Today the Asper family have to find $100 or start to lose control of their holdings.
This story I think reveals all about what has to be fixed in our system today and as it is so topical is worthy of unpacking.
- Leverage - The heroes of the bubble did not have to be smart - they needed access to leverage. This is true not only for the Aspers who borrowed just under $4 billion - but also for bankers who claimed they were so clever to earn so much money for their bank. Without the access to the leverage they earned nothing - it was the gearing not the smarts behind the bet that made the money. All the more reason to make the right bet which they did not!
- Not understanding the new web reality in media - Like Sam Zell, the Aspers made the big bet into traditional media at exactly the Wrong time. They did not understand the forces that were turning a license to print money into a vortex of value destruction. Their bankers were equally as blind. All would not see that the web would break the business model. None saw how the web was going to kill the traditional model not only in print but also on TV.
- A failure in regulation - Concentration - Allowing concentration in every part of society is proving to be very damaging. Banks and Car Companies too big to fail mean that the nation and the new and better opportunities are held hostage. We spend too much on keeping the Zombies on life support that prevents the alternatives from getting enough space to emerge. Allowing concentration in media erodes the foundations of democracy. The whole focus of the Asper or the Zell empire now is to push cash flow up to the holding company to pay the bankers for the deal. So titles like the Gazette or the Winnipeg free Press, that have their own struggles are weakened further by their need to serve the Aspers personally
- A failure in regulation - Ownership - The Aspers like many who used leverege for their own ends have an ownership of the group that gives the family all the control. There are many organizations that have this structure. Is this right or helpful? Maybe the greatest failure of modern capitalism is the idea of "ownership". We have the fake public ownership of the Canwest type. We have the fake ownership of many public companies where massive liquidity means that shares are merely flipped by traders. We have the reality of many companies where the managers have no stake and merely loot the enterprise such as Enron - you can think of many examples of this I am sure.
- Not understanding the bubble - Many say that they could not have seen this coming. Well many of us did. The signs were clear since 2006. Many took action. To say that they could not see the bubble is to admit that they were blind. To think that we can get out of this mess by 2010 is equally naive and suggests that those who say this have not done the intellectual and emotional hard work to understand what is going on.
An important reason why the Canadian Banks are doing so well relatively is that the leverage and the concentration issues are well looked after by regulation. No one can own more than 5%. None can lever by more than a certain level.
These regulations have kept them from being really dumb like their competitors and has now made them among the most resilient in the world
Real diversity is what is required to have a resilient system. Regulation is one way of getting this.
Give the media back to their cities or to proprietors who will care for their property.
Break up the food cartels that keep our farmers in bondage, that treat people in processing plants like slaves, that drive the destruction of the landscape and that feed us with crap.
Regulate the power utilities to serve their people again.
Get behind resilience as a test for regulation.
I think the choice is clear. Regulation that looked at resilience - the banks - has served us all well. Regulation that has served the oligarchs has not. The comparison is not academic.