September 30, 2008

The Wall Street Bailout: A Credibility Crisis of Epic Proportions

Yesterday's defeat of the "bailout" package isn't just a financial crisis, it's a credibility crisis of epic proportions.

Economists unanimously agree that doing nothing will be a disaster (e.g., serious recession). While the current "bailout" proposal is not perfect, it will make a significant difference.

(As a side note: While I'm known primarily for my expertise in marketing, I have a degree in Economics from Stanford and one of my professor's worked for the Federal Reserve as Greenspan's right hand guy)

The rescue package was supported but top democrats, top republicans, the treasury, the fed, and the President… in other words the entire political establishment was behind this one.

What did Americans say to that?

In no uncertain terms, they said….

WE DON'T TRUST YOU

Bush has a 28% approval rating. Congress has a 18% approval rating. Ouch!

The problem is this financial rescue package is VERY complicated. Unfortunately, very complicated problems often require similarly complicated solutions.

Now if credibility and trust were high, the average American would be much more likely to say… okay, I don't understand this Wall Street thing entirely, nor do I understand this package, but you (Congress, the President) guys understand this stuff, we trust you, so if you say it's important, let's do it.

(Yeah right…)

But, look what happens when credibility is totally shot. Trust isn't there. Americans aren't going to just "take their word for it" and demand an explanation… but to explain the problem and the corresponding solution can't be done in a 15 second sound bite.

Having done a number of television interviews on Fox, I was quite surprised at how little time you get on air. As a guest expert on marketing, most of comments lasted about 1 - 2 minutes… maybe 3 minutes tops.

In preparation for my first live national TV appearance, I found myself spending 2 hours figuring out my opinion on a particular issue and then 4 hours figuring out how to say it in 4 sentences.

I found it surprisingly difficult to do. I would jot down some notes, say it out loud while timing myself, and found myself taking 4 minutes… instead of 2. Clearly not acceptable.

Keep in mind these were for relatively speaking "minor problems" (e.g., some Fortune 500 company making some interesting marketing related decision)… and not rescuing the U.S. economy.

So what's the right approach?

A DETAILED EXPLANATION + A CREDIBLE SPOKESPERSON

To "sell" a complicated idea (or product or service for that matter), the right combination is 1) credibility, and 2) a detailed (yes easy to understand) explanation.

The perception of the "bailout" is that it's a "bailout"–a way of taking the hard earned dollars of the average Amercian to "bailout" a bunch of rich people on Wall Street.

The average Amercian does not understand WHY the Wall Street chaos affects them on Main Street… and HOW they two are related. They don't understand this because nobody has been able to clearly explain it to them. Whose fault is it when the "customer" (in this case voters) don't buy?  Well, it's always the marketers fault… in this case our political leaders.

Requirement #1: A Clear, Yet Detailed, Message

When I explain the Wall Street situation, I explain it like this. The US economy consists of a bunch of dominoes. When the first domino is tipped over, it impacts the 2nd, 3rd, and so on.

In good times, this is beneficial. A few years ago, when housing prices were rising, everyone benefited — there were more loans, more credit, and more consumer spending. The economy grew.

But, this same domino effect is true in tougher times too. When the first domino falls, in this case the collapse of real estate prices, it knocks down the 2nd, 3rd and 4th dominoes.

When housing prices collapsed, it wiped out the collateral that supported mortgages. This wiped out many retail banks. Of course the retail banks themselves borrow money from "wholesale" banks that you find on Wall Street… so they got wiped out too.

These wholesale banks bought insurance from companies like AIG to protect themselves from these problems… so the insurance companies are getting hit too.

So you can see how these dominoes fall one after another - like clockwork. The next domino in line to fall is YOU - the average American on Main Street.

Here's why.

When the Wall Street banks are on the verge of being wiped out, it's impossible to lend money they DO NOT HAVE to the Main Street banks that you do business with every day. If your local bank does not lend money to you, to your employer, to your employer's customers, this is a serious problem.

Imagine a world with no mortgages, no credit cards, no student loans, no business loans, no inventory loans, no car loans… what would happen to your job?

Would your employer's customers do not have access to credit, are they going to buy from your employer?

If customers do not spend, employers can't pay employees and therefore can't provide jobs.

This is how the US Economy works… the "domino effect". Now, the problem is YOU are the next domino. This rescue package is about ensuring the availability of loans to YOU, YOUR employer, and YOUR employer's customers.

I think this is a much clearer and relevant explanation of the rescue package than what I'm hearing on the news today. The average American does not care about something as abstract as "stabilizing the financial markets".  What the heck does that mean to me?  (It's a "theoretical" problem… that most Americans do not feel comfortable spending $700 billion "real" dollars to solve.)

But a clear message must show relevance to the audience… must explain to them what this means to them in their situation.

But a clear, relevant message is not enough.

Requirement #2: A Credible Spokesperson

To be fair to President Bush, he did get on national television and attempted to explain how the Wall Street crisis impacts the average American. While I think his explanation could have been a lot clearer, he had a different problem. His credibility is TOTALLY SHOT.

With a 28% approval rating and a "sky is falling" (e.g., non-existent Weapons of Mass Destruction will be used to harm Americans) reputation, very few people believe him. So it did not matter WHAT Bush said, because without credibility nobody pays attention.

This is why to sell any complex idea — rescue package, product, or service– you MUST combined CREDIBILITY and a DETAILED EXPLANATION.  Without credibility, nobody believes you. For something complicated, a 10 second explanation does not cut it.  CREDIBILITY and DETAILS are critical.

Unfortunately for Washington, they are sorely lacking both.

On a side note, all of the ideas I've mentioned above is the subject of my book Bookmercial Marketing: Why Books Replace Brochures in the Credibility Age.

My on-going fascination with credibility and long-format communication methods is what prompted me to invent the Bookmercial. It's a marketing tool that 1) gives the author immense credibility, and 2) provides a "long format" communication format to complicated ideas.

It's not the appropriate tool to use in every case, but if credibility and details matter in communicating effectively with your audience, then it's quite often a very powerful tool to use.

Spread the Word!

Filed under Marketing Credibility by Victor Cheng

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