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Archive for September 9th, 2009

Problems Are Arriving In Great Batches And That Can Be a Very Good Thing!

Wednesday, September 9th, 2009

by: Geoff Ficke

William Shakespeare” famous quote from Hamlet, “When sorrows come, they come not single spies, but in battalions”, is particularly relevant today.

All of the news seems bad. The negative numbers are huge. The human devastation seems interminable. Governments everywhere seem to have lost control. Debt is perverse on a personal, corporate and governmental level.

This glass seems to be mostly empty. It is not!

From the depths of disaster grow the seeds of opportunity. Much as Mother Nature’s wildfires clear overgrowth and enables fields and forests to regenerate themselves, so does the opportunity that germinates from social and financial meltdown. The removal of diseased institutions affords entrepreneurs and reformers the chance to fill an essential void.

Throughout history dynasties, dictatorships and tyrants have risen, and ultimately fallen. They are usually replaced by something much better. The violence of the French Revolution enabled Napoleon Bonaparte to turn France into a warrior state under his dictatorial rule. His “Waterloo” enabled the state to develop into a modern democratically governed republic. The Hapsburg’s in Germany, the Hohenzollern’s in Austria and the Bourbon’s in France all enjoyed the wealth, power and comforts of royal rule before being deposited on the junk heap of history.

Hitler in Germany, Hirohito in Japan and the Communist dictators of Russia all fell and were succeeded by democratic governments with a modern, more open style of governance. Their oppressive rule guided their populations disastrously to decades of war, hunger and societal despair. Something much better has acceded their brutality.

Businesses have historically expired if they did not evolve and regenerate themselves as markets progressed toward new technologies. The home delivery of ice in the first half of the 20th century was replaced by the mass marketing of refrigerators. Carts, whip, buggy and bicycle manufacturers disappeared as the automobile developed as an affordable method of conveyance. The acceptance of Thomas Edison’s incandescent light bulb greatly diminished the need for thousands of local candle makers.

As the automobile industry developed there were hundreds of nameplates producing niche vehicles. Names like Packard, Stutz, Essex, LaSalle, Dusenburg, Austin and Cord and most other makes of automobile grew, stagnated and died as they could not compete with newly developed tastes, technologies, economies of scale and mass manufacturing techniques pioneered by magnates such as Alfred Sloan, Henry Ford and Walter Chrysler. General Motors, Ford Motor Company and Chrysler became behemoths with vast profits, international distribution and massive marketing programs. The rest simply faded away leaving little but reminiscences.

Today “The Big Three”, Chrysler, Ford and General Motors are all staring at the grim reaper. To paraphrase Shakespeare’s Hamlet quote’ “their sorrows are here, and they are here in battalions”. Every mistake that management and labor could make that would harm a commercial institution they have made, and often repeatedly so. Wrong choices in models, lack of recognition of the ultimate issue of fuel economy, boring styling, strangling union work rules and poor quality perceptions are just some of the reasons that “The Big Three” are so close to being the three, the two, or the one midgets. It appears highly unlikely that they will continue to exist as independent entities.

Much is made of the potential loss to the United States of any, or all of these iconic carmakers. And yet, automobile manufacturing in the country is booming. Mercedes-Benz, Subaru, Honda, BMW, Toyota, and Nissan have all built factories here in recent decades. Volkswagon has announced that they plan to, as well. Each of these makes has targeted features, styling and benefits that they incorporate into their machines that “The Big Three” had not identified. Also, they have all built their factories in “right to work” states, where labor union influence is minimal. While paying excellent wages and providing competitive benefits, these foreign Companies are not hog tied by arcane, non-productive work rules. They do not confront legacy costs that price domestic manufacturer’s models at such high retails.

We are all being effected by a global financial conflagration. The future economic welfare of citizens, industry and governments all over the world are intertwined and will be decided by how the people who got us into this mess approach getting us out. I use the pronoun “us, because we are almost all to blame.

Home foreclosures are surging because of stupidity and greed. People today, certainly in the developed countries, crave things they do not need and can not afford. Some people should not own homes. They can not afford the maintenance, the insurance, the down payment, or the taxes that accompany homeownership. A married couple with one child and a $3500 per month income, should never have attempted to purchase a $400,000 home, with 4 bedrooms, on a sub-prime loan with nothing down. They were fools, as was the lender, the mortgage broker and the buyer of the derivative that this loan was packaged into.

