“I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”—Warren Buffett
“If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.”—Economic View - Why Free Parking Comes at a Price - NYTimes.com
“Singapore, I think, has the closest thing to the sort of system Hayek had in mind. Among wealthy countries, it spends the smallest percentage of GDP on health care, and it gets about the best results. You know what that’s called? Efficiency. How do you get it? Competitive markets with freely moving prices under the rule of law! It’s the sort of thing you’re in favor of if you want everybody to have access to really good health care and money to spend on things other than health care.”—
“How could we have gone back to business as usual and petty political gridlocks with all those black swans circling around us? Then we will really kick ourselves.”—Thomas Friedman - This Time Is Different
“These days, trading isn’t risky at all. In fact, it’s safer than walking down the street.
Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits—by borrowing from the taxpayer and then lending back to the taxpayer.”—God It’s Great To Be A Banker
“Deep recovery for the global economy depends on the American consumer becoming the American saver, investor, and builder. That, in turn, depends on a new generation of businesses, that lay the foundations for tomorrow’s industries, sectors, and markets. Those businesses - Constructive Capitalists - are what fuel meaningful investment in people, communities, and society, not just naked consumption by them.”—Umair Haque / Bubblegeneration
… The FDIC closes it on a Thursday. LibertyPointe Bank of New York, NY just failed. The bank had $209.5 million in total deposits and will have an estimated hit to the Deposit Insurance Fund of $24.8 million. The FDIC entered into a loss-share agreement with Valley National Bank on $181.5…
“WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.
What are your top three trend predictions for the virtual goods sector in 2010?
More people wake up to the fact that selling 100% replicable pixels for dollars is more profitable than selling black sugar water.
Global virtual goods market over USD 10 billion: the US market was about $1B in 2009 and our estimated for Asia was a conservative $7B. Factor in growth in US (maybe $2B next year) + Asia ($9B?) + rest of the world and we’re there easily.
“In my opinion, Goldman is a dangerous, closed ‘Collective Knowledge System‘ . Having a closed Collective Knowledge System is cool, but I have long not trusted what it is that Goldman’s system decides to share, with whom, and when.”—
“But the high ground has shifted. The new high ground is an ethical edge. It’s not about having more; it’s about doing better. It’s not about protecting exports, pressuring buyers and suppliers, price discriminating against the powerless, and programming consumers to buy, buy, buy — it’s about making people, communities, and society authentically better off. It’s not about caring less — but caring more. It’s not about ruthlessness. It’s about mindfulness.”—Google, China, and the New High Ground of Advantage - Umair Haque - Harvard Business Review
“In other words, Google has managed to turn their business quandary over what to do about China into a political affair, with the US government having no choice but to play second fiddle to Google’s first. Now it’s not just Mountain View vs Beijing, it’s Washington/Mountain View vs Beijing. Brilliant. No wonder Google has been hiring all those smart policy types with government experience: you can see they are acting very smart.”—Google + US government = Love? | Net Effect
“One of the little appreciated facts of American history: the Westward expansion was funded mostly by credit money. Banks and companies would set up shop with tiny gold reserves, people would use their money as currency, and the banks would regularly explode, making the issued money worthless paper. Why on earth would anyone back such a hare brained scheme? Simple, really: there was no other form of money available, because the government removed vast amounts of money from circulation in the form of greenbacks (fiat money which funded the Civil War) and silver notes. That, combined with the very real economic expansion brought on by new technologies and exploitation of new resources in the American West required much more money than was available. So, seemingly silly monopoly money was the only game in town. This caused problems to the people who held a lot of cash backed by an exploding bank, but it solved more problems than it caused, as it enabled markets, trade and economic growth at an important time in American history. You think derivatives are complicated? At the outbreak of civil war, there were over 7000 different kinds of Bank issued credit money in circulation in America; and there were no computers to sort this all out.”—A peregrination on the nature of money « Locklin on science (via nonolet)
“It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?”—Porter Stansberry - The bankruptcy of the United States is now certain
“Ultimately, Chinese growth is the result of a great skyhook: an artificially cheap currency. That skyhook says: Chinese prosperity is in many ways simply an economic fiction. That currency manipulation can’t last forever — and without it, China will have to confront the same problems every industrialized society does: the tremendous costs of a model of growth that places “product” over people.”—What’s Your Strategy for the Next Decade? - Umair Haque - HarvardBusiness.org
“A new decade’s breaking, and in it, people, companies, and countries will have to strategize differently. The story the macroeconomic tea leaves foretell isn’t one of power shifting from America to China or anywhere else. It is a story of global economic might everywhere wavering and falling, unable to meet the new challenges of the 21st Century, The Age of Decline isn’t just American: it’s global, a descent into a new kind of economic dark age - unless different choices are made.”—
“We all know at this point that our banking system is being used as an unregulated bonus-seeking mechanism for bankers, now underwritten by taxpayers with $23.7 trillion worth of national wealth. Bankers lent pretend money to home buyers to award themselves actual money in bonuses — making home prices balloon and, in the process, bankrupting America’s treasury, currency, the states, and many of its citizens. To simply let the housing market rapidly correct itself (or more likely over-correct) would result in massive societal disruption, possible violence and unnecessary suffering.”—Dylan Ratigan | Veterans Get Lip Service, Bankers Get Billions & We Get Foreclosures (via poortaste)
It is hardly surprising that GMAC is circling back to the government for a third helping of taxpayer money. GMAC is struggling under the double whammy of bad car loans and the fallout from its misguided foray into mortgage finance at the height of the housing bubble. After the government applied stress tests to the banks last May, it was the only big bank that could not raise the capital it was deemed to need.
