Nostradoofus

The Fewer, Nicer Things meme applies in particular to government.  Minimizing regulatory compliance expense is mainly a matter of simplifying complex, capricious, self-contradicting rules.

Do the endless, ever-shifting sands of TSA flight regulations actually make you safer?  Unlikely, because planes are too complex to survive a determined terrorist.  Instead, millions of people are inconvenienced, and billions of dollars in time and money wasted, for essentially political reasons:  so politicians can look like they’re helping.  Much of the inconvenience is in spending valuable time and mental effort to figure out what the rules are.  Even the enforcement officers can’t seem to figure it all out.  Not their fault — it’s just too complicated.

A well-designed, extremely simple regulatory regime would solve this.  For example, “Your carry-on must contain no metal, and must fit in a cigar box.”  This is an extreme pain, and still does nothing to make you safer, but is extremely easy to understand, comply with, and enforce.  Baby steps back toward sanity.

Thomas Jefferson argued that the entire body of federal laws should be thrown away and rewritten every 30 years, to keep them simple, current and reflective of the public will.  That’s extreme (hey, Jefferson was kind of an extremist), but a related idea in the Jeffersonian mold would be this simple Constitutional amendment:

“Every year for the next half-century, the US legal code shall contain 1% fewer words than the year before, and no congressman shall vote on a law he has not personally read in its entirety.”

This is a very simple way to limit complexity.  You could refine this rule, of course, but that would make it complicated.  The goal is simplicity.  Is this realistic?  Very.  Much of the legal code is obsolete, redundant, or consists of narrow exceptions to and refinements of existing law.  (As programmers would say, they have been applying patches and bug fixes, when they should be refactoring the code.)  Moreover, in the past 30 years, much law was written with almost no regard for complexity.  For example, the securities regulations of 1933-40 were relatively simple, but have been vastly expanded since 1970 by exceptions and refinements — apparently without effect on our financial safety.

Simple laws — as long as they are designed for measurability — require less time and effort to write, read, interpret and enforce, and thus make the entire system more efficient.

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Yet another example of the Orphans of the Sky scenario at Microsoft is Google’s use of Microsoft’s ActiveSync to synchronize your contacts and calendars among your mobile and cloud-based apps.

In case the buzzwords are unfamiliar:  Google provides free contact management and calendar functions through Gmail, its free email service.  ActiveSync is the data synchronization component of Exchange, Microsoft’s extremely expensive server application for contact management, calendar and email.  So one is free, the other extremely expensive.  Got that?  Let’s move on.

It is really hard to make synchronization like this work right.  This was Palm’s secret sauce for a while, and they still hold a bunch of patents on it.  Mighty Apple Inc. blew it here recently, accidentally erasing all contact data for thousands of customers during a routine software update.  Microsoft no doubt spent a lot of money and effort getting ActiveSync just right.  But they apparently forgot their most valuable skill of the 1980s and 1990s:  strategy.

As Palm learned to its disappointment, there is little strategic advantage in replicating data across devices.  The real advantage is in being the place where that data is generated and stored.  

If you use Gmail and its contact and calendar apps, then Google holds the strategic advantage (albeit a weak one, because everything can be exported to open formats).  They paid almost nothing for the synchronization features.  Microsoft paid a lot for synchronization features that actually facilitated their customers’ transition to Gmail.

If you synchronize via Exchange, but maintain all your contacts at Google Apps or Gmail, then Google has won another round against MSFT.

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Many inveterate readers I know have stopped reading their usual news.  The cause seems to be crisis fatigue.  Readers are going fetal.  

This points to an interesting instability in psychology:  up to a point, media gets more attention and credibility with vivid negative stories;  beyond that point, readers and viewer simply disengage.  The transition is abrupt, so it surprises industry experts when it happens.

Same thing seems to have happened in politics in the past year.  Negative, divisive campaigns, and fear of terrorism, nearly always work.  Except this time.  

Assertion:  the degree of cultural survival in shocks (e.g. colonization) is directly proportional to the degree of sophistication in the pre-existing writing system.

As a result, Europe’s North American colonizations were like a cultural neutron bomb:  even where the population survived, little remained of the original culture.  Yet in India, after 300 years of British rule, people generally still spoke Hindi, wrote in Sanskrit, liked Buddha, etc.  Similar case with China.  India and China both had well-developed independent writing systems, which accounts for the difference.

