iCON Steve Jobs The Greatest Second Act in the History of Business

Just finished this book. Really liked this quote about design.


" Steve said, ' Design is a funny word. Some people think design means how it looks. But of course, if you dig deeper, it's really how it works. To design something really well, you have to 'get it'. You have to really grok what it's all about. It takes a passionate commitment to really thoroughly understand something... Most people don't take the time to do that.'

Steve then proceeds to tell about how his whole family become involved, in all things, the selection of a new washing machine and dryer. European machine does a much better job, uses about 1/4 as much water and treats clothes more gently. But American machines take about half the time to wash.

'We spent some time in our family talking about what's the trade-off we want to make. We spent about two weeks talking about this. Every night at the dinner table. we'd get around to that old washer-dryer discussion. And the talk was about design."


I liked this other quote from Steve Jobs (emphasis mine)

"We live in an era where more and more of our activities depend on technology. We take our photos without film and have to do something with them to make them usable. We get our music over the Internet and carry it around in digital music players. It's in your automobile and kitchen. Apple's core strength is to bring very high technology to mere mortals in a way that surprises and delights them and that they can figure our how to use. Software is the key to that. In fact, software is the user experience. "

Nouriel Roubini on Public Private Investment Programme

Here is the Treasury Press Release Click through to the white paper on PPIP

Also from Nouriel Roubini RGE Monitor... one of the clearest exposition.

Given how critical Nouriel Roubini (RGE Monitor) has been in the past regarding various government plans to fix the US economy, his take on the administration’s new plan to buy toxic assets is surprisingly positive. The following paragraphs have been republished from his latest newsletter.

The main components of Treasury Secretary Geithner’s new PPIP to price and remove toxic assets from banks’ balance sheets are as follows:

Basic Principles: Treasury will use $75bn - $100bn in TARP money to co-invest alongside private sector participants and the FDIC as well as the Federal Reserve, to buy $500bn to $1 trillion of toxic mortgage assets (both residential and commercial) off banks’ books (‘legacy assets’)

There are two separate approaches for legacy loans and for legacy securities. At first, Treasury will share its $75-100bn equity stake equally between the two programs with the option to shift the bulk of financing towards the option with the greater promise of success with market participants.

1) Public-Private Program for Legacy Loans: The FDIC establishes several public-private investment funds whose sole purpose will be to purchase and hold specific loan pools put up for sale by banks (large and small). The transaction price will be established by the highest bid at an auction run by the FDIC, in which a wide array of institutional investors and even individuals with a long-term orientation are encouraged to participate.

The liabilities of the investment fund consist of an equity stake (50% of which provided by auction winner, 50% from Treasury TARP), and collateralized debt issued by the investment fund and guaranteed by the FDIC to finance the remainder of the purchase price (FDIC gets guarantee fee).

Before the auction, the FDIC specifies the pool-specific debt-to-equity ratio it is willing to guarantee subject to a maximum 6-to-1 leverage ratio. The private investor would then manage the servicing of the asset pool - using asset managers approved and supervised by the FDIC - until disposal or maturity.

Example: Assuming a 6-to-1 debt-to-equity ratio, the highest bid for a loan pool with $100 face value might turn out to be $84. Of this amount, the FDIC would provide $72 in debt guarantees whereas the equity stake of $12 would be shared equally between the auction winner ($6) and the Treasury ($6).

2) Legacy Securities Program: The legacy securities program is to be incorporated into the Term Asset-Backed Securities Facility (TALF) whose original goal was to provide collateralized financing (non-recourse loans) to buyers of newly created consumer loan/small business loan ABS. Under the Legacy Securities Program, the eligible collateral for TALF is extended to include non-agency RMBS that were originally rated AAA and outstanding CMBS and ABS that are rated AAA.

Example: Under the Legacy Securities Program, up to five Treasury-approved fund managers will have a period of time to raise private capital to target the purchase of designated securities. Assuming the fund manager is able to raise $100 of private capital for the fund, Treasury will provide $100 equity co-investment alongside private investors. Treasury will then provide a $100 loan to the public-private investment fund. Moreover, Treasury may also choose to provide an additional loan of up to $100 to the fund. The investment fund then has $300-$400 at its disposal to buy legacy securities at its discretion. As a purchaser of TALF-eligible securities, the PPIF would also have access to the expanded TALF program of collateralized Fed loans when it is launched.

Assessment

The main sticking points in previous market-based approaches to clear toxic assets from banks’ books were threefold:

a) How to value illiquid assets?
b) Once a transaction price is established, will banks be willing to sell and take a hair cut?
c) How to induce private investors to purchase legacy assets without unduly wasting taxpayer money?

a) Valuation of Illiquid Assets
The theoretical foundations of Geithner’s plan are provided by Lucian Bebchuk from Harvard University among others. He explains that “if the underlying market failure is at least partly one of liquidity, an effective plan for a public-private partnership in buying troubled assets can be designed. The key is to have competition at two levels.

First, at the level of buying troubled assets, the government’s program should focus on establishing many competing funds that are privately managed and partly funded with private capital - and not creating one, large “aggregator bank” - funded with public and private capital and engaging in purchasing troubled assets.

Second, several potential fund managers should compete for government capital under a market mechanism resulting in maximum participation of private capital and minimum costs to taxpayers.”

Geithner’s plan seems to follow these guidelines to a large degree. In particular, on the one hand the government subsidy allows private investors to bid a higher price than otherwise warranted (i.e. the government gives investors the equivalent of a call option.) On the other hand, the fact that the private investor is bound to lose its entire equity stake if the asset value deteriorates from artificially high valuations provides an incentive to bid conservatively. Both effects together may contribute to a reasonable level of price discovery. In case of the securities program, the prospect of refinancing purchased legacy securities with TALF via a non-recourse loan (which is the equivalent of a put option) should incentivize private investors to bid higher than otherwise warranted.

b) Will banks participate?
A similar purely private solution to get toxic assets off banks’ balance sheets was tried with Paulson’s aborted Super-SIV when legacy assets were still marked substantially higher than at present. It became clear then that the private sector will require a possibly substantial taxpayer subsidy in order to overcome the collective action paralysis. Indeed, in the case of the legacy loan example outlined in the Geithner plan with a 6/1 leverage, private investors that invest 7.1% (=1/7 * 0.5) of the equity will get 50% of any upside in return. While Treasury will also share in any upside by half, any downside beyond the private investors’ equity stake is clearly borne by the taxpayers.

