Thoughts on the Financial Crisis

The other day, we received a blistering email from a Radar reader complaining about our silence on the subject of the economic meltdown. I wrote back:

There are a lot of people bloviating about the financial crisis. It’s outside of our area of expertise, so there didn’t seem to be a lot of urgency to add to the hot air. Even professional economists and financial experts disagree on where this is going. I’ve been reading a lot, and sharing the best links via my twitter feed, but frankly, I’m feeling that we’re in the middle of a wave that no one completely understands.

Meanwhile, I did in fact spend my NY Web Expo talk on the idea that “I sense a storm coming” (Rilke quote), and the idea that companies and individuals need robust strategies (ones that can work even in uncertain times), with one robust strategy being to “work on stuff that matters.”

That Rilke quote, from the poem The Man Watching, translated by Robert Bly, has this great line about letting ourselves be washed over by events greater than ourselves:

I can tell by the way the trees beat, after

so many dull days, on my worried windowpanes

that a storm is coming…

What we choose to fight is so tiny!

What fights us is so great!

If only we would let ourselves be dominated

as things do by some immense storm,

we would become strong too, and not need names.

I’ve been feeling a lot like that. Watchful. Listening. Learning. Not rushing about fighting the small things of the moment but letting the storm wash in. It will change us.
That can be good. And as the storm washes through, it will become clear what we have to do.

I’ve been quoting that poem in my talks since Why I Love Hackers at ETech in March. It ends with a ringing invocation to work on challenging problems, problems that stretch us, as the wrestlers of the Old Testament were challenged by wrestling with the angel. That seems to me to be the heart of what we need to do now.

I hadn’t thought to do this earlier, but it occurs to me that I might also share here the message that I sent out to all O’Reilly employees by email a week or so ago (edited slightly to remove a few company-specific details):

Many of you have no doubt been alarmed by the developments of the last couple of weeks in financial markets, so I wanted to put a few thoughts out to all of you before disappearing on a combination of vacation and business travel for the next 3+ weeks.

…at the last company meeting, I talked about a theme that I’ve expanded on in public talks like the one I did at Ignite Boston and at Web 2.0 Expo in New York the week before last: the idea that robust strategies are ones you’d adopt in good times and in bad. And I argued that we probably end up with more robust strategies if we assume the worst rather than the best.

We could be in for a long, rough time in the economy. I’m not going to say otherwise.

But I also want to point out that rough times are often the best times for creativity, opportunity and change. We transformed ourselves from a technical writing consulting company into a book publishing company as a result of the huge economic downturn of the mid-80s. After the dotcom bust in 2001, we launched Safari Books Online, Missing Manuals, the Web 2.0 conferences, Foo Camp, Make: magazine, the O’Reilly School of Technology, and a host of other initiatives that have fueled our growth and that define the company today. We diversified and invested in new ideas.

It was a painful period but one that made us better and stronger as a company.

And if you look at history, you see that this has always and everywhere been true. It’s not an accident that economist Joseph Schumpeter talked about the “creative destruction” inherent in capitalism. Great problems are also great opportunities for those who know how to solve them. And looking ahead, I can see great opportunities.

The energy crisis (both global warming and the oil price shock) is helping people to focus on how technology can transform the energy sector. The financial crisis has demonstrated just how out-of-whack an unregulated, proprietary, black-box approach can get. This will lead to an emphasis on regulation, but I hope, above all, on transparency. This is of course analogous to what happened with open source software. Meanwhile, the mobile revolution will continue, regardless of the state of the economy. If it can prosper in Africa, it can prosper even in an American downturn. And all the stuff we’re exploring with Make: new materials, new approaches to manufacturing, and the “open source” approach applied to hardware, will take us in unexpected directions. And all of these areas can benefit from what we do best: capturing and spreading the knowledge of innovators.

We don’t know yet how problems in the overall economy will affect our business. But what we can do now are the things we ought to be doing anyway:

  • Work on stuff that matters: Assuming that the world does go to hell in a handbasket, what would we still want to be working on? What will people need to know? (Chances are good that they need to know these things in a world where we all continue to muddle along as well.)

  • Exert visionary leadership in our markets. In tough times, people look for inspiration and vision. The big ideas we care about will still matter, perhaps even more when people are looking for a way forward. (Remember how Web 2.0 gave hope and a story line to an industry struggling its way out of the dotcom bust.)

