Sunday, December 30, 2007

The Atrios Shift Register

Much worrying in realtor land as a borrower finds a way to walk away from his current loan. The ARM mortgage on his current house is $800,000. The bank realizes that he cannot make the payments and will allow him to sell the house for $500,000 and walk away. He is not walking too far however as he has just bought the house next door for $500,000.

Atrios suggests that borrowers could use this scheme to dump their negative equity problem onto the banks. Everyone with negative equity moves one house to the left in a giant housing market shift register.

If banks were going to benefit in this way the establisment media would mutter darkly about moral hazard and nothing would be done to stop it. Since its the borrowers that stand to benefit the concerns are likely to be much louder and the loophole will be swiftly closed if any appreciable number of people attempt to use it.

Friday, December 28, 2007

Good News, Bad News

The good news is that Russia does not intend to sell their S-300 Missile system to Iran any time soon, or at least denies any such intent. The bad news is that this does not make a great deal of difference since Iran has just completed taking delivery of 29
Tor Missile units from Russia at a cost of $700 million or so.

Each unit carries 8 missiles and is reckoned to be equivalent in capabilities to the Raetheon Patriot missile. That gives Iran the capability to knock at least some of the aircraft that might be used in any airstrike by the US.

Talk of an Israeli attack appears to be just that, talk. Israel cannot attack Iran for the same reason Iran cannot attack Israel: they lack a common border and both have ample defensive forces to repel an attack by the other. The Israeli air force has 250 or so fighter aircraft. Any lost in raids over Tehran will not be available for defense so Israel cannot risk using enough aircraft to overwhelm the Iranian defenses. Which was surely a factor in the Iranian's decision to buy 29 Tor units in the first place.

Or perhaps given that the existence of defensive measures might discourage a foolhardy adventure perhaps it is good news that starting a new war in the region would be a disaster for all concerned.

Saturday, December 22, 2007

Conservatives are allowed to call anyone fascists

One of the least appealing features of the modern Conservative movement is its habbit of calling people names. Its not just Ann Coulter who accuses liberals of being 'godless' and guilty of 'treason', Lewinsky scandal plumber Johah Goldberg has now got in on the act with 'Liberal Fascism' an extended treatise based on the falacy of the excluded middle.

So it was only a matter of time before the F-word was being flung around in the Republican primaries. The Amercian Conservative avoids using the word itself in their cover story Declaring Forever War, they just dress up Rudy in a brown shirt and jackboots and leave the reader to make the connection themselves.

A better F word for Rudy would be flake. His 'foreign policy' while mayor of New York City was certainly not consistent in opposition to terrorism. Yassir Arafat gets kicked out of concerts but Gerry Adams gets a humanitarian award. The fact that the IRA and PLO were allied for many years and taught each other terrorist techniques was probably not lost on Rudy, the point was to pander to the Jewish and Irish voters who didn't.

The Republicans have turned up quite a field. While the vast majority of Democrats would be happy with any of the top three contenders in the primary, the Republican race is the choice of the lesser of five evils. This is demonstrated by the extreme volatility of the Democratic polls, Hilary's national lead can vary from twenty points ahead of Obama to barely ahead depending on recent news. The Republican polls show a much more consistent trend. The surges of Thompson and Huckabee were not driven by a liking for either candidate but a dislike for Romney and Giuliani. Now that they are finding out about Huckabee, McCain is rising again.

Wednesday, December 19, 2007

The cost of phishing rises

Gartner reports that the cost of phishing rose to 3.2 Billion in 2007.

As always I am somewhat skeptical of the absolute level, what is more interesting is the trend. The cost of phishing might be half as much or twice as large, it is very hard to eliminate systematic errors from such studies but it certainly appears to be the right order of magnitude.

Gartner's Press release states that the cost of phishing has 'soared' but do not give the 2006 figure. That made me suspicious so I dug out the 2006 release which puts the sum at $2.8 billion. That is very interesting as it tells us that even though the cost is rising it is rising less slowly than it has in the past.

The trend is again up but the average loss per incident has declined to $886 from $1,244 in 2006. One possible explanation is that the criminals are trying to fly under the radar and steal smaller amounts that are less likely to attract attention. Another is that consumers are more alert to the risk of Internet crime and are spotting more thefts.

