About Chander Chawla
Chander Chawla is the Founder and CEO of Mjedi, a company focused on Mobile Social Commerce. Chander is well established in the wireless industry and is known for his accomplishments, which include growing the T-Mobile WiFi business by 4,000% and accelerating the adoption of 3G in the U.S., among others.
Prior to starting his own company, Chander managed T-Mobile’s $600M International business. During his 5 years at T-Mobile, he held various positions in marketing and regularly consulted with advertising firms such as Publicis, Wongdoody, Avenue A, and Waggener Edstrom to develop marketing strategies for new T-Mobile products and new service launches. He has a bachelor's degree in Electrical Engineering from India and he received his MBA from the University of Miami.
Latest Posts by Chander Chawla
Ludwig Van Beethoven
(1770 – 1827) was one of the most innovative figures in the music history. I recently finished taking a class on Beethoven at Stanford taught by a brilliant music scholar, Stephen Hinton. The class was a fascinating journey into Beethoven’s nine symphonies and into his life.
Beethoven played a key role in evolution of symphonies from classical period (1760 – 1820) to Romantic period (1820 – 1918). Following are a few key innovations he was responsible for:
1. Movements: A classical period symphony has three or four movements. They are usually in the sequence of Fast -> Medium -> Dance -> Fast tempo. The three-movement classical period symphonies follow Fast -> Medium -> Fast tempo. Beethoven experimented with and popularized the following in the Romantic period:
Beethoven created new movement sequences and gave the composer more freedom.
2. Symphony length: In the classical period most symphonies were around 30-minute long. There was a big uproar in the music world when Beethoven performed his Third Symphony
which is 50-minute long. People thought that it was too long. And, Beethoven’s Ninth Symphony is 64.5-minute long [there are variations of this score which are longer]. In the romantic period most symphonies were 45-60-minute long.
Beethoven changed the idea of how long a symphony should be.
3. Relationship of movements: I was surprised to learn that up to the classical period, the symphony was not performed as one piece of music. Symphonies were performed more like a variety show. After every movement there was another act like singing or juggling or some other form of entertainment. There was almost no relationship between different movements.
Each movement was considered a separate “state of the soul”. Beethoven led the change in romantic period when he started performing the entire symphony as piece of music and separation of movements became uncommon. Furthermore, there was a narrative across movements in Beethoven later symphonies.
Beethoven changed the relationship between movements of a symphony.
4. Meaning of symphony: In the classical period, the meaning of a symphony was not specified. The prevailing idea at the time was “leave it to the listener” so it won’t fetter response. Symphonies did not have titles in the classical period. I think it would have been tough to assign meaning to a piece of music that is not performed as one piece and was interrupted by juggling etc. Beethoven often gave his symphonies descriptive titles and there was a “story” associated with symphonies in the romantic era. For example, Beethoven’s Ninth Symphony is titled Ode to Joy and Fifth Symphony is titled Fate and Third Symphony is titled Eroica.
Beethoven gave meaning to symphony.
5. Size of orchestra: In classical period, the orchestra size was ~40. Led by Beethoven, in romantic period, it grew to ~80-100.
Beethoven doubled the orchestra size allowing the composer for more creative expression.
6. Kinds of instruments: Main instruments during the classical period were gut strings, natural horns, classical woodwinds, and limited percussion. Beethoven introduced modern versions of the old instruments. For example, horns with valves. And, he introduced voices. Beethoven Ninth Symphony was the first popular symphony to include human voice. Hence, popularizing the music genre Choral Symphony. [Hector Berlioz was the first to use vocals in a symphony. Any French person would point it out to you]
Beethoven introduced new musical instruments to the symphony.
7. Silence during performance: Prior to Beethoven it was common for people to talk during the performance of a symphony. Maybe because it was more of variety show. Beethoven required the audience to be silent and get immersed in the music and he raised the profile of the conductor. Before Beethoven it was not uncommon for the symphonies to be performed without a conductor.
Beethoven changed the audience experience during the performance of a symphony.
There were other technical innovations Beethoven was responsible for related to measure numbers, music sections like codas which I did not understand enough to describe. I think I need to take Music 101 again.
There are more interesting things about Beethoven and his symphonies. See:
Beethoven started going deaf at the ago of 26, by the time he composed his Fifth Symphony he was partially deaf and when he composed his Ninth Symphony he was completely deaf. Critics say that he was composing music by visualizing it and hence it is difficult to perform the Ninth Symphony in the original measure numbers and tempos. That is why you see the Ninth Symphony performance can vary from 65 minutes to 79 minutes.
