Monthly Archives: January 2013

Scumbag Storytime

I’m in a venomous mood so let’s play storytime. Keep in mind I can’t prove any of this in a legal sense. The only way to do so would be testimony from witnesses and victims, which won’t happen for reasons I’ll get to.

Story 1: Friend of mine, broker, starts work at a new firm. One of the established brokers comes in to his office, welcomes him to the firm with the usual backslapping “GREAT TO HAVE YOU ABOARD! WE GOT A GREAT THING GOING HERE!” disingenuous bullshit.

Oh, and established broker happens to mention he is personally underwriting a tax-exempt product and if the new guy really wanted to be a team player, he’d take down AT LEAST a million bucks of it. New guy takes the million, distributes it to clients and two weeks later the thing is trading with a value of exactly $0.  The tax exempt status had been pulled.

Established guy, who collected a check for somewhere around $500K when the deal sold, barges into new guy’s office when he hears questions are being asked and tells him “DON”T BE A PUSSY. YOU PLAYING WITH THE BIG BOYS NOW”.

Story 2: Institutional sales guy has a sideline underwriting his own deals in same way as the asshole in the above example. Two days before a secondary offering in a  (very) junior mining company, he borrows all of the available shares of the company from every major brokerage. Why? So no one can short it when the new shares come out no matter how egregiously priced they are. Smaller check this time, maybe $300K.

Story 3: This is complete hearsay but because I know the broker involved a bit – someone who annually massages government documents to keep handicapped parking priveleges he doesn’t need  – I believe it. Rumor was that one of his clients was one of the top five new issue buyers at the firm (a large one). Problem was that the woman who’s name was on the account had Alzheimer’s disease and had been hospitalized for a decade.

Story 4: The great rare earth metals scam. This was a helicopter drop of free money for a certain type of unscrupulous broker.  China is the source for the vast majority of rare earth metals and when the government slashed exports after a diplomatic spat, the private deal underwriting machine kicked into high gear. “WHAT A GREAT STORY! THE DEFENSE DEPARTMENT NEEDS THIS SHIT! I know this guy with a property way up north with a huge Yttrium and he only needs $10 million to develop it. We can get in on the ground floor.”

Never mind that rare earth metals aren’t rare. The reason they come from China is they are massively un-environmentally friendly to process and China is one of the few countries where they don’t care if the groundwater eventually turns fluorescent purple. Which is why, in developed countries, it takes seven years from groundbreaking to production.  Oddly enough, the “ground floor” investors in new rare earth metals stocks weren’t informed that cash flow was seven years out, long after China would ease export restrictions. Most of these companies no longer trade but there were lots and lots of $300k checks issues to the brokers who underwrote these deals.

These are the worst examples that came immediately to mind but with a few phone calls I could give you 30 more horrific tales.  The reason outsiders don’t hear about them is two-fold. One, companies make a lot of money ignoring these types of things. Some, like the rare earth scam, are mostly legal anyway. The second, and more important reason, is that no other insider is likely to complain because almost all of them, at one point or another, have done something shady themselves. They do not need a regulator going through all their trades over the past decade.

The Daily Mail today published an expose Saturday entitled “The regime of fear inside Barclays” and to be fair the whole thing sounds pretty bad. Shredding a report is a new level of sweeping compliance problems under the rug. But in light of personal experience my suspicion is that Barclays’ (who I never worked for btw) biggest deficiency is an inability to avoid detection.  Horrible shit happens everywhere, every day and it takes a complete and utter moron to get caught.

So my first reaction to the Daily Mail’s tut tutting about the state of the industry is “You have no fucking idea”. Barclays isn’t a company “out of control” its just a run of the mill brokerage company. I have no idea how we got to this point but its going to take a whole lot more than a few breathless newspaper reports to fix it.

Social Hierarchy Economics: Twitter Followers as the New Money Supply

For all the ink and pixels wasted on media technology we’ve missed a once-in-500-years sea change who’s primary units of production are two fold: mobile data traffic and impotent rage.

Some will consider it heretical to discuss religion as media but it is impossible to argue that the bible did not provide the narratives around which pre-20th century life coalesced. A bad harvest invoked Job, suffering neighbors were assisted by Good Samaritan. Grace was spoken before meals. The rural population, mostly everybody, took a weekly bath on Saturday and headed to church the next day, the only time they would see non-family members.

The stories changed from the New Testament to Amos and Andy but the purpose and attraction– collective narratives – was the same. Movies, television, again, just an enhanced version of the same thing.

One can argue that internet-based entertainment is just an extension of this trend but one would be wrong.  Church, radio, television were all passive – the audience showed up or tuned in when they were told.  The Internet is a tool of self-selection.

The last time consumers were granted such an upward spike in empowerment – the printing press/Reformation – things did not go well for a couple hundred years. Importantly, the initial reaction was the same then: you lied to us.

But whatever, things will go the way they go. For our purposes let’s turn to what this new Internet-led empowerment was used for, best described in a brilliant essay by Freddie Deboer:

 

The internet has provided tremendous functionality, for facilitating commerce, communication, research, entertainment, and more. Yet for a comparatively small but influential group of its most dedicated users, its most important feature, the killer app, is its power as an all-purpose sorting mechanism, one that separates the worthy from the unworthy—and in doing so, gives some meager semblance of purpose to generations whose lives are largely defined by purposelessness.

