Tech Start-ups warned: “Prepare for an orderly shutdown”

The financial crisis may spell doom for many start-ups. From  Wired.com:

Angel investor Ron Conway (above) thinks it could be at least two years before “the storm” ends, in which case any company with fewer than 6 months worth of cash, needs to either sell out, get a bridge loan, or “prepare for an orderly shutdown.”

“Don’t put your team through the agony of arriving to work one day and saying, ‘Guess what? We ran out of cash.’ You need to face reality. It’s not easy, but it’s basic,” said Conway, speaking on the panel.

I think the guys on The ZA Tech Show made agood point that the crisis could spark off an orgy of buy-outs and mergers. Many tech companies are looking very vulnerable now, with some, like Yahoo, so badly affected by stock price falls that they might want to beg Microsoft to come and buy them after all.

Kill your good ideas

Is the hallmark of a great company its ability to resist half-heartedly attempting to implement good ideas, but rather to focus on perfectly implementing a few of the best? Steve Jobs thinks so. From Bob Sutton “Wisdom From Steve Jobs: The Importance of Killing Good Ideas”:

[Steve] Jobs’ argument went something like this: What is really hard – and a hallmark of great companies – is that they kill at lot of good ideas. Sure, this is tough on people who have come-up with the good ideas as they love them and don’t want to see them die. But that for any single good idea to succeed, it needs a lot of resources, time, and attention, and so only a few ideas can be developed fully. Successful companies are tough enough to kill a lot of good ideas so those few that survive have a chance of reaching their full potential and being implemented properly. I would also add that this approach also applies to good product and experience design. If every good idea is thrown into a product, then the result is a terrible and confusing experience. (This seems to be the problem with the latest version of Microsoft word, it does everything, so therefore is very annoying and confusing to use.)

If you take this argument to its logical conclusion, it means that innovative companies might keep track of these two metrics:

1. How many good ideas are killed? (If this number isn’t high enough, that is a bad sign.)

2. Are people complaining – even leaving – because too many of their good ideas are killed? (The idea here is that if no one is complaining about this problem, then there aren’t enough being killed. The complaining, and even people leaving, is bad. But if no one is complaining, it is a worse sign. Creating this kind of frustration is an unfortunate byproduct of an effective innovation process and if your people don’t have enough pride and confidence to get upset when their innovative ideas are killed, then something is wrong with them — or your culture.)

These weird metrics may or may not work, but they make sense given Jobs’ argument (which I find quite compelling). His argument also resonates with our experience teaching in the d.school — the groups that often do the worst work have too many pet ideas and can’t bring themselves to kill enough of them, so they don’t do a decent job on any of them. Groups that can’t kill enough ideas also often suffer from bad group dynamics, either because multiple members won’t allow the group to kill their pet ideas, or because the group avoids difficult conversations about which ideas (and therefore whose ideas) to kill, and instead, tries to develop too many ideas (None of which are developed well — which results in collective failure.) As Perry tells our students, there comes a point in the process where you have to kill the ideas you have nurtured and come to love, even though it hurts.

The Long Emergency now here, now fully underway…

Jim Kunstler has a great post about “What Now” vis-a-vis the Financial Crisis:

It’s fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that “the worst is over” (maybe… we hope… fingers crossed… hail Mary full of grace… et cetera).

The cluelessness would be funny if it didn’t involve a world-changing catastrophe. All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you. As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That’s what the $700-billion bail-out (excuse me, “rescue plan”) and all its associated ventures are about.

To switch metaphors,  let’s say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand.

Then comes the second stage, the tidal wave itself — which in this case will be horrific monetary inflation — roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

So, that’s what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean…. [Emphasis mine]

In a later post he writes…

In the typhoon of commentary that’s blown around the world a step behind the financial tsunami that’s wrecking everything, two little words have been curiously absent: “fraud” and “swindle.” But aren’t they really at the core of what has happened? Wall Street took the whole world “for a ride” and now a handful of Wall Street’s erstwhile princelings have shifted ceremoniously into US Government service to “fix” the problem with a “toolbox” containing a notional two trillion dollars. This strange exercise in financial kabuki theater will shut down sometime between the election and inauguration day, when the inaugurate finds himself president of the Economic Smoking Wreckage of the United States. What will happen?