  • Be prudent in what we spend money on. Get rid of the “nice to do” things, and focus on the “must do” things to accelerate them.

    These are all things we should be doing every day anyway. Sometimes, though, a crisis can provide an unexpected gift, a reminder that nobody promised us tomorrow, so we need to make what we do today count.

This seems like good advice for Radar readers as well. I will try to write further on the theme of “work on stuff that matters” in the days ahead.

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  • Stuart Gannes

    Thoughtful writing Tim, and the right tone for the moment.

  • http://www.aicmeu.org Syed Zahid Ahamd

    Financial Crisis and Islamic Banking
    Syed Zahid Ahmad

    The international financial crisis began over a year ago, and has intensified during last few months. The International Monetary Fund has already warned that this credit crisis will result in losses of over trillion dollars and that it may worsen especially after the 150 year old US financial giant Lehman Brothers been declared bankruptcy, not to mention the sale of financial services firm Merrill Lynch to the Bank of America.

    Interestingly, Islamic banks are unaffected by the sub prime mortgage crisis; rather many non-Muslims are turning up to Islamic banking as the customers spooked by turmoil in the interest based banking system are feeling Islamic banks as a safer haven because they are immune against such crisis due to inherent business ethics within Islamic banking.

    There are mainly two important reasons for insulation of Islamic banks under this current credit crisis as compared to the interest based banks and financial institutions. The first is security from liquidity problem due to inter banks lending in the money markets, merger and resales of debted companies. The second reason is rating of complete investment risks instead of mere credit risks. Principally Islamic banks acts as custodians, advocates or managers for depositors funds and thus they cannot transfer public deposits to other banks without permission of their depositors. Thus Inter bank liquidity transfer on debt finance basis is not permitted in Islam, which restrains liquidity related problems in the market.

    Under Islamic banking, equity finance is not granted by mortgaging assets, but after analyzing the investment proposal, and the equity finances remains unaffected with changes in assets values. There are so many internal and external factors affecting the asset values of stocks, bonds and securities which are prime components for credit rating system used for Interest based lending; so it is not an easy task either for the banks or for credit rating agencies to evaluate the exact credit risks. The rating of investment risks under Islamic Finance has no problem with fluctuation in asset values; instead it varies according to actual business trend. Thus there is no fear of sub prime mortgage under Islamic banking principles; rather it counters the throat cut competition in financial sector to get more credit shares. Islamic Principles thus provides stability and insulation in the financial market.

    Moreover Islamic banking interestingly helps the weaker and even the weakest section of the society through various ultra modern financial products. Under Islamic banking finances (through Joint ventures, partnerships and leasing) are provided by investors / banks to the borrowers with a condition that financial risk is to be borne by the investors, and other risks to be borne by borrower / manger of funds. This helps even the poor and vulnerable to get finance at no risk and cost, but definitely requires other credits like strong business proposal, sound projections, rational planning, skilled hands and technical art to attract the financer. Under Islamic finance, comparatively better business proposals succeed in fetching funds while projects with poor economies find it difficult. This helps the economy boost inclusive growth as financial resources are well shared among haves and have nots along with shouldering financial risk on financers and other risks on borrowers of funds.

    The risk rating under Islamic banking and finance evaluates real term business potential and growth trends, instead of evaluating manipulated asset values which has caused recent damages to the credit market. Thus the regulators and credit rating agencies should now adopt principles of Islamic banking to safeguard the financial sector from any more turmoil.

  • http://www.conversationagent.com Valeria Maltoni

    Another Rilke snipped I really love to think about in difficult circumstances is:

    “Perhaps all the dragons of our lives are princesses who are only waiting to see us once beautiful and brave.”

    Indeed our resourcefulness and hunger for making things happen do engage when they have to/need to. Now is the time to be present.

  • http://www.digitalmlewis.com Matt Lewis

    Awesome Tim, very to the point. We should just be working towards the future. We shouldn’t stop and watch it overtake us. Keep working on what matters. Perfect!

  • http://www.blogimore.com Cory Reed

    I think your last bullet point is the most important. If companies are not using ROI and NPV as a basis for investments and expenses, they must begin doing it now. I work in marketing for a company that generally makes wise decisions. However, there is still a large percentage of spend in our budget for programs that result in almost no lead generation. They are done just to keep up appearances. I think those times are over.

  • Brooklyn Kitchen

    Better poem for current situation:

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity.

