Friday, October 31, 2008

Further thoughts on the economic slowdown


I’m running off to Amsterdam today, but wanted to make a few quick comments on the ongoing economic problems

* Many commentators are focused on the mortgages as the source of the crisis: too many house loans were made to too many sub—prime borrowers with little or no vetting.  Remedies have thus focused on propping up lenders, asset prices, mortgage payments, or homebuyers.  But, in fact, the problem is broader: bad loans were made on everything from credit card debts to student loans, shaky business schemes to questionable public works projects.  All of these were securitized, diced up into principal and interest, tranched by risk, and converted to bond-like cash flows.  Many of these sources can still go bad, and many of the cash flows are still highly risky.  I think that there will be wave after wave of support as various loan types continue to default, long after we have stabilized the mortgage market.

image * There has also been a lot of talk about this being a ‘black swan’ event, one which has a vanishingly low probability of ever occurring.  I think that it may have been historically true that the underlying asset price movements were uncorrelated and the likelihood of them moving together, by chance, was extremely low.  But, as strategies evolved for taking advantage of these asset combinations and the adoption became widespread, I believe that links were formed between previously uncorrelated factors.  These lead to causal cascades that ripple through the markets when previously isolated assets suffer a downturn.  Far from being random events, I think that instability was built into the system as the underlying assumptions failed.  The current downturn is a failure of understanding of how the financial system changed, not a black swan birthed within the context of the old system.

image * When is an industry too important to be allowed to fail?  And does the financial industry meet those criteria.  As government support for using bailout funds to increase liquidity spreads from the financial to the insurance to the auto industry, it begs the question of where this began and where it should end.  Many basic industries, from raw materials to health care to food production to transportation, arguably have a greater impact of producing and moving the goods that individuals and businesses rely on.  Yet the financial system has uniquely been identified as worthy of government-sponsored rescue and reorganization.  The rest have to muddle through.  This still feels wrong to me.

image * How much of the financial community is a community and how much is it a club?  I think that it is very much of a club, excluding participation except for those admitted to membership in the circle, self-protective and self -interested.  While government officials and regulators are promising strict laws and accountability, we are already seeing hand-in-glove partnerships between various government and financial institutions.  For example, the forced takeovers of marginal banks by stronger banks is consolidating the industry rapidly.  There will, in the end, be a few government-sanctioned winners, with much stronger financial positions and influence than they had previously.  There will be similar evolution in ratings agencies, insurance, and financial services.  In the end, the barons of capitalism will be stronger, not weaker.  And I still fear that the taxpayers will foot the bill for a new system that will ultimately work to our disadvantage.

Thursday, October 30, 2008

(Not) Booking the trains in Europe

I’ve always been a fan of train travel in Europe: it’s clean, convenient, quick, and scenic.  So, when asked if I could help find youth fares for a return ticket from Paris to Amsterdam, I thought it would be a breeze.

Europe is moving towards an integrated rail ticketing system, RailEurope, available online or over the phone.  It is used for reserving seats for cross-border travel between major cities.  “Local” trains, without reserved seats, are generally booked at the station on the day of travel or are supported by national rail passes.

The RailEurope website is straightforward for anyone familiar with making online plane reservations, but I quickly ran into problems as displayed fares couldn’t be booked.  It wasn’t a payment problem, but rather a difficulty with displayed seats being unavailable for reservation.  So, I called the central booking office in England to complete the reservation.

Their agents are very helpful, quickly finding reasonable youth fares at 40 euro each way on the high-speed link.  But, again, as they tried to complete the bookings, the system removed the available seats, doubling the price at each attempt to complete a booking on the remaining slots.  It’s frustrating: the agent commented that there is lots of competition on busy lines.  Please.  It was past 10 pm, it didn’t seem reasonable that all of Europe is competing with me for those same seats.

By now, the price was approaching the cost of an InterRail Global Pass, a ticket which allows unlimited travel on all European Railway networks.  It’s actually not a bad alternative: a pass valid for 5 travel days within a 10 day window starts at 150 euro.  There are 5 euro surcharges to guarantee a spot on trains with reserved seating, but unlimited local travel within the five travel days.  The only other alternative is an EURailPass, but the price is vastly higher: 500 euro for 15 days.

Reviewing the options, the InterRail pass gave the most value for the euro.  I took the information so that the passenger could buy the tickets in Paris the next day.  But then everything broke down when trying to actually *buy* the option that the agent identified.

First, there is a six-month residency rule, requiring proof to supplement the passport.  Otherwise passes must be bought, in person, in your home country.  Further, the number of seats available to pass-holders is also limited, and surcharges increase quickly in parallel with the underlying ticket prices.

