Forget about whether we’re in a “recession” or not, the truth of the matter is the economy is in real trouble, and that means IT is as well.
Over the weekend, the IT world was transformed. Chances are you didn’t notice. No, Vista SP1 wasn’t released, neither was XP SP3, nor the beta of Ubuntu 8.04. What did happen was that on Friday, March 14, the major Wall Street bank Bear Stearns collapsed.
Bear Stearns has invested billions in two hedge funds that were built around sub-prime mortgages. Even as it became clear that holding onto sub-prime mortgages was like hanging onto an anchor, Bear Stearns decided to pour even more money into its sub-prime mortgage funds.
To put it another way, with only a pair of twos in its hand, Bear Stearns decided to go all in. They lost. Even on March 14, when it was becoming clear that Bear Stearns was in real trouble, CEO Alan Schwartz was swearing that the company would show a profit in the first quarter. Sure it was.
At the beginning of that week, Bear Stearns was selling for $70.28 a share. By Friday evening, it was selling for $30 a share. Over the weekend, with the U.S. government giving JP Morgan Chase a $30-billion guarantee it would make up any of Morgan’s losses, Morgan agreed to rescue Bear Stearns from bankruptcy for… $2 a share. For those keeping score at home, a company worth more than $8 billion Monday a week ago was just sold for $236 million.
Now, what does all that have to do with our cozy world of IT? Everything.
Everyone needs money to make money. Even Microsoft, if it’s successful in buying Yahoo, may need to borrow money. Now Microsoft can find a bank willing to loan it a billion here or there. What about your company?