echovar

It’s interesting to think of banks as walled gardens. For example, on the Network, we might call Facebook, or aspects of Apple or Microsoft, a walled garden. The original America Online was the classic example. While most of us prefer to have walls, of some sort, around our gardens; the term is generally used to criticize a company for denying users open access, a lack of data portability and for censorship (pulling weeds). However when we consider our finances, we prefer there be a secure wall and a strong hand in the cultivation and tending of the garden. Context is everything.

More generally, a walled garden refers to a closed or exclusive set of information services provided for users. This is in contrast to providing consumers open access to the applications and content.

The recent financial crisis has presented what appears to be an opportunity to attack the market share of the big banks. Trust in these institutions is lower than normal and the very thing that made them appealing, their size, is now a questionable asset. The bigness of a bank in some ways describes the size of their private Network. On the consumer side, it’s their physical footprint with branches, or stores as some like to call them, and the extension of that footprint through their proprietary ATM network plus affiliated ATM networks. On the institutional side, there’s a matching infrastructure that represents the arteries, veins and capillaries that circulate money and abstractions of money around the country. Network is the medium of distribution. Once the platform of a big bank’s private network is in place, they endeavor to deliver the widest possible variety of product and services through these pipes. Citibank led the way in the financial supermarket space, now all the major players describe themselves as diversified financial services firms.

Every so often, in the life of the Network, the question of centralized versus distributed financial services comes up. Rather than buying a bundle of services from a single financial services supermarket, we wonder whether it’s possible to assemble best of breed services through a single online front-end. This envisions financial services firms providing complete APIs to aggregators so they can provide more friendly user interfaces and better analytics. Intuit/Mint has been the most successful with this model. It’s interesting to note that since the financial supermarkets are generally built through acquisition, under the covers, their infrastructures and systems of record are completely incompatible. So while the sales materials tout synergy, the funds to actually integrate systems go begging. The financial services supermarket in practice is aggregated, not integrated.

We’re starting to see the community banks and credit unions get more aggressive in their advertising— using a variation on the “small is beautiful” theme. For consumers, the difference in products, services and reach has started to narrow. By leveraging the Network, the small financial institution can  be both small and big at the same time. In pre-Network history, being simultaneously small and big violated the laws of physics. In the era of the Network, any two points on the planet can be connected in near real time as long as Network infrastructure is present. An individual can have an international footprint. Of course, being both big and big allows a financial institution to take larger risks because, theoretically at least, it can absorb larger loses. We may see legislation from Congress that collars risk and puts limitations on the unlimited relationship between size and risk.

The Network seems to continually present opportunities for disintermediation of the dominant players in the financial services industry. Ten years ago, account aggregation via the Network seemed to be on the verge. But the model was never able to overcome its usability problems, which at bottom are really internet identity problems. We’re beginning to see a new wave of companies sprouting up to test whether a virtual distribution network through the internet can supplant the private physical networks of the established players. SmartyPig, Square and BankSimple present different takes on disintermediating the standard way we route and hold the bits that represent our money.

Once any Network endpoint can be transformed into a secure transaction environment, the advantage of the private network will have been largely neutralized. And while it hasn’t solved account aggregation’s internet identity problem yet, the mobile network device (some call it a telephone) has significantly changed the identity and network landscape. The walls around the garden represent security and engender trust. The traditional architecture of bank buildings reflect this concept. But the walled garden metaphor is built on top of the idea of carving out a private enclave from physical space. The latest round of disintermediation posits the idea that there’s a business in creating ad hoc secure transaction connections between any two Network endpoints. In this model, security and trust are earned by guaranteeing the transaction wherever it occurs.

There have always been alternative economies, transactions that occur outside of the walled gardens. In the world of leading-edge technology, we tend to look for disruption to break out in the rarefied enclaves of the early adopter. But when the margins of the urban environment grow larger than the traditional center, there’s a good chance that it’s in the improvisational economies of the favelas, shanty towns and slums that these new disruptive financial services will take root.