While this subsidy to investors provides a powerful incentive to bid prices up in a competitive auction, banks stuck with particularly toxic assets or thin capital buffers may still find a potential writedown at market-clearing prices prohibitive and some might need to be recapitalized after taking the hair cut. FDIC Chairman Sheila Bair has already warned that while this plan will help many solvent banks get rid of their toxic assets thus clearing the way for new loans and fresh capital some banks are beyond the stage of rescue. Those borderline insolvent banks will likely require an additional incentive to sell or mandatory participation otherwise they will prefer to hold on to their assets, especially in view of the FASB’s prospective easing of mark-to-market accounting rules.

For the sake completeness, some commentators would also like to see better safeguards established in order to prevent banks and asset managers from potentially colluding in their common interest to the detriment of the taxpayer.

c) And taxpayers?
At the end of the day the performance of the toxic legacy assets is driven by the cash flow performance of the underlying loans. Keep in mind that among subprime borrowers, serious delinquencies and foreclosures have affected about 20% of outstanding loans as of December 2008 thus impairing the cash flow directed to junior RMBS investors and/or ABS CDOs consisting of these junior tranches. While ABX prices responded positively to the prospect of increased buyer interest, the ultimate loan value will depend on whether households and commercial real estate borrowers will continue making payments in the future. More on that below.

As a practical example of the performance of a toxic portfolio, take the Fed’s Maiden Lane portfolio with Bear Stearns assets. Cumberland Advisors reported that so far the results aren’t promising, and they see no prospect for a profit on the assets. In fact, the portfolio has lost over 10% of its value, and losses are mounting. At present, losses on that portfolio exceed $4.5 billion and the taxpayers’ share is now $3.5 billion. Others point to the low recovery value of IndyMac’s mortgage portfolio as a benchmark.

Bottom line: Will it get credit flowing again?

The immediate market reaction (equities and investment grade CDS staged a substantial rally, less so high yield CDS) was clearly one of relief that nationalization seems to be off the table for now and that the administration is committed to market-based solutions. While the extent of the guarantees almost makes one wonder why the involvement of the private sector is needed in the first place, it is the involvement of the private sector that creates a context in which price setting and discovery happen based on a market mechanism.

An important question at this point is: What should we look at while assessing the plan in the months ahead?

Clearly the unfreeze of credit markets would be the first sign of success but we might not see this happening before some time. Some of the banks that choose to sell assets and take a writedown might be in need of additional capital before they can resume lending. Also, for those institutions that are beyond the stage of rescue and effectively insolvent, the plan will likely not be as effective in stimulating lending or participation in the first place.

The increase in the supply of credit that will come from institutions that are solvent will be important, but will demand be there to do its part? If the real side of the economy continues to deteriorate, it is likely that credit demand might be subdued. Moreover, a further continued deterioration on the real side of the economy would imply new defaults on credit cards, consumer loans, auto loans and mortgages that would result in new toxic assets on the balance sheets of financial institutions recreating an environment where banks would maintain stringent lending standards. Therefore, the success of the plan is a necessary but not sufficient condition to get the economy back on a recovery path. The success of the fiscal stimulus package in sustaining aggregate demand and minimizing job losses and the success in restarting demand in the housing sector will be instrumental to put a stop to the negative feedback loop between the real and the financial side of the economy.

Moreover, if the negative feedback loop persists, need for further funding will arise. While it will be very challenging to obtain Congress approval for additional TARP money, we should point out that the government has set aside an additional $750bn in the FY2010 budget in aid for the financial sector.

Hence, taking care of legacy loans and securities is a welcome step forward, especially for solvent institutions whose asset values are subject to a substantial liquidity discount. However, insolvent institutions might not find as much relief from this plan, and the impact of the plan on the real economy might not be enough to pull the economy out of a contraction for good part of this year and sluggish growth thereafter. But by conducting auctions and determining the market value of the toxic assets, the Treasury will be implicitly using the private sector to ‘stress test’ the financial system to determine which banks are insolvent and therefore will need further government intervention.

Nationalisation of Banks

Another good piece here arguing for nationalisation by Matthew Richardson http://www.voxeu.org/index.php?q=node/3143

Treasury Secretary Timothy Geithner’s financial plan calls for stress tests at the large complex financial institutions (LCFIs). These tests are due to start this week. They will involve estimates on the eventual losses due to default on a wide variety of assets.

Economic analysts have already performed such a test at the aggregate level. The results were not pretty. For example, Goldman Sachs looked at the US banking sector’s holdings of the current “toxic” pool of assets, such as option ARM residential mortgages, subprime residential mortgages, Alt-A residential mortgages, credit card debt, second liens/home equity loans, consumer auto loans, and commercial real estate. Expected losses come in at around $900 billion. These losses give the banking sector very little wiggle room. Therefore, there is the real possibility that some LCFIs are bankrupt – the face value of their liabilities exceeds the current value of their assets.

Insolvent financial institutions

If a bank is insolvent, there are three general ways to attack the problem.

The first is unbridled free-market capitalism. I am sympathetic to this view. I wish we somehow could figure out a way to let the market work and let these institutions fend for themselves. Shareholders, creditors and counterparties knew the risks they were getting into. After all, why is some debt secured, why do we have collateralised lending, why do riskier assets deserve larger haircuts, etc? But when Lehman Brothers went down, we looked into the abyss. This would be the equivalent of nuclear armageddon for the financial system.

The second option is to provide government aid to the insolvent bank – to in effect throw good money after bad. This is sanctioning private profit-taking with socialised risk. Since October of this past year, the government has followed this strategy. Let the banks plod along, throwing money here and there to keep them afloat, at usually way below-market prices at a high cost to taxpayers.

