altgate

F*** the Banksta!

I don't know where this came from, but I was reading this article and this one...it's late and well...I was reminded of a song from my college days by NWA called F*** the police, so I did a little rewrite:

Right about now SEC court is in full effect.
Judge Geit presiding in the case of SEC versus the banksta's.
Prosecuting attorneys are MC Roubini, Chris Dodd and Eazy muthaf***in BernankE.
Order order order. Chris Dodd take the muthaf***in stand.
Do you swear to tell the truth the whole truth
and nothin but the truth so help your fat ass?

Why don't you tell everybody what the f*** you gotta say?

F*** tha banksta
Comin straight from the underground
Young banka got it bad cuz I'm down
And not the other color so politicians think
They have the authority to tax a minority

F*** that shit, cuz I ain't tha cleana
For a punk muthaf***a with an audit and a 'poena
To be beatin on, and throwin in jail
We could go toe to toe in the middle of a cell

F***in with me cuz I'm a real major
With a little bit of Goldman and a pager
Searchin my house, lookin for the product
Thinkin every banka is sellin exotics

You'd rather see me in the pen
Then me and Lorenzo rollin in the Benzo
Beat tha SEC outta shape
And when I'm finished, bring the yellow tape
To tape off the scene of the slaughter
Still can't swallow bread and water

I don't know if they fags or what
Search a banka down and grabbin his nuts
And on the other hand, without a won they can't get none
But don't let it be a black and a white one
Cuz they slam ya down to the street top
Black SEC showin out for the white cop

Chris Dodd will swarm
On any muthaf***a in an accrue uniform
Just cuz I'm from the NYSE, punk SEC are afraid of me
A young banka on a warpath
And when I'm finished, it's gonna be a bloodbath
Of props, dyin in DOJ
Yo Geit, I got somethin to say

F*** the banksta
F*** the banksta
F*** the banksta
F*** the banksta

Obama Shoots Down 90% Tax Bracket

CNN reports about Obama's interview on 60 Minutes regarding a House bill that would tax bonuses at 90%:

The president also stressed that his administration won't endorse a House bill that would levy a 90 percent tax on bonuses paid out by companies that receive bailout money.

"As a general proposition, you don't want to be passing laws that are just targeting a handful of individuals," Obama said. "You want to pass laws that have some broad applicability ... you certainly don't want to use the tax code to punish people."

Smart.  Sure the AIG "$167 million bonus gang" deserve it but tax code is a blunt instrument not to be used lightly.  Attempting to use it against a particular person (or "random" handful of people is not a good idea).  It's as if I were to use a 747 for my daily commute to the office 5 miles away.  By way of example, a former board member of mine who was a White House fellow and worked for the Commissioner of the IRS for a year told me a really funny story about how the Commissioner tried to go after taking Hollywood stars who get Oscar gift bags only to watch George Clooney donate his bag and take the write off!

Nate Silver at FiveThirtyEight explains why it's a bad idea in pointing out that a secretary who makes $50K per year and who works 70-hours per week to get a $5K bonus at the end of the year is taxed at 90% (if her husband, for example, happens to make $200K per year).

I do think it is funny that there are now 328 Congresspeople (including 85 Republicans) on record supporting a 90% tax bracket!  We'll see how that goes over in 4, er 2, years.

The Absurdity of the Madoff Conspiracy & the Dangers of the Slippery Slope

Madoff's lawyers submitted a 6-page story in which he admitted to running a Ponzi scheme all by himself with no one else's involvement.  The gall of this guy is amazing, but my favorite bit is where he writes in one place that:

"I want to emphasize...that while my investment advisory business - the vehicle of my wrongdoing - was part of my firm Bernard L. Madoff Securities, the other businesses my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects."

Okay...  But then else where he says that, 

"...I never invested [money from investors] in...securities..."

He relates in further detail how he never bought shares he just moved cash around between various accounts.  He then writes that, 

"In connection with the purported trades [that he was telling his clients he was making], I...charge[d]...clients $0.04 per share as a commission."

And finally,

"At times...these commissions were transferred...to the account for the legitimate side of Bernard L. Madoff Investment Securities - the proprietary trading and market making side of my firm."

