Bubblegeneration Strategy Lab

Why Does Wall St Love Healthcare Reform?

2009-12-15T23:16:00.002Z

Because the current bill has no healthcare reform in it. There are no changes to either market structure, industry structure, reporting, or incentive structures.

In fact, it's a de facto bailout of health insurers. Welcome back our old friends rescission, premium inflation, and price discrimination - all flavours of moral hazard. Say goodbye to, well, better health care.

Why does Wall St love healthcare reform? As the chart shows, money's poured into health insurers over the past few days - hot money from hedge funds in search of, by the microsecond, fake, value-destructive alpha. Why? Because a massive transfer of wealth from society to pharma/hmo shareholders is written into the so-called reform bill.

One so large, I'd wager it's going to be, along with a broken financial sector, one of the final nails in the coffin of American economic competitiveness.

But hey - I'd expect nothing less from our retardedly broken Senate. Thanks, old white dudes who run the world.

The Private Equity Shuffle

2009-11-24T19:07:00.002Z

A nice illustration of how under the rules of financial capitalism, endless games are played with companies.

But rarely does the private equity shuffle create value of any significance.

See the problem with an economy run by beancounters shuffling companies like they were trading cards?

It's simple.

If private equity investors could actually create value by shuffling companies, the same companies wouldn't keep being shuffled ad infinitum. They'd improve to the point that they wouldn't need further restructuring. Conversely, the fact that companies are flipped like pancakes is a dead giveaway that the entire asset class is rent-seeking writ large.

The Anti-Google Counter-Revolution

2009-11-24T18:52:00.003Z

Dear Geniuses,

Blocking Google is about as smart as eating a pound of plutonium.

The problem isn't that Google's being an evil monopolist. It's that you used to be evil monopolists, and failed to invest in the quality of production.

Today, you're faced with the same dilemma every fading monopolist is. What do we do now that we suck?

The answer's really, really, really simple. Stop sucking.

But you're trying to create artificial scarcity instead. That might have worked in the 20th century - but it's a suicide bomb in the 21st. In a hyperconnected world, creating artificial scarcity kills orthodox businesses dead. That's because though you can block Google, there's no way to block people from using Google to find stuff that doesn't suck.

See the problem? The Force is so not with you.

Luv,

Umair

The Lame Brain-Dead Evil Ponziconomy

2009-11-24T18:49:00.002Z

"...Many shoppers say they entered their e-mail address and pushed a large "Yes" button on the ad because it appears to be a $10 cash-back offer or coupon. Many of those that complain say they thought they were being rewarded by the retailer for making a purchase.

Written in much smaller print within the ad are the full terms of the deal. A customer is notified there that by providing their e-mail address they are joining a membership program and agreeing to pay one of the marketing firms a monthly fee, typically between $10 and $20."

"Value creation"? Nope. Just (deceptive) value transfer.

Are Banks Terrorists?

2009-11-24T18:27:00.007Z

Whoa - what a deliberately incendiary title. Or is it?

Consider, for a moment, what was revealed today. The Bank of England extended £62 billion in "undisclosed support" to RBS and Halifax two weeks after Lehman imploded.

From an ethical, economic, and managerial perspective, it's not just questionable - that's outrageous.

Here's why.

The logic of terrorism is simple. To intimidate a state into action or inaction. If you don't give us what we want, we'll blow something up. Do it - or else.

Exactly the same logic has been at work throughout the financial crisis. The state has been terrorized into action - and inaction. Too big to fail is a weapon of economic intimidation - just like a bomb threat. If you don’t give us a bailout, the financial system will fail. If you disclose it, the financial system will fail. You have no option but to give us exactly what we want - cash, now, on our terms.

The goal of terrorism is this. To coerce a state into fundamentally betraying it's foundational principles - thus, creating a contradiction within the system itself, causing citizens to lose confidence in their own basic institutions.

And by that logic, banks won. Not only did they get trillions in bailouts, now, it turns out, they got secret bailouts.

See the irony?

The point of financial regulators is to enforce transparency. Without good information, markets can't work. But regulators hid information from the public instead. Like any good terrorist, banks actually turned the system against itself.

Now, we must all ask: can we trust our regulators? Or will they continue to leave our society at the mercy of the economic equivalent of roadside bombs?

This is a challenging post, and I don’t mean to minimize the damage terrorism does. If anything, I want to highlight just how deep the problems with orthodox capitalism are.

20th century capitalism isn't fit for 21st century economics. It's time to reboot this broken machine. There can be no clearer example why: the very machinery built to protect society spun on its axis, and was forced to protect those who harm society instead.

