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I, Cringely - The Survival of the Nerdiest with Robert X. Cringely
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The Pulpit
Pulpit Comments
October 08, 2008 -- Off With Their Heads!
Status: [CLOSED]

Jack had some great merger ideas that were right for the time, and rode the wave of the increasing value of the finance function. I doubt many of his successes could be repeated in today's global, inter-dependent market.

However, his whole notion of annually cutting the "C" players is fatally flawed. It assumes that you can even *identify* them, which I doubt. Even if you could do that, over time the standard deviation would become so small that very good people are being fired. Six sigma, indeed!

If Jack is so good, let Immelt step aside, and bring him back. Let's see how he does this century.

TimB | Oct 08, 2008 | 12:30PM

No credit for anyone? Really? Then what about these figures from the feds as reported in Forbes?

http://www.forbes.com/2008/10/01/interbank-lending-ted-oped-cx_ar_1001reynolds.html?partner=email

A solution that starts from a false premise will never work.

Russ Madden

Russ | Oct 08, 2008 | 12:55PM

Actually, I think one key aspect of the problem is that banks got too large and as a side effect, the executive leadership was too far separated from the real banking product and risks. Large banks may be afraid to lend in bulk to faceless commercial paper offerors, but how difficult is it really for a smaller community bank to offer loans using a more intimate knowledge of the history of a given business.

alan | Oct 08, 2008 | 1:12PM

The banks already have an incentive to lend - it makes money. There are plenty of good companies to lend to also. The problem is that banks are under-capitalized.

The FDIC says "You must have $1 in capital on your books for every $10 of loans outstanding." The capital the banks were holding (mortgage loans) just fell in value huge amounts, killing the amount of money they can lend by 10x that amount.

If you want banks to lend you have to do one of two things: (a) increase the allowable multiplier (e.g., to 20x) or (b) write the banks a check for $700 billion dollars to recapitalize them.

Your plan would just force people to choose between getting fired or complying with law. That's always a bad plan.

Brock | Oct 08, 2008 | 1:13PM

I love your articles, but that is the worst idea I've heard. Most of your ideas deal with getting the government out- not in.

And it wouldn't be free. You'd have to pay Jack and his employees and all the costs of starting up a new agency.

Then new cops or departments to police the banks according to new laws.

I've got an idea. Let banks fail who make bad loans. New banks/loaners will pop up.

Chuck | Oct 08, 2008 | 1:18PM

I was driving this morning, and the sun came up just right and blinded me. I had to stop on the road, because I couldn't see. I popped on some shades and off I went.

You can see the analogy. I didn't need more gas in my car (more money). I didn't need an airbag (more regulation). I didn't need a new car (democrats). And I didn't need some Jack kicking my ass (Cringely).

I just needed to be able to see where I was going. Fixing the banking system is all about ensuring the solvency of counterparties. If the fed keeps doing that, we'll get going soon enough.

Ted Murphy | Oct 08, 2008 | 1:20PM

Jack Welch is at least partially responsible for the mess that GE is in. Thanks to him, GE is now primarily a finance company that has tremendous exposure to bad paper. This is a company that spent billions buying back stock last year when GE's stock price was in the 40's and then last week had to sell $19 billion of stock to the market at $20 and $3 billion in preferred stock to Buffet at 10%.

Total Geniuses.

linlai | Oct 08, 2008 | 1:32PM

Austrian economic theory indicates the absolute best response the government can take to end the present crisis is to leave the market alone. (See, for example, http://mises.org/tradcycl/econdepr.asp)

It is erroneous to say that it was a laissez-faire policy toward the market that got us into this mess in the first place, as it was the Fed's keeping the interest rates artificially low throughout the early part of this decade in conjunction with government mandated risky home loans through vehicles such as the Community Reinvestment Act that led directly to the housing bubble and the current credit crisis.

The pain will not end until the government stops intervening in the financial markets completely.

Oh, and this goes for Jack Welch, too. Sorry, Jack.

Jeff Herron | Oct 08, 2008 | 1:44PM

Robert, you really need to take a closer look at this. You obviously didn't look into which types of entities are having trouble getting loans. It's not non-financial asset backed companies, those are able to raise funds just fine. The credit markets that have completely fallen apart are the inter-bank markets. Go look at the LIBOR and TED spreads.

Banks refuse to lend to each other because they don't know which other banks are insolvent. As you said, they don't want to lend money to entities which may not exist tomorrow. They don't know which banks are insolvent because the capital regulations haven't been properly enforced since Glass-Steagall was repealed. If the banks were forced to open the kimono so that we could also see who is a zombie and who's not, the credit lock-up would end instantly. Zombie banks would die, but the remaining banks would instantly resume trusting each other, because it's all out in the open.

Problem is, this is a political hot potato. Someone in Washington needs to grow the balls to lock up the children and take charge of this situation. Maybe not Jack Welch, but somebody besides the ones who have been driving the economy off a cliff.

Jason Kolb | Oct 08, 2008 | 1:45PM

If Jack Welch was the Banking Czar, ATM fees would be $20 per transaction. Overdrafts would cost you $1000 and the taxpayers would have to pay for his Central Park West condo and personal chef.

This crisis has been discussed for several years on:


http://thehousingbubbleblog.com/


It was obvious to the poster on that board that there would be some repercussions from the 300% appreciation rate of housing in California/Arizona/Florida from 2001 to 2006.

Anyone who thought it would last forever was a fool.

Steve Dean | Oct 08, 2008 | 1:52PM

Good to see that you did your research on what it means to be in a recession.

And very interesting take on this issue. I like it much more than throwing money at a frozen industry, now if someone can actually make it happen.

andy | Oct 08, 2008 | 1:57PM

You may want to reconsider your proposal to have Jack Welch save the world, in light of his stewardship of GE, turning it into a large (now troubled) financially based conglomerate. I think his current proposals are self-serving.

From ClusterStock:

The Bomb That Is Blowing Up In GE's Hold (GE) (GE)
Henry Blodget | Oct 7, 08 9:11 AM

jeffimmelt5.jpgTriple-A rated GE has long been considered as safe an investment as you can get--as safe as, say, houses. But last week's emergency financing, which destroyed tens of billions of dollars of GE shareholder value, caused many observers to revise their opinion of the company's risk profile. And language in GE's most recent 8K should cause everyone to break out in a cold sweat.

As of June 30, GE had about $100 billion in short-term debt, the commercial paper that is becoming more and more expensive to issue. Commercial paper has to be rolled over everything three months or so. This means that, unless GE massively reduced its short-term debt load in Q3, the company will need to keep borrowing about $100 billion every three months. A bummer, then, that the commercial paper market has seized up.

The $15 billion in emergency equity capital that GE raised last week will take care of some of this problem, but only about 15% of it. So that leaves $85 billion that GE needs to borrow in short order (plus another $53 billion in the current portion of long-term debt).

Is the company insisting that this is no problem at all? Actually, no. Check out the language in the 8K the company just filed for the equity offering (credit to Michelle Leder at footnoted.org):

A large portion of GE Capital’s borrowings have been issued in the commercial paper markets and, although GE Capital has continued to issue commercial paper, there can be no assurance that such markets will continue to be a reliable source of short-term financing for GE Capital. If current levels of market disruption and volatility continue or worsen, or if we cannot lower our asset levels as planned, we would seek to repay commercial paper as it becomes due or to meet our other liquidity needs using the net proceeds of this offering and the Berkshire Investment, by drawing upon contractually committed lending agreements primarily provided by global banks and/or by seeking other funding sources. However, under such extreme market conditions, there can be no assurance such agreements and other funding sources would be available or sufficient.

