Archive for November, 2008

What comes next?

November 26, 2008

I’ll go out on a limb and say that common sense should have steered the (reputable) likes of Citi, AIG and Merrill down a different path of less exposure to defaulting assets. Same for Standard and Poor’s, Moody’s, and Fitch, whose ratings models declared packaged tranches of toxic sub-prime mortgages to be practically risk free. To understand what a tremendous gaff this was, consider that Standard and Poor’s default models didn’t have parameters to model declining house prices. They modeled scenarios of only flat or increasing prices, which is idiotic for a risk model. Wall Street isn’t stupid, but they were socialized to make stupid assessments of default risk for sub-prime mortgages.

The first conclusion is TRUST NO ONE. Or at least trust very selectively. Given the dangers of herd behavior, the premium on independent thinking seems drastically higher today than it did six months ago. In fact, showing a track record for independent thinking may be a way to become “trusted selectively.”

The second conclusion is a question: what comes next? The public ownership structure that dominates our economy depends on trust: trust between big corporations, owners of those corporations, and the investment bankers that often broker the relationships between the two. But what happens (besides the market crash) when that trust evaporates?

I predict a stronger role for private capital. One manifestation of this role may be smaller privately held companies. Another possibility is the rise of enormous funds of the likes of Berkshire Hathaway that will either buy companies outright or control large chunks of them and steer management. The managers of these funds will be people to be “trusted selectively” (e.g. Buffet).

This is not the end of public ownership. But it is a strong blow. Are there other ways that private capital can sneak in play a stronger role?

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Instead of a $25 bn bailout …

November 21, 2008

… of the auto industry, how about a $25 billion Treasury-managed automotive venture fund?

The new ventures would claw back some of the jobs that Detroit is shedding. And it would position the US as the center of 21st century automotive technology and innovation.

And, hey, if GM/Ford are indeed the best recipients of capital for innovation (especially green innovation), as some of the bailout supporters claim,  they would still win the funds. But they are probably not, of course.

Seth Godin agrees, I think.

The Why

November 16, 2008

Just spent a day doing college interviews, which is consistently enjoyable in aggregate if not always for each particular interviewee. 

I am the interviewer that the good candidates love and the bad candidates hate. I revel in asking the tough questions far from a candidate’s comfort zones and seeing them squirm — forcing them to engage their own minds in something they’ve never thought about. That’s where you learn who’s a thinker and who’s just well rehearsed. Those who play ball and lean closer when answering are the ones you want to admit and will become dining hall and seminar all-stars. Those who are uncomfortable and tense up get the red stamp of disapproval. One question from today that helped draw that line was:

What is the single worst thing about our world?

And then when they think they are in the clear:

Why?

I was sitting on my high throne of interviewer invincibility when a particularly sassy girl fired back at me: “How about you? Can you answer that?”

Oh shit

..

“I ask the questions here, Lady,” I respond half-jokingly.

But she pressed on and I was forced to run my own gauntlet. My answer was a jumbled mess. A surefire ding if I was in her shoes

Consider this post my mulligan.

My answer to the first question is simple: Global poverty. The “why” is what I want to comment on here.

The common answer is because poverty causes suffering – and that’s certainly a good one and plenty sufficient to take action. My real reason is a tad more selfish.

(With few exceptions) the extreme poor don’t contribute. I’m not talking about the poor in the US. I’m talking extreme poverty, primarily subsistence farming in rural areas.

They don’t invent. They don’t govern. They don’t write books. They don’t produce art. They don’t innovate in a way that matters for the rest of us. They don’t make the wider world a better place. They may have talent – but it’s wasted and ground down in the fight for subsistence. This is the real tragedy. Wasted human potential down the drain, and with it, a better world that could have been.

This is the topic of one of my favorite poems – Thomas Gray’s “Elegy Written on a Country Churchyard.” Standing over the buried dead in a poor rural graveyard, Gray laments and marvels at the wasted potential. The following stanzas in particular drive straight to the point:

Let not Ambition mock their useful toil,
Their homely joys, and destiny obscure;
Nor Grandeur hear with a disdainful smile
The short and simple annals of the Poor.

….

Perhaps in this neglected spot is laid
Some heart once pregnant with celestial fire;
Hands, that the rod of empire might have sway’d,
Or waked to ecstasy the living lyre:

But Knowledge to their eyes her ample page,
Rich with the spoils of time, did ne’er unroll;
Chill Penury repress’d their noble rage,
And froze the genial current of the soul.