When the development of audio CD was being led by Sony and Philips, the Sony executive, Norio Ohga, determined that a single CD should be able to play London Philharmonic Orchestra’s recording of Beethoven’s Ninth Symphony in its entirety. Hence, the length of the first audio CDs was ~74 minutes.
Leonard Bernstein conducted Beethoven’s Ninth Symphony at the Brandenburg Gate to celebrate the fall of the Berlin Wall.
It is a Japanse tradition to play Beethoven’s Ninth Symphony during New Year Eve celebrations.
Beethoven’s Ninth Symphony is the European Union’s anthem.
Beethoven’s Ninth Symphony opened the London Olympics.
I think the classical music world was under the spell of Beethoven until Stravinsky’s The Rite of Spring was performed on May 29th, 1913 at Theatre des Champs-Elysees in Paris.
Photo credit: algemeiner.com
Recently, I bought some JP Morgan
stock [NYSE: JPM]. Following my hero, Charlie Munger’s
advice, I did do my homework before purchasing the equity. Part of my homework was to read Jamie Dimon’s
letter to JPM shareholders. It is a very interesting read. I was impressed with the clarity and detail Mr. Dimon outlined how he thinks about developing leaders for a multinational corporation. I practically agree with everything he said in the letter. Following is the edited version of Mr. Dimon’s thoughts on leadership:
Leadership is an honor, a privilege and a deep obligation. When leaders make mistakes, a lot of people can get hurt. Being true to oneself and avoiding self-deception are as important to a leader as having people to turn to for thoughtful, unbiased advice. Emotional Quotient [EQ] matters in management. EQ can include empathy, clarity of thought, compassion and strength of character.
Good people want to work for good leaders. Bad leaders can drive out almost anyone who’s good because they are corrosive to an organization; and since many are manipulative and deceptive, it often is a challenge to find them and root them out.
Below are some essential hallmarks of a good leader. While we can not be great at all of these traits, to be successful, a leader needs to get most of them right.
1. Discipline: This means holding regular business reviews, talent reviews and team meetings and constantly striving for improvement – from having a strong work ethic to making lists and doing real, detailed follow-up. Leadership is like exercise; the effect has to be sustained for it to do any good.
2. Fortitude: This attribute is often missing in leaders: They need to have a fierce resolve to act. It means driving change, fighting bureaucracy and politices and taking ownership and responsibility.
3. High Standards: Abraham Lincoln said, “Things may come to those who wait…but only the things left by those who hustle.” Leaders must set high standards of performance all the time, at a detailed level and with a real sense of urgency. Leaders must compare themselves with the best. Huge institutions have a tendency toward slowing things down, which demands that leaders push forward constantly. Ture leaders must set the highest standards of integrity- those standards are not embedded in the business but require conscious choices.
4. Ability to face facts: In a cold-blooded honest way, leaders emphasize the negatives at management meetings and focus on what can be improved.
5. Openness: Sharing information all the time is vital – we should debate the issues and alternative approaches, not the facts. The best leaders kill bureaucracy – it can cripple an organization – and watch for signs of politics, like sidebar meetings after the real meeting because people wouldn’t speak their mind at the right time.
6. Setup for success: An effective leader makes sure all the right people are in the room – from Legal, Systems and Operations to Human Resources, Finance and Risk. It’s necessary to set up the right structure. When tri-heads report to co-heads, all decisions become political – a setup for failure, not success.
7. Morale-building: High morale is developed through fixing problems, dealing directly and honestly with issues, earning respect and winning. It does not come from overpaying people or delivering sweet talk, which permits the avoidance of hard decision making and fosters passive-aggressive behaviors.
8. Loyalty, meritocracy and teamwork: Loyalty should be to the principles for which someone stands and to the institution: Loyalty to an individual frequently is another form of cronyism. Leaders demand a lot from their employees and should be loyal to them – but loyalty and mutual respect are two-way streets. Loyalty to employees does not mean that a manager owes them a particular job. Loyalty to employees means building a healthy, vibrant company; telling them the truth; and giving them meaningful work, training and opportunities. If employees fall down, we should get them the help they need.
Meritocracy and teamwork are also critical but frequently misunderstood. Meritocracy means putting the best person in the job, which promotes a sense of justice in the organization rather than appearance of cynicism: “Here we go again, taking care of their friends.” Teamwork is important and often code for “getting along,” equally important is an individual’s ability to have the courage to stand alone and do the right thing.
9. Fair treatment: The best leaders treat all people properly and respectfully, from clerks to CEOs. Everyone needs to help everyone else at the company because everyone’s collective purpose is to serve clients.
