Woulda Could Shoulda Rudy

I give Rudy an "A" for effort. He'll go down as the "woulda shoulda coulda" candidate on the Republican side. Too many weaknesses. Too little experience. Too narrow platforms. Too weak a PR campaign. It left us Rudy fans with little more than his general tenacity to bank on. If only he could have answered a single question without squeaking in 9/11.

Consider how it coulda been:

The year is 2000 and Rudy is beating Hill by a few points for a Senate seat. He's riding high on a wildly successful mayorality in NYC, having turned the city around against all odds. He finds out he has prostate cancer. His wife finds out he's been cheating on her. She files for divorce and (the nerve!) forces him to move out of the mayor's official residence (Gracie Mansion). The news vultures have a feeding frenzy and he has to drop out of the race. Hill waltzes to victory, the first time she is actually elected (or hired for that matter) to a job representing anyone. She learns how Congress actually works. She weasels her way onto a few influential committes. She builds a legislative record. She gains some international affairs experience.

That coulda been Rudy. Had he not dropped out, he would have won the race, taken the seat, learned the Washington ropes, gotten the necessary experience in foreign affairs, and build his own legislative record. Fast forward to 2008: he'd actually be a viable candidate for president. Those weaknesses I opened this blog with ... presto! gone! Every single one. Hillary would never have been legitimized by a vote. Instead, she'd still be flitting around the world on Bill's coattails pretending she was someone. Had she played her cards right, she might have become another Gore ... or not. Do we really need another hanger-on who can only talk, not act? True, Rudy wouldn't have had those wonderful PR coup soundbites on 9/11. But being at the locus of NYC and Washington, how could he have avoided personifying the moment just as he, in fact, did? Were he "lucky" enough, he might have been in the City on that day and gotten his photo-op anyway.

In short, for Prez, he'd be in and she'd be out.

Econopsychology

A good friend recently asked me "why does cutting the interest rate avoid recession" ....

Cutting interest rates decreases the cost of borrowing for people, businesses, banks, and the government. Banks can "fund" (=borrorow in order to re-lend) themselves cheaper and thus are willing to grant more loans or lower interest loans. Companies can borrow more cheaply to fund new projects which, in general, return a profit. Similarly, people feel more comfortable borrowing money to buy "stuff" (cars, clothes, dinners out, houses) since they know they'll pay less in interest than before. Even if they don't borrow MORE, it still means that the % of their payments which goes to interest decreases, meaning they have more spending money to buy more stuff. In either case, it means companies get busier and make more money. Those companies hire people, give raises, buy "stuff", and pay higher dividends. Their stock price goes up. Both these eventually put money back in people's pockets, and the cycle repeats itself.

Supposedly, the cycle repeats 7 times ... meaning every dollar not spent on interest creates 7 dollars of "wealth" for the country. Part of this increase is due to the fact that, as the economy gets better, loan default rates decrease. This causes banks' "risk appetite" to increase. We see this in two ways:

1. They lower the percentage of assets they hold in reserve. This means they can lend more money without increasing funding or interest rates. Economists call this "increasing the velocity of money" and it has the same effect on the economy as literally printing Ben Franklins.
2. Especially recently with the implementation of Basel II, the become willing to lend to riskier people/projects who previously couldn't get ahold of any bucks. As an aside (to be followed up in a later blog post) this statement goes a long way toward explaining the sub-prime mortgage boom and bust we're currently witnessing.

Another way of answering my friend's question is to put it like this: Any person or company has X amount of income. They have 3 options: save, invest, or spend and they're constantly adjusting the percent of income they allocate to each. Lowering the interest rate DIScourages saving (since it pays less interest), ENcourages spending and investment (since it costs less to borrow). All of these things are good ... as long as they don't cause inflation.