Similarly, Korea maintained a separate language and writing system (though not religion) despite hundreds of years of domination by China and Japan.  Why?  unique writing system.

But the Philippines was another neutron bomb situation, with nothing left but Tagalog (pidgin Spanish overlaid on a pre-existing language) and several geographically isolated regional dialects. Again, no pre-existing writing system.

Perhaps the most extreme case might be the Israelites, who maintained an independent language, religion and culture for over a thousand years despite having no country.  The reason is seemingly Hebrew.

In conclusion, your mom was right:  if you want to remember something, write it down.

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As we launch into the biggest Keynesian stimulus in history, it bears mentioning that its purported efficacy is based on a single historical example, whose success is still debated.

So, as long as we are making unproven assertions about what cures a great depression, here is an alternative. Judge for yourself.

High debt and unknowable exposure don’t mix. You can have one or the other, but not both. If you have low debt, you can tolerate uncertainty about exposure and risk. If you have high debt, you can still take risks, but critically, you need to know exactly where your exposure is, how big it is, or you quickly become insomniac and sensitive to loud noises.

Thus, if you have a debt-driven depression, the first order of business is to massively increase transparency, so that risk can be better quantified by anyone who wants to risk their capital.  Under this model, even bad news would unlock capital, if that news served to quantify exposure.

Repeat:  if you have high debt, unknowns may be OK, but unknowable unknowns are not.

What is a financial panic?  It is the fear of unquantifiable exposure.

“How bad is it right now?” ask investors, consumers and managers. If they can’t answer the question even approximately, then they must assume the worst. When you aggregate those assumptions together, you get a depression.

The obvious policy response is to massively increase the transparency of such exposure. That may bring bad news, but according to Adam Smith (remember him? policymakers sure don’t), individual agents are quite efficient at working around problems, if they know what they are.

This seems to be a forgotten lesson of the Great Depression. “The only thing we have to fear is fear itself.”  What fear? Unknowable unknowns. For example, how safe is your bank?  Are you really getting market price from your broker when you buy a stock? Everyone thought they knew the answers in 1928, but found they could not estimate them even approximately in 1931.

One of the primary policy responses then was to make risks more knowable. For example, consider banking regulation. If a depositor knows his bank must disclose its exposure in great detail to the federal government, his loss exposure is not zero, but it becomes somewhat predictable. Such transparency is much more useful than deposit insurance, because it guides good decisions for both banks and depositors, without moral hazard on either side.

Now investors, managers and consumers are faced again with a sudden tidal wave of unknowable uncertainty.  They thought they knew these basic things, and now realize they know nothing:

• What is the true default risk of a Moody’s AAA rating?
• What is the resale value of this or that mortgage-backed security?
• What is the true financial position of my bank, insurance company or broker?

Throwing money around doesn’t address this problem. No matter what the Fed or Treasury does, the credibility of the credit rating agencies is still suspect. No one knows what certain unregulated securities are worth. Again, high debt is intolerable without transparency.  Until transparency is restored, everyone will still be racing to deleverage, and the ship will keep going down.

Here are some specific actions, which could be taken immediately, that would help restore transparency, permitting all those little rational agents to resume their business:

1. Create a regulatory agency specifically overseeing credit rating agencies.  Enforce limitations on conflict of interest.  Force one more re-rating of all MBS.
2. Create a federal mortgage-backed security information website.  Display the contact info of any entity owning more than 10% of a given issue.  Display the deal terms.  Display the actual individual properties held by each mortgage-backed security, scrubbed of personal info, but  still showing 9-digit zip code, square feet, and so on. This would permit anyone to value any MBS, and to contact major owners to make offers.
3. Several months later (after there has been time to absorb the information), require at least one US exchange to offer a listed market in MBS, displaying bid/ask prices publicly.
4. Several months later (again, for info absorption time), require all banks and all public companies to disclose their specific MBS holdings.  On the balance sheet, they may either mark to market or hold to maturity, but in any event, must disclose all individual holdings.

The above would drain the swamp in MBS and the rating agencies.  Yes, it would be ugly.  Banks would fail.  But, er, at risk of stating the obvious, if they are holding bad assets, they will fail anyway.

These are the sorts of changes that would bring a true solution.