The reason the total is up is because the number of people affected has risen. So Internet crime is not running out of control but it is affecting more people.

The idiot view from the boardroom

The news that Circuit City approves retention awards for top execs is hardly a suprise. Circuit City is after all the company that laid off its 3,400 top performing sales people in March, since then the stock has crashed from $18 to $6.

What sort of management can tell itself that retention bonuses are essential in the boardroom while sacking the sales staff? The fact that they fired the sales staff in the first place is demonstration that a management exodus at Circuit City should be viewed as a positive, not a negative.

Monday, December 17, 2007

Lets restart the crypto-wars.

Ross Anderson on UK Crypto Export Duplicity (via Michael Froomkin)

I find it somewhat difficult to get excited about this stuff when the position of the authorities is so weak. Strong crypto is widely available and beyond the control of any government. Any terrorist group with the will to do so can obtain encryption tools that are as unbreakable as the public state of the art allows.

The situation we have today is that we have strong cryptography that meets the needs of Internet criminals but not the ordinary Internet user who is targetted by Internet crime.

Friday, December 14, 2007

Better shread than dead?

The liberal blogosphere is all agog at the news that document shredding tncreased 600% under George W. Bush.

Nefarious? Or maybe $2.7 million on shredding is not that much out of a trillion dollar plus federal budget. If the US government really did spend that little on shredding there simply would not be as many shredding companies in business as there are.

And even if there has been an increase in shredding, is this a bad thing considering the rising problem of identity theft?

Sunday, December 09, 2007

How not to deal with intelligence briefings

As with everything else in Washington, we arrive at he-said-she-said as the mode of argument. The Washington Post reports the administration side of their intelligence briefings.

This is surely a very bad idea. The administration is attempting to put their side of what was said through an off-the-record leak. Everyone concerned knows the source of course, the Washington Post states that their sources are two officials who were present.

This is a remarkably bad idea when there is a Congressional investigation in progress. The lawmakers know who was present and they will be witnesses at the hearings. So the lawmakers can ask if they were the source of the allegation directly. This puts them in a bind, either they commit perjury or they they admit revealling classified information for partisan purposes. If all the witnesses deny being the source they can force Mukassey to begin a pejury investigation.

The Washington Post does not describe their sources as 'ex-officials'. So this is likely to lead to forced resignations.

Not a good means of performing spin control.

Friday, December 07, 2007

Friday Night Podding: The Computer: Wonder of the Future

Zero sum game

The Washington Post has a good writup of the housing market meltdown.

Basically the problem occurred because high risk bonds were being traded as AAA grade investments.

Stick with me now, because this is where it gets interesting. For it is at this point that the banks got the bright idea of buying up a bunch of mezzanine tranches from various pools. Then, using fancy computer models, they convinced themselves and the rating agencies that by repeating the same "tranching" process, they could use these mezzanine-rated assets to create a new set of securities -- some of them junk, some mezzanine, but the bulk of them with the AAA ratings more investors desired.

The problem with these models is that as any outside observer could tell there is a conservation of risk. No matter how the risk is sliced and diced the number of borrowers who default on their mortgage from a given pool will be exactly the same. If the tranching process was honest it should have identified equal amounts of high and low grade paper, or at least equal amounts of risk. But an honest process would not be half as profitable as selling the high grade paper as AAA and the remainder at its original mezzanine rating.

In other word the scheme is like buying up packets of baseball cards in bulk, picking out the small number of valuable, highly collectable cards and then selling on the remainder at the original purchase price.

Baseball card collectors know this which is why opened packets of cards change hands at a lower price than sealed packs. The chance of finding a Mickey Mantle rookie card in an open pack is approximately zero. But this law does not apply to sophisticated mortgage traders since the high grade paper identified by one analysts model differs from the next. The mezzanine paper is by definition paper that is compromised in some way but not to the extent that a full default is likely.

So after one analyst sifts the packet of sub prime mortgages and selects their favorites it is passed to the next who extracts their favorites and so on. The only time a mortgage is ever removed from the mezzanine pool is when it is close to or actually in default. Each analyst is rewarded according to the amount of money they make which in turn depends on the amount of mezzanine risk that they can rebrand as AAA. Suddenly almost everything appears to be a favorite. Mortgages churn round the mezzanine pool until they emerge as either AAA or go into default.

