FBI saw mortgage fraud early

From the Seattle Post-Intelligencer: FBI saw mortgage fraud early

“We knew that the mortgage-brokerage industry was corrupt,” the first of the retired FBI officials told the Seattle P-I. “Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism.”

Yet another victim of Cheney era priorities. Osama Bin Laden wanted to destroy America’s  financial center and its economy. It seems that by chasing his shadow around the world, we did the job for him.

Like a breath of fresh air

Obama’s Inaugural Address

As for our common defense, we reject as false the choice between our safety and our ideals. Our Founding Fathers, faced with perils that we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man — a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience sake.

A new look for 8.01

The NYT reports how  at M.I.T., Large Lectures Are Going the Way of the Blackboard.

The physics department has replaced the traditional large introductory lecture with smaller classes that emphasize hands-on, interactive, collaborative learning. Last fall, after years of experimentation and debate and resistance from students, who initially petitioned against it, the department made the change permanent. Already, attendance is up and the failure rate has dropped by more than 50 percent.

Seems like this course change has been a great success. Still, it’s not clear how many introductory classes could eliminate their big lectures. After all, MIT is a research institution, and it’s already hard to find enough faculty to lead those classes. And as long as junior faculty get tenure based on research instead of teaching, that’s not likely to change.

The End

The End of Wall Street
The End of Wall Street

Condé Nast Portfolio magazine:  The End of Wall Street’s Boom.

He draws parallels between the irrational exuberance of the past few years and the insanity he described in the mid-eighties in his bestselling Liar’s Poker:

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”

But then Lewis goes in search of someone, anyone, who saw the economic collapse coming. And people keep pointing him to Steve Eisman, of FrontPoint Partners hedge fund. Back in 2004, Eisman started seeing that things were not well in the housing market, and by extension, the investment banks holding mortgage backed securities. As for collateralized debt obligations – those things were just weapons of financial destruction.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

Were these investment banks run by idiots? Well, maybe. In a lot of cases the men on top had no idea what toxic waste their companies were dealing in. But a lot of companies seemed to know they were juggling hand grenades. They thought they could make a killing, and still get out in time.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. […] “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.”

He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

It all came together for Eisman when he met a money manager in Vegas.

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog shit lower than the original bonds.”

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a fuck about the investors in this thing.”

Worst IPO market in 30 years

A couple of stories in the NY Times review the Venture Capital climate in 2008, and make some predictions for 2009. The stats from last year were pretty grim:

Only six venture-backed companies went public last year, the fewest since 1977 and down from 86 in 2007, according to data released Monday by the National Venture Capital Association and Thomson Reuters. Venture capitalists sold 260 companies, down from 360 in 2007.

In the fourth quarter, there were no initial public offerings and only 37 acquisitions, compared with 31 public offerings and 88 sales in the fourth quarter of 2007.

Where’s my eight-track?

Just when did Compact Disc players disappear?

Sure, I know that kids these days don’t buy CDs anymore. In fact, they won’t even accept them as gifts!
“Gee, thanks for that shiny plastic platter, Gramps. I’ll keep it with the writing paper you gave me last year.”

But it was a real shock over the holidays to find out that you can’t even buy a CD player in stores. I was visiting my parents in Canada. They had a ten year old CD player attached to their stereo receiver. Remember those? The kind that doesn’t come with earbuds or an iPod dock? Anyway, the player went all Theremin on me – generating otherworldly noises when I waved my hands above the unit.

Like the helpful son I am, I volunteered to go buy them a new CD player, and install it for them. “Should only cost 30 or 40 bucks”, I assured them. “A bit more if you want a multi-disc player”.

The first sign of trouble was when I consulted Amazon for some quick product reviews. Sure, they list CD players in their electronics section. And you can find cheap portable CD players, or integrated compact stereo systems, or extremely expensive high-end audiophile players. But you can’t buy basic single disc players.  Unless you want to try eBay.

So off I went to the local mall. In an ice-storm. And this was just after Boxing Day – the busiest shopping day of the year. The big-box stores were still mobbed with bargain hunters, and looked like New Orleans convenience stores after looting. But they hadn’t sold out of CD players. They just never had any. And the retail drones just looked at me with disdain. “Maybe you should get them an iPod instead”.

No, this is my parents we’re talking about. They’re not exactly cutting-edge. They value ease of use, and consistency. My mom is still using a 20-year old coffee maker. And a film camera for gosh sakes.

After going through four stores, I finally found a reasonable alternative. I bought them a small Sony DVD player. Sure it had component video outputs and upscaling, which we’ll never need. But it had stereo audio output, and a nice bright LED display.

I brought it home and hooked it up to their old system. Hopefully this one will last until the next big consumer electronics revolution. And in the meantime, they can still listen to Billie Holiday. I just hope their turntable doesn’t break down next.

IPO drought and no rain in sight

IPOs a thing of the past?

Despite the credit crunch, the VC fund freeze, and the stock market meltdown,  panelists at the AlwaysOn Venture Summit think that “good companies” will still be able to go public. Someday.

Before that happens, a lot of other marginal companies will go out of business.

It’s the circle of life, Simba.

Meanwhile, what advice do these experts have for struggling companies?

“Everyone should act as though there will not be another round of funding,” Buyer said. “You should operate with what you have, because it may be all you get.”

Another drop in home prices

A report from the National Association of Realtors says that home sales were down 3% in October, and median home prices dropped 11% since October 2007.

Astonishingly, nearly half of homes sold in October were the result of foreclosure.

“Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” said Lawrence Yun, the association’s chief economist.

Come upstairs to look at my code fragments

Adam over at derwiki talks about the beauty and creative process of programming. Why, he asks, do we say someone could have a passion for painting, or a photography hobby, but not be driven to program in their spare time?

A well designed component or architecture has elegance and sophistication; simplicity yet robustness. You step back, look at the code, say “Damn, that’s gorgeous”, and you know when you’ve created beauty instead of just hacking out a quick fix. This element of beauty is something that I’ve found lacking in a lot of code and with a lot of programmers. Too often programming is treated like a boring job of necessity than the passionate job of creativity that it can be.

Tech firms caught by wave, wipeout

The NYT says that tech companies had hoped they were skiing in front of the avalanche that’s claiming the rest of the economy. Clearly they got caught in the carnage, judging by all the layoff announcements in the past month. Tech Companies, Long Insulated, Now Feel Slump.

In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.

Of course, this didn’t come as much of a surprise. Every tech CEO has been watching over the past year as financial markets collapsed and spread through the general economy. Like time slowing down in a car crash, we all knew it was going to hit us, and there was nothing we could do to stop it.

The tech industry is getting hit from two sides: consumers and corporate customers are holding off on purchases due to economic uncertainty. And since credit markets have frozen up, tech companies are having a hard time financing operations.

But the NYT article ends on a somewhat optimistic note. We’re all getting hit hard, but high-tech is still doing better than other industries.

For all the gloom, the tech industry is still far healthier than Wall Street. Unlike the banks, many technology companies are flush with cash. Cisco has close to $27 billion; Google, $14 billion; and Apple, $24 billion. It is likely that some of these funds will go toward acquiring struggling competitors. “The guys that aren’t as strong will be good pickings,” Mr. Coleman said.

Powered by technology, Silicon Valley has stood out as a bright spot for jobs in the United States, with employment growing at about 2 percent a year while national employment slowed. Through 2007, the region continued to add 20,000 jobs, although that positive trend has started to change.