The Network Garden - Mark Sigal's Blog

Engine Failure: When Financial Markets Fail

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." – Winston Churchill

There is a saying on Wall Street that goes, "The market can stay irrational longer than you can stay solvent."

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Scared and confused, consumers stared Monday at computer screens showing a jaw-dropping 777-point, one-day drop of the Dow Jones Industrials in response to the House of Representatives rejection of the proposed $700 billion dollar bailout plan.

They wondered what could be so awful that our government tells us that we need to provide the financial markets a $700B fix NOW, when until recently many of our leaders said the economy was doing just fine, and if anything, we were envious of the superstars of finance, the investment bank CEOs, private equity types and hedge funders, who seemingly could turn lead into gold. 

Moreover, we’ve been taught since the Reagan era about the efficiencies of Mr. Market, that “greed is good” because it motivates wealth creation, and that this wealth trickles down to one and all.  What has changed, we wondered?

A Primer on What is Happening on Wall Street
First, a quickie primer on what is going on.  Deregulation lead to a financial market where credit was cheap and easy to get.  This drove up the consumption of that credit to unsustainable and ultimately, unsupportable levels. 

On Main Street, the best example of this is the person who couldn’t qualify to get a loan to buy a $20,000 car (because auto loan underwriting standards are fairly stringent), yet nonetheless could get a loan to buy a $700,000 home.  Intuitively, that doesn’t make sense, right?

Part of what makes the great engine of the financial marketplace work is a process whereby all of the different types of outstanding loans are chopped up and re-packaged into securities 'baskets' based on the loan type and underlying credit-worthiness of the borrowers associated with a particular basket. 

These securities are then sold in secondary markets as a faceless class of investment (versus a direct stake in Joe or Mary's home mortgage), with the buyers being other banks, mutual funds and the like. 

Independent credit rating agencies are the entities that bless these securities by assigning risk levels associated with a given security class, which drives the risk premium investors expect as an incentive to buy these securities.

What supercharged this long-standing part of the way the financial marketplace works, and ultimately set the stage for a full collapse is two things: 

1. As Wall Street's bread-and-butter business of investment banking and trading stocks became less profitable (when electronic trading took hold), i-bankers started to re-direct their massive pools of capital into complex derivative financial instruments such as yield-enhanced, sub-prime mortgage loans (e.g., collateralized debt obligations – CDOs), often at an eye-popping 30-to-1 leverage.
2. Buyers of theses securities thought that these investments were "made safe" by a type of insurance product known as a credit default swap, a credit derivative from companies, such as AIG.

Unfortunately, the same credit ratings agencies that have (relatively) safely weighted the risk of default on less exotic financial instruments, like bonds and mortgage-backed securities, were now attaching their stamp of predictability to infinitely more complex types of derivative instruments. 

And as history now shows, they were seismically wrong, turning what might have been a disruptive tremor into a massive financial earthquake. 

(The fact the agencies themselves were 'polluted,' operating in financial self-interest in using their trusted seal to extol the predictiveness of these incredibly complex, volatile financial instruments is for another post.)

The bottom line is that when housing turned down, the mortgages and derivatives were worth a lot less and no one would lend Wall Street money anymore.  Then, as Andy Kessler notes, in an excellent post:

“The piling on started. Hedge funds could short financial stocks and then bid down the prices of CDOs stuck on Wall Street's balance sheets. This was pretty easy to do in an illiquid market. Because of the Federal Accounting Standards Board's mark-to-market 157 rule, Wall Street had to write off the lower value of these securities and raise more capital, diluting shareholders. So the stock prices would drop, which is what the shorts wanted in the first place. It was all legitimate.”

Legitimate maybe, but parasitic on our economy, just the same.  Not only did this take down banks and brokerage houses, but given the fundamental misread of risk, it took down the insurance companies like AIG, which were underwriting the credit default swaps, and suddenly hit with unfathomed levels of defaults.

When risk assumptions go out the window, strong and weak look alike, and because borrowers and lenders have commingled, non-transparent interlocking interests, everyone knows that today’s predator may be tomorrow’s lunch.  This gives rise to a liquidity crisis. 

Why?  Simply put, no one trusts anyone else.  Banks certainly don’t trust one another, given all of the downside surprises and each side’s vested interest in selective disclosure.  Thus, experience suggests that in times like these, the smart money should sit on the sidelines until the massacre has played out. 

A scarcity of ready capital in financial markets is, by definition, what a liquidity crisis is.

Why Main Street Should Care
While it is trite to think that those greedy bastards created this mess, let them choke on their own blood, the unfortunate truth is that once lenders stopped lending to one another, all forms of borrowing become either completely unavailable or incredibly expensive.

This means that businesses can’t borrow, which forces them to adjust their operating expenses to the levels that cash flow can support. Since most business rely on variants of business loans, credit lines and the like, they need to cut back spending dramatically, which means cutting personnel, cutting capital investments and the like.

Now, Wall Street’s problem is your problem because you are unemployed and/or unable to borrow, or if you are a small business, suddenly you are faced with businesses/consumers that have stopped buying. 

It is easy to see how this becomes a vicious cycle, and that it what has everyone freaked out, since it is a lot harder to re-start a seized engine than to keep it from failing in the first place.

Enter the Bailout
Let me assert that some form of rescue, bailout or whatever is the most palatable term you prefer, is critical and needed fast (i.e., formally COMMITTED within days, not weeks), since every day that passes is a form of financial Russian roulette. 

The problem, however, in getting a consensus on what the right form of bailout is four-fold:

1. Complex Message: It is too complex for the layman to grok why a bailout is necessary.  The interplay between collateralized debt obligations, credit default swaps, massive leverage and the dynamics/dynamite of short selling hedge funds is akin to E=MC2 for most folk (myself included).  In fact, it took me about 700 words to explain this, and I was trying to be concise!
2. Pattern Recognition: The message of bailout is incongruent with our pattern recognition about market efficiency and the government having no place to be a player is such an environment.  We read about billionaires and their hedge funds, superstar CEOs, etc. and are told that their reward in commensurate with their results (as risk takers), but now in crash times, we are told about the consumer needing to bail out the system.  Does not compute, and being intellectually honest, there is no one right formula for how such a bailout should work so the pre-disposition to do nothing is very strong.
3. Bush's Bucket List: There is such tremendous distrust of a Bush administration that has played the Ready, Fire, Aim game more than once that people hear "Fire" and they tune out.  From Iraq and Enron to Katrina and now this, in the annals of ineptitude, history will show that GWB was a master...of disaster.
4. Common Good v. Self-Preservation: With Bush as a lame-duck president, and the presidential election just 60 days away, not only is the concept of a bailout heavily politicized (read: McCain’s cynical, deeply dangerous, ‘suspension’ of his campaign and polluted messages/actions that followed), but Congress, especially the Republicans, are faced with the unenviable task of deciding between what is right and what will get them re-elected.  Self-preservation versus selflessness.  Unsurprisingly, the members of the House of Representatives in the mostly tightly contested races were the ones mostly likely to vote against the plan.

