Perhaps the slowdown already has made an impact on your company. Or maybe you can see it coming but aren’t sure exactly when and how it will hit. In either case, the most important thing is to keep your wits about you and not succumb to five common mistakes companies often make when times get tough.

1. Be smart and thrifty, but don’t panic. This, too, shall pass.
Economies go through cycles of expansion and contraction. It’s what we all learned in college economics courses (back then, of course, we weren’t really paying attention). The trouble is, while academics can pontificate on the cyclical economy, real business people have to live through difficult economic events. We love the expansionary times, but the contractions can be painful. If you’re smart, you’ve managed your balance sheet well and can ride out a period of slow or no growth. If not, you may have to make some cuts. Just be careful to trim fat and avoid cutting muscle as much as possible.

2. Marketing is muscle, not fat. Be careful about cutting it.
Just as the savviest investors view down markets as a time to buy when everybody else is selling, the savviest marketers know recessions are a great time to pick up market share. They understand that by maintaining their budgets (or even increasing them) they may not come out ahead during the down times, but they can pick up market share that will pay off in the long run. Marketing dollars in a recession are like oxygen on Mt. Everest—the less there is in the surrounding environment, the more valuable the amount you possess becomes. Cutting your marketing spending is a sure way to give ground to competitors who may be more aggressive during the downturn.

3. Don’t lose focus by chasing business you wouldn’t normally want.
When clients and customers get nervous about the economy, they cut back their spending. For you that could mean fewer transactions, smaller purchases, or possibly both. But if you try to broaden your core product or service appeal to please a wider audience, chances are you’ll make your best customers even less satisfied, giving them one more reason to stay home or spend less. There’s a reason you don’t pursue certain types of customers when times are good, and that reason probably hasn’t changed. Do your best to stick to your knitting and enhance the value you provide to your best customers. They may decide to make their cutbacks in areas other than yours.

4. Don’t discount.
It’s easy to rationalize discounting during a downturn, for your company’s sake (“it helps to drive business”) as well as for the sake of your customers (“they’re struggling and need the help”). But whether times are good or bad, discounting your price discounts your product (BusinessWeek.com, 4/14/08) in the eyes of your customers. There was a time in the 1990s when McDonald’s (MCD) and Burger King (BKC) put their Big Macs and Whoppers on sale so often that they trained their customers never to pay full price. That created a margin problem from which it took them years to recover. If you need to make your products more affordable (to generate volume, goodwill, or both), do so carefully and deliberately. But lower the price instead of offering a discount.

5. Don’t neglect the elephant in the room.
We live in a 24-hour information cycle. When news breaks, people know it, and economic news breaks every day. You don’t have to be an economist to know the business environment isn’t in the best shape right now, and the point is brought home to your people in a personal way every time they go to the grocery store or fill up their gas tanks. Even if your company’s revenues have held up, your employees know there’s trouble afoot and they’re nervous. Make sure they know you’re on top of things and have a plan.
There’s no telling what lies ahead over the next several months. We may pull out of our economic rut more quickly than anticipated, or we may be in for a prolonged rough ride. But clients and customers will still need to eat. They still need transportation. They still seek entertainment, clothing, vacations, chain saws, pet food, perfume, office supplies, computer servers, tractors, and machinery. As the market tightens up, the best positioned players will survive and thrive. Avoid the mistakes above and you’re more likely to be one of them.

1. I’m booked for at least six weeks. I couldn’t handle another deal if it landed on my desk.

2. My business development discussions, if I get into a good one, take an hour. I only have 45 minutes to make calls now so I should wait until I have more time.

3. This isn’t a good use of my time. Somebody else should source leads and I should deliver work.

4. I’m not good at it so what’s the use? (And I sure can’t tell anyone this, so I’ll make up another reason.)

5. In my business, leads only come through referrals. Proactive outbound business development, even networking, doesn’t work. Why bother?

6. I’m deathly afraid of selling.

7. If I reach out to prospects, I will sound like a used car salesperson. Since I’m a professional, I can’t set up that dynamic.

8. I know how to talk about what I do (I think). Yet, for some strange reason, the words never come out right.

9. I don’t even know who to contact. I have the time and the will, but what do I do?

10. I hate selling.

Pick your poison: You’re too young or too old. You’re better in the mornings and it’s late in the day. If you get into a conversation, you will need to get your boss on the phone, and she’s not around. Dog ate your Rolodex.

