize this opportunity for flushing out the non-performers. In most Fortune 500 companies the bottom 2-3% itself can be sizable(few thousands). This whole process also gets more press coverage in tough market conditions.

• Protecting share holder interests: One of the key agenda's for boards and CEO's is to maximize shareholder value. These days there is an enormous amount of scrutiny on company performance, operational metrics, profitability etc more so when the going gets tough. We as share holders & individuals also demand better performance and improved value from corporates. Due to this boards and CEO's take a very conservative & precautionary approach during tough economic conditions to optimize their operations, reduce costs and minimize risks. If boards/CEO doesn't take these tough decisions they will be replaced with folks that can take these decisions.
  

In most cases lay-offs are done due to a combination of one or more of the above factors and hence it is ethical. Pls let me know your views on the same. Also if you feel there are other factors in addition to the ones listed above pls feel free to add to the above.

The World is Flat - Thomas Friedman's Keynote address at MIT

This is great Keynote lecture by Thomas Friedman - author of New York Times bestseller 'The world is flat' at MIT in Nov 2007. In this keynote he provides a high level summary on his book, talks about some of the flattening agents and finally gives us a preview of this new book that got released last summer 'Hot, Flat and Crowded'.

For those who haven't read 'The World is Flat', Its an excellent book that provides lot of thought leadership on globalization and how it is shaping the world. I would highly recommend you to read this.

For those who wants to download this to your IPOD here's the link

Book Review: The Age of Turbulence

Alan Greenspan is one of the greatest economists of our time. He was the US Federal Reserve chairman from 1987- 2006 during one of the longest bull markets in history and was a leading free-markets supporter. In this book he narrates his views, thoughts and experiences on the key economic events that shaped US & global economy for more than 6 decades!

The first half of the book talks about his learning as an economist and also about some of the key economic concepts. He starts off with his experience of 911 crisis and Federal Reserve's role in immediate aftermath. Subsequently he covers about his childhood, how he became an economist and his career progression first as an economist and then in the political world at Washington DC. He delves into some of the key economic events in the last 50 yrs like Recession in the early 80's, Black Monday - '87 stock market crash, End of Cold war/communism, Dot com boom and subsequent crash etc. In the first half he attempts to take the reader through his learning on how economy functions. In some places he gets little technical, it took me few re-reads to get some of the concepts and few were beyond me even after multiple reads :-)

The second half of the book talks about his views on the emerging global economy. What are the forces & factors shaping the new economic model of the world. He covers a wide range of topics like globalization and its impact, Energy and its relation to global economy, Rise of some of the developing economies - China, Russia, India etc, shifts in the world demographics and how it will affect the global power equation etc. He gives a fairly detailed assessment on the above topics. He finishes off the book with his predictions on where the world economy is headed in 2030 and beyond. Alan Greenspan's support for free markets and capitalism and his belief in the self-healing power of free markets has been the anchor for all policy decisions during his long career and it comes out pretty strongly across the entire book.

Overall this was a good read and very informative book. It provides an excellent overview on high level workings on the economy and some of the key economic events of the last century. I would recommend this book for folks that are interested in knowing about economy and how it functions. If economy, capitalism is the last thing in your mind this is not your book :-(

This book has spurred my interest in capitalism, economy and free markets. As a follow up from this I'm planning to read 'Wealth of Nations' by Adam smith!

Satyam Fraud - Ethical/Moral Crisis

In my previous post I had covered my analysis of the Satyam fraud. In case you haven't read it here's the link. In this blog I will be covering some of my thoughts on what led to this crisis and what can we do to prevent this in future.

How did we get here?

I read couple of interesting posts in the net that the world is going through not just economic crisis but also ethical crisis with the mis-management of banks & financial institutions, Ponzi schemes, Corporate frauds, Bribes etc. This is very true. While we can have rules, compliance procedures, multiple levels of cross-checks etc, end of the day if someone wants to cheat he very well can find his way around the system. All our systems and processes are built on the basis of trust & ethics. When these fundamental qualities of an individual/organization fails the whole systems comes crashing down.

What happened in Satyam's case is precisely that. It was a breakdown of trust and ethics. Satyam was bound by SEC, GAAP, SOX regulations, they have independent third party audits etc and still managed to get away with their fraud that too for around 7+ yrs (This came from Raju's statements during enquiry). The current society is becoming more and more materialistic and power, greed, fame, market/peer pressure etc are taking over and some of the basic human values are forgotten. As history has shown us repeatedly those who don't operate in a moral and ethical manner will eventually fail as in the case of Satyam/Raju.

What can we do to prevent this?

In the near-term as an outcome from investigations/analysis Govt will come up with more rules, regulations and compliance procedures. These are more like patchwork and will address some of the outcomes of this fraud and add more overheads to the system (similar to SOX regulations in US where businesses spend millions/billions of $'s). However putting more regulations will not address the root-cause of this issue. This whole episode will keep repeating itself time and again till we reach a stage where our rules and regulations become more of an impediment to our businesses instead of enabling them and defining boundaries/acceptable norms. I'm not saying that we don't need rules & regulations just that rules and compliance alone can never be sufficient.

For us to fix this issue each of us need to look within and ask ourselves if we are doing the right thing. Just like there are rules & regulations for the society, each of us need to operate under the boundaries of personal ethics and values. We as a society need to encourage moral values like honesty, integrity, ethics etc and reward people who follow them. The value system needs to imbibed into the future generations through our education systems and by parents setting an example to their children. While this may sound very philosophical it is essential that we fix this as failure of personal ethics and values is root cause of this issue.

We as individuals need to take ownership and drive this change both in us and in our societies. Lets start with ourselves and kick-off this change one at a time!