Where Do We Go From Here
What is needed is a front man that is trust-worthy like Treasury Secretary Henry Paulson (perhaps surrounded by Obama, McCain and a couple of finance luminaries - like Warren Buffett - no one trusts economists) who can explain in a Town Hall format the WHAT, WHY and WHY NOW of the bailout

This should spell out the fact that this is not just a bailout, but if done right, a future nest egg for our economy, with an explicit message that the government is working on behalf of the consumer, not the financial institutions, and a clear articulation of goals and how it will be transparent -- i.e., the antithesis of what everyone has come to associate with the Bush administration. 

You sell this one once you feel that the House/Senate is lined up (behind closed doors without cameras) so Congress gets the halo of having gotten something done, and this is kept as apolitical as possible.

Beyond the downside that this post focuses on, the upside is that, because the US Government is truly the buyer in an extreme ‘buyer's market,’ if structured properly, Paulson could pull off the mother of all trades, and net a trillion dollars for the American people over the next 5-7 years.  That would be penicillin for the budget deficit. (Here is a link to an interview with Warren Buffett on the upside scenario.)

Regardless, maybe the sight of blood on the streets will sharpen this deal a bit further on the one side, and give the naysayers a little less bravado on the other, as the alternative of doing nothing seems pretty ugly and irresponsible.

UPDATE 1: Save the Fat Cats (NYT Op-Ed Piece by Nicholas Kristof on lessons learned from Japan, which had a similar crisis in the 90s but opted against a bailout).  Here is an excerpt:

Japan’s failure to respond urgently and decisively to its banking mess caused the country to endure a “lost decade” of economic stagnation. If America wants to avoid Japan’s decline, the House should follow the Senate’s lead and approve the bailout — immediately…For those of you accustomed to bull markets, who think we’re sure to come out of this quickly, remember this: Japan’s main stock index is still less than one-third of its level of 19 years ago.

UPDATE 2: 'S.E.C. No Evil' (Conde Nast Portfolio article on how, under chairman Christopher Cox, the commission has neutered its enforcement staff, yet another legacy of the ‘just do it’ Bush administration.  Here is an excerpt:

The departing chairman, Donaldson, was a Bush family friend who had been appointed by the White House with the expectation that he would temper the S.E.C.’s activism. Instead, he embraced the agency’s role as cop. The business community felt “that Donaldson was too tough on corporate America and Wall Street,” says a former enforcement official. “Cox was brought in to chill it out.”..Besides pulling back on enforcement, Cox also cut back on the S.E.C.’s new risk-assessment office, created under Donaldson to help the agency do a better job of anticipating financial upheavals.

Related Posts:

1. Black Swans and Bank Runs: on why this crisis was predictable.
2. Financial Tsunamis: connecting the dots in the sub-prime mess.
3. Oil, Vinegar and Volatility: on the history of volatility in the market, and missed opportunities to move away from foreign oil dependence.
4. How Speculative Markets Crush Amateur Investors: why amateur investors fail to grasp that what goes up inevitability comes (crashing) down.

Weekend Nuggets and Good News for "B" Teamers

Random thoughts and scattered nuggets before heading into the weekend...

Sonic Lighter and the Viral Impulse Buy:  Daring Fireball comments on a TechCrunch item about Sonic Lighter, a $1 “virtual lighter” iPhone app that is spreading quickly thanks to being location-aware. When you light it up, it registers on a global map:

"Impressive when you consider that every dot on the map is a dollar. Update: My mistake, apparently every dot is just an “ignition”, so each dot doesn’t correlate to a unique user. Still, though, the thing looks crazy popular."

Hmm...a social, (quasi) real time data-driven app that is priced to be an impulse buy, and which plays off of both viral and locative elements.  That's a concept that I think has some legs.

Carl Bernstein (co-author of 'All the President's Men') writes about John McCain's choice of Sarah Palin as his VP in 'The Palin Pick -- The Devolution of McCain'.  Pretty compelling, I think. 

My take: The Palin choice is so anti everything that McCain once stood for that, when factored against the flip-flops on the state of the economy, the sudden suspension of his campaign and the intellectually dishonest whack-a-mole strategy of keeping Palin away from the press, should say to past supporters of McCain (myself included) that THAT GUY IS NO MORE. Vote ideologically if you must but at least be honest about it.

Jack Cafferty of CNN clearly has a left-leaning bias on the topic, but watch this video excerpt from Katie Couric's interview with Palin on the financial bail-out and try to make sense of Palin's answer.

To Splurge or Not to Splurge: solid back and forth on the financial crisis and whether bailout makes sense.  The real value is in reading the comments.  Read it at Fred Wilson's A VC.

Steve Jobs had a really bad week with his droogs (er, I mean Apple iPhone developers).  I have written way too much on this topic, between all of the blog posts I've authored on Apple's relations with its developer community, and the many, many comments I've made to other bloggers' posts. 

Netting it out: perception has a way of becoming reality, and the perception among the people I know and respect in the iPhone developer community is pretty uniform; namely, that Apple is acting like a land baron, and treating developers as sharecroppers versus essential, respected partners; and to compound that sense, it's using gag orders, deafening silence and exhibiting capricious behavior when clear, reasoned communication would (arguably) solve 99% of the issues associated with them blocking certain third-party apps from the App Store (and, effectively, the iPhone/iPod touch).  Somewhat perversely, the image that echoes through my head on this topic is the scene when Alex, the protagonist in A Clockwork Orange brutalizes his gang mates, the droogs, to keep order and quash signs of dissent.  Alex thinks he's won the battle, only to get his comeuppance at the worst possible time later in the story.

“B Teamers” take note. Some of us weren’t natural-born quarterbacks, don’t have silver spoons in our mouths or can’t conjure up magic on demand.  Does that mean we have to give up our dreams or that we are destined to mediocrity?  Hell no!  But being intellectually honest, there is only one fathomable answer if you want to realize your dreams.  Hire people that are better than you.

You must make it your number one priority to dedicate yourself to creating an environment where people who are better than you — whatever that means in your realm — want to be part of what you are building.

This is more important than the brilliant idea, more critical than working hard.  It’s the meat of the enchilada, and I can assert this one with lots of experience both good and bad. 

He/she who has the best players usually wins.

As a matter of contrast, there is an axiom about the difference between “A” Players and “B” Players.  A players hire people that are better than them and they culturally indoctrinate that mindset into the company so that the company is good now and even better in the future. 

B players, by contrast, generally hire people that are less intelligent and hard working than them.  This is of course a gross generalization, but it frames the argument that — irrespective of what the endeavor is — part of the reason that B players are B players is that they don’t want the extra intensity of truly going for it.

Hence, you can aspire to be better, but if you fail to hire people better than you, you are planting the seeds of your own demise/mediocrity.

Keep this truth front and center.

Have a great weekend.       :-)

The Politics of Fear and Division (versus Unity and Hope)

Wow. This presidential election season has it all.  You’ve got dueling rock star candidates, a historically unpopular president, the Clintonian drama, financial meltdowns and a one-time maverick who sold his soul eight years ago, but of course will never admit it. 

