Samovar Tea Lounge

We finally checked out Samovar Tea Lounge in the Castro. I was impressed, the atmosphere was great. I enjoyed my Orange Ginger Tea, and the Scones I had were to die for. For those who work downtown, or who happen the be in SF to attend a conference at the Moscone Center, they just opened their second location at the Yerba Buena Gardens. Enjoy!

Have you heard of Prosper?

SF-based Prosper is the acknowledged leader in peer-to-peer LENDING. Think of it as a cross between ebay and micro-finance, except the loans sometimes go for thousands of dollars. Big loans can also be split among several "lenders". Interest rates are determined through an auction, and borrowers come with a "credit score". It might not replace banks, but it could steal revenue and inject some efficiency into the small business lending space. I love the concept:

... Today the Net is taking the logic of Asian microlending co-ops global. One of the Web's most intriguing trends is the rise of peer-to-peer lending communities such as London-based Zopa Ltd. and San Francisco's Prosper Marketplace Inc. Fifteen-month-old Zopa (www.zopa.com) has attracted 75,000 members. But the most buzz surrounds Prosper, the four-month-old site (www.prosper.com) whose undisclosed number of members have made about 1,500 loans for over $7 million.

Analysts say peer-to-peer lending could become a big deal. Americans make 6.1 million friends-and-family loans, for more than $89 billion each year, says Asheesh Advani, CEO of CircleLending, a Waltham (Mass.) startup that provides billing services for friends-and-family loans. Forrester Research Inc. (FORR ) lumps peer-to-peer lending with "social computing" phenomena such as blogging, podcasting, and wikis that are shaking up industries. The opportunity lies in consumers' mistrust of financial institutions: In Forrester studies, most people believe their banks put their own interests ahead of consumers', and a majority don't think their financial institutions have strong ethics. Their attitude, says Forrester analyst Catherine Graeber: "If we can get this done cheaper between ourselves, what do we need a bank for?"

That said, Prosper and Zopa probably won't have an eBay-like upside. EBay created the first national market for stuff people used to move at garage sales and craft fairs. But capital markets are dominated by big companies that sell a smorgasbord of credit cards, mortgages, and other products to people with virtually any credit profile—and rates finely calibrated to borrowers' credit scores and other data. Fact is, no one knows if borrowers will reliably repay loans from relative strangers. CircleLending says 14% of person-to-person loans go unpaid in the non-Internet world. Zopa says its default rates are a tiny 0.05%; Prosper hasn't broken out default rates.

Then again, peer-to-peer lending isn't a risk that can't be managed. The key is diversification. Loans are typically divided among lenders; a $5,000 loan might be funded by 100 people. Payments are sent directly to Prosper or Zopa, which distribute the money to lenders and report deadbeats to credit agencies or collection firms. Lenders can simply ignore high-risk borrowers; only 2% of Prosper applications from poor-credit customers have been funded, according to SavageNumber.com, an Atlanta Web site that tracks Prosper data. Formal arrangements seem to make people responsible about repayment even without a bank involved. Advani says delinquencies fall to 5% when friends-and-family loans use his firm's billing service.

The result: Loans are cheaper, while lenders can earn more than from other investments. Last month Doug Sophia borrowed $12,500 on Prosper to buy equipment for his new pizzeria in North Myrtle Beach, S.C., at 11.75%; his local finance company wanted 26%. Meanwhile, Frisco (Tex.) lender Dave Elliott, CEO of a small software company by day, says he expects a 13% return on 97 loans. "There aren't many investments that will get you more than 12% without much management," he says. Zopa CEO Richard Duvall says the average Zopa lender makes 7% to 10% after bad debt is written off, twice what top British savings accounts pay.

One of the Best Political Ads This Season

Fox News' favorite "Democrat", Joe Lieberman is facing stiff competition in his bid to secure the Democratic nomination in the CT Senate race. Check out this hilarious ad from his opponent Ned Lamont.

TED Conference Talks

The video of the talks at the annual TED conference, in Monterey, are now available. Great stuff!

Parking at Rainbow Grocery

Monday night we went to our favorite SF grocery, and drove into the parking lot. You are suppose to wait for a spot to open up -- we know this because on numerous occassions, a parking attendant informed us of this policy. As we were waiting for a spot to open, a lady two cars behind us had gotten out of her car, knocked on our window and told us to leave the lot and drive around. She said our waiting for a spot, was causing a line to form, and that we needed to drive around and try again. We told her that wasn't the policy as we knew it, she went back to her car and started honking her horn at us. As she was honking, a customer was entering her car in front of us, so we clearly would have a spot momentarily. She kept honking away anyway!

As we parked, the lady right behind us, was clearly shaken up, so she felt pressured to drive off, and lucky for her she found a spot. The obnoxious lady, took the spot that rightly belonged to the woman behind us.

We later encountered the woman who got shaken up inside the store, and she told us that it was her understanding that we were doing the right thing by waiting in line for a spot. She said several Rainbow staff members confirmed that this was the policy. She encountered the obnoxious woman in the store, and very politely told her that we had it right, but the woman said: "Thanks for letting me know, I'm going to do exactly what I did the next time I come to the store!"

In other words, I will bully and intimidate drivers ahead of me to give up their spot each time I come here. Unbelievable! Why shop at Rainbow if you are so impatient and selfish!

Silicon Valley and Electric Cars

The LA Times has an article on 3 electric car start-ups in the SF Bay area:

... By tapping the Bay Area's engineering expertise and culture of innovation, a cluster of entrepreneurs, engineers and venture capitalists here are racing to bring their electric cars to market. Unlike Detroit and Japanese automakers, they're working on high-performance sports cars for wealthy auto enthusiasts.