The voices from a certain segment of the developer classes cry out that the iPad has left out too much. That the simplicity of the device has cut them off from the toolsets with which they’ve become comfortable and productive. There’s no keyboard, no mouse, no windows, no multitasking, no hierarchical file system. Perhaps they state the obvious when they say it’s not the laptop they already have. The device, they say, is too simple to be useful. The computing environment is too vertical. Somehow this crowd imagines a linear incremental evolutionary development from personal computing as they’ve always known it to a simple tablet device. A simple device that includes all the complexity and clutter to which they’ve become accustomed. Of course we know the fate of the complex tablet device they’re describing— it never caught on. That wasn’t what they wanted either.

There’s another segment that says that this new iPad device won’t inspire the tinkerer, the maker. The person who, as a child growing up, reveled in taking apart things to see how they worked. There are no screws to let the user open up this device and have a peak inside. The device is both too simple and too complex. The integrated design and manufacture of the product is at such a high level that there’s not much for the tinkerer to play with. This crowd believes the iPad kills play. But tinkering and play is always a relative matter. With the iPad, tinkering is simply displaced— it moves up the stack to the level of web/cloud and native software. Tinkerers, if they are tinkerers, are not so easily dissuaded.

A third segment thinks that the iPad will re-incarcerate the audience. Social media and various crowd-sourced content sites have transformed the audience from passive observers to active participants. But, the iPad is deemed an evolutionary step backward, an evil plan by the incumbent media companies to preserve their dastardly business models. The device, they say, is purely for consumption of media— it’s a screen, much like a television. Because it lacks the traditional input tools, the keyboard and the mouse, it can’t and won’t enable the user to interact or create. Multi-touch is a gesture of consumption, not one of creation. Those making this argument defend the “new media of the internet” from the next generation of innovators and the kids who’ll learn to type on glass.

In each of these cases there’s a defense of an inconvenient complexity. The complexity must be preserved to extend the stability of the existing ecosystem. There’s even a moral edge to maintaining the status quo, as if embracing this new platform was a kind of degenerate act. And instead of the device that’s available today, a non-existent device of the future is peddled in its place. A device where choices don’t have to be made, where everything you want, everything you have, and everything you can imagine exist in a simple package. Of course, if you wait long enough, the thing you’re looking for might just come along. Either that or you’ll run out of heartbeats.

In the end, what the simplicity of the iPad allows is more participation by more people with real-time personal and social networked computing. By eliminating levels of complexity, the barriers to practical and emotional engagement with the device are reduced below a significant threshold. But we’re only in the year zero, as the platform expands and matures, as competitors flesh out variations of the theme, new levels of complexity will emerge.

In a recent post, Clay Shirky talks about The Collapse of Complex Business Models. In essence, the idea is that in the television business, you were able to support a high cost structure and complex production environment through massive distribution of the product through specialized video broadcasting services. While not sufficient, it was necessary to produce a high-quality product to achieve mass distribution, consumption and profit margins. Shirky’s point is that the same itch is now being scratched by non-commercial, low-quality product that also achieves mass-distribution over the Network. The question television executives face is: how do we compete with that?

This is reminiscent of the moment when the Coca-Cola corporation discovered that it wasn’t just competing with the Pepsi-Cola corporation for dominance of the cola-flavored beverage market, or the soda market in general. They were competing against water. Television executives are looking for their version of Coca-Cola’s Dasani— a bottled water product that delivers similar margins to their soft drinks. Although the attempt roll Dasani into the European markets exposed what most people already knew. Water was readily available from their taps as a utility.

Shirky’s focus is on the moment when complexity, and adding more complexity/quality to the mix, no longer delivers a positive revenue margin over expenses. And unlike the banks that make up our financial system, the big media corporations are not perceived as too big to fail. As the business models of the media giants are hollowed out, change will come. At the end of his post, Shirky makes some predictions:

When ecosystems change and inflexible institutions collapse, their members disperse, abandoning old beliefs, trying new things, making their living in different ways than they used to. It’s easy to see the ways in which collapse to simplicity wrecks the glories of old. But there is one compensating advantage for the people who escape the old system: when the ecosystem stops rewarding complexity, it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.

