It's Always the Economy, Stupid

This
was Bill Clinton's slogan in 1992, and it's the slogan again today,
although no one seems to be using it. No major candidate seems to have
anything to say on today's events. What's happening today?

Well, Bear Stearns, an investment bank I remember from my childhood
as my dad's investment bank (they underwrote the public offerings of
companies he took public as an investor, attorney, and advisor), has now ceased to exist. After almost a century of high flying, they will be
J.P. Morgan Chase. Which itself is an agglomeration of former
individual banks that have disappeared.

Here's what I believe will happen, and what its impact will be on the entrepreneurs I work with.

1. The last eight years have divided the rich from the poor in
shocking ways, dealing out the middle class and removing opportunity in
Amrica by strangling public education. Now the rich have had to look at
the fact that they are not immune from what happens to the poor -- if
the banks and financial systems go down, in a moment they are no longer
rich. Friends of mine who are retired and invested in mortgages are
freaking out right now.

2.Established businesses are beginning to lay off. A friend of mine
who has been in the homebuilding business for thirty years and runs a
very lean and mean business says he has buyers who still buy lots, but
can't get financing to build. He's also worried that he will have to
lay off people. And that his bank will be in trouble.

3. The Fed ordered Bear Stearns to be bought for $2.00 a share
rather than to go bankrupt. That's basically a semantic issue. When a
company goes from being worth $3.5billion to being sold for $236
million two days later, it means all valuations are bull.

4. Bear can't be the only bank in this position. 2008 and 2009 will
see another double digit decline in home prices, which means any bank
in the mortgage business will ultimately be in trouble. We may wash out
most of the big banks.

5. Homes are being foreclosed at the rate of 2 million a year. No
one has ever seen this before. Consumers will go wacko when they see
this, because they don't know what is going to happen.

6. Credit will dry up for the consumer as well.

7. The 0% interest credit cards that startups outside Silicon Valley
use to start their businesses will stop coming. So will bank loans to
established businesses that want to expand.

8. The Boomers will panic, because they are nearing retirement. This
will force a change. I'm not sure what the change will be, but there
will be a major government response to this -- from the Republicans,
the believers in "limited government." Already the Fed has jumped in to
make the Bear Stearns transaction happen, which gives the lie to limitd
government. Face it, we all want government when we need it.

9. We will decide as a country to get out of Iraq because we can't
afford the luxury of building democracy elsewhere when we are starving
at home.

10. A smart politican will decide again to balance the budget and
rebuild our country's infrastructure, including our health plan. This
is the only way to build jobs, confidence, and hope.

Sound familiar? We were here in 1933. It was called the Great Depression. What to do now?

Start a bank. Any bank without baggage from the past will be welcome and successful.

Start a company. Talent will be cheap, and we will need technology
to solve both environmental and economic problems. You will have to
bootstrap it, but that' how we used to do it anyway.

Take responsibility for your own health. You can't afford to get sick right now.