Econ 101 for Wall St: The Economics of HFT

2009-07-27T15:52:00.008+01:00

There's been a ton of discussion about high-frequency trading and market microstructure lately. Here's a great summary in the NYT.

What's missing from the conversation is the basic economics at hand. Here's a summary.

The problem is two kinds of efficiency - and the second outweighs the gains from the first.

If algos can discover higher values, that's fine. It unlocks allocative efficiency: goods are allocated to their highest valued, or most productive, uses.

The problem is that the market for algos is not efficient. It is a big, fat market failure happening in real time. Flash orders displayed to some but not others are an information asymmetry that subverts subvert competitive efficiency. The rebates (read: bribes) that exchanges grant for "providing liquidity" are just a side payment that does exactly the same thing: they create a new source of scale economies for the deepest-pocketed traders, that are essentially switching costs to not defect to rival platforms.

What's the point of subverting competitive efficiency? To enable not price discovery, but price discrimination. Authentic price discovery is prevented by side payments, that ensure that prices float well above value. Flash orders ensure it.

What is the biggest problem with this arrangement? Prices will never be forced down to marginal cost. In fact, the dynamics are these: algos compete to discover higher values, unlocking allocative efficiency. Yet, without competitive efficiency, the algos capture a larger and larger share of that allocative efficiency.

In the end, this market microstructure eats itself: the returns to people on either side of the trade vanish.

Sound familiar? It should. Liquidity that needs rebates isn't real liquidity. Just like SUVs subsidized by cheap gas aren't real transportation. Just like pharma companies that rely on subverting markets don't provide real healthcare.

It's just business as usual in our awesomely lame Ponzi zombieconomy.

Want fries with that unemployment check?

Today in Capitalism 2.0

2009-07-27T15:34:00.006+01:00

1. Skilled immigrants are leaving the States. Why? The reason isn't money: it's meaning:

"The position will pay a fraction of the salary he had been earning in the private sector—about $15,000 compared with $100,000—but it will offer considerably more job security and the freedom to do the exploratory research he wants to do"

Like I keep saying: what's missing from Capitalism 1.0 is meaning.

2. The only graph you need to see about healthcare reform.

3. The big problem with econ is a lack of ethics. Krugman in 2000:

"...You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative?"

This is the same logic that Krugman doesn't apply to the wretched of the USA. Now that the Great Compression is underway, it's clear that our own Ponzi sweatshop zombieconomy created little real value.

4. Rehab? Are you kidding me? What rehab? Did I miss meaningful reform? Is this not the same world where Goldman just booked record profits for the same old shell game masquerading as real value creation?

You can't rehabilitate Zombies. Resident Evil wasn't won by Medicines Sans Frontieres.

5. Can the Kindle improve on the book? Wrong (way wrong) question. Right question: can the Kindle alter incentives so publishers no longer churn out the myopic, disposable fluff that's destroyed the book "industry"? Can Bezos create incentives for the production of, well, real books once again - the kind that lead to sustainable profitability? Can the Kindle reignite a moribund industry?

The question is not one of product innovation - but of institutional innovation.

6. Context is king. Everywhere, even in fashion (though the NYT should have written about the awesome Polyvore a long time ago).

7. Just for the fun of it, a golden oldie of um massive unnovation.

6. Does Iceland tell us that failure is the best answer to crisis? Yup. Too big to fail is also too fail to recover.

Another day, another dollar in the Zombieconomy.

Latest Work

2009-04-26T03:00:00.003+01:00

My latest writing is at my Edge Economy blog at Harvard Business.

Contact

2009-04-26T01:07:00.007+01:00

If you want to drop me a line, here's how. I'm umairh on Twitter. My email address is umairhaque /at/ gmail. You can Skype me at umair.haque. Or you're welcome to leave a comment here or at my blog at Harvard Business.

Speaking Schedule

2009-04-26T01:01:00.007+01:00

Here's a selection of a few of the public events in my speaking schedule for this year.

Supernova, San Francisco, December 1
SOMESSO, London, May 15
Next 09, Hamburg, May 5
Oxford Internet Institute Policy Forum, London, April 27
The Second International Venture Capital in Emerging Markets Conference, Istanbul, April 17
BRITE/Columbia Business School, NYC, March 4

AV

2009-04-26T00:55:00.006+01:00

Here are some recordings of talks and lectures I've given.