It is not a totally crazy solution. There may well be a positive externality to spending taxpayer money to save a few so we can save the entire system. For economists specialising in the field of banking, however, this approach has a familiar ring to it. In Japan’s lost decade of the 1990s, its banks kept loaning funds to bankrupt firms so as not to writedown their own losses, which resulted in the government supporting zombie banks supporting zombie firms.

As an example, consider the poster child for the “freebie” programmes, the Temporary Liquidity Guarantee Program, started in late November of 2008. For a cost of 0.75%, it allows banks to issue bonds backed by the government, essentially risk-free. The banks have accessed this market 97 times for $190 billion!

The biggest pig at the trough was Bank of America, which accessed it 11 times for $35.5 billion. Close behind were JP Morgan ($30 billion), GE Capital ($27 billion), Citigroup ($24 billion), Morgan Stanley ($19 billion), Goldman Sachs ($19 billion) and Wells Fargo ($6 billion). A not so surprising correlation with their respective writedowns (including merged entities): Bank of America $96 billion, JP Morgan $75 billion, Citigroup $88 billion, Morgan Stanley $22 billion, Goldman Sachs $7, billion and Wells Fargo $115 billion.

In terms of helping us exit the financial crisis, this programme has many problems. It charges each institution the same amount, so it hardly separates the solvent from the insolvent institutions. It charges a fee that is grossly below what these institutions could issue in the marketplace given their current balance sheets, distorting the system. Wasn’t that the Fannie Mae and Freddie Mac problem? And it is unlikely to cleanse the system of toxic assets, because it allows banks to continue business while out of money and hope that toxic asset prices increase. In effect, the access to this capital allows them to continue to make their original bets.

The final way of addressing insolvency is nationalisation. Over the past week, there has been debate about whether nationalisation is the right word. According to a standard dictionary definition, nationalisation is the act of transferring ownership from the private sector to the public sector. Although this is literally what we are discussing for certain banks, almost everyone agrees that the type of nationalisation that would take place would be a temporary one. Thus, if everything went as planned, a better analogy would be of the government acting as a trustee in a receivership of the bank.

That said, I do think a term like nationalisation is the appropriate description. It is a misnomer to think, as a number of pundits have suggested, that we have experience at nationalising banks through the FDIC. For example, the latest bank (and 39th of the current crisis) to be closed by regulators is the Silver Falls Bank of Silverton, Oregon. It has three branches and assets of approximately $131 million.

Silver Falls Bank is no Citigroup or Bank of America. The complexity, size and systemic nature of these institutions deserve deep analysis.

The basic argument for nationalisation is that we need an organisation to simultaneously facilitate the reorganisation of the large complex financial institutions and be a trustworthy counterparty to all current and ongoing transactions. The only one with the balance sheet right now is Uncle Sam. But make no mistake about it. With nationalisation of a LCFI, the government is the owner and the ultimate residual claimant. Once we take down the LCFI, we have crossed the Rubicon. The die is cast and there is no turning back.
It is therefore important to do it right. Nationalisation has its pros and cons.

The good bank, bad bank model

In order to have a healthy economy, we need a healthy financial system, and a healthy financial system requires that we cleanse the system of bad assets. Otherwise, creditworthy firms and institutions will not have access to needed capital, prolonging the economic downturn.

Such cleansing would be the primary benefit of nationalising some financial institutions. In receivership, it is much easier to separate a bank’s good assets and bad assets – to divest the firm from its toxic assets and troubled loans. This is because insolvent institutions will never take this action. If they did, it would by construction force them under.

How would it work? The healthy assets and most of the bank’s operations would go to the good bank, as would the deposits. Some of these deposits are insured; others (e.g., businesses and foreign holdings) are not. But the good bank would likely be so well capitalised that there would be no threat of a bank run. The net equity, i.e., assets minus deposits, would be a claim held by the other existing creditors of the bank, namely shareholders, preferred shareholders, short-term debtholders, and long-term debtholders.
The goal would be to reprivatise the good bank as soon as possible. After all, the point of the exercise is to create healthy financial institutions that can start lending again to creditworthy institutions. In almost every successful resolution of financial crises in other countries, this was the path.

Of course, the tricky part of nationalisation is the handling of the bad assets. The bad assets would be broken into two types – those that need to be managed, such as defaulted loans in which the bank would own the underlying asset, and those that could be held, such as the AAA- and subordinated tranches of asset-backed securities. With respect to the former, the government could hire outside distressed investors or create partnerships with outside investors as was done with the Resolution Trust Corporation in the 1980s savings and loan crisis.

Along with the equity of the good bank, these assets would be owned by the existing creditors. The proceeds over time would accrue to the various creditors according to the priority of the claims. Most likely, the existing equity and preferred shares would be wiped out, and the debt would effectively have been swapped into equity in the new structure. Under this scenario, it is quite possible, even likely, that taxpayers would end up paying nothing. This is because, for the large complex financial institutions, these creditors cover well over half the liabilities.

Does such a solution risk systemic bank runs?

The problem with the above solution is that it shifts all the risk of the insolvent institution onto the creditors of the LCFI. While this is fair to the extent the creditors were accruing the profits in normal times, it may lead to the “Lehman Brothers problem” – it risks runs throughout the system.

Why did Lehman Brothers cause systemic risk?

Was it the counterparty risk, e.g., fear of being on the other side of interest rate swap, credit default swap, or repo transactions? This fear was well founded. Ask any hedge fund whose hypothecated securities disappeared in Lehman’s UK prime brokerage operations. It is pretty clear that the government would have to stand behind any counterparty transaction and publicly commit to this rule. Since most of these are margined and collateralised, however, many of the assets would show up in the good bank.

Or was it the short-term debt? The run on money market funds was directly attributable to the Reserve Primary Fund’s holdings of a large amount of short-term Lehman commercial paper. One would presume the same thing would happen here as the short-term debt of all questionable LCFIs would come under pressure. It is highly likely that the government might have to step in.