At least three Silicon Valley start-ups — Tesla Motors of San Carlos, Wrightspeed Inc. of Woodside and battery maker Li-on Cells of Menlo Park — are among a cadre of companies nationwide developing electric cars or components.

... But some industry analysts question whether electric cars could ever become cheap enough or have the battery life to compete in the mainstream auto market.

"To attract consumers en masse, the price has to be low enough where they can see the break-even point," said Anthony Pratt, an automotive analyst at J.D. Power & Associates.

... Tesla's Eberhard thinks the Prius is "terrifically ugly" and believes that other wealthy car enthusiasts feel the same way.

In Tesla's workshop in San Carlos, Eberhard and Tarpenning offered a glimpse of their first model — a two-seater that resembles a Lotus Elise — but would not allow photographs. They plan to unveil it at an event for prospective buyers next month in Santa Monica.

"We're building a car for people who like to drive," Eberhard said. "This is not a punishment car."

Although he was mum on details and pricing, Eberhard said the first Tesla model would be able to drive more than 200 miles on one charge, making it good for commutes but not long road trips. With lithium-ion batteries, the car can be plugged into any electrical outlet.

... Now Silicon Valley, known for its ability to innovate, sees an opportunity to break Detroit's grip on the U.S. auto industry.

Developing an electric sports car is a complex engineering challenge that's well-suited to the region's techies, said Elon Musk, the co-founder of Internet payment company PayPal Inc. who has provided about half of Tesla's $60 million in funding.

"The technological challenges don't play to the strengths of Detroit," said Musk, who also heads Space Exploration Technologies Corp., an El Segundo developer of commercial rockets. "Nobody in the world is better than Silicon Valley at solving electrical engineering problems. The key technologies are in Silicon Valley, not Detroit."

They better hurry, looks like people are continuing to immigrate/relocate to the Golden State! Seriously, the cars described in the articles are high-end vehicles. The hope is that some of the key technologies being developed, get applied to more affordable cars. Personally, I'm glad some high-tech millionaires are willing to be early adopters and venture backers.

Wave or Tidal Power in SF

Wow, if one of these alternatives comes to fruition, SF would be a pioneer in harnessing Tidal or Wave energy. I wonder if public ownership might be better, at least you would have better accountability if things go wrong. From the SF Chronicle:

... The ocean energy idea -- which already is taking hold in other parts of the world -- got its first strong push three years ago locally when Newsom's archnemesis, then-Board of Supervisors president and Green Party member Matt Gonzalez, won approval of a resolution calling for a tidal-energy power project. After a couple years of serious study, the nonprofit Electric Power Research Institute concluded:

One: That San Francisco could tap enough wave power at Ocean Beach to keep the entire city lit -- depending, of course, on how large a wave plant it chose to build.

And two: That the tides at the Golden Gate make that spot the best in the entire lower 48 states to produce tidal power, though the potential for installing turbine generators under the bridge is a bit limited by space.

Tidal power, however, is a less expensive energy alternative than wave power. So now comes a second study to address the environmental impact of submerging turbines about 190 feet beneath the Golden Gate -- deep enough, we're told, to avoid any ships running in and out of the bay.

Johanna Partin, the renewable energy program manager for the city's Department of Electricity, says planners have already considered potential threats to fish and other sea life, as well as the possibility of a harmful buildup of silt.

They've concluded that there's little chance of harm -- but to be safe, they are recommending that only a "conservative" 15 percent of the area beneath the Golden Gate Bridge be tapped.

The NY Times on Renewable Energy

I'm glad they haven't made these articles available only to Times Select customers. The question is, will they continue do so. Enjoy them while you can ...

Hedge Funds Statistics

The NY Times reports that one of the largest Hedge Funds is under investigation by the S.E.C. I noticed a few statistics on the size and influence of Hedge Funds:

... Hedge funds control an estimated $1.2 trillion in assets currently, almost 3,000 percent more than they did 16 years ago. Last year, almost 2,100 hedge funds opened for business. Despite their growth, hedge fund assets total much less than the $9.2 trillion invested in mutual funds domestically.

But while hedge fund represent only 5 percent of assets under management in the United States, they account for 30 percent of stock trading volume nationwide. As a result, hedge funds can have an enormous impact on the nation's securities markets.

How do they define a "Hedge Fund": there are so many types of investment vehicles and trading styles, that some clarification would be helpful. Secondly, stock trading volume is one measure, but the amount of leverage will probably have more of an impact if and when a financial crisis occurs.

Gladwell on Brand Name and Generic Drugs

Malcolm Gladwell, doesn't blog often, but when he does he usually has something good to say. Another nice post, on an important topic. Make sure you read the comments:

The New York Times led its business section today with the headline: “Drug Prices Up Sharply.” The subject of the piece was a study by AARP showing that prices of prescription drugs rose 3.9 percent in the first three months of this year, four times the rate of inflation. Outrageous!

But wait: it isn’t until you read a little closer that you realize that the price increase just refers to brand-name pharmaceutical prices. And what the article never mentions at all is that the AARP released a second study yesterday, showing that generic drug costs in the

United States were unchanged in the first quarter and fell 0.1 percent over the past year. Here is the key paragraph from the AARP report, which—unbelievably—never made it into the Times piece:

"The rate of increase in average annual change in manufacturer’s list price for generic prescription drugs most widely used by older Americans was about one quarter the rate of general inflation for 2005.”

Now why would the Times ignore lower generic drug prices and highlight higher brand name drug prices? I have no idea. But it drives me crazy, because this kind of reporting reinforces the notion (perpetuated, among others, by big Pharma,) that there is some magical distinction between brand name and generic drugs. There isn’t. Drugs are drugs. And these days, in most of the major therapeutic categories, there is a perfectly acceptable and much cheaper generic substitute available. And the real news from yesterday is not bad news, but good news.

