WAMU - MAMU

Washington Mutual - WAMU - a leading bank folded recently. Writing was on the wall that WAMU would fold soon. When the financials reached dangerous levels, the government took over and passed on the assets to JP Morgan Chase bank. Thus went WAMU down the drains of history.

It's truly sad that WAMU which was once considered as an example of prudent lending got into indiscriminate lending and lent money to everyone and anyone. Those people who got free money, bought houses and when things got tough defaulted on the loans. Then what happened is WAMU became a 'mamu' holding the bag.

Sometimes funny things happen during the course of such incidents. It is reported that WAMU's senior officials had gone to Washington, DC or New York to discuss with Feds about the fate of the bank. They were packed off and they were on the way back. When they were still in mid flight, government acted on it, took over the bank and passed on the assets to JPM. So, the CEO who was still a CEO when he boarded the flight had become ex-CEO when he landed. This where CEO of WAMU became 'mamu'.

'WAMU ka mamu ho gaya' was the joke of the day.

Cheers!

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Hunters, skinners and diners

Read a piece somewhere recently which put the corporate people into three categories - hunters, skinners and diners

Hunters - should be quite obvious. Our beloved sales people. They are after the prey. Hunting. Hunting for deals and making a killing.

Skinners - Finance people. It is one thing to hunt and a different thing to skin, flesh the meat out, dress it and prepare the stuff for consumption. Finance people are good at that. They can take what has been hunted and prepare it for consumption.( Revenue recognition is an art. Window dressing is a super-art. Profit smoothening is a divine-art.)

Diners - marketing and advertising people. At least the piece I read put only marketing and advertising people in 'diners' category. May be IT folks also fall in this category. Diners spend what's been hunted and skinned.

Many studies have shown that it is the hunters who make it to the top. Many CEOs are from sales background. Hunters are able to make golden rules - men with gold make golden rules.

Knowing that hunters make it to the top, we all need to cultivate the mentality of hunters if we want to rise up. We need to be able to sell something that's useful to hunters - at the least. Then we can probably get close hunters and become their allies. What does that mean to IT people? Get to know your business partners well. Even when you think their demands are unreasonable, try to put on their shoes and walk  a mile. May be you will understand. Drop your puritanical and ivory-tower academic attitude and do what is needed now and necessary for hunters to be successful. If hunters come empty handed, we are all headed home empty handed. Hunters are needed regardless of skinners and diners.

IT people can position themselves as people who make hunters more effective. Like those artisans who used to make best quality bows and arrows. We can provide IT edge to our hunting brethren so that they can hunt more effectively and thank us for helping them.

Keeping everything aside, IT is a cost to the corporation. So, it is only natural that people think it should be cut as much as possible like any other cost. When we are diners, we can  enjoy sumptuous dinner only if we help create enough ingredients for the dinner. So, help create the meat.

Long live hunters. May skinners give us good chops. May other diners spare us some good ribs.

Cheers!

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What a week....(Sep 15 - 19)

Pretty interesting week on Wall Street. At least in the US. From what news reports says, the capitalism in US has changed for good. God, knows what that means. I am sure they must have said similar things every time something significant rattled the economy whether it is the collapse of banks in 1929 or black Monday in 1987 or Savings & Loans debacle (very similar to housing and mortgage mess of now) in 80's.

Last weekend was real busy. Was constantly looking for fresh news to keep track of what they were going to do with Lehman Brothers, investment banking firm. Feds (aka government) did not give anything. Pan handling Lehman folks who had gone to beg Feds came with a empty bowl. With empty bowl, no one was ready to buy the beggar with the empty bowl. All interested suitors were interested only if Feds put some lose change in the bowl of Lehman. When they did not see any such change, they made their way how. Both BOA and Barclays said 'right' and left. So, having lost proverbial shirt, Lehman declared bankruptcy. Why do they call bankruptcy. Rupturing bank? May be.

At the same Merrill Lynch's pant was getting wet. Before, it got completely soaked and started stinking, CEO Thain engineered its sale to BOA. Smart guy. Persevered some value. If he had remained adamant, I am sure fate would not have been any different for Merrill. Bank of America scalped Merrill for a decent sum. It's altogether a different question what would happen to BoA after sometime. After seeing the collapse of behemoths, nothing will surprise anyone anytime in the future. All these guys are capable of wielding powerful begging bowl any time.

Then to come with begging bowl was insurance giant AIG. AIG's height of financial meltdown. Those guys do not even know what they have insured, what's their worth and what they owe and what they want. They said we insured some debts which are packaged into some weird financial instruments. We can not even value them because formulas are so arcane we do not know how to figure out. Looks like equations without solutions. God help them who employed geniuses who devised such debt securities which AIG insured. What was AIG thinking? Their eyes, I am sure, were on the steady stream of insurance premiums they were going to get. They never bothered to think about the fact that one day you may have to pay for what you are taking the money to insure.