Compared to the standard large complex financial institution, Lehman had very little long-term debt. To understand whether a collapse in the institution’s long-term debt value is systemic, one would have to analyse the concentration of this debt throughout the system. If it is widely held, it is unlikely to have systemic consequences. Of course, it would have profound effects on future financing of these firms.

If the government has to cover the creditors, or at least some of them, what has been gained?

On the positive side, the system will have cleansed itself of the assets.

Moreover, to minimise the cost to taxpayers, it is not clear that the government will have to step in. If the government is completely transparent to the market who is solvent and who isn’t, and the reasons why this is, then the type of uncertainty that surrounded Lehman’s failure may be mitigated. The runs on the equity and debt of banks in September and October 2008 may have occurred because there was no clear message from the regulator.

That said, actions speak louder than words, and, in a dynamic setting where conditions change rapidly, solvent firms can become insolvent very quickly. While the government needs to do a thorough stress analysis, consistent across all the major banks, to find out the trouble spots, the only definitive way it can prevent a bank run on solvent institutions is to backstop all the creditors of these institutions. Maybe the government can provide a haircut, guaranteeing X% of the debt. In any event, in this case, the creditors of the insolvent institutions would not have to be protected.

Advantage: Nationalisation solves the toxic asset problem

It has been argued that trying to implement nationalisation will be near impossible because we won’t be able to price the hard-to-value “toxic” assets. It is actually the opposite. The current problem is that banks don‘t want to sell the assets at the price the market is willing to pay for them. If we were banks, we wouldn’t want to sell them either. As long as the government is providing free money, why not continue to hold out? Hope is eternal.

But let’s be real. The banks bought illiquid assets with credit risk using borrowed short-term liquid funds. For taking these types of risk, the banks earned a hefty spread. And, in normal times, they raked it in. But there is no free lunch in capital markets. In rare bad times, illiquid, defaultable assets are going to be greatly impaired. There is no mulligan here. It will be easier to resolve this within a receivership.

To make the point using a real economy analogy, this past Christmas, Saks Fifth Avenue sold their designer lines at a 70% discount. Designer labels and boutique shops on Madison Avenue were up in arms. How could they sell $500 Manolo Blahnik shoes for $150? In this economy, they are $150 shoes.
Moreover, receivership allows one to separate out the assets without having to price them.

Disadvantage: How to manage a nationalised bank?

Does the government have the ability to run a large complex financial institution? In a recent conversation, Myron Scholes told me he was also in favour of nationalisation – as long as it lasts just 10 minutes.

These institutions have literally tens of thousands of transactions on their books –, who is going to manage a LCFI while it is a government institution, good bank or bad bank? Certainly, no one envisions Barney Frank or Christopher Dodd as the Chief Investment Officers of these firms, but there are many concerns. The government can go and hire professionals as they have done with Fannie Mae, Freddie Mac, and AIG. But much of the value of a Wall Street firm is in its vast array of intangible, human capital. This labour is incentive-driven. How much franchise value will be lost during the nationalisation process?

Let’s assume this gets sorted out and the government mirrors employment practices at other firms. But then, with the government’s protection in receivership, what is to prevent the LCFI from making too many, risky loans? They will have a competitive advantage over solvent, albeit less-supported banks. This issue has recently come up with other government-supported institutions. Indeed, the argument has been made that AIG and Northern Rock, to name just two institutions, have undercut their competition by offering overly cheap insurance and mortgages, respectively.

Advantage: Nationalisation addresses the moral hazard problem

There is something unseemly about managed funds buying up the debt of financial institutions under the assumption that these firms are “too big to fail”. In theory, these funds should be the ones imposing market discipline on the behaviour of financial firms, not pushing them to becoming bigger and more unwieldy.

It has been said by many that this is not the time for thinking about moral hazard. I disagree. If we bailout the creditors, then effectively we have guaranteed the debt of all future financial institutions. We have implicitly socialised our private financial system.

It is certainly true that we can institute future regulatory reform to try to quell the behaviour of large complex financial institutions. But this will be complex and difficult to implement against the implicit guarantee of “too big to fail”.

Thus, nationalisation resolves the biggest regulatory issue down the road, namely the “too big to fail” problem of banks that are systemically important. In one fell swoop, because the senior unsecured debtholders of a bank will lose when it is nationalised, market discipline comes back to the whole financial sector.

So the large solvent banks will have to change their behaviour as well, leading, most likely, to their own privately and more efficiently run spin-offs and deconsolidation. The reform of systemic risk in the financial system may be easier than we think.

Concluding remark

We are definitely caught between a rock and a hard place. But the question is – what can we do if a major bank is insolvent? Sometimes the best way to repair a severely dilapidated house is to knock it down and rebuild it. Ironically, the best hope of maintaining a private banking system may be to nationalise some of its banks. Yes, it is risky. It could go wrong. But it is the surest path to avoid a “lost decade” like Japan.

Epilogue: Sweden¹

Sweden has been cited frequently as a model of “nationalisation”. While this is probably an exaggeration, the Swedish approach is in many ways a model in terms of the principles it puts forth to handle a financial crisis. Putting aside the obvious fact that Sweden’s economy is much smaller and its financial institutions much less complex, it is a useful exercise to describe some basic facts.

The distribution of assets within the Swedish and US banking system were similar. For example, while Sweden had 500 or so banks, 90% of the assets were concentrated in just six. In the US, while there are over 7,500 institutions, and the majority of assets are concentrated in the top 15 or so.

Sweden’s credit and real estate boom in the late 1980s closely mirrors the recent US boom prior to the crisis. There was even a similar shadow banking system that developed during these periods – in Sweden, unregulated companies financed their operations via commercial paper; in the US, unregulated special purpose vehicles used asset-backed commercial paper. When the bubbles began to burst, there were also sudden collapses in these markets as a few of these companies and special purpose vehicles began to fail.² Ultimately, the funding came back to the banks, causing them to have large exposure to the real estate market.