Peak Oil

James Hamilton has an excellent post on Oil Market Predictions:

... Many have articulated a vision of "peak oil" as akin to a cliff that we suddenly wake up to find ourselves to have driven off. I instead envision it as a more gradual process in which we continually pay more for oil, trying to extract lower quality stuff from harder-to-get-at locations and with increasing geopolitical risks. When asked, "what will peak oil look like?", my answer has been, "perhaps a lot like the last two years".

IPO's and Auctions

New working paper from the Kellog School of Management and Notre Dame:

At Issue: Firms which list on a stock exchange may use various methods to sell their shares. There are two which are most frequently used: “bookbuilding”, the active pursuit of subscribers through direct contact by an underwriter, and “fixed-price offers”. Auctions are rarely employed, despite the clear potential for raising more revenue for the issuing firm. Why is it so? Are there factors preventing auctions from performing as well as other methods?

Findings: Auctions suffer from two major problems when used in IPOs. The first one is the "free-rider" problem: since the price is determined by the best non-winning offer, investors have no incentives to acquire information on the firm's fair value, and this makes the stock's selling price very volatile. The second problem is the "winner's curse": as the winner is usually a bidder among an unknown number who overestimates the value of the shares, each investor finds it very difficult to formulate an appropriate bidding strategy. These problems deter wide participation at IPO auctions and make them perform poorly in comparison to IPOs with fixed-price offers and bookbuilding.

Compact Fluorescent Lightbulbs

In a letter to the editor in the Summer 2006 edition of One Earth , a reader questions whether Compact Fluorescent Lamps (CFL's) should be promoted. The reader points out that CFL's contain mercury, and that improper disposal harms the environment, thus outweighing the benefits of using CFL's. The folks at NRDC had this response:

Most electricity in the United States comes from coal-fired power plants, and burning coal releases mercury. On average, the amount of mercury contained within a CFL, plus the amount of mercury released while burning enough coal to power that bulb, is less than half of what would be released while burning coal to power a less-efficient incandescent bulb over the same period of time.

NRDC has more on CFL's and mercury on their site:

... Over a CFL's 10,000-hour life span, the mercury within the bulb, plus the mercury emitted by power plants supplying electricity to the bulb, adds up to about 8 milligrams. An incandescent has a life span of just 1,000 hours, or one-tenth the lifespan of a CFL. To equal one CFL, you would have to burn 10 incandescents, emitting about 17.6 milligrams of mercury. By the time CFLs burn out, little mercury remains. But don't throw the bulb in the trash; it might end up at the incinerator. Ask about disposal at your local Household Hazardous Waste collection site.

World's largest solar plant planned in Bay Area

The Mercury News has the details. Sweet, renewable energy startups are starting to emerge and go public. I hope they choose SF:

A Palo Alto company has decided to build the world's largest factory for making solar power cells in the Bay Area -- a move that would nearly triple the nation's solar manufacturing capacity and give a significant boost to a growing source of clean energy.

Nanosolar, a privately held company founded in 2001 with seed money from Google founders Larry Page and Sergey Brin, is scheduled to make the announcement Wednesday, and in the next two to six weeks will select either San Jose, Santa Clara or San Francisco for the facility.

At capacity, the factory could turn out enough solar cells each year to generate 430 megawatts of electricity, said Nanosolar CEO Martin Roscheisen. That's enough electricity to power about 325,000 homes. By comparison, all solar manufacturing plants in the United States combined currently produce enough cells each year to generate 153 megawatts.

Backers of solar power said the project is the latest example of how demand for solar is rapidly expanding, and how the technology, once the realm of hippies and back-to-the-land advocates, has become a hot commodity among some of the same Silicon Valley engineers and venture capitalists who made a fortune in the 1990s during the Internet boom.

... Nanosolar and other companies, such as Miasole, a privately held San Jose firm, have discarded silicon as their semiconductor material. Instead, they are working on mass-producing a complicated new technology: printing photovoltaic cells onto flexible plastic and foil, using a copper alloy that absorbs light and creates electricity.

The goal is to dramatically bring down costs, which have been the main stumbling block for expanding solar.

Europe and Renewable Energy

The NY Times on how much renewable energy is used in the EU:

... Europe likes to think of itself as a place that has moved beyond its sooty industrial past, with energy that comes from the windmills that dot the Dutch countryside and the Danish coastline or the carbon-free nuclear plants that dominate France's power industry.

But with oil prices soaring and worries rising about the reliability of gas piped from Russia, Europe must depend heavily on that great industrial-age relic, coal: a cheap, plentiful fuel, but one that emits twice the carbon dioxide of natural gas. Coal-fired plants generated half the power in Germany and Britain during the chilly winter just past.

While Europeans stand out for their commitment to controlling global warming gases, some of their largest energy companies are reluctant to invest in technologies that could further protect the environment, like equipment in the demonstration plant here that will trap carbon dioxide and pump it into underground storage areas. Only a handful of carbon-free plants are planned in the European Union.

Is California the actual leader when it comes to renewable energy? Personally, as a resident of the Golden State, I would like California to do more on this issue.

Network Neutrality Debate

Watch the Q & A session, and any doubts you have on why we need Network Neutrality will evaporate. Clinton spokesman Mike McCurry looks like a lightweight compared to the guy from Amazon.

