October 14, 2009
Credit Crisis - A Simple Analogy
This analogy explains the current banking crisis. It is based upon an anonymous story floating around the internet. I rewrote it to make it more realistic, but want to give kudos to the unknown person who first came up with the concept.

Tom owned a bar in Washington, DC. He mostly served legislators and the employed because most of the local unemployed were alcoholics and could not afford to buy drinks from Tom. Barney and Chris, two of the legislators who frequently patronized Tom’s bar thought this was not right, perhaps even racist, and passed legislation to "strongly encourage" Tom and other bartenders to extend credit to all alcoholics.

Bartenders were then forced to track all drinks imbibed by consumers. If the consumers did not have money to pay, the bar owners had to give the customers loans. Word got around about the new "drink now, pay later" policy and, as a result, increasing numbers of customers flooded into bars around the nation. Soon bars were doing better than ever before and more and more people were buying bars to help service the increased demand for drinks. Since the bartenders were a bit skeptical about the customers’ ability to cover these loans, they raised the price of their drinks. This caused them to lose some of their best customers, but they had so many new customers, especially from the previously underserved segment of unemployed alcoholics, that they were making more sales than ever. Most of the alcoholics did not mind the increased prices, many were not planning on paying their tab anyway.

Many national and international banks then saw an opportunity. They realized they could loan money to the bartenders at a discount and then sell these loans to investors. They were willing to do this for several reasons. First, the bartender’s business would be collateral. Second, the bar tabs themselves were additional collateral. Third, the bankers knew their friends in Congress created this situation. The big bankers had donated so much money to legislators, they expected Congress would cover them if needed. Thus, the bankers then loaned money to the bartenders and used the bar and bar tabs as collateral. The bartenders desperately agreed to the bankers’ terms because otherwise they would have gone out of business trying to comply with the government pressure forcing them to give credit to bad risks.

The banks loaned the bartenders as much money as they could justify and transformed these debts into DRINKBONDS, ALKIBONDS, and PUKEBONDS. These securities were then bundled and traded on international security markets. Naive investors didn't really understand that the securities being sold to them as AAA secured bonds were really the debts of unemployed alcoholics.

Nevertheless, the bond prices steadily climbed, and the securities soon became the hottest-selling items for some of the world’s leading brokerage houses. One day, even though the bond prices were still climbing, a risk manager decides that the time had come to demand payment on the debts incurred by the drinkers. His bank started informing bartenders that they needed to pay up.

Tom and his colleagues (other bartenders) were afraid this day would come. They then demanded payment from their alcoholic customers, but being unemployed alcoholics they cannot pay back their drinking debts. Since, the bartenders could not fulfill their loan obligations, they were forced into bankruptcy. The bars closed and the employees at these bars lost their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS dropped in price by 90%. The collapsed bond asset value destroyed the banking industry's liquidity and hindered it from issuing new loans, thus freezing credit and virtually eliminating economic activity around the world.

The suppliers of the various closed bars were now in trouble too. They had granted generous payment extensions to various bars and had invested their firms' pension funds in the various BOND securities. They found they were now faced with having to write off these bad debts and had lost over 90% of the presumed value of the bonds.

These problems were almost insurmountable. Tom’s wine supplier also claimed bankruptcy, closing the doors on a family business that had endured for three generations. Tom’s beer supplier was taken over by a competitor, who immediately closed the local plant and laid off 150 workers. These situations were mirrored across the world as many bars were forced to closed after being unable to pay their debts. The only bars that were still healthy were those that managed to minimize the loans they made to alcoholics despite the will of Congress.

The bank, the brokerage houses and their respective executives were saved and bailed out by a multi-billion dollar cash infusion from Congress. The same legislators who created the requirement to provide loans to alcoholics were now on TV attacking the bankers and the bartenders. The funds required for this bailout were obtained by new taxes levied on employed, middle-class, non-drinkers.

For more information on the credit crisis, click here. Keep in mind, this credit crisis was caused by the same people who want to control our health system...