    Surely some revelation is at hand;
    Surely the Second Coming is at hand.
    The Second Coming! Hardly are those words out
    When a vast image out of Spiritus Mundi
    Troubles my sight: somewhere in sands of the desert
    A shape with lion body and the head of a man,
    A gaze blank and pitiless as the sun,
    Is moving its slow thighs, while all about it
    Reel shadows of the indignant desert birds.
    The darkness drops again; but now I know
    That twenty centuries of stony sleep
    Were vexed to nightmare by a rocking cradle,
    And what rough beast, its hour come round at last,
    Slouches towards Bethlehem to be born?

  • http://opoli.org Chris Camp

    Spot on. Inspiring stuff.

    For those of us who have been frustrated with the functioning of our government, of our democracy and at the failings of both in dealing with consensus resistant collective action problems (see global warming, health policy, energy, etc..) this recent downturn offers a window of opportunity to implement core change.

    I am currently interning at Lessig & Trippi’s change-congress.org and we’re hammering away on what we see as a root of the problem. It’s an evolving target but the key is shifting the balance of power in our economy of influence and engineering a reallocation of influence by way of increasing the costs of influence for concentrated moneyed interests and decreasing the costs of influence for the general public.

    - Transparency to increase data,
    - Tech tools to increase the number of eyes ranking data and turning it into actionable info
    - Tech tools to increase public control and accountability over our elected representatives

    Government 2.0 or bust!

    Apologies for veering into a domain that may be viewed as a sales pitch but I see our efforts as a specific example of exactly what you’re talking about.

    - Focusing on stuff that matters.
    - Great problems present great opportunities.
    - Setting out a vision to take advantage of those opportunities and to solve some critical problems

    The exact pathway for achieving these goals is still open and we invite everyone here to join us in the process.

    -Chris

  • http://americandigest.org vanderleun

    I found this insight interesting…

    “Events may now be driven by forces that are beyond short term human control, as if some dynamical system boundary into nonlinear response has been crossed. In that chaotic environment, Presidential leads don’t switch on things like ‘who won the debate’ any more than the financial meltdown is responding to bailout packages. They respond to a combination of things which we don’t understand, though we pretend to. So we pull back on the stick and stomp on the rudder pedals but the crate just has a mind of its own.” -Belmont Club » The second debate

  • http://www.plexnex.com Sam Hiser

    Thanks, Tim, for this timeless & useful advice.

    When Bill Gates & Warren Buffet were separately asked what was the main ingredient of their success, they separately said “focus”.

    I’m glad you mention the energy revolution in this context; it is a significant source of my optimism about our opportunities.

  • http://inneroptics.net Tony

    Tim, you’re a modern-day prophet. Thanks for the thoughtful words. For a lighter side to the crisis:

    Sad Guys On Trading Floors
    “Turning the economic crisis into one of those clever internet memes.”

  • http://galaxyspectrum.com/ AD PR NY

    To put everything into perspective:
    The Global Competitiveness Report 2008-2009 from the World Economic Forum Report declared The U.S. to be the most competitive and innovative country in the world based on a variety of measurements:

    # Institutions.
    # Infrastructure.
    # Macroeconomic stability.
    # Health and primary education.
    # Higher education and training.
    # Technological readiness.
    # Market size.
    # Innovation.
    # Business

    More than 12,000 businesses in the 134 countries were polled in creating the report

    “This is because it is endowed with many structural features that make its economy extremely productive and place it on a strong footing to ride out business cycle shifts and economic shocks,”

    …. “capacity to innovate, the quality of its institutions, the efficiency of government in relation to expenditure, the independence of the judiciary, low levels of corruption and the flexibility of the goods and labour markets.”

    Switzerland is second followed by Denmark, Sweden, and Singapore, Finland, Germany, the Netherlands, Japan and Canada made the top ten.

    Even with all the recent high profile events, it still has a current 6.1 unemployment rate.

    Surely, many readers and their parents can remember worse times than now and having much less in what was then a ‘normal’ economy.

  • http://www.islameconomic.com/ Islameconomic

    Take a look at this blog http://www.islameconomic.com.

  • http://disruptionmatters.com Disruption Matters

    Great thoughts! Great advice!

    I have just printed the article and hanged it on the wall.

    Thanks for inspiring us.

  • http://www.greenerblog.blogspot.com Richard Lawson

    I understand that the toxic assets in the global financial system can be counted in quadrillions of dollars.

    Somehow, the system has to be purged of these leveraged debts.