 

This is why an increasingly virtual culture needs an economics of social hierarchy. The western world is now wealthy enough that the necessities of life – food, warmth, shelter etc – are provided in extremis and therefore have little economic value.  If practical utility is no longer important what does have value are things that make me feel better/of a higher social strata than you. The Water/Diamonds Conundrum goes away.

Let’s posit that the social hierarchy of the Internet (and particularly social media) is scored not by money but by attention and influence. Twitter followers are not just arbitrary votes of support in this reading – they are currency. So, if love and money are by popular consensus the root cause of all murders, and Twitter followers are the new currency, it is no wonder how vicious the shoutfest gets online.

“That’s stupid”, you say. “I can’t spend Twitter followers so the whole notion is stupid. They have no value”. Fair point – online influence carries no practical utility unless your name is Josh Brown or Joe Wiesenthal. New followers won’t get you fed, but that’s what the government’s for, no? The robots tuk’erjerbs, man. You’re not going to let me starve are you?

Denying  value to social media also understates the normal, human, Pavlovian response to interaction and acceptance. For one, the potential to more or less design a perfect, if virtual, version of ourselves completely independent of physical attractiveness is deeply, deeply tempting. RTs from television personalities are both largely pointless and a perfectly-designed machine for dopamine production. Most of us are just built that way.

Crap, this is getting too long. I intended to guess at more aggregate economic effects of the virtualization of human interaction. It dovetails nicely with Izabella Kaminska’s insanely good work on The New Abundance (will wealth move online?). Kids are already not bothering to get their driver’s lisence and Google has stolen 90% of the advertising revenue that used to go to print media. Mobile data traffic is still doubling every year. The Wii is only five or six steps away from a Holodeck. Jesus, what happens then?

Yelling about economics makes you irrelevant

Who’s team are you on:  Republican or Democrat, Hayek or Keynes?

According to The Last Psychiatrist – and he’s a doctor so we have to trust him – the faster you answered this question, the less your opinion matters:

media manipulates you to hate some things by linking them to other things: it polarizes you, which means it makes you irrelevant.  E.g. when an election “is determined by” one particular group of “swing” voters– whom you deride for being too stupid to have made up their minds yet– it doesn’t mean your vote has been factored in but that you are so predictable that you don’t count.  Power never thinks of you as an individual.  Power never thinks of you at all.

I quibble with the idea that “media” or “power” is an all-knowing Wizard of Oz controlling the levers of culture. My personal perception is that no one is in control but some, like surfers, can harness forces that are largely exogenous to their own benefit. Surfers don’t control waves, they just ride them in front of the cameras. Media doesn’t control behaviour, it tries to direct it – most often unsuccessfully – by appealing to base instinct.

But the point about polarization and irrelevance stands and, since polarization and intransigence are arguably the dominant traits of the current culture, we should try and figure out why.

Theory: The failure of scientific method is behind the recent lack of political progress.

You didn’t see that coming did you? Let’s go back a few hundred years to the beginning of the Era of Science and Reason. Technological and intellectual advancement, highlighted by Galileo, led to the widespread questioning of God and our place in the universe. The first order of business, like Adam in the garden of Eden, was to rename and categorize everything.

“Hey Chuck! Mr Darwin! Is this thing a mollusk or crustacean?”

“Two pairs of nerve cords? Mollusk”

“Chuck! WTF do we do with the Platypus? It lays eggs”

“Umm. Leave that one out”

And there’s the problem – leaving shit out. The scientific method proved insufficient to encompass everything, as economists are now painfully aware. Neat categorizations began to pull academics away from the real world rather than promote fuller understanding.

Consider the following model of scientific era thought, originally drawn up by the late professor James Leach, the Smartest of All Time (SOAT):

postmodern blog

The all-male thinking brigade of the 17th and 18th centuries assumed that because the natural world appeared to divide between male and female that this was the correct way to start. They shoehorned almost everything into this construct. Inconveniences, occurrences that did not clearly fit, were repressed and ostracized as “other”. To the bigoted minds of the time, homosexuals – who tested the male/female divide – were the obvious examples.

For professor Leach, post-modernism was a process of declassification and re-assembling. (He spent a lot of time on Freud who’s primary achievement was discovering that the mind worked in metaphor. Our brains actually classified things as this AND that, not this OR that).

What we should be thinking about is what post-modern economics would look like, blowing up the existing structures and re-assembling them. Is it possible to believe simultaneously in smaller government and huge stimulus? Of course – it just doesn’t fit the current template. There’s no team for that.

What we’re doing now – splitting into mobs and screaming at each other – is tragically stupid and unproductive. The banner quote on this blog only hints at the depth of my disgust at the modern shoutfest. The crucible of spirited opposition has rendered every side inflexible, unhappy and desperate enough to seriously consider trillion dollar coins or destroying the legislative process.

And the Last Psych is right – the louder you scream the more irrelevant you are. Not because you’re wrong but because you have fitted yourself so deeply into an outdated template that it is unlikely you are thinking as an individual. Quit it

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