Posts from Politics

I started this discussion yesterday with my observation that Obama ended his weekly address with the point that "in this nation we rise and fall as one nation, one people." But that doesn’t ring true to me. I think we are well past that point. I think we are so intertwined with the rest of the world, that we rise and fall as one world, one people. This picture I posted a month or so ago on this blog tells the story. It’s a chart of the dow, ftse, hang seng, and nikkei in sept and oct.

Tom Friedman makes the same point today in his opinion piece in the Times:

a world economy that is so much more intertwined than people realized,
which is exemplified by British police departments that are financially
strapped today because they put their savings in online Icelandic banks
— to get a little better yield — that have gone bust

And yet, our government is fighting the idea of cross border regulatory authority. Today’s NY Times has a story about the G20 meeting that took place this weekend in DC. Here’s a quote from that article:

There is also a more basic philosophical divide across the Atlantic:
Europeans in general favor more state control over markets, even to the
point of granting regulators cross-border authority, while the United
States stresses the primacy of national regulators.

That’s understandable. This country has a long history of not wanting anyone to tell us what to do or how to do it. But I wonder if this position is tenable when it comes to the global economy.

I do not believe we can regulate markets on a nation by nation basis. They are simply too intertwined these days. If we want to figure out how to stabilize the financial markets this time, I think it’s going to take a global approach, global coordination, and yes, global regulation.

It’s interesting to me that he starts with the recognition that the only way out of this financial mess is a coordinated global action and ends with this comment:

In this country, we rise and fall as one nation, one people, and that’s how we’ll meet the challenges of this time, together.

Of course that’s true, but in fact in the world we live in now, we rise and fall as one world, one people, and as Obama said at the start we’ll have to meet the challenges of this time as one world, acting together.

Bustup not bailout should be our rallying cry. Once upon a time busting up big companies was a populist movement. Its time for that movement to rise up again. Not so much to rid our society of monopolies but to rid our society of financial minefields that are ‘too big to fail’. I read a quote on twitter yesterday that said ‘too big to fail means too big to exist’.

And yet the govt’s answer to our problems is to push for more consolidation. Its nutty. Scale and complexity is the enemy of innovation and what ails most of the large businesses in this country, auto in particular, is a structural lack of innovation in the industry architecture

It takes something like 5 years to get a new car designed and built in most large auto companies. That’s too long. I realize that designing and building a new car platform is not like hacking up a new web app. But five years? C’mon. We have to do better than that

And we need to completely neuter the auto industry’s ability to lobby our govt to stop important initiatives like clean/alt+energy and mass transit. Its borderline criminal what the auto industry’s political efforts have done to our global competitive position right now

The same is true of the financial services business, the airline business, electric utilities, and a host of other industries

I am sympathetic to the arguments that we cannot allow the entire supply chain of the auto industry fail and I am certainly aware how many plants will close and jobs will be lost if we let GM, Chrysler, and Ford fail. Its a tough call and Obama has already staked out a pro bailout auto position

So I hope someone in his incoming team reads this and the conversations on this topic that went on via twitter yesterday. If we give taxpayer money to the auto business, it should be to finance a wholesale bustup of the business. One PE firm should buy Volt. Another should buy Buick. A third should buy Jeep. A fourth should buy Lincoln. And if a brand can’t find a buyer at any price with a boatload of taxpayer money behind it then it should fail

This is the best way out of this mess. We have to get the biggest businesses in this country smaller and nimbler, we have to get smart money behind them, builders not spreadsheet pushers, and we must focus on innovation not lobbying. That’s the only way forward that makes sense short of throwing them all under the bus and starting over

Note: I wrote this on the eliptical trainer at the gym so no links and prob some typos. I’ll try to fix both later

Wow. This is bigger than I thought it was going to be for me. The first african american president is certainly a huge deal for so many reasons but Obama did not dwell on that fact last night and neither will I.

We have gone from one of the most ideological, secretive, and phony administrations ever to something completely different. As many have pointed out, the expectations are so high for Obama that there is no way he can meet them. And he won’t.

But here is what we can look for, and I believe get, from his administration.

1) A world class management team. I remember the first debate I ever watched Obama participate in. He was asked whether he was a "strong operatating executive." He replied that he was not "the COO", that he was more like "the CEO". And then he went on to talk about surrounding yourself with the best people you can find and then letting them do their job. He did that with his campaign which was a masterful thing to watch, he did that with his VP pick (in stark contrast to the Palin fiasco), and I expect he’ll build a killer cabinet and a killer administration (look for some picks from across the aisle).

2) Honesty. He said this last night and I am sure he will live up to it:

But I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree.

