@#19 My point is that Enron was able to be a wolf in sheep's clothing, masquerading as a company of innovation and a darling of the age, because the difference between faux innovation meant to fleece people, and real innovation that is to be admired -- it can't be judged within the constraints of the current system people use to evaluate companies.
The exploits have encroached within the engineering tolerances of "how things are done."
Do you *remember* Enron's press before they fell apart? Do you remember how much praise the press and financial folks gave them? I know Americans are amnesiac -- most of that went away the first day they went down. And then they were always crooks.
Why is it that they looked like they were fabulous? Why is it that these derivative markets and kited bits looked so smart? It's because what we do to evaluate risk makes innovation and systems-exploit blur.
Part of that is the rule-set (advantage to the crooks), and part of it is sheer laziness (on the part of press, regulators, and investors).
At the same time, @#16, I'd love to think that people read the annual reports of the companies they choose to invest in. I'd love to think they analyze more than the balance sheets and historicals/market performance. But that is not my experience.
Perhaps the solution is to build better people. That's the traditional conservative solution. Perhaps the solution is to regulate better. That's he traditional liberal solution. (Paradox: liberals believe we are already better people but we need regulating; conservatives think we're flawed and need stronger character, but regulation is a barrier to "growing up")
I think the answer is better education and a better framework for metrics. Triple bottom line. That sort of thing. But maybe to take advantage of better tools (and not just be lazy) we still need better people?
But so long as markets are mobs, and mobs are lazy and more interested in quarterly results and flavor of the day, BAD companies will win, and good companies will wither and die.
I'm starting my own company now, and it will be a private company so long as I can drag that out -- because the market is an ass.
Of course, in Oregon, I was VP/Marketing & BizDev of the 3rd fastest growing private company in the state (something like 238 in the INC5000), and what killed us were more parochial and internal problems, rather than VC idiocy or market/shareholder shortsightedness.
But I feel that one can protect against local events better. I know I will try my damnedest, this time.
To a private investor, I can sell my ideas on the basis of innovation, character and history of the exec team, a potential to be part of something big, fun and important to people -- and potential very reasonable profit. The people who will look at that and say "I'm in!" are my people.
The people who say "Hey, this guy over here is *promising* 10% more in five years!" -- well those people are the same people who will want you to take hysterical measures for short term profit. (Like you can really *know* with precision what a tech company will do in five years. Tech companies are about agility, not divination.)
To "the market," my only hope is to spin my quarterly and yearly financials, and spin the press HARD, to get attention and tread water in an environment that doesn't reward the things that make the best long term good for my company and it's investors, my staff, or my mission/product/service/customer.
The postulate of the market is that a company is worth what the market says it is worth. That's solipsistic -- but AXIOMATIC to the way things work now. To influence the market, the risk/benefit of lying with numbers or lying with PR favor the bad players.
Again, I'll say it -- the market is an ass. And the state of our media makes it even more of an ass, since without spending time personally investigating your potential investments, you are at the mercy of press release journalism.
During the dotcom era, I saw *excellent* companies go down. What was their problem? Unlike their competition, they were often run by honest, hard working people who felt that they couldn't lie or exaggerate as their competition did, consistently. And to say that their competition was lying opened them up to bad press that, because they were more simple people on a PR level, they couldn't respond to well.
When good PR and bad accounting are more important to the market profitability of a company than all those intangible issues above, it's just sad.
I have watched this over and over again. Engineering companies who couldn't unleash their marketing people for fear of escalating un-truths, losing to engineer-employing companies who over promised and under delivered -- but had great press.
(Did I mention I used to be a Chief Software Engineer at DEC? ;)
So my personal reaction was to learn more about marketing and PR -- with the goal of learning to manage messages well enough to allow my companies an even playing field.
But then I discovered the next hurdle was the accounting/accountability structures, and the willingness of some people to put high growth over sane growth, in order to stomp off more competent and technically sage competition -- because high growth looks better than good product or good staff or a loyal customer base.
So, if the solution is to teach people to personally understand and investigate the companies in which they invest -- well, I just don't see that happening with most people who aren't angels.
Let's face it, there's a reason angels are "qualified investors." You don't need to understand squat about markets, or business, to buy stock.
Personally, I'd rather buy scratch tickets than buy stock in a company I don't feel I understand, and whose team I don't have a feeling for their character. But I'm an old fashioned grrl.
