Jets and Sharks. Microsoft and Google. Just play it cool, boy.
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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.
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Any discussion of ‘Track’ seems to require a brief definition. By now we’re familiar with ‘Search,’ it’s the process of examining everything in an index to find keyword matches– and then ranking the results in the most useful order. ‘Track’ is a filter on the firehose of information generated by the microblogging space. It’s stuff that’s not in the search engine index yet, it’s what people are saying and thinking right now. The ideal time parameters around track are the rhythms of the conversation. Tracked results should reach one quickly enough to be able to respond to a question or statement without the thread of the conversation being lost. Track expands the public instant message dialogue beyond a personal directed social graph. When I track a topic, I’ll see messages from anyone who uses the words I’m tracking.
Our recent Presidential campaign featured diametrically opposed approaches to organization. One campaign employed a bottom-up strategy; the other preferred the top-down approach. This got me thinking about track and the difference between top-down and bottom-up strategies. A top-down strategy is easier to support in that the tracked keywords are very limited and they don’t change unless consciously changed. The creation of an intentional scarcity of tracked keywords also lays the foundation for an economic model.
Here are two approaches to a limited track keyword set:
A bottom-up strategy is harder to support, every user in the system could have a separate list of keyword filters for the full stream. That’s a lot of computing that needs to be done very quickly. As events unfold around us in the world, each user’s set of keywords would change to aid in the discovery around the new topics emerging. The full set of track filters would be constantly shifting and morphing.
Search uses a top-down strategy to prioritize keyword results. You probably want to see the results that most people want to see or think are important. The brilliance of the modern search engine is that it makes that calculation for everything it indexes. It arrives at top-down through bottom-up voting on importance. Services like Mahalo attempt to only provide extended results for popular searches– converging to the top of the pyramid.
Here are some examples of services trying to create lists of what’s popular:
If you track what’s popular, depending on the community providing the attention data, you quickly converge on the least interesting topics. You’re only seeing what everybody knows.
And the broader the community, the more quickly you end up with The National Enquirer or the World Weekly News. Now that the election is over, take a look at the trending topics on Search.Twitter.com. Occasionally you’ll see a micro-community poke through with a hashtag for a particular conference or event, but mostly there’s little of interest.
Each of us is a unique nexus of connections tracing our path through the world. Our individual curiosity provides the fuel, the focus, the set of keywords we carry with us to make sense of, and create, the future. The difference between all of us having the power to track the stream and only the most popular keywords being tracked is the difference between all the books in the world and the magazines available at an airport bookstore. For a short period of time we all had track, now track is the privilege of the few.
For some reason, I’m reminded of a song by Laurie Anderson for tape-bow violin based on a quote by Lenin:
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I’ve enjoyed reading Ana Marie Cox’s tweets and posts from the campaign trail these past few months. Ana does a great job of showing us what it’s like to be on the bus, or on the plane with the candidate. While her work for Time Magazine is interesting, I found her pie chart on how a journalist spends time on the campaign trail to be one of her most revealing missives. Is being there really being there? Is it proximity or access that really matters in doing journalism? How much time does a journalist really get to spend with a candidate– per 24 hour period, how much journalism really goes on?
Perhaps politicans need a Regulation FD, something like the disclosure requirements for public companies. Here’s how Wikipedia describes the regulation:
The U.S. Securities and Exchange Commission‘s (SEC’s) Regulation Fair Disclosure, also commonly referred to as Regulation FD or Reg FD was an SEC ruling implemented in October 2000 ([1]). It mandated that all publicly traded companies must disclose material information to all investors at the same time.
The regulation sought to stamp out selective disclosure, in which some investors (often large institutional investors) received market moving information before others (often smaller, individual investors).
If politicians are public servants, perhaps it makes sense to regulate transparancy and fairness in their public communications the same way we do with public companies. Regulation FD is meant to combat information asymetry in the stock market. Selective disclosure results in some investors having better and more complete information with which to judge trading opportunities. The system of journalism we have now requires both proximity and access to get the story. With that kind of scarcity implicit in the information exchange, there are lots of power plays and games that go on. The analogy to financial markets is quite exact. Large institutional investors had better access, could trade soft dollars or other favors for information that resulted in advantaged trading opportunities. Our big media companies have that same relationship with political candidates.
On July 30, 2008 the SEC provided guidance on the role of Blogs, RSS and other Network-based communications in compliance with Reg FD. Public companies may use blogs and feeds to release material information in place of, or in addition to, the traditional wire services and conference calls. While this is currently a description of one-way communication, it’s well known that the Network is a two-way medium. It’s only a matter of time before the other shoe drops.
A man comes in late at night to a lodging house, rather the worse for wear. He sits on his bed, drags one shoe off and drops it on the floor. Guiltily remembering everyone around him trying to sleep, he takes the other one off much more carefully and quietly puts in on the floor. He then finishes undressing and gets into bed. Just as he is drifting off to sleep, a shout comes from the man in the room below: “Well, drop the other one then! I can’t sleep, waiting for you to drop the other shoe!�.
Perhaps we saw a glimpse of this possible two-way future in the convergence of Twitter, Digg and CurrentTV in Kevin Rose’s recent interview with Al Gore.
A change of this magnitude in the power dynamics of access / proximity / flow will not come easily. As Dave Winer noted recently, in the recent Presidental Campaign, we didn’t really change the way news flowed. But as in the old Music Hall joke about the other shoe, if we lie awake waiting for the sound of a shoe hitting the floor — we may miss the fact that both shoes are on the floor already. As the flow of news moves from proprietary networks to the Public Network, it moves from a one-way system to a two-way system. From its inception the Web was always already a two-way medium. After all this time, we’re still in the very early stages of understanding the upstream flow.
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