THE ENTERPRISE--NO CASH--NO BIZ
Note: If you know of anyone whose name has accidentally been dropped from THE ENTERPRISE distribution list, please let me know. As I was getting all my systems rearranged, I learned of some people that "fell in the cracks." Thanks.
CONSERVE CASH--ABOVE ALL ELSE
The most common question I hear is "What should businesses do in a time like this?" The answer is simple. Manage for cash and conserve cash. Credit is either tight or simply unavailable. Profit is important, but not as important as cash flow. Businesses can go for a long time racking up "losses" on the Income Statement if their cash flow holds up. Eventually, they need to make a profit, and cover non-cash expenses like depreciation (equipment does wear out and money is needed to replace it). In the short term, project detail cash flow and track it constantly. It is like oxygen; without cash flow, the business dies.
WHOSE FAULT IS THIS WHOLE BANKING & FINANCIAL CRISIS?
It's hard to point at one person, or even a group of them. The problem was set up back during the Clinton Administration when he and a Republican controlled Congress agreed to repeal the Glass-Steagall Act. That was the law that restricted investment companies from doing mortgage lending, etc. The mistake wasn't repealing it per se. It was in not placing some much more definite restrictions on these new kinds of lenders--who happen also to be "primarily investment houses," and can get overly aggressive at times. The US doesn't seem to learn much from history, even fairly recent history. I am referring to the Savings & Loan "crisis" which is only a couple of decades old. How did it happen? Same deal. Overly aggressive lending with too few limitations. I guess it's like removing a "too low" speed limit and replacing it with no speed limit at all. Not so smart. Drivers who were impatient under the too-low limits, probably over-compensate when there are none. Sound familiar?
So who's to blame? Clinton and his advisers like Robert Rubin, et. al. The Republicans--the predecessors of those free spending power-hungry folks who were just thrown out of Congress 2 years ago. Oh, yes, a couple of others: former Fed Chairmen Paul Volcker and his successor Alan Greenspan. Volcker's policies arguably caused the last "big" recession. Greenspan's likely caused the past couple of mini-recessions as well as the dot-com/telcom and housing "bubbles." Interesting that one of the main criticisms of Barack Obama's financial policies is that they are reminiscent of Jimmy Carter's, who Presided over the worst bout of inflation, and the highest mortgage interest rate bubble ever, and was behind a piece of the S & L crisis. Who are Obama's advisors" Those old sages, Rubin and Volcker. Hmmm. Think about it. But then blaming a few high level people is wrong too. It took lots of fools to make this big a mess. Fools like these:
FOOLS LENDING MONEY TO FOOLS WHO SHOULDN'T BE BORROWING IT TO BUY HOUSES THEY CAN'T AFFORD?
Why is this not a disaster waiting to happen. When mortgage lending was removed from the exclusive province of banks, and spread to the investment companies, the timer on a time bomb was "armed and ticking." Then it was just a matter of time. Or doesn't anyone recall the Savings and Loan crisis of a couple of decades ago? Back during the Clinton Administration, when Alan Greenspan was his counselor as the Fed Chairman, the move to allow non-banking institutions to do mortgages gave this problem its start. There was a lot of noise about the "poor folks" who couldn't afford to own homes (many of which were minorities--but far from all of them). These bad credit risks were "red-lined," which became synonymous with discrimination or racism. But it wasn't. It was simply risk management. So what did the government do, in all its (liberal) wisdom? It made if possible for folks who couldn't afford to own homes to buy them anyway.
The clever financial institutions figured out that if you took a bushel of bad apples and just removed the top layer and replaced it with good apples, that bushel would still be sold as if it was all good apples. But those rotten apples are now smelling up the place, and those people who couldn't afford to own homes are losing them--until the government, in all its wisdom--decides to "bail them out, too." DUMB.
AND WE WORRY ABOUT PRIVATIZING SOCIAL SECURITY? ARE YOU KIDDING ME?
Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake In an extraordinary turn, the Federal Reserve agreed Tuesday to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan. OK, let's see now. As taxpayers, our government what spent several hundred billion dollars to buy a large stake (it's called a bailout") in Bear-Stearns, Freddie Mac & Fannie May, and now AIG. So we, the taxpayers-citizens of the US, "owe" about $1000 each in "new obligations" to bail out (in return for warrants--which will allow the government to buy stock at an advantageous price) 1) a failing investment firm, 2) a failing insurance company, and 3) & 4) part of two huge mortgage underwriters. In many respects, this is like fire-fighters actually setting a smaller fire to burn a clear area so a much larger forest fire can be controlled.
What will come next? How about loaning another $50 Billion or so to the 3 large US automakers. We might as well add them to the government/taxpayers portfolio--NOT. it's not the same thing at all. Why? Because after that, where do we draw the line? A bigger issue than the auto makers is the hundreds of small banks will likely fail. Small banks over-expanded too--just like housing. The returns were too juicy to pass up. Now the FDIC (Federal Deposit Insurance Corporation, which insures bank deposits) is now under-funded, so it will need another $10-20 Billion, maybe more. This started with Clinton's administration, but got worse on George Bush's (& still Alan Greenspan's) watch. John McCain and others in Congress tried to slow or stop it--to no avail. Senate Finance Committee Chairman Barney Frank (D, MA) threatened to label their mortgage lending limits a "racist/discrimination" issue if he didn't get his way. So he did get his way, and now we pay. FYI--Frank is also openly gay--which may or may not mean anything. During his (undistinguished) Senate career and Presidential run, Barack Obama's donations from Freddie Mac and Fannie May reportedly have tallied in the $300 Million range. (John McCain's--$20,000 or so. AIG gave almost the same amount to each ($40,000), although its former CEO Hank Greenberg was a big McCain supporter.) Whose allegiance lies where? Want to guess?