10. Humility: Leaders need to acknowledge those who came before them and helped shape the enterprise – it’s not all their own doing. There ‘s a lot of luck involved in anyone’s success, and a little humility is important. The overall goal must be to build a great company – then we can do more for our employees, our customers, and our communities.
The grey area of leadership
There are many aspects of the leadership process that are open for interpretation. This grey area contributes to the complexity of the challenges and leaders – and those who govern them – face.
1. Successful leaders are hard to find
While there are possibly innate and genetic parts of leadership (perhaps broad intelligence and natural energy), other parts ar deeply embedded in internal values of an individual; for example, work ethic, integrity, knowledge and good judgement. Many leaders have worked their entire lives to get where they are, and while perhaps some achieved their stature through accident or politics, that is not true for most. Anyone on a team knows when he or she encounters the rare combination of emotional skill, integrity and knowledge that makes a leader.
2. Successful leaders are working to build something
Leaders want to build something of which they can be proud. They usually work hard, not because they must but because they want to do so; they set high standards because as long as leaders are going to do something they are going to do the best they can. Leaders believe in things larger than themselves, and the highest obligation is to the team or the organization. Leaders demand loyalty, not to themselves but to the cause for which they stand.
3. Compensation matters
Money should not be the primary motivation for leaders but it is not realistic to say that compensation should not count at any level. People have responsibilities to themselves and to their families. They also have a deep sense of “compensation justice,” which means they often are upset when they feel they are not fairly compensated against peers both within and outside the company. There are markets for talent just like products, and a company must pay a reasonable price to compete.
4. Big business needs entrepreneurs, too
Free enterprise, entrepreneurship and pursuit of happiness also exist in most large enterprises. Without the capacity to innovate, respond to new and rapidly changing markets, and anticipate enormous challenges, large companies would cease to exist. The people who achieve these objectes want to be compensated fairly, just as they would be if they had built a successful startup.
5. Performance isn’t always easy to judge
Managers responsible for businesses must necessarily evaluate individuals along a spectrum of factors. Did these individuals act with integrity? Did they hire and train good people? Did they build the systems and products that will strengthen the company, not just in the current year but in future years? Did they develop real management teams? In essence, are they building something with sustainable long-term value? Making these determinations requires courage and judgement.
6. Sometimes leaders should be supported and paid even when a unit does poorly
If a company’s largest, and perhaps most important, business unit is under enormous stress and strain, unlikely to make earn money regardless of who is running it, a manager might ask his best leader to take on the job. This may be toughest job in the company, one that will take years to work through before the ship has been rightened. When the manager asks a leader to take on the responsibility, she quite appropriately will want to know whether she will be supported in the toughest of times: “Will you make sure the organization doesn’t desert me?” “Will you stop the politics of people using my unit’s poor performance against me?” “Will you compensate me fairly?” The answer to all these questions should be yes. And, as long as she was doing a good job, she should be paid like the best leaders in the organization, profits aside. Conversely, we all know that a rising tide lifts all boats. When that’s the case, paying that leader too much is possibly the worst thing one can do – because it teaches people the wrong lesson.
Yesterday was the last day to legally buy and sell foie gras
in California. Will the French stop visiting California?
Cultures fascinate me. How do they develop? How do they change? How the meaning of an action is different in different cultures? Why people are not very good at seeing things from another perspective (influenced by another culture)?
To continue learning about cultures, I just finished reading a book - Figuring Foreigners Out
-which gives very pragmatic advice on understanding and adapting to new cultures. Thanks to my teacher, Donna Stringer
, for recommending the book. Following are some edited excepts that explain fundamentals of culture:
1. Culture. What is it exactly? Culture is describes as the shared assumptions, values, and beliefs of a group of people which result in characteristic behaviors. And, cultural generalizations are necessarily statements of likelihood and potential, not of certainty.
2. Behavior: An instance of behavior has no particular meaning other than what the people who witness that behavior assign to it. Behavior means what we decide it means – very often it means nothing at all.
3. Polar Opposites: If all human behavior were put on a continuem, the part related to culture would fall in the middle, between universal at one extreme and personal at the other.
4. Building Blocks: there are four building blocks for culture:
- Concept of self: individualist and collectivist
- Personal vs societal responsibility: universalist and particularist
- Concept of time: monochronic and polychornic
- Locus of control: internal and external
- Let’s look at these blocks one by one.