Regardless of your reason, the end result is the same; another day goes by and you don’t work on business development.

#1 Reason Professionals Fail at Business Development

Full-time sales people spend all day selling. They show up to work, grab their Starbucks (or, if you live in New England, Dunkin Donuts), and start contacting customers. Maybe they start at the break of dawn and sell till midnight. Maybe they wait until the crack of noon and only sell until tea time. Regardless of the time commitment they put in, if they’re working, they’re explicitly selling.

Most CPAs (or technology consultants, or lawyers, or management consultants) show up in the morning and start doing accounting. They crunch numbers, manage teams, and take client meetings. Maybe there’s an hour and a half window in their schedule in the late afternoon. Here’s what most of them won’t do with that time: business development.

That’s right, 9 out of 10 professionals agree that engaging anything but business development in their open time slot is best to whiten teeth and freshen breath. The number one reason that professionals fail at business development: finding something else to do, or doing nothing, when they could be developing business.

Nancy Reagan Says

You will not grow your practice or be as successful as you can be until you stop avoiding business development.

Fortunately, the answer is simple: Start selling now.

Unfortunately, it is not that easy to take a deeply imbedded behavior (not selling), flip a switch, and be able to do today what you did not or could not do yesterday.

Nancy Reagan’s solution to drug addiction was, “Just say no.” For a few people, this might have been enough, but for the majority a greater effort was clearly needed in order to effect change. It was probably no easier for an addict to just-say-no as it might have been for a homeless person to just-buy-a-house. It doesn’t work like that.

And it doesn’t work like that for professionals who want to develop business.

You can’t “Just Say Go!” and magically develop a hankering for dialing the phone. For the most part, it takes a robust personal change effort to make the transition from business-development-avoider to focused-client-developer.

Breaking the Business Development Avoidance Rut

If, indeed, you want to stop avoiding business development, remember:

• Respect the effort. Realize that it takes significant time, effort, energy, and sometimes resources to develop business and stick with it. If you do not have a healthy understanding and respect for the serious work of systematically developing business, you risk false starts. (This is akin to what Mark Twain said about quitting smoking: it’s easy to do and he’s done it a thousand times.)
• Leverage your team. Seek help if you are stuck in a sales avoidance rut. Breaking out of a rut alone is extremely difficult. You will find help in the form of a peer, coach, boss, or someone else. Whoever it is, involving the right people increases your chance of success.
• Develop an ongoing strategy. Before you engage ongoing business development, know what tactics you are going to employ and why. If you have a clear end goal, and know how each tactic you undertake helps to get you there, you will have the best chance of success. Business development is a mission. Make sure you know where you are headed before you set out.
• Just Say Go! Resolve to start developing business. Until you have a personal sense of urgency around business development, you will not start doing it. While just-saying-go is necessary in order to get you started, it is definitely not sufficient for success. Still, you need to first get going in order to have any chance of success. As Wayne Gretzky says, “You miss 100% of the shots you don’t take.”

We make light of excuses for avoiding business development in order to raise the issue. Breaking the cycle of excuses and starting to develop business is never as easy as it sounds. But you can do it. Do what you need to do to prepare for success, know what you are going after, and then “Just Say Go!”

By Mike Schultz (Source: eyesonsales.com)

When you hear the words “I need” and a description of what’s “needed” do you immediately start to design and quote or sell? If you do, at the end of the sales process, you often hear “Great Idea but It?s too expensive”, don’t you!

Can you really afford to waste time selling with the outcome being “sorry, not enough budget”?

Up front and immediate qualification of things like cost vs. budget is a must for any sales process. It’s the reality check that can get you a sale or let you scale down the expectations of your prospect so they can get a solution at their budgetary level.

Yes, I did say “up front” as in way before you even start to sell, as in the first call! – Up front qualification for budget availability, how to get cash obligated and available, the evaluation and buying process, how things get bought and who needs to be involved to get to yes.

It’s all done in about 1 minute on the very first sales approach call and its results tell you if you have a prospect, have money available to buy and even if you should continue with the selling process because there is a reasonable chance for a sale if you do.

Here are some steps for doing this:

1. First off, do some research and understand the target company, especially how and why your product or solution can help.

2. Next, make a short 30 second commercial based on your findings that can quickly and succinctly say what you do, relate pertinent issues, benefits and problems solved and let you ask if it’s something that the prospect needs or would adopt.