Now Feds took note and said we will bail you out. If not, you guys will sink everything. So, AIG got 80 odd billions to tap into. In return, public got 80% equity in AIG. Hey, we all own AIG now because 80 billions is our tax money.

Then came another news. Government is going to set aside close to 600 billion to buy distressed debt from all banks so that banks can write them off from their books. This is proverbial 'left holding the bag' for general public. We will be paying for years to come to own some junk that nobody wanted.

Why are 'we' doing this? I say we because government is just representing us. We could have done two things. First, let banks collapse and lose all money. Second, bail these buggers out and hold on to useless piece of paper with no value. On the face, both situations seem alike because money with no value is no money. But, letting banks collapse would totally evaporate the wealth and you can not reverse it. By bailing out these banks, we are at least holding the paper so that we can hope when we get out of this mess, we will still have some paper which we can pass off to some other gullible entity. So, it is better  to have prevented the total collapse of banking system.

Root cause - greed. Period. Greed is good but does not come free. It comes with pain even when it delivers. What's the alternative? Be like a sage and have no greed at all? That's fine if you live in isolation. When we live as part of society, greed is required for general advancement of society. Without wealth creation, society won't survive. So, we need to pursue wealth. Whether we take a slow and steady route which is slower but safer or whether we try to make a big splash is up to you. I would prefer slow and steady. It is less glamorous. Days and months and years may go by without much happening. But, in the end we all will be better off. Or you can do the way we have been doing off late. Put greed in overdrive. You will enjoy the heady ride while your vehicle lasts but driving in overdrive for long is going to burn your engine up and you will have to take a break. We are in that proverbial break now. Not bad. Even with such mentality we will do well but not in a steady way but with many ups and downs. It is up to you.

Next item is knee jerk reaction from Feds to ban short selling of selected financial market securities. I am not convinced it is the right thing to do. Yes, it does seem cruel to benefit from falling stock prices - i.e. that's what short selling is. You first borrow the share, sell the share, collect the money, hope that share price will fall, when it falls, you buy back the share and return it to owner. You made a nice profit. What is wrong with that? If one can buy shares with a hope that it will go up and make profit, what's wrong with someone borrowing the share from you, selling it off, buying it back when it falls in price and returning it back to you? Other than the fact that the person is betting on negative sentiment, there does not seem to be anything wrong at all. But, Feds in their wisdom thinks some people have been driving down the  share price of selected companies by spreading false rumors and artificially creating bad news. May be true to some extent. If a company is worth the salt, its books should be sparkling clean to quell off any such rumors which can depress the stock price. If a company's stock price goes down because of rumors and if the company is not able to do anything to hit back at those rumors, rumors must be correct. If you look at the companies which are crying now that their prices were depressed by short sellers did not disclose everything they knew about their own books. Do you think if these begging bowl banks were to come clean with all the mess they had on their book, stock prices have stayed where they did? No chance. We as general public would have done the same thing - i.e. bringing the stock price to ground. These companies did not come clean. They continued to paint a rosy picture and fooled the public for as long as they could. But, they should have understood you can not fool everyone all the time. There are smart short sellers who can read between lines and read your lips. When these smart people could sense something was wrong, they increased short positions and stock started falling because general public started seeing short position going up and that's a sure sign to start dumping the stock. If people know something I do not know they would not have betted on short positions. History  has told us that Enron, Worldcom kind of sleaze balls would have lived longer if not for astute short sellers. Now by banning these corporate vigilantes we are letting unscrupulous companies to screw us for longer so that they can take their sweet time to screw us and also prepare nice exit strategy. Bring back short sellers. Our guiding beacons.

Should this dampen our spirits and stop us from investing? I do not think so. What options do you have? Stuff your money under mattress? That is no good. Put in fixed deposits. That's ok if you are happy with interest rates which are less than inflation. If you want to build wealth, then knowing what we can know from history, there is no other way than to stay put in the markets. Once you decide to be in the market, choice is up to you. You can chart a slow, steady but safer course to wealth or rash zig-zag route. Both will get you to your destination. Not necessarily in the same condition. Choice is yours.

Happy investing. Happy wealth building.

Cheers!

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Wisdom - it's everywhere - just look around

They say - wisdom is nothing but common sense in uncommon amount. How true! More wisdom can be observed right around ourselves in some of the most common activities. We just need to tune our antennas correctly to receive the faint signals of wisdom. As they say - best humor is found amongst people and their routines. So is best wisdom.

'Barber always lathers before shaving.' What possible wisdom can be there in this? For the person who observed this closely enough to come up with this quote, there is tonnes. Barber, his act of lathering before (not after) shaving and then the act of shaving itself can teach us a lot about how to communicate.

Here barber is someone who has to communicate something difficult to get the desired results. Shaving is like the act of communicating something difficult. If you look closely, shaving when not done correctly, can be very rough and dangerous. Output of poor shaving can be seen in our daily lives. Typical examples include when you have to shave in a hurry that too when you have run out of sharp new razor blade and less than a dollop of shaving cream mocks you at the edge of  a almost squeezed out tube. What you get is not a clean shaven face but few hairs removed with a lot of cuts and blood streaks as  witness to the tragedy.

