'"Well then, how will our state supply these needs? It will need a farmer, a builder, and a weaver, and also, I think, a shoemaker and one or two others to provide for our bodily needs. So that the minimum state would consist of four or five men...." (The Republic, Page 103, Penguin Classics edition.)
"When every individual person labours a-part, and only for himself, his force is too small to execute any considerable work; his labour being employ’d in supplying all his different necessities, he never attains a perfection in any particular art; and as his force and success are not at all times equal, the least failure in either of these particulars must be attended with inevitable ruin and misery. " (David Hume, A Treatise of Human Nature" (1739)):
These are two views on the division of labor. One speaks to its necessity for a wealthy and productive society, and the other to its destructive impact. I think the creation of Finance as an industry is an example of the former, whereas the creation of Risk Management as a sub-industry of Finance is an example of the latter.
Why do I think this? Well, it is to do with the separation of decision making, reward and responsibility.
Investors often talk about 'taking risk'. We choose to either 'take risk' or 'not take risk'. And responsibility for making a good decision lies with the decision maker.
To seperate the measurement or management of risk, from the decision to take the risk itself, not only confuses the responsibility, but dis-empowers the actors in the decision.
And creating adversarial environments between risk and profit (as most banks do) only puts risk in the junior position.
Therefore I think risk management is a discipline, not a profession. And as with mathematics, all should be literate and responsible in its practice. Risk cannot be delegated like Law, or Carpentry...
But worse than this is the scale such a division of labor between decision makers and 'professional reviewers' allows. Partly because it requires less training to reach 'competence' in one of the divorced skills, but also because of the sense of safety that such an organised and professionalised environment creates.
The failure then of risk managers (and I count myself very much in this) is that they, as individuals, submitted to, and encouraged this organisational slight of hand.
Sunday, 26 April 2009
Wednesday, 22 April 2009
Science Fiction
Computers store data and process data. In addition we have the requirement to shift data around, from place to place and between processes and logical stores.
Over the years the physical implementation of this abstraction has itself become more and more abstract. On an individual machine the concepts of messages, processes, threads and serialization have allowed developers to build programmes that emulate the everyday language of life, through things like design patterns (producers, consumers, singletons, swim-lanes etc).
Technologies that are being created for the entire network of all computing power is assembling its (ingreasingly prosaic) nouns:
Cloud computing;
Cloud Base;
Cumulus;
I think there are some missing, which relate to how data is moved
Which might be Zephyrs, Hurricanes, Eddies, TradeWinds etc...
But these types of metaphor allude to something that might be important. They are forces that we do not control, and indeed, we are at their mercy sometimes. In the technology world, we do direct these forces, but they require active input and deep thought to get right, and we are balancing strong forces, bridging the void in the difference of two large numbers.
In the human world we constantly make decisions about storage, communication and travel.
Sometimes we travel by airplane to the source of the data (face to face meetings transmit enormous amounts of data over a short distance) and sometimes we are content with text messages.
Cloud is part of an evolution of technical metaphoric language, and each baby step brings us closer to being face to face with our-selves...
Over the years the physical implementation of this abstraction has itself become more and more abstract. On an individual machine the concepts of messages, processes, threads and serialization have allowed developers to build programmes that emulate the everyday language of life, through things like design patterns (producers, consumers, singletons, swim-lanes etc).
Technologies that are being created for the entire network of all computing power is assembling its (ingreasingly prosaic) nouns:
Cloud computing;
Cloud Base;
Cumulus;
I think there are some missing, which relate to how data is moved
Which might be Zephyrs, Hurricanes, Eddies, TradeWinds etc...
But these types of metaphor allude to something that might be important. They are forces that we do not control, and indeed, we are at their mercy sometimes. In the technology world, we do direct these forces, but they require active input and deep thought to get right, and we are balancing strong forces, bridging the void in the difference of two large numbers.
In the human world we constantly make decisions about storage, communication and travel.
Sometimes we travel by airplane to the source of the data (face to face meetings transmit enormous amounts of data over a short distance) and sometimes we are content with text messages.
Cloud is part of an evolution of technical metaphoric language, and each baby step brings us closer to being face to face with our-selves...
