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Announcing... The 2008 Cognito Holiday Cocktails

Every year, Cognito hosts a holiday party for clients, industry colleagues, and press - and every year, we create a special cocktail menu reflective of the year's biggest stories and trends.

This year, our "Injection of Liquidity Menu" is:

CosmoPaulson - A generous bailout of vodka, triple sec, cranberry and lime juices

Cognito Mojito - A communicative combo of Stoli Citros, strawberry lemonade, sugared rim and mint

Collateralized Drinking Obligation - A complex mix of Stoli vodka, Elderflower water and lychee with a warm orange twist

TARPatini - An instant balance sheet cleaner, with Captain Morgan, Malibu and Myers mixed along with exotic juices 

The Wall Street Bonus - Don't eliminate this sobering year-end blend - an on-the-rocks refresher for some, but not all.

If you haven't guessed, the Wall Street Bonus is a nice, tall glass of water... on the rocks.

The Mob Finds its David....

Republic Windows and Doors...

There are hundreds if not thousands of firms in this position across the US today. The challenge for Bank of America is that Republic Windows and Doors has become an emblem. It’s now a focal point for the frustrations of an entire nation.

Unions and politicians and the media are clearly willing this David vs Goliath story in to existence and to a casual observer this makes perfect sense: Banks and fat cats get a bail-out while the little guy gets crushed. Short, simple, powerful. It ‘feels’ right given what we think we know about the laws of natural justice.

The problem with this view of course is that it’s completely wrong. But it’s very hard to refute in 10 words or less.

What killed Republic Windows and Doors is exactly the same thing that killed Lehman Bros and Bear Stearns: lenders losing confidence in the ability of the borrower to repay the loan. With Lehman/Bear it happened at an institutional level so it’s more difficult to spot but the mechanism is exactly the same and the victims are no less real people with families to support and kids to put through school.

Today Main Street is going through what Wall Street went through 6 months ago. From small business bridge loans to mortgages there is a widespread reluctance to lend. The so called Bailout is in fact an effort by the government to specifically pre-empt this deadlock and get banks to lend again – not just to each other but to you and me. It’s designed to solve the Windows and Doors problem not exacerbate it!

Again this is a classic Wall Street communications challenge. Bank of America has to find a way to communicate the points above but more importantly the whole financial industry needs to do a much better job of educating the broader market about how the economy really works.

Fear Begets Fear

There was a fascinating article in the New York Times today by David Carr, titled "The Media Equation: Stoking Fear Everywhere You Look." 

In it, he quotes: “When everyone is talking about recession, we all feel like something has to change, even if nothing has changed for us,” said Dan Ariely, author of “Predictably Irrational,” a book that explains why people do things that defy explanation. “The media messages that are repeating doom and gloom affect every one, not just people who really have trouble and should make changes, but people who are fine. That has a devastating effect on the economy.”

It's incredible to see how these "doom and gloom" messages permeating the media are trickling down to those consumers who remain still unaffected by the current economy. Friends of mine who remain still safely harbored from the crisis - still with jobs, no mortgages to pay for, no real retirement plans that have lost 40% of their value - even they nervously chatter about the recession and think twice about any sort of spend.

David Carr writes, "The recession was actually not officially declared until last week, but the psychology that drives it had already been e-mailed, blogged and broadcast for months." 

It's amazing to see how powerful the media is and the sort of influence it yields on so many people, particularly when combined with this psychology of panic. One has to wonder what would happen if we turned off the TV, shut down the Internet, and stopped printing newsapers and magazines for a day - would the Dow finally inch over 10,000? 

Optimism, Cynicism and Expectation Management

Former New York Governor Mario Cuomo once said beautifully that politicians: 'campaign in poetry but govern in prose'

And so it begins. 'We as a people will get there' has morphed seamlessly in to 'it will get worse before it gets better' without so much as a wry smile or a knowing wink from our next president. We saw a glimpse of this linguistic retrenchment on election night: 'we may not get there in one year' the president elect declared confidently... 'we may not even get there in one term...' wait, what? Did you just launch your reelection campaign before your innauguration? You bet he did.

- PE Obama is about as astute and strategic a communicator as you are likely to find. He knows how closely his words are watched and he does not choose them lightly. So why this speech at this time?
- Well first of course he is playing down expectations so as to lessen the inevitable bump that will be felt by liberals, Europeans and everyone under 25 when he fails to walk across the Reflecting Pool of the Washington monument on January 20th - but there's more.
- Politically he has nothing to lose and everything to gain from a further (short term) deterioration in the economy.
- He has an ambitious wish list - including his multibillion infrastructure reconstruction which has been on his agenda since long before this crisis - and a desperate congress will be more likely to acquiesce to grand government intervention as it did in 1933 with the New Deal.
- A second, related strength this pervasive sense of panic gives PE Obama is the ability to - in the immediate term at least - sidestep the tricky deficit issue. The Budget Deficit stands at $438billion, nearly twice the deficit inherited by Bill Clinton in 1993 ($290billion). Clinton also inherited a severely weakened economy but its relative strength compared to the current climate meant that his first 100 days were spent, largely unsuccessfully, walking the tightrope between stimulus cheerleaders on the one side and deficit hawks on the other. Today's more pronounced crisis gives PE Obama the opportunity to shelve a potentially bedevilling issue and focus all his attentions on his favorite stimulus programs.
- Finally, and cynically, a rapid worsening under president bush's watch - yes, that's right, I'm afraid he is STILL President - is just that much more of a rebound once the economy is brought or finds itself back on track.

A Message from Main Street

The recent holiday brought me home to Central Connecticut. While driving on I-84 through Hartford, my attention was caught by a large billboard facing the Westbound traffic. It featured a simple message from a local commercial and retail bank – Simsbury Bank – reassuring client’s and prospective clients of the stability and solvency of their institution.

A visit to their Website reiterates a similar message, emphasizing the need for personalized attention amidst the current environment. Clicking on the President’s Message, the viewer is treated to a cohesive explanation of the current state of the market and a clear explanation of the benefits of going local when it comes to personal finance. The message here is an effective distancing from the tumult on Wall Street, with the President going so far as to lay out the bank’s capital position in plain view.

As Wall Street considers absorbing regional and local institutions - making its foray into deposit banking - they should keep in mind the intimate fiduciary message that is necessary on Main Street. Without it, public trust will be harder to gain and healthier balance sheets elusive.

The Financial Sector Needs PR

Public opinion about the financial services sector is at an all time low. The diligent and invaluable work done by many of the professionals in the sector has been overshadowed by the poor management and greed of a comparative few.

The reality is that there are hundreds of thousands of people in this sector who pride themselves on their professionalism, integrity and for whom prudence and good governance are fundamental qualities.

The industry needs a united voice about its commitment to change, to demonstrate the value of its role and its benefits as a career choice.