Cyreenik Says
One of the surprise uses of the never-ending housing boom of the '90's and 00's was the financing of small businesses. If you were an aspiring entrepreneur with a hot idea that took just a little money to get started, you could turn to credit cards or a housing loan to put money where your mouth was. It was a lot quicker and simpler than trying to get a Small Business Administration (SBA)-approved bank loan.
So when the housing dance came to an end, small business creation was one of the activities which suffered, and this contributes to the jobless recovery even to this day.
But, this linkage is not well-recognized. And, in fact, the government, in their infinite good intentions, has made this tool even harder to use with the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank Act is an example of a blunder scar -- it was entacted in the emotional heat of a panic, and has done a lot of damage to one or more sectors of the community, but that damage goes unnoticed or the linkage that causes the damage goes unnoticed.
We Americans need to recognize that a quick and simple small business credit creation tool has been lost. We need to be devoting some national attention to replacing it. When we do the jobless recovery will finally become jobful again.
Update: The S-word is back! Stagflation! This 24 May 11 WSJ editorial, The Return of Stagflation by Ronald McKinnon, talks about how that ugly 1970's phenomenon may be at our doorstep again. If so, it is a sure sign of an economic blunder in progress -- just as it was a sure sign of that in the 1970's. This means that our government financial leaders must do some hard examining of their policies. It's time to put aside nice stuff, such as being green, and get back to thinking and doing necessary stuff, such as promoting rapid business growth.
When you get burned you learn. But perhaps you don't learn enough. This 19 May 11 WSJ Heard on the Street, Going All-In on LinkedIn by Rolfe Winkler, talks about the sky-high valuation of Linked-In on its IPO. I quote the opening:
"Help wanted: To explain Thursday's rocket-fuelled IPO of LinkedIn. Yes, the professional-profile purveyor was public investors' first chance to play the social networking revolution. But by bidding up the shares 109% from the issue price in the debut they threw fundamentals out the window."
Investors are getting hot for the latest technology again... again as in what happened in the Dot-com boom of the late 1990's.
The Dot-com Bubble of the 1990's is recent history. There are a whole lot of players in finance who have gone through this once. So, this becomes a mystery: Why does this look like it's the same bubble happening again?
Time will tell.
But until it does, this looks like instinct thinking doing its thing, and I'm running for Blunder Cover.
Update: More spook from the other side of the stock/bond aisle. Here's a 21 May 11 WSJ Intelligent Investor article, Own Government Bonds? Here's Why You Should Be Worried by Jason Zweig, explaining that Greece may not be the only place with bond worries. The US government could stiff bond holders, too.
This 14 May 11 WSJ editorial, Temporary Sanity in Insider-Trading Law by Holman W. Jenkins Jr., shows another problem caused by The Curse of Being Important. In this case, doing the right thing for the wrong reason.
The right thing was convicting Raj Rajaratnam of Galleon Group of insider trading. The wrong thing was having federal attorney Preet Bharara say this was great because, "Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market. It cheats the ordinary investor . . ."
The problem with this, as Jenkins points out, is that in Bharara's eyes Rajaratnam is not being convicted because he's a bribing, cheating bastard. He's being convicted because he's not playing fair with babes in the woods.
The problem with Bharara's thinking is that any expert is not playing fair, either. And this thinking has two high costs: a) who gets called up and prosecuted can become capricious, b) because of that capricious nature real expertise is of much less benefit, so the good players and potentially good players will play somewhere else. The field will become populated with babes in the woods and many mistakes of ignorance will be made.
These days this conflict between "conflict of interest" and "expertise in the field" shows up in many places. When assembling a regulatory committee or a board of directors (or a jury, for that matter), do you bring in no-nothings who have no conflicts but no expertise either, or people who understand the game well, but also have skin in it?
There is no simple right answer -- no feel-good, instinctive right answer -- to how to resolve this conflict. Instead, this conflict must be recognized as a necessary evil, and analytic thinking, not instinct, must be applied to resolving this issue.