As conditions eroded in 1991, the Swedish government forced banks to writedown their losses and required them to raise more capital or to be restructured by the government. Of the six largest banks, three – Forsta Sparbanken, Nordbanken and Gota Bank – failed the test. One received funding and the other two, Nordbanken and Gota bank, ended up being nationalised.

These latter two banks had their assets separated into good banks and bad banks. The good banks ended up merging a year later and were sold off to the private sector. The poorly performing loans were placed in the bad banks, respectively named Securum and Retrieva. These banks were managed by asset management companies who were hired to divest the assets of these banks in an orderly manner. (It took around four years.)

The main lessons from Sweden for the current crisis are:

1. Decisive action in terms of evaluating the solvency of the financial institutions.
2. Some form of “nationalisation” of the insolvent firms.
3. Separation of these insolvent firms into good and bad ones with the idea of reprivatising them.
4. The management of the process was delegated to professionals, as opposed to government regulators.

While complexity may affect the application of these principles to the current crisis, it does not nullify them.

---

1 Many of the facts here are taken from Tanju Yorulmazer’s “Lessons from the Resolution of the Swedish Financial Crisis.”
2 In Sweden, in September 1990, a finance company called Nyckeln went bankrupt, while in the current crisis, in early August 2007, three ABCP funds run by BNP Paribas halted redemptions, leading to a run on the system.

Geithner's Public-Private Investment Programme

From BT today

"Under the public-private investment programme announced by US Treasury Secretary Timothy Geithner on Monday, the government will pump money into joint-venture investment funds with private investors to buy up to US$500 billion worth of soured mortgage debt and other troubled assets from banks. The special-purpose funds will be privately managed, but subject to close watch by US regulators.

The government is offering to provide half the seed capital for these investment vehicles, drawing US$100 billion from its war chest under the Troubled Assets Relief Program. It expects private-sector investors such as Pimco, BlackRock and hedge funds to provide the other half of the equity capital.

The government will then offer loans to the special-purpose funds or guarantee debt securities that they issue, to finance their purchase of the toxic assets. Through this leverage, the government estimates the programme could be expanded to buy US$1 trillion worth of hard-to-value assets from banks.

Banks holding such assets, which include billions of dollars of debt securities backed by pools of mortgages and other loans, are reluctant to dump them at the distressed prices that private investors would pay without government support, forcing massive writedowns. Meanwhile, fears that the value of the underlying collateral will collapse further as the US economy worsens have put off potential buyers. Equity investors, worried that the banks will ultimately shoulder the losses, have driven the share prices of many banks to record lows.

By sharing the risk of losses through its co-investment, the government hopes that it will be able to attract private capital, especially from pension funds, insurance companies and other long-term investors back into the market.

'It could be just what we need' to start the world's biggest economy on the slow road to recovery, said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. 'After all, what has been the major hurdle to allow the economic recovery to get started was the fear that the banking system was still frozen and would not be able to finance the recovery with the necessary credit flows.'

But the plan also came under fire from other economists, including Nobel laureate Paul Krugman, who argued that the government support is effectively a subsidy to encourage private investors to buy banks' unwanted assets for more than they are worth, using money from the public purse.

The latest proposal, wrote Mr Krugman in The New York Times, 'would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt'.

Here is Krugman's Op-Ed Piece criticising the Public-Private Investment Programme. Clear here that Krugman's recommends nationalisation of the banks.

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Let’s talk for a moment about the economics of the situation.

Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.

But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.

Another idea by one in one of the comments, John G...

"First, admit that the zombies are in fact dead and that they aren't coming back.

Second, come up with legislation to allow for their orderly termination through a government run receivership (not a bankruptcy) following the FDIC model for insolvent banks, extended to the holding companies.

Third, sell the assets off to existing banks and/or create new, smaller, banks to buy the assets. Distribute the customers (depositors) to these instiutions.

Finally, there will be some assets so toxic that nobody would take them, and there will be some liabilities that nobody will assume at a reasonable price. The government will have to retain these and deal with them over time.

The whole package could be financed by an issuance of 30 year bonds at what are historically low interest rates.

Who loses - the current bank management (who will lose their salaries, bonus payments, perks, and golden parachutes), the bond holders of the institutions (who will have to take a haircut, if not getting scalped), and the Wall Street crowd who saw a risk free opportunity to profit. Who profits - the American people."

Clustering as a Growth and Cost-cutting Strategy

Came across this and thought it was interesting - seems to help SMEs cut costs, build strength and grow, as well as increase chances of obtaining financing. Not sure if we already have something similar in place, if not, it could be something worth considering (:

Strength in Numbers

But beyond the principles of cash management, other bright ideas are also coming to light. Khuned Sachdev, who runs a small paper manufacturing joint venture in Indonesia, also heads iLaboratory, an incubator of Thai e-businesses. Undeterred by the collapse of the dot.com frenzy, he wants to bring the Silicon Valley concept of clusters to the island resort of Phuket. "You hear Phuket and you think tourists. But [some of] these tourists are staying there, and some of them are experts in Java and other programming languages," he says.

Under the clustering concept, a group of SMEs in similar ventures work together to combine their expertise and their bargaining power. A venture that designs golf clubs, for example, can work with one that makes them, and another that distributes them. The result is a more defined business prospect and strategy - an important confidence-building factor as far as banks are concerned. So far, Sachdev has gotten the support of entrepreneurs, and the curiosity of banks and investors, with his idea.

Clustering is not just for technology. Palanca, who heads various trade groups in the Philippines, says entrepreneurs in Negros, a flower growing region in the Philippines, is building a cluster along the lines of the Netherlands' tulip industry. "The idea is, we're not competing with each other even if we're into the same product; we're competing with somebody overseas," she says. "LetÕs group ourselves together, so instead of my buying, say, one yard of ribbon, we will buy five yards," adds Palanca. With the economies of scale, clusters should be able to get materials cheaper and borrow funds at lower cost. The idea is gaining support. The Philippine Chamber of Commerce and Industry, the largest trade group, has agreed to shortlist clusters and endorse them with banks - not a financial guarantee, but an assurance of quality.