- Individualist: The smallest unit of survival is the individual. People identify primarily with self, and the needs of the individual are satisfied before those of the group. Looking after and taking care of oneself, being self-sufficient, guarantees the well-being of the group. Independence and self-reliance are stressed and greatly valued, personal freedom is highly desired. In general, there is more psychological distance from others. One may choose to join groups, but group membership is not essential to one’s identity, survival or success.
- US is a good example of an Individualist culture.
- Collectivist: The primary group, usually the immediate family, is the smallest unit of survival. One’s identity is in large part a function of one’s membership and role in a group (e.g., the family, the work team). The survival and success of the group ensures the well-being of the individual, so that by considering the needs and feelings of others, one protects oneself. Harmony and interdependence of group members are stressed and valued. There is relatively little psychological or emotional distance between group members, though there is more distance between group (ingroup)and non-group members (outgroup).
China is a good example of a Collectivist culture.
A lot of cultures fall between the continuem where individualist and collectivist are the opposite poles.
- Universalism: There are certain absolutes that apply across the board, regardless of circumstances or the particular situation. What is right is always right. Wherever possible, one should try to apply the same rules to everyone in like situations. To be fair is to treat everyone alike and not make exceptions for family, friends, or members of one’s ingroup. In general, ingroup/outgroup distinctions are minimized. Where possible, one should lay one’s personal feelings aside and look at situations objectively. Where life isn’t fair, one can make it more fair by treating everyone the same.
Germany is a good example of a Universalist culture.
- Particularism: How you behave in a given situation depends on circumstances. What is right in one situation may not be right in another. You treat family, friends, and your ingroups the best you can, and you let the rest of the world take care of itself. (Their ingroups will protect them.) One’s ingroups and outgroups are clearly distinguished. There will always be exceptions made for certain people. To be fair is to treat everyone as unique. In any case, on one expects life to be fair. Personal feelings should not be laid aside but rather relied upon.
Certain parts of Africa is a good example of a Particularist culture.
A lot of cultures fall between the continuem where Universalist and Particularist are the opposite poles.
- Monochronic: Time is a commodity; it is quantifiable and and there is limited amount of it. Therefore, it is necessary to use time wisely and not waste it. There is a premium on efficiency, hence a sense of urgency in may matters. Time is the given and people are variable; the needs of people are adjusted to suit the demands of time (schedules, deadlines, etc.). It is considered most efficient to do one thing at a time or wait on one person at a time. As far as possibile, you shouldn’t let circumstances, unforeseen events, interfere with your plans. Interruptions are a nuisance.
US is a good example of a Monochronic culture.
- Polychronic: Time is limitless and not quantifiable. There is always more time, and people are never too busy. Time is the servant and tool of people and is adjusted to suit the needs of people. Schedules and deadlines often get changed. People may may have to do several things simultaneously, as required by circumstances. It’s not necessary to finish one thing before starting another, nor to finish your business with one person before starting in with another. One always has to take circumstances into account and make adjustments. Strictly speaking, there’s no such thing as an interruption.
Mexico is a good example of a Polychronic culture.
A lot of cultures fall between the continuem where Monochronic and Polychronic are the opposite poles.
- Internal: The locus of control is largely internal, within the individual. There are very few givens in life, few things or circumstances which have to be accepted as they are and cannot be changed. There are no limits on what you can do or become, so long as you set your mind to it and make the necessary effort. Your success is your own achievement. You are responsible for what happens to you. Life is what you do; hence, these represent more activist cultures.
- US is a good example of an Internal culture.
- External: The locus of control is largely external to the individual. Some things in life are predetermined, built into the nature of things. There are limits beyond which one cannot go and certain givens that cannot be changed and must he accepted. (“That’s just the way things are.”) Your success is a combination of your effort and your good fortune. Life is in large part what happens to you; thus, these represent more fatalist cultures.
- Middle East is a good example of an External culture.
A lot of cultures fall between the continuem where Internal and External are the opposite poles.
In cross-cultural communication, whether the message you send is the one that gets received and whether the message you receive is the one that was sent are no longer forgone conclusions.
How does one communicate effectively in cross-cultural environment
? The differences between the directness and indirectness, probably account for more cross-cultural misunderstanding than any other single factor. The directness and indirectness are described below:
- Indirect (High Context): People in these cultures tend to infer, suggest, and imply rather than say things directly. At least that is how they appear to people from more direct cultures – though not, of course, to each other. These cultures tend to be collectivist, where harmony and saving face are the greatest goods.; hence, there is a natural tendency toward indirectness and away from confrontation. In collectivist cultures, ingroups are well established and members have an intuitive understanding of each other, in part because of shared experiences. This means that as a rule people don’t need to spell things out or say very much to get their message across. This intuitive understanding is known as context (in this context:-)) , and in high-context cultures messages often don’t even need words to be expressed; non-verbal communication may be enough, or the message may be expressed in terms of what is not said or done. The goal of most communication exchanges is preserving and strengthening the relationship with the other person.
