post

Technology and the Credit Crisis

Cutting costs and leveraging technology is a smarter play right now than ever before. My bride and I have slashed our personal and business costs, are foregoing major expenditures, strategically planning for tighter times, and are focusing our client engagements in the same direction.

There is a tremendous amount of information about the credit crisis, but this morning I came across this article (scroll down for article) about the size of the problem:

Bridgewater Associates is estimating that the costs of the credit crisis may be a lot higher than previously assume at a staggering $1.6 trillion. At the current time, approximately $400 billion has been accounted for and writedowns taken. The International Monetary Fund (IMF) has estimated a cost of just under $1 trillion, Goldman Sachs at $1.1 trillion, and hedge fund manager John Paulson at $1.3 trillion. The analysis by Bridgewater was dug up by this Swiss newspaper.

Gulp.

The magnitude of this problem, its intricacies and the complexities of the global monetary system is beyond my ability to understand or control — and I’ll wager you’re in the same boat. What I can control is my preparedness and the strategic steps taken to guard against devastating losses.

We’ve taken a lot of tactical steps: from no debt, to ordering a 2009 Prius for its gas mileage, to the investments we’re choosing and even things like moving from shipment of products to digitally delivering those we can. There are even times we’ve delivered talks online that previously we would’ve delivered in person, primarily due to the venue wanting to save money as transportation costs have risen.

With the acceleration of web applications to mobile telephone and broadband speeds, there’s no better time to begin to examine parts of your business or personal lives that could be slightly modified and be delivered virtually. I’m not recommending you stop traveling and use webinar technology in its place, for example, but instead replace one trip. The bonus is you’ll also learn how to use it, if it is effective (and how to make it so) and whether or not it actually saves money.

The point is to plan….now.

About Steve Borsch

I'm CEO of Marketing Directions, Inc., a trend forecasting, consulting and publishing firm in Minnesota. Prior to that I was Vice President, Strategic Alliances at Lawson Software in St. Paul where I was responsible for all partnerships at this major vendor of enterprise resource planning software products and services. Read more about me here unless you're already weary of me telling you how incredible and awesome I am.

Comments

  1. I’m not sure that businesses need to cut costs as much as they need to invest smarter. They can definitely leverage technology to drive efficiency and promote mobility in the organization. Technology companies that help businesses work smarter are absolutely booming today.

    I don’t believe it is the right time to pull back innovation or growth strategies. Focus on reducing waste in the organization — whether that means energy, materials, or time.

    Most of the wealth that Americans lost was due to declining home values. This type of wealth was more perception than reality. The real problem is that the government is bailing out some of the Houses of Cards that were built on this funny money.

    Thanks for the blog!

  2. Nice post. On a related note, I know of several people who have, over the last 5 or 6 years, financed the deficit between their after tax income and their expenses using home equity loans. Over that period of time they were continually bailed out by increases in the equity in their homes. However hat game is over, and they are ALL in denial about the situations that they find themselves in. Some of them are now upside down on their high six figure homes and can’t borrow any more $ to finance their ongoing family deficits. Six months ago these were confident people, now they’re freaking out. Pretty soon it’s going to be asset liquidation time. Unfortunately this scenario is unfolding all across the country and is a very large potential time bomb.

    These people don’t have sub-prime mortgages and in all cases have very good credit ratings. Some are being proactive about marginal expenses, but at this point it’s like putting your finger in the proverbial dam expecting it to stop an inevitable collapse. Trying to reconcile a multi-thousand $ monthly family deficit by trying to save $100 a month by not eating out as often is like thinking you’re going to make your mortgage payments every month by digging in the cushions of your sofa for change. Ain’t gonna happen.

    Additionally, unless the price of natural gas falls dramatically between now and this winter consumers will all see this coming winter’s heating bills approaching or exceeding 150% of last years costs.

    The only hope I see is if the dollar strengthens over the next few months. The biggest benefit is this scenario is that the price of crude oil could easily fall by $20 or $30. That still wont be enough however to counterbalance the inevitable consequences of 7+ years of cheap credit and household financial mismanagement.

    With all these overhanging issues, there’s a very good chance that consumer spending will slow markedly and consumer confidence will continue to fall going in to the election.

    What’s the message? Get ready for a national belt-tightening, and it isn’t going to be pretty. On the flip side, those with cash on hand will find very attractive opportunities in the U.S. stock market in late ’08 or early ’09.

  3. Jeff — Couldn’t agree more.

    In late 2006, I was reading an article in The Wall Street Journal on how home equity percentages had fallen from the 60th percentile to the low 30′s over the last five years. As I pondered that, I realized that all my suspicions had been confirmed: the fueling of the economy post-9/11 was done by refinancing and pulling money out of home equity for cars, HDTV’s, etc.

    People don’t really realize what a precarious position our current Administration has placed us in. From alleged $3-6 TRILLION in debt (which could’ve financed all highway infrastructure needed repairs, given us national healthcare *and* shored up Social Security) to the plummeting dollar, we’re in pretty bad shape.

    Of course, the protestations of “History will be my judge” from President Bush is all about how those trillions spent would be a moot point — more so the complete collapse of the US economy and, subsequently, the worlds — if *we* don’t get our fair share of oil and the Chinese and Indians do since it will take decades to ween the US off of our ‘addiction’ to oil.

    To which I call “bullsh*t” since there has been ZERO leadership on alternative energy, conservation measures, or anything else.

Leave a Comment