Inflation is a complicated animal. You have to think of it like Sting's message in a bottle. To predict where it will end up, you'd need to know all the tides and storms, winds, currents, boat paths. And even then you'd still be subject to chance and randomness. Its an equation of a billion plusses and minuses which ultimately sums to nearly zero. Figuring out that "nearly" part is what keeps economists up at night. Greenspan is one of the best ever at figuring it out, but the biggest complexity is that, in the time it takes to add it all up, the numbers will have all changed on ya.... Having said that ... yes, too much money in the economy causes inflation ... but so does irresponsible lending, asset scarcity (think of the price of a superbowl ticket the day before the game),

Economics is a social science, not a quantitative one. Literally the only way economists can make their equations bear any resemblance to reality is to always include "plus E" like (1/y)*p = ( i*s / l*m) +E ..... where "E" means the general expectations of the population.

Corporate Newspeak 2

Take-away: (n) A marginally insightful observation which will only have relevance at some unknown future date, often used as a passive-aggressive method of delivering criticism. The verbal equivalent of that chinese food that's been in the back of your fridge for a month. Also: Lessons Learned.
Usage: "Hmm ... so you called our client a monkey in clowns clothing and he fired us ... hmm ... well, the takeaway is don't do that. I'll shoot out a lessons learned e."

Vet: (v) Review somebody else's work so they'll take responsibility for it. The lazy man's critical thinking
Usage: "Hey, I just shot you an E with a draft of some asks. Can you and John vet it before we send it out?"

Gap: (v) Figure out what's fucked up and who to blame, often used with "versus"
Usage: "Hey! Where's my diet Snapple? Jeannie, did you order my diet Snapple? Timmy, it looks like we need to gap our order versus what the caterer sent."

Administrivia: (n) Repetitive often menial bookkeeping work necessary for a large buraucratic organization to function, but outside of what you perceive to be your 'real job'
Usage: "I spent half my day buried in administrivia, so I didn't have time to make us any money."

Outsource: (v) Get someone else to do the work your laziess and ego won't permit you to do
Usage: "I'm going to outsource this administrivia to Mike so I can spend more time brainstorming."

Circle Back: (v) Discuss again as though the topic is new; often used to diplomatically end a discussion where the participants are not infomed, empowered, or cognitive enough to make a decision and everyone's attention span has been exhausted.
Usage: "Listen, you go have a cigarette with Sammy, and I'll read my emails and we'll circle back on this after lunch."

Think On: (v) Ponder; often used as an exuse for not being able to answer a question or to deliver work on time.
Usage: "That's a tough call. I'm going to have to think on it tonight. Let's circle back in the A.M."

Brainstorm: (v) Get in a room with other people and a list of issues with no solution. Then hope that solutions accidentally fall out of someone's mouth while they're arguing about the minutae of how to define the issues.
Usage: "Yes, sir, I know I'm a week late solving that problem. I asked Bob and Harry to think on it so we can brainstorm tomorrow."

Yabba Dhabi Doo

From the press this week, news that investment funds in the United Arab Emirates have taken MAJOR equity holdings in two of the largest global companies: Citigroup ($7.5 billion / 5%) and Sony ("substantial). This atop several other recent SWF investments in AMD (8%), Apollo Management (9%), and Airbus.

Worldwide, something north of $2.5 trillion sits in sovereign wealth funds. Abu Dhabi's fund is purported to be the largest, at $625 billion, but by no means are the Oily Arabs the only ones throwing their government cash around private markets. The second largest fund is purported to be Norway's at $330 billion. And in asia, Singapore has well over $200 billion in various funds. Even communist China owns stocks -- Blackstone Group is now 10% held by the Chinese government. France and Germany don't have specific funds ... that would create perhaps too much trancparency for them. Make no mistake - they're deeply invested in companies in their own countries. Airbus, for example, would not even exist did it not receive a steady "reverse dividend" from it's shareholders, the European governments.

While dollar markets are deep and wide enough to absorb these purchases without lurching overall, outsized SWF investments in other national markets have caused significant trauma ... and they've only begun to dip their toes in the water. Just wait 'till one of 'em tries to get a seat on the board of an American company or otherwise flex their ownership muscle.

