Saturday, October 31, 2009

A Brief History of Time

Finally got around to reading this only because I came across a blog post somewhere (that I've forgotten) which claimed that this is one book that many people will have on their shelves and have not read. Honestly, I was lost by about chapter 5 - I couldn't handle particle spins during college physics and I still can't.

But this caught my eye:
The first primitive forms of life consumed various materials, including hydrogen sulfied, and released oxygen. This gradually changed the atmosphere to the composition that it has today and allowed the development of higher forms of life such as fish, reptiles, mammals, and ultimately the human race.

What if, by preventing global warming, we are preventing the next step of human evolution?

Bernie Madoff exhibits

The office of the inspector general released a list of exhibits into the SEC failure to discover Bernie Madoff's Ponzi scheme. I was mostly surprised at what seems to be the almost universal use of the Courier font and perhaps even a typewriter! Can't interviews need to be transcribed using a computer sparing us the ugly font?

Monday, October 26, 2009

The more things change the more they stay the same

How could the firm disappear in less than two weeks after one senior manager assured certain employees that the financial condition was sound - more than that, strong? How could any firm with $880 million in net worth go bankrupt?

Shades of the financial crisis of 2008? Actually, the bankruptcy of Drexel Burnham Lambert from page 8 of Dan Stone's April Fools: An Insider's Account of the Rise and Collapse of Drexel Burnham. Connie Bruck's Predator's Ball is more entertaining and readable.

Sunday, October 25, 2009

Update on housing and wealth

My skepticism on housing wealth is reinforced with this nugget I picked up from reading Adam Smith's Roaring 80's:

We have really had only one kind of saving in recent years on a personal level, the forced saving of making payments on a house. Statistically speaking, the bulk of Americans' savings is the equity in their houses. The problem with this for the economy is that buying a house is not a very efficient form of saving. A house is not like a new machine that enables workers to turn out goods better and cheaper. Nor is a house like a new company that will employ workers. Homeownership is a stabilizing social force, but it really doesn't help us compete.

I'm not sure I'd fully agree with all of the above but there is at least several research topics in there:
1. Is buying a house an efficient form of saving, i.e. is there an asset with higher returns and lower standard deviation?
2. Does owning a home provide consumption smoothing benefits over an alternative asset?
3. If savings were in the form of another asset what would the effect be on investment and productivity?

Saturday, October 17, 2009


An interesting excerpt from MR:

Until more people come to a more realistic, fact-based understanding of the government and the economy, little hope exists of tearing them away from their quasi-religious attachment to a government they view with misplaced reverence and unrealistic hopes. Lacking a true religious faith yet craving one, many Americans have turned to the state as a substitute god, endowed with the divine omnipotence required to shower the public with something for nothing in every department – free health care, free retirement security, free protection from hazardous consumer products and workplace accidents, free protection from the Islamic maniacs the U.S. government stirs up with its misadventures in the Muslim world, and so forth. If you take the government to be Santa Claus, you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies.

For fun, let's substitute some words:

Until more people come to a more realistic, fact-based understanding of the market and the economy, little hope exists of tearing them away from their quasi-religious attachment to a market they view with misplaced reverence and unrealistic hopes. Lacking a true religious faith yet craving one, many Americans have turned to the market as a substitute god, endowed with the divine omnipotence required to shower the public with something for nothing in every department – efficient health care, efficient retirement security, efficient protection from hazardous consumer products and workplace accidents, efficient protection from the Islamic maniacs the U.S. market stirs up with its misadventures in the Muslim world using prediction markets, and so forth. If you take the market to be Santa Claus, you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies.

Thursday, October 15, 2009

What I've been reading

1. Little Children by Tom Perrotta: Very well crafted caricature of suburban life and very New Yorker-ish.

My definition of New Yorker-ish is at the end when "a bug crawls across the window" as the protagonist looks at it and "suddenly" the protagonists understands, e.g. (spoiler alert!):

But what he suddenly understood - it seemed so obvious now as if the truth had been jarred loose when his body hit the pavement - was that he'd never actually wanted to start a new life n the first place. (pg. 314)

Sarah smelled chocolate on Lucy's breath as she leaned forward to plant a soft kiss on the tip of her cute little nose. A vision came to her as her lips touched Lucy's skin, a sudden vivid awareness of the life they'd lead together from here on out, the hothouse intimacy of a single mother and her only child, the two of them sharing everything, breathing the same air, inflicting their moods on each other, best friends and bitter rivals, competing for attention, relying on each other for companionship, and probably unhealthy bond that for better and worse would become the center of both their identities ... (pg. 317)

2. Insanely Great by Steve Levy: An enjoyable read about the Macintosh.

3. Accidental Empires by Robert Cringely. Spectacularly wrong on the future of RISC chips and the demise of Steve Jobs -- all with the benefit of hindsight of course.

