Allan Sloan: Five Myths of the Financial Meltdown

We are about five years and one month past the financial meltdown, when America's largest and most prestigious banks could no longer hide the fact they were in big trouble--and were taking everyone else with them.

Fortune Magazine columnist Allan Sloan recalls:

It's hard to believe, but it's been five years and a day since the U.S. financial system's problems surfaced, and we're still not even remotely close to being able to feel good about the economy. My admittedly arbitrary start date is June 12, 2007, the day the Wall Street Journal reported that two Bear Stearns hedge funds that owned mortgage securities were in big trouble. At the time, things didn't seem all that grim -- in fact, U.S. stocks hit an all-time high four months later. But in retrospect the travails of the funds, which collapsed within weeks, were a tip-off that a crisis was afoot. Problems kept erupting, efforts to restore calm failed, and we trembled on the brink of a financial abyss in 2008-09. Things have gotten better since then, but still aren't close to being right.

There's a long way to go before the economy, and people, recover from wounds inflicted by the financial meltdown. The value of homeowners' equity -- most Americans' biggest single financial asset -- is down $4.7 trillion, about 41%, since June 2007, according to the Federal Reserve. The U.S. stock market has lost $1.9 trillion of value, by Wilshire Associates' count. Even worse, we've got fewer people working now -- 142.3 million -- than then (146.1 million), even though the working-age population has grown. So while plenty of folks are doing well and entire industries have recovered, people on average are worse off than they were. Bad stuff.

Sloan observes that only five years away from these shattering events, myth is already displacing reality (and some people wonder why I distrust the reliability of the gospel accounts of Jesus and such.)

Sloan reminds us of the facts. I'll just list them here. Go read the article.

Myth No. 1: The government should have done nothing.
Myth No. 2: The government bailed out shareholders.
Myth No. 3: The Volcker Rule will save us.
Myth No. 4: Taxpayers are off the hook for future failures.
Myth No. 5: It's the government's fault.

Sloan's article generated reaction. In a follow-up article, he brought out more facts and reasoning to deal with the rabble. First he deals with the cries over Myth #1, the myth that the government shouldn't have done anything:

Dozens of commenters said that cleaning up the mess should have been left to the private markets, which would have done things better than the Federal Reserve, Treasury, and rest of the government did.

What most of those people probably don't realize, though, and what I had no room to discuss in my last column, is that private markets took the first big swing at recapitalizing troubled financial institutions -- and struck out.

Other objectors told Sloan the government should have done something else. He dispenses with this line of thinking, too.

The alternate complaint -- that the government should have nationalized troubled institutions -- sounds plausible too. But that strategy stood no chance of working, regardless of how things played out in other countries. First, seizure would have resulted in endless litigation. Second, there were practical problems. For example, when I looked into the consequences of the government nationalizing Citi, I discovered (from independent third parties) that Citi most likely would have had to surrender lucrative franchises in several foreign countries that don't allow banks there to be owned by foreign governments.

A third complaint made to Sloan dealt with Myth #5, that the government was really to blame for the financial meltdown. Sloan explains why this is bunk:

The other widespread criticism was of my last point: that although the government lowered some mortgage loan standards, the debacle is primarily the private sector's fault. I was attacking the oh-so-convenient myth that private markets are blameless and pure, that the whole problem comes from misguided government efforts to help "those people" get homes they couldn't afford. Many commenters were, shall we say, displeased.

Well, let's see. Most of the bad mortgages were made to supposedly qualified borrowers, without pressure from the government. Lenders required little in the way of down payments or credit checks; they wanted to juice up their loan volume. Credit-rating agencies gave AAA ratings to trash, to keep fee income flowing. Yield-hungry investors snapped up garbage that bore the agencies' imprimatur. Private enterprise all the way.

Sloan closes by reminding all of us just how bad it was five years ago.

Credit default swaps and other esoterica spread the problems worldwide, magnified losses, and put even the soundest institutions at risk. That's because if giant, less sound institutions had failed en masse, they would have defaulted on their obligations to their sounder trading partners.

