BORROW

Would you like to see some very sad graphs that illustrate why our financial system is in such dire straits? Of course you do. (HT: Lisa X)

What the blue line above shows is how much banks have borrowed from the Fed (the Fed’s BORROW index). You’ll notice (or maybe you won’t because of the small font size) that this graph goes back to 1910, with the gray bars reflecting when recessions occurred. You’ll also notice how that line basically doesn’t go anywhere through pretty much all of the 20th century, including even during the Great Depression, the economic crises of the 1970s and the early 1980s or the tech collapse in the early 2000s. Then, notice what happens at the right end of that graph – aka today. Yup, banks have so little capital left that they are now borrowing money from the Fed by the truckload.

But, wait. Borrowing from the Fed isn’t necessarily a bad thing. Maybe they’re borrowing it so they can lend it back out! Alas, this next chart shows that the borrowing is exactly what I just suggested – cash to cover the fact that the banks can barely cover what they owe:

Here, the blue line represents how much of a bank’s reserves are non-borrowed – or in other words, how much of its original deposits is a particular bank holding so as to make sure money comes out when you use an ATM – the Fed’s BOGNONBR index (no I’m not kidding on that acronym).

You usually expect this to be a certain percentage of what each bank is obligated to be able to cover (because the bank re-loans out most of the money that it has so that it can make money on interest). What you don’t expect, and never want to see, is when that number becomes negative – because what that means is that the bank’s own holdings can no longer cover its obligations – it has to borrow money just to make sure that money comes out of the ATM.

The combination of the two charts tells something quite horrifying – our banking system has no capacity to cover its own debts, and it is borrowing money like there’s no tomorrow to try to patch this up. If we want to fix the financial crisis, we need some way of helping to patch this horrible horrible gap. And how to do that is the $700 billion (or more) question.

Smiley

Did you think emoticons are a modern phenomena of the Internet? Think again. A long long time ago (~120 years ago to be more precise), in a place not so far away… a typographist sought a new way to communicate emotion with his people and to thwart the threat of evil cartoonists… (HT: Comics Should be Good)

A Hundred for Circuit City

A guest post (the first!) by my good buddy, Anthony , who after a couple of minutes of brainstorming with me on what companies to offer $100 for and what we’d do to save them came up with this little bit:


Hi everybody, I’m Anthony, Ben’s partner in low-ball offers to disastrous companies. A couple of weeks have gone by and unfortunately it appears that no one has been willing to accept our $100 offer to run the next failing bank or company division (Damn that Dogbert…).

Now Ben and I are realists, we understand that companies may be reluctant to take advantage of our offer, but when you change CEOs only to find yourself looking at a share price of $0.20 (down 95.24% in 2008) and scrambling for ways to avoid Chapter 11; it just might be time for a major change. Yes, we’re talking to you, Circuit City.

Circuit City’s financial situation has deteriorated steadily since 2006. Revenue gains have been marginal in comparison to Best Buy’s rapid growth. In 2007 Circuit City incurred a loss of $8 million in stark contrast to Best Buy’s $1.37 billion in profits. If that weren’t bad enough in the most recent quarter (ending Aug 2008) Circuit City racked up over $200 million in losses. Total debt has increased steadily over the past three quarters and same store sales (a number showing sales that don’t come from new stores, making it a good sign of how well Circuit City is managing sales growth) fell 7.7% in FY2008. Adding insult to injury Bernard Sands recently pulled its recommendation for vendors to sell goods to Circuit City over concerns the retailer would be unable to pay. On the other hand, their top competitor, Best Buy, is flourishing with its revenue growing by double digits over the past four years. Clearly, something needs to be done.

What do we propose? Take a page straight out of IKEA’s playbook — instead of organizing the store by device (e.g. a TV section, a MP3 player section, etc.), organize the store into “platforms” — here is a hardcore gamer’s living room setup, here is a budget home office setup, here is a student setup, here is a always-on-the-go setup, etc. In each case, instead of highlighting specific devices, we would encourage Circuit City and its employees to highlight a particular electronics experience customized for a specific use. This would help Circuit City’s relations with its suppliers, as the suppliers already are attempting to target different products to different types of customers, and would serve as a useful service for customers who have no clear idea of which devices are tailored for them, nor how the devices can work together. Also, in much the same way that IKEA lets you customize specific pieces of the furniture, this store experience gives customers flexibility by presenting choices which don’t interfere with how the electronics work together (e.g. different colors, a slightly higher-end or cheaper device to substitute, etc.).