Wow, sounds scary. And it is. Especially compared to the language in the same Risk Factor in GE's 10K, which was filed in February:

The major debt agencies routinely evaluate our debt and have given their highest debt ratings to us. This evaluation is based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting. One of our strategic objectives is to maintain our “Triple A” ratings as they serve to lower our borrowing costs and facilitate our access to a variety of lenders. Failure to maintain our Triple A debt ratings could adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.

Failure to maintain Triple A versus failure to...be able to borrow enough money to survive. Yes, definitely scary.

So, good thing the Fed just announced another massive bailout plan for the commercial paper market. Many tens of billions of that bailout money will probably be headed to GE.

Stephen Liss | Oct 08, 2008 | 2:02PM

You know what the difference is between a regular person and an economist, don't you?

A regular person KNOWS they don't understand the economy.

fustian | Oct 08, 2008 | 2:03PM

One source of more credible reforms than anything that Jack Welch says on CNBC (which he owns and is hardly a critical filter on him) is Carl Icahn, who is lobbying for more effective corporate governance and shareholder democracy. You can read his (IMO excellet) proposals and sign up to stand up and be counted at

http://www.icahnreport.com/report/2008/10/join-the-united.html

From the Icahnreport blog:

One of the biggest problems we face today is the egregious mismanagement and reckless incompetence of many American corporate boards which utterly fail to do their primary job of holding managements accountable.

Many board members are often beholden to managements for lavish pay and perks they get for very little work and oversight. The credit crisis we find ourselves in is a direct manifestation of board members' lack of oversight. Alarm bells should have gone off in board rooms as crisis loomed, but many boards looked the other way.

Our economy has floundered for nearly two years because boards allowed their companies to make vast leveraged investments into faltering mortgage-backed securities. These investments vaporized trillions of dollars in shareholder value and left the banking industry in crisis. Boards gave permission to CEOs to take these risks, which often times they misunderstood, which is like giving the fox permission to guard the henhouse.

Incredibly, some board members make as much as $10,000 a week and soak up expensive trips to the Super Bowl and Augusta aboard corporate aircraft - simply to go to four or five board meetings a year.

Many of these same boards and managements are members of such groups as the Business Roundtable and the U.S. Chamber of Commerce, which annually spend huge sums of money in Washington to pass laws favoring managements and boards. These laws are often at the expense of shareholders, which are the true owners of America’s corporations.

We need an aggressive plan to combat this, which is why I am launching United Shareholders of America – a voice for large and small shareholders. We must have a strong voice in Washington to combat the pro-management forces.

United Shareholders of America will aim to push back against board entrenchment and make it easier for shareholders to promote change in companies they own. I am asking that you join this cause by signing up on my website, the Icahn Report, www.icahnreport.com.

It is easy to point fingers at those who may be responsible for our current crisis. But we are seeking long-term changes. And the only way to make these changes is for large numbers of shareholders put pressure on lawmakers. Remember, shareholders vote.

As I have said, a lot of people die fighting tyranny. The least we can do is vote against it. If our country is to get back on its feet, we as shareholders should stand up and demand changes to laws that insulate managers from shareholders.

It is sometimes difficult for outsiders to see the sheer extent of this mismanagement. Granted, there are a lot of good boards and managements. But in my 40 years in the financial markets and service on many boards, I have observed first-hand the egregious blunders and ineptitude of over-paid and self-serving boards who have little loyalty or accountability to shareholders. For sheer entertainment value, board antics rival skits on Saturday Night Live, but this value destruction is not entertaining.

On a regular basis, we see:

- Board compensation committees that approve ever-higher pay packages to top-level executives allowing them to walk off with millions of dollars even when the companies later fail due to bad management decisions.

- Boards that cozy up to managements so they can enjoy $300,000 annual salaries and perks like the use of the corporate jets and golf junkets in return for a few hours of work each month to rubber-stamp management proposals.

- Timid boards that fail to ask or research the relevant questions over risks a business faces for fear they may incur the wrath of a CEO and be forced to resign.

- Boards that approve decisions that thwart stockholders from proposing candidates to company boards and having a say in company decisions, even when a majority of stockholders approve.

- Board chairmen who fail in their fiduciary responsibility to act in the interest of stockholders and demand that managements be held accountable for financial performance.

- Boards that use every means at their disposal to thwart shareholders from placing resolutions for vote at annual meetings.

- Boards that allow managements to place the blame elsewhere for their dismal performances.

- Boards that refuse to allow their shareholders to decide for themselves if they wish to accept an offer for their shares that is well above the selling price of the stock.

- Boards that vote to enact anti-shareholder devices like poison pills and staggered board elections designed to aid in their entrenchment and power.

- Boards that approve millions of dollars in signing bonuses that can’t be taken back when a CEO leaves after a short period, even when the company collapses.

The list goes on and on.

Now consider the recent costs of this board neglect and malfeasance:

Besides the financial services industry, others are teetering or in crisis: airlines, automobiles, homebuilders, real estate, textiles, retail – to name a few. Manufacturing has largely moved overseas. Government deficits are soaring. Unemployment and inflation are rising.

America is losing its economic hegemony as evidenced by a falling dollar, vast trade imbalances, millions of jobs lost, an eroding manufacturing base, a financial industry in shambles and out-of-control government spending.

It doesn’t have to be this way. We as a nation can – and must – do better.

In an ideal business world, shareholders in faltering companies could simply vote out incompetent and crony-ridden boards and managers that helped create this mess.

Unfortunately, there are mountains of state and federal rules favoring managements that were supported by years of work by pro-management groups like the U.S. Chamber of Commerce and the Business Roundtable, a powerful group composed of 160 or so CEOs of the nation’s biggest corporations.

It is time for a change. A big change.

United Shareholders of America aims to create a grassroots movement of large and small shareholders who are looking to press boards to be more responsive to stockholders.

My campaign is designed to change state and federal rules that favor entrenched boards that allow executives to receive bloated compensation packages for lackluster performance and perpetuate themselves indefinitely in office.

Millions of shareholders will benefit from this campaign.

The list includes public pension funds that invest working peoples' money, institutional investment funds that manage corporate pension funds, endowments that fund college educations and the legions of retail investors and other stakeholders in our economy. In short, it is in the self-interest of all that we see a campaign to make business run better succeed.

This is why I am asking you to join us and support us. Like my friend Boone Pickens who is running a campaign for national energy independence and my friend Pete Peterson who is running a campaign to cut down on our staggering national debt, I am determined to make this campaign succeed. But I need your support.

In coming weeks, I will be outlining our plans to press lawmakers, policy makers and others for changes that we are advocating. I will also ask for your ideas, feedback and input in this. We are looking to create a grassroots movement - it is long overdue.

Let's not forget the most salient point: we all rely on business for our livelihoods and standard of living. Business and entrepreneurship are the engines of America's growth. We must not let this great nation’s economy erode as it has in recent years due to self-interested and incompetent corporate managements.

Please join in supporting this call for action.

Posted on October 07, 2008 at 12:27 PM | Permalink

Stephen Liss | Oct 08, 2008 | 2:21PM

Well, if we're going to start nominating "rich guys we trust to save us", then I suggest the one man that both presidential candidates mentioned as a possible Treasury Secretary last night - Warren Buffet. Because if the banks didn't do what he told them, he could afford to buy them out and then do it himself

:-)

Ewan Grantham | Oct 08, 2008 | 2:30PM

Robert, you've always had amazing insights into technology and the people who drive companies. Unfortunately, this is more about politics and personality than personnel.