This is so amazing to me.  He's basically saying that there was a "good" part of his company and a "bad" part, and, oh ya, please ignore those money transfers between the two sides.  LOL.  Are we to believe there is a "good" part of Bernie Madoff and a "bad" part too?  Maybe we should only put the "bad" part of him in jail?  

The other part of the story that is interesting is how the whole thing started.  While he doesn't give much detail, it sounds like it started small in the early 90's.  Then when the market moved against him he plugged the gap with investor money and one by one he must have dug himself into a hole.  At some point it must have gotten too big for him to stop so he just kept feeding the beast until it blew up.  It's the same story all over again.  It's how Nick Leeson brought down Barings.

I wrote about business ethics last year (incidentally before the Madoff thing became known) and how raising money always presents a slippery slope trap for entrepreneurs.  There is a lesson here for all of us.

Greed is Good

Wall Street was one of the formative movies of my childhood (ok, I was 17 when I saw it).  But I think a lot of the morals of that film have stood the test of time.  The most memorable scene has Michael Douglas (aka Gordon Gekko) saying:

Greed, for lack of a better word, is good. Greed is right.  Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed in all its forms, greed for life, for money, for love, knowledge, has marked the upward surge of mankind — and greed, you mark my words — will not only save Teldar Paper but that other malfunctioning corporation called the USA…

Replace "Teldar Paper" with "AIG" or "Citibank" and you've got a modern story.  The moral of the story (back then and now) is that capalist greed is the engine that will drive us out of trouble, but that motive must not be left unwatched.

Members of Congress on Twitter

The Electoral College is incredibly obsolete but still remains.  Many institutions in government are slow to change, but one thing I find fascinating is incredible changes in how candidates and politicians communicate.  Imagine if you could follow your representative or senators throughout their day and even communicate with them?  Well exactly that is happening on Twitter!

About 10% of the members of Congress are now on Twitter.  I've detailed the list below and linked to their Twitter pages.  But think about this.  Many of these folks are personally reading their Twitter pages.  If not personally, then someone close to them who probably interacts with them on a weekly basis if not more frequent.  There is probably no better way of interacting with your representative (provided you don't already have a personal relationship with them).

So far as I can tell, 17 senators are active on Twitter (8 Republicans and 9 Democrats).  They all seem to be active although not very followed (Senator McCaskill has the most followers at about 4,300 compared to Lance Armstrong at 80,000 and Robert Scoble at 58,000):

1. Barbara Boxer (D) CA
2. Susan Collins (R) ME
3. John Cornyn (R) TX
4. Jim DeMint (R) SC
5. Chris Dodd (D) CT
6. Dick Durbin (D) IL
7. John Ensign (R) NV
8. Chuck Grassley (R) IA
9. Jim Inhofe (R) OK
10. Mel Martinez (R) FL
11. Claire McCaskill (D) MO
12. Robert Menendez (D) NJ
13. Jeff Merkley (D) OR
14. Mark Udall (D) CO
15. Tom Udall (D) NM
16. Mark Warner (D) VA
17. Roger Wicker (R) MS

As for the House of Representatives, there are 46 members on Twitter (32 Republicans and 14 Democrats) and the one with the most followers seems to be John Culberson (R) from Texas at 6,500:

1. Neil Abercrombie (D) HI
2. Michele Bachmann (R) MN
3. Gresham Barrett (R) SC
4. Earl Blumenauer (D) OR
5. Roy Blunt (R) MO
6. John Boehner (R) OH
7. John Boozman (R) AK
8. Michael Burgess (R) TX
9. Dan Burton (R) IN
10. Eric Cantor (R) VA
11. John Carter (R) TX
12. Jason Chaffetz (R) UT
13. Mike Coffman (R) CO
14. John Culberson (R) TX
15. Keith Ellison (D) MN
16. Jeff Flake (R) AZ
17. Virginia Foxx (R) NC
18. Marcia Fudge (D) OH
19. Pete Hoekstra (R) MI
20. Mike Honda (D) CA
21. Jim Jordan (R) OH
22. Dennis Kucinich (D) OH
23. Tom Latham (R) IA
24. Bob Latta (R) OH
25. Ben Lujan (D) NM
26. Dan Manzullo (R) IL
27. Kevin McCarthy (R) CA
28. Thaddeus McCotter (R) MI
29. Cathy McMorris (R) WA
30. Kendrick Meek (D) FL
31. Candice Miller (R) MI
32. George Miller (D) CA
33. Nancy Pelosi (D) CA
34. Jared Polis (D) CO
35. George Radanovich (R) CA
36. Denny Rehberg (R) MT
37. Dana Rohrabacher (R) CA
38. Ileana Ros-Lehtinen (R) FL
39. Tim Ryan (D) OH
40. Joe Sestak (D) PA
41. Christopher Shays (R) CT
42. John Shimkus (R) IL
43. Zach Wamp (R) TN
44. Joe Wilson (R) SC
45. Rob Wittman (R) VA
46. John Yarmuth (D) KY