Mark Pilgrim Ditches the Mac

Python hacker, and long time Mac user, Mark Pilgrim has decided to switch to Linux. Personally I like both. The Mac works out of the box, and you can install the Developer tools, X11, and get a working Unix command line, with iLife and Office. Little things that make it usable WiFi, sleep, etc. are harder to configure on Linux laptops. However, if one can configure a Linux laptop and be productive, its hard to argue against that.

UPDATE: Tim Bray is also considering switching from the Mac to Ubuntu.

Music: Gecko Turner

As soon as I saw Gecko perform live on Morning Becomes Eclectic, I rushed out to my favorite music store in the Haight to get his latest CD. The CD is awesome, it just has such a great groove from start to end. I STRONGLY recommend you buy it.

Where 2.0 Summary

Great write-up, on what appears to have been a successful conference. Location awareness is going to be huge, no longer will people need propietary tools from GIS vendors. Google Maps and Google Earth changed the rules with their open API's. Next we need Open Source tools:

Undoubtedly, the most interesting map geekery was coming out of a growing group of open-source programmers who've devoted themselves to liberating the tools once used by experts to do geographical analysis. Schuyler Erle, co-author of Mapping Hacks, said the open-source community has focused on all the things you can't do in Google Maps. "We can browse Google Maps, but the look and feel of those maps is fixed," he explained. "We want the flexibility to tell our own stories with maps. What's exciting is the ability to do your own cartography, to put your own labels on and show your own roads."

Erle is part of the Open Source Geospacial Foundation, or OSGeo, and like many of his fellow neogeographers he hangs out informally on an e-mail list called Geowanking. The members of OSGeo run mapping software projects, including the open-source version of Autodesk's MapGuide, and a powerful tool for producing maps with metadata called OpenLayers.

"Most web maps out there give you 'red dot fever,' which means that they're covered in red dots whose meaning is hard to decipher," Erle said. "But with OpenLayers, you can create meaningful symbols on your maps. You can make maps that show demographics or property values or erosion." Other members of OSGeo, sitting nearby, began to chime in and offer ways to use OpenLayers -- civic activists could make maps to explain issues to zoning boards; environmentalists might make maps that show the results of clear-cutting.

... "We want map-analysis tools to be as ubiquitous as spreadsheets," Erle summed up. "Everybody should be able to do geo-analysis."

Darryl Hannah

The LA Times has a nice profile outlining her longstanding commitment to environmental causes. In a previous post, I noted that she has been living off the grid and driving biodiesel vehicles for years.

3 for All

A friend of ours recently introduced us to this Improv Theatre group based in Fort Mason, SF, and the two shows we have been to were quite funny. Last night we saw 3 for All, and I was blown away by how hilarious it was. I was laughing so hard, I was in tears by the end of the show. Unfortunately, they play just one more night (tonight), and I'm not sure when they will perform next. How can these guys show up, with no plan/script, and put on such a great show. Very impressive.

Income Inequality and Legacy Admissions

From the Economist Magazine. The article is long, but it is well-written and definitely worth reading. Brazil's Gini Index is close to 0.6, so the U.S. is nowhere near the bottom. The American system is conducive to breeding startups and entrepreneurs, but it does leave people behind. Unfortunately, too much regulation and taxation may stymie growth and the entrepreneurial spirit. The solution may be to support startups in sectors that have an impact on other things beyond the bottom line. Renewable energy comes to mind. Also, there are serious inefficiencies in healthcare, and we need startups to exploit them. Hopefully those that heed the Triple Bottom Line.

"AMERICANS do not go in for envy. The gap between rich and poor is bigger than in any other advanced country, but most people are unconcerned. Whereas Europeans fret about the way the economic pie is divided, Americans want to join the rich, not soak them. Eight out of ten, more than anywhere else, believe that though you may start poor, if you work hard, you can make pots of money. It is a central part of the American Dream.

.. The rise of the working rich reinforces America's self-image as the land of opportunity. But, by some measures, that image is an illusion. Several new studies* show parental income to be a better predictor of whether someone will be rich or poor in America than in Canada or much of Europe. In America about half of the income disparities in one generation are reflected in the next. In Canada and the Nordic countries that proportion is about a fifth."

Taxes are so much higher in Canada and the Nordic countries. I would guess that the inheritance tax explains most of the disparity uncovered by the cited study. In the U.S., parental income probably does predict future income quite well. Just think of the number of kids who get into top colleges via legacy admissions, an unheard of concept in the entrance-exam driven world of Asian universities. By some estimates, 10-15% of Ivy League admissions fall into this category! If we are to be a merit-based society, legacy admissions have got to go -- or at least be curtailed.

UPDATE: The NY Times reports that Executive pay in Europe is starting to resemble the U.S.

Along with hip-hop and Hollywood movies, Europeans are eagerly importing another American phenomenon: soaring pay packages for chief executives.

For decades, Europeans were far more restrained than Americans when it came to rewarding the boss. Now, executives overseas are less inhibited about asking for American-style compensation. And often they are getting their wish.

Virtualization Realized

In an earlier post, I noted that virtualization might decrease the market share of Windows based computers. I really feel it will lead to more people using Unix based (mac, linux, bsd, solaris) computers. Today, the first product aimed at Intel Mac users hit the market:

Apple Computer made headlines back in April when it said it would offer its own software--Boot Camp--for loading Windows onto Macs. However, Boot Camp permits people to run only one operating system at a time, meaning either Windows or the Mac OS can be in use, but not both at once.

Around the same time, Parallels started testing for its Parallels Desktop program, which uses virtualization technology to have Windows programs operate alongside Mac applications. The Windows programs open in a separate window within the Mac OS.