US's initiative to help small business lending

The US has jumped on the bandwagon to help stimulate financing to small companies.

Key points of the initiative:
(i) $15bil in quantum
(ii) Govt to buy up small business loans backed by the SBA from banks
(iii) Increase risk-sharing from 75% to 90%
(iv) Reduce fees of the loans
(v) Increased bank reporting requirements to Govt
(vi) Top banks (in terms of SBA-backed lending) to publish loan amount to small businesses monthly


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link from businessweek, 16 mar 09
http://www.businessweek.com/bwdaily/dnflash/content/mar2009/db20090316_910298.htm?campaign_id=rss_smlbz

Is John Doerr Secretly Behind Friedman's VC Bailout?

John Carney|Feb. 23, 2009, 5:11 PM|11
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Tags: Investing, Venture Capital, Fred Wilson, GM, Chrysler, Green Tech

john-doerr_tbi.jpgSo who put the idea of injecting $20 billion of taxpayer money into venture capital firms in the head of Tom Friedman.

Connie Loizos at PE Hub thinks she knows: John Doerr of Kleiner Perkins Caufield & Byers. Doer is reportedly a close personal friend of Friedman. Doer is a a fan of Friedman's books. The two men even go on an annual cross country skiing trip.

Here's Loizos:

Why would John Doerr think $20 billion dollars from Uncle Sam is a good idea for his firm and its competitive peers? Consider that many of KP’s follow-on investors are in serious doo-doo right now. And potential sources of capital, especially of the kind that could once afford to contemplate the large cleantech projects that KP has taken to backing, looks to shrink further…

Apparently, the firm is having little problem securing new commitments; as of a couple of weeks ago, documents showed that the firm was nearly three-quarters of the way toward its overall target of $1.25 billion. But with every institution from Harvard to the finance department of Dubai hard hit by the global financial crisis, I doubt Doerr is taking anything for granted at this point.

In fact, I’d guess a $20 billion injection from the government to the “top 20 venture capital firms” is a proposal that Doerr could get behind, if he hasn’t already. After all, KP wants its companies to thrive and it can’t support them on its own — not if it wants to diversify its risk and maintain a balanced portfolio.

Yes, taxpayer dollars would likely come with some uncomfortable strings attached, but if a firm like Kleiner can strengthen its companies while also potentially providing returns for American taxpayers, why not?

This sounds plausible to us, although we wouldn't totally discount the notion that Friedman, anticipating a crunch hitting his VC friends, simply hatched the idea all on his own. What do you think?

Fortune Global 500 Companies

It is interesting to see where the world's largest companies are located.
Apart from the common names, we have many large companies hailing from France, the UK, Netherlands, S Korea and Switzerland. The 1 company from Singapore is Flextronics.

One interesting thing that we could possibly to do would be to normalise the number of enterprises by the population of the countries. There have been propositions that the reason why Singapore has not been able to grow huge local enterprises is due to the small size of the domestic market. However, countries such as Finland (pop 5 mil) and Ireland (pop 6 mil) have been able to produce companies such as Nokia and CRH (a construction company). Could it be the strong hinterlands that contribute to the growth of such companies? This should be further looked at.

[Pardon the formatting issues with the table!]

0

Australia 8 Austria 2 Belgium 5 Belgium 1 Brazil 5 Britain 34 Britain/Netherlands 1 Canada 14 China 29 Denmark 2 Finland 2 France 39 Germany 37 India 7 Ireland 2 Italy 10 Japan 64

Luxembourg 1 Malaysia 1 Mexico 5 Netherlands 13 Norway 2 Poland 1 Portugal 1 Russia 5 Saudi Arabia 1 Singapore 1 South Korea 15 Spain 11 Sweden 6 Switzerland 14 Taiwan 6 Thailand 1 Turkey 1 U.S. 153

Source: http://money.cnn.com/magazines/fortune/global500/2008/countries/

Malaysian Budget Financing Measures

Putting together the financing initiatives found in the Malaysian Mini Budget which was just rolled out:

First a brief summary
* RM60 billion for stimulus budget, almost 9% of the GDP, to be implemented in 2009 to 2010.

• RM15 billion is fiscal injection,
  
• RM25 billion guarantee funds
• RM10 billion equity investments
• RM7 billion private finance initiative (PFI) and off-budget projects, as well as
  
• RM3 billion in tax incentives.

Working Capital Gaurantee Scheme ($5bn)
The Credit Guarantee Corporation under Bank Negara Malaysia provides Skim Jaminan Usahawan Kecil to fund working capital of SMEs, with shareholder equity of less than RM3 million.To assist medium-sized companies access to working capital to finance operation during downturn. The maximum loan amount will be RM10 million with a maximum repayment period of five years. 80:20 default risk sharing. Eligibility raised to Malaysian companies with shareholders funds of less than RM20 million eligible (subsidiaries not eligible).

Industry Restructuring Loan Guarantee Scheme ($5bn)
The slower economic environment provides us with the opportunity to improve the economic structure of the nation and shift rapidly towards increased productivity and higher value-added activities, as well as promote greater use of green technology.

To accelerate this shift, the Government will set up an Industry Restructuring Guarantee Fund Scheme to provide loans increase productivity and value-added activities, as well as the application of green technology. Scheme for companies with shareholder equity less than RM20 million, the Government will provide a guarantee based on the ratio of 80:20, with Government guarantee of 80%, and the remaining 20% by financial institutions. For companies with shareholder equity of RM20 million or more, the guarantee ratio will be 50:50.

The maximum loan is RM50 million to be repaid within a period of 10 years.

Facilitating Access to Capital Market (Up to $15bn)
"Under the current market conditions, even companies with investment grade ratings are unable to access the capital market, particularly the bond market.

To assist and facilitate these companies access the bond market, the Government will establish a Financial Guarantee Institution to provide credit enhancement to companies that intend to raise funds from the bond market. This measure will also further develop the domestic bond market.