We also need to remember that for all the criticism (including mine) of particular tactics, Hank Paulson and Tim Geithner and Ben Bernanke bailed out the U.S. financial system at no net expense to America's taxpayers. An impressive achievement.

Instead of a discussion about what happened, we've gotten into a government-vs.-free-market shoutfest. These fragmented days, many people tend to see things in black and white terms, in ways that reinforce what they want to believe. The real world is more complicated than that. Black and white have their places -- but to understand the financial meltdown, you need to see some gray.

To me, the big takeaway is that the financial meltdown was caused and magnified by bad business and poor regulation. And although the crisis was mitigated by cooperation between business and government, we still need lots of partnership, transparent decision making, and cool-headed leadership on both sides.

We need business to step up and we need government to stay involved and proactive.
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Summer Reading

Among my goals for the summertime is to read and finish several books. In no particular order, here are the ones I most want to tackle:

1. How Will You Measure Your Life? by Clay Christensen et al. A book on principles of success in business, ethics, and life from a highly regarded Harvard Business School lecturer.
2. The Art of Strategy by Avinash Dixit and Barry Nalebuff. Game Theory in real life.
3. Britain BC by Francis Pryor. An expert surveys what we know about ancient Britain and Ireland.
4. Sublime Dreams of Living Machines by Minsoo Kang. A scholarly account of the automaton in the Western imagination.
5. The Information by James Gleick. The story of Information Theory.
6. Good and Real by Gary Drescher. Reconciling a mechanical view of the world with observations and issues in physics, ethics, and more. 
7. The Obligation toward the Difficult Whole by Brian McHale. A former instructor of mine on postmodernist long poems.
8. Morte d'Arthur by Thomas Malory. King Arthur's life, court, and death.
9. Paterson by William Carlos Williams. A book-length poem on Paterson, New Jersey.
10. Retrieving the Ancients: An Introduction to Greek Philosophy by David Roochnik. More than just Plato and Aristotle.

Waiting for the Ax

Ah, life in the big city.

My company is having tough times. Our market has shrunk and we are not selling as much as we once did. What's more, we have few--maybe not any--substantial prospects for generating sales in either the near-term or long-term.

Layoffs are coming. I predict it will happen Tuesday or Wednesday next week. Every group will likely be asked to identify a percentage of people to be candidates for downsizing. My guess is we will lose almost 10 percent of the company workforce.

Although I don't think my job is in jeopardy, I am certainly not "safe." Assuming I am one of the folks remaining after the layoff, I have a personal strategy for driving improvements in my area. Right now, I am documenting everything I do and thinking about the extra work I may need to take on.

If I am let go, the first thing I'll do is apply for unemployment. Then, I'll make some calls. For now, I have some other preparation work to do, but I plan to be ready next week in case I'm ushered out the door. I'll have most of the files I want saved to a flash drive; I'll also have my desktop filed cleaned out.

I remain generally optimistic about my company and about prospects for the US economy overall. I think--I hope--we are at the bottom point and expect everything to start slowly improving by August.

Disturbing yet Unsurprising

Banks back Romney.

When the head of JPMorgan Chase met with shareholders to answer for a trading loss of more than $2 billion Tuesday, it was against an evolving political backdrop: Donors from big banks are betting on Mitt Romney to defeat President Obama and repeal new restraints on risky, large-scale investments.

"There’s no doubt that there’s been a big diminution of support for the president," said William M. Daley, Obama’s former chief of staff and a former top JPMorgan Chase executive. "People in the financial services sector are saying, 'The president has been too tough on us, both in policy and on rhetoric.'"

Romney promises banks unfettered operation as they buy labor, dress it up, sell it, pocket the profits, and leave taxpayers with the heaviest financial burdens. Romney knows all about "making money."

The graphic below suggests the difference between Romney and Obama. The former's backers seek to accumulate and consolidate. The latter's seek to innovate and improve.

