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Suck Less

Written on
August 22nd 2008
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by DM Confidential  |
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knife_recession_small.jpgDM Confidential — A little more than a year ago, while attending a real estate related conference in New York City, we listened to an enigmatic and none too optimistic professor of economics tell a room full of real estate agents that they should start looking for other work, because the housing crisis would continue to decimate their profession. The professor gave this speech after the initial shockwaves from the subprime housing market collapse but before the broader credit crunch took hold of the markets. It turns out that we listened to one of economics rising starts, nicknamed by many in his field as Dr. Doom for his perceived continual pessimism. Dr. Doom, perhaps better known as Dr. Nouriel Roubini, gave a more in depth version this speech one year prior to a much more meaningful group, an audience of economics at the International Monetary Fund. As reported by the New York Times, “he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.”

It is surprising how reasonable Dr. Roubini’s predictions sound now, but it would have been like telling Yahoo in 2001 that they wouldn’t have the search lead in just two years time. Touching on two of his predictions, Fannie Mae and Freddie Mac, shares of these two pillars of the American economy continue to fall playing a role in providing funding in one shape or form to half of all mortgages. We touched on the state of the two institutions in our Mortgage Mayhem article in July when shares started trading at levels not seen since 1991 and talk of a bailout first started gaining traction. It looked briefly as though they might pull through, but this week again speculation of a bailout reemerged, a move that would wipe out all shareholder value. As a result, shares can’t find a bottom. Looking at Freddie Mac alone, they have lost 50% of their value in August alone ($8 to sub $4), 80% since the end of June where they traded at $20, and 90% since the beginning of the year. Freddie and Fannie aren’t the problem so much as they are a gauge for a complex series of sub-optimal decisions and aggressive expansion in a system unfortunately set up for massive failure. It is a system that encouraged spending through taking on debt, with the likelihood for paying off that debt coming through speculation and the likelihood for staying in debt guaranteed through excessive fees and the lenders general shift towards fee based revenues and not income from repayment.

The current recession has left its mark on the financial world, and even though we may have hit the technical bottom according to some, those like Dr. Roubini believe we have just begun to feel the impact in other areas, like employment. Even some in the Internet advertising industry have felt the pinch with currently profitable companies trimming heads in anticipation of an uphill battle ahead. Despite the relative size of the Internet economy, in terms of employment, we represent a small fraction of the labor force. It may be the next big thing and spawned some of the most significant public companies in recent times, but it’s no Wal-Mart or GM. Google won’t be employing 100,000 people any time soon. So many of the prior giant industries have done an about face in the past several decades for a variety of reasons including the well documented one, globalization. America no longer operates as a manufacturing economy, and even its white collar workforce faces pressure. So what does that leave? What can’t we easily outsource, and what have most called America - a service economy. It’s hard to outsource restaurants, retail help, front desk jobs and the like, even if we can outsource significant chunks of customer service. The problem though is that we suck at this. America sucks as a service economy. More and more, you will find yourself underwhelmed by those you interact with in the service space, and nowhere is this more clear than at JFK airport and one of its restaurants.

You can make some pretty easy and accurate assumptions about those eating in the airport restaurant. The obvious being, they are in a hurry. Yet, you would think those working there have conspired to cause indigestion and missed flights. Quick seating and prompt service? Forget it. Instead, they’re run like any place with a captive audience, with zero initiative. And why should they? The airport is probably the last place they want to work. The combination makes for what you get - a disaster - demanding diners and apathetic help. The line of quality people looking to take their place is pretty short, and the supply of demanding diners doesn’t look like it will diminish. Not good. Compare that with highly efficient restaurants with a keen eye on turnover and service; they invest more in their people, they make more money, and a decent string of backup players exist ready to take their place. The same holds true in extreme for those in entry jobs in entertainment. So many people want that job just as so many want to work for ESPN that these employers can underwhelm in pay and overwork in time. They are the exception and not the model if we want to suck less overall. The fix is right here in the Internet advertising space - proper incentives. How good is the service from account managers? No offense to our favorite people, but prospectives do not need a minimum IQ. In other words, success and well run business doesn’t depend on brains; it depends on each parties feeling connected to the flow of money. Give people a chance to work their ass off and make money within the confines of doing right by the company and person, and they will. If you don’t enable that connection, they suck, and everyone is miserable. Then we all live in a world where no one wants to work or spend the money they have. And, if we want to compete globally, we have to suck less.

Courtesy of the Editor of DM Confidential.



Reader Comments.

Just one glaring issue with your premise. We are NOT in a recession. Are things tight? Yep. But if you’re going to report on economic issues, you should understand a little about economics.

Your points are all good, it’s just that if you say “The sky is falling!” enough times, people start to believe it.

Posted by Brian Olson | 2:50 pm on August 25, 2008.

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