Bank Negara Malaysia will assist in the setting up of this institution. This government-owned company will have an initial paid-up capital of RM1 billion, which will subsequently be raised to RM2 billion. It is expected that bonds totalling RM15 billion will be raised under this facility."

Najib's speech is found here

How to give banks confidence to lend to businesses

Extracted from: http://www.ft.com/cms/s/0/d0f1dc16-cd20-11dd-9905-000077b07658.html

How to give banks confidence to lend to businesses
By Lucian Bebchuk and Itay Goldstein
Published: December 18 2008 19:26 Last updated: December 18 2008 19:26

An important aspect of the economic crisis has been the drying up of credit that US banks normally extend to Main Street companies. Borrowing by businesses remains costly and difficult, with spreads between yields on corporate bonds and treasuries at extremely high levels.
Why does credit fail to flow despite the infusion of so much additional capital into the financial sector? The Treasury has been arguing that banks still lack confidence and we just need to give them time to adjust. The chair of the congressional oversight panel has suggested that banks’ reluctance to lend reflects their rational assessment of borrowers’ bleak prospects. But there is a third explanation: banks may not be lending because of their self-fulfilling expectations that other banks will not lend.
In a modern economy, the prospects of businesses are likely to be interdependent, with each company’s success (and ability to repay) depending on whether other companies obtain financing. Companies commonly use components and services from other businesses and often sell their output to other companies or their employees.
Consider a bank choosing whether to lend to companies or park its capital in treasuries. Suppose that lending to any given company will generate an expected return of 10 per cent if other businesses obtain financing but an expected loss of 5 per cent if they do not. In such circumstances, the economy may get stuck in an inefficient credit freeze in which banks expect other banks to avoid lending and, given these expectations, rationally choose to hoard their capital to avoid the expected loss from lending when other banks do not.
Unfortunately, we cannot count on interest rate cuts and capital infusions into banks to get the economy out of such a credit freeze. Even if banks have ample capital and the yield on treasuries is barely positive, not lending and avoiding the 5 per cent expected loss will remain each bank’s rational choice as long as other banks are not lending.
Is there anything more the government could do? Yes, it can go beyond intervening at the level of the financial sector and intervene in lending to companies. It can take on itself some of the credit risks involved in extending substantial new lending to businesses.
Suppose that the government wishes to get at least $200bn (€140bn, £133bn) of additional lending to companies. Under one possible mechanism, the government would facilitate banks’ putting together a diversified portfolio of newly originated loans by agreeing to bear part of any losses to the portfolio in return for a share of the upside. In the example considered above, to induce banks to put together a portfolio of new loans it would be sufficient for the government to agree to bear any losses to the portfolio of up to 10 per cent of the value of the extended loans.
The share of the upside received by the government could be determined through a competitive process. Banks would submit bids indicating the share they would be willing to offer and the government would accept the highest offers that would collectively produce additional lending of $200bn.
Under an alternative mechanism, the government would place $200bn in a number of funds. Each would be run by a private manager charged with putting together a portfolio of loans and compensated with a share of the profits generated by the fund.
Under each of these mechanisms, the party putting together the portfolio of new loans (the bank or the fund’s manager) would have incentives to lend only to companies with good projects. And the government’s taking upon itself credit risks would directly lead to $200bn flowing to companies.
But the programme’s contribution to producing a credit thaw would go much beyond this direct effect. With many companies expected to receive financing, banks’ willingness to lend their own capital, which they might otherwise elect to hoard, would increase. Furthermore, to the extent that the programme would produce a credit thaw, the programme’s costs to the government would be limited, because the credit risks the government took upon itself would not materialise.
When capital infusions and interest rate cuts do not work, the mechanisms we propose might provide effective tools for unfreezing credit markets.
Lucian Bebchuk and Itay Goldstein, professors at Harvard and Wharton respectively, are co-authors of ‘Self-fulfilling Credit Market Freezes’, just issued by the Harvard Olin Center for Law, Econ­omics and Business

A fun read - Essential Characteristics of a Successful Entrepreneur

http://www.actioncoach.com/_downloads/whitepaper-FranchiseRep5.pdf

Ideas for Innovation

Extracted from Thomas D. Kuczmarski's article on BusinessWeek.

=========

Graduated Tax credits for R&D Investments
The more a company spends as a percentage of its sales on R&D, technology advancements, and other market-building activities, the greater the tax savings realized. By having this set up on a graduated scale, corporate taxpayers would have a strong incentive to invest more money in seed-planting today, a strategic practice that is often put off when companies are managing for the short term. Any U.S.-based company would be eligible for the break regardless of where its research is actually conducted. We'd still be better off for the added potential.

Intellectual Property Auction
Ocean Tomo, a Chicago financial firm, has established an auction system for intellectual property rights and patents. Businesses frequently have many more marketable ideas than the capacity to launch them. Whether it's conducted by the government or outsourced to a private company, a national IP auction would provide businesses with a secondary income stream, enabling them to get up-front cash or licensing fees for proven concepts, inventions, and prototypes that are otherwise sitting around unused. Additionally, these ideas would end up in the hands of businesses eager to take them to market.

Innovation Index Fund
We can help put private money to work stimulating business investment. How? By establishing a unit trust fund to attract public investment in innovation. The companies in the index would be ones who have been the most successful in the recent past, thanks to their innovation. Specifically, companies would be selected based on their financial performance, R&D investments, and creation of new technologies, categories, and markets. The key will be to select companies that innovate year-in, year-out as a core business strategy. Management fees would cover the costs of administering the fund. The benefits to investors will be higher returns and a collective investment in the future of our economic health.

=====================
Source
http://www.businessweek.com/innovate/content/mar2009/id2009039_554797.htm

Author: Thomas D. Kuczmarski is founder and president of Kuczmarski & Associates, an innovation consultancy based in Chicago. The author of five books, Kuczmarski has also taught product and service innovation at Northwestern University's Kellogg Graduate School of Management for 27 years.