That’s not “ABC”, that’s up front qualification.

3. Next find and define who would be right to hear that commercial at the highest level of responsibility and authority, relate to it and give you a true assessment of need/value on the spot.

4. Then make the phone call to that person and use the 30 second commercial.

After the commercial, ask for and qualify the possibility of need or value for what you have explained from the person you are speaking with. Ask it this way “Is this an idea that can benefit you and your company?”

5. If yes – ask how, why, reason, problems solved, impact.

This creates a link between you and the person that you have called for the sales process to begin that, if persued properly, you have the basis of selling value/ROI and not cost and you know it has possibilities to yield a sale based on those criterion.

Actually, that’s the basis of a solid sale- Perceived value and or ROI, not cost!

6. If no, or you get a weak maybe, stop selling, say thanks and move on to the next prospect.

Don’t waste sales time on this one. Yes it’s OK to say “Thanks for your time and your honesty. I can see that our solution isn’t applicable to you” and then ask “Do you know of a colleague that could use my solution” and you might get a great prospect to call. Even an introduction.

7. If yes, ask about and learn the process for moving forward and facilitating the outcome being a funded PO.

Ask “If we do have a worthwhile solution for you, who along with you would need to be involved in evaluating, adopting and purchasing your concept”?

That teaches you who to approach beyond your initial contact and does not insult the person you are speaking to. Even more important, since your idea or solution has already been acknowledged as worthwhile by the prospect. using this question also lets you ask them for help in moving forward.

You will get that inside help or as we call them in sales the inside CHAMPION who can sponsor you and your idea/solution up the ladder, a very valuable inside ally in any sales process.

Remember, don’t say “who is the decision maker”. It?s an insulting question because it says to your suspect “you are a peon so tell me who to go to.” WRONG!! The “peon” is the gate keeper and can help move you forward or kill a sale because they are usually the resident expert that the decision maker consults for value.

8. Get Budget qualification up front – Get it qualified immediately in this first call. After the 30 second commercial gets receptivity or the caller has finished telling you what they want to buy, in either the proactive or reactive situation, state a rough cost right then to your suspect for the solution and ask if there is a budget for implementing the concept if it?s a worthwhile idea.

Yes, I did say bring up budget and possible cost right away and yes it violates every sales rule that you have learned.

Don’t even think of continuing the sales process without knowing the answer to this budget and budget process in call # 1 because the answer you get reveals the time and process needed to get the sale and your prospects perception of “how much” they think your solution should cost. It lets you measure if it?s worth your time v the ultimate sales value as well.

Don’t be afraid of this question so early in the process. It tells you if you can proceed with your idea.

It also lets you ask and understand what the company’s usual process for evaluating and ultimately purchasing your idea is.

That’s a clear road map to a financial yes, the key to the PO so get it and work it. That’s also true when you get a call from a “potential” customer telling you that they are going to by a specific solution just like yours.

End users rarely have a handle on real costs nor have they correctly obligated enough budget so do not spin your wheels without qualifying need v probable cost and available budget.

Incidentally, doing so lets you advise them re their budget inadequacy and it?s an opportunity to sell a starter system using the available budget.

Remember, people do things for their reasons, not yours. So instead of deciding that you know a prospect needs your service and trying to ram it through, follow the steps above, use the 30 second commercial up front and you will avoid chasing rainbows that do not become sales.

Tangible Results for you:
Because you are working with solidly qualified prospects who have or will spend the $ for your solution, you will up you close rate and reduce the time it takes to get the sale. More income faster from more sales—That’s a great equation for business development types isn’t it!

—

Neil Licht
Senior Training Manager, Instructor and 25 year sales industry veteran

I came across a very interesting article by Geoffery James on closing a sale in which he breaks down the process or in fact gives structure to the mystery of closing a sale.

Here are the six steps, as described in the post above.

• STEP #1: Ignore the ABC Strategy

More often than not, the ABC (Always Be Closing) strategy has been adopted as if from the Sales Bible. Very rarely do sales people understand how put off their clients would be by being pressurized to take the deal. The last thing you’d want is to make the client avoid doing business with you.

Its important to modify and use ABC so that so you do “always remember to close” – close for the next step, close for how long the evaluation will take, close for who along with you needs to be involved, close for budget info, process, availability, close for mutually agreed to exploration points, analysis points, specific basis for evaluation, specific basis for deciding to purchase.

