The Bear In There
The Wall Street Journal returns to its roots today and demonstrates why, despite Rupert Murdoch, it is still the best financial paper in the world, running the first in a series of three stories on the collapse of Bear Stearns Cos. Inc. In a story full of the kinds of important little details that are sure to have Bear executives scratching their heads wondering how she got them, Kate Kelley writes that at the outset of the crisis that eventually brought down Bear, the firm was plagued by a combination of bad decisions and indecision.

“… [M]any who lived through the seven tense months before the deal [with JP Morgan Chase & Co.] say Bear Stearns imploded because it was at war with itself. Buffeted by the most treacherous market forces in a generation and hobbled by indecision, the firm’s leaders missed opportunities that might have been able to save the 85-year-old brokerage.”

Bear tried and failed at least six times to raise equity via deals with outside firms. Bear never dumped the toxic mortgages that had hurt its hedge funds the summer before. And amid a divided executive team, it took off a hedging strategy called the “chaos trade,” designed to protect Bear’s massive mortgage portfolio from losses.

With stories like this, there are always denials among those involved who are named. The level of detail in Ms. Kelley’s piece, though, would tend to refute any denial almost before it is proffered. In any event, Ms. Kelley paints a portrait of a firm in deep disarray at the highest levels. That’s never a formula for success. And the fact that the men running one of the largest and oldest securities firms in the country—some of the brightest and most experienced minds on the Street—couldn’t work their way out of the mortgage mess and the credit crunch doesn’t really speak well to what we might see if these troubles persist and spread to other firms.

Welcome back! Have a nice long weekend?
Good news! New home sales were more brisk than expected in April, however still at their lowest levels since 1991. Additionally, March data was revised downward. Meanwhile, home prices fell at their fastest rate in 20 years. Naturally, stocks rallied.

New Event: The Olympic Wheeze
Who’s up for some outdoor fun this summer?

Emphasis on the ‘0′
Interesting story in the Financial Times today on the general failure of so-called Web 2.0 ventures to generate any money.

“The shortage of revenue among social networks, blogs and other ’social media’ sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers.”

I read this story and I wondered if some of these people even know what they’re talking about. What IS Web 2.0, anyway? People who know me know not to use that term in my presence. I don’t think it means anything. It’s gibberish. Communities form around common interests. “Virtual” communities form because the people who go there get something that’s valuable to them. The web is the web. Unless you have a business model that gives advertisers proven results, or you charge for content you’re not going to make any money.

And anyway eventually advertisers are going to figure out stealthy ways to take their message directly to potential customers, eliminating the middle men at newspapers and Internet sites. What newspapers have forgotten is that they are portals for information, not advertising, and that their mission is to inform the public, not generate ever-growing profit margins to satisfy shareholders.

As for social networking sites, they’re high-tech virtual meeting places, mere substitutes for real interaction. They don’t make anything; they’re nothing more than platforms. The established cost model for sites like these is … nothing. They’re free. No one wants to pay to use them and they don’t have to. Users are savvy enough to avoid advertising, so advertisers aren’t interested.

“At the start of the decade, Google struggled to find a suitable way to make money from search before alighting on the keyword advertising that has underpinned its fortune. A similar hunt for forms of advertising that suit the social media—where users want to engage with each other, not corporate brands—has proved difficult,” the FT writes. “By common consent, the key to commercial success lies in co-opting the crowd, though few have so far succeeded.”

I expect that will remain the case for the foreseeable future.

This entry was posted on Tuesday, May 27th, 2008 at 6:41 pm and is filed under Tuesday's Random Shots. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.