Doesn’t this new version of the dollar bill do a perfect job capturing the essence of the Treasury Department’s current state of mind?

I’ve been having a great debate with one of my closest colleagues about what is going on with the financials and the housing market. We differ on many points, the largest being that he believes that a mark-to-market system is essential and that if you can’t sell something or there is no market for something that it is worthless. I completely disagree.

My analogy is that of a large piece of land you own. The land is so large that very few buyers can buy it. If the asset can’t be sold does that mean it is worthless? Certainly not. But what if there are rumors that your piece of land is toxic and there are environmental issues with it? Does that mean it is worthless? Maybe. But what if there is no evidence to prove that? Most people in that situation would just sit on the land and not really care what it was valued at. But let’s say that one day you get into some financial trouble and your bank is forcing you to value your land in order to loan you money. Rumors continue to swirl that your land is tainted. Eventually you give in and value it close to zero.

This is essentially the situation we are in. However, the reason that CDOs are being forced to be valued so low is that the companies that hold them are public companies and investors are demanding that those assets be valued. There is no market in the CDOs because no one wants to touch them. But the truth is that no one knows what they are worth and no one knows how to value them. And the reason they are difficult to value is because they are debt obligations and the only way to know their true value is for them to play out and see which debts get paid back and which don’t. Even the most scientific method of valuing debt obligations will not come close to what they truly will be worth when all is said and done.

Is anybody who is reading this wondering one key question – IF WE DO NOT KNOW HOW TO VALUE CDOs AND WHAT THEY ARE COMPOSED OF, WHY ARE FINANCIAL COMPANIES IN SUCH DIRE STRAITS? Well that question points to how messed up the entire situation is. It really is a combination of fear factor, overdramatization by the media, and those two factors forcing the value of CDOs be marked to market. In plain English it means that CDOs are difficult to value and investors got worried and labeled them as tainted. The public markets demanded to know their value and since no one was willing to buy them, they booked their value at close to zero.

If you look on TV in the days and weeks forthcoming you will undoubtedly hear people saying that CDOs will turn out to be good investments and that buyers of CDOs will make out like bandits. If that is true, why the hell did we force them to be valued at zero?

And if the government bailout occurs, what will happen is that a floor for the value of those CDOs will be set and then private equity and other buyers will come in and start buying them. And to make matters worse I suspect that even banks and investment banks will get back into the trading of those very CDOs that brought them to their knees!

Some people like to say "No Pain, No Gain". In the private equity world, I like to say "When there is pain, there will be gain." There are lot of people out there who feel that the natural evolutionary cycle of the markets ensure that with every bust there will be another boom. In this day of pain, there will be gain and those who are in position to take advantage of the carnage will come out on top.

One thing unique to private equity funds, particularly buyout funds is that they always have a war chest of capital to deploy. We happen to be at a point where cash in king and these funds can come in and pick up assets for pennies on the dollar. One great example of this is Lehman Brothers and their once prized Neuberger Berman wealth management unit. Word on the street is that Bain and Hellman may pick it up for 1/10th is true value! This is not like buying distressed assets and waiting for a turnaround. NB is a strong brand with excellent cash flow and is a cash cow that will virtually guarantee a high multiple return on both Bain and Hellman’s funds.

Another excellent example of is Barclays picking up Lehmans IB unit. It’s a complete steal and no wonder why Barclays walked away from the transaction last weekend.

Perhaps Lehman filed bankruptcy one week too early. Perhaps Merrill sold out too soon.

Either way, for those that picked up solid assets in this time of pain, they will see gain and you will start to see excellent returns from these buyers over the next several years.

Every half year or so I finally make some time to sit down and improve this blog. Today’s I have officially joined Twitter. I know I am late to the game but in an effort to not feel too dated and be better about keeping up with the system, I have joined Twitter. I’m not one of those people that can keep up pages on Facebook, MySpace, or LinkedIn. Thus, I’ve chosen Twitter because it can easily integrate into my existing blog and because I can keep in touch when I am on the road. I invite any of my readers to follow me on twitter if they like. My username is CXO.