• STEP #2: Cultivate the Right Mindset

I believe that to be truly successful in any role that you are in, you have just got to be proactive and think out of the box. This is one of my favorites. Geoffery quoted “The clock has only one time – right now!”,which is so true when you want to win a deal.You have to be persistent.

Simple things such as remembering to send a tailored follow up letter or email to the customer within one day of the meeting would make it a deal or no deal. But to be a good closer, you have to back off when you have to. For example, when you realize that by going through with this deal, you would be alienating the client or damaging the relationship or company reputation, it’s best not to go for closure.

• STEP #3: Set an Objective for Every Meeting

We’ve all read and heard about setting SMART objectives. Yes that’s it Specific, Measurable, Achievable, Realistic and Timely. But in the world of business development, its shouldn’t be simply achievable but “Aggressively Achievable”. But you can’t be overly aggressive either. You can’t simply set an objective such as “I will close the deal today” when its a multi million dollar deal with multiple decision makers involved!

• STEP #4: Constantly Check If You’re On Target

At all times during the sales cycle and during the meeting, you have to constantly keep track of where you are headed. The basic selling process is identifying the customer’s objectives, strategy, decision process, time frames etc. You should understand these aspects well to customize and tailor your product/ solution to satisfy those needs.

The ‘checking process’ : always ask open ended and non-leading questions which will help you get a feedback from the client on what you’ve just said and also to gauge the client’s response.

Bad Qn: Do you agree? / Does that make sense to you?

Good Qn: What do you think? / How does that sound to you?

Unlike leading questions, checking questions encourage the customer to provide you with frank, vital information. Example:

BAD:
You: “We have a first rate delivery capability in all key markets.” (The salesperson did not check after expressing this view.”)
Prospect: “How do you handle invoicing?”

Note that in the example above, the conversation has moved on and you have no idea whether the customer agrees or disagrees with the “first rate delivery” assertion.

BETTER:
You: “We have a first rate delivery capability in all key markets. Do you think that might be useful?”
Prospect: “I’m concerned you can’t meet our global needs.”
You: “I understand that you have global needs. Why do you feel we may not be able to meet them?”
Prospect: “We want feet on the street and you don’t have international offices.”
You: “It is important to have people deployed internationally. For that reason, we have partnerships with the top companies in regions where we don’t have our own offices. Would that address your concern?”
Prospect: “It might, providing you can invoice centrally.”

Note that in the example above, you are now learning what the prospect thinks and repositioning your company’s capability in order to build toward the eventual close.

Geoffery suggests that if you do the “checking” process right, the client will preemptively close the sale by saying something like “When do we start ?”.

• STEP #5: Summarize, Then Make a Final Check

After all the product/ solution awareness and checking process, comes the closure. If the client hasn’t preemptively closed it, you’ve got to make the move. Here’s the mechanics of the close:

First, give the customer a concise, powerful summary that reiterates the benefits of your products or services. Once you’ve done this, make one final check – not for understanding but for agreement. Example:

You: “Our worldwide service capability will allow your employees access anywhere they travel, at a cost that’s significantly less than you’re spending today. How does that meet your objective?”

Now you’ll either get a green / red light. If there are any objections, it will come up. Handle it and then go for the closure again.

• STEP #6: Ask for the Business

The most important of all steps – ask for what you are there for – the business!

You: “We are ready to start. Will you give us the go-ahead?”

If the customer declines, acknowledge that fact to the customer and then find out why. As appropriate, make a second effort. Regardless of whether you actually closed, end the meeting with confidence, energy, and rapport to make a positive last impression.

Thank the client for the business or reinforce the desire to work with the client.

Nevertheless, DO NOT FORGET to follow up with the client immediately.

Interesting Read….

Who sells the largest number of cameras in India?
Your guess is likely to be Sony, Canon or Nikon. Answer is none of the above. The winner is Nokia whose main line of business in India is not cameras but cell phones.

Reason being cameras bundled with cell phones are outselling stand alone cameras. Now, what prevents the cell phone from replacing the camera outright? Nothing at all. One can only hope the Sony’s and Canons are taking note.

Try this. Who is the biggest in music business in India? You think it is HMV Sa-Re-Ga-Ma? Sorry. The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours).

Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India. That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you). But if you imagine that Nokia and Bharti (Airtel’s parent) are breathing easy you can’t be farther from truth.

Nokia confessed that they all but missed the Smartphone bus. They admit that Apple’s I phone and Google’s Android can make life difficult in future. But you never thought Google was a mobile company, did you? If these illustrations mean anything, there is a bigger game unfolding. It is not so much about mobile or music or camera or emails?

The “Mahabharat” (the great Indian epic battle) is about “what is tomorrow’s personal digital device”? Will it be a souped up mobile or a palmtop with a telephone? All these are little wars that add up to that big battle. Hiding behind all these wars is a gem of a question – “who is my competitor?”

Once in a while, to intrigue my students I toss a question at them. It says “What Apple did to Sony, Sony did to Kodak, explain?” The smart ones get the answer almost immediately. Sony defined its market as audio (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won’t compete on pure audio? “Elementary Watson”. So also Kodak defined its business as film cameras, Sony defines its businesses as “digital.”

In digital camera the two markets perfectly meshed. Kodak was torn between going digital and sacrificing money on camera film or staying with films and getting left behind in digital technology. Left undecided it lost in both. It had to. It did not ask the question “who is my competitor for tomorrow?” The same was true for IBM whose mainframe revenue prevented it from seeing the PC. The same was true of Bill Gates who declared “internet is a fad!” and then turned around to bundle the browser with windows to bury Netscape. The point is not who is today’s competitor. Today’s competitor is obvious. Tomorrow’s is not.

In 2008, who was the toughest competitor to British Airways in India? Singapore airlines? Better still, Indian airlines? Maybe, but there are better answers. There are competitors that can hurt all these airlines and others not mentioned. The answer is videoconferencing and telepresence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008. (India has a quota of something like 65,000 visas to the U.S. They were going a-begging. Blame it on recession!). So far so good. But to think that the airlines will be back in business post recession is something I would not bet on. In short term yes. In long term a resounding no. Remember, if there is one place where Newton’s law of gravity is applicable besides physics it is in electronic hardware. Between 1977 and 1991 the prices of the now dead VCR (parent of Blue-Ray disc player) crashed to one-third of its original level in India. PC’s price dropped from hundreds of thousands of rupees to tens of thousands. If this trend repeats then telepresence prices will also crash. Imagine the fate of airlines then. As it is not many are making money. Then it will surely be RIP!

India has two passions. Films and cricket. The two markets were distinctly different. So were the icons. The cricket gods were Sachin and Sehwag. The filmi gods were the Khans (Aamir Khan, Shah Rukh Khan and the other Khans who followed suit). That was, when cricket was fundamentally test cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 over’s. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film’s competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches. As far as the audience is concerned both are what in India are called 3 hour “tamasha” (entertainment). Cricket season might push films out of the market.

Look at the products that vanished from India in the last 20 years. When did you last see a black and white movie? When did you last use a fountain pen? When did you last type on a typewriter? The answer for all the above is “I don’t remember!” For some time there was a mild substitute for the typewriter called electronic typewriter that had limited memory. Then came the computer and mowed them all. Today most technologically challenged guys like me use the computer as an upgraded typewriter. Typewriters per se are nowhere to be seen.

One last illustration. 20 years back what were Indians using to wake them up in the morning? The answer is “alarm clock.” The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony. Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called “alarms.” What do we use today for waking up in the morning? Cell phone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Titan were the losers. You never know in which bush your competitor is hiding!

On a lighter vein, who are the competitors for authors? Joke spewing machines? (Steve Wozniak, the co-founder of Apple, himself a Pole, tagged a Polish joke telling machine to a telephone much to the mirth of Silicon Valley). Or will the competition be story telling robots? Future is scary! The boss of an IT company once said something interesting about the animal called competition. He said “Have breakfast …or…. be breakfast”! That sums it up rather neatly.

Dr. Y. L. R. Moorthi is a professor at the Indian Institute of Management Bangalore. He is an M.Tech from Indian Institute of Technology, Madras and a post graduate in management from IIM, Bangalore

When we talk about today’s financial crisis, we unanimously agree that the root cause is “greed”. But the take aways from such situations are the very lessons that have come our way in previous recessions such as the Great Depression of 1929 which all started with the stock market crash.

So what are the Lessons ?