Japan is a good example of an Indirect communication culture.
- Direct (Low Context): Direct cultures tend to be less collectivist and more individualist than indirect cultures, with less well-developed ingroups. People lead more independent lives and have fewer shared experiences; hence, there is less instinctive understanding of others. People need to spell things out and be more explicit, to say exactly what they mean rather than merely suggest of imply. There is less context, less that can be taken for granted. The spoken word carries most of the meaning; you should not read anything into what is not said or done. The goal of most communication exchanges is getting or giving information.
Germany is a good example of a Direct communication culture.
A lot of cultures fall between the continuem where Indirect and Direct communication styles are the opposite poles.
10. The Whole Living Self:
to realize it takes all sorts to make a world, one must have seen a certain numbers of the sorts with one’s own eyes. There is all the difference in the world between believing academically, with the intellect, and believing personally, with the whole living self. – Aldous Huxley
, my hero, handed out the following parody at ” A Morning with Charlie” in Pasadena, California on July 1, 2011 (formerly, this annual gathering with Charlie was known as Wesco Financial Annual Shareholder meeting). The parody identifies the causes of the recent financial crises in the US. Most “experts” have not been able to do that. Furthermore, it offers valuable lessons in human behavior, economics, accounting, and morality. I am still laughing after having read the story twice:-).
In the country of Boneheadia there was a man, Wantmore, who earned his income as a home mortgage loan originator. Wantmore operated conservatively. All his home loans bore interest rates of 6% or less, and he demanded of all borrowers large down payments, documented proof of adequate income and an immaculate credit-using history. Wantmore sold all his loans to life Insurance companies that, before closing purchases, checked loan quality with rigor—then held all loans to maturity.
As Wantmore prospered, he eventually attracted the attention of Tweakmore, a very bold and ingenious investment banker. There was no other investment banker quite like Tweakmore, even in the United States. Tweakmore had become the richest person in Boneheadia, driven by an insight that had come to him when, as a college student, he had visited a collection of hotels that contained gambling casinos located in a desert.
As Tweakmore saw immense amounts of cash pouring into cashiers’ cages surrounded by endless sand, in business operations that did not tie up any capital in inventories, receivables, or manufacturing equipment, he realized immediately that he was looking at the best business model in the world, provided one could also eliminate commitment of any capital or expense to hotel rooms, restaurants, or facilities providing parking or entertainment. Tweakmore also saw exactly how he could create for himself an operation that possessed all the characteristics of his ideal business. All he had to do was add to investment banking a lot of activities that were the functional equivalent of casino gambling, with the bank having the traditional “house advantage.” Such casino-type activities, masked by respectable sounding labels, Tweakmore foresaw, could easily grow to dwarfall the action in ordinary casinos. Determined to create and own his ideal business as fast as possible, Tweakmore quit college and entered investment banking.
Within twelve years, Tweakmore was the most important investment banker in Boneheadia Tweakmore rose so rapidly because he was very successful in convincing regulators and legislators to enlarge what was permissible. Indeed, by the time Tweakmore called on Wantmore, any investment bank in Boneheadia could invent and trade in any bets it wished, provided they were called “derivatives” designed to make counter parties feel better about total financial risks in their lives, outcomes that automatically happened. Moreover, an investment bank faced no limit on the amount of financial leverage it employed in trading or investing in derivatives or anything else.
Also, Tweakmore had obtained permission to use ”Mark-To-Model” accounting that enabled each bank to report in its derivative book whatever profit it desired to report. As a result, almost every investment bank claimed ever—growing profits and had ownership of assets totaling at least thirty times an ever—swelling reported net worth. And despite a vast expansion of transaction—clearance risk, no big mess had so far occurred.
Tweakmore was pleased, but not satished, by what he had accomplished. And he now planned to revolutionize Boneheadia’s home mortgage loan business in a manner that would make Tweakmore a national hero. In his first proposal to Wantmore, Tweakmore held much of his ingenuity in reserver. All he proposed was that Wantmore hereafter sell all his home loans to Tweakmore at a higher price than life insurers would pay. Tweakmore said that he planned to put all loans into trusts with no other assets.