I got a first-hand sense of how badly Goldman Sachs felt the pressure of the crumbling financial markets this morning.   
At the start of a private company’s board meeting I was attending, a director received a call on his cell phone.  One member of the board had not yet arrived, so the director answered the call in case it was the missing attendee.  He dispatched with the caller after about a

From last month’s IBEF newsletter:
…Manoj Mondal is the inventor of the crank pedal – he successfully tweaked the pedal of a bicycle to an extent that it generates almost double the torque (force multiplied by the distance from the centre) than in normal circumstances. In other words, the speed of the bicycle increases from, say, [...]

If you have not yet experienced “Digital Natives” in their natural habitat, come on over to my house on any weekend. When I wander down stairs on a Saturday or Sunday morning, the scene is always pretty much the same. The TV is on and yammering away. But my kids are far more engaged in their respective laptops than they are in the TV making noise in the foreground. My 6 year old is likely buying a new go kart for his Webkinz monkey. My 8 year old is busy shooting balloons on Addicting Games. My 11 year old is blogging about some great new Japanese rock band video he found on YouTube. My 13 year old is reading the latest news about his favorite performers on Broadway.com. And, amazingly, while “watching” TV and voraciously consuming the Web, my children are more than capable of fighting with each at the same time — digital multitasking at its finest.

Digital Natives today may be a small group of non-voting, non-credit card holding kids. But soon Digital Natives will be the predominant consumers of media, goods, services. And as such, they will expect their experiences to be inherently digital. Analog experiences will be viewed as quaint — perhaps they’ll trigger nostalgia for the good old days of board games and books — but, in the end, the expectations will be one hundred percent digital. Companies will need to think differently about how they market to Digital Natives. Governments will need to think differently about how they engage Digital Citizens. Doctors will need to think diffeerently about how they treat Digital Patients. It won’t be an evolution — it will need to be a revolution.

I already see this revolution when I’m pitched on businesses whose customers are kids. Businesses focused on children or Millennials (the next big group of consumers being chased by the advertising world) have no interest in the historically analog world. Their products are naturally digital. They acquire customers digitally. They interact digitally. Indeed, any analog byproduct of the digital experience (you know, like meet real humans in person) is just that, a byproduct. Kids want their media consumption, their shopping, their communications to be digital. Webkinz is a great example of this phenomenon — who would have thought that stuffed animals could prove to be the gateway drug to a digital experience? Yet that is precisely what they have become.

In light of all that, it was great to read the timely new book by John Palfrey and Urs Gasser called “Born Digital: Understanding the First Generation of Digital Natives.” John and Urs look into the opportunities and challenges posed by this digital revolution. Those of us with kids are living in and among the Digital Natives and certainly can use all the help we can get to navigate this brave new world both for ourselves and for our kids.

I am a huge fan of John Palfrey‘s. John has spent the better part of the last decade running Harvard’s Berkman Center for Internet & Society. On the side, he has been thrilling students in the classroom at Harvard Law School, doing interesting research, charming would be donors to the Center, and moonlighting as a Venture Capitalist at Highland Capital. He is truly a renaissance man. I have the great fortune of co-teaching a class on entrepreneurship and Venture Capital with John and he is a wonderfully understated speaker and thinker.

For those of you in the Bay Area next Monday, September 15th, I am co-sponsoring an event in the city to celebrate the release of John’s “Born Digital” book. The reception is for friends of the Berkman Center and will include a talk by John about his book. It should be a great group of people and an interesting conversation. There is no need to RSVP to the event, just come on by. Here are the details:

Book Talk and Reception for Born Digital: Understanding The First
Generation of Digital Natives by John Palfrey and Urs Gasser
Monday, September 15th, 2008
6:00PM, to be followed by a cocktail reception.

