Giving Anonymously

Category : Entrepreneurship
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After a three week hiatus, I’m back to blogging.  I just got back from an amazing three weeks traveling in Europe, followed by one of my best friend’s wedding.  I’ll have a few posts about where I went and some observations about the contrasts between Europe, the UK and the United States, but first, I had to write about this because its so cool.

I was driving back from my friend’s wedding today, listening to NPR and heard about Giving Anonymously, a website dedicated to letting people give money to their family and friends, without their knowledge.  From their website:

Giving Anonymously is a non-profit organization facilitating generosity between people. We are a volunteer organization; each of us donates our time without pay to keep Giving Anonymously running.

Giving Anonymously began in 2005 with our website up and running in early 2007. We began with a few goals in mind: We wanted to relationally connect people through giving, to make it fun, and in the process protect relationships from feelings of obligation. Giving to others in need can be full of mixed motivations and our hope is to facilitate Pure giving.

Anyone who enjoys putting cash under a friends door or in their mailbox will often times not know if their friend actually got the gift and they cannot hear what it meant to them. So, we came up with an idea to have a messaging line where recipients could call after receiving their gift. When a recipient doesn’t know who gave the gift to them they are even more free to express their gratitude and we capture this through voice files that we email to the donor.

I think this is an amazing idea with lots of potential, especially in a down economy.  Although the non-profit changes credit card processing fees of 3% for gifts over $500, its still loads more efficient than many charities that take up to 30% of donations in overhead.  The only hitch is that these gifts are not tax deductible.  Since you are choosing who gets the money, it is not deductible.  I understand why the rule exists, but it would be cool to see some sort of exception in this case.  Its good to see innovation coming out of our current downturn to help people in need.

It’s the Leverage, Stupid!

Category : Political Science & Economics
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With the stock market looking toppy and the unemployment rate still on the rise, the “green shoots” are starting to look rather brown (or more like a mirage) and some are calling for a second stimulus.  For now, leave the ridiculous fact that only a tiny percentage of first stimulus has been spent so far and let’s look at the facts.  The economic crisis was caused by excess leverage, first by consumers, then by companies, now by the government.  Is a second stimulus with more leverage what we really need?  If it is, will the Obama administration make a case for it that doesn’t use phony statistics like “jobs saved or created?”

To borrow from Bill Clinton’s first presidential campaign, Its the Leverage, Stupid!  Consumers borrowed huge amounts of money to live lavish lifestyles or to just keep up with the monthly bills.  The consumer savings rate peaked in the 1970s around 15%, but declined consistantly during the 80s and 90s.  It even went negative in 2007, right before the financial crisis.  This meant that consumers were, on average, spending more than they made.  Consumers resorted to using their homes as ATMs, borrowing vast amounts of money to keep the party going.  Clearly it was not sustainable.

Banks and non-bank banks stoked the flames and let the party rage on.  Banks offered mortgages to people who shouldn’t have had them, manufactured huge bets on CDOs and made billions moving money around.  After the government removed many of the leverage regulations, banks continued to go wild.  Other companies and hedge funds joined the fray, borrowing billions of dollars  for leveraged buyouts that left balance sheets riddled with debt.

When the economy started to slow down and the stock market fell out of bed, companies and consumers who were strapped with debt and little savings faced the brunt of the downturn.  Companies began to deleverage, cuting costs and jobs to be able to stay in business.  US consumers, scared by huge declines in net worth stemming from the stock market collapse and the real estate downturn, started to save, bringing the savings rate up to around 7%.  

The US government, which had started to run larger deficits during the Bush years, stepped in to fill the void.  The Bush administration pushed the first bailouts through and the Obama administration passed even more bailouts and a huge stimulus package.  The $740bn+ stimulus package pushed much of the spending two to three years down the road, funding tons of pork-laden projects that are probably unnecessary and have nothing to do with stimulus.  These programs saddle the government with even more debt at a time when the rest of the world is concerned about the value of the dollar.  The government should have advocated for $200-300b of immediate spending, or better yet, returned money to the people so that they could pay down their own debts.  Instead, we have record amounts of debt and even more leverage, not even taking into consideration the unfunded liabilities of Medicare and Social Security that will require even more leverage.

Now, as the stock market and the economy as a whole are showing signs of getting worse, there are calls for a second stimulus.  I fear that Congress will pass another massive bill, but most of the money won’t be spent fast enough and there will be even more waste.  I’m worried that many of the projects will be useless and ineffective at turning the economy around.

The only way to fix the problem and get through the bear market is to deleverage.  We need to squeeze the leverage out of the system, stop the insanity and go back to more rational debt levels.  With another round of mortgage resets set to take place late this summer, we are likely to have many more foreclosures in the next year.  Instead of spending money on projects in the future, the government should have made it easy for mortgage holders to renegotiate their mortgages in exchange for the bank having the rights to some of the upside of the house when the market turns.  This type of solution removes debt (leverage) from the consumers and bad debt (leverage) from the financial institution and saves consumers money right away, with a lower mortgage payment.  The government will have to spend a little more money, but it would be rational, compared to the huge stimulus package and bail outs that we have seen so far.

The government should be helping (forcing) companies to convert debt to equity in institutions that have bad balance sheets.  Instead of bailing out investors and companies who made bad decisions, the government should be converting debt to equity to shore up balance sheets and make the companies deleverage.