I have thought for some time that things could get dangerously out of hand in America, despite our exceptionalist notion that we are immune to the common plot-lines of history…

…If the financial system completes its self-destruction — and that’s looking more and more like a real possibility — there will be several pretty awful consequences…The bottom line of all this is that we in the US could find ourselves in a situation of shortages, hoarding, and rationing.

Via Bruce Sterling.

The West’s “deep self-inflicted wound”

Paul Johnson writing in Forbes in an article entitled “Can we afford Liberalism now“:

The financial crisis, detonated by greed and recklessness on Wall Street and in the City of London, is for the West a deep, self-inflicted wound. The beneficiary won’t be Russia, which, with its fragile, energy-based economy, is likely to suffer more than we shall; it will be India and China. They will move into any power vacuum left by the collapse of Western self-confidence.

If we seriously wish to repair the damage, we need to accept that this is fundamentally a moral crisis, not a financial one. It is the product of the self-indulgence and complacency born of our ultraliberal societies, which have substituted such pseudo-religions as political correctness and saving the planet for genuine distinctions between right and wrong and the cultivation of real virtues. India and China are progress-loving yet morally old-fashioned societies. They cannot afford liberalism. …

We are traveling along the high road to incompetence and poverty, led by a farcical coalition of fashionably liberal academics on the make, assorted eco-crackpots and media wiseacres. This strain of liberalism is highly infectious. The Indians and Chinese have yet to be infected. They’re still healthy, hard at work and going places, full speed ahead.

Atlas of hidden water may avert future conflict

From the New Scientist, “Atlas of hidden water may avert future conflict“:

They are one of the world’s greatest and most precious natural resources, yet are entirely hidden. Now, for the first time, a high-resolution map shows where underground aquifers store vast amounts of water.

The map of “blue gold” (pdf format, 4 MB) is the result of nearly a decade of sometimes difficult talks between neighbouring governments, mediated by UNESCO. The hope is that it will help pave the way to an international law to govern how water is shared around the world.

Aquifers are underground layers of rocks or sediments from which water can be extracted – normally by drilling boreholes or digging wells. They hold 100 times the volume of freshwater that flows down rivers and streams around the world at any time.

What the UNESCO map reveals is just how many aquifers cross international borders. So far, the organisation has identified 273 trans-boundary aquifers: 68 in the Americas, 38 in Africa, 155 in Eastern and Western Europe and 12 in Asia.

The Widening Gyre

It was only a matter of time before pre-war apocalyptic poetry started being quoted in Financial Crisis reporting, but I am happy to see it is by Paul Krugman, and in a very interesting article that all of us interested in emerging markets need to heed.

From The Widening Gyre – NYTimes.com:

Economic data rarely inspire poetic thoughts. But as I was contemplating the latest set of numbers, I realized that I had William Butler Yeats running through my head: “Turning and turning in the widening gyre / The falcon cannot hear the falconer; / Things fall apart; the center cannot hold.”

The widening gyre, in this case, would be the feedback loops (so much for poetry) causing the financial crisis to spin ever further out of control. The hapless falconer would, I guess, be Henry Paulson, the Treasury secretary.

And the gyre continues to widen in new and scary ways. Even as Mr. Paulson and his counterparts in other countries moved to rescue the banks, fresh disasters mounted on other fronts.

Some of these disasters were more or less anticipated. Economists have wondered for some time why hedge funds weren’t suffering more amid the financial carnage. They need wonder no longer: investors are pulling their money out of these funds, forcing fund managers to raise cash with fire sales of stocks and other assets.

The really shocking thing, however, is the way the crisis is spreading to emerging markets — countries like Russia, Korea and Brazil.