Each trust would be divided into five “tranches” with different priorities in use of loan payments. Four tranches would use their shares of loan payments to pay off complex new fixed interest-bearing, freely-tradable debt instruments, called CDOs . The fifth tranch got a tiny residue in case all home loan payments were received as due. The CDOs would be sold by Tweakmore, using a highly—paid sales force, to anyone who could be induced to buy, even highly—leveraged speculators and small Scandinavian cities in the Arctic.
To Wantmore, Tweakmore’s proposal at first appeared unfeasible. The planned operation seemed to resemble the operation of a meat vendor who routinely bought 1000 pounds ofchuck roast, sliced it up, and then sold 950 pounds as filet mignon and the balance as dog food. But Wantmore’s doubts melted away when Tweakmore revealed how much he would pay.
Under the offered terms, Wantmore would double his income, something Tweakmore could easily afford because his own income was going to be three times that of Wantmore. After Wantmore accepted Tweakmore’s proposal, everything worked out exactly as Tweakmore had planned, because buyers of CDOs in aggregate paid much more than the life insurers had formerly paid. Even so, Wantmore, as he became familiar with Tweakmore’s prosperity, was soon dissatisfied with a merely doubled income. With Wantmore restive, Tweakmore now displayed the full range of his ingenuity.
What Tweakmore next proposed was that Wantmore add to his product line a new class of “subprime, pay-what-you-wish” home mortgage loans. All loans would bear interest at 7.5% or more, and borrowers would not he allowed to state anything except that they wanted the money. There would be no down payments and no credit checks or the like. Also, each loan would be very user—friendly in its first three years, during which the borrower could make only tiny payments with all unpaid interest being added to principal. After three years, very onerous loan service was required, designed to pay off the greatly swollen principal, plus all interest, over the next five years.
Ths proposal would have seemed preposterous, even hilariously satirical, if it had been presented to Wantmnre when Tweaknwre had first called. But by now Wantmore had doubled his income by going along with a peculiar idea of Tweakmore’s. So Wantmore’s credulity was easily stretched to allow acceptance of the new loan product, which Tweakmore projected would triple Wantmore’s already doubled income.
lt is easy to see why Wantmore became a “true believer” in the new loan product. But why did the already super-rich, prominent, and sophisticated Tweakmore believe his revised scheme would work safely and well for him? Well, we know the answer. As Tweakmore revealed in his prideful autobiography, his thought process was as follows:
1. There would be no significant troubles during the first three years. Under the accounting standards of Boneheadia, all its accountants would be required for a long time to reserve no loan—loss provision at all against unpaid principal and unpaid interest on the new loans. And CDOs would be valued highly in trading markets because underlying loans were booked at unreasonably high value. It wouldn’t matter that home buyers were making no down payments, had no personal liability at any time, and paid only a tiny portlon of interest accrued for three years. It also wouldn’t matter that any competent inquiry would have revealed extreme past improvidence on the part of most borrowers.
2. House prices in Boneheadia would not merely rise as they had done before. Prices would rise much faster as more and more people learned they could bid to acquire homes without using any oftheir own money, no matter how poor were their credit-using histories.
3. All the buyers of new CDOs would have a near perfect investment experience. Ever-rising house prices would cause full payment of all mortgage debt as due. The market for the new CDOs would expand and expand as investors reliably earned much more interest than they could get elsewhere. House prices in Boneheadia would rise faster and faster as the scheme fed on itself in a runaway feedback mode.
4. True, after the first three years many over-stretched home buyers were sure to suffer somewhat as they were forced, by threats of foreclosure, to sell their homes. This would often cost them their credit and the respect of their children, friends, and employers, but that would be the only trouble, and it would prove endurable by Tweakmore and everyone else, except the people forced out of homes.
5. The runaway feedback mode that drove up house prices would cause no significant trouble for decades, as had happened in Japan where a big bust in real estate prices occurred only after the Imperial Palace grounds in Tokyo were apparently worth more than the market value of the entire state of California.
6. The principles of economics would give the scheme a large tailwind and considerable popularity. As Tweakmore, a former student in elementary economics, knew from studying Galbraith, a large undisclosed embezzlement strongly stimulates spending because the perpetrator is much richer and the victim spends as before because he does not yet feel poorer. And what Tweakmore was creating was the functional equivalent of a long-running undisclosed embezzlement on steroids. The perpetrators would not be the only ones to spend more, as typically occurs during ordinary embezzlements. The CDO—buying victims also would spend more as they believed they were getting richer and richer from ever-growing paper gains embodied in accrual of interest at above normal rates.