Unlike past software that allowed Windows programs to run on a Mac, Parallels Desktop does not need to emulate the hardware that's inside a PC. That's because Macs and PCs now use the same Intel-based chips. As a result, the speed of Parallels is far better than past efforts at bringing together the two operating systems, the software start-up said. In fact, Parallels says Windows programs can run nearly as fast through its virtualization as running natively on a Windows PC.

"The difference in performance between Parallels and Boot Camp is negligible," said Parallels marketing manager Ben Rudolph. "Things move very, very fast."

Being able to run Windows programs is seen as a potentially significant catalyst for Mac sales. Needham analyst Charlie Wolf upgraded Apple's stock on Tuesday, saying that the combination of Boot Camp and programs like Parallels could help the Cupertino, Calif.-based company gain market share.

Ethanol Maker Goes Public

Can this be the start of an IPO market in renewable energy?

Shares of VeraSun Energy, the second-largest producer of ethanol in the United States, are climbing rapidly after its initial public offering and have increased by nearly a third in value.

The company's stock was trading at about $30 a share at about 10 a.m. PDT on Wednesday. The company sold 18.25 million shares for $23 a share in its IPO. The $23 price was higher than earlier expectations. Initially, VeraSun planned to sell only 17.25 million shares for $18 to $20 a share. On June 9, it then expanded the number of shares it planned to sell and increased the anticipated offering price to a $21-to-$22 range.

The South Dakota-based company produces ethanol, an alcohol that can be used as a fuel additive or serve as the primary fuel in some cars, out of corn. The company has a current output of 230 million gallons per year. Facilities on the drawing board will allow the company to increase output to 340 million gallons per year by August 2007 and 560 million gallons per year by the first quarter of 2008.

In the first quarter of 2006, the company garnered $109.9 million in revenue but only $2.7 million in net income.

... Ethanol also needs to be improved. Currently, most ethanol in the United States is made of corn, while in Brazil, it comes from sugar cane. Unfortunately, processing either material into usable fuel is not very efficient.

Researchers right now are looking at ways to produce ethanol out of superweeds and other plants that can fertilize themselves, consume less water and produce more energy per kilogram.

The stock did well on its first day, on rather light volume. The income for Q1-2006 was paltry, and the technology still energy inefficient. Hopefully, cellulosic ethanol becomes a commercial reality in the near future. For a primer on Ethanol, check out Vinod Khosla's presentation at the Googleplex.

The Accidental Empire

I borrowed this book from our local library, after hearing the author interviewed on NPR. I really liked the author's previous book on Christian fundamentalism and the temple mount, and while the subject of this book was less interesting to me, I recommend that you at least skim through it. You will learn a lot about the 1967 war, the "decision" to annex the West Bank and Gaza strip, and Israeli politics through 1973. Anyone interested in the current state of affairs in Israel, the West Bank, and Gaza should read this book. It is a refreshingly balanced look at the history of the region.

Foreign Risk Exposure of U.S. Banks

From a new working paper from the Federal Reserve Bank of NY:

At Issue: Over the last two decades, US banks have built up a strong presence abroad, due to direct lending and the acquisition of local banks in foreign countries. Which are the countries with stronger financial links with American banks? How did the exposure to foreign risk evolve over time? Is the US financial system exposed to a risk of contagion from crises that develop elsewhere in the world?

Findings: The number of US banks with foreign risk exposure decreased from 140 in 1990 to 71 in 2004, following the consolidation of the US banking sector. At the same time risk exposure increased from $355 billion to $1.25 trillion. Foreign activity is dominated by the four “Money Center Banks”. While derivatives arising from cross-border activity now account for 8% of risk exposure, their use is tempered by two trends towards risk reduction. First, exposure shifted away from emerging country and has moved towards Europe and Canada. Second, foreign exposure towards Latin American countries mostly occurs through local subsidiaries, whose foreign liabilities are matched by foreign assets.

On Startups

Paul Graham has a really nice essay on why America (in particular Silicon Valley) seems to create more startups than any other country in the world.

Using data from online job postings, the O'Reilly Research group lists which areas in the U.S. have the most startups.

Update: A great discussion of Graham's essay can be found here.

Wal-Mart and Fair Trade

First we had news that Wal-Mart was going to start carrying organic produce, now we hear that Wal-Mart will start carrying Fair Trade products:

Wal-Mart is in the midst of overhauling its tightfisted image to win over shoppers searching for more than low prices. That effort has taken the company that built an empire on the principle of high volume and low costs into previously uncharted territory, into the realm of trendy apparel and organic food.

Now, with the help of Pereira, it is embarking on one of its most radical undertakings to date: fair trade.

Pereira, 40, is part of a small cooperative of growers living here in the heart of coffee country, where the rolling mountains are lush with trees. The late afternoon sun is strong. Pereira wipes the sweat from his brow with his forearm as he works his six acres. Dirt is jammed deep underneath his fingernails. He has been picking coffee cherries since 5 a.m., stripping them off the branches with his bare hands. They will be dried, and eventually only the pit will be left -- the coffee bean.

Pereira gets a premium for his harvest. His co-op is one of only seven in the country that is fair-trade certified, charging above-market price for beans because it meets certain social and environmental standards.

Wal-Mart is considering bringing Pereira's beans into its namesake stores. It would be a novel arrangement for a company infamous for squeezing pennies out of its suppliers -- and a test of how deep its makeover will really go.

As Michael Pollan noted, this might mean that we end up having industrial agriculture with an Organic and Fair trade twist. Definitely an improvement over the present agricultural practices, but buying locally grown organic products is still preferable.

Google and Your TV

This is amazing and creepy at the same time:

In a research paper presented last week at interactive television conference Euro ITV in Athens, Greece, Google researchers Michele Covell and Shumeet Baluja propose using ambient-audio identification technology to capture TV sound with a laptop PC to identify the show that is the source of the sound and to use that information to immediately return personalized Internet content to the PC.

