Change isn't bad in and of itself as you've heard me say many times. Fear of change is normal, to some degree. The inability to acknowledge change or the insanity of believing a change state will affect your patterns and habits is what gets us into trouble.
Let's start at the end and work backwards on this one. Wall St. is in ruins. Surprise, surprise. People are panicking and freaking out across the globe – but why? I understand freaking out if you have all your dough in a soon to be insolvent bank, but I don't understand the pandemonium as if this were a surprise to everyone. This is not an instantaneous event – so why is everyone acting like it is? It's because even though all the signs have been there, most of them absolutely obvious, we simply refused to see the winds of change as real. Because Wall St. represents all we have come to know and trust of the world's financial systems, we were somehow able to ignore the realities of what has been hitting us right in the face for quite a long time. Nothing happening now is really all that new or surprising.
A drastic example, I concur, but one that highlights the issues as clear as day. Point one – where is the oversight? Where was the Board of Directors when all this is going on? Lehman, Bear Stearns, AIG, Freddie Mac, Washington Mutual, and Countrywide are pretty much going the yard sale route for peso's on the dollar, or awaiting bailouts. Doesn't that look like about half of the Investment Banking power of the US Capital markets – gone inside six months? Are these not the most infallible institutions we have?
Point two: Wall St. and the U.S. are the kings of the financial world – right? No way. Even at pennies on the depleted dollar, international banks walked away from our most prized assets. We dictate the rules no more – others must be laughing at us. Arrogance can be worse than ignorance.
Point three: I'm not saying it feels good, or that it is good – it sucks. I am saying that the world as we knew it has changed – and it changed right in front of us. Our assumptions of perpetual power and influence – and exalted status – were wrong. Here are some related assumptions that are also wrong, and should force us to think differently.
- In the Technology sector, the entire machine is predicated upon the foundation belief that a tech company needs to sell to the "Enterprise" to have a chance, and to the elite enterprise – Wall St. -to be truly successful. VC's make their bets on it, Wall St. analysts use it as a tracking metric, and so on. It's a completely idiotic concept these days (even before this disaster). Wall St. IT garnered this reputation appropriately enough – they were the ones with the most talent, the most money, and the best abilities to apply new technologies to new opportunities – because they had all the money. In the days when these guys printed cash they called the shots and vendors lined up to give them whatever they wanted. They were the big spender, and thus were courted by every IT vendor ever. What Wall St. did, the rest of the world followed.
- A little thing called the Internet changed the rules. While the Wall St. guys continued to enjoy the power bestowed upon them by Industry, no one seemed to notice a few changes occurring. First, Wall St. isn't the big consumer anymore –they are average at best. Yahoo and MySpace and YouTube buy tons more of everything than Goldman Sachs does – and they don't take two years of aimless evaluation to do so. X-Box buys the same capacity of most Wall St. firms use in a year every few months. FaceBook generates an order of magnitude more data every day than the average Wall St. firm.
- The arrogance and assumptive positions taken by the big firms in the world markets isn't new – the corporate greed of Gordon Gekko wasn't only a movie. Remember, these guys are the same ones who said "no one would ever trade stock over the internet", until E-trade and Chuck Schwab were about to bury them. Their inability to adapt to clear changing environments is why they are where they are – our inability to see it is why this is so surprising to us.
So, this calamity will cause issues. Capital spending will decrease, which hurts all IT and everyone other vendor. Interestingly, this will be widespread, even though most will not directly be caught up in this particular fiasco. IT spending will go down on Wall St., therefore the big Wall St. suppliers will take stock hits, etc. etc. The same thing happened in the Internet bust – we all got caught up in the assumption that while valuations completely defied any logic whatsoever, they kept going up, so best to get in to Idiot.com before it's too late. When the bubble burst 80% of the companies in the space were gone, 90% of the valuation of those who sold to the space was gone, and you couldn't fund an Internet play if it had Jim Clarke at the helm and Warren Buffet piling cash in the side door. Yet, despite it all, nature worked her magic and Amazon, E-Trade, Yahoo, and EBay escaped death and somehow survived. Do you know how? It wasn't luck – it was that they were able to bridge the gap between what was and what had to be. They did old school business (i.e. they made money) in the new school playground. E-Trade didn't care that conventional wisdom said people would never trade without paying $200 to some broker they never met – and they certainly wouldn't do banking with a company without walls! Google couldn't make money giving things away, could they?
This "event" is not unique. The difference is in today's "always on" times, is that the demise can be far faster than in the past – but the signs are still written for all to see if you want to look. Take Prague, for example. I just visited. Lovely place – a weird mixture of old world Europe charm, Eastern Bloc concrete, and free trade capitalism gone amuck. Being old, I was interested in the Eastern Bloc influence and expected to be eating cold potato soup served by a fat lady in coveralls and a bandana on her head. Instead my lovely bride and I ended up in a jazz club eating some of the best Mediterranean food I've ever had drinking the best mojito I ever had watching the best Cuban salsa band I've ever seen. Seriously – how does one predict that? You don't – you go with the flow. That's what we did when the band came on – 5 Cuban guys (how they ended up dead center in the middle of Europe I never did find out) wearing red shirts and white pants – and one 9 month pregnant lady playing the flute. The singer looked like a cross between Chris Tucker and DL Hughley and was perhaps the best technical guitar player I've ever seen (no kidding, and I've seen them all). The big bongo player in the back had an SGI logo on his shirt, thus tying it all together for me. (Note the previous Jim Clarke reference and the example of SGI in general – my how times have changed.) If that weren't enough, the bartenders were doing syncopated "Cocktail" tossing – which is kind of fun to watch a few times, but irritating as hell after a while as it adds valueless latency to my time to consumption.
No one reasonably could have predicted such a place could exist just a few short years ago – let alone back when no one reasonably could have predicted that the Soviet Union would fall. Times change, people adapt, and life goes on. I'm sure there is some Soviet era family that is pissed because they were the proper heir to be the mayor of Prague had it still been under their control, but so be it. Out of turmoil sprouts opportunity.
I saw a group of approximately 35 Hare Krishna's tambourining their way down the street yapping loudly the next day. You don't see that every day on Wall St., I can tell you.
Nor might one expect Prague to be as dope friendly as Amsterdam, but it is. The Hilton smelled like a Montreal bachelor party.
Nor might one expect that on almost every street on every block I walked, I would find an "Erotic City" store, but I did.
I am not that smart, but I'm fairly certain at the height of the Soviet influence, few envisioned Prague would end up a tourist filled, dope smoking, Hare Krishna chanting, salsa festival in between trips to the sex shop. Call me crazy, but sometimes flushing out the old makes way for a much more interesting new.
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