While measuring the value of complexity in the equation of a business model may be one signal of an institution’s chances in the ongoing transformation of the media ecosystem, there’s an older Shirky post that should be brought into this context. The post is called “Gin, Television and Social Surplus.” In this post, he contemplates the 200 billion hours spent watching television each year in the United States. Should that energy be refocused in another direction, what might it unleash?

And television watching? Two hundred billion hours, in the U.S. alone, every year. Put another way, now that we have a unit, that’s 2,000 Wikipedia projects a year spent watching television. Or put still another way, in the U.S., we spend 100 million hours every weekend, just watching the ads. This is a pretty big surplus. People asking, “Where do they find the time?” when they’re looking at things like Wikipedia don’t understand how tiny that entire project is, as a carve-out of this asset that’s finally being dragged into what Tim calls an architecture of participation.

Now, the interesting thing about a surplus like that is that society doesn’t know what to do with it at first–hence the gin, hence the sitcoms. Because if people knew what to do with a surplus with reference to the existing social institutions, then it wouldn’t be a surplus, would it? It’s precisely when no one has any idea how to deploy something that people have to start experimenting with it, in order for the surplus to get integrated, and the course of that integration can transform society.

When I linked these two ideas together, a changing media/technology ecosystem and a large cognitive surplus, and third pattern emerged that provided a distressing context. It’s interesting that when speaking of media and business models, we look blithely on at the destruction and upheaval occurring. We zero in on the inflexibility of institutions, the fact that they can’t adapt to change as the sad, but predictable, cause of their extinction. When Shirky adds together a socialized Network and a large cognitive surplus he comes up with experiments that ultimately are integrated into society and transform it. There’s a beautiful optimism implied there, one that imagines peaceful progress mimicking the periodic updates of web-based software over the Network.

The distressing context that emerged was that the contours of what Shirky describes begins to resemble the historical period before World War I. We’re living through an era of accelerating change in technology, communications, media, manufacturing and politics. The ecosystem of the dominant broadcast media is evolving into something else, and potentially unleashing billions of hours of human energy. In the forward to her book “The Proud Tower,” Barbara Tuchman writes:

The period of this book was above all the culmination of a century of the most accelerated rate of change in man’s record. Since the last explosion of a generalized belligerent will in the Napoleonic wars, the industrial and scientific revolutions had transformed the world. Man had entered the Nineteenth Century using only his own and animal power, supplemented by that of wind and water, much as he had entered the Thirteenth, or, for that matter, the First. He entered the Twentieth with his capacities in transportation, communication, production, manufacture and weaponry multiplied a thousandfold by the energy of machines. Industrial society gave man new powers and new scope while at the same time building up new pressures in  prosperity and poverty, in growth of population and crowding in cities, in antagonisms of classes and groups, in separation from nature and from satisfaction in individual work.

and a little later:

…society at the turn of the century was not so much decaying as bursting with the new tensions and accumulated energies. Stefan Zweig who was thirty-three in 1914 believed that the outbreak of the war “had nothing to do with ideas and hardly even with frontiers. I cannot explain it otherwise than by this surplus force, a tragic consequence of the internal dynamism that had accumulated in forty years of peace and now sought violent release.”

While it’s unlikely that there will be a note-for-note replay of the fin de siècle era, there is a significant risk that what was multiplied a thousandfold by the energy of machines, will be multiplied by orders of magnitude and distributed to millions of nodes across the Network. The question we might ask is whether we have a strong enough central agreement about morality and civilization to curb our darker instincts. Can the center hold?

The transposition of the metaphor of spatial relationships to the realm of computing gave us purchase, a foothold, on things and how they might be organized. Our personal computers were envisioned as very large file cabinets. The size of the cabinet was proportional to the size of the hard drive attached to the CPU. As the primary connection for storage systems moved to remote network-attached systems, the cabinet has grown to an enormous size, but the organizational metaphor remains unchanged.

