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Here's a great visual from The Deal that explains the packaging and re-marketing of credit. Sort of explains how the badness was turned into goodness and everyone slept soundly at night until the day they realized the badness was real bad. It's also the system that propped up the consumer economy. An economy driven by cheap and easy credit isn't sustainable. For years, the US economy has been running on cheap credit. What happens when it goes away remains to be seen, but companies are need to get amazingly creative if they want to continue to sell in these tough times.



From Paul Kedrosky


Posted by Ed Cotton Cantos has a really good discussion on its site where it explores the implications of the credit crunch on the corporate sector.

The participants include: Robin Bew from the Economist Intelligence Unit, Davide Sola from the (ESCP-EAP) European School of Management, and Paul Anning from Osborne Clarke. It's a long and worthwhile read and contains this interesting quote from Davide Sola.

"If we look at a few numbers, if we look at in the States at the overall level of indebtedness, there was an interesting article from Martin Wolf a few days ago. In the 80s it was about 130% of GDP of the US, now it's 350%. Where does it come that from? The financial sector, number one. Five times it moved from 20 to 130, and also from 50 to 100. Which means that the business sector, they always used that. And banks usually were predicating and saying: "You need to have a certain capital structure, you need to have certain capital requirements if you want me to give you some debt." But then if you look at the bank Lehman Brothers went bust on 31x the capital structure they had.

So, you are predicating to your client that they should have a good capital structure but you're doing exactly the opposite. So I think that this correction is going to allow the people to return and say: "I am an industrialist, I am a service company, I should concentrate on what I do in order to cut cost. And I am a bank, I need to start to be a banker again rather than a financial engineer."



Posted by Ed Cotton Bank of America is a bank that seems to have benefited from the crisis on Wall Street, picking up the brand asset of Merrill Lynch for the bargain price of $50 billion.

However, despite the purchase, B of A's CEO is very skittish about the implications of the current crisis.

Fortune has a good story on Ken Lewis, B of A's CEO, in its latest issue, which includes this quote...

" For Lewis the biggest problem is the plight of the consumer. He sees the credit pie shrinking as Americans, stretched by high mortgage payments and gas prices, their jobs frequently in jeopardy, recognize that they can't afford the debt they already have, let alone add more. "The consumer is deleveraging, just like many of the banks," says Lewis.

I am now expecting to see Planners going off now and start writing their "Deleveraged Consumer" presentations.

Trying to fathom out what this all means and how the consumer is going to be impacted is occupying the finest marketing minds at the moment.

Clearly, the consumer is in no mood to spend as witnessed by the recent spending numbers, but they still have to live and brands are going to still play a role.

There are two critical questions.

1. Who are the brands that are going to persuade the consumer that they matter and are essential to their lives?

2. How are they going to do that?


Posted by Ed Cotton

Posted by Ed Cotton Argentina suffered a serious economic crisis in 2001, with the devaluation of the currency because of pressure from the IMF to pay debts. This lead to mass unemployment and plunged huge numbers of people into poverty.

It was interesting to see what happened in the country which is shown in the film below, Argentina Turning Around.

This is the story of how in some areas of the country the unemployed took control from the government of the education system and created their own co-operative businesses.



With Western economies under considerable economic pressure, it will be interesting how communities self-organize to support and look after themselves. We are already seeing signs of this type of organization with the sustainability movement across the world and it remains to be see if groups will built on this to take back more control and to give their communities a future.






Posted by Ed Cotton Consumer confidence sank to a quarter century low in the April 2008 survey.

The decline was due to high fuel and food prices as well as shrinking income gains and falling home values. “The recent acceleration in the loss in confidence indicates a longer and potentially deeper recession,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Rising inflation, higher joblessness, and smaller income gains has made most consumers more cautious spenders. “Rising uncertainty about future living standards has caused consumers to adopt more prudent spending plans and become more wary of incurring new debt,”Curtin said.

Press Release from Reuters


Posted by Ed Cotton