It’s the 21st Century, Stupid!

David Brooks writes of the recent problems in the financial sector of which the subprime mortgage mess is only one part. His column says that there are two narratives and only two narratives used to explain it. The Greed Narrative or the Ecology Narrative. He closes with this (emphasis mine).

The lesson of the Ecology Narrative is that, in most cases, the market corrects itself. Maybe this year banks will change their pay structure so there’s not so much emphasis on short-term results. Maybe companies will change their boards to improve scrutiny over complex new instruments. In short, markets adapt.

People who embrace the Ecology Narrative don’t like the offensive bonuses that get handed out on Wall Street. They just don’t see any way the government can curtail them without rending the fabric of the ecosystem. They don’t like the periodic crises, but don’t see how government can prevent them without clamping down on innovation. The challenge is to give people the means to withstand the perturbations.

The Ecology Narrative is not morally satisfying. I wouldn’t bet on its popularity as a backlash against Wall Street and finance sweeps across a recession-haunted country. But the Ecology Narrative has one thing going for it. It happens to be true.

I just haven’t seen any signs that there is anything in the financial services sector that would correct the problems with the compensation structure. I haven’t read anything anywhere that indicates I’ve missed something that would indicate there’s any demand building for a system less destructive of the long term good. After all, the people who make a mint with the current structure are the ones in charge and there is no motivation for them to change things and the incestuous relationship between company management and boards pretty much guarantees there is no force influencing them from the “outside” to encourage repairs. There is no magic wand, spell or potion that guarantees that “markets adapt”. Not so long as over-compensated executives and traders have people like Brooks shrugging and saying that they and the damage they do to our economy must be tolerated because of unproven claims about the good they do.

But his claim is too simple. His last sentence precludes the possibility that while the Ecology Narrative has a lot going for it, it just doesn’t explain a lot of what is seen in the real world. Frankly, Mr. Brooks, someone got a lot of their Greed Narrative in your Ecology Narrative. And the narrative that includes them both is the one that is true.

Do you think that any of the hotshots on Wall Street are familiar with Pogo? Maybe you remember the famous saying and maybe you don’t but Wall Street seems to be the latest capitalists to have become capitalism’s greatest enemies. I rarely agree with anything Robert J. Samuelson has to say but this column of his actually makes some sense. But of course, since it is critical of the current economic environment he just dips his toe into the water. He rightly points out that the compensation structure not only produces incredulity on the part of many that these people really deserve the huge pay packages they routinely get but also encourage behavior that has larger consequences for the country. The way their bonuses are structured encourage activities that have little to do with what’s good for their customers, the companies whos stocks and bonds they sell and certainly not what’s good for the average person who doesn’t work for them.

Consider this admission from someone who should know:

“People self-select for careers. On Wall Street, they self-select for the money,” says pay consultant Alan Johnson. “Wall Street is a sales business — they sell bonds, securities, transactions, ideas. . . . They’re not paid to be long-term, philosophical, reflective.” The pressure is to do the next merger, sell more stocks and bonds, do more trading — whatever boosts current profits and bonuses, the long-term consequences be damned.

The focus is an unrelenting one purely on personal gain and status in the company that accompanies doing well in the short term measurements that are pretty much all they deal in. The standard excuses are that they are responsible for the strength of our economy by their ability to provide capital to those companies that deserve it. But Samuelson points out the places where they have failed miserably at this task. I think that he could have listed more but after all, there’s only so much room for his column and so much time to research it, isn’t there?

Samuelson closes with this:

But if the subprime failure turns out to be a preamble to a larger financial breakdown, flowing from the creation of new securities that offered short-term trading possibilities but whose long-run risks were underestimated, then the mood could turn uglier. Indeed, many Americans may conclude that capitalism has run amok.

But let’s be honest, this current disaster in the making is related in a very basic way to Enron, Enron and other energy trading companies’ gaming of the California energy market a few years back, Tyco, Global Crossing, Adelphia, Arthur Andersen, Worldcom and the rest. It relates to the demands placed on publicly held companies by Wall Street. There is no restraint, no moderation. There doesn’t seem to be any such thing as enough. There isn’t enough profit to make them happy, there isn’t enough income to give traders and consultants the ego boost, status and material goodies they apparently crave. So eventually it becomes just too easy to step over the lines, whether they are the ones separating honesty from dishonesty or ambition from greed. Just remember that the very definition of greed includes the word excessive. MBA programs now include more discussion of ethics than before the wave of scandals that swept American business a few years ago. But how many of them ever address the simple idea that at some point people in business should say “Enough. That’s going too far.”. Because even if it’s legal that doesn’t mean it’s a good idea.

Time Magazine reports on Lester Brown’s Plan B, an ambitious set of actions to be taken to attempt to control global warming. There’s lots to it and it would cost $190 billion a year. That amount is what would be spent globally, not just by the U.S. Sounds like a huge amount of money, doesn’t it? Of course the global annual military budget is $1.2 trillion, just to put some perspective on it. And the $190 billion has the potential to save us a lot more by mitigating effects of global warming that could cost a lot more.

Well, back to politics and stuff for a bit. This coming week is the Iowa caucuses to be followed five days later by the New Hampshire primaries. No one really knows who is going to win in either party at this point. Polls show different things at different times though the only major differences seem to be things see-sawing between the recognized leaders.

When it comes to the polls there are those who claim that there will be a major upset because Ron Paul has an amazing amount of support from new voters that are filtered out of polls because of the “likely voter” qualification and people who aren’t being contacted by phone polls because of the cell phone factor.  While there might be some truth to this there in all likelihood isn’t as much to the argument as Paul’s supporters want to believe. Mostly they want to believe that their candidate has so much support that is flying under the radar that he will win both Iowa and New Hampshire. They want to believe that his message has so much strength and truth behind it that it can carry Ron Paul to the presidency. They are wrong. While it is possible that he will do better than the polls show, I think it will not be as great a factor in Iowa as they think and that while it just might be a greater factor in New Hampshire it still won’t be enough to carry him to victory in either state and he certainly doesn’t have chance in a general election.