I'd love to see Jack Welch come in and do the GE thing to all of government, but it's not practical and it will not work due to the politics involved.

I thought you were smarter than this, there is no expert to wave the magic wand. We are going to get screwed, it's just by who and for how long at this point.

Ed Arnold | Oct 08, 2008 | 2:36PM

Bob, you point out that the banks have been discouraged from doing what they ought to be doing by their regulators. Your proposed solution is for the regulators to also discourage them from not doing what they're supposed to do. So, basically, you're creating a situation where the banking regulators will shut down the banks no matter what they do.

There's something desperately wrong with this country. The problems we're experiencing today are the result of bad government intervention and regulation. Many people, even smart ones like you, Bob, are crying out for more regulation as a cure!

The answer is not to beg our elected saviors in Washington to save us from our troubles. The correct answer is to let the banks operate in whatever way they see fit. Either loosen up the licensing requirements or get rid of them all together. Let the market regulate what behavior is good and bad. Let failing banks fail, and let prospering banks prosper in their stead. It's the only way out.

It's not what you want to hear, but it's the truth.

Mark | Oct 08, 2008 | 2:37PM

This is the first column of yours that I have read where I really thought you have no idea what you're talking about.

Sloe Moe | Oct 08, 2008 | 2:41PM

I don't agree that "There is very little difference, in fact, between the global financial system and General Electric"

or that "There is no credit available to anyone, anywhere, no matter what the credit rating or score. "

I think these are gross over simplifications. It reminds me of a quote attributed to Einstein - "Always make things as simple as possible but no simpler."

I agree with the previous post - stick to what you know.

Bob this is not at all what it appears. This is an engineered crash that started many years ago. Check out http://projectcamelot.org/
This is nothing like what it appears on the surface. There is so much going on underneath that it's unbelievable! It's all about the illegal federal reserve creating in 1913 when the international bankers led by the rothschilds put the final nail in the coffin of the american dream.

Steve | Oct 08, 2008 | 2:44PM

I agree that someone needs to step in and start kicking ass and taking names.

But I'm not sure it's Jack Welch per se.

Basically what we're looking at is a whole lot of loans that went south, equity that shrunk practically overnight, and a bunch of CEO's that blew the capital on lobbyists and golden parachutes.

But behind it all is a simple truth: A house is still worth SOME money, just not AS MUCH.

We need to get the housing market back to center, so that people are paying what the property is worth TO THEM, not what it will be worth to some speculator six months (or ten years) from now. Sure there will be people who treat real estate as an investment opportunity. But, right now, we need to discourage that kind of 'flipping' mentality, because all it does it make money for the bank and the middleman, and drive the price (and the interest payments) up for the poor schlub paying off his house on an ARM.

And, we need to get tight on the criteria for a loan. People are getting loans not because they NEED things, but because they WANT things. We don't just buy a house with the mortgage money. We buy a house, a car, a boat, a new TV, new bedroom sets, and a vacation in Tahiti. Does this make sense? NO. Yet that's what 'spurs the economy', people spending.

People need to spend sensibly. Reduce their energy consumption. Buy an older sensible car. NOT upgrade to a split-level ranch in a nicer neighborhood. And if they have disposable cash, invest it in things that are useful, such as vocational classes or backyard gardens or PBS.

George | Oct 08, 2008 | 2:45PM

stick to technology.

Abe | Oct 08, 2008 | 3:18PM

What we need is a Wall Street Fraud Enforcement Division, something the SEC was suppose to do.

I've been aware what has been leading us to inevitable decline for sometime, however I was aware of the severity and the root cause of current crisis until I watched Steve Kroft blow the lid off on Credit Default Swaps on 60 Minutes last week:

http://tinyurl.com/4jsn78

I would also like to point out this a very good example of top rate TV journalism.

There is a lot of bad paper out their and it's going to take some time to clean up this mess.

In the mean time, remember the old saying, "If it's too good to be true, it usually is."

Raul X. Garcia | Oct 08, 2008 | 3:20PM

I have to agree with Sloe Moe on this one. Usually you are spot-on but with Mr. Welch you haven't a clue.

While Jack Welch was very good for GE share holder value, he didn't really give a damn about the dedicated employees or the city's they worked in. The "fire the lowest 10%" worked for a few years. Then once the dead meat was purged, GE started loosing the steady Eddys and process experts companies need. Leaving those just those wonderful managers you correctly denegrade. He roughly abandoned towns who's tax payers subsidised GE's phenomenal growth.

If Jack were running the The Fed, by the time our next election rolled around the US would have even more Fat Cat Bankers and Decadent Business "Leaders" stepping on the backs of demotivated middle Americans. Folks struggling to survive in once prosperous communities.

Full Disclosure - I have not been the direct recipient on GE's "employee calibration" process. But have worked with several exceptional folks who have ran screaming from it.

Dave Z | Oct 08, 2008 | 3:20PM

Another sucker buys the "Jack Welch knows all" story. As a few posters have already stated, Welch built his "empire" on the back of deal after deal after deal using creative accounting to make it all look good. By the time the bill came due, he was on the banquet circuit charging $100,000 a night to hear him spew. Then he has the balls (actually the lack thereof) to rip Immelt on CNBC.

Take a look at GE's businesses, they might as well be a bank (with all the trouble that entails)

sjgmoney | Oct 08, 2008 | 3:40PM

Robert,
The failure to repay an overnight loan DID cause a default - and more than one! Just look at "The Reserve Fund". This is what triggered the latest crisis.

What the "bankers" you talk about fear is much more likely and realistic than you've put forth. So kicking them won't help.

Mike | Oct 08, 2008 | 3:48PM

I do not consider Mr Welch a shining example to follow.

JB | Oct 08, 2008 | 5:07PM

Why would you think that the stock market should be all hunky-dory a week after Congress has passed the bail-out bill or that the fact that they are not is evidence that the bail-out efforts will not work? We have a housing bubble popping and a lot of bad loans out there. The government let both of those things happen and even encouraged them. I am all for kicking ass but that is another subject.

Will C. | Oct 08, 2008 | 5:22PM

It was just that sort of behavior that brought on this liquidity crisis in the first place. Congressman Barney Frank, Senator Christopher Dodd, Asst. Attorney General Jamie Gorelick all told bankers that if they did not stop "red-lining" and begin making mortgage loans to classes of people who did not qualify for them, they would end up in Federal Court for discrimination and have their licenses to do business pulled. When the banks tried to argue against this behavior, the troika above put forth Fannie Mae and Freddie Mac as the guarantor of those loans, promising the banks that they would not have to hold such risky paper in their asset accounts, but rather could just sell it to Fannie and Freddie. Thousands of unqualified people obtained mortgages, and the packaging of this close to worthless paper created a sandy foundation upon which other investments and loans were based.

Michael | Oct 08, 2008 | 5:46PM

Good idea Bob ! - you rock. Sadly since no one in the current administration cares about anything except their own hiney - well sheeeeeet.......

Still it is nice to know someone out there DOES have a brain and knows HOW TO USE IT.

Thank you and please keep writing.

Ted Potter | Oct 08, 2008 | 5:54PM

Bob,

There's an excellent book, The Shock Doctrine, by Naomi Klein that provided me with a different perspective of the current financial state. If you haven't read it yet, I would highly recommend it.

