Why does this whole credit crunch look so damn familiar?

Greg Mumford wrote a fabulous analysis this morning in the AFR pointing to the similarities between the current US market maladies and those sparked by the Savings and Loans crisis in 1990.

According to Mumford the 1990 domino-like collapse of over 1000 financial institutions, cost the US economy $125 billion, or about 3 percent of GDP, and precipitated a 20 percent decline in the value of the stock market.

Similarly the mass foreclosure on poorly drawn loans in the US, will come at an estimated cost $400 billion, or a shade under 3 percent of US GDP, and has precipitates a 20 percent decline in the value of the stock market.

(it's being called the credit crunch, but that sounds to me like something you eat, while this is a market shift which is eating houses, or at the very least turfing people out of houses)

Predictably all the other elements also fall into place, oil prices are at record highs, consumer confidence is swan diving, the US dollar is tanking and a range of financial institutions are looking wobbly.

Rather than pulling up stakes and heading for the hills, Mumford suggests the 1990 crisis lead to a ten-year bull market, and that investors facing the current market should in fact be looking to get in and buy into companies with a good long-term outlook which are currently undervalued.

There is often confusion over the terms "creative thinking" and "innovation". Many view them as one and the same, but in reality they are very different. One means ideas, the other means action.

The term "innovation" on its own can offer several possible meanings. Innovation has to be about output - the act of doing something, either to improve an existing product or process, or invent something entirely new. The "laziness test" is an effective way of identifying good innovation - does it make my life simpler, easier? Does the product that has been through the innovation process perform in more efficient ways for me?

I view innovation and innovation policy as more than focusing on new ideas. An idea is not enough to qualify as innovation. It is about outcomes and providing the means to experiment with new concepts. Innovation is not an aim in itself, but a tool to achieve what the market is looking for in terms of constant improvement.

"Giving money and power to government is like giving whiskey and car keys to teenage boys." - P.J. O'Rourke

"Every additional function undertaken by the government, is a fresh occupation imposed upon a body already overcharged with duties. A natural consequence is that most things are ill done; much not done at all, because the government is not able to do it without delays which are fatal to its purpose; that the more troublesome and less showy, of the functions undertaken, are postponed or neglected, and an excuse is always ready for the neglect; while the heads of the administration have their minds so fully taken up with official details, in however perfunctory a manner superintended, that they have no time or thought to spare for the great interests of the state, and the preparation of enlarged measures of social improvement." - John Stuart Mill

John Stuart Mill's observation, in his seminal "Principles of Political Economy", rings even truer today than in 1848 because the scope of Government intervention in our everyday lives has grown far beyond the dreams of even the Baader-Meinhof gang. Governments no longer try to nationalise every corner shop in sight, but instead are bent on wasting our money on futile attempts to administer everything else, from the world's climate to what five year olds should eat for breakfast. The banks aren't being taken into 'public control', but our private lives are and very few people seem to think this is strange....

With the recent explosion of ground-breaking standardised ICT protocols we are witnessing the ever increasing development of wealth-producing technologies and business models.  These business models exploit easily accessible and interoperable global networks, information and knowledge.   

Underlying most technologies and business models is the ubiquitous and somewhat ephemeral world of standards.  Standards support wealth creation by enabling the development of global production networks characterized by outsourcing, the de-verticalization of corporate structure, and new forms of “technological fusion” in which disparate technologies are brought together to achieve new products that exhibit novel performance characteristics and functionality. 

The nature of this global techno-economic system places a premium on interoperability and creates a new level of demand for acceptable standards.  Standards have also become increasingly important for the international economy and according to the World Trade Organisation underlie 80% of world trade in the exchange of goods and services. They form a fundamental part of bi-lateral and multi-lateral trade agreements.