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For those of you that have succeeded at not growing up while growing older, you may remember the simple joy of playing Pooh Sticks. If you don’t recollect this little game, feel free to click here for a little on-line refresher. [*WORKPLACE WARNING: Turn the volume down on your speakers. The “Winnie the Pooh” theme song might forever change how your co-workers view you and your work habits.]
I must admit that I’ve never forgotten. As a child, we didn’t have that flashy “Winnie the Pooh” rooted name for the game, and we didn’t play it riding the gentle currents of a slow-moving stream in the middle of the wood. But you couldn’t beat it as a vehicle for honing a competitive nature, developing a winning strategy, and fostering primitive hydro-dynamic design skills. I and the two boys I grew up with in my Chicago suburban neighborhood spent long hours crouched on the parkway grass in the wake of a rainstorm, peering over the edge of the curb while crawling alongside a torrent of rainwater that rushed endlessly in the street gutter toward the sewer grate that sat just a little ways from our front-door.
We’d race each other again and again, piloting just about anything we could find that would float – leaves, blades of grass, pine cones, litter. When you have a mind for winning as a child, it’s amazing how quickly you can develop a solid strategy to pick out the best “boat” and refine every little detail needed to win even the simplest of games. You soon learned that it mattered how your un-manned entry was aimed when you released it, whether you had the inside slot that hugged the deepest water at curbside or got stuck drawing the shallow rail at the waters’ edge where the current was weakest and it was easy to bottom-out. You invested several minutes between races to reshape a leaf into a small sail, weave together a couple of twigs or a few blades of crab grass to draw your vessel to a primitive point that could help it cut through the water just a little faster than your friend’s make-shift cruiser. Ahh, what a game!
You might be wondering what Pooh Sticks could possibly have do with financial technology, the capital markets or, more specifically, the credit markets and where our economy is potentially carrying us today. Imagine that the fastest flows created by today’s best capital markets technology platforms create the current of the rushing waters upon which you are expected to sail alongside your competition. That technology is fast and strong – far better at moving vessels deposited in its currents than anything ever before. You’d think you could fly when you drop your little pseudo-boat into the fray. But, wait, you and all your friends are expected to pilot a bunch of cubes of varying sizes, weights and materials that you have been charged to “sail”. Who made this decision? They are clumsy. Some soak up the water and sink. Others may be water-tight, but they certainly weren’t made for speed. When you drop them into your fast-moving stream, some scrape the bottom and stall, others are so big that the drag on their leading edge makes them appear to lumber even when the waters enveloping them rush passed. Yet others are just a little imbalanced and spin randomly in the water as they meander as much to each side as they do toward the end-goal of that sewer drain.
Each one of these cubes represents individual credits that when tossed into even the truest currents produced by the best, most efficient, fastest of today’s technology flows, struggle to maneuver in unison with the technology. Certainly, they move more efficiently than they could in a pre-technologically empowered era, but let’s face it, they weren’t built for this. They are solid. They are reliable, but they are not agile, streamlined, or designed for the automation that today’s markets demand. They are your old wooden row boat being tossed into a regatta – they don’t stand a chance.
Pooh Sticks and the Need for Speed
Returning to the core principles of winning at Pooh Sticks that we learned as a child, you know that if you want to take advantage of that fast-moving flow of technology, it’s time to throw out the old design for “credit” in favor of something built for speed. Technology can move credit through the market place faster than ever before, but with a redesign of the rudimentary elements of how credit itself is executed, it can travel much faster. The first thing to be done is to forego the immobility of design inherent in the old-school “credit cube”. Cubes are built for stability, not the motion created in a fluid market – nothing about them flows. If the market hopes to take advantage of what not only today’s, but tomorrow’s, technology has to offer, it’s time to strip credit down to its roots and rebuild it as a much more hydro-dynamically designed surrogate. It needs to be sleek and simple in its components so that it produces less resistance when confronted with market factors. It needs to be highly standardized so that technology can not only push it along with its indigenous currents, but can grab hold of it and sling-shot it forward to produce even greater execution speed, tradability and liquidity. That agile new design applied as the “post-technology” standard will breed a next generation of credit market functionality that brings with it strength, resilience and market depth – all of which play together to make our friendly game of Pooh Sticks into a real thriller.
A next generation credit system calls for more than just technological advances. It requires a core re-think of how credit looks and behaves when placed in the flow of that technology. Once that foundational re-design has been implemented and commercialized, almost anything becomes possible. The mastery of a whole new credit asset class that permits fractionalization into smaller, more standardized market-friendly pieces breeds liquidity, harmonizing with the natural flows of technology. To get a glimpse of a winning entry in the next generation of technologically-enabled credit, spend a few moments to understand the Master Credit Participation Certificate or “CPC” – what the future of credit looks like.