Fine, then, back to the simple RailEurope bookings.  This quickly turned into an even larger headache as we fully engaged their byzantine ticketing system:

  • The computers at the rail stations and at the central agents are only loosely linked.  The fares quoted by the central agents are often unavailable to agents at the rail station.  Despite efforts to synchronize route, time, and fare class, station agents cannot find what the central agents see.
  • Fares change with every inquiry, bouncing up and down over 150% at successive refresh cycles.
  • Tickets for various legs of a journey must be purchased individually as the booking is defined.  There is no way to ‘hold’ a seat while either agent defines the rest of the itinerary.
  • :There are no electronic tickets.  All agents, central or station, only sell paper tickets and passengers must board with these same paper tickets.
  • There is no option to print a ticket at a local station based on a paid central reservation or printed itinerary.
  • So, tickets purchased from the central agent must mailed  to the passenger. There is an (expensive) option to courier tickets from the central agent to the passenger.
  • However, you can pay central agents for tickets using a credit card over the phone…unlike….
  • Tickets purchased at the rail station, which require cash or credit card to be physically presented at the point of purchase.  So, for example, there is no way for a parent to give  their children (or the agent) credit card details to complete a purchase at a distant station.

It is hugely frustrating and time consuming.  The central and station agents are patient and understanding, but they are really struggling to cope with their booking computers and rule systems.   It requires hours to make a booking: the process of finding a fare, losing it, finding a new one, losing it again is endless and payment and delivery options are not workable for circumstances where the payer and passenger are distant from one another.

In the end, it ended well by having the purchaser buy the tickets at a local station and mail them to the passenger.  But why should it be so hard to do something so simple?

Wednesday, October 29, 2008

Progress and updates

Arnhem Autumn Morning 1

‘back in Arnhem after a week on the road in France and the US.  Autumn transitioned to winter here in the Netherlands during my absence: the leaves are almost gone from the “Countdown Tree” in my back yard, and the rooftop puddle of rainwater completely froze overnight.

Time to migrate south, clearly.

I’ve got a bunch of thoughts and pictures to catch up with here in the days ahead, but I’d like to catch up with a short update on various ‘stories in progress’ from the past weeks.

Most importantly, my father continues to make a good recovery from his quintuple bypass surgery last week.  The heart seems strong, he’s healing well, and he didn’t suffer a stroke during or after the surgery.  He seems in good spirits when I talk to him on the phone, and they have moved him from the ICU to a monitored bed.  There is some concern that his short-term memory seems slow to come back.Arnhem Autumn Morning 2  The doctors say that there may be some residual impairment as a result of being on-pump for 90-minutes during the surgery and his native sensitivity to anesthetics over that long a period.  They’ve referred him on to a rehabilitation facility rather than a recovery center to try to get on top of it, and we all remain hopeful that he’ll have a good recovery with time.

The apartment on the Maas did come through, and the contracts are signed.  I have an office and short term assignments are starting to come in, so it’s feeling more like I have a ‘home’ to go to for the coming months.  I’m looking forward to having the water and city views, and to moving back ‘among the living’ by the end of November.

The interviews at the French medical device company did not lead anywhere.  It was a bit of a mismatch at the outset: they wanted a functional leader who could manage a 100-person systems engineering and informatics group, and I am an entrepreneur who incorporates those functions into the new business programs that I lead.

I am sure that I could have fit into the position and made significant contribution, but it wouldn’t have been an ideal match.  Still, they are a good company with strong people, and the interview was good experience.

Arnhem Autumn Morning 3The neuromuscular imbalance in my left ankle has noticeably worsened in the past year, and I visited a neuro-orthopedic surgeon in Boston to see what could be done.  There isn’t much, unfortunately: he is recommending a fusion of the bones to get the foot back into position where it can support me again.

This is an irreversible step, and I want to be sure that it will improve and preserve mobility to the greatest degree possible.  I’m going to get a second opinion before making any decisions, and the recovery could take six weeks.  This, naturally, creates further concern about when and where to get it done.  The holidays are coming and I have a teaching program that I am co-chairing at Cambridge in January, so there may not be a practical window until February. Still, it needs to be complete by April.

All of this is change and uncertainty is, not surprisingly, raising a fair amount of stress in my life.  This, in turn, makes me a bit distracted, irritable, inward-focused, and execution-driven.  It runs against the sort of person that I usually am and want to be, at a time when I can least afford it.

I’m sure that all things will work out well in the end, and the trick is just to keep it all in balance and perspective along the way.