4. Gates: How Microsoft's Mogul Reinvented an Industy and Made Himslef the Richest Man in America by Stephen Manes and Paul Andrews. A little choppy as it made little leaps forward and backward in time but in the end even with all the details about Gates' life there is very little insight on how Microsoft really works. Yes, they are reactive to the market, i.e. see a product that has become popular and then try to make their own version better but left unexplained is how they do it e.g. spec design, etc. from a software designer's perspective. In a way it was very much like this Intel book.

What is also interesting is that all its competitors in the book: Borland, WordPerfect, Ashton-Tate are no longer around.

Also given Gates' propensity for being cheap - it tells of a story of how Gates at his height was hunting for a 50 cent coupon for ice cream and holding up the entire check out line - and his rule on only flying coach, why would Microsoft spend so extravagantly on software rollout events and Comdex parties? This question nagged at me throughout the book.

The only thing I'll quote is at the end:
"One thing economists are not good at is measuring productivity ... The output is not defined it's changing every time, and so the comparison is bogus." Was a business letter with five fancy fonts and a pie chart a more productive output than a dull typewritten sheet of text? Not even software could give a clear answer. (pg. 455)

5. The Roaring 80's by Adam Smith. This book is like a series of blog entries and random thoughts - very disjointed and unfocused and ended up skimming most of it. Was surprised to learn the following (pg. 26):

"What did you expect?" (Adam Smith asks Volcker about the change in policy to control inflation.)
"A better impact on public psychology and economic performance and a prompter effect in lowering interst rates and inflation expectations. You expected interest rates to go up in the aftermath, but I was so naive as to hope short-term interest rates alone would go higher. You would have had a great success if long-term rates didn't go up very much, or went up and came down again. But it didn't happen. Rates went up and stayed all the way along the line." .....
"Did you expect interest rates to go as high as they did?" I asked.
"No, I certainly didn't expect them to got to twenty-one percent."
"What did you expect?"
"That - twenty-one percent - would have been out of the ball park. The other thing that surprised you during that period - 1979 and the winter of 1980 - was that the assembled economic wisdom said we were on the edge of a recession, if not in one. Instead, with interest rates going up, and things getting tighter, the economy kept expanding. When you were guessing what interest rates might be, you wouldn't have assumed that the economy would be as strong as it was."
"Did you feel uneasy as you saw the rates go from twelve to fourteen to sixteen to eighteen percent?"
"Uneasy? The uneasiness over interest rates was moderated by the lack of evidence that the economy was collapsing. Inflation was getting worse - inflation of eighteen percent and interest rates at eighteen percent are in context - you had a higher inflation rate and a stronger economy."
"Did you expect that it would produce a recession?"
"No. Nobody realized it at the time, but the recession was created by credit controls. ... "
"If you had it to do over again, what would you do?"
"I wouldn't do credit controls, that's for sure. I went along with it but it was the administration's idea - Carters. ..."

The subsequent recession and the rise and then fall of interest rates moderated inflation and here Volcker held firm according to Adam Smith's account until July 1982 when he decided to ease monteary policy.

Always was under the impression that Volcker and the Fed knew what they were doing.

Update on signs of fiscal stimulus

In an old post I noted that there were signs of fiscal stimulus in Washington DC. The work now seems to be complete or as I see it very incomplete. Except for upgrading street lamps on Dalecarlia Parkway, very little else seems to have been done that I thought needed doing - repaving and regrading to improve drainage.

I suppose this is a two edged sword - that fiscal stimulus really is ineffective or it is ineffective because not enough funds were allocated to the stimulus.

Experimental economics

I always thought that results from experimental economics did not generalize and now I find that this is true. From Tim Harford:

There is the “ultimatum” game, in which player A (Anna) is given $10 and asked how much, if any, she proposes to offer to player B (Bernard). Bernard can accept the offer, but if he rejects it, neither Anna nor Bernard get anything. If Anna and Bernard were rational income-maximisers, Anna would offer one cent and Bernard would accept it as better than nothing. This never happens, so Anna and Bernard are not rational income-maximisers.

Then there is the “dictator” game, introduced by Jack Knetsch, the Nobel laureate Daniel Kahneman and Richard Thaler, co-author of Nudge and perhaps the world’s leading behavioural economist. In the “dictator” game, Anna divides the $10 as before, but Bernard cannot reject her offer, so Anna can’t lose. Nevertheless, Anna will often throw Bernard two or three dollars. A third game, “gift exchange”, begins with Bernard offering Anna a payment. Anna then decides how to respond – effectively, an initial peace offering followed by “dictator”.

The results are astonishingly consistent: these games seem to demonstrate a taste for fairness. People offer more than they have to, reject unequal offers and reciprocate generosity. This has been a thorn in the side of conventional economics for more than 20 years.

