Friday, September 19, 2008

Clinton, The Dot Com Boom and the Banking Meltdown

Some say blame the candidate for President who is not even elected yet. Some say blame Barney Frank. Some say blame the greedy execs working on Wall Street. I say add one more to the list: Bill Clinton. I'm convinced he shares the blame. His legacy after eight years of short sighted, liberal-agenda-driven, self-serving policy has not only cast a shadow over the world's security but also the world's economy. Then we can blame the others, his cronies and his wife. (Whitewater, Whitewater)

First of all - hegemony is not a bad word. It carries a bad connotation because those who know what it means and use it regularly are pseudo-intellectuals spouting their liberal, one-world agenda in the lecture halls of modern academia and poisoned press of a free marketed free-speech nation. Hegemony is what the U.S.A. had as Ronald Reagan exited office and we still had in decent proportions through George Bush's (41) term. We were an economic and military Super Power. We were feared and respected as a member of the U.S. Military in those years I am glad we were. The U.S.S.R. was shattered into pieces and running a fire sale on their entire infrastructure just to have something to burn through the winter of 1990 and China was still isolated and dormant.

And then came the Clintons, the Gores and their agendas; hegemony felt itchy against their one-world culturally relativistic skin, they couldn't shed hegemony fast enough.
So Bill began gutting the U.S. military while selling short the U.S. economy as well. Flying like a kite on the updrafts of his popularity in the polls it is said that even he knew then of the potential crisis in the credit market. Instead of demonstrating moral courage and leadership he laid down at the behest of his party and let the country continue on a path of prosperity built on many false pretenses.

The dot com era began just before the end of his first term and he had the perfect elixir to the economy. He could deliver on the Carville bumper slogan of "It's the economy, stupid" and turn it into "It's the stupid economy" or perhaps "It's the economy and you're all stupid." The better the index reports the better his approval rating. Money was getting cheaper by the day with consecutive drops in the Prime Rate. No sense slowing this freight train because as long as the rails ran on for another eight years who cared if the break in the track over the canyon wall was only another year or two past that time. Bill and Hillary would have already climbed off at the last station.

So now here I am in the mid-90's, watching it up close, daily, in the cubical trenches and eventually from glass towers above Wall Street.
I remember having my first light bulb moment when I was six months into my post-graduate career of selling computers and saying, this can't last. At the time we were touching thousands of new customers every day. People who had never owned anything more technical than a toaster oven were now shelling out $3000-$4000 for a PC or a MAC. Microsoft had done some of their better work and really liberated computing from the arcane workshops in basements, empty garages and university electronics labs and turned it into something mildly useful and entertaining. My reaction was a mixed emotion. I was riding the high of selling these pricey and financially rewarding gizmos but one of the few stepping back long enough from the frenzy to realize it just wasn't sustainable (my wife would say it was my negativity, my friends would identify it as a pessimistic trait. Call it what you will but I said it then).
I would say to people, colleagues and outsiders, "This must be a little bit what it was like working at Ford Motor Co. back when Henry rolled the Model A into production." No one in this country had one. Everyone felt they needed one or at least convinced themselves that wanting one was the right thing. So Detroit cranked them out until everyone did have one. Almost a century later this economic phenomenon appeared to be repeating itself and the focus was now on Houston, Redmond, Austin and Armonk.
I am sure you've heard the joke about how you could get a Model A in any color you wanted as long as that color was black. So after a meteoric rise the market hit a plateau. Much like computers, the original automobiles were built to last. Also, people took better care of their major investments and it was right-minded to continue repairing and maintaining something rather than replace it. I believe this is why all sorts of subtle variations in options, body styles and even colors were introduced. People needed to feel their old car was somehow inadequate and replace a perfectly functional machine with a newer one.
"Look ma, now we can order our computers with different colors."
"Does that make them work better?"
"Umm, no. But it's cool. I need a new one in pink."