While capacities seem almost limitless in the “consumer” computing space, in the enterprise there are limits everywhere. The corporate enterprise’s limitation on the size of these file drawers has resulted in the phenomena of email jail. A stream of email is constantly coming in to your mail reader, but the size of your mailbox is finite. Once the box is full, the stream is shut off until you create space in your mailbox by deleting a sufficient number of messages.

It may have been Gmail that introduced the idea that nothing needs to be deleted ever. The stream of mail comes in: we look at it, ignore it, act on it, search for it, view it in threads— but we don’t need to manage the number of messages in a mailbox of limited dimensions. A stream flows into a larger river and then into the ocean. The world of social media has given us a variety of new streams with which to work. Oddly, none of them have the basic toolset that the Gmail stream offered right out of the gate.

As we begin to think about how to work with streams, we flip from metaphors of spatial organization to temporal schemes. The stream doesn’t empty into an ocean, but rather always remains an event embedded in the stream of time. The control set we seek comes from the world of digital audio/video. Jump to a point in the time line, fast forward, rewind, zoom in, give me the alternate audio channel, jump to a live real-time view. Largely, the metaphors we use in these thought experiments have been checked out from the library of physics. We move from space to time, but perhaps we really move to the space-time continuum. It’s here that the term fabric is introduced to describe the medium within which we swim.

At this point I’d to change the focus slightly and look at the fabric of the transaction surface of the Network. While cash money is generally acceptable at every transaction point in our daily lives, the Network doesn’t have an analog. Credit/Debit cards and PayPal seem to be the primary transaction networks through which goods can be purchased or money can change hands. If you were to imagine the set of points in physical and Network space where electronic monetary transactions are possible, you’d have a map with a rather sparse distribution.

While money itself is an abstraction of commodity, in its physical form, as bills and coins, it has not been able to make the leap from our lived physical world to our lived Network world. Cash almost defines the quality of fungibility. And while digital bits can be re-arranged to represent seemingly any form within computational space, there is no digital representation of cash that maintains its fungibility.

The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value. And only by virtue of this function does gold, the equivalent commodity par excellence, become money.

It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realized human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values, i.e., into money. Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.

-Karl Marx, Capital

Bank of America’s Keep The Change program introduced an interesting innovation into the transaction point. While it’s been lauded for its use of behavioral economics theory in spurring its customers to save more, the program’s technical implementation suggests some interesting possibilities. In general, this program has expanded the fabric of the transaction surface for routing funds to savings by giving every purchase point the ability to apply a portion of the transaction total to a designated savings account. The number of nodes on this private network through which savings can occur is radically expanded.

While currently Keep The Change limits the funds routed through this method to the difference between the purchase price and the next whole dollar, there’s no reason that any amount couldn’t be routed through this same channel. Just as we can now use ATM/Debit cards to withdraw cash along with a purchase, this program already has the primitives in place to allow deposits anywhere a card is accepted. The limitation on this model is that transactions can only occur at official nodes of the private network.

The App Store application on the iPhone has had a similar effect in expanding the fabric of the transaction surface. Historically software was purchased in shrink-wrapped boxes from a retail store or via catalog mail order. Software delivered over the wire to the desktop expanded the transaction surface tremendously. The iPhone App Store radically expands the surface, it delivers software and completes transactions wirelessly to any location with signal. Two friends meet over coffee at a local cafe. They discuss their favorite new apps. While they talk, each purchases and downloads the new apps that tickled their fancy. And an “App” might be a game, a word processor, a social media client, a news media client, a book, a song, a musical instrument, a video of a baseball game or an application that let’s them broadcast live video and audio commentary from their table in the cafe.

Jack Dorsey’s new venture Square has the potential to build on the iPhone’s platform. While the App Store has defined the model for delivering digital goods and services, and is now being widely copied, Square potentially turns every iPhone into a node on the private credit card payment network. As a purchaser, it provides enhanced identity artifacts, and as a seller it simplifies access to the private electronic payment routing system. And while the specified accounts may start with credit cards, there’s no reason that regular bank or brokerage accounts, telecom accounts, cable television, or bandwidth accounts couldn’t be endpoints in the future. There’s a real potential for another radical expansion of the transaction surface.