Looking deeper at the G-20 stimulus plans

This is extracted from an article online: Assessing the G-20 Stimulus Plans: A Deeper Look by Eswar Prasad, Senior Fellow, Global Economy and Development.

Fiscal Stimulus Package (to stimulate domestic demand to rapid effect)

In an integrated world economy, the effectiveness of stimulus is contingent on how coordinated it is across countries. If the sizes of the stimulus packages (relative to domestic GDP) are very different across countries or if the effects of some countries’ stimulus packages are backloaded, then there could be “leakage” of stimulus from countries that act early and forcefully. By and large, policymakers in G-20 economies have acted on their leaders’ joint announcement in November 2008 to use fiscal stimulus in a concerted and coordinated manner to boost economic activity.

The significant figures

Measures for 2009 in the U.S. stimulus package amount to 1.9 percent of its 2008 GDP and the corresponding numbers for China and Japan are 2.1 percent and 1.4 percent, respectively. For the remaining G-20 economies, the total fiscal stimulus amounts to 1.0 percent of their overall GDP. Measures for 2010 in the U.S. stimulus package amount to 2.9 percent of 2008 GDP, China’s 2.3 percent, and Germany’s 2.0 percent.

In summary, while almost all countries have signed on to the fiscal stimulus program, the size of the stimulus varies substantially across countries, with some of the stimulus packages looking downright meek (e.g., France, which has proposed measures amounting to only 0.7 percent of GDP in 2009).

Tax cuts versus spending in stimulating domestic demand

Some countries—including Brazil, Russia and the U.K.—have focused almost entirely on tax cuts. Others—including Argentina, China and India—have mostly proposed spending measures. Among the G-20 countries excluding the U.S., about one-third of the stimulus is accounted for by tax cuts and the remainder by spending measures.

Different beliefs in length of recession

Of the 19 countries that make up the G-20, only four countries—China, Germany, Saudi Arabia, and the U.S.—plan to spend as much or more on stimulus (as a share of GDP) in 2010 than in 2009. In other words, there is a fair amount of frontloading in the stimulus packages of the G-20 countries, with much of the stimulus taking effect in 2009.

Questions to Ponder: In economies where the financial system has broken down and where monetary policy can no longer play much of a supporting role, how effective are the fiscal stimulus? Excessive government borrowing to finance large budget deficits could itself generate instability and there are serious concerns about medium-term sustainability of fiscal positions in economies that are building up public debt at a rapid pace.

Innovating the way out of the crisis?

A quick research online turns up many references to the Finnish economy as one that was able to successfully transform its industries from being resource-intensive to the high tech ones today that created Nokia and Linux Operating Systems.

This seems pretty much like an ordinary success story until one digs deeper and realises that this transformation was executed during one of the worst recessions that Finland (or any of the OECD countries since WWII) experienced. What Finland did was both "major industrial restructuring and building the attitudes of its citizens in favour of innovation". During the downturn, Finland's government's expenditure on R&D and education in all sectors increased.

Maybe it is during the worst crisis that such painful and large-scale transformations can take place swiftly. Innovation, in the case of Finland, clearly transformed the country into one of the top economies in the world today.

Some articles here and here for reading, from the UK National Endowment for Science, Technology and the Arts (NESTA).

Return on Design

I'm an avid follower of Seth Godin's blog. He has a very good post on the returns on design here. In the post, he grapples with the difficulty of measuring the returns on investment in design, and comes up with a four-tiered scale as a solution.

The interesting takeaway from this article is that the difficulty of measuring returns on such "soft" investments pervade many other areas critical to firms in the new knowledge economy today. Our old "hard" indicators of firm innovation that are focused on inputs (e.g. $ invested in R&D or IT) may no longer successfully capture the entire spectrum of innovation (e.g. business model innovation) that gives firms the edge nowadays. And as the saying goes, what gets measured gets done. To progress, we will have to begin identifying ways to measure these other aspects.

10 Tips to Save Costs

The Business Week website also has pretty good stuff on small businesses, and various articles. Good to be tracking some of these. They have pretty nice slide shows, like this 10 tips to save costs for small businesses...

1) Save Energy Costs
2) Telecommute
3) Pay Invoices Early
Take advantage of discounts suppliers offer for paying invoices early. Often trade terms offer 2% off for payment within 10 days.
4) Curb Travel Expenses
5) Find Cheaper Space
6) Buy 2nd hand
7) Barter goods and services with other businesses
8) Manage your inventory
9) Cut your tax bill
10) Audit Fix Assets
Clear your books of assets you no longer have to reduce your insurance bills and taxes

Blueprint to a Billion

One of our colleagues, SQ, received this book on his trip to Kaufmann Foundation last year. Finally got down to reading it, and here is a quick summary of some of the points in the book. There is however a great website here which you should check out.

1) Create and Sustain a Breakthrough Value Proposition

• Shapers of a New World, truly create new paradigm for their services and prods
  
• Niche Shapers, follow NWS with products and services that redefine specific market segment
  
• Category Killers, optimise with a better-faster-cheaper alternative
  

2) Exploit a High Growth Market Segment
What I found surprising here was that the top blue print industries were in service industries, not high-tech as one would expect. The top list goes (in descending order)... specialty stores, property and casualty insurance, health care facilities, data processing and outsourced services, healthcare services, regional banks, apparel retail, REITs. Surprising huh?


3) Rely on Maruqee Customers to Fuel their Revenue Powerhouse
- companies distinguished themselves with how they dwelt with their key customers, and how they got customers to sell for them.
e.g. Cisco landing Solomon Brothers
Marquee customers help by being

1. Product consumer by testing and deploying product
   
2. Codeveloping the value proposition making sure that it actually works
   
3. Serve as a reference to facilitate sales to their peers
   

4) Leverage on Big Brother Alliances for Breaking into New Markets
create complementary win-win relationships with their bigger counterparts.

5) Become Master's of Exponential Growth

6) Inside-Outside Leadership pairing of Management Team

7) Board Composition of Essential Experts