Update: Here's in interesting comment from a 23 May 11 article in Fortune magazine. The article is "How they failed to catch him" by James B. Stewart and it is talking about how long it took (over five years) for the SEC to get its "Ah-Hah!" with Bernie Madoff. The article concludes with,
"As of late 2010, two years after the Madoff scandal broke, the SEC had taken no disciplinary action or other measure against anyone involved in the various Madoff investigations. The SEC officials' collective failure is, as Madoff himself put it, astonishing. It will surely rank as one of the greatest regulatory failures ever, not just because of the size of the fraud, but because it was staring them in the face."
The interesting part for me is that no cries have gone out for someone's head on a platter -- neither from the media or from within the SEC. This is so different than the reaction to the mortgage crisis.
So here we have a mystery. What human thinking explains this difference in response?
o Is this because these SEC investigators are working-class government people stereotypes, not fat-cat banker stereotypes?
o Is this because no ambitious lawyer stereotype sees any perp walk photo ops that will advance his/her career in this circumstance?
o Why don't we see more of the Dodd-Frank "We can't let this happen again, here's a new law."-mentality? (not that I'm complaining)
It's very strange how differently this Madoff scandal business has evolved from the Mortgage Crisis business. It shows the difference in how things are handled between when the media/public get scared and when they don't.
This thought was inspired by a 7 May 11 WSJ article, This Sunday, Moms Don't Have to Be Sherpas by Lenore Skenazy. The heart of the topic is, "How much time do mothers, parents actually, have to spend hovering over their little ones?" The answer to this question is dominated by powerful emotional thinking. Which means that yesterday's answer (the instinctive one) may not fit well with today's real world conditions.
Instinct thinking says, "A lot. As much time as you can afford." This instinct is, of course, well suited to Stone Age times. Those were times when there were a lot of day-to-day distractions that would compel mothers to leave their kids unattended. Things such as gathering, cooking, cleaning, moving the tribe from one location to another, fighting off lions and tigers and bears, Oh My! ...lots of things.
In such an environment with so many compelling distractions a strong instinct to keep the children in mind had great survival value.
But things have changed. The civilized world many of us live in now is a thousand times less threatening to children than Stone Age living was. Infant mortality rates bear this out. What has also changed is how much more discretionary time woman have in the civilized environment.
But the instinct hasn't changed. Which leads to the conclusion of many people that parents who hover are doing more for their kids than parents who let their kids "free range" and discover on their own.
This is one of those cases where instinct thinking isn't working right in the civilized environment. Kids with helicopter parents learn very different life lessons from those who have parents with the self-discipline to stay back much of the time. We need to be aware of that and think through carefully -- analyze -- what are the best choices for parent intervention strategies. Let me emphasize the plural part of strategies. There are many right answers, which also means we as a community need to keep in mind that this is a place were tolerance must be learned and then practiced vigorously.
The instinct here is strong. Adapting our thinking to modern conditions is not an easy lesson.
Update: A 21 May 11 WSJ editorial on predator panic, It's Leave-Your-Kids-at-the-Park-Alone Day! by Lenore Skenazy, describing some deeply instinctive reactions to the proposal to let older kids play in the park unsupervised.
(Note: written 3 May 11) US Special forces have made 2 May 11 a special day in American history. Nine and a half years after 9-11 they have killed Osama Bin Laden. Justice hasn't been quick, and it hasn't been clean, but it has happened. This is perhaps the most emotion-charged event for all Americans in the last nine years, so it's worthy of some Cyreenik Says comment.
My first thought on this is to remember that Bin Laden was always an over-charged symbol. America should never have given him all the attention it did. So if this event helps end an era of over-attention it is a very good thing, indeed. (Here a 2004 essay talking about the over-attention.)
My second thought is: My Goodness! How much of the actual actions of this event are going to be better swept under the rug! (Here is a Wikipedia description of those events.)