Personal Branding

From PBS,

In 2007, Atlantic Media's director of digital strategy Scott Karp was named one of the 40 most influential people in publishing by Folio magazine. But Folio wasn't honoring Karp for his work at Atlantic, which publishes the Atlantic Monthly magazine, but was instead fawning over the work Karp did at his personal blog, Publishing 2.0, which covered how technology is changing the publishing business.

Karp is a great example of someone who worked at a company but also developed his own personal brand, something that's been in vogue since Tom Peters famously touted The Brand Called You at Fast Company magazine. With blogging, Twitter and social networks as springboards, personal branding has spread like wildfire through media and technology companies, allowing people like Matt Cutts (Google), Robert Scoble (Microsoft, PodTech, Fast Company) Xeni Jardin (Wired, NPR) and Scott Monty (Ford) to expand their influence.

Karp says he built his brand at Publishing 2.0, using it as a soapbox of ideas and a forum to discuss them through comments.

"My blog became resume, business card, references, network all in one," Karp told me. "I would go to conferences, meet people, and find they already 'knew' me through my blog -- an odd but useful form of micro-celebrity."

Through his blog, Karp met fellow blogger Robert Young, who ended up co-founding Publish2 with Karp, a startup that helps journalists share ideas and links.

At a time when people jump from job to job (or get laid off from job after job), personal branding is becoming more than just a hobby -- it's a necessity. Matt Cutts, who heads the web spam team at Google and runs a popular personal blog, has become much more than a faceless programmer at the technology giant.

"When you're considering switching jobs, even a personal website with a small portfolio of sample work can be invaluable," Cutts said. "People will search for you online, so it's important to take part in that conversation, and having your own website can be a great way to put your best foot forward."

Dan Schawbel, author of "Me 2.0" and publisher of the Personal Branding Blog thinks that good companies and publishers will give workers the freedom to create personal brands.

"I read a survey last year that showed that college graduates would spend an average of 1.6 years at their first position, after college, before moving on," he said. "That number is going to shrink in the future, so companies should focus on results and let their employees own their brand. Smart companies will look at employees as their greatest asset and by allowing them to engage in social media, they will be that much stronger."

Balancing Personal with Corporate Brands
Personal branding in the media obviously predates the digital age, with newspaper columnists going on TV and TV anchors writing books. But now, there's a chance for many more reporters, editors, marketers and salespeople to use simple digital tools to create their own following online. And the media companies that encourage that -- without too many restrictions -- will end up reaping the benefits.

One of the more tech-enlightened newspaper editors, John Robinson of the Greensboro (N.C.) News & Record, says that when a columnist or blogger builds a "tribe" of followers, it helps the paper.

"Newspapers should encourage columnists and bloggers to build their own brands online," he told me. "Trust and integrity are two of the coins of the online realm, in my opinion. We know now that it's no longer good enough to tell people that Joe the columnist is trustworthy. People will determine whether Joe is trustworthy by what he says, what he does, who he associates with, how he talks with others, who he links to, what he links to and who he's friends with and follows. People develop that sense of Joe over a period of time watching him and talking with him."

Jeremy Zawodny was a prominent engineer at Yahoo (now working at Craigslist), but built his own personal brand on an independent blog that gained notoriety -- and also caused trouble within Yahoo.

"When I got started it was a rocky road," Zawodny told me. "Several years ago, having a public blog on which I wrote about my employer (Yahoo at the time) rubbed some people inside the company the wrong way. That led to a fair amount of criticism and backlash. In the end, after several uncomfortable meetings and discussions and some careful wording on sensitive topics, everyone agreed that it was a positive thing in the long run. One thing that fell out of that was a set of company guidelines so that others would not have to navigate the minefield that I did."

Scott Monty, who leads social media efforts for Ford Motor Co. and has a successful blog and Twitter feed (more than 26,000 followers), says people should be careful not to overshadow their brands.

"If you're employed by a notable brand, it should always be brand first, self second," Monty told me. "Your personal brand will benefit from the halo effect of your company's brand. If you want to promote your own brand, you should should either (a) go into business for yourself, or (b) figure out a way to do it separate from your company."