I think you're on the right track, in that what is needed is a leader who can manage and who has the greater good in mind.

jgreep | Oct 08, 2008 | 6:34PM

This is the last article of yours I am ever going to read, I've read them all, every single thing you have online from 96 or whatever onward and I can't take it anymore. You're not an economist, so stop pretending for the love of god. It's a waste of your time, and all of your readers time. I am removing your bookmark from my browser. It was a fun ride while it lasted, but you're just not worth it anymore. I enjoy your stuff about technology, which is why I come to you, I don't need to be fed your political mutterings, or blather about how you'd fix this crisis or that crisis, with your stupid jabs about President Bush worked in there. He's a criminal, we get it, everyone gets it, he's a criminal, McCain's a criminal, and guess what, so is Obama, they're all slimmy smarmy bastard tell you what you want to hear criminals. Your "solution" doesn't even make sense, ignoring all of the other issues with this, anytime you get rid of the bottom 10% of anything you add a barrier to risk taking. Who's going to take on having something great happen if you're threatening them with job loss if they fail? What great company would exist without taking these huge risks? It's just moronic, I can't believe I'm even wasting my time responding to this crap. You don't fix the market for anything with more intervention, you said that yourself at the beginning, the failure of this czar and that czar, but the Cringely czar... well he'd work, that's different. Riiiiiight. Go read some mises, some hayek, and any other austrian, they were right, they are right, they will always be right, everyone else will always be wrong. I don't know if you've been paying much attention to world history since 1910ish, but they were right, government intervention is wrong. Seriously the only czar we need is a Cringely Czar that forces you to write the articles we like you to write about technology and wizbang advances. I'm out, good day sir.

Joel Crookston | Oct 08, 2008 | 6:48PM

If Jack is so great, why am I on my forty-eighth version of the GE toaster oven? Or is his management style effective in growing but not sustaining?

Daves not here | Oct 08, 2008 | 6:49PM

1.)What we need and don't have is a J.P. Morgan, and what we have and don't need is three dips with their thumbs up each other's asses (a guy from JPMorgan Chase and two former Golman Sachs employees).
2.)The government should NOT be bailing out ANY of these Wall Street firms. Let them fail, go bankrupt, be auctioned off and absorbed by the system. We NEED to have a recession, any kind of recession, else we'll have a GREAT RECESSION, probably followed by the first depression since in seventy years, probably last only two to four years, if we're lucky.
3,)If the government is going to semi-nationalize any industry, let it be healthcare, then energy.

Kevin Kunreuther | Oct 08, 2008 | 6:56PM

I think the real problem is that the banks don't know what a dollar will be worth tomorrow and they are afraid of committing at a price which will prove to have been grossly too little. Just check the Australian dollar- down 35%+ from its high a few weeks ago.

On the other hand, these bank loans are really short term. How bad could it really be, I wonder? I like bankers even less than lawyers these days. Go get em, Bob.

stephen | Oct 08, 2008 | 7:00PM

@Daves: It's a troll, but I have to bite.

Welsh was great at building a company by increasing revenue. By continuing to purchase that GE toaster oven 47 times after the first failed, you've helped his revenue status. You clearly are not peeved enough to purchase a different manufacturer's product.

Six Sigma is about PROCESS quality (to produce precisely what is designed), not PRODUCT quality.

Paul | Oct 08, 2008 | 7:19PM

Start making loans to who?
The entire world is already in hock to the tune of over inflated property values and credit card debit (GE has already started to feel the effects of their $30B in CC receivables - more is to come)... The whole reason this happened was banks kept lending when they should've stopped. Who was going to tell banks to STOP lending? Not the same governments who deregulated these greedy bank idiots, that would be admitting they were wrong. It had to hit the wall, no-one in the world had the balls to stop it.
At least in Australia we had some politicians in NSW who realised the property bubble was getting stupid and added some very unpopular investment property taxes to slow the speculators, the banks were never going to see common sense.
Someone is still making a killing at the moment, as all this bail out money is unlikely to be government printed money, it's just sunk future generations into deeper debt at a hyper accelerated rate.
Never ending borrowing is just mortgaging the future, it’s a kind of time warp with taxes, and the act of borrowing from the future to pay for goods now inflate prices in the here and now. So you get slugged twice, once to pay the inflated price then again to pay the interest. The only winners are these thieving bankers who produce nothing. Sounds simple but this OBVIOUSLY can’t continue as it has been.

Paul | Oct 08, 2008 | 7:23PM

I need to add a thought after reading the comments through. No regulation? Let the banks do what they want?

Are you nuts?

However, regulation is supposed to prevent the sort of think that Wendy and Phil made legal, things like the Enron Loophole, liers' loans, and the various devises (and lacks of devises) that allow speculators to become anonymous, thereby turning them into manipulators.

Deregulation would be fine if it didn't allow people to hide the nefarious behaviors they would exercise. But crappy regulation is just as bad if not worse. I was on a hospital board once. I am amazed how ignorant I was. Wisdom is hard to find. Just ask the Aethenians.

stephen | Oct 08, 2008 | 7:32PM

Many very wise people have said that here were real dangers in having "regulators" taking bribes from those that they were regulating.
Guess what?, they were right!!!
There are many criminals involved in this mess but in many cases they are directly linked to some of our elected "statesmen" so they will walk away scott free
The scary part of this is the way the media conglomerates are trying to treat this like some natural disaster instead of the crime that it is.
This will remain in free fall until some of these bandits are arrested and if that doesn’t happen, God help us all.

meme | Oct 08, 2008 | 8:12PM

Here I tell you what you must fear... ANARCHY is around the corner, as "things" are 1000 times more distressed and bankrupt than we're being shown... perhaps 10,000 times. The people are going to be at the breaking point, and not only here but many other places. As capital markets evaporate, and they open their mail, and as the hedge fund lock ups unlock on the 29th of October, the bottom is going to drop out as trillions of dollars are redeemed and withdrawn! Count on it folks, the piper will be paid$ Me? Color me as distraught as any of you, and worse! Yes ANARCHY is what will happen, and sadly there is nothing to stop this as the level of pain exponentiates... it's human nature to react spontneously without reason when there appears to be no way out!

cretus | Oct 08, 2008 | 10:07PM

Only after the last tree has been cut down,
only after the last river has been poisoned,
only after the last fish has been caught,
only THEN will the Carpetbaggers who get to run this country realize that money cannot be eaten!

Please note that I did not say, "who get elected to run this country".... Those morons are merely Barbie dolls kept around by the Carpetbaggers for entertainment purposes only.

Lamplighter | Oct 08, 2008 | 10:27PM

Won't work. The system is always looked at with an eye towards gaming it. No problems there. Expected by the sane and reasonable. That is the correct role.

What really caused the problem is excess liquidity under which 0% or negative interest rates encouraged excess levels of speculation. If you give away the use of money you should not be surprised when people speculate trying to make more before they have to give it back.

In the end a real positive interest rate must be maintained to keep the system stable.

Duh!

Freemon Sandlewould | Oct 09, 2008 | 12:20AM

We wouldn't be in this financial crisis if Bob had gotten NerdTV Season 2 out to us. Finally, we all know who to blame.

Shannon S. | Oct 09, 2008 | 8:58AM

I think Ron Paul was pretty clear regarding how/why all of this would happen.