This new customer orientation also suggests a structure for a new, more useful website. Ben and I propose to integrate Circuit City’s website into its store business in a way that no store has ever done before. Whereas most companies operate their stores and websites separately, we would force Circuit City to not only organize the website in the same way that the store is (to help simplify things for customers), but to also tie them so closely together that a customer could quickly and easily use the website to schedule repairs and pickups, check on the availability of products in their local stores in real-time, download product information (e.g. manuals, flyers, drivers, etc.), and even check out ways to customize or replace specific pieces (e.g. a different color game controller, a slightly higher performance sub-woofer, etc.).

Neither of these initiatives are easy, nor do they represent all of the ideas that Ben and I have, but they are a good first step in how to save Circuit City’s sinking ship. As Circuit City spokesman Bill Cimino told the WSJ, “[t]he management team, board of directors, and its strategic financial advisers are conducting a comprehensive review of all aspects of our business to determine the best methods of accelerating our turnaround”.

You know your economy is in trouble when…

1. There is a “black market” that evolves to sell currency (b/c they don’t trust the fiat or official currency values)
2. That black market is being carried out in the Classified ads of your country’s newspapers

In the classifieds on the web of the daily Iceland newspaper Mbl, you find hard currency for sale (US dollar, Danish kroner, and Euro) ranging from USD 300 to USD 12000. With the breakdown of the official exchange rates, the market has emerged.

Eraser drive

One particular design motif I’m fond of is hiding in plain sight. (Cross-posted from Xhibiting )

I love the aesthetic here. It looks like just a commonplace eraser, but it packs a heckuva lot more functionality underneath, not to mention that it:

• is a simple do-it-yourself project 
• protects the USB drive
• is swappable (because, seriously, the capacity on these things increases so quickly!)
• helps protect your drive from theft by hiding in plain sight

(Hat tip: Apartment Therapy Unplggd)

Corruption

When the Kenyan president was asked to comment on his country being judged the most corrupt country in the world as judged by the ease and frequency at which bribery happened, the Kenyan president noted: “Actually, we were ranked second. We simply bribed the judges to make us first”

A joke I heard from work (am fairly sure none of it is true).

Colin Powell supports Barack Obama

I believe Colin Powell does a pretty good job of explaining my views on the Obama-McCain election.

I personally have a very deep respect for John McCain — not just because of his heroism on the battlefield, but because of the bipartisan role he has played in the past. I think too many liberals have gotten swept up in election year politics, forgetting that their last presidential candidate John Kerry flirted (although probably insincerely) with the idea of having McCain as a running mate and forgetting the role McCain played in brokering deals with the DNC to deal with political gridlock.

But, even so, the way the recent election has been carried out has overcome my traditional distaste for both sides of the aisle:

• Attacks on Obama have been out of line. I know McCain has set the record straight on this before, but even so, his campaign has been outrageous — Obama is not a terrorist just because he had some brief association with Bill Ayers. Obama is not a Muslim. Even if Obama were of the Islamic faith, that is neither important nor meaningful. That this is even an issue suggests to me that something is horribly wrong with the GOP.
• The nomination of Sarah Palin is absurd. There are many attacks that float around which I think are trivial. For instance, I think McCain not being familiar with the Internet (especially given that this is caused by his war injuries) or his not knowing how many homes he has to be fairly irrelevant to his ability to be a leader (I bet some of the senior Partners at my firm have no clear idea how many cars they own or what the state of their finances are in, and I know brilliant doctors who are almost completely computer illiterate). Similarly, I think Obama’s use of drugs in his childhood, his (former) membership in a church with a crazy pastor, and his lack of a military record are also irrelevant. But some of the attacks on Palin are quite disturbing: 

• Rarely traveled outside of the US — this is insane. How does one expect someone a “heartbeat away from being” President, to possibly be a decent diplomat if at her age they’ve shown practically no inkling of an interest in having international experience? It’s already embarrassing enough that some of our senior military officials can’t tell Sunni from Shiite — what are we going to do with a Vice President whose claim to international understanding is bordering Russia?
• Allowed the police to charge rape victims for their own rape kits — words can’t even being to describe how ridiculous this is and how ridiculous any civil leader is for condoning a practice which treats rape kits as a cost which is not the justice system’s obligation to bear. 
• Lacking in any and all credibility and experience to deal with the financial crisis, international diplomacy, national security — big issues that she won’t be able to just “hockey mom” her way out of.

These are not political arguments that I’m making. This is not about me disagreeing with McCain’s positions, as I find many of Obama’s positions equally wrong-headed. This is about common sense — how do you vote for a candidate whose party is practicing in some disgusting political practices and who nominated a woman who lacks the qualifications to even be the President’s secretary let alone his vice president.