7. To be sure, the scheme looked a little like a chain-letter scheme, and such schemes were usually ill regarded by prospective users, partly because the schemes were criminal and partly because the schemes always blew up so quickly, bringing criminal troubles so soon. Tweakmore’s scheme, in contrast, would, by design, be lawful and benevolent, and recognized as such, because it would create big macroeconomic stimulus as a public good.
8. And should the scheme eventually blow up alter decades, like the land-price bubble in lapan, who could fairly blame Tweakrnore? Nothing lasts forever. Besides, the blcwup might be lost in a miasma of other blowups like those sure to come in many irresponsible countries and subdivisions of countries.
Tweakmore’s revised scheme worked fantastically well for a considerable period. Naturally, there were some glitches, but Tweakmore turned each glitch into an opportunity to boost profit. For instance, when Wantmore was made nervous as hordes of scumball salesmen were drawn into his business by rich commissions paid for production of easy-to-sell ”subprime” pay-what-you-wish home loans, Tweakmore responded by buying Wantmore’s business. Then Tweakmore replaced Wantmore with a new CEO, Totalscum, who did not consider any business practice optimal unless it was depraved. Totalscum soon increased loan production by 400%, and his success caused Tweakmore to buy five additional loan businesses and replace their CEOs with people like Totalscum, causing profits to soar and soar, even though Twealtmore never again found anyone else whose depraved operations could produce results that matched those of Totalscum.
As Tweakmore’s scheme went on, it was necessary for its continuing success that the accountants of Boneheadia never stop treating as trustworthy a lot of hugely important loan- payment promises that any sensible person would deem unreliable. However, there was almost no risk that accountants would act otherwise than as Tweakmore desired. The accountants of Boneheadia were not allowed to be sensible, They had to use by rote “rules—based” accounting standards set by a dominating man, Countwrong, who was head of Boneheadia’s Accounting standards Setting Board. And Countwrong had ordained, in effect, that all loss provisions on the new loans must remain based on the zero-loss record that had existed before Wantmore met Tweakmore. And, so long as Countwrong was in charge, no one was going to use in accounting an understanding of runaway feedback modes, instead of Countwrong’s rules.
Of course, if Totalscum or Tweakmore ever started to have loan losses, he would have to start making loan-loss provisions against new loans. But there weren’t any meaningful loan losses for anyone for a very long time. Countwrong was so habit—bound as a thinker that he never recognized that his cognition was anti—social. He had always sought simplicity of process for accountants at the expense of “principles—based” rigor in thought that would better serve his country.
He had been rewarded in life for his convictions, and he was now proud of his conclusions, even as they were contributing mightily to the supencatastrophe sure to come eventually from Tweakmore’s scheme. A large economic boom occurred in Boneheadia just as Tweakmore had expected. The boom made the regulators of Boneheadia feel extremely good about themselves as they passively watched the ever—enlarging operations of Tweakmore and Totalscum. A famous regulator named Oblivious was particularly approving. He had been over influenced in early life by classical economics.
So influenced, Oblivious loved all the new derivatives, even those based on outcomes of parts of complex CDOs composed of parts of other complex CDOs. And he did not believe the government should rein in any investment banker until the banker’s behavior was very much worse than Tweakmore’s. The boom initiated by Tweakmore lasted only three years. He had underestimated the boom’s strength and the power of people to understand, in due course, super-sized folly. These factors had helped shorten the boom’s duration. Also, Boneheadia had proved less like Japan than had been hoped.
When the hoom—ending bust came, it was a doozy, Almost every investment bank had been made collapse-prone by Tweakmore’s innovations before he became interested in home loans. And now, in a huge bust, most big financial institutions were sure to disappear, causing total chaos and another “Great Depression” unless there was super—massive intervention by the government, financed by printing money. Fortunately, Buneheadia did so intervene, guided by effective leaders who somehow obtained support from politicians in both political parties. And, after this massive intervention, Boneheadia, with doubled unemployment, is enormously worse off than if the boom and bust had never happened. And its options in case offuture trouble are greatly reduced because, after its money-printing spree, it is nearer to facing general distrust of its money and credit. Boneheadia’s bust is now called the “Great Recession”. Yet, even so, not much has been learned by the ellte in Boneheadia.
Among the protagonists and too—passive types who contributed so much to the mess, only one has expressed significant contrition. To his great credit, Oblivious has recognized that he was grossly wrong. The accounting profession remains unaware of its large contribution to public woe. And it does not recognize the cognitive defects of Countwrong, which are still believed to be virtuous qualities that reduce accountants’ litigation risks and their duty to cause antagonism by opposing the wishes of some of their best-paying clients.