TJ | Oct 09, 2008 | 9:57AM

The whole vitality curve idea that Jack Welch promoted is fundamentally flawed. It works if you apply it every ten years or so - but if you apply it every year your company slowly commits suicide. The smart people won't come to work for you (because of the asinine policy) and existing employees now have to focus on sabotaging the new hire so they can remain employed. Eventually, you'll get a kid (still wet behind the ears) who outshines an old guy, and poof - you just threw the historical knowledge of the product out the door.

David G | Oct 09, 2008 | 10:25AM

You're assuming that the solution to the problem is the same as the cause: debt.

There is no need for many forms of debt -- buying a new car on a credit card, for example -- it's not a NEED it's a LUXURY for those who can afford the interest.

The only debt markets we really need are varieties of commercial paper, with exceptions made on a case-by-case basis. Every other form of debt is mere habit.

I propose a solution, what I'd do if I were a dictator in charge of the country at the moment: end fractional reserve banking, revert to the gold standard, declare all government debts to date null and void (painful, but no worse than the inevitable alternative which is hyperinflation), and prohibit all government debt in future.

There. Fixed that for you.

Yes, it would be catastrophic to the economy in the short term. Yes, I'm okay with that. No, it wouldn't be worse than allowing the panic to play out.

Loral | Oct 09, 2008 | 11:00AM

@ Loral: I think mortgage debt is probably a good thing- I don't think that is a form of commercial paper. A world where we are all tenants of a few landlords seems a real step backwards. I don't believe in any generalization I have ever heard, including yours, which in fact is not quite a gross generalization as you included one exception.

The gold standard is also hard for me to wrap my little mind around. As our technology grows, we develop new powers and expand our real boundaries (into space, for instance). There are also more of us. But if dollars cannot change in value and the number of them is fixed, how do you adapt to such an enlarged world?

stephen | Oct 09, 2008 | 12:07PM

@ Loral: also, I've never been able to figure out how gold puts any fixed value on money. What makes it different than paper in the end? I can see how it might act as a damper, though. Is this what you are after?

stephen | Oct 09, 2008 | 12:10PM

I read the link about the palpometer, and I don't think it is used in the manner you describe. It seems to be a device for obtaining repeatable and consistent finger pressure when a doctor palpates (e.g. applies pressure with fingers) some part of the body until the patient says, "Ouch, yes that hurts." Perhaps you were using dramatic license to make a point. But you had to realize one of us geeks would figure it out?

wingnut | Oct 09, 2008 | 3:44PM

The bad mortgages were probably the trigger, but as that bad paper and falling house prices upset the outstanding loan to capital ratios at the banks, the problem has snow-balled because other credit lending has frozen.

Small business is unable to get the loans they need to cover the cost of goods sold but not yet delivered, causing them to find cash in other ways, laying off employees, causing even more mortgages to become at risk.

Exothermic Reaction | Oct 09, 2008 | 5:41PM

Something to think about. If you keep cutting the bottom 10%, when happens when all of the banks are good? I used to work for a company that decided to start following Jack's ideas about this and each year cut 10% of their engineers. Problem was that after a year or so, all of the engineers that were left were doing really good work and were fully booked, but we needed to cut 10% anyway and ended up loosing some really good engineers and the contracts that they would've helped on.

Jon Schewe | Oct 09, 2008 | 10:25PM

Just nationalize all banks .. stop pretending bank CEOs, mortgage company CEOs, insurance company CEOs, brokerage companiesCEO's give a crap about "ordinary people" on "Main St". Do you need another "whack in the side of the head"?

After sucking off 700 billion $$$$$$$$$$$$$$$$$$$ in a "bail out" (rich white collar crook welfare) - the next day these same white collar crooks blew $400,000 on a retreat complete with cavier and massages. They must have peed in their pants because of laughing so hard at the fools who gave them the $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!

Harry | Oct 10, 2008 | 1:15AM

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Jerry Kemp, Founder | Oct 10, 2008 | 5:18AM

First the bad - although you're right about many banks being afraid to loan, many other banks simply can't because they have no reserves left to lend against. Fascionalizing them is not the answer however.

The good - I love the idea of Jack Welch coming in as the fix-it man. Really, any decent manager that's never worked on Wall Street or for the banking sector. Let's get people in there that know the importance of building/creating/producing stuff, and wave goodbye to the Goldman/Lehman/Merrill/insertname here shysters.

TD | Oct 10, 2008 | 7:46AM

Hi Bob,

I think the column you have written is a great column but I think you're trying to solve the wrong problem. To me the main problem is how dependant businesses have become on Wall Str. I think this whole "investor" thing is just crazy and weird. It actually seems to me a complete perversion of financial principles. When a business lists on the stock exchange they get a whole wad of cash but there is one major problem - there is a massive disconnect between the value of the business and Wall Str. This can easily be seen where in some instances a healthy business can go under because their stock crashes and they don't have the required capital to continue operations. This is completely as a result of a "market" that has no relation to the business whatsoever. If you walked up to someone in the street and said to them, I will give you lots of money if I can put your fate into the hands of someone you will never meet and you won't know who they are, how many people do you think will take the deal? Well probably a small percentage and those would probably all be highly qualified CEOs.

And then I have seen that business as a normal part of operations use all kinds of strange investment/credit vehicles to fund their daily operations. This is crazy. These people are using objects they have no control over to fund their operations on a daily basis.

I have a really crazy idea - while you build you business also build a fund to finance your operations on a daily basis.
Q. Lets see, how much does it cost us to run our business monthly?
A. $100 million
Q. Okay have we got $100 million in the bank?
A. No we only have 95$million in the bank to fund out daily operations.
Okay then at the end of this month we need to add another $5million to our operations fund.
Yes Sir!
Q. Okay that one has been taken care of. Now have you done all the disaster scenario planning?
A. Yes sir!
Q. So how much do we need in an emergency fund to get out us out of any possible trouble that we could get into?
A. Well we will need at least $950million.
Q. Great stuff, so where is our Emergency Disaster fund at now?
A. Well we've been pushing money into it like mad and we're now sitting at $650million and we're adding $22million a month.
Q. So its going to take another 13 to 14 months before we're in the safety zone?
A. Yes Sir.

This scenario is completely impossible with "investors" that blackmail you using your stock price.
"You're putting money in the bank!?!?!? Are you insane?!?!? Fire the CEO!!!!"

I know this may seem completely naieve, but maybe not so much after this debacle. The fact that CEOs and CFOs are prepared to take such massive risk by putting their daily operations and the survival of their companies in the hands of banks and "investors" respectively, to me is naieve and scary. It is nearly criminal in my eyes to be honest. How can you possibly justify living under such risk everyday?

If I had my own business it would operate in the black with no credit. Go public? You've got be insane. Put yourself at the mercy of a bunch of cocaine fueled testosterone driven greedy madmen? No thanks.

There are major problems with the principles of the stock market and how business use finance and understand (or really don't understand) finance. As long as the markets works on these principles there will be times of intense economic fluctuations and stress.

And tell me what the hell is wrong with stability? There seems to be this worldwide sentiment that stability is bad. Stability is only bad if you're the one profiting from instabilities and wild market fluctuations. Whats wrong with a slowly growing economy where inflation has been reigned in and people can get on with their lives? Well thats the thing, if there is proper stability in the markets then there are no get rich quick opportunities. And if everyone is keen on a fast buck now aren't they? There is a global worldwide casino mentality because deep down people wan the instability and chaos because they believe their ship is about to come in.