In Doom we trust

With all the discussion about who would make a better President, Barack Obama or John McCain, one obvious candidate has been ignored — one who rises above them all. Who is this dark horse candidate who has proven himself to be the most deserving of the title of Commander-in-Chief? I’m speaking of none other than Victor von Doom — the one they call Dr. Doom.

What qualifications does he have?

1. Experience - McCain likes to tout his experience in politics, pointing to critical pieces of legislation which he’s been instrumental in writing and passing. Obama, on the other hand, points to his former life as a community organizer, helping to drive grassroots level change as an important type of experience for a leader. But, honestly, how many of them have actually taken a war-torn, starving third-world country like Latveria and, through sheer ingenuity and force of will, turned it into a peaceful, prosperous, and one of the most technologically advanced nations in the world? None but Dr. Doom. Advantage: Doom.
2. Strength in the face of adversity – McCain has the obvious upper hand here — a POW who survived brutal torture in an enemy prison camp. Yet, that pales in comparison to the trials and tribulations of Doom. McCain may talk about how being in a Viet Cong prison was like hell. Doom was actually cast into Hell and yet he still managed to claw his way out through nothing but tenacity and intellect, despite his mortal enemies attempting to trap him there. Advantage: Doom.
3. Technology – Many have proclaimed Obama to be a true technological pioneer, embracing social networking and iPhone applications to spread his message of hope. Pathetic. Victor von Doom is an expert in every known technological field and science — having invented a time machine, a device which can control mutant/metahuman powers, forcefields, and portals to other dimensions. Obama and McCain talk about researching new alternative energy technology. Bah! Doom can give every worthy citizen a garbage-powered jetpack. Advantage: Doom
4. Terrorism – Much has been made about the Bush administration’s inability to capture Osama bin Laden and about the Democratic Party’s supposed inability to face terrorist threats. These are all mere side issues. No terrorist would dare attack a country run by Victor von Doom, for there is no place in the universe that is out of the reach of Doom. Doom has traversed the cosmos, traveled through time to even conduct an affair with the sorceress Morgaine le Fay, and has even descended into the pits of Hell. Suicide bombers? Inconsequential — for no suicide bomber would dare attack when the risk of failure would be a visit to Doom’s “re-education” chambers. McCain and Obama can talk all they want about military response, but Doom is the only one with the teeth and the record of hunting down all offenders. Advantage: Doom
5. Law Enforcement – Obama may talk about his experiences in the rough side of Chicago as giving him authority to discuss law enforcement and crime, but I dare say — who can administer civil justice better than Doom? There is no crime in Latveria, and there aren’t even superheroes to help maintain that order. All is simply maintained out of the citizenry’s love and … respect — yes that would be the best word to describe the bone-chilling paralysis that the citizenry feel in Doom’s presence — for Doom. Contrast that to most inner-cities, where there is no respect, let alone love, for the law. Advantage: Doom
6. Secret Service – Obama may be an athlete and McCain may be a good ol’ fashioned tough guy, but only Doom can dispense with the need for the public to worry about assassination attempts. Not only would terrorists and criminals be completely dissuaded of attacking one such as Doom, if they were to try, they would certainly fail. Doom’s armor is made from some of the most sophisticated technology, allowing him to stand in physical combat against beings such as the Hulk and even demons from Hell. Even if an attack were sufficiently strong to defeat Doom’s armor, one must always be wary of the fact that Dr. Doom uses Doombots — perfect robotic copies of himself such that the real Victor von Doom is never truly threatened. Advantage: Doom 

Surely, at this point, there is no doubt in your mind who is the most competent and qualified man of the hour. So this November, go to the ballot and cast your vote for the one man who can bring America to greatness. And may Doom bless you all.

I Love Gadgets

I recently started blogging with a couple of buddies over at the Xhibiting blog. The blog is basically a style blog where we post things which have caught our eye (we’re exhibiting them — get it? aren’t we clever?).

While the others focus on more stylish things, I tend to populate the blog with posts where I go ga-ga over gadgets. And, true to consultant form, I’ve posted some specs and pictures for RIM’s new Blackberry Bold and Blackberry Storm.

Now, if only I could find someone willing to give me one…

The Bare Essence

What is it that consultants do?

I’ve been asked that question many times — and the only answer I have is that we do whatever is needed to help solve management’s problems. But that’s always felt like a cop-out to me — because realistically speaking, everything we’re doing is either to make or edit some sort of Powerpoint slide.

This isn’t to be completely dismissive of the job — far from it. A great source of value that consultants add is to help dig through the information that a client already has (or knows exists) and then to repackage it in a way which is actionable to its management.

Of course, you can take a different view (hat tip: Dilbert — who else?)

Cha-ching!