And the latest is that the same candidate – John McCain – who is now getting pummeled in the polls due to his party’s role in the deepening financial crisis (and his own seeming disconnect from the depth of the pain), now plans to 'suspend his campaign' to work on the Wall Street Bailout plan.  Yeah, I am sure that’s not political spin.  More like, keep throwing ‘Hail Mary’ passes in hopes of the big touchdown score.

When you net it out, however, this election is about which vision of our political future prevails.  Do we continue to embrace the politics of ‘fear and division?’  Or do we aim higher and embrace the politics of ‘hope and unity?’

To be clear, it’s not a black and white decision, and obviously there are a lot of underlying social, economic and global world views that go into how we as individuals opt to place our vote.

It is shaped by whether you view the next four years as needing to materially depart from the past eight years or if you don’t. 

Some of that is colored by whether you look at McCain’s veep selection as bringing in a fresh, original outsider to ‘change Washington’ or view it more darkly, as, “the first pure Rovian Republican (i.e., Karl Rove), grown totally in the petri dish of cultural crusaderism,” as Maureen Dowd aptly puts it.

Some of that is further framed by whether you see McCain's surprise VP choice, his sudden decision to suspend his campaign and spontaneous pronouncement that he would fire the head of the SEC (a week after saying that the economy is fine) as examples of the old Maverick in action, or as proof positive of a desperate, reckless, shoot from the hipster.

As the final credits approach on this election season, one particularly interesting question is whether old media ‘grows a pair’ (euphemistically speaking), and is relevant to the narrative that shapes these final days, or once again allows themselves to be bullied into submission, as will be their legacy during the Bush administration.

One final note on the topic of division versus unity.  Part of Obama’s vulnerability is a by-product of a continued division within his own party, the flames of which are not so subtly kept burning by the always self-dealing Clintons.  Consider this excerpt from Dowd's 'Park Avenue Diplomacy' in yesterday’s The New York Times:

Even if she (Sarah Palin) blows off the First Amendment — and lets McCain’s Rove, Steve Schmidt, demonize the press even though she disdains women politicians who whine — Bill Clinton is still a fan.

Besides talking about what a great man John McCain is on “The View” and “David Letterman,” Bill praised Palin at his Clinton Global Initiative meeting in New York and will receive her there on Thursday.

“I come from Arkansas. I get why she is hot out there,” he said authoritatively, adding: “People look at her, and they say, ‘All those kids. Something that happens in everybody’s family. I’m glad she loves her daughter and she’s not ashamed of her. Glad that girl’s going around with her boyfriend. Glad they’re going to get married.’ ” He said voters would think: “I like that little Down syndrome kid. One of them lives down the street. They’re wonderful. ... And I like the idea that this guy does those long-distance races. Stayed in the race for 500 miles with a broken arm. My kind of guy.”

On “The View,” he said he understood that some women might vote for Palin on the basis of gender, even if it was against their economic interest.

“You can’t tell someone else that the ground on which they make their voting decision is irrational,” he said primly.

Well, actually you could, if you weren’t still sulking and plotting for 2012.

As they say, politics makes for strange bedfellows, an all the more appropriate double-entendre considering old Bill’s adulterous legacy and Palin’s rumored one.

UPDATE 1:  The New Yorker has a great article, 'The Choice,' which crisply, and in detail, articulates why Obama is the right presidential choice for our current world, and not McCain.

Here is an excerpt:

Never in living memory has an election been more critical than the one fast approaching—that’s the quadrennial cliché, as expected as the balloons and the bombast. And yet when has it ever felt so urgently true? When have so many Americans had so clear a sense that a Presidency has—at the levels of competence, vision, and integrity—undermined the country and its ideals?

(article found via Daring Fireball)

Related Posts:

1. Obama and the Dems: Are they just wimps? On whether Obama is prepared to take off the gloves and go for the kill.
2. Why Experience Matters: On Palin, Putin and Prudence.
3. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
4. Base motivations: The Matter of McCain v. Obama.

When Your World is Collapsing...Take a Vacation!

The world is a scary place right now.  The stock market is crashing.  The housing market is in the crapper.  And lots of people are waiting for the other shoe to drop in the job market.  What to do when it’s crisis time everywhere you look?  Sell your 401(k)?  Update your resume?  Find god?  No, no, no. 

Take a vacation.  Huh?  You heard me.  Take a vacation.

To frame this one, let me share a quick sermon from when I was a bit younger.  My first startup was a real estate asset management company that was an offshoot of a larger development company. I was driven to eat, sleep and breathe work 24/7/365 days a year.  I had fire in my belly, and was every bit as passionate then as I am now.

My business partner and I hit a major crisis point in the business that involved key customers, key employees and personal sustenance issues, and we shared it in frantic tones with “Sam,” the chairman of the parent company.  We were looking for answers, and we were looking for them fast.

“Sam, we need to move mountains to keep that customer happy.  Sam, is there any way we can sweeten the pot so we don’t lose Brian.  He’s our number one producer.  Sam, we are running perilously low on cash.  What should we do?”

Sam, who was worth well north of $100M, just listened to our rants, our angst, and our serious confusion. Then he smiled, and said, “Guys, take a vacation.”

Flummoxed, we got more agitated.  “Sam, did you hear what we said? It’s serious!?”

Again, Sam repeated, “Guys, the crisis will wait, but you can’t, and besides, it’s never good to make so many big decisions in a stress-filled, darkly confused place.  Take a week off.  The world will still be there.  Your head will be clearer for having taken the break, and your decision making process will be better for it.”

Best advice ever for times of crisis.  The world can wait, and quick decisions made in dark places are usually the worst decisions you can make.  So take a vacation, clear your head, and decide what you need to decide standing at a place of higher ground.

You will be better for it.

Related Posts:

1. Hold a Picture in your Pocket:  Cognitive dissonance and manifesting change.
2. On Intellectual Honesty:  See things as they really are; act on that knowledge.
3. The Five Keys to Business Success: The most important drivers to entrepreneurial success.
4. Ambition is a Kind of Vampirism: The human challenges of aiming high.

Obama and the Dems: Are they just Wimps?

There is a saying that you shouldn’t bring a knife to a gunfight unless you want to end up in the morgue.  So, too, it is with presidential elections.  And that is the fundamental drama yet to be played out in the election battle between John McCain and Barrack Obama. 

We know that the Republicans have no problem pulling out the heavy artillery, and will go for the kill every time.  What we don’t know is whether Obama and the Dems have the cajones to beat the schoolyard bully at his (her) own game.

Because of this, what would otherwise be a one-sided victory by Obama over McCain is instead (currently) fighting to a draw. 

Think about it.  Despite a cratering economy, an unfathomably expensive war with the wrong enemy in Iraq and a historically unpopular Republican president, McCain is still very much in the game.  How can this be so?