Here is my list of rug sweepings:
o Bin Laden was living in a suburban Pakistan mansion for up to five years? Next door to a well-respected military academy?
o Pakistan is an ally, but these American special forces had to sneak in. And, they did! They sent in several helicopters from Afghanistan, crashed one, capped Obama, killed and captured 22 others, and just 40 minutes later flew out with the body. Ta Da!
"Yes, the chaos is strong in this part of the world, Obe Wan."
o They then flew the body a thousand miles south and dumped it in the Arabian Sea so no one could find it.
...Whew! Did they add cement shoes? Did they drive by al-Qaeda headquarters afterwards and throw out a bag containing Obama's turban with a fish in it? This is so gangsterish! Where is the ritual? Where are the pictures of the dead body? Where is the closure on this?
The cheering and applauding of Americans in response to this event in spite of how poorly the ritual side of it has been handled demonstrates just how deeply the emotional regard for Bin Laden still is in America. We have come another step closer to ending an era of deeply emotional fearing, and that is good.
My third thought is: This is yet another blow to rule of law. <sigh> As advanced and civilized as we are, the American executive branch of government felt that this gangsterish way of handling the situation -- including premeditated cold-blooded murder -- was a better way of handling this situation than calling in lawyers and police. And the American people have vigorously supported this solution. The American powers-that-be were too scared and too uncertain of the results to wait for an enfranchising solution -- one based on rule of law -- to be enacted. And the American people have vigorously supported this choice.
Yet another demonstration of how deeply Osama Bin Laden scared American people. And another lesson in how much constant and deliberate effort cool-heads must devote to preaching and protecting the virtues of enfranchisement and one of its foundations: consistent application of rule of law.
Update: A 6 May 11 article in Reason, Blowback: America’s costly, counterproductive War on Terror by Peter Suderman, talking about the huge cost of the War on Terror and how little of it was productive counter-terror spending. (In my words: goat sacrificing.)
Update: This 28 Apr 11 Economist article, Life in the Slow Lane, talks about where we should have been spending money and attention in the 2000's instead of on anti-terrorism. We should have been spending it on building up the US transportation infrastructure and beefing up US innovation. Such a waste... such a waste.
Update: Ouch! We are apparently not ready to start scar-healing yet. This 21 May 11 Salon.com article, Four more years! (Of the Patriot Act ...) by Justin Elliot, talks about Congress and the Obama administration quietly extending the civil liberties and rule-of-law trampling provisions of the Patriot Act. This is a blow to building enfranchisement in America -- if the police can cheap shot you, why shouldn't you cheap shot the police?
This 16 May 11 Reason article, Marine Survives Two Tours in Iraq, SWAT Kills Him by Tim Cavenaugh, shows were going tit-for-tat on cheap shots (disenfranchisement) can hurt the community.
One notable feature of this incident is that weeks later the Tucson police are still being tight-lipped about what happened there.
No talky? Secret policey?
This is adding to the disenfranchisement between the police, the media and the community. The alternative to this SWAT-style paramilitary domestic police violence policy is for the American community to call off the deeply disenfranchising War on Drugs, implement tolerance of various ways of intoxicating in its place, restore civil liberties, and as a result have people, and police, come to expect police who come knocking on their doors ready to talk politely, not shoot wantonly. Achieving this is no off-world fantasy. This is the existing relation between police and the community in places such as Korea and Japan.
I first talked about the Time of Nutcases in August 2011. Thanks to the dramatic breakout of Donald Trump as a presidential candidate in April it's time for a revisiting.
Every community has a steady collection of nutcases available to listen to all the time. What varies from time-to-time is how much attention is given to one or another of these people shouting fringe ideas. In times of stress, when conventional solutions don't seem to be working well, more of the community pays more attention to what the people spouting fringe ideas are saying.
Donald Trump appears to be playing this phenomenon to the hilt. I say this because he seems to be adapting his views on the fly to take advantage of contemporary unease issues, and he's getting lots of air time for his adapting efforts.
