For the Week of July 1, 2002
It wasn't easy to save the stock market after the 1929 Crash. Three years of hoping the system would right itself didn't do the job. The "party of business," the party of Hoover, was sent into the wilderness for nearly a generation as a result.
What it really took was the creation of a new agency, the Securities and Exchange Commission . It was charged with rooting out, and eliminating, all forms of stock market corruption. It required new disclosures from companies, from investment bankers, and from brokers. Brokers and banks were made separate industries (another reform that has since been reversed).
But none of this would have worked had not one of the great market manipulators of the 1920s been put in charge of this new agency. Joseph P. Kennedy made his fortune in that market, and sold before the crash, he said, because he overheard shoeshine boys and other novices speculating on stocks. Kennedy knew all the tricks, especially regarding the manufacture of stock bubbles, and all the players. He cracked down on the crooks and the scams. Gradually - very gradually - confidence returned.
It will take more than that kind of effort to undo the present damage, but whatever else you think of it, the second Bush Administration has a lot more in common (in terms of regulatory preferences) with that of Hoover than that of FDR.
This may yet cost us dearly.
So far, the "tech-heavy" NASDAQ is down 70% from its peak, the better-known Dow Jones average about 15%. That's not too bad, considering that the Dow fell 90% from late 1929 to 1932. But it may be about to get much worse. Because the fact is the U.S. depends far more heavily today on foreign investors to keep its economy (and markets) afloat. It's their confidence that must be regained, and throughout 2002 it has been ebbing away. European market makers have a huge opportunity here - we can only hope they blow it.
What's becoming clear, moreover, is the thievery and market manipulation of our time is even worse than what happened in the 1920s. Back then it was mainly traders and brokers manipulating the market. Now, it appears that CEOs are also in on it. And instead of going to jail, these people are being given the keys to Fort Knox.
Here's just one recent example. Joseph Nacchio "gets the boot" at Qwest after cashing-out $325 million in stock options over 18 months. He's wealthy beyond his wildest schemes, but all the employees and stockholders who followed him are hosed beyond redemption. There are, literally, dozens of other examples. Global Crossing, Enron, Worldcom, Imclone, the list just keeps getting longer. I'm not the first to editorialize about this.
When a con artist wearing blue jeans robs thousands of dollars from people they go to jail. When they wear a suit and steal billions the same thing must happen. We can't have confidence that the game isn't rigged until those who rigged it are doing hard time in real prisons. Public outrage, public demands, and public indignation are the ingredients needed to make this happen. Money votes, too, in this election, and that includes money held in other countries.
So where's the outrage? American outrage is muted in a wave of Fear, Uncertainty and Doubt. Fear about terrorism, uncertainty over what to do, doubt anything will work.
But at some point in this market's long fall someone is going to have to say it. We have nothing to fear but fear itself.
Why am I going on and on about this? It's not just because the danger is much greater from rigged markets today than ever before. It's because the promise is so much greater from honest markets.
Remember what I wrote last week about services, and the importance of being an honest broker? That's where the future lies, that's the growth. We won't gain big heaping gobs of productivity from moving goods or even information much faster. We'll gain it by automating markets. And the key to moving people into that process is an honest broker.
Trading in everything, in every economy, is headed in the same direction. It's headed toward Web-based trading through database-driven markets similar to the NASDAQ and Chicago Mercantile Exchange, where commodities futures are now traded. There's a continuum running from that kind of highly-automated, highly-liquid market-making to the expensive, complex, illiquid market-making you find in, say, selling your house.
But nearly everything - every product and service - stands somewhere along that road. And there's money to be made in every step along that road, toward automating markets in every product or service.
Transparency is the goal. In transparent markets there are no secrets, and manipulation is subject to criminal penalties. That's what we thought we had in the U.S. stock markets. That's what many investors, around the world, feel has been lost. That is what must be regained.
But it also must be extended. Any part you can play in this, whether from the public or private sector, in any market, will come back to you ten-fold in riches, honor, growth, and productivity.
Economic history is clear. The 18th century was about automating production. The 19th was about automating delivery. The 20th was about automating information. The 21st century is about automating markets.
SSP (Shameless Self-Promotion)
A new client asked me recently why Madison Avenue isn't falling all over me. I write technology stuff that ordinary people understand. I also write it on-deadline, on-demand. I don't know, I responded. I just need more of you to click here, I guess.
Show how Clued-in you are by downloading the animated .gif file on the upper-left side of our home page, and copying it onto your own Web site. It shows you want your friends and business partners to get a Clue too. (Clicking directly on the graphic leads to our subscription page.)
Want a really good read? You'll find it in "Boom, Bust & Beyond: The Best of Dana Blankenhorn," now available for purchase at DanaBlankenhorn.Com. You can also order my novel, "The Time Mirror," at the same location. The Print on Demand version of "Living on the Internet" is available
at BookSurge.Com, for $29.99, the PDF
version for just $7.99.
I still write for Boardwatch and BtoB. You can find my old ClickZ columns here (write and demand they hire me back.)
Remember: it's journalism that keeps the Clues coming...
