Category Archives: Uncategorized

Has Silicon Valley Stopped Solving Problems?

That is the claim of Dan Lyons in the recent Newsweek, wherein he claims that the trend of consumer internet companies (Facebook, Twitter, Zynga, etc.) making gobs of money by doing essentially shallow things will draw engineers and entrepreneurs away from solving the hard problems that have traditionally driven Silicon Valley.

Erick Schonfeld at TechCrunch disagrees, saying that Facebook and its ilk aren’t shallow and are also technically hard, since they have to scale to support so many users.  Most of Schonfeld’s article is, quite frankly, dumb (I mean seriously, using anti-virus software, which solves a real and burdensome problem, to show that internet companies are useful too, is nuts. And saying that Twitter’s many-to-many communication is a bigger tech achievement than the telephone network…dude, do you even know anything about technology?), but I appreciate his viewpoint and that of the many comments his article generated (as usual with comments, they are split between wisdom and inanity).

It won’t surprise regular readers of Thoughtbasket to learn that I come down somewhere between these two poles. I wrote a post on this very topic recently, riffing off a former Gartner analyst who said pretty much exactly what Gross said. Yes, Facebook makes people happy, and some of the technology required to build it to scale might help build other products. But it’s basically a toy, and the technology isn’t that innovative. More importantly, it sure isn’t curing cancer or solving the energy problem.

It’s OK for fun products to do well; Facebook and Zynga make tons of money because people love using them. But Lyons makes a good point: the wealth and attention being lavished on these fun products could lead smart people to build ever-shallower products (hello Foursquare) instead of solving big and important problems. Silicon Valley is a big place, and there seem to be a lot of entrepreneurs attacking all sorts of problems, but the tendency of the press (particularly TechCrunch) to focus on consumer internet companies as if they were the only things of note in Silicon Valley adds to the problem Lyons describes.

Alaska Loves Federal Money

Yesterday I posted about how Alaska politicians talk a big game about wanting the federal government to leave them alone, but in reality they suck down more federal money than any other state. Having just spent a week in Alaska, I brought some photographic evidence of our biggest state’s big appetite for taxpayer money.

Here is the beginning of a beautifully built and maintained trail at the Mendenhall Glacier outside Juneau. You can see that construction of the trail, which must have employed several people to cut brush and grade the path, was paid for by the federal stimulus package. As for the big Bob Marley joint depicted on the sign….it’s unclear if federal dollars paid for that.

Trail paid for by US taxpayers

In Gustavus, a small town which is the gateway to Glacier Bay, a brand new $20 million dock is being built with federal stimulus dollars. I spoke with the owner of my hotel and with the pilot of my whale watching boat, and both said that the dock was completely unnecessary. But it was employing a whole bunch of skilled laborers, so many that they had to come in from Juneau, since Gustavus didn’t have that many construction workers.

The new dock at Gustavus

Here is a photo of all the pickups and SUVs owned by the people working on the dock. Again, these are local workers being paid with US taxpayer dollars.

Construction worker trucks

I have no problem with stimulus dollars paying people to build paths and docks; that is how a government stimulus package works. The government injects money into the system to boost employment and spending.  My problem is with a state that talks about how it doesn’t believe in the stimulus or in federal help at all while it continues to take as much federal money as it can.

The Myth of the Sophisticated Investor

This article in The Big Money discusses how Goldman Sachs’ defense in the Abacus CDO case – that the buyers were sophisticated investors – isn’t entirely accurate, since those sophisticated investors (banks and pension funds) get a significant amount of money from regular folks like you and me. This is true, but it only gets at half the story. In the context of Wall Street, banks and pension funds are not considered the most sophisticated players.

The reality is that Wall Street has a hierarchy, and it’s measured by compensation. Generally speaking, the smartest people go to where they can make the most money. So if you are really sharp, you’re not likely to end up managing a pension fund’s investments and being a civil servant making $200k per year. You might settle for being a bond portfolio manger at a bank, making $500k. But if you are really smart and aggressive – in other words, a sophisticated player – you are going to end up at an investment bank putting together deals that can pay you several million dollars per year.

So Goldman’s “these were big boys” defense has two flaws. One, as The Big Money points out, the big boys got their money from the little guys. But two, the buyers may have been big boys, but the Goldman bankers pushing the CDOs were men. Speaking metaphorically, of course.