List’s contribution ... has been to show that these results stem from the experimental set-up. In one set of experiments, he gently varied the rules of “dictator”. Anna, in addition to dividing up the $10 between herself and Bernard, was given the option to take a further dollar from Bernard. This option should be irrelevant. Because most Annas offer money to Bernard, they should hardly be tempted to pick his pocket. But in fact, when offered the chance to take money, far fewer Annas decide to give Bernard anything and one in five actually took Bernard’s dollar. Another experiment showed that Anna’s willingness to take from Bernard was dramatically less if she thought Bernard had earned his money. As the experimenter, List found he could nudge his subjects into being generous or mean with small variants in the set-up.

In praise of Twitter?

Tried out Twitter over the summer and I can't say that I was impressed. Received followers who were no more than "twam", i.e. Twitter spam. For instance, I noted that we were planning a trip to Hua Hin and in popped a follower offering Hua Hin deals. It was not easy to for others to follow our Tweets either - probably because we are of a different generation i.e. we did not rig our cell phones for Twitter etc.

Tyler Cowen seems impressed. Maybe I should use it the same way he does:

I am surprised how many people still think Twitter is a fad or a waste of time. I view Twitter -- or some modified future version thereof -- as everlasting. Most of all, the search function helps you tap into a real time conversation on just about any topic you want, ... Google is wonderful but it's hard to sort through the mess and figure out where the conversation is now. For sampling opinion on either movies or music, Twitter is essential, or even for researching a forthcoming blog post. Think of it as Google focused on one time-slice and giving the weight of crowd opinion no more than linear force. If an opinion is more common it will receive more tweets but otherwise your search brings up the splat, ordered by chronology, and thus it is more idiosyncratic than the first Google search page and often in a good way.

This opinion however in no way invalidates my opinion that Twitter is a fad. Whatever happened to the promise of MySpace, Friendster, etc. I still have to try out Facebook.

Monday, October 12, 2009

Dowturns are all alike

It was not a good time [1976] to be in the car business. The Arab oil embargo was on, and interest rates were out of sight. Many of the solid, working-class Americans to whom Philip [Reed] had sold Chevrolets had been laid of and were unable to meet their ballooning credit payments. Reed had quickly discovered that repossession was not only nasty, it was unprofitable. He could recover the cars, but the real problem was selling them again. (pg. 157)

Once Upon A Time in ComputerLand, Jonathan Littman

Two more books on defunct computer companies

1. Once Upon a Time in Computerland by Jonathan Littman documents the rise and fall of William Millard and ComputerLand. I found the narrative choppy and had a tendency to jump about rather awkwardly. Perhaps this is due to the large cast of characters and number of shell companies created but I found it hard to follow at times.

2. Startup A Silicon Valley Adventure by Jerry Kaplan was an entertaining read from the founder of GO Corp. Kaplan's a pretty good writer full of aphorisms, e.g.:
Making a business deal is like having sex: the more people are involved, the more difficult it is to consummate. (pg. 206)

Friday, October 9, 2009

Sun Microsystems

Sunburst: The Ascent of Sun Microsystems by Mark Hall and John Barry gives an overview of the then short history of Sun. The authors attempted to write the book in a formal way with charts and graphs of the workstation market sprinkeld with anecdotes of its founding and its founders. It also explores the implications of Sun's strategy of licensing NFS, its Sparc chip and its adoption of UNIX and its attempt to adhere to "open" standards. This book is pretty much old stuff by now but was at the time an attempt o explain to the public Sun's strategy.

Now that Sun has agreed to sell itself to Oracle it may be time for a book called Sunset. The person who seemd to truly achieved his dream was Vinod Khosla who wanted to retire (forced out by the directors actually) by the time he was 30, made wealthy by the Sun IPO. He only had to work 3 years at Sun. Prior to that he had worked at Daisy Systems which specialized in CAD for engineers. It was at this time that he thought that a cheap workstation using off the shelf parts could be manufactured. Teaming up with Andy Bechtolsheim, Scott McNealy, and Bill Joy they founded Sun Microsystems.

Going public

This is the book by Michael Malone on MIPS Computer and the Entrepreneurial Dream. It is an account of how the company went public interspersed with vignettes about the executives who made it possible. Some may see going public as the culmination of a dream to build something and to share it with the world but it can also be seen as a tale of greed - by "entrepreneurs" who want to cash in as quickly as possible, investment bankers who want to earn the fees and "venture capitalists" who want to get in on the IPO and then get out as quickly as the can so that regular investors suffer the downside of the wonders of the modern capitalist market system.

