If you’re looking for a quick version of what the heck happened in the economic meltdown and where we go from here, take a look at the article in the current issue of Fortune written by Glenn Hutchins (Co-Founder and Co-CEO of Silver Lake Partners) titled, After the Panic of ’08. He begins the piece simply…“It is axiomatic that to solve a problem, one must first understand it.” He goes on from there to spell out his timeline and reasoning for the collapse. While he has the government clearly in his sights as one of the key offending parties, he adds that it is much more than that.
For a generation, the American consumer over-spent, under-saved while running up large personal debts. People purchased homes they couldn't afford with mortgages they couldn't support. The U.S. government ran unsustainable budget deficits, and neglected massive trade deficits - all of which required gargantuan amounts of foreign financing. The Bush administration pushed through lower taxes but lacked the resolve to cut spending. Politicians across the spectrum pressed the government-sponsored mortgage lenders to heedlessly over-expand home ownership - distorting incentives and diminishing discipline in the mortgage markets.
Main Street banks facilitated this binge with generous consumer loans of all flavors - mortgages, home equity lines, credit cards, auto, tuition, etc. Wall Street firms - egged on by generous compensation schemes - packaged these securities into complex products that were distributed worldwide. The rating agencies debased the AAA rating and the regulators lost sight of the forest for the bark on the trees. From its lofty perch, the Fed abetted all of this with cheap money and a deregulatory bias.
The denouement came when the consumer rolled over and began to default on mortgages - particularly of the subprime variety. This triggered a cascade of consequences that we are only now beginning to understand. But to really grasp what happened and why, we have to begin at the beginning.
His solution…innovation will set us free.
So, the real question is "what's next"? The answer resides where it has always been - in innovation and entrepreneurship. Lost in the fog of today's economic storm is the fact that this is an exciting time to be a technology investor and entrepreneur. The way out of the doom and gloom of the seventies - which was a period much like today - was a wave of technology innovation that spurred a generation of company formation, job creation, productivity gains, wealth accumulation and GDP growth.
Today's opportunities are every bit as big if not bigger. For instance, we stand on the cusp of perhaps one of the mightiest technology trends of our lifetime in the field of wireless broadband mobility. The innovation and opportunity in all corners of that ecosystem - devices, components, semiconductors, network gear, operating systems, applications software, content and services - are nothing short of game-changing.
Innovation backed by entrepreneurial capital is also rampant in green technologies, biotechnology and stem cell research, nanotechnology, and other information technologies such as VOIP, virtualization, cloud computing, collaboration, software as a service and social networking. The economic and social benefits that will flow from this tsunami of innovation stand to propel another quarter century of prosperity.
Given the pessimism in the marketplace, it’s nice to see a story that leaves us with real hope. Now let’s just hope that the government doesn’t get in the way of making this happy ending a reality.
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