Saturday, 18 April 2009
Communication
A conveyance of meaning to generate shared understanding.
I am sitting at my lap top writing this blog, chatting occasionally with my partner who is watching TV on the sofa, with tweets flashing in the top right of my screen, the odd beep of emails arriving and my blackberry sitting at my right hand (as always).
On radio four the other evening I heard Seamus Heaney saying he refused to have an email account, because letters were overwhelming, but text was something he used a lot, and had even learned to use predictive text (he is well into his 80s and recently had a stroke).
So we do lots of 'Communication' but sometimes these modes of communication don't suit us and sometimes they do. Text has taken off hugely because there is synergy between the technology and our desire to remain in touch with little emotional input. But amplifying this emotional shyness with technology doesn't always prove beneficial. We have all heard the story of redundancies delivered or relationships ended by text. So the technology beckons us over the line to cowardice in a painless way.
Twitter is another new communication phenomena. Until recently I would have loudly said it was a wasteful phenomena, encouraging pointless and trivial flirtations with 'almost communicating'. But I was ignoring an important truth about communication.
If its popular, it is important.
And I think it is a new way of communicating that doesn't have an analogue in the analogue world (ie email = letter, text = telegram, blog = essay). However, I think the next great advances in technology and communication will not be in new forms of communication, but in bending these forms into our service. Today, we are dominated and overwhelmed by information and are being communicated at, and to, in ways that don't obviously enhance our lives.
Allowing people to move between creative media, to collaborate, share and filter, using tools of their choice, to invite silence or hubub, in global teams or splendid isolation, or both in sequence, in ways that enhance our emotional and spiritual well-being, are aspirations that entrepreneurs today are working towards.
I am sitting at my lap top writing this blog, chatting occasionally with my partner who is watching TV on the sofa, with tweets flashing in the top right of my screen, the odd beep of emails arriving and my blackberry sitting at my right hand (as always).
On radio four the other evening I heard Seamus Heaney saying he refused to have an email account, because letters were overwhelming, but text was something he used a lot, and had even learned to use predictive text (he is well into his 80s and recently had a stroke).
So we do lots of 'Communication' but sometimes these modes of communication don't suit us and sometimes they do. Text has taken off hugely because there is synergy between the technology and our desire to remain in touch with little emotional input. But amplifying this emotional shyness with technology doesn't always prove beneficial. We have all heard the story of redundancies delivered or relationships ended by text. So the technology beckons us over the line to cowardice in a painless way.
Twitter is another new communication phenomena. Until recently I would have loudly said it was a wasteful phenomena, encouraging pointless and trivial flirtations with 'almost communicating'. But I was ignoring an important truth about communication.
If its popular, it is important.
And I think it is a new way of communicating that doesn't have an analogue in the analogue world (ie email = letter, text = telegram, blog = essay). However, I think the next great advances in technology and communication will not be in new forms of communication, but in bending these forms into our service. Today, we are dominated and overwhelmed by information and are being communicated at, and to, in ways that don't obviously enhance our lives.
Allowing people to move between creative media, to collaborate, share and filter, using tools of their choice, to invite silence or hubub, in global teams or splendid isolation, or both in sequence, in ways that enhance our emotional and spiritual well-being, are aspirations that entrepreneurs today are working towards.
Sunday, 12 April 2009
Structural Change
Robert Peston makes a very interesting observation in his artcle 'The New Capitalism'.
One of the best ways of understanding how all our debts were accumulated is to look at the gross foreign current liabilities of our banks. These rose from £1,100bn in 1997 to £4,400bn this year (again, about three times the size of our annual economic output).
This only tells part of the story. If we want to know to what extent foreign investment in our banks has contributed to our UK based debt binge I think the following ratio would be more instructive:
I tried briefly to find the denomiator on google, but coudln't.
Anyone have any ideas where to find it?
One of the best ways of understanding how all our debts were accumulated is to look at the gross foreign current liabilities of our banks. These rose from £1,100bn in 1997 to £4,400bn this year (again, about three times the size of our annual economic output).
This only tells part of the story. If we want to know to what extent foreign investment in our banks has contributed to our UK based debt binge I think the following ratio would be more instructive:
I tried briefly to find the denomiator on google, but coudln't.Anyone have any ideas where to find it?