People are always asking me, what's the fastest route to Internet success? I tell them it's Rob Frankel.
You don't have to be rich to get the benefits of Rob's wisdom on branding and marketing for the Internet Age. Just buy a few of his books, e-books or tapes (http://www.RobFrankel.com/store) - you'll see what I'm talking about.
But if you have a real business, and it's got a little budget, and you want to make that budget count for something real, then what you really need is I-Legions, the new Frankel service that generates real revenue from your stagnant user base.
We're talking dollars in your pocket, people. Check it out. Why should the investment bankers and crooked CEOs make all the money?
Takes on the News
Corruption Becomes Basic to Content
The buyer's market in Internet advertising has extended the trend of ads flowing over, around and through content.
Internet.Com sites like Newslinx routinely compress their content into ever-narrower columns. News.Com has followed the trend toward drop-down ads which cover lead paragraphs, forcing hurried readers to skip the leads until the ads disappear. The response to complaints has been to complain in response - if you don't like it, tough, here's the coin box.
The most-common excuse is it's happening everywhere. The "LA Times" reports (sorry, it's behind their firewall) that product placements are going into every media - even books -- creating a form of "prostitution." But advertisers have always dominated media and readers have always known it. Why do you think "Consumer Reports" is such a success, and even more of a success online than in print? No ads means true independence, and that's ingrained in the psyche.
But somehow the bills must be paid, and since the public is still unwilling to pay directly, advertisers must be courted. The more important question is, does the advertising do any good? Intrusive ads from brands like IBM, Microsoft and Dell drill those names into the brain, perhaps with some vague imagery. But even the people who write and sell those ads admit that brand spending must be continuous or the image disappears. And the brand image doesn't guarantee a sale - it can be overcome by another brand (a "value" brand), a sale, or a bait-and-switch by a salesman.
So the real problem here is truly basic. All media (in every medium) is held in place by market inefficiencies. Without them, there's no need for advertising, and nothing on which to base a budget. In a recession there's a natural tendency to fall back on the tried-and-true - only those who can keep-on survive. When growth returns, the effort to increase the consumer market's efficiency will resume and, so too, will the greatest threat to the media as we know it.
More on the Spam Wars
Speaking of threats, spam accusations are slowly convincing many e-mail marketers that permission, not acquiescence, is the only course to take. If this trend continues, it could result in real government action against spam, because the DMA (despite its protests) remains in a position to create, or prevent, legislation.
We've recently had lively discussions on this topic at I-Strategy, the shared digest list I produce for Adventive. Complaints are growing about spam filters like SpamAssassin, MailWasher and Spam Killer that act as judge, jury and executioner on their messages and strategies. The latest entry, Spamnet, combines peer-to-peer networking, human intervention, and a database.
The biggest problem, as Marisa D'Vari noted, is that since advertisers compensate e-zines based on their subscriber count, publishers are no longer taking permission as seriously as they should. (Many editorial products, in other words, are themselves becoming spam.) She recounted how a marketer had encouraged everyone at a seminar she was at to subscribe everyone they knew because only a few ever requested being taken off. The rest either deleted it, put it in a spam folder, or reported it as spam, I suggested.
There's a theme here - market inefficiencies. There's a huge difference between tolerance, acceptance, and eager anticipation. It's the difference between a sale and no-sale. But because the recession has stopped progress in making consumer markets efficient, most e-mail marketers figure this is too expensive to deal with. When it's cheaper to deal with inefficiencies than trot out lawyers to sue anti-spam activists, progress will again be made.
Domain Rules, or Government is Inevitable
Amid all the gab about ICANN and the operation of such top-level domains as .org and .us an important point is deliberately missed. That is the essentially governmental function that must be performed to assure proper domain registration.
As the fiasco concerning .us proved there's a conflict between the needs of a private domain seller and the need for domains to have meaning. Just as any meaningful protection of a .kids domain would require that someone render a judgement as to whether a site is appropriate to those 12 and under, the same must eventually be true for all domains. Is a .com a real business, is a .org a real organization? Who decides. A group that depends on registration fees (or worse, after-market fees) for its survival has no incentive to render these verdicts. Any group seeking to render verdicts, on the other hand, must be prepared for controversy.
When a private group manages government functions you get a private government. When it acts on a worldwide basis it is a world government. It must then be subject to democratic controls, or it is a tyranny. This, in a nutshell, is the quandary ICANN, and the issue of proper domain identification, find themselves in.
Proper management of the Internet domain space demands that someone perform essentially government functions. If this doesn't happen through ICANN, or something like it, it will happen on a national basis, which is what the Congress is moving toward with .kids, and what many other countries have done in taking command of their ccTLDs. By farming decisions on things like .co.us to Neulevel, all the Bush Administration has done is create a private tyranny. And no matter how nice today's tyrant you can be sure they will eventually be followed by a tyrant who is not so nice.
Clued-in (despite its problems) is the Google API. The principle is right. Now we in the private sector have to execute on it and Google has to be an executive for it.
Clueless is National Public Radio demanding written permission prior to linking to its content.
They need traffic, not legal bills. They now guarantee less of the former and more of the latter.
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