As long as everybody is willing to play in the casino and throw down their own and other people's money there should be no complaints about the current global meltdown. Take the hurt and wear it. You deserve it. But don't worry one day the casino will reopen and all bets will be on!

Martin.

Martin | Oct 10, 2008 | 9:45AM

Pah! It's like farmers, who always have bad weather. Part of the news is pure fiction, designed to provoke money-making opportunities. You know that there are guys makin' a killing off this supposed crisis and the yanked up rates. (Why does this remind me of the California energy situation of a few years ago, when, in response to the same guys' wacky economic "planning," prices skyrocketed, shortages were widespread, and brokers in the back rooms were ripping mountains of cash out of the so-called crisis.)

I closed on a home mortgage at 5.5 10 days ago. The getting-a-mortgage was a non-event. Plenty of retail lenders were lined up to lend.

I like the pain analogy, Mr. C.
You may have to start, however, not with banks that fail to engage in banking, but with federal regulators who refuse to regulate.

schwartz | Oct 10, 2008 | 10:32AM

http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=30

One of the main ways the current crisis came about was because of excessive pressure by the government to give mortgages to people who couldn't afford them.

Amazingly, the Cringley plan is pretty much exactly the plan the banks have been using for the past 20 years. That's how the mess started.

Carl Hardwick | Oct 10, 2008 | 12:28PM

Interesting solution Bobby X, but it doesn't address the root of the problems which are: today all money is created as debt (which ceaselessly increases), and fractional reserve banking that ensures run away inflation (eventually). The whole financial system is a house of cards that has failure built into it. YouTube "money as debt".

dg | Oct 10, 2008 | 1:14PM

"You aren't making loans, which is part of the definition of what it is to be a bank. If you aren't acting like a bank by tomorrow we'll take away your banking license and transfer your deposits to another bank that WILL make loans."

Who is going to tell the depositers that their money was moved to another bank overnight? Neutron Jack?

nervous_cat | Oct 10, 2008 | 1:54PM

Why not try the simpler solution? Void credit default swap contracts over 1 million dollars on November 1 if they are not publicly disclosed by then. Once the market has information trade will start bustling again.

Chad Brewbaker | Oct 10, 2008 | 2:00PM

Well I normally agree with you on things, but not this time. 'Neutron Jack' is not well respected by most senior execs in the US. He took a powerful set of core companies then played some financial games with them to smooth and pump GE numbers just long enough to swoon the financial investment community. Then using the subsequent access to cheap money, courtesy of the swooning and with a little help from a loose Fed Policy,he went on a buying spree. He gobbled up good companies worldwide and methodically squeezed the life out of them to extract short term earnings to fuel his overall earnings reports and keep the pyramid game going. Didn't matter what the companies did as a business,the buy decision was based solely on their books and what he could do in the short term to drain them. Then, smart enough to know before others that the game was going to run out, he jumped out of the game and into his second life as a post-exec celebrity. GE has been on its inevitable nose dive in the market ever since.

Jim | Oct 10, 2008 | 2:45PM

Anoint a corporate vulture like Welch as banking "czar"? Could you possibly come up with a more undemocratic way to heist another trillion of the taxpayers' money?

How about these simple steps:

1. Pump dollars into equity not mortgages.

2. Void existing credit default swaps and start over with common-sense derivatives regulations.

3. Restore the post-depression regulations that used to keep rampant greed in check.

4. Reduce bankster marginalization from 10:1 down to 4:1.

fluffykitties | Oct 10, 2008 | 3:45PM

Keep commenting on technology and avoid finance.

Pepe | Oct 10, 2008 | 4:24PM

A good part of why banks aren't making loans is not just *fear*, but that their deteriorating finances mean that they are over-leveraged and *can't* legally make new loans until they're re-capitalized.

Ironically, their problems are causing the stock market to tank, which is causing investors to pull out,...which means more people are going to be keeping their money in banks, which should help re-capitalize those banks.

The question is how much damage is going to be done before the financial system rights itself ?

Patrick (G) | Oct 10, 2008 | 4:51PM

Wow, what an incredibly poor idea.



First off, using fear as a management tool is counter-productive. Go read some elementary organization psychology.



Secondly, the thing that is causing the real economic problems now are the arcane Credit Default Swaps. People engaged in them predominantly out of fear, trying to hedge their bets and in doing leveraged their companies to the point of being unreliable. They did this because they were afraid of falling returns and being Welched out of a job.



And lastly, if we had been Welching the last couple years in finance any remaining prudent banker or money manager would be out of a job because they weren't indulging in the increadibly risky mortgages and getting superior returns.

Litch | Oct 10, 2008 | 5:04PM

I think that you've hit on what was Jack Welch's worst idea ever (in the sense of having the least amount of evidence to support its making a positive contribution to GE).

The previous posters have pointed out the obvious fallacies in the "cut the bottom 10%" approach, but there's also the issue of measurement. Specifically, how are you going to measure performance? Use the wrong metrics or do it too simplistically (both of which U.S. companies tend to do, including GE), and you will definitely get rid of some of your better performers. Sorry, but your proposed measurement criterion sounds way too simplistic!

That said, there's something to be said for using fear to get people who are in a panic to do the right (if not obvious thing). I keep thinking of the scene in the original "Die Hard" film where Bruce Willis' character is firing the machine gun over the heads of the hostages to get them off the roof (where they perceived they would be rescued) before the top of the building blew up (which would have killed all of them).

No, "Die Hard" doesn't establish the principle, and fear shouldn't be a regular leadership tool, but I think that we should recognize that people in a panic tend to follow whomever they perceive has a "way out," regardless of whether that's true or not. Once that dynamic is in motion, getting their attention is the first order of business for anyone who really does have the most facts about the current situation and does know the way out.

Besides, wouldn't you listen to Bruce Willis if he had a loaded machine gun in his hands? Yippee-kiy-yay, cowboy!

Will Pearce | Oct 10, 2008 | 6:07PM

Brock has it right.

Lenders 'securitized' mortgages into risky bonds. Insurance companies wrote policies that transferred the risk of those bonds to themselves, for a price. Banks used them as reserves. The rating agencies gave them 'AAA' ratings. Then they began defaulting. The insurers can't pay off their policies. (?) The banks holding these bonds as reserves suddenly have much less in reserve, and so must lend less and/or fold.

In retrospect, the insurers should have charged much more to absorb the risk of these bonds. They didn't seer the systemic risk that the whole approach could fail all at once. And the rating agencies should not have been fooled into giving high ratings. Paulson plan gives banks more reserves, doesn't stop future insurers and raters from being stupid.

Dave | Oct 10, 2008 | 6:47PM

Bob, you are wrong on both counts.

Banks won't lend to each other because they are all hiding their problems, and nobody trusts anybody else. It's a case of accounting standards allowing too much leeway.

Jack Welch gutted GE then left the mess for others to clean up. He was nothing but a promoter, out to juice up his stock options in the short term, and at any cost. I'll give you an example. I was there when the company was designing it's first web presence. We had meeting after meeting where nobody had the right dev experience and didn't know how to even start. We turned on the TV, and there was Jack telling investors that GE was fully internet enabled and "it wasn't as hard as we thought".

You've written some bad articles lately, but this one is really awful.

Mkkby | Oct 10, 2008 | 10:40PM

Two quick points:

1) GE today is running pretty much the same way it did when Jack was there. They got caught in the same problems, too. I'm not sure Welch can do any better a job running banks than others can. As for the cut the 10% of worst banks - it's not the right analogy. You can topgrade people a lot easier than you can topgrade banks.

