Nimish, on the valuation point there is something I can’t help but notice in that private company valuations are fully meaningless as anything but a mechanism for determining dilution when new money is raised. The fact that VCs continue to invest at these valuations is almost orthogonal to the broader equity market issues right now because in total it’s not a lot of capital when compared to the tens of billions being written down and much less than the trillions of dollars in credit swaps that are at risk. When you combine not a lot of capital with valuations that don’t really mean anything, well then it’s easy to see why it doesn’t get a lot of attention.

I’ve had an opportunity to look at hedge funds and investments banks really up close and I for one believe that they aren’t all dishonest / evil… I fully agree they need more regulation but so do food manufacturers, drug manufacturers, toy manufacturers, airlines and so on. Why is it worse for Bear or the financial community as a whole? I completey agree with the Q-Q thinking point but most developing economies have exactly the same problem. India, as an example, is actually worse in many respects. There is excessive short term profit taking in many of the firms there that isn’t visible at first glance – even more so than in companies run from the US…

The second point is that if you step back, it’s really bizarre that one on the one hand, the world’s financial markets are in such deep turmoil but VCs continue to deploy large amounts of capital at absurd valuations. It’s a direct effect of how limited partners allow VCs to run funds (the 2%/20% model)… The plan likely is that one absurdly valued company (Meebo) gets bought by another absurdly valued company (eg Facebook). This is the equivalent of passing on an asset from hand to hand, stepping up valuation on each handoff. This is *precisely* what CDOs did at the heart of it.

Party like it’s 1999.

Nimish

Add to that the general performance (and behavior) of the major investment houses, the Blackstone results, Carlye’s problems, and the overall “overclocking” and logic bending behavior of those involved, and the outcomes should not be a surprise.

While I’m decidedly anti-big-government, it is clear that the financial industry is in desperate need of some regulation and oversight, since they’ve proven unwilling and unable to do it themselves (most assuredly the hedge funds will need to be brought into the light, too).

In the end, those who created the mess have usually already pocketed their profits and the rest are left to clean it up.

Let’s hope and pray for a return to sound investment philosophies, corporate responsibility, transparency (why didn’t SarbOx work in this case?), and a longer term, not Q-to-Q focus.

Companies in developing economies have the luxury of being able to think (and act) on a somewhat longer cycle than their public company competition in North America, Europe, and the already first world economies in Asia, typically with less regulation.

One could make a good case that the behaviors that Q-to-Q thinking drives result in “local optima” and will ultimately lead to significant decay in the foundations of the US and European economies.