The book is about the Wall Street morons and hustlers -- oops, I mean experts -- who, to an alarming degree, control our economy. Anyone who believes in the preposterous "wisdom of crowds" needs to read this book.
For those who don't know much about why the meltdown happened, here's the dumb blogger version:
1. Banks were making loans to people who couldn't afford them, particularly real estate and real estate-backed loans.
2. These loans often contained "teaser" rates which made them very attractive for the first two years, and very expensive thereafter.
3. Wall Street was then making zillions of dollars by taking these loans and bundling them into bonds (it's complicated, read the book) which they were selling to investors.
4. Everyone was complicit: banks, Wall Street, bond rating companies, government, and consumers. It was cheap and easy money. When a few prescient -- I am tempted to say contrarian -- individuals warned that when the teaser rates ended and consumers started defaulting on the loans the sky was going to fall, no one paid attention.The contrarians -- much reviled by the bankers, Wall Street, and government knuckleheads -- turned out to be right. In 2007, when the teaser rates ended, the defaults started. Ultimately this lead to a crash and a global financial crisis, the impact of which the world is still reeling from.
One lesson I drew from this book is this. If there had not been a day of reckoning, that is, a discrete period of time during which teaser rates ended and defaults reached a tipping point, the bubble might still be growing. But because there was a time of reckoning it suddenly became clear that the house of cards could no longer stand.
We are currently in an online advertising bubble. People are rushing to put money into online advertising, particularly social media, because everyone else is. If you are a CMO and you are not spending lots of time and money on social media your management thinks you're stupid.
Nonetheless, there will not be an online ad crash. Here are a few reasons why:
1. In light of plummeting click-through rates, cost-per-thousands for online display ads have come down. This indicates that there is at least some sanity in the market.
2. Facebook, the poster child for social media, can only get ad rates that are, at best, 50% of average (see The Facebook Enigma.) Once again, this demonstrates that advertisers and their agencies aren't getting completely taken in by the hype.
3. Advertisers will continue to insist on cost-per-action pricing, which attenuates the otherwise unbelievable waste (according to a Facebook insider, 2 clicks per ten thousand. Less than half of the already hideous number reported in the trades this week.)
4. Apparently, intelligent clients are starting to get skeptical about all the digital ad hype. According to Chicago-based media management company Strata, interest in online advertising took a big dip (19%) compared to last quarter, while interest in television advertising increased 24%.
5. The always handy, rarely verifiable argument for online advertising as a "brand building" mechanism is only slightly less credible than it is for traditional advertising....and the beat goes on.
6. There will be no "day of reckoning." There is no timetable at which online advertising has to either put up or shut up. Most online advertisers and social media schemes will continue to get lackluster results. Agencies will continue to gin up or misinterpret the results to make them look better than they actually are...