Online Psychics: A Growth Business In Down Times

from the contrarian-opportunities dept

I'm definitely a big believer in the idea that there are some businesses that thrive especially in economic down times, and that any business should be looking to take advantages of those opportunities -- but I'm not exactly sure that online psychics were what I was thinking of at the time. Apparently, the online psychic business is booming these days, as people with more money than sense figure the best thing to do is ask a psychic what's coming down the road in their financial future. I don't necessarily mean to cast aspersions on the psychic profession, but my own view into the crystal ball suggests that if you want to have more money than otherwise in the future, you shouldn't spend what money you do have on psychic readings.

Filed Under: financial crisis, psychics

Bloomberg Sues The Fed For More Transparency Over $2 Trillion In Emergency Loans

from the that-would-be-useful-info dept

While plenty of people are focused on the $700 billion TARP bailout/rescue plan that Congress gave the Treasury Department, that's not the only cash the government has at its disposal. In fact, the Federal Reserve has apparently handed out $2 trillion in emergency loans, with almost no transparency over who received the loans and what the collateral is or how it's valued. Bloomberg (the company, not the mayor) is now suing to have the Fed reveal that info. The government has been talking up a storm about how all of these bailout efforts would be very transparent with respect to taxpayer money -- but the reality hasn't lived up to the rhetoric.

The article linked above is from Bloomberg (the party suing the gov't), so perhaps it's biased, but it does seem noteworthy how pretty much everyone tried to dodge questions concerning the $2 trillion in loans. The only person who seemed to be willing to say anything was Rep. Barney Frank, who is the House Financial Services Committee Chairman. Yet, his explanation for the secrecy is hardly compelling:

"I talk to [New York Fed CEO Timothy] Geithner and he was pretty sure that they're OK. If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.''

Pretty sure they're OK? That's hardly a ringing endorsement for keeping the details of such loans a secret.

Filed Under: bailout, financial crisis, transparency

What Obama Should Do To Get The Entrepreneurial Viewpoint

from the we're-about-to-find-out dept

Two contrasting articles crossed my desktop this weekend, both about how President-Elect Barack Obama is likely to govern. The first, by Mark Cuban, criticizes Obama for the list of economic advisers that Obama chose to consult concerning his plans to take on the economic downturn. Cuban, correctly, worries about who is missing from that list:

Notice anything missing?

Not a single entrepreneur. Yes Warren Buffett started a business, but he will be the first to tell you that he "doesn't do start ups". Which means there isn't a single person advising PE Obama that we know of that knows that its like to start and run a business in this or any economic climate. That's a huge problem.

I absolutely agree. It is the entrepreneurial spirit that is needed right now. But, at the same time, it makes you wonder just how Obama would have accomplished this. Any one or two entrepreneurs are unlikely to do a really good job representing all entrepreneurs. Entrepreneurs, for the most part, don't all view things the same way, and there's no real organization of entrepreneurs. The reason entrepreneurs become entrepreneurs is often that they see their own way of doing things and don't want to be locked up by convention. So, while it is worrisome that there aren't any entrepreneur-types on the list, I'm not sure I'd be that much more comfortable with a few entrepreneurs representing the interests of all entrepreneurs either.

That brings us to the second article. It's by David Carr in the NY Times, and looks at how Obama's campaign ran like an entrepreneurial startup itself, leveraging the internet and new technologies to do a complete end-run around much bigger and more well-known "corporate brands" in the political space. And it wonders if Obama will continue to use those tools to govern as well.

So, at the very least, one could argue that Obama, himself, is something of an entrepreneur, but more importantly, one would hope that Obama does, in fact, continue to leverage the internet to hear from folks -- and is actually willing to listen and take suggestions seriously. Why not create an economic roundtable of sorts online that lets more people weigh in? Let ideas in the mix bubble up to the top using ratings systems (and maybe some White House moderators) and contribute them to the mix. If someone has a particularly good suggestion, why not invite them to a meeting with those "big shot" economic advisers as well? It doesn't mean that every hare-brained scheme needs to be listened to, but if there's a good way to allow the best ideas to bubble up and get recognition, it could be quite a powerful new way to govern. To some extent, there's already some indication that this is where things are headed with the transition website Change.gov, but it remains to be seen if that's just a Presidential suggestion box... or something a lot more powerful.

Filed Under: advisers, barack obama, community, economics, entrepreneurship, financial crisis

How A School Board In Wisconsin (And The NYC Subway System) Became Accidental Hedge Funds

from the the-obfuscation-of-risk dept

We've talked in the past about how one of the causes of the financial crisis was that many banks on Wall Street stopped acting like banks and started acting like hedge funds -- despite not really knowing how to do that. That is, they took on much greater risks and higher leverage, without having much of an understanding of how to really hedge that risk. That was fine when all was going well, but when the bubble burst, it started impacting everyone.

