Recipe for Disaster

Felix Salmon in Wired 17.03: Recipe for Disaster: The Formula That Killed Wall Street:

For five years, Li’s formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

…

The damage was foreseeable and, in fact, foreseen. In 1998, before Li had even invented his copula function, Paul Wilmott wrote that “the correlations between financial quantities are notoriously unstable.” Wilmott, a quantitative-finance consultant and lecturer, argued that no theory should be built on such unpredictable parameters. And he wasn’t alone. During the boom years, everybody could reel off reasons why the Gaussian copula function wasn’t perfect. Li’s approach made no allowance for unpredictability: It assumed that correlation was a constant rather than something mercurial. Investment banks would regularly phone Stanford’s Duffie and ask him to come in and talk to them about exactly what Li’s copula was. Every time, he would warn them that it was not suitable for use in risk management or valuation.

…In finance, you can never reduce risk outright; you can only try to set up a market in which people who don’t want risk sell it to those who do. But in the CDO market, people used the Gaussian copula model to convince themselves they didn’t have any risk at all, when in fact they just didn’t have any risk 99 percent of the time. The other 1 percent of the time they blew up. Those explosions may have been rare, but they could destroy all previous gains, and then some.

…

In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years’ worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all.

As Li himself said of his own model: “The most dangerous part is when people believe everything coming out of it.”

One learning: always read the fine print, folks.

Saturday night mix

The PersonalMBA on “Experimenting with Delegation and Outsourcing“. Sure he is inspired by Tim Ferriss, isn´t he? But this might be an interesting approach, especially when you want to offload work to free up your capacity.

WebWorkerDaily: 6 Strategies Freelancers Can Learn From Corporate Cost-cutting. Yes, when everybody is tightening the belt, also freelancers have to adjust.

The Crisis of Credit visualized. Excellent.

Mindfuck Movies:

Some movies inform. Some movies entertain. And some pry open your skull and punch you in the brain. MATTHEW BALDWIN gathers up the films that have caused him to clutch his head and moan.

David Pogue shares his greatest hits from TED.

I had a separate post on better presentations a few days ago, but here are Edward R. Tufte´s Presentation Tips – not dependent on a particular tool.

Going for a Netbook? GigaOM with 5 Resources for Netbook Helps, Hacks and How-To’s

Louis Gray asks: Is there room for anyone else besides Twitter? Yes, there is, even though Dave Winer is still looking for Twitter´s WordPress. Look over to identi.ca, folks. I am @arminauth

Quite some commentary on the deal between IBM and Amazon to Deliver Software via Cloud Computing With Amazon Web Services.

Nick Carr: Another little IBM Deal

It doesn’t seem like such a big deal, and it probably isn’t. But you never know. The licensing of MS-DOS seemed like small potatoes when it happened.

Vinnie Mirchandani: Will IBM regret this also?

So, IBM now announces a relationship with amazon for its web services ostensibly to expose more of its software to the lower end of the market.  In the meantime,  it continues to do similar stuff in its own data centers for larger outsourced clients.

The question is will history repeat itself.

Dana Gardner: Who makes most rain from IBM-Amazon cloud deal? Oracle.

So we come to Oracle. Larry Ellison’s entertaining position on cloud is a hedge. He knows the substantial cloud economy is inevitable, and he knows its at least 10 years in the making. And he knows the transition will be ugly and bloody.

…

It’s too soon to tell whether the rainmaker-enabled marketplace approach of IBM (remember Java, Linux, n-tier) will beat out the shoot-for-the-moon strategy of Microsoft when it comes to the cloud. But I like Oracle’s margins better through 2016 as the battle ensues.

Twitter 10 Commandments from @thealmightygod:

I saw God the other day – he had just come down from the mountain (OK, so it was Camelback Mtn) and Tweeted to me in my sleep. He told me he had come to bring me the 10 Commandments of Twitter

The NY Times (Registration required) on Mark Shuttleworth and Ubuntu: A Software Populist Who Doesn’t Do Windows

10 ways to weather the storm

Geoff Colvin has authored a interesting article in the January 19, 2009 edition of Fortune magazine: “How to Manage Your Business in a Recession”  in which he points out 10 ways to weather the current economic storm-

Here they are:

1. Reset priorities to face a new reality.
2. Keep investing in the core.
3. Communicate like crazy, balancing realism and optimism.
4. Your customers face new problems, so give them new solutions.
5. Don´t rush to cut prices.
6. Focus on capital – how you´re getting it and where you´re using it.
7. Reevaluate people – and steal some good ones.
8. Reexamine complensation – what is it offering incentives for?
9. Think twice about offshoring.
10. Be smart about mergers and acquisitions.