Frank Rich, in Sunday’s New York Times, sums it well in the Op-Ed piece, ‘Truthiness Stages a Comeback:

“McCain has largely pulled it off so far, under the guidance of Steve Schmidt, a Karl Rove protégé. A Rovian political strategy by definition means all slime, all the time. But the more crucial Rove game plan is to envelop the entire presidential race in a thick fog of truthiness. All campaigns, Obama’s included, engage in false attacks. But McCain, Sarah Palin and their surrogates keep repeating the same lies over and over not just to smear their opponents and not just to mask their own record. Their larger aim is to construct a bogus alternative reality so relentless it can overwhelm any haphazard journalistic stabs at puncturing it.”

So where does that leave us?  There are two primary ways to win an election.  One is to focus your efforts on ‘owning’ a well-defined constituent base, and then surgically targeting that base (via direct mail, geo-targeted ads, etc.).   

The Republicans have mastered this approach by intersecting the binary interests of BIG business, STRONG military and CONSERVATIVE religious values advocates, and frankly it’s too late in the game for the Dems to define themselves so singularly (and effectively).

The other approach is to wrap yourself in popular sentiment and target your message accordingly.  Bill Clinton’s poll-driven ‘I feel your pain’ mantra is the quintessential example of this approach played to perfection.

Ironically, Obama was well down the popular sentiment road with his populist ‘Change You Can Believe In’ message (since re-framed as ‘The Change We Need’) when the Republicans got smart and decided to co-opt the change message as their own.

What to do?  Cue up the classic scene from ‘The Untouchables,’ where Sean Connery’s Jim Malone sermonizes mob fighting District Attorney, Eliot Ness (Kevin Costner), as follows:

Malone: You said you wanted to get Capone. Do you really wanna get him? You see what I'm saying is, what are you prepared to do?

Ness: Anything within the law.

Malone: And *then* what are you prepared to do? If you open the can on these worms you must be prepared to go all the way. Because they're not gonna give up the fight, until one of you is dead.

Ness: I want to get Capone! I don't know how to do it.

Malone: You wanna know how to get Capone? They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. *That's* the *Chicago* way! And that's how you get Capone. Now do you want to do that? Are you ready to do that? I'm offering you a deal. Do you want this deal?

Ness: I have sworn to capture this man with all legal powers at my disposal and I will do so.

Malone: Well, the Lord hates a coward. [jabs Ness with his hand, and Ness shakes it]

Malone: Do you know what a blood oath is, Mr. Ness?

Ness: Yes.

Malone: Good, 'cause you just took one.

Ah, but isn’t such an approach yet another example of politics as usual?  Doesn’t this undermine Obama’s message of change?

Well, maybe if campaigns were fought in isolation chambers, such analysis might hold. In the real world – of flesh and blood and human emotions – life is a complex bundle full of paradoxes.  So get over it.

People want to elect someone that they identify with, that they ‘get’ at the gut level, someone who will fight for them. They don’t want an egghead, they don’t want an academic and they certainly don’t want a preacher…they want passion, and the best place to channel that passion right now is….anger!

Anger?  Yes, anger at the party that has stolen our civil liberties, sat idly by as our 401Ks washed away, turned a blind eye to protecting our enlisted youth by fighting an unprovoked war – on the cheap no less – and basically, shit upon every bit of collective good will that our country had after 9/11. 

And supreme anger at the former maverick who, for the past eight years, has abandoned every moral fiber of his leadership responsibilities and status as Mr. Straight Talk in the vain hope that he could become president.  Anyone willing to exhaust a lifetime of personal currency on such a Faustian bargain has no right to lead his nation. 

To frame the potency of such a message, Maureen Dowd, writing in The New York Times, imagines a conversation between Obama and Jed Bartlett (the fictional former president of TV’s West Wing) that goes like this:

OBAMA: The problem is we can’t appear angry. Bush called us the angry left. Did you see anyone in Denver who was angry?

BARTLET: Well ... let me think. ...We went to war against the wrong country, Osama bin Laden just celebrated his seventh anniversary of not being caught either dead or alive, my family’s less safe than it was eight years ago, we’ve lost trillions of dollars, millions of jobs, thousands of lives and we lost an entire city due to bad weather. So, you know ... I’m a little angry.

OBAMA: What would you do?

BARTLET GET ANGRIER! Call them liars, because that’s what they are. Sarah Palin didn’t say “thanks but no thanks” to the Bridge to Nowhere. She just said “Thanks.” You were raised by a single mother on food stamps — where does a guy with eight houses who was legacied into Annapolis get off calling you an elitist? And by the way, if you do nothing else, take that word back. Elite is a good word, it means well above average. I’d ask them what their problem is with excellence. While you’re at it, I want the word “patriot” back. McCain can say that the transcendent issue of our time is the spread of Islamic fanaticism or he can choose a running mate who doesn’t know the Bush doctrine from the Monroe Doctrine, but he can’t do both at the same time and call it patriotic. They have to lie — the truth isn’t their friend right now. Get angry. Mock them mercilessly; they’ve earned it. McCain decried agents of intolerance, then chose a running mate who had to ask if she was allowed to ban books from a public library. It’s not bad enough she thinks the planet Earth was created in six days 6,000 years ago complete with a man, a woman and a talking snake, she wants schools to teach the rest of our kids to deny geology, anthropology, archaeology and common sense too? It’s not bad enough she’s forcing her own daughter into a loveless marriage to a teenage hood, she wants the rest of us to guide our daughters in that direction too? It’s not enough that a woman shouldn’t have the right to choose, it should be the law of the land that she has to carry and deliver her rapist’s baby too? I don’t know whether or not Governor Palin has the tenacity of a pit bull, but I know for sure she’s got the qualifications of one. And you’re worried about seeming angry? You could eat their lunch, make them cry and tell their mamas about it and God himself would call it restrained. There are times when you are simply required to be impolite. There are times when condescension is called for!

For starters, it wouldn’t hurt to relentlessly, mercilessly remind people that the best proxy for understanding our current financial meltdown was the S&L crisis, whose cast of infamous ‘political insider’ characters were known as ‘The Keating Five.’  The most famous member of The Keating Five…was/is….John McCain.

So, Obama, what are you prepared to do?

UPDATE 1:  In response to a clear turn by the McCain/Palin campaign to "go negative" in the final days and weeks of the election,  Obama is FINALLY counter-punching, and launching a multimedia advertising/education campaign against McCain, drawing tight parallels to the current financial crisis and the S&L crisis where McCain was a member of The Keating Five.  Check out Keating Economics for more detail (story first covered at Huffington Post).

Related Posts:

1. Why Experience Matters: On Palin, Putin and Prudence.
2. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
3. Base motivations: The Matter of McCain v. Obama.

Bank Runs and Black Swans

Nassim Nicholas Taleb, author of ‘Black Swan’ and ‘Fooled by Randomness’ was recently quoted as saying, "Anyone who knows anything about the history of banking...will tell you that the sub-prime crisis was so bound to happen [but] banks have a tendency to sit on 'time bombs' while convincing themselves that they are conservative."