Wall Street Is A Casino

Two articles came out in the past week comparing Wall Street to a casino, pointing out that much of the activities of the big investment banks – like the synthetic CDO at the heart of the Goldman fraud case – provide no real value to society and are simply ways to bet on the direction of an event. In this case, the event was housing prices, but the articles ask how that bet is really any different than betting on the outcome of a baseball game or a roulette wheel.

What is particularly interesting is the source of these articles. One was an op-ed in the hyper-conservative Wall Street Journal, co-written by Niall Ferguson, a Harvard professor who is generally quite conservative, and Ted Forstmann, an equally conservative private equity financier. The other article was written by Andrew Ross Sorkin in his NY Times Dealbook. The Times is, of course, quite liberal, but Sorkin makes his living (quite lucrative, according to reports) by having great sources on Wall Street, and generally speaking you don’t keep those sources by insulting them in print.

For conservatives to publish against their leanings, and for ambitious journalists to publish against their career prospects, is a pretty big deal. They must have felt very strongly about the casino aspect of Wall Street to write those articles.

Just in! Here is Eliot Spitzer’s take on Wall Street as casino. You may discount him due to his hooker addiction, but he hits the nail on the head (so to speak) here.

The Role of the Supreme Court

Following up on last week’s post regarding the new opening on the Supreme Court, Dahlia Lithwick at Slate wrote a piece more up to her normal standards, discussing how a court that “shows restraint” essentially just perpetuates the political power dynamic currently in force, enabling tyranny of the majority, which is exactly what the founding fathers wanted the judicial branch to be a bulwark against.

Lithwick’s article draws heavily on this awesome NY Times op-ed by Geoffrey Stone, a law professor at University of Chicago. His money quote is here:

Although the framers thought democracy to be the best system of government, they recognized that it was imperfect. One flaw that troubled them was the risk that prejudice or intolerance on the part of the majority might threaten the liberties of a minority. As James Madison observed, in a democratic society “the real power lies in the majority of the community, and the invasion of private rights is chiefly to be apprehended … from acts in which the government is the mere instrument of the major number of the constituents.” It was therefore essential, Madison concluded, for judges, whose life tenure insulates them from the demands of the majority, to serve as the guardians of our liberties and as “an impenetrable bulwark” against every encroachment upon our most cherished freedoms.

Lithwick also refers to this Huffington Post piece discussing how the Democrats have greatly improved their messaging on this matter, linking economic populism with the role of the Court, as in this quote by Vermont senator and Judiciary Committee chairman Pat Leahy:

“Congress has passed laws to protect Americans in these areas, but in many cases, the Supreme Court has ignored the intent of Congress in passing these measures, oftentimes turning these laws on their heads, and making them protections for big business rather than for ordinary citizens.”

War Against Terror is a War of Messages

With all the talk of whether Khalid Sheikh Mohammed and the other 9/11 terrorists should be tried in civilian or military court, and concurrent discussion of whether Christmas Day underwear bomber Umar Abdulmutallab should have been arrested and Mirandized or shipped off to Gitmo, it feels like there is a lot of macho posturing going on instead of focusing on what is best for national security.

“The president doesn’t understand we’re at war,” people say. “Terrorists aren’t criminals…they’re the enemy,” say others. It seems everyone is jockeying to prove how poorly they can treat the enemy and thus how tough they are. But being tough isn’t the goal of a war…winning is the goal. Being tough is only relevant if it helps us win; toughness qua toughness is pointless.

Of course Obama understands we’re at war; everyone understands we’re at war. Duh. But conservatives don’t seem to understand that this is a war of messages just as much as a war of guns. We need to imprison terrorists and kill terrorists, yes, but we also need to prevent people from becoming terrorists. And the way we do that is with a hearts and minds strategy, exactly as David Petraeus, every conservative’s hero, laid out in the Army’s counterinsurgency manual.

Every time I see or read an interview with someone in the Middle East, or look at the results of surveys from that region, the consistent message is that when the US acts like a bully or a hypocrite (eg. supporting totalitarian regimes while talking up democracy (hello Egypt)), the people get angry and listen to Al Qaeda and its ilk. When the US treats people fairly and follows its own laws, folks in the Middle East think better of us. Look at this graph showing improved Middle Eastern views of the US since Obama’s election. As Stephen Walt writes in Foreign Policy, Bush’s tough detainee policies were a “propaganda boon” for Al Qaeda.