Sunday Mix

Sorry, been too busy in the last weeks. Will see if I can improve on posting frequency, too many things pile up. But here we go:

New York Times (registration required): Meetings Are a Matter of Precious Time True, so true.

Waferbaby asks people “What do people use to get the job done?” Insights from John Gruber (daringfireball.net), Alex Payne (Twitter) and others. Interesting.

Dare Obasanjo discusses an important difference: Platform as a Service vs. Utility Computing.

1. Utility Computing: In this approach, a vendor provides access to virtual server instances where each instance runs a traditional server operating system such as Linux or Windows Server. Computation and storage resources are metered and the customer can “scale infinitely” by simply creating new server instances. The most popular example of this approach is Amazon EC2.
2. Platform as a Service: In this approach, a vendor abstracts away the notion of accessing traditional LAMP or WISC stacks from their customers and instead provides an environment for running programs written using a particular platform. In addition, data storage is provided via a custom storage layer and API instead of traditional relational database access. The most popular example of this approach is Google App Engine.

His conclusion:

As it stands today  platform as a service offerings currently do not satisfy the needs of people who have existing apps that want to “port them to the cloud”. Instead this looks like it will remain the domain of utility computing services which just give you a VM and the ability to run any software you damn well please on the your operating system of choice.

However for brand new product development the restrictions of platform as a service offerings seem attractive given the ability to “scale infinitely” without having to get your hands dirty. Developers on platform as a service offerings don’t have to worry about database management and the ensuing complexitiies like sharding, replication and database tuning.

An important distinction if you ask me and a clear crossroad if you want to go into cloud services.

If you want (or have) to enable a web-application with offline-capabilities, Google Gears is often the tool of choice. Eduard Martini gives some good insight on O´Reilly InsideRIA: Google Gears—A Great Tool to Enhance Web Applications. Recommended.

Jeremiah Owyang, Senior Analyst at Forrester gives a great overview of the Social Network Industry on his private blog:  Weekly Digest of the Social Networking Space: Jan 21, 2009

And Nicole Simon explains why LinkedIn will fail in the german market: Linkedin taking the traditional approach in Germany and why that will fail (as usual)

Most of the time, they just make a translation and try to tell everybody how awesome they are everywhere else, as if this is enough.

Jason Scott: Fuck the cloud:

So please, take my advice, as I go into other concentrated endeavors. Fuck the Cloud. Fuck it right in the ear. Trust it like you would trust a guy pulling up in a van offering a sweet deal on electronics. Maybe you’ll make out, maybe you won’t. But he ain’t necessarily going to be there tomorrow.

Yeah, you should know where to place your bets. And backup is not for the fainthearted only, also real men do backups (off the cloud, in this context).

Dare´s take: Asking “should we trust the cloud” is like asking “should we trust horseless carriages”

We all love HAL, our friend from 2001: A Space Odyssey from Stanley Kubrick. Find the HAL project here.

Looks like the new POTUS is not hesitant to use juicy languange. Find some examples here, from an audiobook that he read in. (via)

Whoever wanted to know how David Allen gets things done, here a movie on Youtube (via):

Tabbloid. Converting personal feeds into a personalized magazine. Free. From HP. Not tested yet, though.

From the TPI blog: Quick Savings AND Minimal Operations Risk? Try Facilities Management Outsourcing

TPI has also a german blog now, from the office in Frankfurt.

Garr is great to find (and comment on) extraordinary presentations. This time:  Bill Gates at TED 09: How do you make a teacher great?

TED is the best and most inspiring conference series in the world, if you ask me. Fantastic speakers, great presentations. Awesome.

Tim Ferris explains how to learn any language in three months. Interesting approach to attack the challenge.

Jahresende-Links

So, jetzt zum Jahresabschluss die gesammelten Links der letzten paar Wochen. Sorry, aber wegen zu vielen Reisen vor den Feiertagen und PC-Abstinenz über Weihnachten etwas verzögert:

Nicht ganz neu, aber passend zur aktuellen Eskalation im Nahen Osten: Evolutionary Psychology, Memes and the Origin of War

The present article proposes an evolutionary psychology based model of social prediction, particularly for wars and related social disruption such as riots and suicide bombers.