Bottom line is that this is great.  The more transparency we bring to government the better.

PS, let me know if you find other members of Congress on Twitter and I'll update the list.

Armageddon Averted?

I saw this story that's making it's way around the InterTubes that, if true, is probably the scariest thing I have ever seen.  LiveLeak has the story.  Basically there was a run on the banks in mid-September and the Fed tried to intervene *unsuccessfully*!  From the video (starting about 2:15):

On Thursday (Sept 18), at 11AM the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there. 

If they had not done that, their estimation is that by 2PM that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. Now we talked at that time about what would have happened.  It would have been the end of our economic system and our political system as we know it.   

Whoa!  I remember the guarantee being announced, but the rest is a surprise.  I suppose the Fed decided that telling the real story would be the equivalent of yelling "fire" in a crowded theater.  Still, waiting 4 months to "let us know," particularly when we had an election just a few weeks later is concerning.

An Engineer's Suggestion For the Stimulus Plan

I'm sick and tired of politicians looking at the same law and proclaiming polar opposite results will occur if it's passed. 

I just saw a clip where McCain is saying a "disaster will occur" if the $800 billion stimulus package is passed and then a few minutes later a clip of Obama saying, a "disaster will occur" if it's not passed immediately.  Come on.  Of course, the problem is that economists themselves can't agree on this (and thus there are brand name economists testifying on behalf of both positions).

Where are the numbers in people's arguments?  Why aren't politicians referencing studies that indicate the efficacy of various programs?  I keep hearing that the $800 billion will "save or create" 4 million jobs.  Do the math...that's $200,000 per job!  So if job creation is the goal, shouldn't spending line items be listed by their relative cost-per-job?

[BTW, doesn't $200K per job seem a bit high?]

I've often herd economists say in their defense that they can't "run experiments."  Really?  This is the difference between engineers and scientists.  The latter like to research what happens.  Engineers like to shape what happens.

Anyway, here's my "engineer" suggestion.  Run an experiment.  Take the $800 billion dollars and distribute it to the states based on population then leave it to the states to decide what to do with their share.  Make the only requirement be that the states agree to provide detailed accounting and reporting into an open database accessible by all.  Red states can send the money back to Washington or cut taxes and the blue states can spend to their heart's delight. 

This way, in 10 years or so we will be in a position to say with some authority whether or not these spending, tax cuts or non-interference programs actually work.

But What Does It Mean?

I saw this chart when someone on Twitter pointed it out.  The chart shows how the US economy is currently shedding jobs at a rate much higher than in the most recent recessions (2002 and 1990).  On the one hand, it's kind of scary in that it implies that, if the shape of the curve for the current recession is the same as those before, then we can expect to lose about 10 million jobs.  Scary.  On the other hand, what if it means that the shapes of the curves are different? 

What if it means that better systems and tools allow companies to shed jobs earlier than before and essentially "rip the band-aid off" instead of slowly peel it off?  What if it is not normalized for total employed?  What if the way the unemployment numbers are collected has changed?  You get the point.

I guess I'm just skeptical of these charts showing a single data point w/ no supporting analysis.  What does it mean?!?

I'm reminded of that quote from Samuel Clemens (Mark Twain), "there are three kinds of lies: lies, damned lies and statistics."

Bill Gates Releases Mosquitoes At TED While Talking About Malaria & Education

Bill is a smart guy, but man is he an average speaker!  That notwithstanding, this is a talk well worth the 20 minutes to watch (and the mosquito bit is not nearly as interesting as the discussion of malaria or education).

How Not To Do Customer Support

This is off topic, but so darn funny I have to share.  It's basically two and half minutes of gut wrenching agony listening to some guy try to explain to Verizon why $0.002 is not 0.002¢.  