Banks and insurance Companies that purchased these esoteric mortgage derivative vehicles, historically hugely profitable, are falling like flies. Northern Rock in England, ING in Holland, Indy Mac, Countrywide, Wachovia and WaMu here, are only a few of the powerhouse financial institutions that are now closed, merged or selling off assets. The insurance giant AIG has been taken over by the government. Lehman Brothers, one of the most venerable, respected investment banks was shut down by the government. Merrill Lynch has been sold to Bank of America.

Fannie Mae and Freddie Mac have been hammered for their role in precipitating the credit bubble that has lead us to this precipice. The Congress, which passed laws spurring Fannie and Freddie to make dubious loans to non-creditworthy borrowers, is looking for scapegoats. A number of our sainted Congressmen want to see “perp walks”. I agree. However, I am confident that the real “perp’s” won’t walk.

The problems seem endless and daunting. They are coming “in battalions”. Nevertheless, we will survive this, hopefully learn from it, and prosper from the opportunity to fill the gaps opened by systemic failure. The equity markets appear to offer a “once in a lifetime” opportunity to profit from the steep losses incurred because of the panic the credit debacle has induced. Strong, agile financial institutions, such as Wells Fargo and State Street, will emerge to fill the vacuum left in the wake of the disappearance of hundreds of firms.

Individuals will have to make more prudent purchasing decisions. 84 and 96 months car loans will disappear, making luxury automobiles more difficult to acquire. “Skin in the game” in the form of down payments will be required to purchase real estate, benefiting the homeowner and the lender. Credit cards will be harder to obtain and the credit limits will be lower.

Every person can use this maelstrom as an opportunity to review real needs and wants. Living beneath one’s means might even make a comeback.

We Miss the Logic Of Milton Friedman Now More Than Ever

Wednesday, September 9th, 2009

by: Geoff Ficke

One of the signal economic thinkers of the 20th century was the Nobel Prize winning economist Milton Friedman. His many books and papers, interviews and television specials have left us a valuable trove of thoughts and observations that should serve as guideposts during our current difficult economic times. His death has left a void that no contemporary thinker has been able to fill. That is most unfortunate, especially now.

Recently, I revisited my copy of Professor Friedman’s signature work, Free to Choose. It is still as pertinent, fresh and poignant, as it was the day it was first published. His reasoned defense of economic and personal freedom, strictly limited government and the rule of law need to be reviewed and protected fiercely by each citizen, that values these sacred rights.

“Thank heavens we do not get all of the government that we are made to pay for”, stated Professor Friedman in one of his most oft quoted observations. The simple, but powerful clarity of these 17 words serve as testament to the deep understanding and concern he possessed about the ever-expanding role of centrally planned, distant government and the excessive price we pay for it. We see the detritus of insatiable government in every aspect of our lives, and yet, we seem incapable of slowing, preferably stopping the rapid growth of this corrupt, inefficient monster.

The Federal Government is nearing a 3 trillion dollar annual budget. No one really knows the exact amount of deficit spending we incur each year, but it is massive and growing. The more revenue the government realizes, the faster spending increases. We have un-funded liabilities of somewhere around $53 trillion for Medicare and Medicaid, and $25 trillion for Social Security. These are just estimates; no one can state the absolute accurate numbers. And, remember the government refers to these obligations as “un-funded liabilities”, not debt as private citizens and industry would be required to report and account for.

In 1976, President Jimmy Carter created the Department of Education. Before then, education was largely a local affair. This boondoggle has grown massively since its inception in employees, budget, programs and un-funded mandates. Less than 7% of the $60 Billion annual budget for the DOE is returned to state and local schools as grants. The rest is consumed in “bureaucracy heaven”. Can anyone seriously argue that public school performance has improved since we were blessed with the Department of Education and the thousands of theoreticians, consultants and knowledge brokers that this cesspool supports? You can actually graph the decline of graduation rates, the increase in truancy, lowered standardized test scores and achievement tests from the date we were blessed with the DOE.

The government enjoys natural monopolies in many areas. The Postal Service, the Passport Office, AMTRACK, The FAA, and so many more government agencies provide we citizens with one stop shopping. In every case, the result is subsidy, waste, and mismanagement. Waiting up to 90 days to receive a passport is ridiculous. The Postal Service and AMTRACK require subsidies every year, while FedEx, UPS, and the railroads make billions of dollars in profit each year. Why would any thinking person believe that government should be expanded into even more areas of our lives.