Frankfurt Story – Danke Robert, gut davon zu lesen, bin ja schliesslich in Frankfurt am Main geboren…

Wo ist das Geld geblieben? – Eine Spurensuche bei der Zeit

The benefits of a monthly recurring revenue model in tough economic times –  Jason Fried von 37signals. So wahr.

Palamida: In a Time of Less, Do More with Open Source: Top 25 Open Source Projects That Will Help Trim Development Budgets (via)

70 Tools Freelancers Rely on Most – auch was für euch dabei?

Und dazu Web Worker Daily: 6 Free, Open Source Resources for Web Workers

Die Jungs und Mädels von EDS sollten´s eigentlich wissen, zumindestens aber eine Meinung haben: How Will Cloud Computing Affect the Information Technology Outsourcing Marketplace? (via)

Endlich mal erklärt 😉 : But What Exactly “Is” Cloud Computing? (via)

Stefan verweist auf ein Paper zum Tema XML Performance. Lesen!

Das Wall Street Journal: Outsourcing: Not Immune to the Downturn, But Holding Up – gibt ja sicherlich noch eine Menge, die Outsourcing primär als Mittel zur Kostensenkung sehen. Der “Do my mess for less”-Ansatz geht aber schnell in die Hose, aber manch lernen eben nur durch Schmerz.

A B2B Recession Survival Kit: Three Not-so-painful Tips for Thriving in a Miserable Economy:

• Survival Strategy #1: Cut the waste.

• Survival Strategy #2: Harvest the “best practices” of other companies.
• Survival Strategy #3: Ask customers what they want.

GMail Blog: SMS messaging for chat – wahrscheinlich (?) bis jetzt nur in USA

Stephen Fry reist mit leichtem Gepäck 🙂 : Gee, One Bold Storm coming up….

Ein paar Takeaways von Nick Carr:

• The trailer park is the computer
• So much for the Googley Treats

Elliotte Rusty Harold: You cannot trust the cloud (via)

Traditional payware like Oracle, Perforce, and Microsoft Office had lockin issues, but at least you controlled the software. Vendors couldn’t (usually) shut you down just because they decided your app no longer fit their business model. Cloud vendors can, and you have little to no recourse when they do.

Boring meetings? Get a canary…

Royal Pingdom: Google Apps SLA loophole allows for major downtime without consequences (via)

Coding Horror: Hardware is Cheap, Programmers are Expensive

Not quite what I had in mind. Oder wie es sich anfühlt, bei Flickr gefeuert zu werden.

Lehman-Chef Richard Fuld: Der Mann, der die Welt in die Knie zwang (via)

The 10 Coolest Open Source Products Of 2008 – inclusive Identi.ca/laconi.ca (via Cem)

InformationWeek mit dem CTO of the Year: Werner Vogels von Amazon. (via Dave). Gratulation!

Drei Posts von Garr:

• 2009: The year of “the designful company”

• Moving to higher ground: Lessons from the art of jazz (part I) – das Buch kommt auf die Wunschliste

• 10 rules for making good design

10 design rules to keep in mind
(1) Communicate — don’t decorate.
(2) Speak with a visual voice.
(3) Use two typeface families maximum. OK, maybe three.
(4) Pick colors on purpose.
(5) If you can do it with less, then do it.
(6) Negative space is magical — create it, don’t just fill it up!
(7) Treat the type as image, as though it’s just as important.
(8) Be universal; remember that it’s not about you.
(9) Be decisive. Do it on purpose — or don’t do it at all.
(10) Symmetry is the ultimate evil.

Robert Scoble polarisiert ja recht häufig, trotzdem (oder gerade deshalb) zwei Posts von ihm:

• Does Microsoft have a speed problem?
• Guy Kawasaki says outrageous things about Twitter

Alex Payne von Twitter:  How I Use TextMate

Dare kommentiert einen Artikel von Jeff Atwood: The Myth of the Open Source Business Model Sein Ergebnis:

There are basically three business models for companies that make money from Open Source software, they are

1. Selling support, consulting and related services for the “free” software (aka the professional open source business model ) – RedHat
2. Dual license the code and then sell traditional software licenses to enterprise customers who are scared of the GPL – MySQL AB
3. Build a proprietary Web application powered by Open Source software – Google

As you scan this list, it should be clear that none of these business models actually involves making money directly from selling only the software. This is problematic for developers of shrinkwrapped, consumer software such as games because none of the aforementioned business models actually works well for them.

For developers of shrinkwrapped software, Open Source only turns piracy from a problem into a benefit if you’re willing to forego building consumer software and you have software that is either too complicated to use without handholding OR you can scare a large percentage of your customers into buying traditional software licenses by using the GPL instead of the BSDL.