2) Banks aren't lending because they are required to keep a certain level of capital in order to remain running. Get below that level, and the gov't closes you down. As the market value of debt instruments goes down, banks have to pony up more cash on their balance sheet to stay above that liquidation level. Alas, for those that delved deep into riskier loans, they are toast.

David Legault | Oct 10, 2008 | 11:03PM

Jack Welch is part of the problem. NOT, REPEAT NOT, any part of the solution. Jack Welch was one of the big leaders in pushing business to concentrate primarily on things that can be measured with simple metrics and focussing on short term goals. He may have paid lip service to long term thinking, but that's not what got people promoted on his watch.

If you want the proof just look at how his protege's have fared after leaving the nest. Nardelli nearly ruined the second largest retail company (Home Depot) and other GE alumni have had a mixed record at best in their new ventures.

Roy Heath | Oct 11, 2008 | 12:08AM

The problem starts from the fact all banks are not alike.
The traditional deposit-taking bank does NOT exist to lend money- it exists to keep money safe. Lending it out is just one way of monetizing the business of keeping deposits safe.
The banks which started with the intention of lending money, the original "merchant banks" of Europe ( the investment banks of the US) arranged loans as the primary aim of their business and then went to find - borrow - the funds needed to make the loan.
BOTH types of banks end up with an inbuilt structure of lending long and borrowing short, from depositors or their banks.
No bank, good or bad, is ever designed for everyone to turn up and demand their money. When it suddenly appears that any bank can be called on to hand over its money you have a bluffing crisis like we have now. Basically your money is perfectly safe if you don't ask for it back now and very unsafe if you do.
The banks have got into the way of mixing these banking models which in the US (but not elsewhere) were separated by the Glass-Steagall Act.
The "Jack Welch" solution is not any part of this, what has to occur is for the banks to go back to assuming that a certain level of capital is sufficient to be assured that interbank lending is safe. So either the government acts as guaranteeing broker on all transactions, or it capitalises banks to a point where there is no reason to regard them as unsafe, or they load up the banks with liquid funds so that they can withstand any drawdown of funds. All possibilities look expensive but the second seems to have more affordable tag. If the banks cannot agree on a capital level that is safe then the second solution fails and the government is the only possible guarantor.

John Aislabie | Oct 11, 2008 | 8:39AM

"The fundamental problem with our financial system is that the fallout from the housing bust has left financial institutions with too little capital." - Krugman, NYT

Right observation, wrong cause. De-regulation encouraged market players to de-capitalize themselves with huge executive payouts in bonuses and commissions. Over $100 Billion in pay/bonus/options/commissions since 2002. Three-quarters of a Billion to Treasury Secretary Paulson alone!

The TARP bailout is nothing more than one last pass at the grand financial buffet that was the Fruit of Deregulation.

The cash was real capital accumulated from outside investors and received/raked as fees on assets under management. And after distributing all the cash to themselves as "merit" compensation they balanced their books with fabricated and over-leveraged "synthetic" CDO/CLO bonds. These bonds have no ties to real mortgages, they are algorithims designed to emulate true cash-flow based securities. Synthetics are also more than half of the total bonds outstanding.

Here's my personal interpretation of the situation for the LTE pile. As always, YMMD:

The SportsBook of American Finance

Think of Wall Street as a Casino (in no way an original thought.). Mortgage Based Securities and derivatives are like the expansion fueled by the legalization of Sportsbooks and OTB. In the MBS SportsBook the house invents different games & angles on the "action."

The first MBS game is reasonably straight forward: The house wagers on the point spead (return) on a pool of mortgages with an outside bettor (investor) who funds his bet in cash from acutal mortage payments This is "cash-flow based securities" gaming.

Game 2 is trickier, more an inside-the-sportsbook bookie-on-bookie game. It works like this: Bookie A bets Bookie B on a point spread, but covers 10% of his bet with cash received from hisoutside bettors in Game 1 and a 90% marker (this is called a "synthetic" security). Bookies A & B have no house cash in the game, but prudently covers their markers with insurance from AIG (this is the infamous CDS - credit default swap). AIG's employees have no idea how much cash is behind the marker but are also paid commissions on volume, both bookies get great terms: 5% cash, 95% marker.

This kind of action would be illegal in Nevada and hazardous to one's health in most of New Jersey, but on Wall Street it's perfectly respectable.

The bookies can be in the same casino or different casinos, they can even play AIG's role. It makes no difference to management, everyone's paid on the total volume of the "action" not just the actual cash "handle". Given this income incentive, bookie-on-bookie bets multiply like rabbits. As long as the outside bets get paid (and we all know how often the house wins) all will be well until the casinos pay out all their cash to the bookies and have nothing left for rent, taxes and utilities.

That's the MBS mess in a nutshell. Paulson's grand solution is to get Congress to buy up all the unpaid markers.

Mike Nicksic | Oct 11, 2008 | 10:32AM

Don't measure quality?

You cant go to a 5 dollar hooker these days without getting a 'Performance Feedback Survey'. Customer surveys are the absolute WORST way to quantitatively measure performance metrics in the service industry.

Every company now has some idiotic ex-GE executive bloviating the virtues of ompany wide Six Sigma Green Belt Total Quality Management BS.

SirRobert | Oct 11, 2008 | 2:20PM

"My promised column on threads will appear in this space on Friday."

O RLY?/???????vv

masterhalco | Oct 11, 2008 | 7:27PM

Thanks for fixing the "double post of the comments" problem.

Suggestion: stick to technology stuff.

fiddlepaddle | Oct 11, 2008 | 9:29PM

You're really *really* gone downhill of late. You don't write about technology anymore, you pontificate about politics, banking, etc, things you know *nothing* about. Fire the bottom 10% every week/month/quarter/year. Yes, that worked so well for Enron, didn't it? And Jack Welch? JACK WELCH??? Why not Charles Keating or Michael Milken? Hey, how about T Boone Pickens?

utterly disgusted | Oct 12, 2008 | 12:54AM

Let Bob talk about the economy. This could be bigger than the Great Depression. I don't really give a toss about cool disk defragmentation algorithms this week.

utterly fine with it | Oct 12, 2008 | 2:05AM

I disagree with the methodology of the article but I agree with the spirit: which is a return to a market with consequences. If banks aren't performing, let them fail, rather than propping them up on taxpayer dollars. If we agree to prop up a bank with taxpayer dollars, force them to lend. Period. Otherwise the taxpayer-funded bailout turns into a capital grab. The idea of the bailout was never to protect the jobs and/or performance bonuses of executives. I don't know about Jack Welch but a heavy hand is needed and none of the current crop of money wizards are it.

www.codingthewheel.com | Oct 12, 2008 | 4:08AM

and how do you rate bankers? by how much they cooked the books? So you could easily kill all the conservative bankers and promote the fearless go there and do it type - the much revered alpha males in banking and high finance. As far as I can tell it has already been done to disastrous effect.

funny | Oct 12, 2008 | 4:31AM

'If Welch ran the U.S. banking system like he ran GE, he'd kill the bottom 10 percent of banks every year and fire the lowest 10 percent of bankers.'

That would lead to even more Enron-style accounting fraud. What is needed first is true accounting, risk transparency and the regulation of systemic risk.

Neil | Oct 12, 2008 | 5:56AM

So, you want a Big Man to take Total Charge of the situation. Big Men were popular in the 1930s. Only back then, most Americans had the sense to reject Fascism.