"We showed how to sample the ambient sound emitted from a TV and automatically determine what is being watched from a small signature of the sound—all with complete privacy and minuscule effort," Covell and Baluja write on the Google Research Blog. "The system could keep up with users while they channel surf, presenting them with a real-time forum about a live political debate one minute and an ad-hoc chat room for a sporting event in the next."

The scheme is described in the research paper using a term that seems to be an oxymoron: mass personalization. It might also be characterized as a mixture of oil and water, a combination of television broadcasting and Internet narrowcasting.

"Mass-media channels typically provide limited content to many people," the paper explains, "the Web provides vast amounts of information, most of interest to few. ... Our goal is to combine the best of both worlds: integrating the relaxing and effortless experience of mass-media content with the interactive and personalized potential of the Web, providing mass personalization."

Not to mention massive profits. Marketers would kill to know exactly who's watching what when. With such a system, Google could extend its online dominance into television, and presumably radio, by offering advertisers unparalleled insight into the mass media audience.

As a Google account holder (via gmail), they already archive my search history. Now, they will have a record on the things I've been watching and listening. Man, Direct Marketers will have a field day with this stuff. As someone who works in data mining and warehousing, and built analytics for marketing, this is powerful data. The question is why would you want a single private company to have acces to that much of "your" data. How many people will actually opt in? Their track record in China was not exemplary, although they did push back when the Justice Department wanted access to their search logs.

Online spending is trending up, Google and Paypal have customer data that will alow them to be the next-generation Direct Marketers. No wonder Visa regards Paypal as their most important competitor.

Red Hill Books

Last night was the end of a weeklong celebration at our local neighborhood bookstore (Red Hill Books), and what a night it was. Everything was 35% off! I promptly bought two gift books (The Omnivore's Dilemma and How Soccer Explains The World) and had to resist buying more. They also had Sonya Hunter and Erik Pearson, two gifted singer-songwriters, who played a set together. The final act was Ted Brinkley and the Florid Ians, a glee club backed by an incredible band. We are happy to have such an awesome bookstore at the end of our block. We hope to buy more books from them in the future: at least those books we can't get from the local library.

GMO Crops: Its All About Profit$

The NY Times highlights the growing trans-atlantic divide over Genetically Modified Crops, with the US and Canada in favor, and parts of the E.U. adamantly opposed. For a majority of consumers, these crops probably pose no major health threats. For some, these crops are potentially harmful, and there is a simple remedy to that problem: labeling. Unfortunately, labeling raises the possibility of liability, as data gets collected over time. Liability affects future profit$.

The opposition in Europe is primarily cultural. Europeans have a special relationship with their food, they like locally grown items, and really have a romantic view of the countryside and the small farms. Contrast that with the majority of the U.S. population: the industrial food chain is how most Americans shop.

Another reason E.U. countries oppose GMO crops is the fact that these crop strains will eventually take over their prized local varieties. It doesn't help that the primary beneficiaries are U.S. Corporations. U.S. and Canadian court decisions have established that corporations have the right to sue farmers for unknowingly planting crops that descend from GMO plants. Unfortunately, one you let GMO crops loose, it is virutally impossible to shield against cross-pollination. The end result is that farmers cannot save their seeds (they may violate GMO patents) and are forced to buy seeds from, you got it, the same corporations.

American diplomats should back off, and stop promoting the interests of large U.S. companies. Let the Europeans enjoy their locally grown food, and let Americans enjoy the GMO crops and the industrial food chain. That won't happen of course. The Corporations need to grow their profits to satisfy their shareholders, and Americans can only eat so much. They are already increasingly consuming more calorie$! Demand for food is quite inelastic, and really capped by the growth in population. Unless of course you can open up a huge market like the E.U. There are three ways of increasing the profits of the large American food corporations: convince Americans to eat more, patent GMO's, and expand overseas.

Yet another reason why we need companies who focus on the Triple Bottom Line.

For more on this subject, check out this excellent documentary.

Hedge Funds, Terrorists, and Politics: The Day of the Beast

6/6/06 (666).

Having worked in a Hedge Fund during the collapse of Long Term Capital Management (LTCM), I am nervous about how the large Wall St. Banks and Hedge Funds have so much exposure (and leverage) in highly illiquid assets. Brazilian and Indonesian bonds, credit-default swaps and catastrophe bonds ... In 1998 it was Russian bonds among other things. Everyone knows that correlations will rise when the sh**t hits the fan, and that everyone will want to unload their positions at exactly the same time. I hope the lessons from 1998 are built into these highly quantitative risk management and trading systems. Having built trading and risk management systems myself, it is really hard to model the velocity in which these crises occur. The LTCM trades were eventually profitable, but you had to be able to ride out a few months to see the arbitrage trades go as the models said they would. For a lot of these smaller hedge funds and some larger banks, I have a feeling that large exposure + leverage will mean things will get really ugly, at some point. Businessweek has a great overview.

I think Westly will win the Democratic nomination for Governor of California. He has a better chance of beating the Governator in November, and that may sway the undecideds his way. Just a hunch ....

Canada seems shaken up by the prospect of a homegrown terrorist cell. The pattern is consistent with other terrorist cells: fiery, extremist preachers recruit young men, without the knowledge of the larger, peace loving muslim community.

The Republicans in Congress are again trying to repeal the estate tax. David Kay Johnston's excellent book (see Chapter 6) explains succinctly why the Republican arguments are a farce.

