Credit Crisis

Well things are starting to have a brighter streak to them lately. According to many sources including the man himself Ben Bernanke, it looks like the recession might be slowing. CNBC did a report on their web site earlier today about his announcement. That’s good news but don’t forget to still have your guard up. Just because the recession might be slowing down or even hitting bottom doesn’t mean that it is going to do a 180 right away. We could (and is what I think) drag at the bottom for awhile. It is a good feeling to know though that it is not going to get worse. Once businesses have that reassurance behind them, they are more likely to take a chance and start to spend again.

If you have been paying attention to CNBC or any other business channels that past couple of days you will see that the term Mark to Market is being thrown out there a lot lately. It is an insider term but it really does effect the everyday person and their investments that they might be trying to make in this topsy turvy market.

The term “Mark to Market” definition according to wikipedia is “an accounting methodology of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments”. This basically means when I have a contract such as a futures contract, when I go to report this contract for accounting purposes I can mark the value of this contract the value that it is the day that I fill it out and not the value that it will be the day it expires.

I am not going to kid you, it’s getting bad out there. Yesterday we had a jobs report come back to say that there 533,000 jobs lost in the month of November. That my friends is nothing to sneeze at. Now is it a time to be smart and like the title says buckle down and get back to basics. You have to know where your financial position is at this moment and to either improve it in a hurry or defend it all cost. We may be at the bottom of this crisis but no one knows how long the bottom can last. There have been predictions that it could be up to 18 months, others are saying that it could be less than a year. Smart money is to prepare for the long haul because we are seeing numbers that are unusual even for a recession. Numbers that we haven’t seen in 30 years. When that starts to happen now is not the time for the new luxury vehicles.

Economists Thomas Friedman was on CNBC today explaining that innovation was needed to fuel the fires of the Economy and not the bail outs. He argues that Steve jobs should come to Detroit and the ICar will be designed and ready in a week. This was of course I hope tongue and cheek. I semi agree with him that of course innovation is needed but we also have to worry about the short term as well as the long. Innovation should have been a priority at the ailing car companies, and they clearly went for the brass ring with pumping more gas guzzling SUV’s on the market rather than looking for the Diamond in the rough with energy saving vehicles.  But innovation just doesn’t happen, no matter how much money you pump into something it’s not going to magically spring out ideas.

If you want a good example of that case just look at who Friedman is holding up as the savior of the car industry, Steve Jobs. Steve Jobs is a one of kind leader that sparks imagination and wonder out of his employees, he did at Apple, later at Pixar, and then again at Apple. Now look at his major competition, the behemoth known as Microsoft. Microsoft is not known as being an innovative company. Their mantra has always been taking an existing product and make it better and more user friendly. Although I think they have several innovations that they do not receive credit for, this is what they are good at. They have a much larger R&D budget but yet Apple still beats them to the punch every time with a shiny new product that becomes the new cool thing to have. Apple’s hallmark is innovation and that comes from your business culture and not spending. This is the reason why Steve Jobs would do horribly in the automotive industry.

Computers and the entertainment industries allowed Steve to go wild with his imagination and go from paper to product in a fairly short amount of time, no matter how far out there the idea was. The car industry is a totally different kind of animal. Innovation takes decades within the automobile industry. There is serious government regulation to deal with, not to mention environmental concerns as well as physics and a host of other obstacles.  Just like Michael Jordan’s failures when it came to baseball Steve would be in an industry that he is not comfortable with and doesn’t allow him to best make use of his abilities. What Detroit really needs is the Steve Job’s of automobiles not Steve Jobs himself. We need superstars like in the days of Lee Iacocca who had his problems as well but helped bring Detroit to some of their best years.

This problem is not going to go away and what we need in the future is to make sure that we can find the next Steve Job’s no matter where he might be. Malcolm Gladwell argues that opportunity cost as well as talent goes into whether someone becomes successful or not. He cites as an example Bill Gates living next to Washington University so he could get thousands of hours of practice time on the computer where during that era others couldn’t. We have to make sure that opportunity cost are well lowered for this next generation coming up. We need to make sure that from the tenements of Harlem to the corn fields of Iowa that we are able to find the next Steve Job’s no matter what the industry is and allow them to have the educational tools needed to succeed.