Nokia signs €500 million loan for Symbian R&D – Engadget, Feb 18 2009

Er, Symbian is a 10-year failed effort with low installed base and no market power.  Some perfectly good mobile operating systems are available free, right now.  Why on earth would one spend half a billion on something with no economic value?

The information technology strategy playbook is quite clear on what to do in this situation.  Once you are losing with a closed standard, you never catch up.  You are certain to lose.  If you are certain to lose with a closed standard, immediately embrace an open standard.  This lowers your costs and helps prevent rivals from winning with a closed standard.

This has been widely understood for at least 10 years.  What can they be thinking?

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The US invented, and has largely succeeded with, quantitative management techniques.  Rightly so:  measurement is the basis of reasoned discovery.  But as a result, we have a tendency, when faced with a complex problem, to focus on the parts that are easiest to measure, rather than the parts that are obviously most important.

It appears the financial crisis is such a problem, whose root causes are essentially non-quantitative.

Let’s back up a few months, to summer 2007, before demand had collapsed.  What was the problem then?  The cost of borrowing was exploding, putting firms at risk, and financial firms in particular.  Why did that happen?  Two reasons.  First, the credibility of bond rating agencies was destroyed by the mortgage crisis.  No one trusted a triple-A bond to stay triple-A, so no one wanted to buy bonds.  Second, investors began to realize that various firms had vast exposure off the balance sheet, and there was no way to estimate risk.

Both of these problems, it would seem, can be traced to what governance expert Daniel Kaufmann calls “legal corruption,” which basically means blatant conflicts of interest that are not explicitly illegal.  These are rife in the US financial system, too many examples to list — refer to Kaufmann’s recent Forbes article for more.  Perhaps because they cannot easily be measured, these activities are getting almost no attention.

This is, one hopes, what the current administration means by the pursuit of “transparency,” which could be construed to mean the following:

1. Force big auditing firms and banking regulators to require clear disclosure of off-balance-sheet exposure by public firms.
2. Regulate the bond rating agencies, which have demonstrated they cannot regulate themselves.

These two things alone would go far to restore investor trust, which would by itself stabilize markets.  I suspect these would accomplish more than any fiscal stimulus.

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The laptop.  That indispensable ergonomic train wreck.  

The heaviest laptop users, like pro football players, suffer chonic pain before the age of 30.  Unlike pro football players, they are usually not paid millions.  How to salve the agony?  One solution is the inelegantly named “Laptop in a Drawer.”

22" Samsung monitor with extra high stand, wireless keyboard/mouse, Aeron chair (craigslist, $300), 30x60 cherry desk (free from previous tenant). Laptop is in the desk drawer, lid closed but turned on, driving the whole setup.

WHAT DIDN’T WORK FOR ME

1. Docking stations:  cumbersome, unwieldy, expensive, ugly, and tied to one laptop brand.
2. Two computers:  cost more money than one, yet make you less efficient.

WHAT HAS WORKED FOR ME SINCE 2006

1. Laptop in desk drawer, turned on, lid closed.
2. Bluetooth keyboard and mouse on desk.
3. Large ergonomic monitor wired through desk to laptop in drawer.

The result is cheap (if bought used), yet optimizes for function, aesthetics and ergonomics simultaneously.  Bring the laptop into the office each day like a wallet (please don’t say purse).  Set it in the drawer, lid closed, connect power and monitor, tap the wireless keyboard, laptop wakes up, and you’re on.  Takes 10 seconds, and gives you all the advantages of both laptops and desktops.

At the end of the day, just pick up the laptop and go.  It’s now charged and backed up (if you use Time Capsule or similar), so you can work elsewhere, yet face zero risk of data loss from theft or damage.  Most importantly, these benefits cost you zero time.

More photos of my setup.

13" MacBook Core 2 Duo in desk drawer. Wakes when in range of paired Bluetooth keyboard. Just start typing. At the end of the day, just grab and go.

View out the window from Aeron chair.

Monitor cables threaded through desktop. So that's what those little inserts are for.

I don’t claim this will work for everyone.  For example, I have no idea if Windows supports the auto-wake part of this, as Mac does.  What I can say is this is cheap — especially if you value your time — and appears to solve all tradeoffs of high-intensity laptop use, with no compromises.

Cooling issue:  keep the drawer open a few inches, so you don’t cook your laptop.  I have run this way for 2.5 years with no breakdowns, so this may be excessive caution, but in an area that costs me nothing.

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