Extraordinary Popular Delusions & the Madness of Crowds

Extraordinary Popular Delusions & the Madness of Crowds is one of my favorite books and included in it is one of my all time favorite quotes:

Men, it has been well said, think in herds ; it will be seen that they go mad in herds , while they only recover their senses slowly, and one by one! - Charles MacKay, from EPD&MC

That's as true now as it was in 1841 when Charles MacKay published his tome.

The book is written as a series of stories in three categories: "National Delusions," "Peculiar Follies" and "Philosophical Delusions."  Each little story is 10-50 pages in length and the entire book is nearly 3 inches thick.  I confess that when I first bought the book in 1999, it took me a full year to read it as it sat in my "reading rack" in my bathroom.

The three stories that the book is most famous for are the "economic bubbles" specifically, tulip-mania, the South Sea Company bubble and the Mississippi Company bubble. 

Each of these bubbles was based on irrational exuberance driven by "new rules" and innovation in the absence of any oversight or regulation.  And, of course, each bubble crashed leaving most people disillusioned and poor.

The true moral of the story is that if you don't know history you are doomed to repeat it. 

But even that doesn't go far enough. 

I read this book in 1999 at the height of the internet bubble and still wasn't smart enough to short the market in time.  And then 5 years later, I bought a house at the height of the real estate bubble!  I hear that I'm not alone.  I guess some people never learn...   

So as penance I'm going back and re-reading this great book and as part of my public service I want to ask you to also read this book.  Recovery from a bubble is a very individual task (as opposed to the very public mania of how we got into this).  Take this opportunity to reach out to someone you know who got caught up in the credit bubble and recommend this book.

Why I Canceled My CO2stats Account

The intertubes have been full of debate about this article from The Times.  The gist of the story is that is that the authors "reveal" that the internet uses electricity.  Specifically they call out Google for emitting 7 grams of carbon dioxide (quoting CO2stats founder Alex Wissner-Gross) per search and thereby infer Google is an environmental hypocrite.  After I read this I canceled my CO2stats account.

Now I've been a subscriber of CO2stats for a while (many of you may have noticed the little green badge on the site that is no more).  It's a feel-good service where publishers can buy offsets for the carbon dioxide emitted by the use of their website.  CO2stats uses a proprietary algorithm to figure out how much carbon is emitted, but essentially they look at traffic statistics to your site and infer from where the visit originates, where your servers are and what kind of computer the visitor is using how much energy is consumed.  Presumably they make this based on the energy mix of the location of the origination and termination.  Once this energy consumption is calculated, CO2stats sells offsets so that the site can claim they are carbon neutral and they make money in the arbitrage; essentially buying carbon offsets at $5 per ton and selling them at $200 or so.

So here is my beef (and why I canceled):

1. The 7 grams statistics is misleading.  Presumably it is calculated to include the emissions from the computer of the person searching, as well as the network between them and Google as well as Google's infrastructure.  90+ percent of that energy is not attributable to Google, which is why they responded with a number more like 0.2 grams.  It's the equivalent of issuing a press release saying that "a pen bought at Wal-mart emits 1 kilogram of carbon" by including the emissions of the car the customer used to get to the store.  It's one thing to volunteer to pay to offset the emissions of your customer, but another thing totally to be "greenmailed" into it.
    
2. Conflict of interest.  The Harvard physicist quoted in The Times article is none other than Alex Wissner-Gross, the founder of CO2stats who just happens to sell website carbon offsets.  The article authors mention this in passing, but not the conflict of interest.  That's shoddy reporting in my view.  Perhaps it was accidental on the part of Alex, but he seems to be exploiting his academic credentials for business gain which I suppose is his right to do but I don't like it.
    
3. No cost/benefit analysis.  Sure the internet uses electricity (which produces emissions) but consider the alternative.  What about the upside?  How many trips were avoided, how many packages not mailed and how many phone calls eliminated because of the internet?  Don't you have to at least consider that in an expose on the environmenal hazards of searching the web?