3) A steady hand. I have never seen a cooler customer in a position of such responsibility. Obama has an incredibly calm demeanor. He will be a steady hand, he will make well vetted decisions, and I expect more of them will be right than wrong.

4) Diplomacy. Thank god we’ve slayed the ridiculous notion that you can’t talk to bad people who do bad things. I expect that Obama will spend a lot of time meeting and working with our friends overseas and at least talking to our enemies. I expect to see a lot of diplomatic progress under his leadership.

5) Fairness. The republicans call it "redistributing wealth" and I can totally understand why people go nuts over Obama’s tax policy. But we are going to get fairness in tax policy where the people who make most of the money like my family will pay the highest taxes. My bet is we’ll go back to where we were under Clinton and that’s fine with me and should be fine with everyone, but it won’t be.

6) Leadership. Our country is in a mess, much of it self inflicted. More than anything else, we need a charismatic leader who can inspire us to face the facts, make the sacrifices, take the losses, pull up our boots, and get on with it. I believe Barack Obama can and will do that.

I guess that’s why this was bigger for me than I thought it would be. Like everyone else, I am dying for a leader we can believe in and get in line behind and follow. We’ve got one now.

If you do one thing today, please make it a trip to the voting booth. You probably know by now that I am going to cast a vote for Barack Obama and I’ve tried on numerous occasions to explain why. But how I vote is not nearly as important as the number of people who vote today. We are a democracy, we pick our leaders, and every citizen in this country can vote. That includes women, minorities, naturalized citizens, and a host of others who have fought for and won the right to vote. Please go exercise it.

I heard on the weekend news shows that we might see 135mm people cast a vote this year. If so, it’s a big move up. Here’s some data I pulled together this morning, going back to the 1960 election, a year before I was born.

You’ll note that I am projecting Obama to get 10mm more votes than McCain today. We’ll see if that in fact happens, but I am optimistic. This chart shows that we’ve witnessed a significant increase in voters in the past three elections. That is good news. But to really see what’s going on you need to factor this by total population which I did in the following chart.

This chart shows that if I am right about the 135mm votes this election, the percentage of the US population (as measured by the census) who votes will have increased from 35% where it has largely been stuck for 40 years to almost 45%.

Well that is still pretty pathetic that less than half of the people who live in the US care enough to register and vote. But it’s progress.

If you figure that voting age citizens are about 62.5% of all citizens (taking out the kids – thanks Krassen and Dan), then this means that more than 70% of voting age citizens might vote this year. That’s a strong number and makes me feel good about america today.

So please do as this song I posted to my tumblog today suggests, please vote!

Its been a while since I’ve done one of these posts. A lot’s been going on and I find myself on the trainer thinking outloud.

1) The credit markets are thawing (see the ted spread chart on fredwilson.vc for a visual of the thaw). The equity markets are stabilizing But that doesn’t mean they won’t continue to go down. As investors start to focus on earnings next year and beyond, we may see a continued drift down. The Nasdaq is down 33pcnt ytd, $GOOG is down 45pcnt ytd, and $AAPL is down 50pcnt ytd. The market has repriced equties and that impact will be felt far and wide

2) The sooner we accept this new reality and deal with it, the better off we will all be

3) The next 12 months may be a period of the ‘haves and have nots’. Last night the Spotted Pig was mobbed but the new hot place down the block was not. There are bulletproof restaurants (the pig), bulletproof ad models (paid search) and bulletproof brands (all things apple). In tough times the money will keep flowing to the best companies and will stop flowing to the worst. Be a ‘must have’ and don’t be a ‘have not’ in this environment.

4) I think Obama has the election pretty wrapped up absent a major external event. I think my parents might vote for him. They are army people, lifelong republicans, who are in their late 70s/early 80s. But if they vote for Obama, they are not really voting for him, they are voting against the GOP and what is has become and what it has done to this country. Obama’s mandate, if he wins, will be thin and he should not overplay it. He must win these skeptics who held their nose and voted for him if he wants to govern with a real mandate. And that won’t be easy and he must govern from the far center which is where our country really is right now. And I think he can and will do that.

5) The earthquake we have witnessed in the capital markets in the past month may be part of a tectonic shift that is happening in the geopolitical world. I am heavily influenced in this thinking by Fareed Zakaria but it just makes sense to me. The US has come violently back to economic parity with the rest of the developed world. Look at who is buying up some of the back office operations that are coming available in the dismantling of the US investment banks – the indian companies that provided the outsourcing contracts to them  We live in a global economy now and we are not the unchallenged boss of it.

6) The web and the global internet can be a powerful force in helping to change american society. We can learn to save, invest, live healthier, and more energy efficiently and we can do this in partnership with like minded people all over the world. I am not a utopian but I am powerfully moved by things like grameen, kiva, donors choose, etsy, amee, livemocha, craigslist, wikipedia, google translate, and many other web services that can and will make our world a better one.