So anyway that's kind of how I viewed the computer industry and continue to view it to this day. We were at the dawn of a whole new economic era and no one quite knew how to quantify it.
The first time I stood up and looked around I was seeing 20-30 new people starting on the phones each week. That's not an exaggeration, rather an understatement. My company easily hired more than 1500 new people that year just into the sales divisions. And my company had already gone public. And the stock was going up faster than the employee count . . . and splitting . . . and then going right back to its pre-split price inside of nine months. And that wasn't really uncommon. Almost any public technology company was watching their stock value climb at a weekly rate that was turning people into overnight millionaires. Some of these people were colleagues that had started 2-3 years before me. They truly got in at the ground level, receiving pre-IPO shares and having the savvy to hold them. The guy who didn't is still asking people if they want to sit on his $35,000 couch.

Someone at my alma mater and NOT Al Gore invented a means for computers to talk to each other over telephone lines hundreds of miles apart. Initially this had military applications (as so many inventions do) and was a means of academics sharing libraries of knowledge. Thanks to U.S. ingenuity coupled with a free market system, someone else figured out a way to turn this into commerce.

So another year gone, almost every middle class family in America owned a computer and could "log-on" via AOL and that's when the Internet became the hot market-space, perhaps the last true Killer-Application of the Millennium. It was virgin territory, so for sharp entrepreneurs it was the WWW -- not world wide web -- the Wild Wild West. This is also when non Internet companies figured they could bolt the Internet on to the side of their brick and mortar and give it some new investment-worthy excitement. This was also the time that a company in Houston started building a crooked monument unto itself. It wasn't enough to turn a tidy profit while growing your business anymore, now you needed for every employee to become a millionaire from your stock gains and every executive was using a Billion Dollar Yard stick to measure their success against their peers. AND THIS IS THE LEGACY WE ALL INHERITED AND PAY FOR TODAY. Wealth building on an unreal, unrivaled, unprecedented scale.

So I was making the transition from the phones to the field at this time. I had a front row center seat to watch the effects of cheap money. I remember fighting with my own upper management about discounting. They wondered why we didn't. There was no need. Dot coms flush with venture capital had more millions in the bank then employees in their company. They had no idea what things would ultimately cost when (IF) they ever became operational. Asking for discounts wasn't really necessary.

Then I was meeting with them face-to-face. I was traveling to major metros mostly. Because again, running the shop in bargain mode just wasn't the highest priority. I overlooked the skylines of New York, Chicago, Boston, and San Francisco from big empty leased spaces on floors in the 20's to 30's above street level and costing Tens of Thousands in the monthlies. It was clear from the dust and grime that some of these offices hadn't been inhabited in months or even years. Now, past the lobbies, or in some rare cases the formal reception areas, there were wall-less spaces with (and I would do a quick tabulation with my tongue tucked behind my teeth) $20,000 of furniture and a another $10 - $20k in conference capable phone systems and then with increasing familiarity, the video conferencing setups. Typically there were no less than a dozen Aeron chairs and a single solid piece of highly polished dark wood on a pedestal with ample space to seat every employee of the company and 5-6 visitors at once (mind you that's still only seating for 12). I would hear endless pitches of business plans even though I was the one doing the selling. These guys were in a perpetual pitch for money mode. I was there on-site somewhere past Angel funding because these guys had to have bought at least a little something to warrant my presence. They were now working on there next rounds, still not producing anything, no closer to fleshing out the ranks of the executive team but just knowing from the other guys across the street that this is how it was done. And the plans ranged from semi-ingenious to what I called "Dirty Socks Dot Com". Which is to say that any idea, even ones that wouldn't work on main street were still given credence in the virtual space of the web. I dubbed it Dirty Socks Dot Com as a bit of redactio ad absurdum. You wouldn't go to a strip mall to buy someone else's dirty socks but now because you could theoretically be doing it from home in your slippers, over the web, with moderate shipping fees and no sales tax the idea was somehow suddenly cool and viable.

And there I am one day after one of these meetings and an hour before another one, somewhere in midtown Manhattan at a coffee shop watching Bloomberg or some other 24-7 financial news network. Bill Clinton is following on the heals of another rate cut by Alan Greenspan with some congratulatory language about how far sighted it was. How such rampant economic growth could stall amidst resulting inflation. By all means, keep the bonfire burning; let's throw some kerosene on the blaze.

I distinctly remember visiting a company in D.C. who was webinizing a way to package and sell the mortgage paper from bank to bank. They needed an increase in their credit line and they warranted it because they would not be allowed to fail by the five major banks who were their investors, their customers and chief benefactors. I won't even touch on the apparent conflict of interest here. Suffice it to say that I was there witnessing the creation of a key component of our current dilemma -- fast, automated transfer of credit risks -- the complete commoditization of the mortgage market.