Or, in the immortal words of Yogi Berra, “This is like déjà vu all over again.”  Consider:

• In 1988-1993, as a young commercial real estate asset manager, my baptism by fire was the Savings and Loan Crisis, a by-product of the deregulation of S&Ls, and the rampant speculation it begat. Between 1989 and mid-1995, the Resolution Trust Corporation, the governmental entity created to clean up the mess, closed or otherwise resolved 747 thrifts with total assets of $394 billion.
• In 1998, Long-Term Capital Management, a hedge fund that had ostensibly created the perfect risk arbitrage vehicle, came crashing down to earth, requiring the government to step in and orchestrate a massive bailout by major banks and investment houses, to avoid a global financial crisis.  Ironically, Bear Stearns, one of the banks intended to participate in the bailout refused, no doubt evoking a fair bit of Schadenfreude when they themselves collapsed earlier this year. (If you’ve never read Roger Lowenstein’s brilliant, ‘When Genius Failed: The Rise and Fall of Long-Term Capital Management,’ use the downtime in the market/economy to give it a read.  Very relevant to our current time.)
• In 2000, aided by a frothy IPO market that couldn’t last (and didn’t) and fueled by legions of morally compromised stock analysts, the tech stock bubble burst, taking the economy, portfolio holdings and countless thousands of jobs with it.
• Now in late 2008, the housing bubble, lead by cheap and easy credit, has punctured, and is expanding into a full-blown financial crisis, exacerbated by a proverbial run on the bank (and the major brokerage houses), as balance sheets prove worse than promised, and the ratings of ‘independent’ credit rating agencies prove meaningless.

To me, this suggests a few essential truths:

1. Four MAJOR financial crisis’ in twenty years is not the hallmark of an ‘efficient market.’  Believe me, as an eight-time entrepreneur, I am the consummate free marketer.  But I also believe that something is systematically wrong when greed, arrogance and faux-transparency can run unfettered, generating the type of collateral damage that wipes out not only sick institutions, but healthy ones as well.
2. There is something fundamentally wrong when Morgan Stanley, a strong institution that just beat earnings, finds itself under siege from short sellers (often naked ones, to boot), who are spreading rumors to profiting mercilessly on the current climate of fear. If the perpetrator were al-Qaeda, we would consider it a matter of national security to protect Morgan Stanley and crush the enemy.  Yet, call these same slime bags hedge funds and we celebrate their ingenuity.  Enough!
3. We no longer live a market that the layperson can understand.  How to assess the convoluted financial supermarket that is Citigroup?  What is smart investing in an increasingly global, interconnected market dominated by the programmed trading, exotic financial instruments like derivatives and highly leveraged, amoral and faceless hedge funds?
4. In the high-risk, high reward world of the financial marketplace, self-governance often is worse than no governance at all, inasmuch as it provides a fig leaf of legitimacy for investors but is akin to letting the wolf watch the sheep.  From deregulated lenders and shadowy hedge funds to compromised (nee polluted) analysts and intellectually bankrupt credit ratings agencies, the data is unfortunately uniform on finance industry self-governance

While it’s all fine and good to say that the market will sort this out, the truth is it’s the free market chant on the way up, but safety nets and taxpayer assisted bailouts on the way down.

Thomas Friedman of The New York Times puts it very succinctly in the highly educational, ‘Keep It In Vegas,’ saying:

“That’s what happens when bubbles burst. You feel wiped out, and the coolness with which the dealers — in this case the markets — sweep away all your chips is unnerving. It’s easy to over-react, and it is important that we don’t. Now is the time for coolly sorting out what markets can do best and what governments need to do better.”

So what is government’s role in mitigating or completely avoiding the next financial collapse?  Again, Friedman:

“In sum, government’s job is to police that fine line between the necessary risk-taking that drives an innovation economy and crazy gambling with other people’s savings in ways that threaten us all. We need to make sure that what happens in Vegas stays in Vegas — and doesn’t come to Main Street. We need to get back to investing in our future and not just betting on it.”

This suggests clearer, more transparent underwriting standards, more constraints on the amount of leverage investment banks, et al can undertake, and perhaps, more stringent controls against predatorial investing strategies, like short selling.

Some, like David Rothkopf, author of ‘Superclass: The Global Power Elite and the World They Are Making,’ argue that “We are at the end of an era — the end of ‘leave it to the markets’ and of the great cop-out that less government is always better government.”

But the hard truth is that few of us honestly believe that more government equates to smart government, something Rothkopf spotlights, saying, “We do not need a regulatory ‘surge’ on Wall Street. We need a complete rethinking of how we make global financial markets more transparent and how we ensure that the risks within those markets — many of which are new and many of which are not well understood even by the experts — are managed and monitored properly.”

If it were only that easy.  As ‘Black Swan’s’ Taleb has repeatedly shown, game changing market disruptions along the lines of our current financial crisis – so-called black swan events – simply defy predictability.

So I guess the moral of the story is: sleep easy...on your cash filled mattress.

UPDATE 1: Great catch by Daring Fireball on the $700B Bailout, 'All of a Sudden':

Senator Bernie Sanders:

For years now, they’ve told us that we can’t afford — that the government providing healthcare to all people is just unimaginable; it can’t be done. We don’t have the money to rebuild our infrastructure. We don’t have the money to wipe out poverty. We can’t do it. But all of a sudden, yeah, we do have $700 billion for a bailout of Wall Street.

In just one week.

UPDATE 2: Warren Buffet interview with CNBC on crisis and why the bailout necessary:

What you have, Joe, you have all the major institutions in the world trying to deleverage.  And we want them to deleverage, but they're trying to deleverage at the same time.  Well, if huge institutions are trying to deleverage, you need someone in the world that's willing to leverage up.  And there's no one that can leverage up except the United States government.  And what they're talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that's going on through all the financial institutions.  And I might add, if they do it right, and I think they will do it reasonably right, they won't do it perfectly right,  I think they'll make a lot of money.  Because if they don't -- they shouldn't buy these debt instruments at what the institutions paid.  They shouldn't buy them at what they're carrying, what the carrying value is, necessarily.  They should buy them at the kind of prices that are available in the market.  People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments.  If the government makes anything over its cost of borrowing, this deal will come out with a profit.  And I would bet it will come out with a profit, actually.

UPDATE 3:  Really good video interview with Taleb (and Daniel Kahneman) at the DLD Conference.  Does a good job of articulating how human nature is to mis-factor risk, such that if we have a $1M home and a $1M stock portfolio, we wouldn't think for a second about NOT having insurance on our home but we also wouldn't think for a second about getting insurance to protect against the collapse of our stock portfolio.  Similarly, he talks about how business schools are teaching incomplete or outmoded models, comparing them to providing a detailed map of the Pyrenees when we are actually traveling in the Alps.  He also speaks about the need to formally separate high risk financial entities like hedge funds from financial utilities like banks, such that it's clear that the former will never be rescued and the latter will never take on material risk.  Lastly, he champions on firing, removing, sending away the operators on any crashed assets on premise that whether incompetence, greed, ethics or combination of both, can't fix the system until the 'pilots who crashed the planes' are grounded for life.

Related Posts:

1. Financial Tsunamis
2. Oil, Vinegar and Volatility
3. How Speculative Markets Crush Amateur Investors

Apple iPhone & App Store: White Hat or Black Hat?