Now, in a combined effort between NPR's Planet Money (I know I've said this, but I'll say it again: if you're not listening to this every day, you're missing out, big time) and the NY Times, reports are coming out about how it went well beyond banks turning into hedge funds, to all sorts of other organizations as well. The scary example being described in the first article in this series is how a Wisconsin school board and the NYC subway system, both effectively became hedge funds, lending money out to various banks in exchange for CDOs (collateralized debt obligations). What a CDO is, effectively, is the mashing together of a variety of different debt instruments (loans) that pay out some sort of return. So, you could basically buy some of the return on a whole mess of loans, packaged in all different ways (some amazingly creatively).

If all of those debt instruments that you're buying into keep on paying, you're in good shape. If, however, there are defaults, you can be in an awful lot of trouble. However, while everything was going great, defaults weren't an issue and the folks sold on these CDOs often had no idea how risky they really were. In the article above, for example, the guy who sold the Wisconsin school district on investing $200 million of its pension money in CDOs had only taken a two hour course on them, and greatly downplayed the risks.

And, of course, to make matters even worse, in many cases, the actual risks of such CDOs were hidden through some games, and made worse by either clueless or complicit ratings agencies which rated seriously high risk CDOs as being extremely safe bets. To see a rather graphic (and easily understandable) example of this, I recommend the following Paddy Hirsch video comparing CDOs to pyramids of champagne glasses: The really scary part was that, effectively, you had numerous less than fully sophisticated investors, dumping hundreds of millions, if not billions, of dollars into incredibly complex investment vehicles that they were being falsely told were extremely safe, when the facts are that they were highly risky. Many pension funds and the like allocate a certain small percentage of their investments into high risk vehicles -- but the financial crisis is being caused in part by the realization that a much, much, much larger percentage of their investments actually turned out to be in seriously high risk vehicles, many of which have now defaulted.

Filed Under: financial crisis, hedge funds, new york, wisconsin

Andrew Keen Predicts The End Of Gardening And Pickup Basketball

from the if-it's-not-paid,-it's-not-worth-doing dept

So I already wrote about Andrew Keen's ridiculously laughable assertion that the economic downturn would spell the end of all unpaid activity online -- such as blogging, contributing to Wikipedia and developing open source software. The whole thing was so laughable, I asked Keen to put some money behind some of his predictions, though to date I have not heard from him. I'm guessing this means he really does not believe what he writes.

However, I have to bring this up again, because Jesse Walker over at Reason Magazine does such an amazing job demonstrating the basic logic fallacy in Keen's thinking that it's too good not to repeat:

Andrew Keen predicts an end to backyard gardens, playground basketball, basement jam sessions, amateur painting, and open mic nights for the duration of the economic hard times, because "the idea of free labor will suddenly become profoundly unpalatable to someone faced with their house being repossessed or their kids going hungry."

Oh, wait. Hold on. He only predicts an end to unpaid-but-pleasurable labor on the Internet

No one ever does anything that doesn't result in immediately getting paid, apparently.

Filed Under: amateurs, andrew keen, business models, financial crisis, free, open source

On Second Thought, Maybe Second Life Does Need A Bailout

from the will-some-VC-play-its-Ben-Bernanke dept

Just a week ago, we were laughing at Second Life's attempt to position its economy as being safe compared to the real economy. That seemed difficult to believe, as a variety of things have been conspiring against Second Life for quite some time, and much of its own economy was based on its own inflated hype-bubble that overstated how many users there were and misled companies concerning what people actually did in Second Life (hint: it wasn't visit virtual clothing stores). With that bubble rapidly deflating, it really was only a matter of time until the wider Second Life economy faced its own crisis, and apparently (despite claims to the contrary) that's manifesting itself in a real estate crash within Second Life. At least in the real world, the property is a physical thing that has some intrinsic value. We've pointed out in the past that betting your business model on an economy made up of virtual goods is quite dangerous, and it appears Second Life is discovering that fact pretty quickly.

Filed Under: economy, financial crisis, second life

Cash Rich Tech Companies Becoming Banks?

from the here,-borrow-some-money dept

In one of my posts about the financial crisis, I noted two important things: that if banks really did stop lending money, there would be opportunities for others to start lending (though, the question was whether or not widespread fear would stop that process) and that non-bank businesses might start adjusting their own "loans" in the form of changing the terms on deals. Of course, what we were talking about there was businesses decreasing the amount of credit they offer customers by doing things like shrinking the terms on a deal from payable at net 60 days to net 30 days.