What Trump has had long experience at, and is remarkably good at, is image building -- he is good at manipulating peoples' impression of him. His current main tool for that is his reality TV program, and many media people suggest that this current pop-up presidential campaign is mostly about promoting his TV work.
But Trump is not the main issue. The American community is the main issue. Trump is showing us that the 2010's Time of Nutcases is far from over. He is showing us that more people are listening to the fringes, and paying attention.
Update: A 6 May 11 article in Huffington Post, Donald's Circus Act: Trump Reflects National Inability to Address Real Issues by Gary Shapiro reflects a similar point of view. He points out that it is costing the US because the media and many Americans are being distracted from important issues by the Trump circus show. And that this phenomenon reflects the inability of candidates, both Republican and Democratic, to be supported by the party if they don't toe to the complete party line.
Update: A 12 May 11 NY Times article, Buying a Trump Property, or So They Thought by Michael Barbaro, summarizing what Trump is very good at: image management.
I'm reading Ray Kurzweil's The Singularity is Near and having a good time with it.
One of his discussions late in the book concerns the developing of defensive techniques to combat the abuse of new technologies as we develop them. He writes particularly about the GNA revolutions coming soon to a planet near you. (Genetic, Nanotechnology, Artificial Intelligence)
When talking about defensive technologies he points out how successful the software industry has been at combating software viruses, and points out that part of the reason for that is that the industry is largely unregulated. The advantage of this is that information and techniques can move quickly through the industry. This means that defensive techniques in response to new kinds of virus threats can be developed quickly and cheaply and be disseminated quickly and widely. There are new threats being developed all the time in computer software -- cyber attacks -- but the defensive responses to them are being developed and dispersed equally quickly. The net result is numerous but low-impact disruptions.
The converse of this environment is an industry that suffers heavily from The Curse of Being Important, and becomes thick with defensive regulations rather than defensive technologies. The example he gives, and it's a good one, is the healthcare industry and its primary US regulator, the FDA.
Because the FDA promotes "go slow" and "go cautious" as its primary safety tactic this means that defensive technologies are slow to develop, expensive to develop, and slow to spread.
Using a near future biologic virus scenario as a comparative example:
o Suppose a terrorist decides to assemble a covert DIY biological lab of capability level "X". He or she can do so cheaply and quickly compared to a regulated counter part of comparable level, just because of the regulations.
o This terrorist lab can quickly and cheaply do many experiments to produce nasty pathogens.
o A defensive technology counter-lab will have to comply with go-slow, go-cautious regulations, which will raise the cost of its work ten times.
o A defensive technology counter-lab will have to extensively test its work, which will slow an effective response ten times.
o Manufacturing and distributing the defensive technology counter-lab results will also have to be done in regulated ways by regulated places which means more slowing down and scope limiting
Ummm! In this environment are the go-slow, go-cautious defensive regulations really helping?
The "You're our only hope!" of this kind of regulation is that the defensive technology counter-lab is functioning at level "X+" so it can put out a defensive product that is way superior to what the terrorist lab can produce, and thus make up for all its limitations in speed and cost. But... that implies that the defensive technology counter-lab is both much more expensive than a level "X" lab, and that the lab designers can foresee accurately where level X trouble is going to spring up.
Ummm! again!
Genetics is a technology that is going to be full of surprises, and who's going to pay for this defensive counter technology lab? Who's going to make sure that it is big enough and expensive enough to match the surprises coming?
This is a problem that is coming upon us fast and furiously. So we need to be examining, right now!, how to lift much of The Curse of Being Important from the biotech and health care industries. We need to come up with a new paradigm of how the these industries should be regulated, and that new paradigm needs to emphasize structurally inherent speed in defensive response, such as we have in the software industry today.
The key may be <gasp> a much lighter regulating hand.
This biotech scenario is just one example. There are many similar situations happening in the real world. We need to train ourselves as a community that many small goofs with a technology are OK, if they mean that rapid progress is happening and that the technology and techniques to prevent big goofs are being rapidly spread around as well.
We need to lift The Curse of Being Important.
-- The End --