Each of these innovations reduces the amount of friction on the transaction surface. The obstacles between the desire and the object of desire are removed. By activating the iPhone/iPod Touch as both a product delivery/consumption channel and a node on the electronic payment routing system, the fabric of the transaction surface gains 78 million new nodes. The small screen that you carry with you replaces the fixed screen wired to a specific location. And as this surface unfolds into the world around us, more and more transactions will be routed via electronic message. This stream of data has been largely represented as a transaction log, an audit trail. Services like Square will allow the attachment of a micro-message and photo/audio/video file to each side of the transaction and ultimately the ability to route an item to the private side of your stream management client. Need the receipt, the warranty, the assembly instructions, the nearest service center? It’s all there, in your lifestream.

It turns out the virtual is analog. The analog is being atomized, the atoms mapped to bits, and then reassembled on the other side of the glass. It’s probably something like how we imagine teleportation will work. As computer interfaces advance, they are tending to look more like real life. We’ve always connected to the digital through a keyboard, or a cursor control, and set of commands in the form of text or menus. As the iPad continues the roll out of touch screens and multi-touch gestures— this model will radically change. While radical change in computer interface usually means having to learn a whole new set of random abstractions to trigger actions; this change is a radical simplification. The layer of abstraction is no longer random. The physical world is being abstracted into a symbolic layer, a control and interaction surface, to act on the software operating on the other side of the glass. The physics and culture of the natural world provide the context we need to understand how to interact with, and control, the software.

In the light of this new interaction environment, initiatives like Information Cards start to make a lot more sense. In analyzing the problem of internet identity, including the subtopics of authentication, authorization, roles and claims— it became clear that a metaphor was required. Something that would connect to a person’s everyday experience with identity in the real world. The idea of wallets (selectors) and cards seemed like a natural fit. The behaviors an individual would be expected to perform with a selector are analogous to those done every day with the wallet in your back pocket or purse.

The problem with information cards has been that the computing environment hasn’t allowed human-computer interaction at the level of real world analogy. Web site login screens are geared toward keyboards and text fields, not toward accepting cards from a wallet (selector). Now imagine using a selector on an iPad. It looks like a wallet. You can apply whatever surface style that complements your personal style. You’ve filled it with cards— both identity cards and action cards. When you surf to a web site or an application that requires authentication, your selector is activated and provides you with a small selection of cards that can be used for this context. You choose one, slide it out of the selector with your finger and drag it to the appropriate spot on the screen. In the new era of the iPad, that’s an interaction model that makes perfect sense.

In their interaction design guidelines, Apple addresses the issue of metaphors very directly:

When possible, model your application’s objects and actions on objects and actions in the real world. This technique especially helps novice users quickly grasp how your application works

Abstract control of applications is discouraged in favor of direct manipulation:

Direct manipulation means that people feel they are controlling something tangible, not abstract. The benefit of following the principle of direct manipulation is that users more readily understand the results of their actions when they can directly manipulate the objects involved.

Originally selectors were tied to a specific device, and this made them impractical when hopping between multiple devices. However a number of cloud-based selectors have recently emerged to solve this problem. As with all current internet identity solutions, there’s a lot of machinery at work under the covers. But from the user’s perspective, simply selecting a card and tossing it to the software application requesting authentication will radically reduce friction for both the user and the system.

Taking the metaphor a step further, it’s simple to imagine carrying my selector on an iPhone or iPad (or similar device) and using it to replace many of the cards I now carry in my wallet. The authentication event, rather than occurring within a particular device, would occur between devices. The phone becomes a key.

This new interaction environment heralds a radical change in the way we work and play with computers. Authentication, internet identity and information cards are just one example. We could have just as easily examined the human-computer interface of the financial services industry. Portfolio management and analysis, stock trading, and research will all need to be re-imagined in light of radical simplicity of this new world. The random, abstract and symbolic interfaces of computing will start to look quite antique by this time next year.