... assuming an opening price of $15 per share, MIPS's management team would see at least $7.2 million in new wealth and conceivably $15 million or more. Not bad for a team whose average tenure with the company was less than two years. (pg. 109)

Chapter 10 on how to read a prospectus with a skeptical view is probably the best part of the book. Chapter 9 on the prospectus writing process was also a good read.

... a comparatively mild "Certain Transactions" section - just a few signing bonuses and bridge loans ... None of the juicy stuff sometimes encountered in prospectuses of wilder, less disciplined start ups - company yachts, divorce settlements, questionable payoffs to litigous former employees, stock options to mistresses, company "garderners" who work at executives' houses. (pg. 112)

Some also somewhat surprising factoid on why the IPO had to be priced at double digits (and resulted in a reverse stock split prior to the IPO):
... Wall Street institutional investors and the like who buy 90 to 95 percent of all stock, simply don't like single digit stocks and avoid purchasing them. Many, in fact, actually have prohibitions against buying single digit stocks. (pg. 22)

Pros and cons of being a public company (the cons not being enough to deter the process of going public):
The top four most troubling consequences of going public, the CEOs said, were the cost and time of dealing with Wall Street and shareholders, the emphasis on short-term results and ever increasing expectations, the lack of secrecy, and constant outside criticism. The upside was enhanced credibility, visibility, more options for future financing, better employee morale, and improved recruiting. ... "I feel like a squirrel in a carousel," ... "I just keep on running." (pg. 196)

"There has to be something that holds a company together beyond making a lot of money; otherwise the company will begin to deteriorate as everyone begins to say, 'Now that I'm rich, I can do whatever I want to do.' You take an engineer who is making $80,000 to $100,000 a year and give him a million dollars and he's liable to say, 'Well now that I can make $100,000 a year on interest without working, I don't have to put up with this shit.' ... "(pg. 256)

On the seeming arbitrariness of the SEC delay in approving the prospectus as related by CFO Ludvigson:
... more companies were going public during this period when the SEC was coming down hard on MIPS. "I saw the prospectus of a company that went public about the same time we planned to. Well, I'm reading this thing and I see the chairman of the company was part of a divorce trial in which a restraining order was issued against him, which he violated and got thrown into either a jail or a mental institution for six days. There are three pages of lawsuits ranging from not paying their suppliers to not paying their taxes, from defaulting on bank loans to tax infringement. The company has only $57,000 in cash. Fifty-one percent of their revenue is going to a Bahamanian corporation owned by one of the board members. Ann all the directors issue themselves eleventh hour stock options before the IPO at like 1 cent a share.

"And these guys go public! ... here's this bizarre little company and they make it through the review process. Meanwhile, we don't have a single lawsuit, no debt and the SEC is busting our chops." (pg. 201-202)

Also an interesting anecdote on how Frank Quattrone (at Morgan Stanley at the time and was the lead investment bank) almost derailed the IPO by giving a supposedly off the record interview during the mandated "quiet" period on page 211.

Tuesday, October 6, 2009

Memoirs of a Geisha

This was a pretty good read although if I had just seen the movie without reading the book I'd probably have been disappointed. The prose is light and mesmerizing (at least up through about half the way for me) and the voice is consistent which is always a surprise to me when a man writes from a woman's perspective.

The sea was violent, with waves like stones chipped into blades, sharp enough to cut. It seemed to me the world itself was feeling just as I felt. Was life nothing more than a storm that constantly washed away what had been there only a moment before, and left behind something barren and unrecognizable? ... The storm was coming in earnest now; I could hear its roar. The fisherman on the inlet began to soften as they disappeared within the curtain of the rain, and then they were gone completely. (pg. 13)

Grief is a peculiar thing; we're so helpless in the face of it. It's like a window that will simply open of its own accord. The room grows cold, and we can do nothing but shiver. But it opens a little less each time, and a little less; and one day we wonder what has become of it. (pg. 255)

Effect of the 2008 crisis on Norm

Norm Brodsky writes about how the crisis affected his company:

In the fall of 2008, Allied Capital [an investor in his company] began closing offices and laying off staff, including the two guys who had been working with us and who served on our board. During this same period, the media were filled with stories about how mark-to-market accounting rules -- which required periodic adjustments of the value of assets -- were aggravating the problems of financial-services businesses. It dawned on us that our majority partner was probably Exhibit A. Although it had steered clear of the subprime mortgage market, it couldn't escape the general drop in asset values. With each passing day, its investments in companies were declining in value, as would-be acquirers reduced the multiples of EBITDA they were willing to pay. At the time of the sale, for example, businesses like ours were going for nine to 10 times EBITDA. A year later, the same businesses were being sold for six or seven times EBITDA. Thus, even if a company's EBITDA had increased in the interim, its valuation had declined. As long as the business remained fundamentally sound, its equity would recover sooner or later, but the mark-to-market rules required Allied Capital to reflect the decline in its quarterly financial statements. As a result, Allied was in increasing danger of being found in violation of its bank loan covenants, which stipulated that it must always have twice as much in assets as it does in debt.