Anyway, I found the whole story annoying and in protest cancelled my account.  Maybe it's an over reaction.  Look at the upside...I just saved $10 per month! ;-)  

Top 10 Posts From 2008

As ranked by traffic to website during the year (as opposed to when it was written):

1. The Science & Art Of Term Sheet Negotiation
2. 5 Reasons Convertible Debt Sucks  
3. Venture Debt For Startups  
4. Due Diligence - What To Expect  
5. How To Blog Like A Pro  
6. How Liquidation Preferences Work  
7. 2008 Startup Compensation Survey  
8. 10 Tips On Negotiating With VCs  
9. 10 Web 2.0 Tips: $75  
10. Killver VC Pitch Deck

Not much to learn here.  That's actually about what I would have guessed had I not seen the Google Analytics numbers.  Although in 2008 I did learn that this is called a "sneeze page."   Who knew?

The World Without Altgate

No, this blog is not going anywhere.  I was just looking at the 2008 Google Analytics data for Altgate.  It is an amazing tool.  I wish I had installed it when I first created this blog, but alas I didn't so I only have data starting in February of last year.  It's mildly disturbing that Google gets to keep all of that data, but I suppose it's a fair trade since the service is free.

Overall, 2008 was a great year of growth in traffic.  At the beginning of the year, there were just about 500 unique visitors per month and by December that grew to nearly 10K.  There was a similar growth in terms of RSS subscribers, finishing with about 750 (although Feedburner "lost" about 400 of them this morning which I assume will be "found" tomorrow).

One metric that jumped out at me is the global reach.  I was amazed to discover that of some 200-ish countries in the world, there has been at least one visit from each except for just 77.  Sure most of the traffic was from the US (about 73% of total unique visits) but there was also traffic from all kinds of places like India (2.3%), Germany (1.5%), Australia (1.4%), Slovenia (0.7%, who knew!) and Israel (0.6%).  Below is the complete map of the countries still without a visitor to Altgate...if you know someone there send them a referral!  I'll update you all when I get the list of those without Altgate down to a dozen or so.

Afganistan	Haiti	Rwanda
Barbados	Honduras	Saint Kitts and Nevis
Benin	Iraq	Saint Lucia
Bhutan	Kazakhstan	Samoa
Bosnia & Herzegovina	Kiribati	San Marino
Burkina Faso	Korea, North	Seychelles
Burundi  (Urundi)	Kyrgyzstan	Sierra Leone
Cameroon	Laos	Solomon Islands
Cape Verde Islands	Lesotho	Somalia
Central African Republic	Liberia	Sudan
Chad	Liechtenstein	Suriname
Comoros	Maldives	Swaziland
Côte d'Ivoire	Mali	Tajikistan
Dem. Rep. of Congo	Marshall Islands	The Gambia
Djibouti	Mauritania	Timor-Leste
Dominica	Mongolia, Rep.	Togo
El Salvador	Montenegro	Tonga (Nukualofa)
Equatorial Guinea	Mozambique	Turkmenistan
Eritrea	Myanmar (Burma)	Tuvalu
Micronesia	Namibia	Uzbekistan
Fiji	Nauru	Vanuatu
Gabon	Niger	Vatican City
Georgia	Palau, Republic of	Yemen
Guinea	Papua New Guinea	Zambia
Guinea–Bissau	Paraguay	Zimbabwe
Guyana	Republic of Congo

Lastly, something that Google Analytics doesn't do is allow you to see where visitors are going when they leave your site.  You can see which page they left from but not where they went.  This feature is rumored to be in development but I couldn't get it even with the custom reporting.  Anyone have tips on this?

Washington Out Of Control

I told myself I wasn't going to post anymore on the financial crisis and then I saw this article in the FT about how on Friday (12/19) the Federal Reserve announced a new program of lending capital to any US company investing in securitized consumer loans.  It's a $200 billion program.  This just burns me up.

Translation: the US government just bailed out the hedge fund industry to the tune of $200 billion!  Were there any strings attached to the money like reducing the 1-and-20 hedge fund GP compensation agreements?  Nope!  Any other concessions?  Nope!  So all these hedge funds are going to get bailed out right before year-end which will allow them to book profits (or less losses) and the managers get paid more.  Thank you Uncle Sam!

Makes that $15 billion auto bailout seem cheap (and with favorable concessions) in comparison.  I think it's time the government stopped picking winners and losers because it's clear it's being done based on lobbying dollars spent and not for any rational reasons.

Either let companies fail or publish a set of rules for which companies get government support and why.