The professoriate in economics has barely budged toward recognition of the importance of optimized, more conservative accounting in both macroeconomic: and microeconomics. And economics professors, even now, do not recognize what was so easily recognized by Tweakmore: the functional equivalent of undisclosed embezzlement can be magnified and have massive macroeconomic consequences when the victims, as well as the perpetrators, are led to believe they are getting richer under conditions that are going to last for a long time, how about the legislators in Boneheadia?
Well, most are confused by what has happened to their most powerful friends and draw no useful implications from the outcome of Canadia, a country just north of Boneheadia that had no “Great Recession” because its simple laws and regulations kept in place home loan operations much like those of Wantmore before he embraced modern finance in the state preferred by Tweakmore.
How about the regulators? Well, very few important regulators or former regulators in all Boneheadia have expressed really serious doubts about the status quo and interest in really serious re-regulation of investment banking.
One of the doubters is Follyseer, a long—retired former Minister of Finance. Follyseer has argued that all the contributions of Tweakmore to investment banking should now be removed and banned, because it is now obvious that (1) augmenting casino-type activities in investment banks was never a good idea, and (2) investment banks are less likely to cause vast public damage when they are forbidden to use much financial leverage and are limited to few long-traditional activities. Regarding accounting, no regulator now in power seems to understand, in a way that has any chance of causing effective remedial action, that the disaster triggered by Tweakmore couldn’t have happened if Boneheadia’s system of accounting regulation had been more ”principles—based,” with a different and less tradition-bound group creating accounting standards that were less easy to game.
The former regulator and life-long professor who seemed extra wise aher the Great Recession was England’s John Maynard Keynes, dead for more than half a century. Keynes had predicted, correctly, that “When the capital development of a country ls a by product of the operations of a casino, the job is likely to be ill-done.
Afterword: The foregoing parody is not an attempt to describe in a fair way real contributions to the “Great Recession” in the United States. Certain characters and industries, for instance, Tweakmore and investment banking, are grossly overdrawn as contributors to sin and mayhem, while other contributors are not discussed at all. The whole idea was to draw attention to certain issues in accounting, academic economics, and conceivable over-development of finance as a percentage ofthe entire economy, by making the characters and the story line extreme enough to be memorable.
Taiwan is a fascinating place. We would be living in a very different world today if Taiwan had not found a way to mass produce consumer electronics (TV, laptops, Smartphones, etc. etc.) at low cost.
Taiwan used to be a Japanese colony and received its independence after WWII. Now, the political status of Taiwan
is disputed. Commonly, Taiwan is also known as Republic of China (ROC) which is different than People’s Republic of China (PRC) commonly known as China. PRC claims ROC to be part of PRC after PRC was established by the communist party in China in 1949.
The Taiwanese people are closer to the Japanese than the Chinese. There is no animosity towards the Japanese because they built the infrastructure in Taiwan. The relationship with the Chinese is still not trustworthy. Because of its history, Taiwan culture is unique. It is a blend of Japanese, Chinese and some unique Taiwanese traits. Most people in the high-tech industry in Taiwan work twelve+ hours a day seven days a week. And, they don’t complain about it. The competition is fierce among the high-tech companies and that keeps everyone working long and hard hours. This is one of the reasons that we can afford our iPhones, LCD TVs, etc. in the west. All Americans should visit Taiwan. After the visit, they will gain a new appreciation for their jobs.
There are a lot of migrant workers from Thailand and Philippines. These workers usually do not integrate with the society and do the unwanted jobs. Most of the Taiwanese economy is in the Taipei area which is very expensive. Many people who live in Taipei want to have kids but can’t afford to have them and raise them. I find this very sad. The government has started programs to encourage people to have kids because the population is on decline.
Just like in Japan, service in Taiwan is very good. The taxi drivers wear a black suit and white gloves. People bow to you as a sign of respect. However, the cellphone etiquette in Taiwan is very different than in Japan. I was getting the famous Taiwanese foot massage and the guy who was massaging my feet was talking on his cell phone while giving the massage. It’s a very different place today.
My friend, Jens-Uffe Andersen, passed away on May 26th, 2011. Jens-Uffe was a great man and I admired him. He spent his life being a productive member of the society and made significant contributions to the success of SIEMENS
in Denmark. Jens-Uffe taught me valuable lessons in business, specifically:
- In a big centralized corporation, when managing a big account, one has to spend more time within the organization aligning various entities than with the customer.
- Internal alliances are necessary to get anything done in a big organization.
- People like to do business with with people they like even if it costs a bit more.
I am sure that I am not doing justice to the wisdom of the man by just listing three things I learned from him because the list is very long. May Jens-Uffe rest in peace.
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