Trying KSM in civilian courts would show that the US follows its own laws; it would demonstrate commitment to a fair system of justice. This would send a positive message to the unemployed Arab youth from whom Al Qaeda recruits. Our civilian courts can handle this sort of case; we have convicted many terrorists already, and they are serving life sentences in prison. Using civilian courts doesn’t mean we are soft. It means we are fair. Coupled with Obama’s aggressive use of drone strikes to kill Taliban leaders, it’s hard to see how anyone will think we’re soft. In fact, the use of civilian courts here with tough military tactics there is exactly the “balanced application of both military and non-military means” (section 1-113) that General Petraeus calls for in the counterinsurgency manual.

In addition, why should we let Al Qaeda claim the mantle of soldier or warrior by trying them in military commissions? It’s far more insulting to treat them the same way we do common thugs and thieves. As the judge in the Richard Reid trial put it, “you are a terrorist. A species of criminal guilty of multiple attempted murders.” Terrorists want to be seen as mighty warriors. Let’s not give them that propaganda win.

FYI, read here about how the guy arrested in Chicago for helping with the Mumbai attacks, and dropped immediately into the traditional criminal justice system, is singing like a canary.

Part of this “look how tough I am dynamic” is a tendency toward vicious attacks on those who disagree. In a protest of Eric Holder’s decision to try KSM in a civilian court, people called him a “traitor” and yelled to “lynch him” (a particularly terrible to say to a black man, by the way). That really doesn’t help. Reasonable people can disagree on the best way to fight this war against terrorism. I don’t think people who argue for military commissions are traitors or unpatriotic. I may think they are wrong about the best path forward, but I don’t think they are awful people or totalitarian fascists. Maybe focusing on policy would be a good idea.

The protest mentioned above, by the way, was organized by Debra Burlingame, the sister of one of the pilots who was killed on 9/11, and a prime mover in the attacks on the DOJ attorneys who have represented Al Qaeda prisoners. Greg Manning, whose sister was badly burned on 9/11, took the mike to say that Holder would be responsible for “hundreds of thousands dead.” I’m going to come out say something that might be controversial: I am tired of the families of 9/11 victims having special status in this argument. I feel terrible about their tragic loss, of course, but that loss doesn’t make them national security experts. Nor should their quest for vengeance affect us; we left eye-for-an-eye justice behind a long time ago.

The Christmas Bomber and Miranda

Bad timing for David Rivkin, who used Tuesday’s Wall Street Journal for one of his monthly attacks on some Obama policy. This time it was about the Christmas Day bomber, with Rivkin saying that not immediately sending the bomber into military detention was “an intelligence failure of massive proportions.” Too bad that the very next day, today, the exact same newspaper reported that the Christmas bomber is again talking to the FBI, providing “valuable intelligence.” This also damages the arguments of this guy and this woman. Look, there are valid reasons to say that terrorists should be viewed as wartime combatants rather than criminals. But claiming that we won’t get good information from terrorists held in the civilian legal system is clearly not a valid reason. And there is at least one good reason not to throw them in military brigs: it creates an appearance of the US being at war with Islam, which appearance seems to generate more terrorists. Finally, I would like to note, again, that George W. Bush also tried terrorists in civilian courts. For Republicans to now claim that this approach is terribly weak is to be hypocrites of the worst sort. Which is, I supposed, to be expected from politicians.

I Agree With WSJ Op-Ed — Amazing!

This is truly a miracle! For the first time in memory, there is an op-ed in the Wall Street Journal with which I actually agree. Mostly. And it’s by Holman Jenkins, who is usually such a tax-cutting, market-loving, poor person-hating cretin that I am often amazed he is even literate. But here we are on the same page. He expresses his views in his usual caustic and hyperbolic fashion, but I’m on board with his analysis.

The issue is net neutrality, and the possibility of FCC regulations on the matter. Jenkins points out that while there is a theoretical possibility of carriers favoring their own content over 3rd party content, this has yet to actually happen. He also notes that carriers invest billions in the infrastructure needed to carry ever more data, and that they need to recoup that investment. Finally, he points out that if carriers do not charge differential rates to content suppliers, the obvious solution is to charge differential rates to content users, namely charging more for heavy bandwidth users, which is clearly an equitable solution. In all cases, I agree with Jenkins.

This is also rare for the Journal, but the first two letters to the editor regarding Jenkins’ column, which can be found here, are also quite reasonable.

Is Sub-prime the New Dot-com?