Question: Was the impact of margin calls as severe during the dot com bust or the previous crises?

Friday, October 2, 2009

Why do self help books

sometimes sound so flakey?

... in doing the dishes mindfully, you may come to see with great vividness the reality of impermanence. Here you are, doing the dishes again. How many times have you done the dishes? How many more times will you do them in your life? What is this activity we call doing the dishes? ... By inquiring in this way, by looking deeply into this ordinary routine of "doing the dishes," you may find that the whole world is represented in it, that you can learn a lot about yourself and the world by doing the dishes with your whole being, with alert interest and an inquiring mind.

This is from page 135 of Full Catastrophe Living: Using the Wisdom of Your Body and Mind to Face Stress, Pain, and Illness.

This passage reminded me of the following:
"It depends on what the meaning of the word 'is' is. If ... 'is' means is and never has been, ... that is one thing. If it means there is none, that was a completely true statement ... (Bill Clinton, grand jury proceedings 1998?)

This book is a good follow up to Ellen Langer's Mindfulness. The real "guts" of the book (i.e. the practical, how-to stuff) is in the first 10 chapters of the book.

Three books on defunct computer companies

The books are:
1. Lessons: An Autobiography by Dr An Wang with Eugene Linden
2. The Ultimate Entreprenuer: The Story of Ken Olsen and Digital Equipment Corporation by Glenn Rifkin and Geoge Harrar
3. The Soul of a New Machine by Tacy Kidder

The biggest irony is that these books were written around the time when the companies were probably at their peak. The decline at Data General (Kidder's book) was in retrospect obvious by the time the book was published. The minicomputer that was the focus of the book extended the life of the company by about a decade. Likewise, Digital stayed around for about just as long while Wang filed for bankruptcy in 1992 and reemerged in some form later but then pretty much disappeared. Of the three, Wang seemed to have been the hardiest (1951-1999), followed by Digital (1957-1998) which was taken over by Compaq and subsequently HP, while Data General which tried to challenge Digital began in 1968 and was defunct in 1999.

Its hard not to look back on these companies and be overwhelmed by how much innovation can create and destroy. All these companies underestimated IBM (ironically they thought they could take on IBM) and the PC revolution. (Although this was also a time that workstations/Unix were also challenging the market.) Even though they survived into the 90s for the most part, the last decade of their lives were pretty precarious.

Of the three books, Wang's book is mostly a pat in the back book that glosses over its failings while the book on Digital while not an attack on Ken Olsen (who did not participate in the book) per se did reveal the resulting politics and confusion of his management style (the once celebrated matrix management method). This book might have been a lot better if there were more source notes. I realize a lot of the interviews were given in confidence but without the notes it reads a lot like hearsay. Kidder's book (which won a Pulitzer) tries to convey the tecnical aspects of creating a new computer which I thought was only partially successful. It's easy to talk about bits as ones and zeros but the more technical concepts are hard to convey to layman and although Kidder tried I could not follow most of it (and in some cases it was hard enough that he chose not to try).

Some choice quotes from the Rifkin & Harrar book on Digital pretty much sums up why these companies are no longer here today:
"There is no such thing .. as personal computing." Ken Olsen, page 130.

Shields [senior VP of sales and service] liked to inspire his sales troops by telling them the projected date that DEC would surpass IBM in revenue: July 2007. Thinking the idea would spark up the sales force, the company went so far as to print up invitations: "We're going to have a party!" the note said. "If our current growth rates continue (and they will), and if IBM's current growth continues (and they will be hard pressed to do that), we will pass them in revenue and in profit by July 10, 2007.
(page 293-294. The notes were quickly pulled after customers and analysts were shocked by the boast.)

Olsen didn't hestitate to air his pet peeves publicly. ... "Graphics are terrible," he railed. "They are the second worst contribution to society after spreadsheets. Spreadsheets will go down in history as the worst thing that ever happened to business.... "
(page 297)

Thursday, October 1, 2009

Sometimes saving a marriage is too much work

As Sandra Tsing Loh discovers:

Sadly, and to my horror, I am divorcing. This was a 20-year partnership. My husband is a good man, though he did travel 20 weeks a year for work. I am a 47-year-old woman whose commitment to monogamy, at the very end, came unglued. ... In women’s-magazine parlance, I did not have the strength to “work on” falling in love again in my marriage. And as Laura Kipnis railed in Against Love, and as everyone knows, Good relationships take work.

