In the six months leading up to yesterday's markets closing the NASDAQ benchmark has lost marginally less than 30%. A dreadful number on the face of it but that looks almost like good news when compared to the decline of more than 49% that eBay's stock has suffered in the same 6 month period.

Trying to explain this underperformance is not as easy as you might think. Yes times are tough for main street America and eBay's leading markets around the globe but there's many who would also argue that eBay's platform should be in a position to benefit from people looking to save on their shopping bills and by offering opportunity to new paying customers as unemployment and business closures continue to rise. But that would be based on viewing eBay as it was and not as it is now.

Some of the brightest brains America has to offer produced and sold mortgage backed securities and equally bright banking brains saw profits and bonuses to be made in buying them. Inevitably, reality inconveniently came along and reminded everyone there has to be some actual quality to the assets people trade. Simply producing an ever increasing and unsustainable volume of dubious quality loans and assuming there would always be more and more buyers willing to acquire them wasn't going to underpin a sustainable business. Was the collapse foreseeable? Of course, but did anyone think to look ahead?

The result is we now see Governments both sides of the Atlantic switching the printing presses on to overdrive to create huge amounts of money to try and overcome these mistakes and, by doing this, create debts our kids can only ever hope to repay if inflation rises enough to make the real value of our debts fall dramatically. Sadly, many peoples wealth will inevtably be destroyed in the process. It's as if nobody thinks long term now. It's all about instant returns and letting someone else worry about the mess tomorrow. I'm starting to wonder if "prudent" is still in the dictionary today.

Meanwhile we welcomed John Donahoe at eBay's helm this year with his clear plan and some major changes quickly came to pass. He has gone all out to use big retailers to explode the number of products listed on eBay while at the same time driving "real people" off the site believing they are unwelcome, unvalued and not worthy of eBay anymore. I presume Donahoe expects the internet fairies to be buying lots of bland, uncompetitive, vanilla flavoured items from the site in future? Who else would pay for items listed by Buy.com on eBay when there's an additional, and rather greedy, mouth to be fed from each transaction compared to the same purchase made on Buy.com's own website? I'm starting to wonder if John Donahoe played hooky from school with some of the folks who made their careers on Wall Street because they seem to have missed the same lessons. Simply creating more and more product listings on eBay with little regard to their quality and assuming they will continue to sell to an ever increasing army of buyers sounds like a worryingly familiar business model to me. There is one big difference however, in this instance, I doubt Government will mint even an extra dime to keep eBay in business should it hit financial problems.

The storm surge of debt our economies have experienced in recent years meant it was inevitable the weakest point in the flood defences would give way at some stage. This isn't 20/20 hindsight as there were plenty of people out there warning this would happen but nobody that mattered wanted to listen. The weakest point turned out to be the housing market that exposed even the biggest banks to the overwhelming effect of so called "toxic assets" which have trashed their balance sheets. Unfortunately, despite Governments best efforts to plug the holes in the flood defences with money, the torrent of debt is going to continue gushing out fast enough that all kinds of short term, unsustainable consumption led business models are going to be exposed. Just as we've seen great names wiped off Wall Street I suggest we are now going to see household name motor manufacturers, insurers, retailers and service businesses drown too. So in this environment the demise of eBay shouldn't be at all unthinkable.

So back to John Donahoe's plans for eBay. I believe they're short sighted and based on flawed expectations. We've seen the dramatic increase in products listed. We've seen the rapid decline in the more eclectic and diverse items that eBay was built on. We've seen the introduction of algorithms and manipulation to favour the big sellers. We've seen the promotion of fixed price selling over the auction format. We've heard the chorus of complaints and witnessed the boycotts by site users. We've seen unofficial stats that suggest the percentage of fixed price listings actually selling have halved but we've yet to hear the real results in financial terms.

No doubt the recent strength of the Dollar will provide an excuse for less exciting numbers over the next couple of quarters despite the assertion the weak dollar was never really inflating previous results that much in the past and, anyway, investors are certainly programmed to receive bad news at the moment. But in time the exchange rate excuse will wear thin and I believe the reason why investors have sold eBay down to less than $16 as I write will become clear for all to see. Will investors allow Donahoe to explain away his flawed plan? If he realises his mistakes and attempts to recreate the formula that has proven to work in the past then maybe. However, if he continues trusting in his spreadsheet models where paying customers are respected only as a statistical assumption then maybe he should be encouraged on his way to an early retirement. My only fear if that happens is he might take a post teaching the next generation of Americans how to do business and get rich quick.

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