Back in March, I wrote a post, ‘The Scorpion, the Frog and the iPhone SDK,’ where I drew parallels between Apple’s mixed history with third-party developers and the fable of The Scorpion and the Frog.

In it, I wondered aloud whether Apple would recognize the importance of the ‘frog’ (developers) to its self-interest of crossing the proverbial river. 

Otherwise, they seemed destined to succumb to scorpion behavior, sting their base of third-party developers and drown themselves in the process.

My concerns were based on direct experience with Apple as a developer partner dating back to 1994, and the historical pattern recognition of how Microsoft outflanked Apple during the PC Wars.

As I noted in my original post, I believe that perception has a way of becoming reality.  In this case, I am asserting that serious developers will go where they believe they can garner the highest 'return' for their efforts; be that based on creative, collaborative or economic benchmarks.

And they will have viable alternatives.  You can bet on that.  Google's Android, RIM's Blackberry, Windows Mobile are three easy examples.  Does Apple want to secure the 'first string' position in terms of developer resource commitment, or are they willing to take a chance on being relegated to 'third string'?  We already know what that looks like from Mac versus Windows.

Let me say it.  From the moment that Apple ridiculously decided to block the third-party Podcaster application on the grounds that it was duplicative of functionality within iTunes, it bifurcated its brand moving forward.  White hat or black hat?

Yes, Apple can leverage its god-like control to anoint itself as the sole browser, media player, application mash-up or whatever toll road it wants to keep exclusively for itself.

But it stands to mint more coin if it can grow an ecosystem and really lead a mobile computing revolution.

Apple can continue their legacy of secrecy, capriciousness and deafening silence or have a ‘Come to Jesus’ moment and realize that sometimes simple, clear communication not only defuses perceptual landmines, but it’s just basic human courtesy and good karma.

One place to start is by recognizing that key to populating a star-filled universe of iPhone Platform application developers is encouraging communal spaces to form and developers to both share and accelerate best practices.  Gag-order inducing NDA’s aren’t consistent with such endeavors.

Of all the sound bites that I read on the Podcaster rejection, the one from ‘Harry McCracken on the App Store’ is the best:

"Way back when, if software distribution for the Mac had been handled via a Mac App Store with a don’t-duplicate-Apple-products policy, Photoshop might have been refused distribution on the grounds that it was too similar to MacPaint."

As Daring Fireball sagely notes (great coverage of this topic!), so long as App Store is the App Store and not an App Store, Apple is on shaky ground with its exclusionary practices.

Don't get me wrong. Apple is an insanely great company.  I have said repeatedly that I consider it and Google to be without peer. 

I can wax poetic on why I believe that the company has created some unfair advantages for itself.  Heck, we sold Me.com to them fairly recently so I feel like a 'dog' who is eating the 'dog food.'

But, Apple is also a company of many paradoxes.  That statement is sufficiently self-evident that it needs no further explanation.

So the matter of 'Apple v. Podcaster' raises a fair question.  White hat?  Or black hat?

Either way, perception has a way of becoming reality.

UPDATE 1: Mike Ash, an iPhone developer, has a good post that captures a painful, but ultimately productive, 22 steps to develop and launch a new iPhone application.

UPDATE 2: Silicon Alley article on Steve Demeter of Demiforce, makers of Trism, 'I Just Made $250K from App Store in Two Months."  Sidesteps the larger question of whether one boutique developer success in a segment (games) that has never been Apple's strong suit or focus overshadows Apple's land baron-like behavior.  My take: given that Apple has not only blocked Podcaster, but MailWrangler as well on premise of arbitrarily tag of 'insufficient differentiation,' a troubling behaviorial trendline is now clear.  Apple only wants innovation that doesn't step on its property lines.

UPDATE 3: So now Apple is labeling their App Store rejection letters to developers as being UNDER NON DISCLOSURE (i.e., governed by NDA they signed when they joined the developer program).  This means that it is a gag order against disaffected developers bitching to the blogosphere to plead their case in the court of public opinion.  I swear that this is the moment when Apple starts becoming the wearer of the black hat; the bad guy who would rather squash dissent than have reasoned debate, who would rather exert bullying control than see its community iterate to the best, most innovative solution, who seems to fear that if real community fosters they will organize and revolt rather than iterate and elevate this still nascent platform to new heights. If we simply switched the exact same storyline from 'Apple and iPhone' to 'Microsoft and Windows Mobile,' and said that Microsoft was not allowing email packages other than Outlook or browsers other than IE, everyone would be talking about Evil Empires, antitrust and bad karma.  Yes, this is Apple's platform, and they can technically do whatever the hell they please, but we all know the axiom of biting the hand that feeds you, and developers are that hand in a platform play.  Be the bully, at your own peril, as not only is this not defensible, it is a great way to tarnish the brand (ala how Dell irrevocably dinged its brand by attacking a prominent blogger who complained about their diminished product support).

UPDATE 4:  Well, Apple has happily removed the NDA gag order once you've released an app, but the fear of what's driving their actions threatens to scare away serious developers.  In a great post, 'The Fear,' Daring Fireball spells out what's going on from his perspective.  Here is an excerpt:

The problem is that the apps that are the most interesting, the most important, are the ones that take the most work to create. And the apps that take the most work to create are the ones that are most likely not even to be made in this environment, because the risk is greater. The more work it takes to create an app, the more you lose if Apple rejects it. Going back to the ladder analogy, the higher you’re trying to climb, the more you need to trust the ladder before you start.

So their rejection is problematic on three fronts. First, the submission process is such that an app rejected at the conceptual level — one that cannot be tweaked or fixed to gain entry upon resubmission, but whose fundamental premise is rejected by Apple — such an app is only rejected after it has been written. The developer does all of the work to produce the app and only then finds out it was all for naught.

Second, there are clearly rules which are not listed in the SDK guidelines. Third, in its explanations for the rejections, Apple is not stating what these actual unpublished rules are, and is instead offering as the reason this “it duplicates a built-in app” rule which, given all the aforementioned counterexamples that have been accepted into the App Store, isn’t actually a rule at all. The explanation is clearly false.

Taken together, these three factors lead to The Fear, which is that developers cannot trust the App Store process. You can spend all of the time and effort it takes to build an app, follow every known rule, and still get rejected.

Here is a complete list of what Apple must do to increase developers’ trust in the App Store system:

   1. State the rules.
   2. Follow the rules.

Related Posts:

1. The Scorpion, the Frog and the iPhone SDK: on Apple's mixed history with third-party developers.
2. Upward Mobility, Land Grabs and the iPhone Universe: Apple's mobile patent play and what it means to developers.
3. Apple Genius is Pure Genius: sometimes simplicity is pure elegance.
4. Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
5. The Chess Masters - Google versus Apple: why partners Apple and Google are without peers, and (seemingly) destined to become frien-emies.

Why Experience Matters: On Palin, Putin and Prudence

In the latest issue of Vanity Fair (October) is a detailed essay on Vladimir Putin called ‘Dead Soul’ that is a MUST READ.  It is incredible, shocking, thought provoking and the consummate ‘truth is stranger than fiction’ read. 