Which is not to say I’m against work. Indeed, what also came out that afternoon were the many tasks I—like so many other working/co-parenting/married mothers—have been doing for so many years and tearfully declared I would continue doing. I can pick up our girls from school every day; I can feed them dinner and kiss their noses and tell them stories; I can take them to their doctor and dentist appointments; I can earn my half—sometimes more—of the money; I can pay the bills; I can refinance the house at the best possible interest rate; I can drive my husband to the airport; in his absence, I can sort his mail; I can be home to let the plumber in on Thursday between nine and three, and I can wait for the cable guy; I can make dinner conversation with any family member; I can ask friendly questions about anybody’s day; I can administer hugs as needed to children, adults, dogs, cats; I can empty the litter box; I can stir wet food into dry.

Which is to say I can work at a career and child care and joint homeownership and even platonic male-female friendship. However, in this cluttered forest of my 40s, what I cannot authentically reconjure is the ancient dream of brides, even with the Oprah fluffery of weekly “date nights,” when gauzy candlelight obscures the messy house, child talk is nixed and silky lingerie donned, so the two of you can look into each other’s eyes and feel that “spark” again. Do you see? Given my staggering working mother’s to-do list, I cannot take on yet another arduous home- and self-improvement project, that of rekindling our romance.

EMH and rational expectations

While Roubini is optimistic he serves up a reminder for those who believe in The Wisdom of Crowds, rational expectations, efficient markets and market based regulation and incentives:

Instead of the wisdom of the crowd, we got the madness of the crowd.

We should remind ourselves of Extraordinary Popular Delusions and the Madness of Crowds.

Imagine this scenario:
We're in a crowded theatre and someone shouts fire. Everyone starts running for the doors. Do you:
A. Head for the nearest exit pushing and shoving to make sure you're the first one out?
B. Find out who shouted fire and then proceed to determine whether the there is indeed a fire and decide whether the person who shouted "Fire!" was rational and then whether it is rational and efficient to head for the exit pushing, shoving and screaming.

History of renewable energy

An excellent article by Joshua Green. Some excerpts:

But the [wind farm] industry encountered serious quality-control issues, and one reason was the nature of the government’s support. A tax credit on investment created an incentive to put up turbines quickly and plentifully and collect a check. But the tax code had nothing to say about how those turbines performed. And many of them did not. “If you look at Palm Springs,” Zaelke said, “the turbines are set one alongside the other in corn rows because you got paid by how many you installed, not by how well they produced. ...

Plotted on a graph, the history of clean-energy production in the United States resembles the blade of a saw, rising and falling each time subsidies came and went. Japan, Germany, Spain, and Denmark show smooth, upward-sloping yield curves, a reflection of consistent government policy. ...

The nut of the problem traces all the way back to Jimmy Carter’s choice of tax credits as the vehicle for subsidizing renewable energy. Direct grants would have been simpler. But Congress had recently changed the federal-budget process to keep closer track of how much money was being spent. It suddenly became easier to spend indirectly, by manipulating the tax code. Although no one realized it at the time, Carter’s decision to use tax credits lit the very long fuse on a bomb that detonated last fall and nearly took down the entire renewable-energy industry in America.

The trouble with tax credits is that in order to make use of them, you must owe taxes, and most start-ups struggling toward profitability do not. So while a company looking to build a wind or solar facility would qualify for valuable benefits, it had no means of realizing this “tax equity.” The work-around was to partner with someone who did, someone large enough to finance a $500 million facility and profitable enough to incur a large tax bill. Having witnessed two decades of busts and bankruptcies, traditional U.S. banks wanted no part of this. European banks, going by their more positive experience, were comfortable funding large renewable projects, but didn’t qualify for U.S. tax credits. The perversity of the government’s incentives demanded a big balance sheet, huge profits, and an indifference to risk. Enter Wall Street.

Investment banks and hedge funds stepped in to fill the void, engineering tax-equity vehicles with suspiciously complicated-sounding names, like “partnership flip structure” and “inverted passthrough lease,” to exploit the tax benefits. These deals amounted to financing agreements for large infrastructure projects, given in exchange for tax credits, often worth hundreds of millions of dollars, that could be applied against profits earned primarily on other investments (like mortgage-backed securities). For renewable-energy companies, tax-equity deals meant life or death: the combination of credits could offset two-thirds of the capital cost of a project. Companies like Lehman Brothers, Wachovia, and AIG became an integral part—even the integral part—of the renewables industry, because the utility-scale projects they financed produce the overwhelming majority of clean energy in the United States.

Basing the entire system of federal incentives on tax equity had two weaknesses, one that has always been clear and another that became clear only recently. Forcing renewables companies to route government support through Wall Street, thereby sacrificing a portion of it, was needless and inefficient. But it also tied the industry’s fate to that of the financial world’s most aggressive players. Just as Wall Street bankers bet that housing prices could never fall and got wiped out when proved wrong, Congress seems never to have imagined that Wall Street might someday have no profits and need no tax equity.