These countries were at the core of the last global financial crisis, in the late 1990s (which seemed like a big deal at the time, but was a day at the beach compared with what we’re going through now). They responded to that experience by building up huge war chests of dollars and euros, which were supposed to protect them in the event of any future emergency. And not long ago everyone was talking about “decoupling,” the supposed ability of emerging market economies to keep growing even if the United States fell into recession. “Decoupling is no myth,” The Economist assured its readers back in March. “Indeed, it may yet save the world economy.”

That was then. Now the emerging markets are in big trouble. In fact, says Stephen Jen, the chief currency economist at Morgan Stanley, the “hard landing” in emerging markets may become the “second epicenter” of the global crisis. (U.S. financial markets were the first.)

What happened? In the 1990s, emerging market governments were vulnerable because they had made a habit of borrowing abroad; when the inflow of dollars dried up, they were pushed to the brink. Since then they have been careful to borrow mainly in domestic markets, while building up lots of dollar reserves. But all their caution was undone by the private sector’s obliviousness to risk.

In Russia, for example, banks and corporations rushed to borrow abroad, because dollar interest rates were lower than ruble rates. So while the Russian government was accumulating an impressive hoard of foreign exchange, Russian corporations and banks were running up equally impressive foreign debts. Now their credit lines have been cut off, and they’re in desperate straits.

Needless to say, the existing troubles in the banking system, plus the new troubles at hedge funds and in emerging markets, are all mutually reinforcing. Bad news begets bad news, and the circle of pain just keeps getting wider.

The Widening Gyre

It was only a matter of time before pre-war apocalyptic poetry started being quoted in Financial Crisis reporting, but I am happy to see it is by Paul Krugman, and in a very interesting article that all of us interested in emerging markets need to heed.

From The Widening Gyre – NYTimes.com:

Economic data rarely inspire poetic thoughts. But as I was contemplating the latest set of numbers, I realized that I had William Butler Yeats running through my head: “Turning and turning in the widening gyre / The falcon cannot hear the falconer; / Things fall apart; the center cannot hold.”

The widening gyre, in this case, would be the feedback loops (so much for poetry) causing the financial crisis to spin ever further out of control. The hapless falconer would, I guess, be Henry Paulson, the Treasury secretary.

And the gyre continues to widen in new and scary ways. Even as Mr. Paulson and his counterparts in other countries moved to rescue the banks, fresh disasters mounted on other fronts.

Some of these disasters were more or less anticipated. Economists have wondered for some time why hedge funds weren’t suffering more amid the financial carnage. They need wonder no longer: investors are pulling their money out of these funds, forcing fund managers to raise cash with fire sales of stocks and other assets.

The really shocking thing, however, is the way the crisis is spreading to emerging markets — countries like Russia, Korea and Brazil.

These countries were at the core of the last global financial crisis, in the late 1990s (which seemed like a big deal at the time, but was a day at the beach compared with what we’re going through now). They responded to that experience by building up huge war chests of dollars and euros, which were supposed to protect them in the event of any future emergency. And not long ago everyone was talking about “decoupling,” the supposed ability of emerging market economies to keep growing even if the United States fell into recession. “Decoupling is no myth,” The Economist assured its readers back in March. “Indeed, it may yet save the world economy.”

That was then. Now the emerging markets are in big trouble. In fact, says Stephen Jen, the chief currency economist at Morgan Stanley, the “hard landing” in emerging markets may become the “second epicenter” of the global crisis. (U.S. financial markets were the first.)

What happened? In the 1990s, emerging market governments were vulnerable because they had made a habit of borrowing abroad; when the inflow of dollars dried up, they were pushed to the brink. Since then they have been careful to borrow mainly in domestic markets, while building up lots of dollar reserves. But all their caution was undone by the private sector’s obliviousness to risk.