7) So I am optimistic and I am done with my workout and its time to get to work

Sorry for the lack of links in this post. I did it on my bberry (soon to be G1!). I’ll try to update with links later.

11:41 Eastern: Update with links done

Say what you will about Colin Powell’s endorsement of Barack Obama, I was inspired by it. In particular, I was inspired by his talk about the need for more tolerance of different religions. This part just made me jump for joy:

"Well, the correct answer is, he is not a Muslim, he’s a Christian.
He’s always been a Christian," he said. "But the really right answer
is, what if he is? Is there something wrong with being a Muslim in this
country? The answer’s no, that’s not America. Is there something wrong
with some seven-year-old Muslim-American kid believing that he or she
could be president? Yet, I have heard senior members of my own party
drop the suggestion, ‘He’s a Muslim and he might be associated
terrorists.’ This is not the way we should be doing it in America."

I’ve done a lot of travelling since 9/11 and I am always amazed how people of different dress and skin color get treated. It’s like anyone who is not white and christian is a potential terrorist. That’s what 9/11 did to our country and it has been extremely hurtful to our country and our culture.

So I applaud Colin Powell for his forthright and honest and correct remarks. America is the melting pot where we accept all races, creeds, and colors. It’s what has made us great and if we walk away from that, we are in big trouble. Colin Powell knows that, Barack Obama knows that, and by the way so does John McCain but the only way he wins at this point is by playing into those fears which he is doing and Colin Powell called him on it.

I am very hopeful for what may be around the corner, a new administration, a new world view, a new tolerance, and some healing finally.

I spent 15 years in the States and left in 2006, precisely because I saw the horrifying decline of this great nation. Don’t you think, though, that before a turnaround plan you need to do a SWOT analysis? Here’s a quick stab at it:

Strengths:
Bar none, the most diligent, hard-working, dedicated, disciplined and focused people in the world. I’ve lived on three continents and know what I am talking about.

Weaknesses:
1. Decay of rationalism. Right there is your biggest problem. The War on Science; the ascend of bullshit artists and religious nutjobs; the contempt for reality, facts, numbers, data that has pervaded the business, financial and political elites.
2.  Very poor lifestyle energy-efficiency, especially in transportation
3.  Unsustainable military spending and engagements
4. Proliferation of a "heads I win, tails someone else loses" model in the economy and finance, also known as "Privatization of profits, socialization of losses" (And yes, many venture capitalists can be blamed for that, too.)

Opportunities:
Given the long traditions of rational pragmatism in America and the nation-wide consensus that things need to be changed, there is a real opportunity here for bold and rational changes. In that regard your country is extremely lucky that it will have as a President someone who is universally acknowledged as the "deepest thinker to ever get in the Oval Office". I know this may sound crazy after the past eight years, but being smart and thinking is actually NOT a bad thing.
(And yes, Clinton was also amazingly brilliant, however, he was not really a "thinker". He would rely on his intelligence to mostly wing it and go by feel, instead of through a formal analytical thought process)

Threats:
Being too late to avoid a profound decline.

Finally, I am a bit ambivalent on the debt thing. Yes, I am worried that my children (all of them U.S. citizen) would have to pay it down, however, as pointed out, you would be crazy not to finance your country’s prosperity at such low financing costs (3-4%).

Originally posted as a comment by Krassen Dimitrov on A VC using Disqus.

Obama’s mantra of change, since adopted also by McCain, is not enough for me. We need more than change. We need a full-blown turnaround plan and a leader capable of executing it.  I’ve moved beyond the splurge because like it or not, we are going to get some legislation out of Washington that allows the government to purchase and/or backstop the “crap assets” that are clogging up the arteries of the financial system. My head is around what’s next.

Yesterday, I was visited by a reporter named Nathan Lipson from The Marker, an online financial publication owned by Haaretz, the WSJ of Israel. As an aside, I was somewhat involved in the creation of The Marker about ten years ago, but that’s another story. Yesterday we sat in our conference room at Union Square Ventures and Nathan turned his phone to record and started asking me some hard questions. Questions that I had not prepared to be asked and that frankly I am not qualified to answer. But that didn’t stop him and it didn’t stop me either. These are unusual times and I’ve got opinions to share.

He asked me where America was going to get the $700bn needed for the splurge. I reminded him that the legislation (at least last I looked) only authorized $350bn upfront and only $250bn of that would be funded initially. I pointed out to Nathan that if we up and left Irag this month and walked away from all of our financial commitments to Iraq and it’s security, we’d save $250bn over the next two years. We could use that money buying the crap assets, holding them through the downturn, and then flip them when things get better, hopefully for a profit. That’s a hell of a lot better than spending $250bn providing a police force for Iraq while they assemble an oil-funded surplus for their own account, not ours.

