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11/14/2008
02:18 PM
Venkatesh Rao
Venkatesh Rao
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Juan Enriquez' 10 Commandments for the Economy

Juan Enriquez has a great talk on the economic crisis, as part of a thought leadership series by Pop!Tech on the crisis. The video is available here. He is an excellent speaker, and this is one of the first takes on the crisis that I have found both comprehensible and believable. A great quote: "A tax cut is not a tax cut unless you and I pay less and our kids owe less." Unlike many other commentators, he does not believe this is merely an unusually bad aftershock of a bad subprime market on an overall good economy. He makes a compelling case that that the there are systemic problems.Some good calibration points he provides:

  • Total insurance on securitized mortgages exceeded value of the world economy.
  • Spending $1000 on beer in Michigan would have left you with more money in bottle-return value than investing in AIG in 2002.
  • Take the 30 largest US companies -- they have created no new wealth in the last 10 years; the stock price has remained the same.
  • In last 10 years, consumer spending grew from 64 to 73% of the economy. Enriquez blames the rhetoric of "spending is patriotic" as opposed to "save more during tough times and be willing to pay more taxes."
  • The current crisis is similar to the Japanese one 18 years ago in real estate, and now their market is worth 25% of what it was worth then. This could very well happen to the US market.
  • If we don't act on fundamentals, the dollar could be "the ultimate short."
His 10 commandments
  1. We have to save the dollar (AAA rating is in jeapordy)
  2. We have to fundamentally and brutally restructure debt
  3. All entitlements are fair game (which he mainly equates to "everybody has to work more years")
  4. Cut back military 2% per year for 10 years
  5. Cap medical costs at 18% of GNP ("it's going to be a catfight, but let's have that catfight")
  6. Triage our support for companies and not save some dying whales ("esp. companies we were told were not competitive 30 years ago")
  7. The program has to be bipartisan, it has to make democrats and republicans both unhappy
  8. Simplify and broaden Sarbennes-Oxley, apply it to government and hedge funds as well
  9. Invest in growing startup companies. "You keep the IPO market shut for 2 years and you don't get the eBays..."
  10. We will treat education as a varsity sport (and continue to recruit foreign PhDs)
The one point he makes where he says the same thing as other commentators from Suze Orman to Jim Cramer is, stay in the stock market, keep investing.I am now starting to understand and believe Warren Buffet's line that derivatives are weapons of financial mass destruction.For the Enterprise 2.0 movement, I definitely think the crisis is more of an opportunity to create real value. There is need and stomach for non-trivial restructuring of US industry, and 2.0 technology levers are among the most important ways to achieve the restructuring.

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