Online Marketers, Where is Your Bailout Plan?
October 14th, 2008 by Joy BrazellePart I of II – The Problem with the ‘Numbers Game’
Coming Next Tuesday – Part II – Your Found Money
In case you’ve somehow missed the news, on October 3 the ‘bailout bill’ was signed into law, creating a $700 billion Troubled Assets Relief Program to purchase failing bank assets. Essentially, what the plan provided was ‘found money’ for investment banks who made bad choices that eventually resulted in massive ‘distressed assets, especially mortgage-backed securities.’
All other opinions aside, my big beef with this whole situation is that anyone is surprised that the situation came to this. Things like interest-only-mortgages and high-risk credit approvals have been around for years.
How scary is this (some highlights from):
Beware Interest-Only; Liz Moyer, 12.07.05
“For years, it was a perk for the rich, but 2005 saw an explosion of sales to ordinary folks of a product known as interest-only mortgage loans. And now, the lenders themselves are starting to get worried while mortgage brokers continue to push these products for all they’re worth…Lenders piled into interest-only product, eager to keep underwriting volume alive.”
“Some consultants say aggressive sales tactics by mortgage brokers eager to get commissions by encouraging people to switch from their 30-year loans to interest-only products could be the next great focus for aggressive regulators.”
“Ruth Hayden, a financial planner in St. Paul, Minn., calls the phenomenon “Yuppie Money,” and warns against the temptation. “It’s pretending you have more than you have,” she says. “It’s over-leveraging.”
The bottom line is that it is no surprise. Many mortgage brokers were driven by numbers, the wrong numbers. They were told to write ‘x’ number of interest-only mortgages regardless of whether the borrower would be able to pay when the term changes and the full monthly payment is due. No one did the the long-term math to see what would happen.
On a less dramatic, but somewhat as dangerous scale, many marketers still operate in that same type of non-sensible unrealistic bubble – by focusing on numbers that are less meaningful, but easily achievable, like focusing on visitors and not paying attention to ROI.
Companies operating with these types of marketing departments are creating the same scenario as the mortgage brokers who pushed interest only loans to those who ultimately could not afford them. They are painting a rosy picture with no substance. Without metrics for success for every dollar that is being spent in the marketing budget, metrics that factor in sales, lifetime value, and return on ad spend; many companies are setting themselves up to need their own bailout plan.
Coming next week – how to fix this; before it is too late, where to find your ‘found money.’
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