Return of climate engineering

An old post referred to this but Graeme Wood updates us:

Roger Angel, an astronomy and optics professor at the University of Arizona, would block the sun by building a giant visor in space. He proposes constructing 20 electromagnetic guns, each more than a mile long and positioned at high altitudes, that would shoot Frisbee-size ceramic disks. Each gun would launch 800,000 disks every five minutes—day and night, weekends and holidays—for 10 years. The guns would aim at the gravitational midpoint between the Earth and the sun, so that the disks would hang in space, providing a huge array of sunshades that would block and scatter sunlight and put the Earth in a permanent state of annular eclipse. Angel’s scheme relies on launch technology that doesn’t yet exist (no one has ever wanted to shoot Frisbees at the sun before), and would cost several trillion dollars. “I know it sounds like mad science,” he says. “But unfortunately we have a mad planet.”

Of all the ideas circulating for blocking solar heat, however, sulfur-aerosol injection—the Blade Runner scenario—may actually be the least mad. And it provides an illustrative example of the trade-offs that all geo-engineering projects of its scale must confront. The approach is already known to work. When Mount Tambora erupted in Indonesia in 1815 and spewed sulfur dioxide into the stratosphere, farmers in New England recorded a summer so chilly that their fields frosted over in July. The Mount Pinatubo eruption in the Philippines in 1991 cooled global temperatures by about half a degree Celsius for the next few years. A sulfur-aerosol project could produce a Pinatubo of sulfur dioxide every four years.

The aerosol plan is also cheap—so cheap that it completely overturns conventional analysis of how to mitigate climate change. Thomas C. Schelling, who won the 2005 Nobel Prize in economics, has pointed out how difficult it is to get vast international agreements—such as the Kyoto Protocol—to stick. But a geo-engineering strategy like sulfur aerosol “changes everything,” he says. Suddenly, instead of a situation where any one country can foil efforts to curb global warming, any one country can curb global warming all on its own. Pumping sulfur into the atmosphere is a lot easier than trying to orchestrate the actions of 200 countries—or, for that matter, 7 billion individuals—each of whom has strong incentives to cheat. ...

The scariest thing about geo-engineering, as it happens, is also the thing that makes it such a game-changer in the global-warming debate: it’s incredibly cheap. Many scientists, in fact, prefer not to mention just how cheap it is. ... a single rogue nation could have the resources to change the climate. Most of Bangladesh’s population lives in low-elevation coastal zones that would wash away if sea levels rose. For a fraction of its GDP, Bangladesh could refreeze the ice caps using sulfur aerosols (though, in a typical trade-off, this might affect its monsoons). If refreezing them would save the lives of millions of Bangladeshis, who could blame their government for acting? Such a scenario is unlikely; most countries would hesitate to violate international law and become a pariah. But it illustrates the political and regulatory complications that large-scale climate-changing schemes would trigger.

Why the Economist and The Atlantic can sometimes be similar

I did not get much out of Michael Hirschorn's article on why The Economist is thriving against Time and Newsweek but perhaps this is his point. After all he says the following of the Economist:

At its worst, the writing can be shoddy, thin research supporting smug hypotheses. ... Pieces like these tend to support the Economist-haters, who believe the magazine is simply conventional-wisdom-spewing crack for Anglophiles.

Rating the future

Rich Barton believes in ratings but with the current financial crisis, it is hard to believe that ratings are the future. Personally, an up or down rating doesn't convey all that much information. I was looking for a luggage repair shop around our neighborhood and did not find much in the way of ratings in a sense that the up or down (or number of stars) really did not tell me all that much. Most of the information is in the comments. This is also true with TripAdvisor. So in the spirit of conveying some content:

I went to the Bethesda Shoe and Luggage Repair on Old Georgetown Road. There were 2 things I needed done.
1. Replace a zipper for a suit bag. Estimated cost $70. We declined to do this and the owner of the store agreed that it was not worth the price.
2. Replace a handle on a hardsided luggage bag (approx 3' x 2'). Estimated cost $38. We went ahead with this and without having really tested it fully loaded I can't say whether it was a good job or not. We'll know on our next vacation.

We're also looking for a contractor for a remodeling project and star votes really don't convey much information at all. It needs to be placed in the context of the size, scale and complexity of the project which commenters don't seem to understand when all they do is assign a star.

Saving the earth in hotel rooms

Everywhere we've gone, despite hanging up our towels (indicating that we do not need new towels), we always get new towels. So much for saving the Earth. Thus I was surprised to read the following:

A few years ago, Cialdini, a professor at Arizona State University, conducted a study in several Phoenix hotels comparing the effects of those ubiquitous hotel-bathroom placards that ask guests to reuse towels, testing four slightly different messages. The first sign had the traditional message, asking guests to “do it for the environment.” The second asked guests to “cooperate with the hotel” and “be our partner in this cause” (12 percent less effective than the first). The third stated that the majority of guests in the hotel reused towels at least once during their stay (18 percent more effective). The last message was even more specific: it said that the majority of guests “in this room” had reused their towels. It produced a 33 percent increase in response behavior over the traditional message.