Thursday, 9 April 2009
Rant on Infrastructure and Black Swans
/* Start Poorly Reasoned Rant */
Nicolas Taleb's Editorial in the FT yesterday is food for thought. ( http://bit.ly/XVis )
Its a rehash of his black swan book, but with compressed messages and intensity.
One clause that stands out for me is the last:
This is important stuff. But in this country (and probably everywhere) we lack the mindset and the infrastructure to really achieve this.
For many people small is cold. Small is lonely. Small is scary.
So we need to make it fluffier. Communities of small businesses can be improved. But not incubators in universities. Please no. That is a step too far! Too safe, too fluffy.
London has small enclaves of entrepreneurs, but is mostly dominated by the society of hedge funds and investment banks. Now is the time to change this (are you listening Boris!?).
We need more places like http://www.onealfredplace.co.uk (check it out! Beats the pants off a serviced office).
Also we need to reduce the risk. At the moment equity goes into premises. Equity goes into Financial management. Equity goes into PR. It goes into infrastructure. And this is wasteful. Investors and politicians need to find ways of making this more efficient. I will be working on this with my small fund. So less equity to do the same thing means less risk, and more entrepreneurs. Simple!
Entrepreneurs should always share the downside. That's what makes it work. But the downside shouldnt involve having your family kicked out onto the street. That is not sustainable capitalism.
Unfortunately, and on the subject of housing, leverage has put us in a place where bricks, mortar and labor worth £150k costs £1m. This crazy mis-allocation of capital really needs to be reversed as part of building a sustainable capitalist society.
/* End Poorly Reasoned Rant */
Nicolas Taleb's Editorial in the FT yesterday is food for thought. ( http://bit.ly/XVis )
Its a rehash of his black swan book, but with compressed messages and intensity.
One clause that stands out for me is the last:
10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.
Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.
Smaller companies, richer ecology, no leverage, equity.......This is important stuff. But in this country (and probably everywhere) we lack the mindset and the infrastructure to really achieve this.
For many people small is cold. Small is lonely. Small is scary.
So we need to make it fluffier. Communities of small businesses can be improved. But not incubators in universities. Please no. That is a step too far! Too safe, too fluffy.
London has small enclaves of entrepreneurs, but is mostly dominated by the society of hedge funds and investment banks. Now is the time to change this (are you listening Boris!?).
We need more places like http://www.onealfredplace.co.uk (check it out! Beats the pants off a serviced office).
Also we need to reduce the risk. At the moment equity goes into premises. Equity goes into Financial management. Equity goes into PR. It goes into infrastructure. And this is wasteful. Investors and politicians need to find ways of making this more efficient. I will be working on this with my small fund. So less equity to do the same thing means less risk, and more entrepreneurs. Simple!
Entrepreneurs should always share the downside. That's what makes it work. But the downside shouldnt involve having your family kicked out onto the street. That is not sustainable capitalism.
Unfortunately, and on the subject of housing, leverage has put us in a place where bricks, mortar and labor worth £150k costs £1m. This crazy mis-allocation of capital really needs to be reversed as part of building a sustainable capitalist society.
/* End Poorly Reasoned Rant */
Sunday, 8 March 2009
Accountability
Leverage is the tool of our demise. And the wielders are bankers.
This is the fairly straightforward message that we receive through our media and its not hard to understand why. The diagram below is a 'toy model' of the banking and 'shadow banking' system. It shows the investment process, of $1 in true capital being 'geared' as it goes through the sausage machine of the fund management industry, with banks pumping in debt at every step. By the time you reach the private equity investors on the sharp end there is a lot of cash to play with. The size of the deals these guys were doing was truly mind-boggling. What is important to understand however, is that no bank, at any point would have had to agree to lending at leverage ratios of 64:1. In fact, in this fairly tame example, no credit committee would have seen ratios above 4:1. What they would call responsible lending!
However, what if the masters of the universe wanted in the private equity business wanted even more cash to play with. One thing you could do is ask the banks to lend more, but there is an even easier way to do it. Introduce another layer of fund Managers. Lets call them 'fund of fund' managers.