Ya can't blame 'em really. All these emerging market countries are flush with cash (mostly in Dollars) from exports, primarily those of commodities, and those primarily of oil. Holding all that money in treasuries which (of late) don't even keep up with the rate of Dollar depreciation, just doesn't make sense. Think about it in domestic terms -- if Congress found out they could add a new massive revenue stream from investments, how long would they be able to keep from doing that? The money'd be spent before the investments had even been made. They might even lower taxes if faced with enough pressure.

Corporate Newspeak

I feel it necessary to do my little part to bust the current ridiculous TV writers' strike.

Here, from the front lines of corporate America's battlefields, are some phrase-isms which are too bizarre to be made up. Unfortunately, they call to mind Orwell's Newspeak and clearly achieve the same goal of dumbing down the populace.

Cover off on: (v) To get someone (else) to resolve or get someone to respond to
Usage: "It's great that you've been able to cover off on that issue so quickly."

Ask: (n) a question
Usage: "Good feedback on your ask when you covered off on it."

E: (n) an e-mail
Usage: "Please shoot me an E with your ask."

Shoot: (v) to send or submit. Also: get
Usage: "As soon as you get me your E, I'll shoot it back."

Learning (n) lesson
Usage: "In summary, here are the learnings from this week's sessions."

Out of Pocket (n) incommunicato
Usage: "I'm flying to New York in the morning, so I'll be out of pocket most of the day."

Dilbert (n) a conformist employee of a corporation
Usage: "Stay tuned, ye writer-less producers. I'll continue to report back with new jewels on this blog whenever my fellow Dilberts drop these non-speak jewels"

Hollywood writers' strike

The US is without question an information economy in the sense that intellectual property is one of the few areas where we have an unquestionable competitive advantage. US companies know that information and innovation are the only areas in which they can continue to compete with low-cost emerging markets. Correspondingly, they nearly worship the fertile minds who can create it from thin air. If you want job security today, don't join a union - go innovate. Then sell yourself to the highest bidder, be it your current employer or someone new.

Then repeat.
Then repeat again.

It's how the entire corporate world gets along ... and I very seldom hear execs complaining about exploitation -- they know they're getting paid exactly what they're worth because they constantly test it by keeping themselves on the market. And believe me, the bar on creativity in the corporate world is low. These Dilberts get highly bankrolled for some pretty mediocre brainstorms.

Software and media are the two industries with perhaps the greatest reliance on creativity. Why then, in the latter hotbed of ideas, do the writers feel so impotent that they have to resort to the childish collective bargaining tactics invented by braun-over-brains steelworkers a hundred and some years ago (and not innovated since). If they each would simply take responsibility for extracting their full value, and if they were ballsy enough to go out there and compete, the good ones would undoubtedly rise to the top. The not-good would appropriately go do something else they're better at.

Death to the Silo

I feel the need to explain myself before I share my next suggestion. Not a day ago, I posted a blog about creating duplication in government to spur competition. Now I'm about to suggest the opposite in the corporate world. Am I becoming one of those pseudo-intellectuals who get along simply simply by taking contrarian viewpoints on everything? Hopefully not. Bear with me ... read on and I promise to explain myself before this blog comes to an end ... so here goes!

The silo business model is endangered. Many of their activities are duplicative and ineffective by virtue of being underresourced. Single corporate-level activities can take some of these things over, reducing costs while increasing effectiveness, standardization, and homogeneity. There is ample room for increased standardization within business lines as well. Ops and functions like Compliance can be more cost-effectively centralized, allowing for greater oversight, staff mobility, better MIS. This "reverse hourglass" leaves only the marketers, RMs, and product specialists divided.