OBAMA: SAYS ONE THING, AND DOES ANOTHER
Investor's Business Daily called this article "OBAMA'S DOUBLE DEALING DIPLOMACY." I predict you will be surprised, maybe astounded at what it says. There will be no rebuttal from the Obama camp, since they don't want these shady deeds to get any more coverage. They are too busy trying to dig up dirt on Sarah Palin, where they are finding nothing but fabricated issues. Also notice how tightly under wraps Obama's wife Michelle has been held, instead of coming out in opposition to Palin. Her anger is palpable and not far below the surface, so expect her role to be carefully limited. She's smart; but she's also much angrier and more militant than her husband--and that will be the "pillow talk" he hears if he makes it to the White House.
http://www.ibdeditorials.com/IBDArticles.aspx?id=306456935180750
WHO'S KIDDING WHO--PALIN IS NOWHERE NEAR READY TO BE PRESIDENT
I was once asked whether the fact that I had run a $200 or $300 million company made me capable of running a $20 or $30 billion company. The answer is yes, and no. From a leadership standpoint, yes (largely because I had run a multi-divisional, multi-national business). It's more people in more places, and many repeats/variations of a wide range of issues. But from a managerial standpoint, no. There is an entirely different cascading of communications, processes, authority, roles/responsibilities and how things work in a very large, diverse company. It would take time to learn them. I recall learning a lot when I went from a one business, one plant, in the USA at Huffy to 9 businesses with 13 facilities scattered around the globe on 4 continents with Rubbermaid. There were many new issues and new problems to cope with. Insurmountable? No. But there was a learning curve. Bigger, or more widespread entities require some different managerial approaches than smaller ones. I'd imagine (never having been there) that the same is true for government jobs.
Every time I hear the question about whether Sarah Palin is ready to be President, I don't know whether to grin or grimace. Of course she's not. Until a few weeks ago, she was the sitting Governor of Alaska--and the last I heard, there is no Presidential training course offered to sitting governors. George W. Bush is evidence of that. Who might have been more prepared for the GOP spot? Mitt Romney? Mike Huckabee? Rudy Guiliani? Hard to say. What Governors do learn is to "govern;" to be the Chief Executive officer of a large bureaucratic public government unit. That's closer than what a lightly experienced Senator gets. That explains why Obama should be better able to "debate the issues" and Palin should be better able to manage a governmental unit. What Obama has had is a two-year crash course on the issues facing the US, including a ton of media attention. Palin has had 2+ weeks. No contest--not yet. Can she be ready by Jan.? I doubt it. Is Joe Biden? I doubt that too. Is Barack Obama? Who knows, but doubtful. He and Biden clearly should have a better grasp of the issues and their nuances given Obama's campaign preparations and Biden's lengthy Senate career (like McCain's).
So let's quit pretending that Sarah Palin is something she isn't--at least not yet. She is a breath of fresh air; a natural "take-charge" leader; a down-to-earth person. That's not a bad start. Consider how closely her personal and governmental experience compares with Obama's. She was "line," and he was "staff." If he could learn about the issues, she can too; if he can deal with the media and campaign scrutiny, she can too. But don't insult my intelligence by saying "she's ready to step in now." She's not. That only happens in the movies. But, most likely, neither is Obama!) One of my favorite sayings is "In theory, there's very little difference between theory and practice; in practice there's a hell of a lot of difference." Understand?
A POLITICAL PARABLE
A young woman was about to finish her first year of college. Like so many others her age, she considered herself to be a liberal Democrat, and among other liberal ideals, was very much in favor of higher taxes 'on those who can afford to pay more' and firmly believed that the Bush and Reagan cuts of marginal tax rates did nothing but make the rich richer. She was, therefore, ashamed that her father was a rather staunch Republican, a feeling she openly expressed. Based on everything she'd learned in college, she felt that her father had for years harbored an evil, selfish desire to keep what he thought should be his.
One day she was challenging her father on his opposition to higher taxes on the rich and the need for more government programs. The self-professed objectivity proclaimed by her professors had to be the truth and she indicated so to her father. He responded by asking how she was doing in school. Taken aback, she answered that she still had her 4.0 GPA, and let him know that it was tough to maintain, insisting that she was taking a very difficult course load and was constantly studying, which left her no time to go out and party like other people she knew. She didn't even have time for a boyfriend, and didn't really have many college friends because she spent all her time studying. Her father listened and then asked, "How is your friend Audrey doing?"
She replied, "Audrey is barely getting by. All she takes are easy classes, she never studies, and she barely has a 2.0 GPA. She is so popular on campus; college for her is a blast. She's always invited to all the parties, and lots of times she doesn't even show up for classes because she's too hung over."
Her wise father asked his daughter, "Why don't you go to the Dean's office and ask him to deduct a 1.0 off your GPA and give it to your friend who only has a 2.0. That way you will both have a 3.0 GPA and certainly that would be a fair and equal distribution of GPA."
The daughter, visibly shocked by her father's suggestion, angrily fired back, "That's a crazy idea, how would that be fair! I've worked really hard for my grades! I've invested a lot of time, and a lot of hard work! Audrey has done next to nothing toward her degree. She played while I worked my tail off!'"
The father slowly smiled, winked and said gently, "Welcome to the Republican party."
"That's all folks!"
Best, John
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