Sequoia’s Slide Show on the Economy

Sequoia’s Advice to startups has been the subject of speculation for the past few days, but now VentureBeat has posted the actual slide show from a recent major meeting where startups were told to prepare for some seriously bad economic stuff and a recession that could last for many, many years.

Sequoia Slide Show


I was particularly glad to see the slide noting that people have been using home equity as a “piggy bank”.

My current take on the huge Government actions trying resurrect the prosperity economy is subject to change faster than you can say “The Dow’s Down 500”.  However I would like to hear more talk about how the economy got too big for it’s britches and most of us, and certainly the country as a whole, have been living pretty large for no good reason, fueling both economic growth and personal living off of home equity that …. ain’t … here …. no …. more.     We’ll need to work harder and get less for awhile, and perhaps forever as the rest of the world catches up to our levels of prosperity.    Welcome to the new global economy.

Another factor I’m confident about is that the banks are going to act very opportunistically with the new sources of funding, though I’m not sure what form this will take.  Assume, for example, that you run a totally solvent bank and have managed risk appropriately.   Yet you know the feds are about to absorb disproportionate risks in order to get the macro economic juices flowing.    Your best play is to lay low for awhile, waiting for potential free money, lower risks, and most importantly saving up the benefits of your solvency so you can scoop up smaller banks and deals as they become available.    Although I assume there are some safeguards in place I think one of the Fed’s miscalculations right now is that the big bank players *want to play* when in fact the best of them *want to hang out and make a killing* as the insolvencies rip through the system and are removed at taxpayer expense.    This behavior by solvent banks *also* increases uncertainties because nobody currently knows who is good to go and who will be dead later in the month.   I *absolutely* agree with those calling for a massive increase in financial transparency throughout the banking sector – e.g.  requiring banks to place much more itemized information about assets and liabilities online for all to see.   This should be a condition of *doing business with the Federal Government*, which means every bank would be required to do it.   The initial effect would probably be a massive shift in resources toward the healthier banks but this is where the Government, again with total transparency, could balance things out to avoid potential catastrophic failures.

Hello UK, and welcome to the bail out club…

I’m not seeing enough about the 500 billion pound UK Bailout (that’s $865 Billion US) on US Financial news.

That’s more than our USA bail out despite the fact that our economy dwarfs that of the UK.  Probably a sign that here in the US we are in for massively more bail out spending before the financial bloodbath is over.

The scale of this measure suggests to me what the markets already seemed to know – the situation is worse than we’ve been told.

So, market activity remains jittery and unhappy even though we’ve now got a massive global bailout in progress with the global .5 rate cut combined with 700 billion here and 865 billion there and the large global rate cut.  Gee whiz, pretty soon this could add up to real money.

I’m uncertain about this but I think the only remaining certainty is uncertainty, and that’s … for sure!

Bailing out the Bailout?

Like most Americans I’m angry and confused about how suddenly a crisis of economically biblical proportions has suddently lept to the top of the political agenda.   This is especially galling because only a month ago the Bush administration was – pretty much to a person – telling us that the economy was in good shape.

It strains my credulity to think they didn’t know the credit problem pot was about to boil over, and in my cynical moments I think they probably just hoped they could stave off the crisis until Jan 2009.

But hey, I’m to blame and so are you and so are the legions of people who watched real estate rise and fall and foolishly assumed that near-catastrophic devaluations in houses of trillions of dollars would not lead to the enormous problems we now face.

Solutions?    As tempted as I am to agree with Ron Paul who is basically arguing for no bailout and letting market forces revalue the whole mess, I’m thinking we need to go ahead with a staged bailout where investment of our tax money is tied to measurable successes in terms of the credit markets.    If the Paulson plan is the right answer we do not need to spend $700,000,000,000 before we know it’s working.   I think Congress should approve some modest amount for Paulson and tie subsequent spending to *immediate* market improvements.    I want the banks and others (including individual mortgate holders) who will benefit from the bailout to *make major changes* and *absorb major risks* that it seems the current plan simply passes along to future taxpayers aka “our children”.      If I understand Paulson and Bernanke correctly they’d say this type of partial bailout plan won’t do enough to work – that we need to restore corporate confidence to the extent they loosen up credit and re-oil the engine of US economic prosperity.  That may be true, but I’m not convinced anybody can reasonably predict how any of this will shake out.        Clearly these clever boys totally and miserably failed to predict this problem would happen in the first place, so it’s tempting to apply the “fool me once shame on you, fool me twice shame on me” rule and ask for a whole new game with new players.