Thomas Jefferson, a soul brother to Milton Friedman said, “He is governed best who is governed least”. And yet, an ever-growing segment of our citizenry constantly seeks to redress perceived grievances and personally poor decision making by petitioning politicians for outcomes favorable to their desires. We know with absolute certainty that government is too large, inefficient, duplicitous and wasteful to solve problems.

Government is not in business to solve problems: it is in business to institutionalize problems! Social Security, Medicare and Medicaid, Welfare, Food Stamps have all grown exponentially. The problems these programs, and many others, were supposed to address have grown even more exponentially. Bureaucracies are not in the business of solving problems and shrinking, then going out of business as they successfully complete their mission. The very core of the nature of a bureaucracy is to grow insatiably.

As more citizens abdicate their personal responsibilities and seek government support, there are all too many politicians, lobbyists, issue advocates and social engineers ready to comply and satisfy this sycophancy. We see many people campaigning for a government takeover of the health care system. When government provides free health care: that is when health care will get really expensive! How in the world can so many people, be so blind about so much.

My Company, Duquesa Marketing, provides consulting services to inventors, small businesses and entrepreneurs bootstrapping businesses. By their very nature, these people are fearless, independent, creative and driven. They seek to take advantage of the amazing opportunities available to every citizen of the United States, if only they would take advantage of these possibilities. To a person, successful entrepreneurs do not understand, and usually despise government dependency. Simply being a citizen of this great country is the equivalent of winning the geographic lottery.

President John Kennedy famously stated, “Ask not what your country can do for you, ask what you can do for your country”? The growing sentiment today seems to infer, ask not what you can do for your country; ask what your country can do for you? John Kennedy, Milton Friedman and Thomas Jefferson are symbolic personages of a sentiment that must be revived. Every citizen must contribute to the public good, but the government must get out of the way and let the populace live and prosper by the dint of their own efforts. Downsizing this albatross is in order, and quickly!

Nicholas Barbon – An Insurance Pioneer

Wednesday, September 9th, 2009

by: Geoff Ficke

For most of history natural and man made disasters were treated as simple “Acts of God”. After the event, the effected populations were left to fend for themselves. They rebuilt their lives as best they could but there was no agency or provider that could be approached for assistance. Charity was virtually unknown in any organized way. Governments were distant and not in the business of administering relief funds.

Thus, a commercial opportunity was noticed, addressed and successfully harvested. In 1670 there was a massive fire in London. It was the largest fire in history until that time. The city was, at that time the largest, most densely populated in the world. Almost all of the buildings in London were constructed of wood and were built closely together, At that time, as now, London was a very horizontally designed metropolis (New York City and Hong Kong in contrast, are much more vertically built). The fire fed upon itself and raged widely, consuming all in its path.

After the fire burnt itself out, the city of London and it’s population were decimated. A prescient resident named Nicholas Barbon observed first hand the total destruction of his the metropolis. Barbon was a German trained physician. He assisted by caring for the injured but felt that something more could be done to assist people in rebuilding their physical, financial and emotional lives.

His brilliant, elegantly simple idea was to create an assurance product that could be sold in mass, at affordable rates and cover the possibility of loss by fire. Nicholas Barbon met with accountants and financiers and developed some of the earliest actuarial tables to assess and price risk. London Assurance was incorporated and was the first known entity to sell fire insurance to individuals and businesses.

In America, Benjamin Franklin started the first fire insurance company in Philadelphia in the 1760’s. Franklin was an entrepreneur with a wide range of business and philanthropic interests. He was probably one of America’s richest men of that era. He started the first fire department in Philadelphia at the same time. Imagine selling fire insurance for profit, and assembling a professional fire department to mitigate losses from fires. Bright fellow, no?

The great Chicago fire and the San Francisco fire of 1906 would have left these modern, beautiful metropolises with much sadder futures if the use of fire insurance had not been widely incorporated by the time they burned. Chicago is now known as “The 2nd City”, not because it is secondary to New York, but because the modern city we enjoy was rebuilt on top of the burned out husk of old Chicago.