Kathlyn Clore is associate editor for the European Journalism Centre and described herself to me as "20something journalist" who has a personal blog. She said she has limited what she writes about reporting work she has done, and is wary about blogging taking away from work.

"The biggest issue for me has been colleagues asking suspicious questions about work-related goals and intentions when they saw me begin blogging about professional topics in January of this year," she said. "It probably raises the most eyebrows if I'm seen to be dedicating time to my own site/brand/portfolio of work when perhaps I could have been doing something for the journalism centre for which I do most of my work. I'm sure that's true for others."

Keeping Talent On Board
Even at a time when people are less likely to quit due to the economy, companies are better off keeping their talented workers happy rather than upsetting them with limits. Branding expert Schawbel notes that some media companies are better than others when it comes to tolerating personal branding.

"Media companies such as Fast Company have completely ripped apart their old website and turned it into a community, while other companies, such as the Wall Street Journal have placed their employees in chains," he said. "For instance, [the Journal's] social media policy states that 'business and pleasure should not be mixed on services like Twitter.'"

Tom Regan was a longtime editor at the Christian Science Monitor, but now is a Monitor columnist and freelancer due to an editor who didn't give him enough room to be creative. He says that smart companies that give people space to be themselves have a better change of keeping them on board.

"If a writer believes they are building something up, and the company has nurtured it, then I don't think most people would go," Regan told me. "It's when they feel that they don't have that environment that they say, 'The hell with this, I'm going to do this on my own.'"

Publish2's Karp told me that media companies need to value personal branding above all else.

"In a digital media world where corporate industrial assets like printing presses, delivery trucks, etc. are declining in value, people -- reporters, editors, bloggers -- are the greatest asset that publications have," he said. "They should actively cultivate that asset by helping personal brands flourish...You could define social media as the shift from publication brands to personal brands, as media shifts to the social web. At some point a publication brand without personal brands will have very little value to the people who consume that brand."

Advice on Personal Branding
Here's a roundup of advice for people who want to create a personal brand online:

"Grab a domain name and work on burnishing your personal reputation online. It's definitely not the case that everyone needs a blog, but having one place that acts as a face to the world can really help. There's room for a resume/CV, but also for some writing samples that show off your abilities." -- Matt Cutts, Google (from his Letter to a young journalist post)

"The importance of building your brand online today is an opportunity to survive this print industry crash, and protect yourself by having an asset you can leverage to get your next writing job, whether you want to be a freelance writer or work as an employee. Personal branding has become mandatory recently, not just something to do to get ahead." -- Dan Schawbel, Personal Branding blog

"In the future, personal brands will be everything. As newspapers and media companies get smaller and break apart, journalists will be known as much by their personal/professional brand as by the company they work for. Many will be their own company. The quicker you establish a digital brand -- I recommend shooting for integrity, trust and authority -- the better." -- John Robinson, Greensboro News & Record

"The microphone is always on. Remember that whatever you do, it reflects on you and your company, if you connect those elements of your life. And in this era, you need to be very careful, as search engines can log all sorts of things. Remember: Whatever happens in Vegas...stays on Google." -- Scott Monty, Ford Motor Co.

"I would go so far as to say that journalists without personal brands, like journalists without digital and web skills, are going to be less and less employable. If you want to be a cog in the machine, it's probably not a good idea to be a journalist in a social media world." -- Scott Karp, Publish2

Time, Money, Money, and Money

I'm spending less time on this blog, mainly because my other one has been consuming my time. Well, that and work.

Work's been major league busy, but add to that my scholarship duties and my ghostwriting and you get one stretched out dude. Speaking of my ghostwriter employer, he finally paid me. I got $500 for a quick-turnaround assignment. I ended up buying about $220 in books for school. And now I am trying to negotiate about $1200 for a new project, half paid up front. I would take $750, but we'll see where he comes in. My bet is that we end up with $650, but we'll see. If I get close to $1000, I'm buying some stuff.