In essence, it documents how Putin’s Russia is an unseemly marriage of endemic corruption, Mafia-style criminality and 1984-like spy state tactics.  This is a country that is less about a return to Soviet Union era Communism, and more akin to the horrific subterfuge envisioned in the movie, ‘V for Vendetta.’

After reading the article, you can’t help but wonder what it was that Vladimir Putin said to George W. Bush (at their first meeting in 2001) that prompted Bush to say he had “gotten a sense of his soul.” 

You also have to wonder what it says about us as Americans that we twice elected a president who trusts gut instinct over facts, binary decision-making over reasoned, pragmatic analysis, unilateralism over multi-lateralism and most troubling, fear over hope.   

The greatest irony in ‘Dead Soul’ is that, far from being groomed for his role as supreme leader of the new Russia based on proven skills and experience, Putin was plucked from obscurity by the oligarchs as someone that could be packaged up and marketed as westernized, moderate and market friendly. 

Unfortunately, once in power, Putin consolidated his grip on the country and crushed the very patrons that enabled his ascent.

Enter Presidential Election, 2008, and the cynical choosing of Sarah Palin by one-time maverick, John McCain, as his VP.

As Frank Rich puts it crisply in, ‘The Palin-Whatshisname Ticket’:

“The cunning of the Palin choice as a political strategy is that a candidate who embodies fear of change can be sold as a ‘maverick’ simply because she looks the part. Her marketers have a lot to work with. Palin is not only the first woman on a Republican presidential ticket, but she is young, vibrant and a Washington outsider with no explicit connection to Bush or the war in Iraq. That package looks like change even if what’s inside is anything but.”

Rich notes sarcastically of the GOP's bullying of the media with cries of sexism, elitism and liberal bias:

“They want the bar for admission to the White House to be placed so low that legitimate scrutiny and criticism of Palin’s qualifications, record and family values can all be placed off limits.”

Ironically, however, some conservatives not only see this as hypocrisy and a double standard at work, but worry that historical conservative hallmarks of prudence, experience and knowledge are giving rise to an ugly strain of populism.

Byron York of National Review, a rare conservative who acknowledges the double standard, captured it best: “If the Obamas had a 17-year-old daughter who was unmarried and pregnant by a tough-talking black kid, my guess is if they all appeared onstage at a Democratic convention and the delegates were cheering wildly, a number of conservatives might be discussing the issue of dysfunctional black families.”

David Brooks, a conservative writer for The New York Times in ‘Why Experience Matters’ sounds the alarm that Palin is unqualified to be a heartbeat away from the presidency, noting:

“In the current Weekly Standard, Steven Hayward argues that the nation's founders wanted uncertified citizens to hold the highest offices in the land. They did not believe in a separate class of professional executives. They wanted rough and rooted people like Palin.

I would have more sympathy for this view if I hadn't just lived through the last eight years. For if the Bush administration was anything, it was the anti-establishment attitude put into executive practice.”

And the problem with this attitude is that, especially in his first term, it made Bush inept at governance. It turns out that governance, the creation and execution of policy, is hard. It requires acquired skills. Most of all, it requires prudence.

What is prudence? It is the ability to grasp the unique pattern of a specific situation. It is the ability to absorb the vast flow of information and still discern the essential current of events — the things that go together and the things that will never go together. It is the ability to engage in complex deliberations and feel which arguments have the most weight.  How is prudence acquired? Experience."

He finishes, “Sarah Palin has many virtues. If you wanted someone to destroy a corrupt establishment, she'd be your woman. But the constructive act of governance is another matter. She has not been engaged in national issues, does not have a repertoire of historic patterns and, like President Bush, she seems to compensate for her lack of experience with brashness and excessive decisiveness.”

Returning to where we started, the Palin parallels to Putin are a bit unnerving.  Rich summarizes what a McCain victory means:

“If we’ve learned anything from the GOP. convention and its aftermath, it’s that the 2008 edition of John McCain is too weak to serve as America’s chief executive. This unmentionable truth, more than race, is now the real elephant in the room of this election.

No longer able to remember his principles any better than he can distinguish between Sunnis and Shia, McCain stands revealed as a guy who can be easily rolled by anyone who sells him a plan for “victory,” whether in Iraq or in Michigan. A McCain victory on Election Day will usher in a Palin presidency, with McCain serving as a transitional front man, an even weaker Bush to her Cheney.”

Putin’s benefactors couldn’t be troubled to look too closely at exactly who they were coronating, and they lost their grip and their country in the process.

Along similar lines, it remains to be seen whether the last eight years have taught us anything, as well as whether Obama can finally convey the gut-level passion, vision and roll up your sleeves mentality needed to overcome the economic devastation that is at the core of the fears that Palin and company are trying to exploit.

In the end, though, we as citizens get the government that we deserve and demand.  And nothing more.

UPDATE 1: Excerpt from Katie Couric interview of Sarah Palin.  All that I can say is "heartbeat away from the presidency" and the fact that McCain says emphatically with a straight face that Palin is "absolutely ready to be president" tells you all that you need to know.

UPDATE 2: The New Yorker has written a really good article on how McCain came to pick Sarah Palin.  Here is an excerpt:

McCain had met Palin once, but their conversation—at a reception during a meeting of the National Governors Association, six months earlier—had lasted only fifteen minutes. “It wasn’t a real conversation,” said the longtime friend, who called the choice of Palin “the fucking most ridiculous thing I’ve ever heard.” Aides arranged a phone call between McCain and Palin, and scrutinized her answers to some seventy items on a questionnaire that she had filled out. But McCain didn’t talk with Palin in person again until the morning of Thursday, August 28th. Palin was flown down to his retreat in Sedona, Arizona, and they spoke for an hour or two. By the time he announced her as his choice, the next day, he had spent less than three hours in her company.

Related Posts:

1. V and The Quiet Coup: on Bush presidency watering down of democracy and American principles
2. Rhetoric - Why it matters: Obama's acceptance speech and where free markets and government meet.
3. Base motivations: The Matter of McCain v. Obama.
4. Why Experience Matters: David Brooks, NYT Op-Ed - excellent piece.

Apple Genius is Pure Genius

In my recent post, ‘65 Million Reasons to be bullish on Apple,’ I brought reference to the new Genius function that was added to iPhone/iPod touch in the 2.1 upgrade.

What is Genius? Genius is a music recommendation service that mines your existing song library within iTunes to build dynamic playlists around favorite songs, and no less important, to recommend songs that you don’t own that you might like to buy.

What I did not realize at the time was that this feature is not limited to iTunes on your PC or Mac but is also built right into the iPhone/iPod touch itself.

What this means is that when you hear a song that you are enjoying listening to right now, and would like to hear “more of the same,” simply click the Genius icon in the middle of the song progress bar section (see above) and in a single click, it builds a custom playlist of related music.

It works surprisingly well, and I found myself tapping ‘next song, next song, next song…’ materially less than usual, somewhat akin to my favorite music recommendation service, Pandora.

Great feature add, and the only wish list item is for Apple to bring the function to iPhone/iPod touch that recommends songs that you don't currently own so users can discover and buy new music in the process of listening to Genius-created playlists.