It must be because the hotel staff knew they were being experimented upon. In any case, an interesting application of this was:

Now Cialdini is applying that concept to energy consumption, with promising results. Positive Energy, a company that has drawn on his work (he’s the chief scientist), has created software that assesses energy usage by neighborhood. Results are sent to consumers on behalf of their local utility, praising you with a row of smiley faces (you’ve used 58 percent less electricity than your neighbors this month!) or damning you with none (you used 39 percent more electricity than your neighbors in the past 12 months, and it cost you $741 extra). ...

Keeping up with the Joneses may be cliché, but it seems to work: in Sacramento, where Positive Energy began its pilot program with the Sacramento Municipal Utility District in 2008, people who received personalized “compared with your neighbors” data on their statements reduced their energy use by more than 2 percent over the course of a year. In energyspeak, a 2 percent reduction is huge; with the pilot sample of 35,000 homes, it’s the equivalent of taking 700 homes off the grid. And the cost to the utility is minor: for every dollar a utility spends on a solar power plant, it produces 3 to 4 kilowatt-hours; for every dollar a utility spends on the energy reports, it saves 10 times that.

Overconfidence or over optimistic?

I'm still having some trouble wrapping my head around these two concepts - how different are they? For instance, do people accept risky assignments because they are confident or optimistic?
All of the pilots knew that the Cessna Caravans, aircraft designed to carry about 10 passengers but modified for surveillance work, were ill-suited for the task at hand. El Dorado airport itself is more than 8,300 feet above sea level, where the air is so thin that the Caravan pilots could not take off with the extra weight of full fuel tanks. They typically left Bogotá with only enough gas to fly down to the Colombian military base at Larandia, where they topped up before setting off on missions that kept them airborne for four to five hours.

With precious few spots for emergency landings in the Andes, the pilots felt vulnerable flying with only one engine. “In a two-engine aircraft, you lose one and you shut it down, start troubleshooting, and have time to consider your options,” said Hooper.

But as veterans with long records of service, the pilots felt capable of safely flying the aircraft beyond what others considered its limits. “It’s called pushing your luck,” Hooper said. “We were stupid but lucky, and we knew it, but experience counts for a lot in these situations. We were comfortable doing it, at first.” ...

More and more often, the small unit was asked to fly higher and higher, and deeper and deeper into dangerous country. In the summer of 2002, after flying for more than a year, Cockes, then the unit’s lead pilot, stood up at a company all-hands meeting in Bogotá and expressed concern about this “mission creep,” warning that the single-engine Cessnas were no longer safe. He and the other pilots were willing to keep flying, he said, but wanted a commitment from the company that they would transition to twin-engine planes, which the aircraft supplier was willing to offer at no extra cost.

The company said no and the rest is history:

Those pilots, Paul Hooper and Doug Cockes, predicted that the single-engine Caravan would be unsafe for high-tempo missions over the Andes Mountains. After program managers on site in Bogotá dismissed their warnings, the pilots wrote letters in the fall of 2002 detailing their concerns to company officials, including Kent Kresa, then the chairman and CEO of Northrop Grumman. For their pains they were demoted, reprimanded, threatened with lawsuits, and, in their words, “pushed out” of the program shortly before their predictions came tragically true. They consider themselves fortunate. “The only reason those three Americans were captive on the ground for five years, and the reason why five of their colleagues are now dead, is the greed and incompetence of California Microwave and Northrop Grumman,” Hooper told me.

From Flight Risk by Mark Bowden.

Do we really wish we were Moldovans?

Since Moldova escaped the recent crisis Jeffrey Tayler concludes:
“I feel sorry for people in the West,” he said. “Their financial system worked well for decades, and now it’s collapsed. You know, I feel blessed to have been born here.”
Blessed to have been born in Moldova? Few would have uttered such words a year ago. Now, sadly, they make sense.

Really? Why not Sudanese or Maldivians?

But Moldovans are not without resource:
“We never think of going to the bank for a loan or using a credit card,” Roman told me. “We operate on a cash-only system here.” ... “I keep all the money I have in a drawer. What I have is mine. We spend only what we have. And so I sleep well at night.”

And perhaps here is the seed for the next Moldovan crisis:
The one speculative operation most people engage in involves buying dollars and euros as hedges against the anemic local tender, the Moldovan leu. On almost every street corner in the city center stands a booth marked Schimb Valutar (currency exchange).