Obvious issue #1 is how various businesses share nicely. Do you split based on backlog of work? On cost per widget? On profitability of work? On growth potential? On executive fiat? On risk?
Answer is yes. Via some heirarchical and adjustable algorithm. What yo do NOT do is let the businesses fight politically for attention. You must assert the independence of the management of these ops and functional groups. You must put the right people in charge of those groups, not discount managers. Then you must empower (and indeed incentivize) them to determine the best allocation rules. To do so is simple: internal pricing. Clearly outline enterprise-level policy to the business lines (for example, "you must have accounting which conforms with corporate norms, GAAP, and is detailed and timely enough to enable seamless integration with the enterprise-level systems and reports."). Then, allow them to bid for the attention of the ops groups .... OR go outside the firm if there are no good options inside. True, this puts a new burden on the organization to determine, communicate, and police the enterprise-level policy. That's money well spent. The idea, however, of insourcing these tasks into their marketing silo (which is largely what has happened to date) puts them under the thumb of managers who are lacking in operational expertice, and moreover, perversely incentivized toward cutting so many corners they end up with round desks.

Obvious issue #2 is how a single group can be both standard enough to find efficiencies ... and yet expert enough at each product/service to handle it without killing the efficiencies.
Answer is that this is exactly what the middle managers are well-paid to figure out. That's not a punt on my part. It's simply a reminder of the "ideal state" of corporate organization. Managers need to assess staff capabilities and match that against work to be done in the most efficient, highest quality, and least risky manner possible. The silo approach forces these groups to work extremely lean. They are unable to take advantage of economies of scale, especially in terms of managerial mindshare. On the other hand, a single manager (or team of) who is able to able to lift his eyes up a level from the daily fire-fights and focus on that balance of efficiency vs. risk vs. quality would have no trouble finding the right balance. This would then dictate the balance between standardization and specificity. These managers can structure their teams however they want. I'd recommend they look into the idea of competing teams, all complying with department-level policy requirements. Someday I'll post a blog on how decentalization and standards play nicely together. For now, let it suffice for me to say that the establishment of high-level standards (or said differently "requirements") is an enabler of decentralization.

At the beginning of this blog, I promised to redeem myself from my apparent inconsistency of view. My juxtaposition is, in fact, intentional ... and that intention is to highlight several necessary underpinnings of both my arguments. Competition, Decentralization, and Specialization. Basic tenets of pure capitalism.

Intra-govt competition

States' rights are a good thing. Its one of those rare cases where parts of the US governmental behemouth actually engage in competition. I dig it so much so that I might suggest taking it further. Let states in on the work currently reserved for the federal government. The Feds say that only THEY have the expertice and resources to handle those things (airport regulation, for example). Okay, prove it with some good ole competition from the states. Let's see who really comes up with the best, most workable and most efficient ideas.

To borrow a Huckabee quote, "states should be the laboratories of good government"

Which, of course, he paraphrased from Reagan. The original was, "I will ... restore to States and local governments their roles as dynamic laboratories of change in a creative society."

Oh, what if, the Feds will say ... what if the states actually come up with some good stuff? What if people notice and start moving powers from the national to the state level? How would they keep up? Fear not, Feds, I will give you the secret ... Create competition within yourself. Create competing agencies within the Fed which must fund themselves by competing for work. Intentionally or not, many larger corporations (and small businesses such as real estate brokers) do this profitably.

How could a libertarian such as myself suggest MORE governmental agencies? Go ahead, call me a Dubya in Reagan clothing for doubling the size of government. Then watch as competition pushes productivity from its current Soviet levels to something more resembling what we stand for.

Who to fight the expense of overlap? Should the best eventually run the other one out of business?

NCAA Football

Colorado has finally found the nadir of their despair and is now on the uptick. Top 10 by '09.

A blog only a software shop could love

Here's perhaps the most basic goal in designing software: nailing down ALL the requirements. If this is done right the first time, writing the SW is cake. In fact, it could probably be automated. That's the concept behind, for example UML.

Here's the rub: no person or organization ever thinks of (or has time to document) ALL the requirements. We're just not prescient and omniscient enough.

Here's one stab at a solution: creating long lists of "Use Cases" and then break these down into individual business requirements, then translate these into functional specifications, which are re-translated into technical specs, which are then coded.

Problem is, use cases are the business equivalent of a Roomba, wandering randomly around the room with no aim or accountability.