If someone else has already pointed this out, please let me know. I have yet to see anyone anywhere make this point.

A lot of people are claiming the current credit crisis as a failure of the free market system.

Now, whatever your stance on the capitalist system is — good, bad, flawed, or perfect, right now that doesn’t matter. This post is here to make one point: the global financial sector does not operate as a free market.

How so?

The banking system operates under the direct support of the government. The US Federal Reserve, just like every other central bank, controls interest rates. Not only does the interest rate act as a price control mechanism, the capital flows & liquidity that are provided to the banking system act as a government subsidy. Without this level of government intervention there would be no business model.

Additionally, there is no historical basis for the long term stability of banking. Again and again government agencies are required to bail out banks, dating back hundreds of years. Nassim Nicholas Taleb pointed this out in his very, very timely 2007 book, The Black Swan.

Why does the banking system continually fail? Leverage. When you have no leverage riding out difficult times is achievable. The model of fractional reserve banking mandates the use of leverage. What kind of profits would banks earn if they could only lend out $1 for every $1 of deposits?

As I’ve said elsewhere, I think we may be facing a full blown end to a credit super cycle. It may happen rapidly, or it may be stretched out over the course of 10 years. I don’t know. With low overhead and nearly unlimited flexibility I am very happy to be in the business I am in. You should be too.

There could be a pretty good explanation for this.

I have made a conscious attempt to avoid posting financial advice or predictions. I do not trade stocks or actively invest in any non-digital assets. For me the return online is far too great to be distracted elsewhere.

That being said, I feel that I owe some advice to those still reading this blog.

The details of what has happened will not be covered here. If you read the Wall Street Journal, watch CNBC, or read/watch Bloomberg you know whats going on. If not, your probably in the dark.

Nothing that has happened was unexpected, new, or shocking. Last year I tore an article out of Portfolio magazine in whichthe end of at least one of the major investment banks was predicted. I stuck it in the bottom of my sock drawer. Out of all of the books, newspapers, and magazines I had read, it just made too much sense. It turned out to be conservative.

Here is what matters for you, as a business owner –

You have to ride out the storm. There just is no other option. It might be short, it might be long. It might clean out some of your friends.

In tough times only cash and the lack of debt or other long term liabilities provide the buoyancy that will keep you afloat.

The collapse of the dot com bubble destroyed online businesses and billions in wealth. Yet some, with more stable business models, made it through and came out roaring. In the aftermath, guys like Frank Schilling cherry picked prime dot com assets for dirt cheap. Similar opportunities may appear again. In fact, they are already showing up (start looking.)

A hurricane is here.

The US government’s attempted intervention could be the calm in the eye of the storm. Its not a bad opportunity to tighten ship; that is, if you haven’t already.

A huge congrats goes out to Markus Frind creator and owner of Plentyoffish –

“VANCOUVER, Canada, July 29 /PRNewswire/ — The latest comScore Media Metrix numbers now rank the free dating site Plentyoffish.com as the leading dating site in both North America (U.S.A. + Canada) and the United Kingdom.”

Take a look at his competition, they are spending millions of dollars a month on advertising. If they stop spending, no one would come close to touching Plentyoffish.

Its not all fun and games, Markus blogged “This morning I spent 30 minutes on the Phone with someone from the US Department of Justices Antitrust division.”

Webpublishing Blog probably over focused on Plentyoffish. Why? Because I loved the business model. Low overhead, simplification, automation, a hideous design to slide under the radar. To this day I have applied those basic concepts to nearly every one of my projects — and its paid off.

Unrelated, but yeah, this blog is officially dead. Though I reserve the right to post here if something interesting comes up.

Day to day tasks add up quick.

I’ve always said only do something if it makes you money or you really want to do. With a few exceptions, you should pay someone else to do everything else.

After a year of putting it off I finally hired a personal assistant a few months ago. Not having one has probably cost me a good six figures or more worth of income primarily in the form of bullshit breaking my work focus.

How much does it suck writing a to do lists? The other day I made one up before going to sleep, and when I got up 8 hours later everything was done (ok, ok, I wake up at noon and I wrote the list at 4 am.)

If you don’t have one yet, get one. Make a posting on craigslist offering generous payment terms and find a qualified college student without another job. You should have no trouble finding a smart employee with very flexible work hours.

My theory on the best investment ever has been proven correct once again.

A few years ago I took a wild shot and believed a guy named Markus Frind. He made some wild claims and quite a few people thought I was gullible because of it. Turns out I was right.

How do you know if someone really is who they say they are? The internet makes this judgment task exceptionally hard. There are no faces. You don’t even know if the person you are talking to is a female or a cross dresser who hasn’t showered in six weeks.