But, to reprise, could the nay sayers tell me -- what is it that made Enron able to pull of their masquerade? What is it that made nearly every financial institution feel that they *needed* to participate in these idiot subprime mortgages and the instruments built on them?
Yes, it was greed. To paraphrase Jesus, the greedy will always be with us. We can't help people being greedy, we can only build rule-sets that disadvantage the jerks.
But that greed took advantage of our inability to really understand the difference between spinning numbers and *real* wealth creation.
And you know what? Real wealth creation doesn't come from spinning numbers. George Soros was a hacker who broke the Bank of England. It was an exploit, and he won, and he got cred and money for it (and honestly, I think his story is very cool). But that's an exploit. Enron was criminal, but it was an exploit. The subprime lenders were taking advantage of exploits in the system.
So where are the white hats of the financial system? Should that be the SEC? HAH! The financial press? It's on no one's *real* agenda.
The advantage of good analysis is kept in house. A particular pension manager sees something fishy about a business or market trend -- and it's to his advantage, for his constituency, to keep his feelings to himself, and profit.
If an analyst in the press says, "This subprime business is questionable," she looks like an idiot because these subprime instruments are outperforming what will, in time, prove to be more sane recommendations.
And so long as the financial press follows the flavor of the day, she is less likely to keep her bully pulpit than the reporter at the next desk who, in perfectly manufactured consent, praises the next Enron.
So, there are no white hats, so far as I can see, to *effectively* protect the financial systems.
Real wealth comes from creating things of worth to people, not making money fly so fast through the system that it can't be tracked honestly.
Real wealth comes from innovation, invention, creation, providing things and experiences to people that have lasting effects.
Real wealth is having a customer base who loves your product and who you support (even when they whine).
Real wealth arises from having a staff who are all defying Sturgeon's Law, and finding that only 40-60% of their work is scut work, and that it's ok -- they are operating in an environment of respect and community. They may not look at every hour of their day as fun, but they look back on the weeks and months and years with great satisfaction, and a sense of involvement in something larger.
My company is going to be ethical *and* successful, and I am hoping to be able to pick my investors as carefully as they pick me. I have an idea that, I believe, will create real wealth. But I don't expect that to let me start fast out of the gate, which has been too much expected of tech in the past.
Perhaps the best thing that could come out of the current crisis is that more people will stop staring at the lemming butt in front of them and start thinking about their investments. About the true value of the compan(-y, -ies) they keep. About the long term for their pocketbook aligning a little more closely with the long term for their community/workers and for their culture and environment.
Capitalism works best when people realize that their own personal greed is one of their risk factors. Greed ruins judgment, and makes them put the wrong pressure on the engines of wealth creation -- the folks who are making things, or making things work, or making work better.
Money is great. But the joy in my life doesn't come from the money. It comes from the process of creating, thinking, educating, making, engineering, making things better, making better things.
I have often thought that the geeks of the world have more sense than all the suits combined, even if we are outnumbered. But suits have number and short term strategy -- in a short term competition, the suits will win. And nothing recently has done a whit to mar that impression. Our major competitive disadvantage is that we spin less, and the non-geek market is so much bigger than the geek-market -- it's hard for us to be heard. I've made most of my living, one way or another, bridging geek/suit relations.
Want to know how to make a million dollars quick on the internet? As any of thousands of failed dotcom execs.
Want to know how to make a million dollars over time, and have a great story to go with it? Talk to me or many of the other people who hang out at boing-boing and such. We are the makers.
==
Shava Nerad, News and Opinion Correspondent:
Shava's column, Iconoclasm, published irregularly and frequently to Gather Essentials: News, is an examination of the provocative ideas emerging in media and world culture behind the news. Her Iconoclasm columns are now listed as a mainstream news source in Google News.
Shava Nerad is a polymath who has been working on the Internet for over twenty-five years, at the boundaries of Internet and social issues. She is CEO of Oddfellow Studios [website to come], a company working on medical, marketing, and entertainment applications of a patent involving virtual world technology.
She'll be performing with her fiance at Jack the Pelican Presents in Brooklyn on 10/11/08.
She lives in Somerville, MA with her teenage son, her fiance (a professional magician and online entertainment engineer), and a corgi/dachshund mutt named George. Her wedding in Second Life was recently featured in Business Week, and even she finds this surreal.
Opinions here have nothing to do with my consulting and so on.
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