What we didn't necessarily count on was that cash rich tech companies might go in the other direction -- and look to fill that opportunity to lend where banks had failed. Apparently vendor financing is suddenly a very hot business, with various tech companies suddenly finding a lot more interest in their leasing and vendor financing programs. Effectively, what's happening is that these tech firms with money are taking over the role of lenders from the banks. Assuming the loan risks are low, this could actually work out quite well for these tech companies in the long run. It's at least something worth watching. Valleywag worries that these sorts of deals almost always end badly -- but that's not necessarily true. It really depends on how the programs are run, and how well they measure the risk associated with certain companies.

Filed Under: cash, financial crisis, lending, tech companies

Belgian Newspaper Lets Readers Into Editorial Meetings On Financial Crisis

from the connecting-with-your-community dept

Earlier this year, I wrote about how too many newspapers thought that adding "community" just meant putting comments on stories. That's not really engaging the community, though. While we've seen a few examples of newspapers doing a better job of really engaging communities, this new story out of Belgium may be one of the best examples so far. A reporter for a newspaper there, De Tijd, had been experimenting with some live blogging solutions, and decided to basically liveblog an editorial meeting where the paper decided how to cover a developing chapter in the financial crisis. While some others in the editorial meeting were nervous about "opening up" their editorial process, it actually was quite useful.

The wider community contributed plenty of useful feedback both on what they hoped the newspaper would cover (which was different than what the editors originally planned to cover), but also in providing more details about what was really important. It gave the journalists there much more insight into the real story, rather than the usual shallow coverage that often comes out of newspaper reporting on a sudden crisis (for example, recognizing that interbank lending -- or the lack thereof -- was a much bigger story than a collapsing stock market). It became truly interactive, with various journalists bouncing ideas off of the community and getting a lot of real time feedback to create a much better product.

Even more interesting was that after the reporter shut down the live chat, many in the group simply organized themselves into an IRC chat room and continued the conversation themselves. It's a fascinating story of how a newspaper embraced an actual community, rather than simply thinking that community was something you add on as a module at the end of the "real journalism."

Filed Under: belgium, community, editorial, financial crisis, newspaper
Companies: de tijd

Andrew Keen: Put Some Money Behind Your Predictions?

from the who-actually-listens-to-this-guy dept

Andrew Keen, of course, is a guy who has written a laughably bad book about how only experts like himself should be able write things, because all those "amateurs" get stuff wrong. There are some who believe that Keen's entire personality is satire, because everything he accuses "amateurs" of doing, he does himself. He gets many facts wrong in his book. His writing is amateurish at best. His interpretations are laughable. He relies on incredibly weak reasoning -- all of which are things he insists that amteurs do, but pros such as himself don't do, because they have editors and such. The most amusing, of course, may be his condemnation of Larry Lessig, whose position he gets almost 100% factually incorrect.

So far, I have yet to read anything by Keen that isn't easily torn apart as laughably false, which reinforces the idea that everything he writes is satire. His latest piece, pointed out by Slashdot, is no exception. In it, Keen announces that the current financial crisis will put an end to open source and "free" business models because the crisis will mean that people actually have to make money.

Spot the rather obvious logical fallacy? The one even your sixth grader could point out? Right. Keen has set up a totally bogus strawman, that "open source" and "free" mean you don't make any money. As anyone who actually looks at the details knows, that's simply not true. Keen is so blinded by the word "free" he misses the fact that when people discuss the use of "free" as a part of a business model, they're talking about using it to make money. Instead, he seems to assume that "free" is the end of the discussion.

"One of the very few positive consequences of the current financial miasma will be a sharp cultural shift in our attitude toward the economic value of our labor. Mass unemployment and a deep economic recession comprise the most effective antidote to the utopian ideals of open-source radicals."

Funny, but part of the reason why all of those "user generated content" businesses took off in the first place was that after the dot com bubble burst, people had a lot of spare time on their hands. So they were more willing to contribute and take part in these things. Keen also seems to not realize that much of that user generated work and open source efforts are not about "utopian ideals" but very practical reasons that involve non-monetary benefits. People contribute to open source software not because they're idealistic, but because it helps them elsewhere. People blog and post videos on YouTube not because they're idealistic, but because they get value out of doing so.

The altruistic ideal of giving away one's labor for free appeared credible in the fat summer of the Web 2.0 boom when social-media startups hung from trees, Facebook was valued at $15 billion, and VCs queued up to fund revenue-less "businesses" like Twitter. But as we contemplate the world post-bailout, when economic reality once again bites, only Silicon Valley's wealthiest technologists can even consider the luxury of donating their labor to the latest fashionable, online, open-source project.

You know, I remember another business that had absolutely no business model right after the last bubble burst, even though venture capitalists had dumped $25 million into it at a very high valuation (which many -- including myself -- thought was ridiculous). That company became Google. According to Keen, that couldn't have happened, because who would ever invest in a company with no business model? Does Keen have no sense of history?

"I'm pretty sure, if not certain, that the idea of free labor will suddenly become profoundly unpalatable to someone faced with their house being repossessed or their kids going hungry. Being paid to work is intuitive to the human condition; it represents our most elemental sense of justice."

