Friday, September 26, 2008

Another Bank Goes Down

Today WAMU went under and it's assets were taken over by JP Morgan Chase. What a month it has been for the US Stock Market. With Chase and Bank of America buying everything are we getting ready for the next storm where these banks will become too big to fail and then we are in the same mess years from now.

I have been a WAMU customer for long and I could say that it was a good bank from a service prespective, not sure how that is going to change with Chase.
Also with duopoly in the banking system, not sure what interest rates we will be getting on our deposits. WAMU was always attractive in it's rates.


Tuesday, September 23, 2008

Wall Street Mess

People in Wall street create a mess, the government will clean it with our ( taxpayers) hard earned money and then Wall street will make more money out of it. A classic theme repeating again and again.

Why is treasury secretary asking for a bailout for these banks, why create an entity which will buy toxic assets from bank, why not just lend money to the banks at a higher interest and make the interest payment top-most priority of the banks which borrow money which means no dividends to shareholders, no bonus to executives.

This outright buying of toxic assets is going to make the failed institution not really feel the heat and try to look for alternatives.
Example look at what happened with AIG, it tried to sell itself to many people, but waited thinking govt will bail it out, well govt did bail it out but it is a very costly deal from AIG perspective , so now what is happening the majority shareholders are trying to finance the same and avoid taking the loan from the govt.

I feel that we need to teach private institution a lesson on corporate management and allow them to fail rather than the govt trying to save the same.

This action of creating a fund to buy the assets if done without careful thinking will just bold en the risk taking actions of Wall street. Even if it is done, the institution should feel the pain and understand that every action has an equal reaction.

Saturday, September 20, 2008

Where Have All the Leaders Gone?

This is also a title of the latest book from Lee Iacocca.Looking at the financial mess our country is in, I can't agree any less to the above statement. I think we have for a long time disguised effective managers as leaders and in that process brought disgrace to the true leaders to name a few-Mahatma Gandhi.

What is a difference between an effective manager and a leader.

An effective manager knows how to climb the ladder efficiently and effectively and a leader is a person who has to ensure that the ladder is leaning against the right wall. Well you can see from this analogy we really do not have an leader of quality emerging out of this Wall Street mess.

Let's take an example of the AIG mess.

AIG was one of the pioneer's in the insurance industry ( notice my past tense)They really did well in all types of insurance namely property,life,airplanes,industrial, you name it and they were there.What is the underlying premise or business model in an insurance company.Let's take an example of say property insurance ( the one you take for your own house)
The insurance companies charge you a premium and they have say 100 customers who pay premium. The underwriters of the insurance policy figure out Ok what is the probability of all houses getting gutted in fire, well that can't happen physically so they estimate maybe 2-5 houses might get gutted and they might have to pay the home owners from the premium collected from the other 95 customers. A good model for a business at the same time providing a good coverage to individuals.

Now look at the new product AIG got into.
They wanted to start insuring the bonds ( so called toxic bonds) issued by the bond agency, well some dumb person ( let's say greedy) thought , if we are the best people in insurance why can't we do this insurance also and try to make more money, so they got into this but little that they realise that in this type of market when one house catches fires all houses are in trouble. There you go...

SO moral of the story, AIG had all the best effective managers they had, but not one could see this coming. The excuse given is no one in WallStreet understood these products, well I will ask a simple question will any one of those guys in their personal portfolio undertake a risk of this magnitude with a product not understood at all. This is plain greediness.

Well what can i say, we common investors are getting hit from all sides, on one side we get penalised for holding these stocks ( let's call them toxic stocks) and on the other hand the government bails out the same companies from the tax we pay.

I am always a big fan of capitalism but at the same time I am practical. These events should definitely make us think about how we manage our markets. I am sure we will continue to have issues like this and we will keep coming up with solutions after the fact , let's not forget Enron.

The point is are there any leader worth his/her salt in this situation.

Comments are welcome.

Tuesday, September 02, 2008

Get Things Done

I spent the labour day weekend on a book which really impressed me. It is "Ready for Anything" by David Allen. It is basically a book on time management with an emphasis on getting small things out of your way so you can prepare the space for a big take-off. I would like to share some of the take aways from the book.

Some points which caught my attention
  • The process consists of 5 distinct processes : Collect,Process,Organize,Review and Do (Action).
  • Clear your head for creativity , get small actionable items out of the way. Mosquitoes can ruin the hunt for a big game.
  • It is most often the small things done at strategic places that make the most difference.
  • Your mind does not remember or remind very well, compared to what a good system can manage. What it does well is review options and available information and then put together how-to's. If it's not free to do that if it is trying to remember and remind. Without an airtight system, it must work at a lower level than it should and become a misused resource.
  • Keeping uncaptured,unclarified and unprocessed things in our minds creates unnecessary stress.
  • On about creating task list and reviews: "The palest ink is clearer than the fondest memory"
  • You have got to think about big things while you are doing small things so that all the small things go in the right direction.

The core belief in the book as it came across to me was that everyone needs to have a good system of collecting action items and have a way of processing them in such a way that you do not need to have your mind ( which can treated as a limited resource) remember the same, the mind is better of working at a higher level. Also the other important point which came across was that all activities if stored in the mind are stored with no time reference, what is called the psychic RAM of the brain, so both action items will fight for attention and induce stress.

I am definitely going to read the other book written by the same author which explains this system in more details.