The 20s were fuelled by an unprecedented number of Americans gambling on WallStreet – not bankers and traders, but everyday Americans. Why? Because of something known as “Margin”. You could buy stock on credit, purchasing a $1000 worth of shares with just $100 down. Once the stock went up which it usually did upto 1929, you could sell it at a huge profit and pay off the credit. So money was made as long as the market kept going.

Eventually, stocks went down. There was a mass “magin call” – time to pay up for the stock you bought for 10% down. But no one had the cash to pay up for such a huge loss. Thus the margin call accelerated the collapse of the market and the banks that funded all that buying. When the banks began tightening under the weight of all the unpaid debt, people anxiously started bucking out their money.I’m sure this is something we’ve been witnessing even to this day. Eventually banks began falling and left millions of people broke. What arose out of the crisis was the FDIC, insuring individual deposits up to $100,000 in all commercial banks.

Whats all this got to do with today’s financial crisis?

Houses became investments instead of places to live and were bought on margin. People bought a house or two or three or more for 10% down or less. Now that rings a bell! You could buy a million dollar house with just $100,000 and guess what, they’d even let you borrow that money! What came out of all this was that people turned out to be enormously rich by buying pre-construction assets and sold them even before completion. The profit of course didn’t go waste, it was further used to buy larger properties. The “greed” kept going on.

At some point which was inevitable, the prices of homes sky rocketed, which although seemed like a good thing at first because of the easy availability of money, backfired. The banks started offering “exotic” loans with little or no money which meant you could buy anything by just paying the interest. Talk about having free lunches! In fact, people were opting for Adjustable Rate Mortgages even when the rates where on an all time low of less than 5% for a 30 year fixed rate mortgage. The “greed” kept going on.

Now, everyone wanted his share of the pie, so eventually the banks decided to go easy on the loan approval rules. Behold the ‘sub primers’! If you don’t have enough income or have got many defaults on your card, no fear the banks are here! You’ll probably just have to pay higher interest rate 5 years down the line.The incentive for these banks were that the sub prime market seemed profitable because of these higher rates. Again the “greed” kept going on.

When the average American started reaping profits and started smoking their Cuban cigars, the investment bankers (the not so fortunate people of today) wanted a piece of this action and so started dismantling their mortgages and repackaging them into De..wait for it.. wait for it.. “Derivatives”.(I’ve been watching a bit too many ‘How I met your mother’ episodes). Investors felt they could rely on this tried and tested, brick and mortar based housing domain. The “greed” just keeps adding up.

And just like that everything came to a standstill; the prices jst stood still, it didn’t drop nor rise.People started getting worried! No, not about losing their houses, but their profits, the ones they earned over a couple of years. As a result, plenty of homes were out on the market, enough to disrupt the demand supply with more buyer power. Yes, the “greed” kept adding up.

Of course, it would be foolish to think that anything would be in an equilibrium when external factors play a high hand and that too factors such as greed. The home prices dropped like an anchor. It was a mayhem. More “For Sale” signs started sprouting up than the greenery as home owners tried to sell the roof over their heads before prices hit the basement. What’s more interesting is that the timing could not be worse. Yes, it was time for those Adjustable Rate Mortgages to have a peak in interest rates because most of them reached their 5 year point. Neither could the property be bought at the new rates nor could it be sold. A perfect deadlock. And we all know what caused it; “greed“.

So there we have it, our economic downturn.

Banks gave ultimatums to pay up or face foreclosure time. Many lost their only homes, the ones they could only afford. But you know the saying, there’s always some good that comes out of anything. Yes there was an innovation, the innovative “jingle mail” :). People just dropped their keys into the mailbox and walked off!

Suddenly those derivates didn’t seem so great. Our great Fannie Mae & Freddie Mac (hence referred to as the BROs) and other banks couldn’t sell & raise enough money from those mortgages to cover the inflated loan and huge home equity lines. 3/5 top investment banks either shut shop or were bought over.

This is where the BROs  came into the frame of things; to create liquidity. Banks gave loans on mortgages which were fixed assets which inturn was sold to the BROs to infuse fresh capital to generate more loans.

But when the BROs gave up buying those mortgages, it disrupted the cycle and reduced liquidity in the market causing a credit crunch; the financial equivalent of visiting starbucks only to realize that they are out of coffee!

The lesson: Don’t mess with things you can’t afford to lose especially if its your home!