California Uses A Lot Of Ethanol

No surpises here: the golden state and the midwest lead in ethanol consumption. Hopefully cellulosic ethanol gains traction, otherwise corn-based ethanol will mean the midwest will remain a huge industrial agriculture factory. I am not a big fan of monocultures, just look at how corn has taken over Iowa.

Wal-Mart and Organic Foods

Michael Pollan has an excellent article in the NYTimes Magazine. While the move is a positive one, it does come with problems:

... But before you pour yourself a celebratory glass of Wal-Mart organic milk, you might want to ask a few questions about how the company plans to achieve its laudable goals. Assuming that it's possible at all, how exactly would Wal-Mart get the price of organic food down to a level just 10 percent higher than that of its everyday food? To do so would virtually guarantee that Wal-Mart's version of cheap organic food is not sustainable, at least not in any meaningful sense of that word. To index the price of organic to the price of conventional is to give up, right from the start, on the idea, once enshrined in the organic movement, that food should be priced not high or low but responsibly. As the organic movement has long maintained, cheap industrial food is cheap only because the real costs of producing it are not reflected in the price at the checkout. Rather, those costs are charged to the environment, in the form of soil depletion and pollution (industrial agriculture is now our biggest polluter); to the public purse, in the form of subsidies to conventional commodity farmers; to the public health, in the form of an epidemic of diabetes and obesity that is expected to cost the economy more than $100 billion per year; and to the welfare of the farm- and food-factory workers, not to mention the well-being of the animals we eat. As Wendell Berry once wrote, the motto of our conventional food system — at the center of which stands Wal-Mart, the biggest purveyor of cheap food in America — should be: Cheap at any price!

To say you can sell organic food for 10 percent more than you sell irresponsibly priced food suggests that you don't really get it — that you plan to bring business-as-usual principles of industrial "efficiency" and "economies of scale" to a system of food production that was supposed to mimic the logic of natural systems rather than that of the factory.

We have already seen what happens when the logic of the factory is applied to organic food production. The industrialization of organic agriculture, which Wal-Mart's involvement will only deepen, has already given us "organic feedlots" — two words that I never thought would find their way into the same clause. To supply the escalating demand for cheap organic milk, agribusiness companies are setting up 5,000-head dairies, often in the desert. These milking cows never touch a blade of grass, instead spending their days standing around a dry-lot "loafing area" munching organic grain — grain that takes a toll on both the animals' health (these ruminants evolved to eat grass, after all) and the nutritional value of their milk. But this is the sort of milk (deficient in beta-carotene and the "good fats" — like omega 3's and C.L.A. — that come from grazing cows on grass) we're going to see a lot more of in the supermarket as long as Wal-Mart determines to keep organic milk cheap.

... Up to now, the federal organic standards have provided a bulwark against that pressure. Yet with the industrialization of organic, these rules are themselves coming under mounting pressure, and forgive my skepticism, but it's hard to believe that the lobbyists from Wal-Mart are going to play a constructive role in defending those standards from efforts to weaken them. Just this past year the Organic Trade Association used lobbyists who do work for Kraft Foods to move a bill through Congress that will make it easier to include synthetic ingredients in products labeled organic.

Organic is just a word, after all, and its definition now lies in the hands of the federal government, which means it is subject to all the usual political and economic forces at play in Washington. Inevitably, the drive to produce organic food cheaply will bring pressure to further weaken the regulations, and some of K Street's finest talent will soon be on the case. A few years ago a chicken producer in Georgia named Fieldale Farms persuaded its congressman to slip a helpful provision into an appropriations bill that would allow growers of organic chicken to substitute conventional chicken feed if the price of organic feed exceeded a certain level. That certainly makes life easier for a chicken producer when the price of organic corn is north of $5 a bushel, as it is today, and conventional corn south of $2. But in what sense is a chicken fed on conventional feed still organic? In no sense but the Orwellian one: because the government says it is.

After an outcry from consumers and some wiser heads in the organic industry, this new rule was repealed. The moral of the Fieldale story is that unless consumers and well-meaning organic producers remain vigilant and steadfast, the drive to make the price of organic foods competitive with that of conventional foods will hollow out the word and kill the organic goose, just when her golden eggs are luring so many big players into the water. Let's hope Wal-Mart recognizes that the extraordinary marketing magic of the word "organic" — a power that flows directly from our dissatisfaction with the very-cheap-food economy Wal-Mart has done so much to create — is a lot like the health of an organic chicken living in close confinement with thousands of other chickens in an organic CAFO, munching organic corn: fragile.

The Future of Work: MySQL AB and Telecommuting

Fortune has a great profile on MySQL AB, the commercial company behind the popular open-source db. I have met some of these guys, and the article is spot on in its description of how the company works:

... MySQL hires strictly for skills, assessing raw talent by watching prospective workers grapple with technical problems. CEO MÃ¥rten Mickos, who works in the 30-person home base, has hired many an engineer sight unseen. By some accounts that's just as well

... From a safe distance Mickos will ask such questions as "How do you plan your day?"

If a reply comes back that says "I always sleep until 11 A.M., and then I start working," Mickos doesn't want to hear any more. He's sold. "The brightest engineers like the calmness and coolness of the night," he says.

He is also wary of hiring "young men without a wife or a girlfriend or a dog or parents. They are at risk because they can get so immersed in their job that it drives them crazy. We don't want the type who read e-mails on their way to brush their teeth. They need a life."

Naturally his final question is "By the way, where do you live?" "I'm not the sort of CEO who needs to see everybody sweat and work hard," says Mickos. "These are passionate people who aren't going to stop because somebody isn't looking."

Software developer Oleksandr "Sanja" Byelkin, who lives in the southeastern Ukraine city of Lugansk, was hired in 2001 without ever having spoken to a soul at MySQL. "My ability with spoken English was not so good," says Byelkin, 33. While his English has improved, the spotty phone service where he lives still serves as a handy barrier. (We were disconnected twice.)

