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Experts are always a problem. David Teece, writing on experts and the professional services firm, essentially starts with the following proposition: experts are impossible to manage and will never work for a traditional company. They’re tough to monitor, difficult to pay and they require special attention. But he started LECG.
Teece answers the implicit contradiction by suggesting an answer – something so simple, so elegant, we could consider it the fundamental theorem of compensation. It seems like it works. The stock hits $24 dollars a share. The market cap’s $800mm. And then poof – they’re trading at $3.40.
It begs the question: why did he stop with the equation? Why didn’t he keep the experts outside of the firm – create a virtual firm?
The problem of experts doesn’t seem stop with compensation. It may also be the nature of the firm.
Indeed, if the elegance of the equation obtains, should it not also set in motion the ability to scale expertise outside of the firm – as in a network of experts? And if it is an expert network, should it be defined by his fundamental theorem of compensation?
The problem of experts doesn’t seem stop with compensation. It may also be the nature of the firm. From Coase, whose organizing principle of the firm derives is based on price. It’s cheaper to organize as a firm, and as an employee, it’s better to listen to your boss because they know better. To Schumpeter, who considers the firm in terms of routines.
The trick is not to remove the toxic assets from the banks’ balance sheets but instead put them into a “side pocket,” as hedge funds are doing with their illiquid assets.
—Soros on an alternative to the bad bank option
Stimulus that works; serious foreclosure mitigation, including principal reduction; lower credit spreads – shrink those enormous interest-rate spreads (over Treasuries).
—Blinder’s wishlist on stimulus
Banks and brokerages worldwide have cut more than 250,000 jobs since the middle of 2007 as credit losses and write-offs caused the worst financial crisis since the Great Depression.
- GDP
- -3.8% : unadjusted
- Consumer spending dropped at a 3.5% annual rate, following a 3.8% drop in Q3
- -5.1% adjusted for the impact of inventories for pre-ordered goods
- Question: what does 4Q09 GDP look like?
- Fewer stores and fewer orders
- If they plan for flat demand, then…
- Inventories will build according to the -5.1% scenario, and
- GDP will be negatively impacted on a comparable, YoY, basis
- Short answer: we get a credit now from inventories that we have to pay for later
- Nonetheless — GDP was forecast to decline 5.5% in 4Q08
- -3.8% : unadjusted
- Unemployment — 7.2%, up from 4.9% a year earlier
- 524k workers cut in December, with total job cuts for 2008 at 2.6mm
- Business Investment
- Declined 19% at an annual rate in Q4, the most since 1975
- Investment in equipment and software dropped at a 28% pace, the most in 50 years
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Chicago PMI — 33.3
- New orders: dwon from 31.5 to 30.7
- Production: down from 32.4 to 29.7
- Raw Materials: increased from 32.7 to 39.8
- Order Backlogs: increased from 26.3 to 26.5
It looks like the economy carried a lot of negative momentum into the first quarter
—Former Federal Reserve Governor Laurence Meyer
You have to realize the size of the problem confronting us today is significantly larger than in the ‘30s. The situation will continue to deteriorate.
I’m appealing to your sense of fairness. I did a lot of things that were mostly right.
“Many analysts predict the economy will have contracted at a pace of 5.4 percent in the fourth quarter when the government releases that report on Friday. If they are correct, that would mark the worst performance since a 6.4 percent drop in the first quarter of 1982.”
- GDP decline peaked in 1Q1982 at -6.4%
- The market declined from January through March, staged a mini-rally in April and May, bottomed at 776.92 in August 1982, and roared back
In response to a quote from a Harvard faculty report on the aims of education:
The aim of a liberal education is to unsettle presumptions, to defamiliarize the familiar, to reveal what is going on beneath and behind appearances, to disorient young people and to help them to find ways to reorient themselves.
….
Institutions do all the things that are supposed to be bad. They impede personal exploration. They enforce conformity.
But they often save us from our weaknesses and give meaning to life.
—David Brooks, What Life Asks of Us
…but it’s more complicated than that
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