I know you are probably thinking what reason did I have to complain? Well, I didn't. I wasn't. I also wasn't living so far beyond my means that a slowing of that progress or even a sudden downturn would send me into debtor’s prison like it did some of the Silicon Valley programmers who took pre-IPO options in place of real salary and then couldn't pay the taxes when it all went sideways.

Because it did. It started going sideways even before it stopped. I spoke with companies over the phone that were shipping back last months purchases because their own private bubble popped. Either they ran out of venture capital before ever hitting critical mass or someone bought them for their intellectual property rights then flushed everything else, including all the employees who were needlessly creating unnecessary payroll at that point. Initially this was all just part of the game. The founders and their employees would move on to the next start-up and the cycle would continue.

Occasionally, rarely, there were legitimate players with innovative offerings but that's where the problem really took root. They would make it to their own not-so-private day of reckoning. The day of their IPO. And because they were quite rare amidst the vast field of pretenders they all had record setting IPOs. Brokerage firms had to make rules about buying IPO shares on margin much like casinos had to make rules about splitting tens. Any fool could do it. Everyone was making money at this point and they were doing it with borrowed capital.

But the same people who figured out how to get you to buy dog food and prescription drugs online also figured out how to track it all very granularly and that started to put a cap on advertising revenues. Plus, like any industry before it, internet commerce went through all the stages, except in this case almost literally at the speed of fiber optic light. So it had matured in many cases before it had truly finished growing. So the buyouts, the mergers and the need for no more than three internet booksellers (mirroring the three brick and mortar booksellers) put an end to it all. No amount of cheap money could save the virtual from the reality of the markets. My visits to start-ups declined. I was seeing more and more companies in traditional industries and the dot coms were nichier and more boutique or more robust, gobbling up their competition with voracity. I was even visiting some of them in out of the way little burgs where they realized T-1's were no more expensive but office space and all other costs of doing business were bargain priced.

The market started to cascade downward almost as quickly as it had climbed to the peaks of its own glorious ski slopes. My own company's stock stopped moving up. It had been a full year since there was a split. Almost everyone I knew had options that were under water. Some were ducking margin calls. We were all selling our own company's shares to avoid the bigger loss.

I saw it happening and made another well timed career move. I left selling to the dot com world in my rear view mirror before it could leave me standing by the roadside. Occasionally I would glance back. And one day when one of my reps received a call from a refurb computer reseller who had run through all the cheap computers he bought at Dot Com fire sales, calling the manufacturer directly now that he was out of stock and expecting the same pennies on the dollar prices, I knew it was truly over.

And later that year not just Enron but MCI/Worldcom, Tyco and Global Crossing to name a few, all got cranked through their own machinery of crooked accounting in the name of fast and as it turned out, unrealistic profits. Some had been calling for a market correction. That would appear to be a very kind euphemism in these cases though. No one bailed out the stockholders of those companies. I never got a sorry-fella welfare check for my scant few Worldcom shares. Not that I am complaining. Others who had worked for these companies lost their entire pensions and 401(k)'s. No bailout in these cases unless you call Social Security and Medicare a bailout.

So we enter the new Millennium, not with a bang in the year 2000 (which technically, we are told, is not the new Millennium) but instead nine months into the year 2001, the true millennial New Year. A symbol of financial strength, the World Trade Center's twin towers collapse into a massive pile of debris. The markets would never be the same. And although the damage had already been done a year or more earlier this was the watershed in world history that some would say marked the end of the Street's love affair with the internet.

It did not, however end their love affair with profit mongering in the extreme. Like junkies with one bad fix it was time to move to a new dealer or perhaps a different drug.

Enter the psychotic looking dancing banner ad clown. Did the Fed increase rates? I didn't notice. Neither did the car dealers who weren't moving inventory after 9/11. Zero percent, pre-approved everything must go infected the credit industry.