I think we are on the verge of another downturn in the stock market and rising unemployment.  The press seems to think (or hope) that the worst is behind us.  Most people are turing bullish and many Americans have come back into the market.  I fear that we face a repeat of the stock market’s performance during the Great Depression, where there was a prolonged bear market rally and then a second crash that wiped out more market value than the initial crash.

China and the rest of the world are already starting to pick at the reserve status of the dollar.  If the US keeps leveraging and then decides to inflate away the problem, the US dollar may lose its reserve status.  The government must make sure they do not make the crisis worse than it is.  Its not a Republican or Democrat issue. Its an American issue.  I am not confident that the government will make the right decisions.  With GoldmanSachs alums holding many key government jobs, I fear that they will do what they know best: continue to leverage and try to pick up the pieces later.  If you want to go farther, read Matt Taibi’s blog and latest piece in Rolling Stone.

I hope I am wrong, but I don’t see the US coming out of this without lots more pain.  What do you think?

Startup Review: City Dictionary

Category : Entrepreneurship
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City Dictionary is a Madison-based startup that organizes user generated definitions for local slang and locations.  Co-founded by brothers and Wisconsin grads Thomas and John Carmona, City Dictionary is similar to urban dictionary, but location based and and city specific.  Thomas Carmona told me their “goal is to capture the subtleties of American cities that existing references leave out.”   From their website:

Have you ever gone to a new city and been confused by the way the locals speak? Whether it’s an idiomatic expression, a nickname for a local street, or the name of a local food, cities can have confusing language. For example, should you be offended if someone in Pittsburgh calls you “nebby?” In Philadelphia, will you know what to say if someone offers you a “whiz wit?” Will you be alarmed in Madison when someone says they drank a “boot” last night?  If you understand all three of these references, then you’re in the minority. For the rest of us, there’s City Dictionary.

They launched the site back in May 2008 as a Madison website, trying to “capture the eccentricities of Madison language and culture” but have since expanded nationwide.   They have made some great progress lately, including winning the Burrill Business Plan Competition and a cool $10,000 first prize, signing a deal to put dictionaries on over 60 local TV news websites and adding lots of new definitions.  

The site is interesting because it fills in the gaps that other sources like traditional encyclopedias, Wikipedia and others leave out.  Thomas Carmona told me that “eventually, we would like City Dictionary to be a valuable reference for all cities and towns–large or small–in the US, similar to the way Wikipedia is a powerful reference for, well, everything. Whereas Wikipedia and other existing city references give the “official” account of a city, City Dictionary will fill in the gaps with the subtleties that only real locals can offer.”  

City Dictionary’s market is a niche that had been previously underserved and  I really like their strategy of partnering with local TV stations to get more users and content.  If they are able to get enough partners, they will build a wall around their industry, making it hard for competition to break into the market.  The syndication deals are a promising sign because others companies realize the value that City Dictionary brings to the table and provides City Dictionary with a much larger presence across the web.

Currently, City Dictionary is ad supported and it will be interesting to see if they can find a way to squeeze revenue out of the page views that they generate or have to find another revenue stream as they move forward.  I’m excited to see how they continue to grow.  Check out City Dictionary and let me know what you think.

I Trust Google With My Life…Almost

Category : Technology
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My internet went out the other day for a few hours when I wanted to get some work done (thanks Charter!). I couldn’t access my email, so I figured I’d do some work on my business plan. I quickly remembered that I store most of my documents on Google Docs, meaning that I couldn’t access them from home either. I spent the next few minutes writing this post on old fashioned college ruled notebook paper.

I trust Google with my life….almost. I have my email, calendar, documents, contacts, advertising campaign, photos and website analytics all in Google’s hands. I use Google maps to find out where I am going (google maps), view business reviews (search), and upload and view videos (youtube). I get my news in part from Google News. I used to use blogger, another Google service, to host my blog, but have since moved to hosting my own site on a wordpress platform. Google is so much more than a search engine and millions of people around the world trust google to protect and store their important data. Google Creep, as I like to call it, is Google’s amazing ability to become useful, if not necessary, to our daily lives.

I’ve never been one to put all of my eggs in one basket, but I realized I pretty much have with google. In the unlikely event of Google’s bankruptcy, failure due to hacking or natural disaster, I would be pretty much screwed. I bet millions of others would be in my shoes, too. Its amazing that we have not only allowed a company to permeate our entire lives as much as Google has, but we have embraced it, always asking for Google to do more.

Google is now pushing into electronic medical records, mobile phones and even renewable energy. It will be interesting to see if there is any backlash in the coming years about how much we depend on Google. As people move from hard drives toward storage on the internet, more and more people will become dependent on Google.

After I got my internet connection back up, I backed up all of my contacts and google docs onto my hard drive, which is backed up by Mozy. This is not an anti-google post and I doubt anything bad will happen to Google, but it was shocking to find how dependent I had become on Google and its services. I probably won’t change anything, but its pretty amazing. I can’t think of any other company that took over like Google has in the history of America.

What do you think? Are you as dependent on Google as I am? Do you have any strategies to combat Google creep as it takes over even more facets of our online lives? Do you think it is a bad thing?