    Nobody wants to buy them, and banks are afraid to borrow from each other in case their borrower suddenly turns out to be holding unpayable debts.

    Odious Debt is a way for a government to repudiate debts run up by a previous regime with whom the new government has no political continuity.

    Could this be extended to the financial system, to declare these toxic assets (and, while we are at it the HIPC debts)Odious Debts?

    Is there any good reason that the World Bank should not set up an institution where banks can simply offload their toxic packages. Not sell them, just dump them. Cancel them. Put them there to be studied by PhD students of the future.

    And start again with the financial services under new management rules?

    Grateful for any advice on this

  • Anonymous

    What’s the US worth?

    It’s P/E is negative and has been for 8 years.
    It cannot fund itself with bonds anymore.
    It has issued huge numbers of shares (printed more $).
    It’s played games with the inflation figure, the unemployment figure, the M3 money supply figure.

    So what’s a share in the USA worth?

    It depends on whether new management can turn it around or not. Ultimately the reason to own a share in the USA depends on your belief in the managements ability to make future profit. Perhaps the Global Competitiveness Index will convince you it will be worth something. Perhaps you take a different view.

    I view the bailout as a make or break spending spree. Presumably they’ll borrow it from the Federal Reserve, the FED will print seven times the amount in US$ and increase the money supply by another $5 trillion. Politicians will talk up the $ and Europe will injects Euros and Sterling into the economy at the same time, to prevent the $ falling. The money they create will be pumped into the US banks and economy and perhaps find some growth to support it.

    One last big puff of air into the bubble to try to keep it inflated.

    Or not. Wouldn’t be the first time a superpower has collapsed. Soviet Russia collapsed under very similar circumstances, with the collapse in the Ruble and hyperinflation.

    All depends on whose at the helm and whether the plan they have works.

    It the next president a Steve Jobs or a Kenneth Lay.

  • cactusmitch

    “Work on stuff that matters,” indeed! Work on stuff that will mater in the future, and catch some breaks!
    Stuff associated with large revenue streams, yet of dubious productivity, like cell phones, should and are being discounted appropriately. Detect the difference between the appeals of vanity and productivity!
    The bailouts will not help pioneer the way out they will retard the tectonic changes needed in the world economic order.

  • Fernando Pessoa

    There was a Portuguese writer that wrote the following about his country situation at a bad time:

    “All is uncertain and ultimate.
    All is fragmented, nothing is whole.
    Oh Portugal, today you are mist…”

    And looking at the desolate landscape at the dawn of the day, while the bourgeois were sleeping, in a sense of urgent opportunity, he remarks:

    “‘Tis the hour!”

  • http://www.ic-pod.typepad.com/design_at_the_edge/ Jim Rait

    Original plus comments are thoughtful stuff. I remember leaving school in the early sixties and joining Rolls-Royce as an apprentice only to see people being made redundant all around me. The boss said ” If you can keep your head when all around you are losing theirs then you will be about 9 inches taller than them… and that means you can spot opportunity sooner than they can!” adding that “quick bottom-line linear fixes like cost reduction and avoidance help now but tomorrow we need new revenue streams and product concepts to drive our future top-line growth and that means non-linear innovative thinking. Bottom-line behaviour lets executives boast in the golf club, but top-line growth pays future club fees!”… still works for me today!

  • http://www.peekablog.net PeeKa
  • http://radar.oreilly.com/2008/10/thoughts-on-financial-crisis.html Jimmy Johnson

    This article is horrible. i could have written a better article as a 5 year old.

  • Sachin

    It is a pleasure to read Rilke any time and I was pleasantly surprised to read it on a technology-focused blog post on a financial topic!

  • http://blogs.igalia.com/javivazquez Javivazquez

    I agree that this crisis is an opportunity. Above all, it’s an opportunity for innovation and technology (applied to “staff that matters”).

    Quoting a comment from Carlos Doming from Telefónica I+D (R&D branch of the Spanish telco Telefónica) last Friday at sociedadred.org, we are in the right moment to shift from “greed is good” to “geek is good” :)

  • Jonathan G

    Reminds me of a favorite maxim:

    Necessity is the mother of invention.

    Focus on stuff that matters–and spend on what you need (as opposed to nice to have) are good guidelines for the turmoil ahead. Thanks, Tim.

  • http://danbri.org/ Dan Brickley

    Please keep saying these things throughout ’09.

    “work on stuff that matters” should become a geek mantra…