Mortgages apparently became the next virtual big-money reality. People who should never be able to afford houses, yes, I said "NEVER", are getting approved for $200 - $400k loans. And because they don't have an income or assets to support that lifestyle they are taking out home equity loans to buy the accessories for that mode of living like: a second car, recreational water and land vehicles, furniture for a house too big for their means or needs, etc., etc. There was exploitation and bad decision making on both sides of the table and at all levels of the market place. I blame the institutional investors with an almost day traders avarice, the home builders selling "custom homes" like new cars with menus of overpriced, luxury upsell options, buyers who knew full well they wouldn't be able to pay the real loan that came due when the ARM rates adjusted (pleading ignorance is not a defense - ask Thomas Jefferson - you signed the contract and no one held a gun to your head when you signed it) and then the banks for selling the paper before it would come back to haunt them all.

Mort Zuckerman's analysis in his September 29th U.S. News & World Report editorial is much more succinct and eloquent on the key economic levers involved in this epidemic of easy money in a mark to market world. Suffice it to say that there was action by some, inaction by others and plenty of warning signs and indicators of how this all might play out. We've watched a collapse of a very large and elaborate house of cards. Let's not pretend that no one at all was responsible for building it.

The only righteous thing that can occur at this point is investigations that lead to indictments and that everyone, including politicians, past and present are called to account for their actions or inaction as the case may be.

Lee Iacocca took only loan guarantees amidst far more controversy to rescue Chrysler. He made his case to Congress and they agreed but he was proven correct.

This bailout should only be offered in the similar vein and the American people should benefit from total transparency to the loans as part of the Freedom of Information Act. Then, if we see financial institutions that took big loan guarantees and continued going on junkets or others not paying back their loans, we'll know with whom we should bank and who we should avoid. That would correct the market on many levels.

Like many, I am torn. I don't want to see the massive market correction that would occur without some moves made by all the governments of the free world. We all lose and then we truly are victimized by these greedy charlatans who deserve jail time or at least prohibition on the privilege to sit on boards and hold executive posts. And life sentence on those restrictions are justified because if Kevin Mitnick is banned from touching a computer keyboard then their punishments would appear to fit the crime in similar fashion. Conversely, with the bailout as proposed there doesn't appear to be any real accountability, less so if the government merely seizes some measure of control and subjects us all to their characteristic inefficiencies and mismanagement.

On the flip side of the coin that reads "Freedom" is the word "Responsibility".
As good parents we teach our children this lesson from pre-adolescence on. Let government behave like a good parent. Who will be responsible for their bad decisions?

There is no guarantee of outcomes and there is very rarely a safety net big and deep enough for those who want to fly so high. If someone always catches us when we fall we will never feel the pain of the precipitating action. We will not have an aversion to that action when faced with that decision the next time. We will certainly fall again . . . and how far will we all fall next time?

Friday, September 5, 2008

Oprah Exposed

Oprah Winfrey is a racist, anti-feminist, hypocrite.
Another liberal celebrity with a political agenda.
I am saying it because I can.
Isn't the 1st Amendment a grand thing.

She'll have Black Obama on her show but won't interview Pale Palin.
And sure it's her show and she has a right to a political opinion . . . just like I can have an opinion about her and her circus side show.
But let's take it a step further, has she had Hillary Clinton on her show? That's not rhetorical. I really don't know. I don't watch her ridiculous circus with it's couch jumping sideshow Scientologists.
If not then it's not a matter of liberal or conservative politics. It's smacks of a racial preference. I guess Doctor King's work is not quite finished.

Wednesday, September 3, 2008

Stuck the Landing

Wow. She nailed it. And the one thing never mentioned by all the pundits was that she followed two tough acts this Wednesday night. The always engaging Huckabee and the acerbic wit of Giuliani . . . Biden's probably thankful he isn't Obama who must look like a big-eared piece of swiss cheese right now as many times as he got knifed tonight. I didn't think there was any place to stick another blade but she found a few more places to sink the dagger. The media's analysis was a little like Monday mornings back in grade school. We'd all stand around mimicking our favorite lines from an Eddie Murphy Saturday Night Live skit in much the same way a typically cynical and overwrought media was giddily comparing notes on their favorite Palin barbs about Obama.

Overheard halfway through Palin's speech"If even half that's true about the taxes why would anyone in this country vote for Obama?"
"I'm voting for McCain because she's hot."
Blogged this evening from the far left side of the internet, "it's time to get an Obama sign for the yard."