I recently came across an article that I wrote in 2001, right after the dot-com bubble had burst in the San Francisco area, and I was struck by how similar the themes were to articles that are being written now in the wake of the mortgage meltdown. In fact, replace “dot-com” with “sub-prime” and I could nearly publish the article as is. But I would never be so lazy with Thoughtbasket, so instead I’m going to point out some parallels between then and now. I would like to do this in table format, but my friends at WordPress haven’t added that technology yet, so I’m going to use paragraphs (very Gutenberg, I know (no, not Guttenberg)) instead.

The first, and most obvious, parallel is that of income and spending. During the dot-com boom folks in the Bay Area were making tons of money, and spending it freely. Salaries were high, and nobody bothered saving because their options were all going to be worth zillions. Every fancy restaurant in SF was packed, and there were waiting lists at the BMW and Mercedes dealerships. Audi too, but that’s an SF thing. This is remarkably similar to the mortgage and hedge fund frenzy of the past few years, including my paradigmatic example of the Cristal-swilling mortgage-writing meathead.

A second, and much less obvious, parallel is that both bubbles had specious intellectual theories trying to justify what were obviously market failures. The dot-com’s sham theory was the “new economy,” in which economic cycles were banished, cast into the dustbin of history by the ever-increasing productivity that computer technology would drive forevermore. As the recession of 2002 clearly demonstrated, the new economy was a fairy tale. The mortgage meltdown was fueled by the theory that financial firms could, using mathematical models, split up and quantify the risks in a basket of securities and then sell off the pieces to parties who had corresponding risk appetites, as calculated by their own mathematical models. As the recession of now is clearly demonstrating, the efficient market for risk is a fairy tale. Sound familiar?

The last parallel is the aftermath of the bubbles, the hangovers resulting from what were really drunken bacchanalia of faux-mastery of the universe, with the lucky few guzzling goblets of their own press and in their dizzy haze thinking themselves geniuses. Ex post partyo, of course, there is a period of regret and soul-searching (“I’m never going to drink again”), as people are humbled and their bank accounts flushed, and they try to make sense of their sudden fall from grace. In the case of the dot-com, this period lasted a few years. For a while, VCs lived by their stumbling home mantra (“I’ll never again invest in a company without a business model”), until they saw Twitter. Wall Street remains chastened, still debating whether it should stay in bed or go out for a greasy breakfast, but how long will that last? Wall Street spinmeisters are already pumping out stories about how they have to pay fat bonuses to retain good people. My prediction: by the fall of this year, we’ll see Wall Street reaching again for their beloved goblet.

The CEO President

I’m a little late in writing this, but let’s at least get the thought down on paper (screen?) while Bush is still in office.

During his 2000 campaign and since, much attention has been paid to President Bush’s MBA from Harvard , and the fact that he would be our first “executive president.” This attention focused on the president as CEO, and on Bush’s time in business; in short, it focused on executive competence.

This is a fine idea in theory: management skills are nice in an executive, and it would be good for the president to manage and lead effectively. And it’s not unreasonable to assume that a CEO who is great in the board room might also be great in the White House. I imagine that many Americans would welcome Jack Welch as president.

But the thing is, not all CEOs are actually good at their job. Some are excellent and some suck. Some are terrible managers, or lack vision or strategic skills, or are simply not that bright. Anyone who has spent time in business has seen CEOs who probably shouldn’t have been in that role, but were promoted because they were great salesmen or played politics well or had the right connections.

I knew a bad CEO once. He was in over his head – too young, without enough experience to legitimately be in his position. He wasn’t able to manage the company’s fast-growing organization, let alone lead it. He didn’t have vision, and was unable to develop a strategy that made sense in a dynamic competitive environment.

He actually knew he was in over his head, but refused to admit it. Instead, he got defensive, digging in his heels and refusing any advice or suggestions, whether from employees or from outsiders. The company was essentially paralyzed by the CEO’s inability to manage it. We were unable to develop new products and eventually went bankrupt.

The parallels to President Bush are clear. He too is in over his head, and is defensive and dug in. He seems utterly immune to outside opinion and is making bad decisions as a result. Strategy appears beyond his capability, as does the ability to learn from mistakes. Even his reputed executive competence is a fiction, as Katrina and Iraq have demonstrated.

Using the term “CEO president” is meaningless. What matters in the White House is leadership and vision and competence, not whether someone has been a CEO or has an MBA.