Incompetence and Corruption at Heart of Financial Crisis

For years Fannie Mae and Freddie Mac executives have taken advantage of their tax-exempt, protected, semi-monopoly status to encourage bad management of mortgage portfolios.  Under the back-to-back corrupt regimes of James Johnson and Franklin Raines, these practices have brought about the worst financial crisis since the Great Depression.

But Raines and Johnson had help.  On the corruption side,  they had myriad members of Congress who protected bad management and fraud in exchange for kickbacks from Fannie and Freddie executives.  In exchange, the executives "earned" tens of millions of dollars in fraudulent bonuses.  Congress in turn protected Freddie and Frannie from oversight and regulation.  The cost to taxpayers:  $200 million up  front, hundred of billions in economic devastation.

The private banks failing can blame terrible senior management from people who have big degrees from big universities.  These institutions should considering closing their business schools, because they are producing failure on a criminal scale. 

A company like Bear Stearns or Lehman Brothers should know not to buy loan portfolios that have zero chance of repayment.  Interest only loans for 125% of appraised value don't work.  Period.  Such stupid lending forces inflation in the market by flooding money into the hands of buyers.  That's why housing prices skyrocketed for 15 years.  Not because of value a need to house our population.  There was simply too much capital in the hands of buyers.

By inflating their primary collateral, the lenders were increasing the risk of their loans.  This would be like a device manufacturer offering its clients ridiculously easy credit--like Net 365--then bad-mouthing the clients' products in trade journals interviews. 

My advice:  If you get a resume across your desk for an executive with experience at Fannie Mae, Freddie Mac, Bear Stearns, AIG, Merrill Lynch, Lehman Brothers, Washington Mutual, or any of the big financial firms on verge of collapse, BURN IT!  The local high school has smarter business minds.

Technorati Tags: Financial Crisis,Bad Management,Bad Managers

Outside the Box

During economic slowdowns and in stressed industries"outside the box" thinking is more than some companies can handle.  How can you remain innovative and distinct when radical change is too expensive or risky?

Like everyone else, I tired of the term "outside the box" a decade ago.  But the concept--the ability to think "zebra" when you hear hoof-claps--remains a key distinction between great achievement and mere survival.  But smart people and smart companies, not to mention people who think they're not particularly creative, can reach higher by thinking inside a bigger box.

For example, the IT industry has grown leaps and bounds over the past 20 years.  IT specialists, whether networking and hardware specialists or programmers and architects, often generate brilliant ideas that no one in the business knows what to do with.  The IT people have no idea how to translate the potential in their minds into a sellable product.  The idea falls on the floor.

In this scenario, outside the box thinking by the software designer ran into the brick of wall of tiny mental boxes--his own and the business's.  To monetize the good idea, both parties need a mental box large enough to grasp ideas on the fringes.

The architect needed some basic business skills in addition to his professional skills.  These include:

Marketing:  Could the idea be piloted and measured with a micro-segment to determine its financial potential?  What are the key measures to determine the viability of the idea? CWhat have respected industry experts said about trends that point to your idea being a game-changer?  Businesses that are reluctant to invest $200,000 in a wild idea might very well invest $5,000 in a pilot project, but the IT architect needs enought marketing knowledge to propose the pilot, to help identify the metrics, and to identify the target. 

Finance:   What is the project's payback period?  What's the net present value?  What's the internal rate of return?  The IT professional probably has a handle on the total cost of the project, and you don't have to be the CFO to use Micrsoft Excel's finance tools (click here for an easy tutorial).  The IT person who can talk IRR and NPV catches the favorable attention of the people with the purse strings.  Even if your calculations suffer from rookie mistakes, the CFO, or her delegate, will be more prone to pitch in and clean it up if she thinks you know what the concepts mean.   

Whatever your current role, you can benefit from broadening your knowledge of business concepts, and marketing and finance are the most critical to selling your ideas internally; marketers and finance own the budget and the product catalog.

If you're a business manager, help your people expand their boxes.  The finance folks will be more effective with a strong understanding of the value of innovation.  Have them study IDEO or Google.  Your marketers will benefit from learning more about technology's costs and time requirements to develop new products.  (I've found that marketing people think other people's ideas take 10 years and cost $10,000,000 but their own ideas take an hour and cost $5.)  Your operations people can be your best assets in innovation and creative--they need the same marketing and finance knowledge that the IT professional needs.

Enlarging your mental boxes will bring innovation and creativity inside the safe boundaries of your SOP.   And the competition will never see it coming. 

  

Great Marketing Sites

I'm amazed the valuable information some smart people give away for free.  Sure, their blogs might help them sell books or speaking engagements, but 99 percent of the people who learn from these folks give nothing back.  

If you're tangentially associated with marketing, you should do yourself a favor and read these two sites.  

Tim Manners on Reveries

Seth Godin's Blog

I discovered Reveries through my daily updates from Seth Godin.  Seth is a leading thinker.  I won't narrow his qualifications by adding an industry or discipline.   His book "The Dip" helped save me when I was in the midst of a career crisis.  He even took the time to provide me with personal advice.

Again, if you ever need to influence others, make Seth and Reverie regular reading.

ididwork.com: A Great Time Tool

Do you want to know what your team is doing?  Need a simple time keeping system?  Want a free tool for tracking what you do all day?

Visit http://www.ididwork.com/.  It has very few bells and whistles--all the better, as far as I'm concerned.  

To make this tool effective, you'll need get religious about posting your activities.  IDidWork will summarize your efforts and keep a log of your activites.

Ididwork.com's analysis feature supports downloading the data as Excel or PDF.  Unfortunately, the Excel download saves Time Spent data as text ("4 hr 20 min").  If these data were, instead, two integer fields, Hours | Minutes, the data could then support billing operations.

You can send regular updates to your manager for feedback, a feature I love.  You can set up teams to record and share their activities.

The site is secure, so only those you let in can see your entries.

For small businesses needing a work log system or for teams in a large company, Ididwork.com offers a great solution.