Missing the Dollars to Pick up Pennies

This afternoon, I did the Stand Up with Pete Dominick on POTUS Sirius XM with my buddy, Pete.

One of the questions that popped up was the road signs that accompanied the highway and bridge work of the American Reinvestment and Recovery Act. Apparently, these cost $20 million of the $785 billion dollars spent on that stimulus.

I told listeners it was disingenuous (I believe I used the words “idiotic”) to discuss such a piddly sum relative to a $14 trillion economy, and that we didn’t have time to go over such meaningless (in government terms) sum.

There are two things I wish I had time to discuss on the air:

1) Really Big Numbers are hard to comprehend. For obvious reasons, many people have difficulty relating to astronomical numbers. A trillion is beyond comprehension for most folks, even a billion does not compute. But a million dollars is something that is comprehensible.

Hence, someone can easily grok a $20 million expenditure as “large”, but a $14 trillion economy is simply beyond their ability to comprehend.

Clark Taylor put it even more simply on Twitter: Let’s compare the $4Tril to a person’s $50k annual income. $4Tril is to $20Mil as $50,000 is to $1. (UPDATE: To be more precise, its 0.000005% — 25 cents).

That puts it in terms easily understood by anyone.

2) Focus too much on the pennies and you miss the dollars. Ace Greenberg served as CEO of Bear Stearns from 1978 to 1993 and Chairman of the Board from 1985 to 2001. He was notorious for having employees reusing paperclips. (See Memos from the Chairman — its one cent on Amazon).

During the course of his leadership, Bear plowed headlong into securitizing billions of dollars worth of mortgages. They used lots of leverage, had multi-trillion dollar derivative exposure. Eventually, their subprime housing exposure collapsed the firm, and its share price fell from $172 in 2007 to $2 in a sale to JPM on 2008 (eventually raised to $10).
Entrance to the Bear Stearns Tower the morning of the JPM rescue


I estimate that the CEO and Chairman of Bear Stearns spent a few 1,000 hours over the course of his career having people reuse paper clips, saving a few $1000 dollars. When Bear collapsed, its market capitalization went from  $25 billion to almost nothing.

That is what happens when you focus on pennies and ignore dollars . . .

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