While the shouting over whether Twitter has any value is largely over— there’s still some question as to what that value is. The search for a single qualitative value to which Twitter can be reduced is, of course, futile. It would be like trying to identify the single value of ink/paper, email, telephones or http.

When looking for meaning and value, there are a number of routes we might take. The denizens of Forrester, Gartner and Red Monk might take one direction; the host of burlesque performers and vaudevillians hanging out shingles as ‘social media’ experts may take another. Generally the process involves modeling what a business might do with ‘social meda’ (Twitter). The Profit/Loss in these models generally operates in the realm of public relations, marketing, good will and social capital. There is some argument for Twitter as a customer service channel, but while it’s optimal as a hailing frequency, it’s inadequate as a customer solution medium. This soft approach has some chance of success during a bull market, and a better than even chance during a financial bubble. While some, like Umair Haque, argue that these soft social revenue streams ultimately must provide a context for hard revenue streams, at the moment the stock market doesn’t agree. Positive sentiment on Twitter doesn’t translate into more demand for an equity. Adoption is currently limited to businesses that either can afford the luxury, or have replaced existing marketing and public relations modes with the Twitter channel.

On the hard revenue stream side of the ledger, we might look at how algorithmic stock traders are beginning to use Twitter. In trading, the asymmetry of the dispersion of news is a trading opportunity. We’ve seen how flash traders can create algorithms that determine the market’s direction from real-time data before the rest of the trading fraternity can even open their eyes.

Wall Street & Technology Magazine’s Melanie Rodier is reporting that algos at hedge funds are starting to consume data flow from Twitter to gauge the direction of sentiment toward an event or stock. The compact size and real-time nature of the tweet makes its ingestion and analysis particularly attractive. StreamBase Systems, a vendor of a complex event processing (CEP) platform, has announced a Twitter adapter that allows its applications to both consume and publish tweets. The designated (tracked) twitter streams are spliced with market data, financial ratios, newswire information and other data streams to build a more fully dimensional picture of a particular stock (company). Waiting for news to be collected, digested and emitted by Reuters can add too much latency to the news/information release pattern.

Just as reading the early reports from a newswire requires an understanding of context, history and the politics of news construction and distribution; reading a tracked Twitter stream as a part of a data complex requires a particular interpretive skill set. If the old adage ‘buy on the rumor, sell on the news’ has some truth to it, Twitter has just added a deep data layer to the ‘buy’ side of that equation.

On a recent road trip through the wine country of Northern California, I passed through Petaluma, Calistoga and Healdsburg. In the small downtown areas of these cities you’ll find large bank buildings. Sometimes more than one, but often just a single building anchoring the business district. The architecture of the bank is meant to convey stability, tradition, security and trustworthiness. The neo-classical design of these buildings is a strong gesture in favor of the rational and measured over the emotional and spontaneous. Their monumental scale signals that they were constructed with great effort and forethought– and that they will perdure through the vagaries of time.

The bank building in Petaluma is now occupied by an Antiques collective. By the looks of it, it’s been that way for a long time. Even the bank’s vault itself is just another room in which collectibles are displayed. The bank building in Calistoga is now a shoe store. Healdsburg’s bank building houses an art gallery. The symbolic nature of the architecture remains, but it is unconnected to the commercial enterprise now in residence.

There was a time when we brought our paper currency to a bank for safekeeping. The thick metal walls of the safe provided a fortress to protect the excess capital we’d created with our labors. The architecture of banks has changed, they seem to have morphed into a combination of a fast food restaurant and a self-service gas station. Banks no longer function as protectors of capital, their value now is as fast connectors, or routers, of capital through the Network. Capital streams are routed in from various sources; capital streams are routed out to selected payment endpoints. Banks also have a DVR function, time shifting capital streams through loans or investments.

As capital continues its migration to the Network, the need for a physical edifice containing customer facing bank operations begins to disappear. The bank only needs to be securely available in its full capacity wherever the Network is available. Just as you can now withdraw paper money from any commercial endpoint, you will be able to deposit money as well. The Network always tends to move toward a two-way interaction. The first screen of your iPhone is the new prime real estate, the new town square.