Today the use of fire insurance is ubiquitous. We must have fire insurance to secure a home loan. Cities around the world have crafted building codes to minimize fire hazards among other reasons. The assessment of fire insurance risk is an actuarial craft. Hundreds of thousands of jobs are existent because of the fire and casualty industry that Nicholas Barbon pioneered.

The genius of Nicholas Barbon in assembling the elements that successfully commercialized the fire insurance business benefit us to this day. His vision allows millions of families and businesses around the world to survive disasters and re-assemble their lives.

Everyday, in locations all over the world, entrepreneurs are working to create new products, techniques and services that can improve our lives. Ben Franklin, Thomas Edison, Bill Gates and other famous inventors are paid homage for their contributions and genius. They are worthy role models for people seeking to create new opportunities. Men like Nicholas Barbon are less obvious. And yet, the seemingly mundane creation of fire insurance is a wonderful template for us to consider as we seek to craft exciting, new innovations.

Ancient Egyptian Lessons Learned Then Forgotten

Wednesday, September 9th, 2009

by: Geoff Ficke

Any visitor to modern Egypt, or viewer of a travelogue on this amazing country is awed by the antiquities visible everywhere. The Sphinx, hundreds of pyramids and mausoleums, temples and statuary are testament to the brilliance of this 4000 year old culture. These relics have survived the ravages of time, weather, wars and invasions.

Almost entirely forgotten, however, is the ancient Egyptian fetish for personal health and cleanliness. We know from written records and paintings that they were very keen to promote health, wellness and hygiene in ways that were amazingly advanced for the time, and would be considered modern today. Unfortunately, after the glory of the pharaoh’s faded, these habits were forgotten for centuries and, particularly in Western Europe, people lived in filth for ages.

An example of ancient Egyptians interest in cleanliness is their oral hygiene regimen. Egypt is an arid, windy, sandy country. Dust was omnipresent and was often blown into their foodstuffs. Grains were ground for flour between stone wheels and bits of the stone would become mixed into the final product. We know from examining mummies that their teeth were ground down almost to the gum line from a lifetime of chewing this gritty diet. The pain must have been unbearable.

Halitosis is most prevalent when tooth and gum disease is present. The Egyptians perfected the art of perfumery. For treatment of halitosis they would chew fragrant herbs and rinse with a concoction of warm water, a drop of perfume and an herb cocktail. They also practiced a form of dentistry, using needles to pierce and bleed abscesses. Priests acted as doctors and dentists.

More than half of all ancient Egyptian babies died before the age of five. Women were very protective of their bodies as soon as they became aware of their imminent pregnancy. We know that they utilized a very clever pregnancy test, thousands of years before the red/blue urine test modern women buy at pharmacies. Wheat or oat grains were collected, and the ancient Egyptian woman would urinate on the seeds. If the seeds sprouted, the woman knew she was pregnant and would adjust her personal regimen to prepare for the precious moment of childbirth.

There are many more examples of practical, but advanced hygienic procedures that were used 4000 years ago to pamper and protect the human body. And yet, a millennium later, virtually none were in wide use in most of the world. What happened?

Climate, demographics, social mores and superstitions are a few of the reasons historians and anthropologist’s offer as evidence for the loss of ancient healthcare techniques. Today, we believe that living in advanced modern societies we will improve and perfect new care techniques and each subsequent generation will live better, healthier lives than previous generations. Unless we learn the lessons of history there is no guarantee that we might not revert to a Dark Age lifestyle.

Currently there is a world economic crisis. If we had studied and learned from past economic calamities much of the pain being suffered by the worlds economy could have been mitigated. The fact is we often ignore or forget the lessons of the past. The bubonic plague of the middle-ages would most assuredly have been mitigated if society had utilized hygienic procedures perfected by the ancient Egyptians and Romans. Manias like Holland’s 17th century tulip-mania, South Africa’s milk culture scheme, Ponzi schemes, and countless modern recessions and the great depression all germinate from the same seeds: greed, fear and a lack of historical perspective.

Societies do forget. Governments do forget. Groups and individuals do forget. The ancient Egyptians gifted the world with many advances in engineering, construction, science, health care and art. These lessons were largely lost in subsequent centuries. Some, such as the mystery of the erection of the pyramids, have never been rediscovered. It behooves us all today to rekindle an interest in history and ancient creativity.