Wow! Thats really cool. Now what you've got is leverage of 256:1!!! And still not irresponsible lending by the banks. That's what you call financial engineering.
The really difficult problem with this situation is that its not anybody's fault. These transactions happen all over the world. In different domiciles, and in hundreds of different institutions, and every individual transaction feels like a sensible, and low risk proposal.
The reality is of course much more complex than this, but its possible to see through this simple example how cheap money gets sprayed into the world of business. It was Milton Friedman who said
"... if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government."
Hmmmm. Sounds a lot like fund management too.
The problem now is what do we do about it?
Gordon Browns suggestion is to extend regulation to the fund industries. The regulators have failed to oversee banks though, so its hard to see how that will make the system more robust.
I think a more sustainable long term solution is to restrict and regulate the total supply of debt to the fund management industry, but by controlling banks, not funds.
This would require a much more pro-active, data driven approach from the regulators. This is not the same as having banks fill out more reports however.
With the approach of cloud computing and enhanced grid analytics we do now have the technological capability to do this. But it will require a very far sighted and energetic set of regulators to do this. Not least because the implied deleverage is probably a very difficult political pill to swallow.
Especially for Gordon.....
This is the fairly straightforward message that we receive through our media and its not hard to understand why. The diagram below is a 'toy model' of the banking and 'shadow banking' system. It shows the investment process, of $1 in true capital being 'geared' as it goes through the sausage machine of the fund management industry, with banks pumping in debt at every step. By the time you reach the private equity investors on the sharp end there is a lot of cash to play with. The size of the deals these guys were doing was truly mind-boggling. What is important to understand however, is that no bank, at any point would have had to agree to lending at leverage ratios of 64:1. In fact, in this fairly tame example, no credit committee would have seen ratios above 4:1. What they would call responsible lending!
However, what if the masters of the universe wanted in the private equity business wanted even more cash to play with. One thing you could do is ask the banks to lend more, but there is an even easier way to do it. Introduce another layer of fund Managers. Lets call them 'fund of fund' managers.
Wow! Thats really cool. Now what you've got is leverage of 256:1!!! And still not irresponsible lending by the banks. That's what you call financial engineering.
The really difficult problem with this situation is that its not anybody's fault. These transactions happen all over the world. In different domiciles, and in hundreds of different institutions, and every individual transaction feels like a sensible, and low risk proposal.
The reality is of course much more complex than this, but its possible to see through this simple example how cheap money gets sprayed into the world of business. It was Milton Friedman who said
"... if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government."
Hmmmm. Sounds a lot like fund management too.
The problem now is what do we do about it?
Gordon Browns suggestion is to extend regulation to the fund industries. The regulators have failed to oversee banks though, so its hard to see how that will make the system more robust.
I think a more sustainable long term solution is to restrict and regulate the total supply of debt to the fund management industry, but by controlling banks, not funds.
This would require a much more pro-active, data driven approach from the regulators. This is not the same as having banks fill out more reports however.
With the approach of cloud computing and enhanced grid analytics we do now have the technological capability to do this. But it will require a very far sighted and energetic set of regulators to do this. Not least because the implied deleverage is probably a very difficult political pill to swallow.
Especially for Gordon.....
Saturday, 7 March 2009
Futurology
It is the role of the Venture Capitalist to take a medium term view of the economy and the needs of people and businesses.
So it is fun to read what is commonly called 'futurology' as a way to challenge one's ideas of how our commercial ecosystem will evolve.
An early influence on me was Lyall Watson, who died last year aged 69. He wrote a series of books ('Supernature' being the most famous) that discussed supernatural phenomenon and spent sometime considering the likely future evolution of the human race. One essay I recall reading was comparing the complexity of the global telecommunication network to the complexity of the human brain. It was a kind of enjoyably gentle 'nuttiness' that would provoke good after dinner conversations. Not serious though, only useful in the same way as science fiction might be to a working scientist.
It is into the same camp that I would put Raymond Kurzweil, only perhaps replacing humor with hubris. One of Raymond's books, 'The Singularity is Near' talks at great length on the idea that the constantly accelerating rate of technological change will soon become self sufficient, and human beings will become a passenger to technical evolution rather than a driver. It is not a good read though, combining the dullness of a (selective) technical survey with a poor simulacrum of 'Godel, Escher, Bach'.