Lifestreaming data pours off of the routing transactions we make throughout the day– generally this has been a private gesture stream reserved for our eyes only. The shape and presence of that stream, its user interface if you will, will emerge as a new ecosystem. Rather than a flat record of alpha-numeric transaction routing codes, it will be an dynamic network of active commercial nodes– a stream of information/interaction points.

The thickness of the bank vault is replaced by the connectivity of the Network as a primary metaphor. Banks, telecom companies, internet providers, and credit card companies are all in the same business now. In this new landscape, in what must you trust to select a provider?

Dominic Jones of the Investor Relations Blog sent me a link to ProxyDemocracy.org this morning. We’ve recently seen the power the of the vote in our Presidential elections. We marvel at the power of the community as we vote with our attention and gestures to surface the wisdom of crowds in social media applications. There’s another form of suffrage that is within our reach, but largely ignored. Shareholders have a say in how public corporations are run. One share of stock in a public company gives you a vote.

ProxyDemocracy.org explains it this way:

A company’s stockholders have the legal right to decide important decisions at the companies they own: they elect directors, review aspects of executive compensation, and weigh in on shareholder proposals addressing a variety environmental, social, and governance issues. History has shown that shareholders can use their voting power to create value — both economic and social — at the companies they own.

Whether you invest in mutual funds or individual stocks, you have a say in how things are run. While the recent market crash may have caused you to curse Wall Street and wish a pox on all their houses– if you’d like a say in how our financial institutions are run, a single share of stock gives you the right to vote.

If you’re already a shareholder, are you accepting disenfranchisement? The voting process as it’s currently implemented is a form a voter suppression. Once again, ProxyDemocracy.org:

In practice, it can be hard for investors to exercise their rights and have their voices heard. One important obstacle is information. Shareholders often have a hard time keeping track of when the companies in their portfolio are meeting and what the ballot items mean. Mutual fund owners, whose funds vote on their behalf at the companies in the fund portfolio, rarely know how their funds are voting and thus have no way to be sure that their interests are being represented.

Imagine, for instance, that you’d like a say in the future of the auto manufacturers in Detroit. Perhaps you’d like to have a say in how health insurance and HMOs are run. Now you can certainly vote by choosing to spend or not spend your hard-earned dollars on the products of these corporations. You can stand on a soap box on a street corner and shout at the passing crowd. Or you can buy a single share of stock and express your opinion as a shareholder. Now imagine the power of the swarm, of Twitter, FriendFeed and Facebook.

ProxyDemocracy provides tools to help investors overcome these informational hurdles and use their voting power to produce positive changes in the companies they own. We help shareholders vote their shares by publicizing the intended votes of institutional investors with a track record of shareholder engagement. We help mutual fund investors understand the voting records of leading funds, making it possible for them to purchase funds that represent their interests and pressure those that don’t.

We’ve seen the power of bottom-up democracy, but it’s not only in our government that this approach can be effective. Big corporations and institutional investors will a happily vote for you, and they will vote their own interests.

Clay Shirky talks about the power of organizing without organizations, about the cognitive surplus that we have in abundance today. The tools at our disposal and our expectations have radically changed. Shiky tells this story:

I was having dinner with a group of friends about a month ago, and one of them was talking about sitting with his four-year-old daughter watching a DVD. And in the middle of the movie, apropos nothing, she jumps up off the couch and runs around behind the screen. That seems like a cute moment. Maybe she’s going back there to see if Dora is really back there or whatever. But that wasn’t what she was doing. She started rooting around in the cables. And her dad said, “What you doing?” And she stuck her head out from behind the screen and said, “Looking for the mouse.”

Here’s something four-year-olds know: A screen that ships without a mouse ships broken. Here’s something four-year-olds know: Media that’s targeted at you but doesn’t include you may not be worth sitting still for. Those are things that make me believe that this is a one-way change. Because four year olds, the people who are soaking most deeply in the current environment, who won’t have to go through the trauma that I have to go through of trying to unlearn a childhood spent watching Gilligan’s Island, they just assume that media includes consuming, producing and sharing.

