Nasty Surprises

The news has been full of nasty surprises in recent months. Troubles at financial institutions. Surprise losses at Southwest Airlines from fuel price hedges. Lead paint on toys sold by Mattel.

Of course, all these surprises have external causes but that’s not enough of an answer or an excuse. It would be very dangerous to write off the many nasty surprises facing us today as out of the control of Read more

Much Reviled Financial Innovation

One of the stories of the past couple months has been the dissection of the financial instruments that fueled the boom and bust of the mortgage market. I want to add my two cents on the roots of the problem. Because it is not in the instruments themselves. It’s in how they were used. These kinds of financial transactions will not go away but they will hopefully be used more efficiently in the future.

There are countless sources on this subject but two good background pieces can be found Read more

Greenspan, the Black Swan and the Rest of Us

I had a colleague, Bruce Horwitz contact me about Greenspan’s testimony in front of Congress last Friday, described here. Bruce and I had a good conversation earlier this year about The Black Swan. The author of the book, Nassim Nicholas Taleb, has been appearing a lot on television in the past month.

Bruce thought that this was a great example of a “black swan” event, that is, when people are totally surprised by an event. At first, I disagreed. As a former banker, I have memories of the analysis that used to be done on our portfolios Read more

Context for the Current Crisis

This is a really interesting post from Hanna Edwards, “New York City Real Estate Goddess:”

“Throughout history, the middle class has also been “squeezed” by the adaptation of the old guard to the innovations of the times. Once the big guys get the gist, they swallow or copy the innovator. Constant innovation is required. The same is true today. Those who have the ability to recognize changes and work with them are the ones who will be able to survive the constant storm as it roars around us. Those who have given up their desire or ability to innovate, and instead are happy with “a good job” are the ones with the least security, because when the market changes, they can’t change with it.”

Edwards calls for young people to start their careers as microentreprneurs, saying the lessons they learn would be more powerful than entry-level  jobs in large corporations that drain their “passion and energy.”

An interesting counterpoint to Edward’s post can be found in the ideas presented by Michael Mandel, Chief Economist at Business Week, in in interview segment Read more

Before You Lay Anyone Off

At a neighborhood gathering this past weekend, I chatted with a neighbor about his business. Because he is dependent on automotive sales, he is already feeling the pain of the current downturn. And he has already had to let go employees that he had valued but can no longer afford.

In my 25 years as a banker and consultant, I have seen many businesspeople in this position (and sometimes have had to help them make decisions about layoffs). Sometimes, this is the only alternative they have. But I want to take just a few minutes to tell you why you should think twice today about laying people off even when it might have made sense in the past. Read more

Gushing Black Ink on Income Statements

If there is one lesson of the current financial crisis, it is that strong balance sheets and income statements no longer tell investors enough about the performance of a company, whether it be a bank, a service or a product company.

Over the last few decades, technology has fueled a burst of knowledge creation that has allowed companies and economies all over the world to create greater and greater results using fewer and fewer physical inputs. Computers have made us smarter and more efficient. This has led to a problem in corporate valuation Read more