Coming out of gory and bloody details of shaving gone awry. Let's see if this analogy can be used in our communications. Lathering is a metaphor for smoothening the situation. If you say something good before breaking the bad news, it prepares the ground well. The person who has to listen to what is important is prepared well to receive your feedback which may not be received well if you blurt it out just like that. Straight shooters - take note. Realize that shortest path between two points may not always be a straight line, it can be a curve as well. So do not always shoot straight.

They say best way to give feedback (especially on something) you would like to see changed is to first say something good about the person on a related topic then tack on the negative feedback to the positive. Person get's it. He is not going to miss your important feedback because you have praised him a bit in the beginning. Since you have lathered with good words to begin with, he is going to last your shaving session even if your blades are not the sharpest. If you have a really sharp blade (i.e. good at giving constructive criticism), lathering is only going to make that so much easier. God help you if you have a blunt blade. Then you need all the lathering you can give before beginning your shaving session with your blunt blade. End result is what you want or hope for- clean shaven face (i.e. transformed person who incorporates your feedback and lives up to your expectations.)

Cheers!

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Bailing out.....

One of things that is praised often about USA is that anyone can start off afresh after screwing up - however badly. In other societies, if one screws up badly enough, he or she is branded as a failure and is not given another chance. It seems in USA, you can screw up, raise both of your hands, show your back, declare bankruptcy and walk away from all your problems and worries. Nobody can come after you. You are free to retreat for a while, after things have settled  and cooled down, you are free to come back and start your act all over again. I hope when you start all over again, you use the lessons learnt from previous episode, do not repeat the same mistakes and try to make the best of use of the second opportunity given.

Some people may not agree that it is a good thing to do. People or organizations should not be let go so easily when they  screw up. What's the alternative? Punish them? That's post-screw up. Does not serve much purpose. On the contrary, not picking up a person when he has bitten dust will kill the risk taking in that person for life. Once risk taking quality dies in enough people, as a society we become extremely risk averse and without taking risk nothing significant can be achieved.

You know, banking and financial sector is not doing very well off late. Like many, they got suckered into real estate boom. Financed all sort of real estate deals and carried a lot bad loans on their books. With real estate doing badly, assets on their books are worth nothing. This is what happened with banks like Bear & Sterns, Fannie Mae, Freddie Mac and now with Lehman Brothers. US government, which nothing but society in general, bailed off Bear & Sterns, Fannie Mae and Freddie Mac. Society may not bail off Lehman Brothers as easily as it did others but help may be on the way.

Pure capitalists may say that nobody other than pure-play market should ever intervene when such things happen. It is easier said than done. Although banks must have been stupid to take so much risk, their risk taking created wealth somewhere. Some people have certainly benefited from their risk taking. Quite a few people made tonnes of money. Now, if we mercilessly put these banks down, in the future, we reduce opportunities for creating further wealth. Same thing can be said about dot com boom and bust of 90's. There were indeed excesses but wealth was created and some of which was lost - or shifted. But, did it do good for the society? Yes. In many ways. As in many cases, what we  paid for great experience is probably pennies on dollars. We really learnt some lessons about IT business. Let's think that what we may have paid in terms of financial loss as the tuition paid to learn that lesson. Similarly in the case of banks, what we paid is for the lessons learnt in terms of better banking standards and processes.

As an individual, it is easy to feel bitter about your tax dollars being used to bail out these banks for their mistakes. If you do not do that, who else will? Don't we want the society to progress? Progress comes only from experimentation. There is nothing called failure to an experiment. There are only outcomes. Some outcomes are what we want and some are not what we want. Chances are every outcome has some lesson for us to learn. We just need to become more objective about learning from the experiences than scoffing at the people who do all sorts of experiments.

As a society, if we want to do better we need to assure members of our society that it is okay to take risks and we are there to back them up. If society fails to do that, such enterprising individuals will look elsewhere and go to those places where people are more welcoming and encourage their experimentation. Till now USA has remained as the place to experiment because society here is known to give more than one chance for people to succeed. If US starts becoming risk averse, as it is becoming by adding more rules and regulations, we are going to lose out. Let the people make mistakes with a firm knowledge that there is a safety net. Let's get better at how we organize the safety net. Let's put more reasonable checks and balances so that we do not encourage large scale negative outcomes. Let's get better at identifying anomalies and doing better course corrections.

It may be painful when you  have to fork out  hard earned money to bail these people out. But, only such enterprising companies and individuals have created wealth. Least we can do is to suffer occasional little discomfort in the hope that giving these people another chance will pay off  bigger rewards. People with this mentality have been seldom proven wrong.

Long live sensible capitalism - fastest vehicle to wealth creation.

Cheers!

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