October 09, 2009
Saturday Night Live, CNN, and the Nobel Peace Prize
What a week! First, Saturday Night Live pointed out that Emperor Obama had no clothes. The impersonation of Obama was pretty weak, but essence of humor is truth and the skit was a riot. You Tube had it up for a few days, but NBC made them remove it. This was not to protect Obama, but to drive people to the NBC website. You can watch it here, but you have to see a commercial first.

This upset the liberals at CNN so much, they "fact checked" the comedy skit. Are they trying to prove that they are completely biased? A recent poll showed that 89.3% of Americans believe the national media played a very or somewhat strong role in helping to elect President Obama. Fortunately, most Americans have a sense of humor and started posting their own CNN Fact Checks. Some of my favorites follow:

Twitter users have played up CNN’s silliness by creating a hashtag -- Twitter-speak for search term category -- called #CNNFactCheck, used for tweeting pompous corrections of SNL sketches, well-known hyperbolic metaphors, and other absurdities usually are not taken literally – except by CNN fact-checkers of course.

@discerning_con CNN Breaking News: Stepping on a crack will not actually break your mother's back #CNNFactCheck

@mikehassinger: This just in: "Toonces the driving cat" not real cat, can't even DRIVE! #CNNFactCheck

@tnixon16: We interrupt this program to bring you word that Buckwheat has NOT been shot. Repeat: NOT been shot. #cnnfactcheck

@andylevy That wasn’t really Obama - it was actor Fred Armisen! #CNNFactCheck

@adcdl #CNNFactCheck There are 57 states

So after a week of Obama being ridiculed for accomplishing almost nothing, he is awarded the Nobel Peace prize. No, this is not another joke, although that was my first thought. The Nobel committee actually awarded Obama the Nobel Peace prize. I cannot think of anything more likely to further call attention to Obama’s ineffectiveness and to further reduce the brand equity of the Nobel Peace prize which has not been the same since they gave it to Yasir Arafat, the terrorist, and Jimmy Carter. At least the Nobel committee and I agree that all three people have a lot in common.

Wonder what next week will bring?

October 01, 2009
Customer Service and Home Theater Accessories
I used to be in the consumer electronic business and I miss parts of the industry. So I recently started designing home theater systems on the side just to practice my skills (and because it is fun). A client needed a system placed in a specific location with defined space limits. So after determining what products I would recommend for my client, I then turned my attention toward finding an attractive piece of furniture to house everything.

Customer service is vital to the long-term success of a firm, but so many firms fail at this. Recently, I wrote four firms asking them to list which TV stands they had that would meet a specific set of dimensional requirements. I would prefer to have done this myself on their website, but not a one of them had a website that would allow me to enter a specific set of measurements and then give me a list. Instead, you could click on a variety of styles that were not well organized by dimensions. A task that should have taken 1-2 minutes would have taken quite a bit of time to do online. If I was going to spend that much time evaluating each site, I could literally build my own stand (which is an option I am considering).

So I sent Bell'O, StudioTech, Sanus, and Bush Furniture an email explaining my particular requirements and asked them to let me know what products that had that would meet my need. Presumably they should know their products and could have quickly narrowed down the list to a few options.

I was favorably impressed with both Sanus and Studio Tech. Each responded quickly with a list of products that were close to my needs. Unfortunately, neither had products that met my exact needs, but I will definitely consider them for future projects. Thank you Lyn and Cici.

I was not impressed with Bell'O or Bush Furniture. Neither of their customer service agents bothered to do any homework on their own products at all, they just sent me an email saying they would be happy to mail me a catalog. Bell'O was especially annoying, the anonymous agent referred me to their website (the same poorly designed website from which I had to use a form to contact them) instead of answering my question. Their poor service annoyed me to the point where I am leaning toward building my own solution even though I know Bush Furniture has at least one option that would work for my client.

Customer service is always important, but it is vital when the economy is doing poorly. It is an inexpensive and key way to differentiate your firm from the competition.



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