The Great Compression & Innovation 2.0 at BRITE/Columbia Business School

Harvard Business Ideacast - the Zombieconomy

Constructive Capitalism at Daytona Sessions

The New Economics of Music at the Berlin Transmediale

Next-Generation DNA at Supernova

Everything That's Wrong With Industrial-era Business

2009-01-27T12:58:00.003Z

"This is part of a larger strategy. This is a unique time and we intend in six months to a year to have a number of brand names," said Bradley Snyder, principal and managing director at Gordon Brothers. "We see it as a completely opportunistic time. If not now, then when? We have virtually unlimited capital for this project."

It's all there in one pithy quote: an opportunistic play to invest "capital" in a "brand" which is part of a larger "strategy".

What's left unmentioned? Anything remotely to do with authentic, durable value creation.

A nice illustration of why our economy is melting down.

How to Turn a Recession into a Depression, Pt 139939

2009-01-27T12:49:00.002Z

Pump liquidity into moribund industries, without creating the incentives or oversight necessary for structural reinvention and radical innovation = propping up yesterday, instead of investing in tomorrow.

Excellent move - if you're short the pound.

Change the World?

2008-11-05T04:13:00.001Z

Yes we did.

!!!!!!!!!!!

Welcome to the 21st Century

2008-11-04T13:49:00.004Z

The 20th century was like this.

The 21st century is going to be like this.

"I ask you to believe -- not just in my ability to bring about change, but in yours. You can choose hope over fear, unity over division, the promise of change over the power of the status quo. If you give me your vote, we won't just win this election -- together, we will change this country and change the world."

See the difference?

Get out and vote.

*bonus reading:

"He told of his encounter with Edith Childs, a city councilwoman from Greenwood, S.C., who had lifted his spirits at the start of his campaign when his rallies were small and no one gave him a chance. She inspired him with her chant of "Fired up and ready to go."

It's a story he's told hundreds of times but probably never so well. He lingered for effect, described the councilwoman's church hat with a broad theatrical sweep of his hand and somehow was able to convey a time when he was small and vulnerable to the crowd of 90,000 that came to see him. "That's how this thing started," he said. "It shows you what one voice can do. One voice can change a room, and if it can change a room, it can change a city, and if it can change a city, it can change a state, and if it can change a state then it can change a nation and if it can change a nation it can change a world."

Lessons From the Macropocalypse

2008-09-17T01:59:00.003+01:00

I have been wracking my head trying to write a post for my HBS blog about the macropocalypse.

There's so much to say.

For now, I will say this: the Fed bailing out AIG is kind of jaw-dropping as a total evisceration of the bedrock of the financial system - and orthodox finance and economics.

The real point is this. The time is now.

Now is the time for revolutionaries to step up and build something better, something more real, and something greater.

There will probably never - at least in our lifetimes - be an opportunity for total economic reinvention this tremendous.

Or this meaningful. Because that's what it's really about - not shareholder value, money, or "competitive advantage".

But doing something that means something.

Macropocalypse: Endgame

2008-09-16T13:37:00.003+01:00

Quick note from Seedcamp. I have a really, really feeling that today will be really bad. I'm pretty certain that yesterday was by no means the culmination of the collapse. If AIG goes down, we are in serious trouble of a systemic and catastrophic breakdown and unwinding.

Election Strategy 101

2008-09-09T14:00:00.000+01:00

How Obama should attack Palin. Someone forward to Axelrod.

Abnormal

2008-08-08T08:17:00.007+01:00

Scott has a point, but I think that Facebook isn't exactly "normal" in terms of expectations, influence, or liquidity options, the secondary markets involved in what's "normal" aren't often made relatively open, the shares traded in them don't go at a >100% discount, and my guess (though the info is opaque) is they're not largely sold directly to private equity, etc...

Look. I think a very thin market in Facebook shares at a $15 bil valuation might be OK. But a larger, more open one at a $5b valuation kind of sends not a great signal. The signal is that Facebook might go straight to some kind of restructuring - which is really the point of the post.

Forget what's "normal" for a second - because there is no meaningful statistical "normal" in industries like venture. Just think about the strategic logic for a second.

Now, I'm not saying I'm "right" - the post is there for us to discuss what Facebook's options are.

The New New Thing

2008-08-05T18:28:00.004+01:00

"...That said, none of this means the bailout is a mistake. "My own view is that the world isn't fair," says Zvi Bodie, finance professor at Boston University. "But would it be fair to put the economy into a deep recession or depression? I don't think so."