Some Guy | Oct 12, 2008 | 9:30AM

We have to keep the banking system functioning, but that will not solve the problem. US experience in the 1930s and Japanese experience in the 1990s is that once into solvency problems, banks will not lend. Repeat, even with Jack Welch, banks will not lend. The way out is to restart small and mid sized businesses with government programs that sponsor eonomically strategic activities. In the 1930s, that was things like rural electrification. Currently, the US should sponsor alternative energy projects to drastically cut our oil demand. So hybrid cars, solar energy panels, eco-diesel, etc. are the way to 1. create jobs, 2. revive the economy, 3. cut our trade deficit, 4. revive R&D, 5. in the long run, cut down the dollars sent to an unfriendly Mid-East. It is a 5 way winning strategy. As it takes hold, the banks will lend to successful, low risk projects, which is what banks do well. Banks will not lend to themselves or anyone else while the basic economy is in crisis. Just look at history - or talk to bankers over a beer.

Mike Laird | Oct 12, 2008 | 12:40PM

I'm not so sure if Robert knows less about this topic than he does about technology issues. He is wrong yet again in a very entertaining way, so I find myself reading it and wondering how he can express such a strong opinions in print with so few supporting facts.

The fundamental flaw of this latest opinion is Robert's tacit acceptance of Jack Welch's supposed management greatness. From my point of view Jack Welch was a sociopathic manager who maximized GE short-term profitablility at all costs, including betraying workers that had built up businesses that were making money, just not enough to satisfy the greedy Welch and Wall Street.

So their jobs ended up in some foreign country, only to increase the US deficit, burn dirty bunker fuel oil to transport the products back to the US, and lower standards of living for most of the displaced workers. The only beneficiary to this business decision was GE upper management, who got huge bonuses for increasing GE's short term profits, but everyone else and the environment got screwed.

So all we need now is some more short sighted decisions that maximize benefits to Wall Street at the expense of everyone else? Not!

If you want a more nuanced and informed opinion about the eocony Paul Krugman at the New York Times does a good job. Unfortunately, what Robert is doing here is uninformed blather.


GeeWhizBang | Oct 12, 2008 | 1:22PM

We tried a damned CEO who tried to run the government "like a corporation." He was a miserable failure. The government is not a business. It's job is not to act like a business. It's job is to REGULATE THE DAMNED BUSINESSES. If that had occurred, we would not be in this god-awful mess. Don't you Libertarian freaks ever learn from your mistakes?

Lord Balto | Oct 12, 2008 | 6:31PM

Big men were popular in the 1930's, yes. In this country it was FDR, who ran roughshod over everyone, including the Constitution, yet accomplished very little. Herbert Hoover was right, government interference exacerbates economic problems. Just let the businesses fail!

Rick | Oct 12, 2008 | 7:11PM

Bob only ran this column because he has nothing useful to say about the economy and he could get this line in:

And if you think it won't work, then you don't know Jack.

Hah. Hah. Ho. Hah. (Do I sound like the Joker?)

Go back to tech, Bob.

Richard Steven Hack | Oct 12, 2008 | 8:21PM

I think it's a very novel idea, to give the banks a reason to have to lend... to have to do what they are supposed to be there for in the first place. Keep 'em coming Bob, it's your kind of thinking that will change things.

Jesse | Oct 13, 2008 | 12:15AM

You have not addressed one of the major causes of the current mortgage problem. The upper management bonuses were based on volume of loans generated and not the payback rate. If that was changed so that the bonuses were reduced based on the payback rate at an appropriate interval. For instance split the volume based bonus so that it is payable in 3 parts at 5, 10, and 15 years. Then reduce the 5 year part by 10% for every 1% of loans in default. At 10 years reduce the bonus by 5% for every 1% and at 15 years by 1%. Also loans sold to another institution at a significant discount would count as a default. You can bet that there would be far fewer bad mortgages handed out, but there would still be loans because the potential bonus is still based on volume.

steve | Oct 13, 2008 | 9:55AM

Steve makes a good point about tying compensation to loan performance rather than loan volume. However the big problem is that the Boards are failing their fiduciary duty to protect stockholders, basically CEOs are writing their own incentive packages and of course they are leaving out pesky details like actual loan performance. Icahn is right if these BODs were earning their money the problem would not have been nearly as bad.

FrankG | Oct 13, 2008 | 10:47AM

Bob, you are not addressing one of the fundamental problems - the shadow banking system created by INVESTMENT banks which were not subject to regulation. Any attempt to regulate them was resisted by ideologs who hate regulation and believe that market can do no wrong. Jack Welch is one of these guys.
Contrary to you, I believe that his fundamental beliefs would prevent him from being helpful in the position you described. In another words people who believe that government can do only "wrong", aren't very good are running the government well. After the last eight years, I doubt that you need examples.
Better person could be George Soros

aizimr | Oct 13, 2008 | 11:05AM

The thing that baffles me is the complete lack of reporting/commentary on how politics has driven this whole crisis. It's obvious that Paulson saw this coming a mile away but the Rupub admin gave him orders to keep smiling until after Nov 5. Thing is, it blew up before the election. The cynicism and just plain lack of concern for anything other than maintaining power from these people has just been breath-taking. Which is worse, outing a CIA agent for political gain or letting the country [and the world] possibly fall into a new Great Depression? "Country First" my ass.

Greg Staggs | Oct 13, 2008 | 1:39PM

Shouldn't Apple,Inc. be scooping up Blockbuster, already? Talk about fire sale prices!

Kevin Kunreuther | Oct 13, 2008 | 4:18PM

Bob,

Forcing banks to lend money doesn't always make for good loans. That's part of the problem here - borrowing (for leverage) where no borrowing should have been done. Or loaning money for mortgages where it should not have been loaned.


You're also assuming that all the banks have money to lend. For those that are heavily invested in mortgage-backed securities that may be doubtful.

Tangozulu | Oct 14, 2008 | 3:43PM

The bankers would simply have Jack Welch assassinated. Problem solved (from their point of view).

If you don't think the bankers are gangster enough to do it, you haven't been paying attention.

realist | Oct 14, 2008 | 6:45PM

Jack explains why all my GE products stop working before the warranty period is over, but it cost less to replace them fight to get the warranty enforced.
sprint instituted Jack's employee rating system. See how well it worked for them. Sprint is nearly all IT and details of how it works are only in the minds of it's workers. Lose 10% of the details of how the business works every year and soon the business doesn't work any more. Can you see that happening to the banks, and what do you do when they are all doing what you want? Kill'em any way! And Jack wouldn't the ones not loaning money but the ones not making money. So the ones with good lending practices would die first.

Karl | Oct 19, 2008 | 12:30AM

Jack Welch, like Alan Greensapn, still supports the reregulation (usually called "deregulation") that drove this debacle.

Greg wrote:

"The thing that baffles me is the complete lack of reporting/commentary on how politics has driven this whole crisis. It's obvious that Paulson saw this coming a mile away but the Rupub admin gave him orders to keep smiling until after Nov 5. Thing is, it blew up before the election."

Word.

Janus Daniels | Oct 19, 2008 | 4:58AM

It took Treasury a couple of weeks to catch up to the Cringely, but Paulson obviously read this column ...

Paulson tells banks to lend (http://www.marketwatch.com/news/story/treasurys-paulson-tells-banks-lend/story.aspx?guid=%7B375D24E5%2DC639%2D44BD%2D8AC3%2D3316D80A1D3F%7D)

quixote | Oct 20, 2008 | 2:07PM