Full many a gem of purest ray serene
The dark unfathom’d caves of ocean bear:
Full many a flower is born to blush unseen,
And waste its sweetness on the desert air.

 

Some village-Hampden, that with dauntless breast
The little tyrant of his fields withstood,
Some mute inglorious Milton here may rest,
Some Cromwell, guiltless of his country’s blood.


Less than half the earth’s population is included our globalized world. The rest are isolated, taking nothing from us and also giving nothing back. Bringing them into the fold so that their talents can be put to use while simultaneously improving their lot …. 

…that’s The Why.

 

 

How to kill the magic of human relationships with mathematical precision

November 13, 2008

My friends are pretty cool. Your friends are probably pretty cool too.

Sometimes I feel like mine are the best in the world and you probably feel the same way about yours.

You probably stop there, move on and continue to enjoy your life. The tragically rational among us stop and realize that’s mathematically impossible or at least statistically improbable.

How can you not be overwhelmed by the number of people you don’t know? Or even the people you do know but have not developed a relationship and past history with?

But then again if you spend all your time meeting new people you never develop meaningful relationships with anyone. Clearly there is some appropriate balance between developing relationships you already have and expanding your social horizons. But how do you find that balance?

Not knowing where the correct balance, we can turn to a mathematical model. To make our lives easier, let’s examine a particular type of relationship: Marriage. The rules are you get to pick one person from the set of people you’ve met (no mail order brides) and can not divorce.

Today’s question: What is the appropriate age to get married (or more precisely pick a partner from the set of people that you already know)? Until what age do you continue to search and when do you … for lack of a better word … settle with the best you have?

I put the rest under the fold because it involves a fair but of math and even some integrals .

For those who don’t care about math, the answer is 50 years. You can stop reading now. For the geeks, onward we go…..

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Google hedge fund?

November 13, 2008

Google has announced it’s support in the fight against the flu. The premise is that it can use it’s database of user searches for “flu” or “flu symptoms” to predict outbreaks 7-10 days ahead of time, giving public health officials time to react.

However tracking the flu is just one of many valuable applications for Google’s rich databases. In fact Google provides a portal for users to download data on searched keywords through Google Trends. I recommend spending some time at this site. Here are two of many interesting graphs I found:

googletrends1

It’s interesting that Google has released this data, which likely has proprietary value. Rather than forecasting flu outbreaks or enabling my election analysis, Google could forecast consumer trends and trade stocks based on the findings, hoping to profit when the flu hits. Consider Google’s initiative to predict flu outbreaks 7-10 days ahead of time; what if Google kept their data secret and traded drug companies based on the findings. Before you shoot down this investment idea, consider that there are hundreds of similar ideas lurking in the Google data – some are certainly viable as investment theses.

Alternatively, if Google didn’t want to run a hedge fund, they could probably sell their search engine data to those who do. I’m guessing it’s worth a lot of money, even on the scale of their ~$5B in yearly earnings.

So why does Google give up this info for free? It may be because using it for proprietary profit would incite public outcry and contradict Google’s credo of free information. It also may be that Google does plan to use it – they’re just waiting for the right time. They control the terms on which they release the data and could control the most valuable and timely nuggets for themselves.

No matter the case, this is a gray frontier for Google between their fiduciary profit motive and their avowed sense of public good. Sound familiar?

Google: Please index my life

November 1, 2008

One the greatest source of unrecorded, unorganized yet useful sets of information is the movements and activites in one’s life. 

  • Where were you on the night of March 23rd at 7PM?
  • Which bars have you been to in the area?
  • How much time do you spend in my apartment per week?

That data dies when you forget it.

I now know I emailed my college dean  4 times in April 2006, withdrew $60 from my checking account 10/12/2005, searched for “MTA map” on Google last Tuesday.    

Just like Microsoft indexes my mail, BOFA indexes my bank account and Google indexes my searches, I want someone to index my life.  This should be possible with a gps-enabled smartphone.

Does anyone know any efforts in this space? There’s Brightkite — the best of a underutilzied crop of geo-aware social networking iPhone apps. But those are too focused on socialization. I want to know more about myself, what I do, when I do it. I want a life dashboard. I want my personal history to be searchable.

If Google isn’t 2 years down this road already, there’s a big opportunity out there.