Hotel Vitale
8 Mission St
San Francisco, CA 94105
(415) 278-3700
Directions and map: http://www.hotelvitale.com/location/directions&map.html

More about the Event: http://cyber.law.harvard.edu/node/4575
More about Born Digital and the Authors: http://www.borndigitalbook.com/
Born Digital in Seattle 9/17/08: http://cyber.law.harvard.edu/node/4576
About the Berkman Center: http://cyber.law.harvard.edu/about

If you have not yet experienced “Digital Natives” in their natural habitat, come on over to my house on any weekend. When I wander down stairs on a Saturday or Sunday morning, the scene is always pretty much the same. The TV is on and yammering away. But my kids are far more engaged in their respective laptops than they are in the TV making noise in the foreground. My 6 year old is likely buying a new go kart for his Webkinz monkey. My 8 year old is busy shooting balloons on Addicting Games. My 11 year old is blogging about some great new Japanese rock band video he found on YouTube. My 13 year old is reading the latest news about his favorite performers on Broadway.com. And, amazingly, while “watching” TV and voraciously consuming the Web, my children are more than capable of fighting with each at the same time — digital multitasking at its finest.

Digital Natives today may be a small group of non-voting, non-credit card holding kids. But soon Digital Natives will be the predominant consumers of media, goods, services. And as such, they will expect their experiences to be inherently digital. Analog experiences will be viewed as quaint — perhaps they’ll trigger nostalgia for the good old days of board games and books — but, in the end, the expectations will be one hundred percent digital. Companies will need to think differently about how they market to Digital Natives. Governments will need to think differently about how they engage Digital Citizens. Doctors will need to think diffeerently about how they treat Digital Patients. It won’t be an evolution — it will need to be a revolution.

I already see this revolution when I’m pitched on businesses whose customers are kids. Businesses focused on children or Millennials (the next big group of consumers being chased by the advertising world) have no interest in the historically analog world. Their products are naturally digital. They acquire customers digitally. They interact digitally. Indeed, any analog byproduct of the digital experience (you know, like meet real humans in person) is just that, a byproduct. Kids want their media consumption, their shopping, their communications to be digital. Webkinz is a great example of this phenomenon — who would have thought that stuffed animals could prove to be the gateway drug to a digital experience? Yet that is precisely what they have become.

In light of all that, it was great to read the timely new book by John Palfrey and Urs Gasser called “Born Digital: Understanding the First Generation of Digital Natives.” John and Urs look into the opportunities and challenges posed by this digital revolution. Those of us with kids are living in and among the Digital Natives and certainly can use all the help we can get to navigate this brave new world both for ourselves and for our kids.

I am a huge fan of John Palfrey‘s. John has spent the better part of the last decade running Harvard’s Berkman Center for Internet & Society. On the side, he has been thrilling students in the classroom at Harvard Law School, doing interesting research, charming would be donors to the Center, and moonlighting as a Venture Capitalist at Highland Capital. He is truly a renaissance man. I have the great fortune of co-teaching a class on entrepreneurship and Venture Capital with John and he is a wonderfully understated speaker and thinker.

For those of you in the Bay Area next Monday, September 15th, I am co-sponsoring an event in the city to celebrate the release of John’s “Born Digital” book. The reception is for friends of the Berkman Center and will include a talk by John about his book. It should be a great group of people and an interesting conversation. There is no need to RSVP to the event, just come on by. Here are the details:

Book Talk and Reception for Born Digital: Understanding The First
Generation of Digital Natives by John Palfrey and Urs Gasser
Monday, September 15th, 2008
6:00PM, to be followed by a cocktail reception.

Hotel Vitale
8 Mission St
San Francisco, CA 94105
(415) 278-3700
Directions and map: http://www.hotelvitale.com/location/directions&map.html

More about the Event: http://cyber.law.harvard.edu/node/4575
More about Born Digital and the Authors: http://www.borndigitalbook.com/
Born Digital in Seattle 9/17/08: http://cyber.law.harvard.edu/node/4576
About the Berkman Center: http://cyber.law.harvard.edu/about