A reader of my post on the financial crisis sent me a link to this cartoon. While rudimentary in its art and somewhat crude in its language, it provides a succinct scenario of the situation from the perspective of the people who made a lot of money before the credit collapse.
When I attended graduate business school in the late 1970’s, the big “change” in finance was examining cash flow instead of earnings. After all, the logic went, how can you make fair assessments on leverage and other ratios if you do not have a basic understanding of the underlying cash flow? A few of us jokingly proposed that the solution to every case study should be the mantra, “cash is king.”
Within a couple of decades, the financial industry seemed to lose focus on examining cash flows and instead focused on earnings, which, in many cases, were generated by exotic financial instruments, some supported by outlandish leverage ratios of 100:1. Others were backed by merely a guarantee (the credit default swap market and mortgage insurance market). Evidently, institutions such as AIG and MBIA believed that receiving a one or two percent transaction fee for a guaranty was “easy money.” It’s too bad that the accountants and the MBA’s weren’t communicating since “risk” has always been a formulation in valuation analysis and the higher the leverage, the higher the risk.
The collapse of the sub-prime lending market earlier this year was just the tip of the iceberg. The tightening of credit by lenders and the mark-to-market of marketable securities were natural reactions (that should have occurred earlier) and unfortunately, have exacerbated the liquidity crunch. Even some of the most secure commercial paper has been impacted with the flight to security by individual and corporate investors in a liquidity-strapped market where there are fewer buyers of bonds.
I had planned to followup my article about Apple with an article about the differences between my generation of computer users and my children’s generation. The impetus for my original plan was watching my eight year old daughters search Google the other morning for the term “cute baby animal pictures.” When I saw that Google was able to synthesize that request and deliver links to some very cute baby animals, I thought about the term Digital Native which I had first heard a few years ago from West Virginia’s First Lady, Gayle Manchin. Gayle is a former elementary school teacher and is passionate about learning about ways in which technology can be used in education to assist teachers and children with the process of learning.
The term she referenced originated with Marc Parensky, founder of Games2train and considered to be one of the world’s foremost experts on the relationship between games and gaming technology and the learning experiences of today’s young people. Parensky holds Masters degrees from Yale, Middlebury and the Harvard School of Business and has been an advocate for the use of technology in classrooms for years. Parensky has even worked with the Department of Defense to establish an educational program that embraces the use of games as positive educational tools.
The lesson I learned from observing my daughters at play was that children who have access to technology are able to utilize it and to think, act, and learn in ways that are vastly different than the way we learned years ago.
Today’s issue of Inside Higher Ed features an interview with John Palfrey and Urs Gasser, authors of Born Digital: Understanding the First Generation of Digital Natives, which focuses significantly on data collected at Harvard University’s Berkman Center for Internet and Society, where both work. The two explore the digital context in which today’s young people are learning and analyze the impact of their digital environment on their learning experiences.