“And now there are five — five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called ‘talent,’ and raking in huge profits. The biggest difference between now and last October is these biggies didn’t know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who’s just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can’t say no, the biggies will drive even faster now, taking even bigger risks.”
“The theory that bailout benefits sans meaningful reform will trickle down and benefit the average Joe (as much than or more than bankers) is the kind of perverse logic only an economist could love. It’s is faith-based economics — and it’s Barack Obama’s biggest mistake. (Consider for a moment that 20+ per cent of hedge funds misrepresent info.) For years, George Bush hunted for phantom WMDs, while terrorist networks flourished under his nose. Now Barack Obama is hunting for a phantom prosperity, while the greatest robbery in the world is happening right under his nose.”—Reinventing Wall Street From the Bottom Up - Umair Haque
“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil — so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”—Alan Greenspan
“When you take any money at all from a big VC in a seed round, you are effectively giving them an option on the next round, even though that option isn’t contractual. And, somewhat counterintuitively, the more well respected the VC is, the stronger the negative signal will be when they don’t follow on.”—
Yes. This always bothered me. I’d rather raise from a group of great angels (and therefore herd a lot of cats) than run the risk of having a seed VC not lead the next round. And if they do end up leading there are lots of distorted incentives that can cause serious problems for the entrepreneur. Negotiate too hard and you lose your lead and end up sending a really negative message to other prospective investors. Not good.
Thanks for the advice, would love to hear more about it. About to go through this now for the first time. Definitely leaning towards doing a syndicated angel deal than a VC seed round that also requires a board seat and other strings. Pros / Cons?
Your angels should get a board seat. More specifically, the lead should represent them as a class on the board. I guess this doesn’t always happen. It’s the way it worked for us, and it worked reasonably well. At some point they should expect to give up their seat as they get crammed down by professional venture investors in later rounds.
I think there are many reasons to go with an angel syndicate over a VC in an early seed round. The follow-on issue is only one of them. You also get more diverse advice. You also get friends. No investor is really your friend, but angels are probably as close as any investors get. Most angels invest because they love it, not so much for the returns. VCs are professionals that are fiduciaries for LPs (pension funds, university endowments, etc). They’re more likely to be dicks because sometimes they have to be dicks. You want investors who you can grow with.
There are exceptions to every rule. I think it would be tough to turn down a seed round from USV, for example. But imagine how much it must suck to have Fred put in $500,000 and then refuse to participate in your next round. Everyone out there thinks Fred has one of the best noses around. How do you explain to potential funders that Fred won’t be participating? This is always a problem, but it’s much more pronounced early in a company’s history when concrete metrics are hard to come by and you’re still to a large degree selling vision.
“One interesting thing that I’ve always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business.”—Marginal Revolution: the unusual economics of the film industry
I’m sure if I took the time to grok it would become sensical, but at the moment it would be much more pleasing to simply say “reverse repurchase agreements?” Are you f*cking kidding me?
What’s worse is that the industry term for such transactions are “reverse repos” which a lyaman would bring to mind getting your unpaid car given back to you … which isn’t really how we want American’s thinking the government is treating the banks and all the loans. It sounds like we’ll be giving the banks back the money that we loaned them
I’ll try and break it down a bit more. You’re right that ‘repo’ sounds like repossession, but hopefully Bloomberg readers at least know that there is a difference between the Federal Reserve and a no-credit-check discount car leasing company.
When the Federal Reserve wanted to stimulate the banking system they bought up securities (it used to just be government bonds, but has now expanded beyond that) with money from the treasury. Now, they want to sell these securities back to the public (and by public, I mean large institutional investors and banks) to pull back in some of the money to reduce the risk of inflation/devaluation of the US dollar.
“At the last MIT Venture Capital conference, a speaker brilliantly described the good and bad about VC money:
“Venture capital is like sex. When it’s good, it’s really good. When it’s bad, it’s still good.””—
“What we need to do is to apply the same rules to VC’s which they impose on their companies – force them to make tough choices and get their business models in order. And instead of giving the tax-breaks to the middlemen, let’s give these directly to the entrepreneurs who take the risks and create the innovation. It is the entrepreneurs who fuel the economy, not the venture capitalists or investment bankers.”—What Have VCs Really Done for Innovation?