Nathan also wanted to know if the US needed loans from foreign governments to finance the splurge and our ongoing budget deficits. And he wondered if America’s government was still AAA credit. I’ve been wondering that myself. But it was eye opening to be asked that from a journalist from one of America’s strongest allies. If the Israeli’s are wondering if our country’s credit is any good, what are the Chinese and the Sultans thinking?

I pointed out to Nathan that America still has the largest economy in the world, that more money flows through our homes, banks, and businesses than anywhere else. And that our government, unlike a business, can raise revenues instantly by increasing taxes. Nathan asked if raising taxes at a time like this would be possible. I answered that it’s like Mike Bloomberg raising real estate taxes 7% to close the budget gap in NYC next year. You have to bite the bullet and do it. You have to tax the people who have the most vested in your government and the most ability to pay. That’s why we have no choice but to repeal the Bush tax cuts and take our rates back to where they were under Clinton (when the economy was doing just fine by the way). That move alone will plug a sizeable chunk of our federal budget deficit.

Leaving Iraq and getting rid of the Bush tax cuts are not the only things we need to do to fix the financial mess we are in but they are the obvious first two things we need to do. When you are doing a turnaround, you need some early wins and those are low hanging fruit that must be grabbed quickly.

My friend Bryce posted this thought to VC Tips yesterday:

Tough times call for tough calls

That’s what turnarounds are all about. You must make the tough calls.

Last night Gwen Ifill asked both Joe Biden and Sarah Palin the same question that Jim Lehrer asked Obama and McCain, “how will the splurge affect your spending plans?” (Gwen didn’t use the word splurge unfortunately)

That is a good question. Sarah Palin dodged the question not once, but twice, and the only financial plan she could muster was tax and spending cuts. Which is the only financial plan John McCain can muster as well. I can assure you that the governments, institutions, and individuals who have loaned America trillions of dollars are not going to buy a financial plan that starts with bringing in less revenue and promises to spend less. That’s the plan that every Republican president has laid out since Reagan. And with the exception of George Bush senior’s decision to increase taxes late in his presidency, the whole lot of them have simply led America down a path of budget deficits, increasing indebtedness to foreign governments and institutions, and to this day of reckoning that we are now facing.

Joe Biden’s response was better but not good enough. I understand that Obama, McCain, Biden, and Palin are all trying to win an election and a tough, honest, turnaround plan probably is political suicide. But at least Biden was honest enough to admit that a lot of the things he and Obama want to do will have to wait or be scrapped entirely.

When you are doing a turnaround, the number one thing you need to do is get everyone’s confidence back. You need to get the employees’ confidence back, you need to get your customers’ confidence back, and you need to get your shareholders’ and your lenders’ confidence back. You have to be honest about the mess you are in and be credible about what it’s going to take to get out of it.

The mess we are in right now in America is that we are spending too much and not taxing enough. We are an unprofitable business with a balance sheet that is starting to worry our creditors and investors. If you could short America, the sharks in the market would be all over that trade. We are not much better than Lehman, Bear, Merrill, Wachovia, and Wamu.

We have global ambitions that we cannot afford but we still pretend we can. We have tax revenues that do not cover our spending. And we don’t have the will to cut our spending. And in many cases, we cannot afford to cut our spending. We should not cut our spending on infrastructure, we should increase it. We should not cut our spending on finding cleaner and smarter forms of energy, we should increase it. We should not cut our spending on education, we should increase it. We should not live with the terrible health care system we currently have, we should fix it. And we continue to spend money on things like tax breaks for oil companies and subsidies for farmers that mystify me and most Americans.  And we spend a lot of money fighting vices like drugs, prostitution, and gambling when we should simply legalize them, tax them, and regulate them and turn them into a profit center.

There are those who say you can’t cut spending and raise taxes in a recession – that doing that will lead to a depression like we had in the 1930s. I don’t think so. I think the global economy is in an expansionary period driven by expanding wealth in the developing world and the power of technology to drive commerce and communication. And our problem is we are stuck in the last century, fighting the last war when it’s long over. We need to get our house in order, play in this global economy with a stable and sustainable business model. And we don’t have that now. And we must get it in place soon.

I don’t know squat about government and I’d be a terrible politician. I am not suggesting I could build the turnaround plan or execute it. But I am saying that is what we need. We need way more than change. We need our leaders to make some very hard and unpopular decisions that will get us to a place where we are once again in control of our own destiny. Because right now we are not in control of our destiny. And that’s frightening to me and most Americans.