... Shawn Green, 39, joined MySQL in May and works out of a converted dining room in Blountville, Tenn. A former MySQL customer, he was discovered by one of the Russian developers who was monitoring an IRC channel where Green was active.

MySQL has brought aboard more than 50 employees from its user group, reckons Kaj Arnö, vice president of community relations. The possibility that they might get hired fires up outside contributors. In some circles, it's considered prestigious to have had the company accept a fix you've made.

And MySQL will make sure everyone knows it, touting such achievements in documentation, inserting names into press releases, and bestowing awards at the company's annual users' conference.

Make sure you read the whole article!

What is Organic Wine

Whenever I visit my favorite wine store in SF, I try to come prepared with my monthly newsletter carefully marked. I am always on the lookout for organic wines, but first and foremost, I try to stick with the prospects I have targeted in their newsletter or their email.

What exactly is "organic" wine? As a wine lover, this article made me realize that I did not really know the USDA's definition of Organic Wine. The USDA standards are different from what the EU has in place:

... The biggest stumbling block, many winemakers agree, is the USDA's prohibition against added sulfites. If you want to call a wine organic, you can't add any sulfur dioxide in processing. Zero, zip, none. And the vast majority of winemakers -- in this country and elsewhere -- will tell you that you can't make a decent bottle of wine without it.

"Sulfites are an antioxidant, and we have not found a replacement for that," says Robert de Leuze, winemaster at ZD Wines in Napa.

For centuries, winemakers have relied on sulfur dioxide to keep white wines from turning brown prematurely and losing their youthful fruit flavors. Red wines contain tannin, a natural preservative, so they need less sulfite protection than whites, but they still need some sulfites to guarantee a reasonable life span.

"Wines without sulfites are on a fast track," says Bob Blue, winemaker at Bonterra Vineyards in Hopland. "They taste old quickly."

... For winemakers committed to organic farming but not ready to abandon sulfites in the cellar, the USDA allows the label use of the phrase "made with organic grapes." The farming practices and the winery must still be certified, and the finished wine must have fewer than 100 parts per million of total sulfites, a ceiling that winemakers say they can live with. Robert Sinskey Vineyards, ZD Wines, Shenandoah Vineyards and Bonterra Vineyards are among the California producers operating in this niche.

But as some industry watchers are quick to point out, the government's organic rules include blatant inconsistencies, the inevitable result of the political wrangling that went into writing them. Organic grape growers can dust vines with elemental sulfur, which sunlight converts to sulfur dioxide, a mildew preventative. Yet organic winemakers can't add sulfur dioxide in the cellar.

"Elemental sulfur is considered organic, but please explain to me how we get organic sulfur without an industrial process," says Roger Boulton, a professor of enology at UC Davis. "They bent the rules on sulfur because it was convenient."

... But by the USDA rulebook, San Francisco's Organic Wine Co., an importer and Internet retailer, doesn't sell any organic wine. All the European wines that the company imports contain added sulfites, although all are made with grapes farmed organically and certified in Europe.

The American standards infuriate Veronique Raskin, the French-born Organic Wine Co. founder, who argues that any wine made with organically grown grapes should merit the organic label. Why, she asks, should winemakers be penalized for using small amounts of a necessary preservative when they are trying to be such good environmental citizens?

"I really don't know what the big deal is about sulfites," says Raskin. "Even the biodynamic people, who are some of the strictest in terms of respect for the environment, have come up with standards that allow the moderate use of sulfur dioxide."

Barney Feinblum, president of the Organic Wine Collection, a Boulder-based catalog and Internet retailer, concurs, arguing that the USDA position on sulfites is extreme.

"In Europe, people think that's just silly," says the merchant. "Only in America do we have this definition."

Border Security and Jobs

Immigrant bashing happens on the US-Mexico border, but it is just as bad, if not worse on the Mexico-Central America border:

... As tough as the United States can be for workers who slip in from south of the border, Mexico is in a poor position to criticize. The problem goes far beyond the predatory gantlet of thugs and crooked cops facing defenseless transients like Moisés. There's ample precedent in Mexico for just about everything the United States is—or isn't—doing. Calling out the military? Mexicans may hate the new U.S. plan to deploy 6,000 National Guard troops on the border, but five years ago they cheered President Vicente Fox for sending thousands of Mexican soldiers to crack down on their southern frontier. Tougher laws? Hispanic-rights groups are enraged over U.S. efforts to criminalize undocumented aliens—yet since 1974, sneaking into Mexico has been punishable by up to two years in prison. Foot-dragging on amnesty? Fox has spent the past five years urging the United States to upgrade the status of millions of illegals from Mexico. Meanwhile, his own government has given legal status to only 15,000 foreigners without papers.

... At least a few Mexicans are balking at the hypocrisy. Late last year their National Human Rights Commission issued a report criticizing Mexico's widespread mistreatment of aliens; the report described sub- human facilities where captured illegals are kept until they can be deported. Several international news agencies ran stories on the publication. But most of Mexico's leading papers ignored it.

People will immigrate if their economic opportunities are limited, and the Mexican economy is relatively well-off compared to some of its Central American neighbors. Building fences may slow things down, but "economic gravity" dictates that immigration will continue as long as immigrants continue to find employment. Improving the enforcement of employment laws that are on the books will be a much more effective strategy. But that requires going against the Chamber of Commerce and convincing the local population to pay higher prices for goods and services. Bottom line: immigrants come to work, and as long as there are jobs that pay higher that what they can get back home, they will continue to find a way to come.