I make no secret of the fact that I feel that Ron Paul is wrong on many issues. I disagree with quite a few libertarian positions, whether the “L” is big or small. But Ron Paul isn’t a real libertarian and where he has chosen to differentiate himself from them happens to make even more points where I disagree with him. As I understand his beliefs and those of his supporters their desire is for a basically non-existent federal government that is only involved in defense, foreign relations and interstate law enforcement. No IRS, no federal regulatory agencies and certainly no social programs would exist in their ideal world. They believe that in order for us to be following the Constitution the states must reign supreme and the federal government must be a fraction of its current size and function. Oh, and the Federal Reserve Bank must also be eliminated and our currency must be backed by gold like it used to be. Roe V. Wade was a bad decision, as was Griswold v. Connecticut and Lawrence v. Texas. Here is what Ron Paul wrote on the issue:

Consider the Lawrence case decided by the Supreme Court last June. The Court determined that Texas has no right to establish its own standards for private sexual conduct, because these laws violated the court’s interpretation of the 14th Amendment. Regardless of the advisability of such laws, the Constitution does not give the federal government authority to overturn these laws. Under the Tenth Amendment, the state of Texas has the authority to pass laws concerning social matters, using its own local standards, without federal interference.

Nowhere does he place any limits on what these moral standards might be. Think about it. How libertarian is that? What the supporters of Ron Paul fail to recognize is that should he have early success there will be even more attention paid to him. More digging into his positions won’t necessarily translate into more support whatever some may think. He didn’t acquit himself that well on Meet the Press largely because of the inherent contradictions in what he does as a member of Congress and the principles he holds. And should he do as well in either Iowa or New Hampshire as his supporters hope then this will only be the beginning of a much closer examination of his history, his policy positions and his writings. I don’t think those positions, like the one about eliminating Social Security, are going to win him enough supporters to go very far in the run for President.

Yesterday I was helping someone shop for a laptop and researching two different models. One of them was the Dell XPS M1330. It had two technologies that made for a lighter laptop with excellent performance. One was available at only a moderate price premium and the other really kicked up the price. The first of these was a display that is backlit by LCDs instead of a fluorescent bulb. It works well and provides for a thinner, lighter screen. The other is a SSD, a Solid State Disk. With current technology these drives are outrageously expensive and don’t provide as much storage as current disk technology. In the Dell a 64 GB drive added $900 onto the price when replacing the default 120 GB drive.

What’s interesting is that I just found a small article in PC World about a new storage technology called PMC, for programmable metallization cell. Looking online I found this slightly larger article on Wired. Basically this method of storage uses a new technology called nano-ionics to build a microscopic copper bridge between electrodes on demand. If a bridge exists it represents a one, no bridge represents a zero. The difference in capacity is mind-boggling, with a terabyte of memory in a thumb-drive like the one in my pocket easily doable. One of the researchers involved in the project said that the storage based on this technique should cost one-tenth the price of current flash drive and be one thousand times as energy efficient as current flash memory. So if this technology is applied to the kind of SSD in the M1330 it would be entirely likely that an amazingly fast SSD with storage in terabytes should be cheaper than current notebook hard drives. Very impressive. Imagine the speed of this storage for a media server. Or picture the giant libraries of film that can be stored much more readily in massive on-demand movie libraries. Me, I look forward to a really economical way to quit messing with tapes for backup since I just don’t trust them. And the first products are expected to show up in about 18 months. Tick. Tick. Tick.

I found references recently to an extremely useful little tool called CPU-Z from CPUID. It’s small, fast, extremely useful and you don’t even have to install the program. Just tell it to run and it will tell you about your motherboard, memory, cpu and BIOS. The utility itself is free. There’s even an SDK for developers who are interested in incorporating the engine into their own software. There’s also an even more in-depth utility called PC Wizard as well as some other things. If you ever need some of this information or are just curious you ought to check it out.

In case you hadn’t noticed the last couple of posts weren’t about politics or economics. I thought it wasn’t just time to go back to posting on a much more regular basis but to also broaden the subjects in the way I’d originally envisioned. So while I’ll post about interesting things in politics, economics and news in general there’s going to be more about books, technology and science as well.

This is enough to make you really appreciate good quiet neighbors. Galactic neighbors, that is. Imagine something as energetic as a jet of radiation being shot out from a supermassive black hole, one of those huge monsters with the mass of as much as millions of stars. The energy involved must be enormous and even over those distances is very likely deadly to any life forms in the way.

OK. I admit it. I really hope that our neighbor has a bit of bad luck. Of course I’m not alone. There are some planetary scientists and astronomers who agree with me. Of course the neighbor is millions of miles away, our planetary neighbor Mars. If you haven’t heard about this one, Mars has a chance for a visitor next month. Normally one would feel bad about wishing something “bad” on a neighbor but if this were to happen it would be the first asteroid impact on a rocky planet that we could watch, complete with orbiter and probes on the planet. If it does happen there should be amazing images and data next month.

It’s Christmas morning. Family arrived last night. Toddlers and children wander around, waiting for Grandma to finish preparation for the Christmas dinner ham and slip it into the oven and for their aunt, uncle and cousins that live in town to get over here so presents can be open. I did cleanup work for her all day yesterday so I get to sit here reading news and blogs and drink some coffee as I wait (Now that I’ve pulled the turkey out of the oven for her, that is.) for the chaos of opening presents with little ones to begin. Not a bad morning.