In Russia, for example, banks and corporations rushed to borrow abroad, because dollar interest rates were lower than ruble rates. So while the Russian government was accumulating an impressive hoard of foreign exchange, Russian corporations and banks were running up equally impressive foreign debts. Now their credit lines have been cut off, and they’re in desperate straits.

Needless to say, the existing troubles in the banking system, plus the new troubles at hedge funds and in emerging markets, are all mutually reinforcing. Bad news begets bad news, and the circle of pain just keeps getting wider.

First Austria, now Italy

Could it be that the Balkans will once again find itself at the centre of a global conflagration?

Hungary and Romania’s dire economic situations brought on by the global financial crisis are triggering major alarm bells about Austria and Italy – the two countries who are at the forefront of large scale banking investments into the Balkans. As Stratfor reported today:

Italy is one of the world’s core economies, with a gross domestic product (GDP) of more than $2.1 trillion. It is the fourth-largest economy in Europe and seventh in the world, with one of Europe’s wealthiest and most influential financial regions centered in the historical banking hub of Milan. A serious problem in the Italian banking system is therefore a dire signal to the rest of Europe. Any problem in Italy would reverberate throughout Europe, potentially cascading into a serious eurozone conflagration that could spell doom for the euro and the monetary union.

Italy’s problems are twofold. The first issue is the Italian banking sector’s exposure to emerging Europe (Central Europe and the Balkans), and the second is that Italy has poor economic fundamentals.

On October the 20th Stratfor reported that:

Austrian banks could be dramatically affected by the financial crisis unraveling in Hungary. In turn, this could have serious implications for the rest of Europe.

…Particularly aggressive in moving into the region were Austrian banking giants Raiffeisen, Erste Bank, Volksbank, BAWAG P.S.K. and Bank Austria Creditanstalt (which is part of Italy’s UniCredit Group Central European banking empire). From their initial move into Central Europe in 1991, these banks expanded operations and practically dominated — along with Italian banks UniCredit and Banca Intesa — the banking sectors of all Central European and Balkan states. In fact, Austrian banks as a whole made 35 percent of their profits in Central European and Balkan markets in 2005 and currently dominate claims in inter-bank lending and short-term money market instruments. Overall Austrian bank exposure to the region amounts to nearly $300 billion, with only Italy (at $212 billion) approaching the same level of exposure. No country’s banking system, however, comes close to the total bank asset exposure to Central Europe and the Balkans, with somewhere between 15 percent and 20 percent of total Austrian bank assets being located in the region.

This inherently means that if a crisis in the region occurs, Austrian banks will be severely tested, if not completely devastated.

Stratfor go on to explain just how vulnerable the Balkans is to the global financial crisis thanks to  its recent consumer debt boom and massive risk taking by the banks that fed that boom.

In Serbia justa about evey high street bank is either Italian, Austrain or very occassionally, Greek (see bold names above).

They have thrown credit at people here leading to a completely artificial spending boom based entirely on consumer credit.

Apart from enslaving the people in debt, this has thrown the trade balance out of kilter and worsened inflation amongst other negative side effects.

I have long warned my Serbian friends not to fall victim to the consumer credit machine thats has enslvaed so many millions of Westerners. Some have been wise enough to resist the lure of easy “free” money, but most have not. It is a national shame that the government did not stop this with decent regulation.

Those Austrian and Italian banks saw a virgin market and acted both irresponsibly and ruthlessly to sell their credit here. They are now paying a hefty price for their greed, overexposure and rashness. I just hope that price is not the complete collpase of the European money system, and with it Eurozone and the EU.

Brians

In Denmark they call boy racers (young men in souped up cars) “Brians”, as in “There goes a another f*cking Brian with fluorescent lights under his car”. Their female equivalents are “Bettinas”.

Tommy and Kenneth are also naughty names, associated with troublesomeness. Tommy is also bad in Norway.

Lila, Mona, Michelle are dodgy girls names, although this really depends on which generation.

I also love the fact  Danes call dealers “Narcomen”, which although it sounds like “narco man”, actually comes from “narco mania”.