There's the rub. If the monetary and fiscal authorities are right in their judgment that the risk of an economic plunge of frightening proportions is real, then the Herculean actions they're taking are fair to all of us. What's more, if innovation is the core dynamic in a capitalist economy, the engine of growth and higher living standards, then there will be booms and busts, especially during periods of rapid technological change. It's in the nature of the beast. Like it or not, limiting the downside damage when the boom goes bust is a critical part of the monetary authorities job."

Wow. Are you joking?

That this logic is actually somehow reasonable is fairly depressing. The logic of collective responsibility is actually the logic of anti-markets: the more we invest in bailing banks out, the longer and nastier the crisis is gonna be, and the less productive the economy is going to remain.

Honestly, I don't even wanna write about any of this much anymore. It's almost inexpressibly lame.

Admin + Sales 2.0

2008-08-05T18:20:00.004+01:00

Guys, I'm on vacation.

So I decided to let my friend Kashif write some posts on Sales 2.0. I think you should give him a chance - the writing needs work, I agree, but he's got some interesting things to say.

If you really have a bone to pick, (as usual) leave a comment.

NB - I will consider guest posts on a regular basis - just email me. I will publish those I think are interesting, provocative, relevant, etc.

Bringing Sales 2.0 To Life

2008-08-05T05:06:00.006+01:00

So how can organizations make Sales 2.0 happen?

First things first, Sales 2.0-enabled organizations see the correlation between customer intimacy and sales results. Shocking! There are 4 characteristics world-class 2.0 sales organizations, they:

Maximize selling time- remove mundane tasks associated with sales
Define a clear sales process focused on high value activities
Detail the mechanics of a meaningful conversations
Synchronize selling activities with the buying process

In this space, Landslide and InsideView stand out for their innovative approach to time-tested problems. For the evolving sales organization, the good news is that they recently announced a partnership. Awesome, this space is really picking up momentum.

Landslide has turned traditional CRM on its head by putting a premium on sales rep time and consistently enable sales force effectiveness. Remember the sales organization needs to maximize time with prospects and Landslide helps enable that-

Details your organization's sales process and the tools required at each step
Provides a free sales assistant service for sales reps (off-shoring snobs, their service is US-based)
80% of all functionality is enabled from one screen...within 3 clicks

Insideview- quite simply provides a mash-up of the results that can be used by sales organizations. Why is it good? It works.

Remember our definition of Sales 2.0 is really fundamental: increase proximity to prospects. We will continue to explore innovative companies that help maximize sales rep time and minimize the tasks/ activities that steer reps away from this goal. These are the true Sales 2.0 pioneers.

With that, we take the first steps towards greater sales force effectiveness. Coming up next: what are sales organizations doing wrong?

Sales 2.0

2008-08-03T23:10:00.005+01:00

Sales 2.0 is a new approach to B2B sales. Quite simply, the Sales 2.0 approach provides sales organizations:

Increased proximity to prospects
The ability to replicate and standardize selling best practices
Superior visibility into sales rep effectiveness

The result is greater intimacy with your prospects/ repeat customers. However the process in effect actually works in reverse:

Top organizations understand what their best sales reps do to sell effectively
Understanding high value sales activities helps detail the sales process steps
Sales 2.0 organizations then take this best process and standardize it across the sales team. In effect, they can upgrade the behavior of their mediocre sales reps.
Of course, the end result is increased proximity to prospects and customers (and implicitly, increased sales with effective use of resources)

The ability to implement this change is enabled by sales 2.0 applications and tools. At this point a good question to ask is:

What about the Sales 2.0 social network?
So far, it's been difficult to see an application has been able to define meta-social network at an organizational level. However, I believe that social networks do exist within within sales. The sales social networks in any given territory are informal social networks that are clustered around prospects with a similar profile or problem set. The best sales reps are able to recognize, understand, build, penetrate, and connect within these sales social networks at a local level and that defines their ongoing success. Engaging the social network is part of the sales reps best practice.

Sales 2.0 applications help you recognize and implement such best practices. Coming up next: How?

Strategy Note 001

2008-07-14T14:38:00.001+01:00

Hi folks, we have published the first strategy paper from my Lab today - details are here if you're interested in downloading.

Enjoy!!

Bubblegen 08

2008-07-14T14:04:00.003+01:00

Hi everyone. I hope you're all doing well.

From today, I am going to be publishing quite a bit more frequently at both my Lab and my blog at Harvard Business.

If you're interested, please update your feeds/etc accordingly.

Bubblegen is going to be be here, don't worry - we will be discussing the heavily theoretical stuff (uhhh...just like we normally do :)