Being a shareholder in a public corporation has been a one-way transaction. The tools to make it a highly visible two-way transaction are now ready to hand. They’re here now. And as you think about the investments you’ve made for your retirement, you should be asking yourself, “where’s the mouse?”

Before the turn of the millenium, back when I was first joining an investment bank, I wanted to do some background reading. One of the must-reads was Michael Lewis’s Liar’s Poker. Of course, we were looking at disrupting the business. But in the over-heated world of the Internet IPO, no one wanted to disrupt anything– there was too much money at stake. Like all bubbles, that one eventually popped.

Our firm had a small part in popping that bubble with a piece of research we produced called “burn rate.” The first crop of Internet companies went public very early in their lifecycles. That meant they had to report their financials quarterly. At a certain point it was a simple matter of looking at cash versus run rate to determine how many months these firms had left. In Internet Bubble 2.0, initial public offerings were not possible, but the principle of burn rate remains the same. If a firm is not at, or close to being cash flow positive, they’re burning cash. This time the fires are behind closed doors, but their burning just as brightly.

But the Internet Bubble is nothing compared to the Real Estate / Sub-Prime Bubble. While trying to get my hands around this Bubble and Collapse, I turned to Michael Lewis again. Lewis’s article, “The End,” in the December issue of Portfolio nails it. The Sub-Prime meltdown is difficult to understand. And when people talk about the “bailout,” it’s hard to understand what exactly needs to be bailed out. Treasury Secretary, Hank Paulson, has come under criticism because he’s perceived to be playing whack-a-mole with the crisis.

Lewis takes a simple approach to explain the situation. He looks at the other side of the trade. Every trade requires a buyer and a seller. While the vast majority of the nation and Wall Street were buying in to the idea of ever rising real estate values, Steve Eisman, of FrontPoint Partners, was shorting the bubble. The article exposes the transubstantiation of BBB rated debt into AAA rated debt. As Eisman struggles to understand the trades he’s making, we start to understand the Doomsday Machine that Wall Street was constructing. For the bubble to keep expanding, it was important that the emperor was percieved as being fully clothed and regal. People like Peter Schiff were laughed at for trying to seriously address the problem. Risk is at the heart of investing, but in the real estate bubble, risk was grossly misrepresented. The label on the box said it contained wholesome ingredients, higher return with less risk. It was too good to be true, and it was. Bubblicious.

Lewis closes the loop by having lunch with John Gutfreund. Gutfreund was the CEO of Salomon Brothers while Lewis worked there. Liar’s Poker chronicles that time. They were the first i-Bank to go public, created the mortgage-backed security and their BSD’s from the bond arbitrage group went on to found Long Term Capital Management. Investment Banks follow the Golden Rule, he with the most gold makes the rules. Lewis posits that this is the end of investment banking as we know it.

Om Malik interviewed my old boss Bill Hambrecht about the state of the economy and the future of the IPO in Silicon Valley. Watch the whole thing. Hambrecht has worked on transparency in the pricing of securities for many years. His ideas about using a modified dutch auction to price initial public offerings are still revolutionary.

Hambrecht’s explanation of the subprime mortgage crisis is one of the clearest I’ve heard. Mortgage backed securities are traded in a dealer-to-dealer market without transparent and continuous pricing. Stocks are priced through a continuous auction on the stock exchanges. When a company has to voluntarily mark down the value of these mortgage-backed securities, they hesitate. When they’re finally forced to mark an asset down, there’s a big jump down in value. That change in value wrecks the balance sheet. Interestingly, it’s not a business or revenue issue– it’s a price/value of assets problem. Hambrecht’s solution has always been to allow the market to discover the appropriate price and make the process transparent.

Hambrecht thinks the consolidation of the bulge bracket investment banks means that big iBanks will only be doing big deals. Their cost structures will dictate a move toward the mega deal. The ground is being prepared for a new crop of boutique investment banks to bring the new crop of small companies public. My favorite quote in the interview? “It’s like 1968 all over again.”