Lender's don't need to care about the quality of the risks they acquire. In fact a high risk loan is more profitable since it will eventually sell as low risk and a bank somewhere will profit the difference.

The net result of this behavior is that for the past ten years or so the cost of sub-prime borrowing has been artificially low which has in turn allowed property prices to inflate. Now that the bubble has burst the ratings of the mezzanine trances has plummeted from AAA to junk overnight.

The property market is bust but liquidation will take quite a while yet. Most people will try as hard as they can to avoid default and the loss of their home. But there are plenty of people out there who are way over-leveraged that are going to go under. Its not just the people who took on a mortgage they could not possibly afford, its the property speculators and the over-leveraged landlords who are going to be in trouble.

Its not compensatory, its different

The NYT suggests that business acumen may be compensation for Dyslexia.

As the guy who introduced the spelling for the HTTP referer field, I think that they are wrong. Its not compensation, its just an intrinsic difference in the way some people's brain's process information that has advantages and disadvantages.

As a species we have been literate for a mere four millennia, mass literacy is an even more recent phenomenon. Our visual and neural systems have not evolved to read and write, rather we have developed methods of reading and writing that are compatible with the way that the bulk of the population process information. It is hardly suprising that the result does not suit some people.

Some part of intelligence is certainly innate. While I do not eliminate the possibility that innate intelligence might be measured I do reject the notion that purported 'IQ' tests produce valid results outside the scope of use for which they were originally designed: Measuring the progress of sub-normally intelligent patients in response to therapy. Whatever intelligence is, it is not a linear quantity and it is relatively independent of motor and coordination skills such as reading.

In an information economy, average knowledge worker skills quickly become commodified. Coding is a relatively valuable trade skill, a Cobol or FORTRAN programer makes much more than a blacksmith or saddlemaker, but its a commodity skill. The skill that has value in an information economy is the ability to think differently.

Society places a great deal of pressure on people to think alike and not voice opinions that are outside the bounds of accepted wisdom. The herd instinct in our species is still ver strong. This has benefits in that without the herd instinct it would be impossible for us to live in densely populated cities as we do. Civil society would be impossible. The downside is that when we end up with foolish or incompetent leaders most of the population will be only too happy to fall into step with their way of thinking.

My problem is that I read too fast, much faster than I can properly process the information. I don't see the letters in the words. The problem is worst when reading low density information such as computer manuals. The upper level cognitive functions demand interesting information at an acceptable rate. If they find none they tell the reader function to scan faster and faster, causing the error rate to climb until the result is just a stream of noise.

Often the problem is that while I am reading something interesting I start thinking about implications and connections. I have read McLuhan several times but can barely remember a word because I value the book not for what McLuhan wrote but for the ideas I get while reading it. Thus I am indifferent to the question of whether he was right or wrong on any particular issue, in fact on most issues I can remember, the sage of Toronto is dead wrong. Television is not a cold media, it is hottest of hot, certainly after the introduction of color and larger screens.

If you don't have the ability to read and think at the same time you are probably going to do a better job of reading.

As a result I am very particular about good typography. Chapter and section headings function as frame markers, allowing the reader process to resynchronize. While proofreading The dotCrime Manifesto I was suprised to find that the house style is to put definition of terms in bold rather than the traditional italic, but this makes a huge amount of sense when you are scanning text for a particular term. Bold is designed to make a term leap to the eye.

Monday, December 03, 2007

Harry Porter's Relay Computer

Relay's existed in Babbage's time, this raises the interesting question of whether Babbage could have succeeded by choosing the right technology.

Babbage was defeated by the cumulative demands of engineering tolerances. Any inaccuracy in the position of art A would have a knock-on effect on part B and so on. Although a replica has been bought to tolerances that were individually achievable in Babbage's day it was not possible to build and debug the ensemble in Babbage's day.

Digital technology is more practical because it is much more tolerant of errors. TTL logic generates 0V to represent a 0 and 5V to represent a 1 but it will accept anywhere in the range 0-0.7V or so for 0 and 4.3-5V for a 1. That makes it much more resilient in the face of noise or slight manufacturing errors.

The other major difference with electronics over mechanics is the lack of friction of course.