In fact, in a 2007 interview, Douglas Hofstadter, the author of GDB compared his ideas to a blend of very good food and "the craziest sort of dog excrement".
Well, he said it, not me!
So it was with some surprise that I read of the creation of The Singularity University.
The role of the singularity university is to take a series of 10 super short modules in 'high technology' such as nanotechnology, specialise, and then do a project, all in the space of 10 weeks.
The faculty has a few Engineers and Scientists on it. It also has Aubrey de Gray, Chairman and Chief Science Officer of the Methuselah Foundation, of less certain acedemic pedigree, and a bunch of 'chief evangelists' and venture capitalists.
So its not really a university.
Then what's it for? The SU website declares its mission as follows:
A number of exponentially growing technologies (bio, nano, AI, info, etc.) will massively increase human intelligence and capability and fundamentally reshape our future. This concept, known as the technological Singularity, as advanced by Ray Kurzweil, warrants the creation of an academic institution whose students and faculty will study these technologies, with an emphasis on their interactions, and help to guide the process for the benefit of humanity and its environment.
Vint Cerf (Google's Chief Evangelist) says:
Creating a network of future world leaders across the range of exponentially growing technologies addressed by Singularity University will have profound implications.
So its more like a mission control for members of the 'Kurtzweil club' sent forth to save man-kind.
There is no doubt that the problems we all face today are verging on the insurmountable, but I do find it strange that such a dubious group of 'free thinkers' should be given credibility in this way, with state backing from the United States Government (they are part funded by NASA).
So it is fun to read what is commonly called 'futurology' as a way to challenge one's ideas of how our commercial ecosystem will evolve.
An early influence on me was Lyall Watson, who died last year aged 69. He wrote a series of books ('Supernature' being the most famous) that discussed supernatural phenomenon and spent sometime considering the likely future evolution of the human race. One essay I recall reading was comparing the complexity of the global telecommunication network to the complexity of the human brain. It was a kind of enjoyably gentle 'nuttiness' that would provoke good after dinner conversations. Not serious though, only useful in the same way as science fiction might be to a working scientist.
It is into the same camp that I would put Raymond Kurzweil, only perhaps replacing humor with hubris. One of Raymond's books, 'The Singularity is Near' talks at great length on the idea that the constantly accelerating rate of technological change will soon become self sufficient, and human beings will become a passenger to technical evolution rather than a driver. It is not a good read though, combining the dullness of a (selective) technical survey with a poor simulacrum of 'Godel, Escher, Bach'.
In fact, in a 2007 interview, Douglas Hofstadter, the author of GDB compared his ideas to a blend of very good food and "the craziest sort of dog excrement".
Well, he said it, not me!
So it was with some surprise that I read of the creation of The Singularity University.
The role of the singularity university is to take a series of 10 super short modules in 'high technology' such as nanotechnology, specialise, and then do a project, all in the space of 10 weeks.
The faculty has a few Engineers and Scientists on it. It also has Aubrey de Gray, Chairman and Chief Science Officer of the Methuselah Foundation, of less certain acedemic pedigree, and a bunch of 'chief evangelists' and venture capitalists.
So its not really a university.
Then what's it for? The SU website declares its mission as follows:
A number of exponentially growing technologies (bio, nano, AI, info, etc.) will massively increase human intelligence and capability and fundamentally reshape our future. This concept, known as the technological Singularity, as advanced by Ray Kurzweil, warrants the creation of an academic institution whose students and faculty will study these technologies, with an emphasis on their interactions, and help to guide the process for the benefit of humanity and its environment.
Vint Cerf (Google's Chief Evangelist) says:
Creating a network of future world leaders across the range of exponentially growing technologies addressed by Singularity University will have profound implications.
So its more like a mission control for members of the 'Kurtzweil club' sent forth to save man-kind.
There is no doubt that the problems we all face today are verging on the insurmountable, but I do find it strange that such a dubious group of 'free thinkers' should be given credibility in this way, with state backing from the United States Government (they are part funded by NASA).
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