First, you need a base of experience yourself. Bullshitters can be caught quickly when nothing they say fits reality. If you don’t know a thing about the subject at hand, you are flying blind. US investment banks had an easy time hawking complex and overpriced financial services to municipalities. Con artists know making marks feel smart is incredibly powerful.

Second, look at motivations. Does this person have something to sell you or some deal to do? If they have blatant commercial intent, set your credibility meter to 0. People will say and do anything to make money. But hey, we are in business. I have something to sell and so does everyone else I know. The key is do they have something to sell you.

Third, be able to test what you hear. If a claim is untestable or unprovable then your best off ignoring it. You can immediately throw out cult leaders and instead spend your time focusing on reality.

I’ve met many people through the web. Some are genuine, others are clearly liars. Most I’ll just never know who they really are. However, I don’t really care. In general, I judge people based on the usefulness of the information they provide. If a get-rich-quick blogger who never made a dime in their life writes something, and I make $10,000 off it, wonderful.

Because I have been running my business for a while I have some sense of the accuracy of an individual’s advice (rule number one.) If 90% of what someone says is in line with what you already know is true, its a good bet the remaining 10% is true.

Just starting out? Then you need to build up some first hand experience before going all on based off of what someone else says.

One of my favorite bloggers, Diorex, is back online. He has put up his old posts with no promises of making any new postings, but he is returning to my RSS subscriptions anyways. I’m sure if he has something he really wants to say it will be posted. Check them out at http://www.diorex.com/.

If you never read his blog before, check it out. Between his posts and talking to him in person at Ad-tech last year made me critically re-think my business for the better. I suspect he also had quite an influence on Paul over at UberAffiliate too.

Sometimes a picture is worth 1,000 words. Via Adwords:

Meanwhile Yahoo is busy building more niche portals so that is can sell you some ridiculously overpriced CPM inventory.

I am a picky reader. I prefer to take topics one at a time and study them very closely. Recently I decided to start going through all of Warren Buffet’s Letters to Berkshire Shareholders.

The past few years Warren Buffet has made reference to his partner’s book (Charlie Munger), Poor Charlie’s Almanack: The Wit and Wisdom of Charlie Munger. The book went on my “to read” list. However, after seeing an excellent post on Marc Andreessen‘s blog — The Psychology of Entrepreneurial Misjudgment, part 1: Biases 1-6, I immediately ordered two copies of the book.

Charlie Munger preaches the use of multiple mental models when approaching business and investing. I thought that I had a similar approach. That is, until I read Charlie has about 100 (I’ve been using maybe 4 or 5.)

The book gives a run down of Charlie’s life along with a collection of 10 talks he has given. There is a fair bit of repetition in the book’s 500 or so pages, but not so much in a bad way. Other than that, I have nothing bad to say. Do not expect a point-by-point list of what you should exactly do. This is a book about how to think so you can solve problems.

A blog review can’t do this justice. If you want a preview, check out Marc Andreessen’s post I linked to. Like it, you’ll like the book. You can grab a used copy off of Amazon, or get a new copy direct from the publisher.

In my previous post I said that Google is a data company, Yahoo is a content company. How so? They are both search engines, right?

Both Google and Yahoo provide lots of web services. Yahoo always was a portal & search engine, but over the years Google has continued to add more “portal” services — Google Maps, gmail, Google finance, and so on.

Take a closer look at the companies. Compare Google Finance to Yahoo Finance. One of these companies needs an engineer with a cup of coffee, the other needs an engineer, editor, and staff.

Yahoo is focusing on their own on-site content because of the display advertising revenue, there is no doubt about it. There is a problem with this approach. Short term, its not helping them keep up to pace. Long term, this model risks killing their company.

Yahoo is demonstrating a strong interest and desire to pursue an old model — a centralized content distribution structure (walled garden has been a popular phrase lately.)

Consider the two models. Yahoo pushes traffic to their own properties, presumably of good quality content. Google pushes traffic to outside properties, of the most popular content. Google doesn’t have to struggle or focusing on providing fresh content of the best caliber day after day. And, to make things even better, every hit to something the audience like is yet another point for Google’s brand value.

Take a look at YouTube and compare their traffic data to the monster video sites that existed years prior (such as eBaumsworld.) The owners of eBaumsworld certainly weren’t generating their own content. Like Yahoo, they were re-ordering and collecting outside content, presumably by hand. No matter how good the human element got at it, at some point, Youtube’s exponential growth rapidly dwarfed these older video sites within mere months.

Why? Because automated systems can sort and aggregate data far faster and far better than human editors.

Weigh these two things: As Google’s engineers work on rolling out next generation systems Yahoo’s editors have been building sub-portals aimed at a specific age demographic of women.

10 to 15 years out, where will Google be? Where will Yahoo be?

I’ve spent a lot of time weighing content verse data myself. Data won, I changed my business model. More on this topic in the near future.