A final note.  More than ever, I believe that Genius can be grown to support all sorts of media, and that it’s a natural, simple, intuitive base from which to build recommendation services for photos, stories, people and products of all types, not just digital ones.  While I doubt that Apple will ever provide APIs to these functions in the iPhone SDK, I can still wish/hope, right?

Related Links:

1. 65 Million Reasons to be Bullish on Apple: analysis of the 'Let's Rock' event where iPod line refresh and iTunes 8.0 were announced.
2. Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
3. iPhone 2.0 - What it Means to be Mobile: a detailed summary of my experience to date with the iPhone 2.0 platform.

Success Formulas: Life is Not a Board/Bored Game

When I was a kid, we used to play this board game called, “Careers.”  The idea behind the game was that at the onset of the game, you secretly write down a ‘Success Formula’ for victory points along three vectors – Fame, Happiness and Money. 

In other words, if a total number of victory points required to win was 60, you might secretly choose 15 points for Fame, 20 points for Happiness and 25 points for Money as your Success Formula.  He (or she) who was first to achieve their Success Formula score won the game.

When you think about it, life kind of works this way, although we may not practice such discriminating awareness in our life’s pursuits. 

For some of us, it truly is all about Money and/or Fame, and all decisions are rightfully subordinated to this aspiration.  For others, it’s first and foremost about Happiness, and pursuing the path of warm smiles and loving moments.

Clearly, for most of us it’s not a simple either/or, which is why thinking in terms of your personal Success Formula is a worthwhile exercise. 

But how to apply such a 50,000-foot concept to ground level, career path types of decisions? 

Let me share with you an exercise that I was blessed to be introduced to many years ago, that I have turned to time and again when I have been facing major career forking decisions:

1. Step 1: Write down on one piece of paper the six things you get the most enjoyment from doing during the day.
2. Step 2: Write down on another piece of paper the six skills that you consider yourself especially adept at.
3. Step 3: Write down on a third piece of paper the six accomplishments that you would most want to be remembered for if you could flash forward to your funeral.

Now, on a fourth piece of paper write down the top two items (based on your ranking) from each of the first, second and third pieces of paper.  This six item list is your schema, or Success Formula, for pursuing a career path that allows you to do thing that you enjoy, builds upon skills that you already have and takes you down an accomplishment path that is consistent with your life’s aspirations.

Try it.  You might get some clarity on what you are REALLY working for.

Related Links:

1. Hold a Picture in your Pocket:  Cognitive dissonance and manifesting change.
2. On Intellectual Honesty:  See things as they really are; act on that knowledge.
3. The Five Keys to Business Success: The most important drivers to entrepreneurial success.
4. Ambition is a Kind of Vampirism: The human challenges of aiming high.

65 Million Reasons to be bullish on Apple

There are many that will quibble that today’s “Let’s Rock” event, where Apple introduced the next generation of iPods (read: classic, nano and touch) and released iTunes 8, was somewhat of a yawner. 

After all, there was no breakthrough, singular game-changing product announced, and Apple has set a very high bar in this regard, so anything short of a “holy shit” crap your pants type of moment feels like a disappointment.

But, I see it differently.  Apple is a company with mammoth ambitions, who stands alone in their ability to deliver an unparalleled user experience by seamlessly integrating device, software and service/ cloud layers into various form factors (Mac, iPhone, iPods, Apple TV).

The risk, and fear, as evidenced by hiccups on MobileMe and niggling performance issues on iPhone 3G, is that in the almighty pursuit of delivering the next BIG thing, that the company is losing sight of executing on the niggling details that have made their user base so dedicated, translating into enviable operating margins and a growing halo effect that I have previously blogged about (see below).

So what does today’s announcement tell me?  Well for one thing, the company’s head is screwed on straight with respect to the importance of tactical execution.  Today’s presentation was, in many respects, a clinical delineation to current and would-be customers, as well as media and technology partners, that there is Apple, and there is everyone else.

Consider the fact that Apple has now sold a jaw-dropping 160M cumulative iPod units, in the process securing a commanding 73.4% of the market, with the number two market share holder being “Other” at 15.4% (actually, the real number two is Sandisk with 8.6% of the market; Microsoft has a measly 2.6%).

No less impressive, in just sixty days since Apple launched the App Store on iPhone and iPod touch, 100 million application downloads have been made, and over 3,000 applications have been released by third-party developers. This complements a rich media content library that now includes over 8.5 million songs, 125,000 podcasts, 30,000 television episodes, and 2,600 movies.

So while today was about music, and the noteworthy fact that Apple is now the #1 music distributor in any environment (not Wal-Mart, not Best Buy, not Amazon), the related takeaway is that the company has a rapidly evolving online presence to move digital products of all kinds.

The numbers don’t lie: 65M credit cards on account with iTunes account holders; a rapidly growing subset of these users can be reached anytime, anywhere via the iTunes wireless store (read: the 10M+ iPhone and iPod touch owners expected by year’s end) and a continuously evolving marketplace function that enables content and software creators of all sizes to plug in, and sell their wares, with Apple taking a slice for being the facilitator.

And legions of consumers have been taught that this stuff just works, like magic.  Today, that magic was augmented with Genius, a recommendation service that mines your existing library to build dynamic playlists around favorite songs, and no less important, to recommend songs that you don’t own that you might like to buy.

“The Genius function of iTunes 8.0 released today works by uploading -- anonymously and voluntarily -- a user's iTunes data to the iTunes 'cloud,' where it is then combined with knowledge of millions of other users' iTunes libraries. The more people that use Genius, the smarter it will get,” said Apple chief executive Steve Jobs.

Today, the fulcrum is music, but realistically the model can support any media, and over time can logically be extended to products of all types, not just digital ones.  Amazon, are you listening?  So, too should be the bricks and mortar retailers, as oh by the way, the Apple retail store is just around the corner.

Oh, and as to those rumors about Steve Jobs’ health, he flashed a message on the big screen that said, “The reports of my death are greatly exaggerated,” and in a later interview with CNBC noted that ‘I am healthy.”  He certainly looked and acted healthy too, in contrast to his physical appearance earlier this year.

By contrast, the competition should be feeling a bit sick shortly, if they aren't already.

Related Links:

1. Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
2. The Chess Masters - Google versus Apple: why partners Apple and Google are without peers, and (seemingly) destined to become frien-emies.
3. iPhone 2.0 - What it Means to be Mobile: a detailed summary of my experience to date with the iPhone 2.0 platform.
4. iPhone SDK - Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
5. iPhone 2.0 - Swinging for the Fences: an analysis of the WWDC Keynote by Steve Jobs.
6. iPod touch: the first mainstream Wi-Fi mobile platform?

The Tri-fecta of Hypocrisy: The Daily Show on Palin

Jon Stewart, as only he can, skewers messrs. Karl Rove, Bill O'Reilly and Dick Morris on the double-speak of partisanship in the stretch run of the presidential campaign. 

To be clear, Democrats play the exact same game that Republicans do, but to see these clips book-ending the same topic by the same commentator, with diametrically opposed positions depending on the target is pretty hilarious.

Check it out!