Long but worthwhile article about the risk meltdown on Wall Street:

All the incentives — profits, compensation, glory, even job security — went in the direction of taking on more and more risk, even if you half suspected it would end badly. After all, it would end badly for everyone else too.

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. (wikipedia)

I was chatting with Scott Rafer this morning and his observation was, we are not in a cycle, this is a sea change. Everything has changed, and we all need to realize that. It’s not going back to the way it was. Not only in the online advertising world that is my day job, but everywhere ->

There are very few riskless islands in business and life anymore; everything has a profound degree of connection to many other things. Every risk- and leveraged action banks and investors have taken on has a consequence as we have seen, and will unfortunately continue to see. One of the things I’ve started to think a LOT about is the incentives that  each person and company I deal with has in any given context. While we are all connected, we each have a slightly different frame of reference and that shapes how we react to situations.

The point of this ramble – beware of things that look too good to be true. The costs will get parceled out eventually; and the timing and magnitude of that is what might really hurt.

Zero is a part of the name of this blog – I’ve always been fascinated by it and combining it with something that these days is the cause of much consternation for people – the “Economy” giving it its capital letter due – seemed strangely appropriate. In a lot of areas, we need to go back to zero, go back to first principles, to our founding assumptions.

The wikipedia entry on zero ends with several quotes, one of which is:

The point about zero is that we do not need to use it in the operations of daily life. No one goes out to buy zero fish. It is in a way the most civilized of all the cardinals, and its use is only forced on us by the needs of cultivated modes of thought. Alfred North Whitehead

When I think about the economy, there is seldom something that stands on its own without reference to something else. It is hard to determine a zero point, a starting point with no dependencies. Even if I start a brand new company making something new, there are always other people, services and things to depend upon that I need to utilize. This makes the creation of something easier to do – we don’t have to build all the supporting services like banks, roads, paper, etc. from scratch in order to create something new – we simply take these things for granted and build something new as a derivative on top of them.

So perhaps it is unreasonable to look for absolutes, but rather we can think about relative zero’s, local minimums, starting points within a greater context. And so it goes…