Again, that's not what happened during the last downturn, but why let facts get in the way? Also, this is still based on the false premise that there's no actual benefit for people and that they're only doing things for "utopian" ideals. That's simply untrue. If contributing to an open source project helps get you a well-paying job, is that utopian? If building an open source tool helps you jump start a different business, is that utopian? If blogging, Twittering or posting videos to YouTube helps you communicate cheaper, faster and better than other tools, is that utopian? Hardly. But Keen seems unable to consider these possibilities.

"So how will today's brutal economic climate change the Web 2.0 "free" economy? It will result in the rise of online media businesses that reward their contributors with cash.

Well, I certainly hope so, since we hand out plenty of cash to contributors at The Insight Community, but I still think Keen is wrong here. He again is dismissing or purposely ignoring the non-monetary value that people get. Let's look at his "winners" list:

"It will mean the success of Knol over Wikipedia, Mahalo over Google, TheAtlantic.com over the HuffingtonPost.com, iTunes over MySpace, Hulu over YouTube Inc. , Playboy.com over Voyeurweb.com, TechCrunch over the blogosphere, CNN's professional journalism over CNN's iReporter citizen-journalism.

Well, first off, some of those aren't actually competitors, so it seems rather unfair to suggest that's the case. However, I'd like to make a bet. While there are different estimates as to how long any recession might be, the general consensus is that we should hopefully start pulling out by the end of 2009 or early 2010. So, let's pick a few of these that we can measure, and I'll bet Andrew Keen $100 (really money, Andrew) that in two years, on October 22, 2010, Wikipedia still gets more traffic than Knol, that Google is still much, much, much bigger than Mahalo (if they're even considered competitors any more), and that YouTube gets more traffic than Hulu.

If any one of those is untrue, I'll write him a check. As for the other comparisons he makes, they don't seem to be particularly reasonable comparisons, so I don't see how to fairly evaluate how one wins over the other. TechCrunch is a part of the blogosphere, so how does that make sense? In fact, TechCrunch came out of the same "utopian" ideals that Keen dismisses. Michael Arrington started it for fun, with no plans to turn it into a business, but that's what it became. I thought Keen thought that wasn't possible? iReporter doesn't compete with CNN's professional news staff -- they work together. iTunes doesn't compete with MySpace -- they're in totally different businesses.

So, let's put some real money on this, Andrew. Or does Andrew Keen not really believe what he writes?

Filed Under: amateurs, andrew keen, business models, financial crisis, free, open source

Spectacularly Bad Ideas In Response To The Financial Crisis

from the wow dept

The financial crisis is certainly the result of a series of rather complex situations, and with many people rushing to try to understand what happened, plenty of totally incorrect, but very simplified, explanations are being proffered: it was the Republicans fault! It was the Democrats fault! Free market economics doesn't work! Poor people are to blame! None of these are even close to accurate, but it leads people to come up with positively nutty suggestions for how we should react -- and what's more troubling is that some of these suggestions come from well-respected individuals who should know better. In the past few days, we've seen two absolutely ridiculous suggestions, which would make problems much, much worse, but are apparently suggested in all seriousness.

The first is apparently in the latest issue of the Harvard Business Review, where two business school professors suggest that business managers should be licensed, similar to doctors and lawyers. That's a fantastic idea if you want to basically destroy business growth. In fact, we've already examined how these sorts of "professional unions" often are really designed to simply inflate prices for services by limiting the supply of service providers. These sorts of licensing systems often do little to actually "protect" consumers, but do plenty to make them pay more. If you added the same situation to business managers, you'd make running any kind of business significantly more expensive, while removing from the pool of potential managers plenty of people who would excel at the job. While you can at least understand some of the reasoning for licensing some professions, management is one where it's hard to see any rationale, as creativity and out-of-the-box thinking is often what managers need the most.

The second also seems to come from the medical profession, and it would be to purposely slow down innovation by forcing all new financial instruments to go through a complex approval process similar to what it takes for drugs to be approved. I can't think of a better way to kill the economy than that. I've been meaning to dig into some of the problems with the health care system for a few months (though, the whole financial crisis has pushed that back), and one of the biggest problems with it right now is the process for approving drugs, which often does more harm than good. Extending that broken process to other businesses, such as the financial industry, would basically ensure that money would quickly flow out of the US and into other countries that have more reasonable financial systems.

I can understand the desire to come up with big solutions to "fix" the problems that created this financial mess, but suggestions like these are simply scary overreactions by people who don't seem to understand what really caused the problems. Both of these suggestions would make things significantly worse, based on the false belief that you can somehow have some body (government or licensing body) that can decide what's "good" and what's "bad" for business.

Filed Under: approval process, bad ideas, financial crisis, licenses, professional associations, unions