Peter Thomas in der FAZ über Tilt-Shift-Objektive: Wie scharf ist das denn. Dazu den hervorragenden Post von Benedikt Hotze über Architekturfotografie mit Kleinbildkamera und Shiftobjektiv

Brent Simmons über Browser CPU usage:

The thing is, web developers should test their pages for CPU usage the same as app developers do. And anytime a page is idle, CPU usage should be at 0%. Same as with any other app.

eWeek: IBM Virtual Desktop Bundles Lotus, Ubuntu Linux to Freeze Out Microsoft (via)

Phil Fersht: Emerging from the rubble of 2008: BPO has a breakthrough year

Charles Miller: My 2008 end-of-year tech stock tips. (via)

A comment thread on a blog post I can no longer find a link to saw a rosy future for Microsoft because they spend nine times as much on research and development as Apple. There’s the problem. Microsoft pour R&D money into multi-touch interfaces and come up with a table that is relegated to tech demos and gimmicky election coverage. Apple put R&D money into multi-touch and produce the frickin’ iPhone.

Of course, Windows 7 will fix everything. We’ve never heard that before.

So, das solls mal gewesen sein. Bleibt nur die Frage, welches Netbook kleine 10″-Laptop ich mir zum rumspielen gönnen soll. Muss ist eine große Platte (160+GB), Aufrüstbarkeit auf 2GB RAM und eine gewisse Robustheit. Los, wer kann was empfehlen?

Tech, Economy and more – in english and german

The End. Michael Lewis on the end of Wall Street as we know it.

Google is also tightening its belt: Google Gears Down for Tougher Times, see also here: Google Cost Cuts Take The Company Away From Its Engineers

Quite some short-term actions:

• A sense of urgency about diversifying the business, which means new priorities include display ads, mobile ads and enterprise software.
• Non-revenue generating products will starve if they’re not killed altogether. Project the company is just “fiddling with,” Schmidt told the WSJ will get “will get “naturally smaller as people get plucked off.”
• Reigning confusion. One Google  current operations manager told the Journal: “It’s not exactly clear where that bottom line is now. I don’t think they know that either.”
• Dispirited engineers. Google no longer belongs to the dreamy engineers and it’s going to make them feel bad. Quoth the Journal: “Some engineers complain they can no longer tap the employees and machines they need to develop their ideas. This is no small issue among elite programmers, many of whom joined the company for the chance to work on such projects, according to current and former employees.”
• Cramped quarters. Google will close offices in Dallas and Denver.
• Shutting off services. Search sandbox SearchMash, virtual world Lively and Google Page Creator will soon be gone. Google Audio Indexing and Google Notebook could follow.
• More grunt work. Google wants to “significantly” cut its 10,000 its contractor workforce and somebody has to pick up the slack.

possibly related: 10 Resources for Beginning Freelancers

I mentioned already twice reviews of Malcolm Caldwells Outliers. Garr has a look on Malcoms presentation style. Spend the time, it´s worthwile.

This is just fantastic. Queen Rania of Jordania in her acceptance speech explaining why she has launched her channel on Youtube, Letterman Style. Awesome. (via)

BTW, Joi has married today. Congratulations and all the best for you!

Honestly, I get a bit tired of all the “Green Computing” meme going around. And while I like basically the concept, I do not like the notion used in this particular context, but the new Lotus Domino attachment and object service (DAOS) looks quite interesting. (via and via).

Und noch ein paar Links in Deutsch:

Spreeblick mit ein paar Ergebnissen einer Studie über das politische Verhalten von Migrantengruppen im Internet: Migranten im Netz

Ein Interview mit Henning Kagermann im Handelsblatt: „Die Welt wird anders aussehen“

Do´s and dont´s auf der Weihnachtsfeier im Büro: Eine folgenschwere Party – aber das wisst ihr ja schon 😉

Ich gehe auf die re:publica’09 vom 1.-3.April 2009 in Berlin. Das Thema: Shift happens

2008 Latest Edition – Did You Know 3.0 – From Meeting in Rome this Year

Links on a grey Tuesday

Looking outside the window you get the impression today that it is already late afternoon. But its only 14.45. Early December, after all.

Two examples why it is always worth to have a look at Garr´s PresentationZen:

• Kinetic typography used to present The Girl Effect

• Kinetic typography: more examples

Lifehacker on GMail´s Canned Responses: Which Emails Should You Standardize?

The year is coming to an end and many salespeople have to make their budget. Vinnie on Top 10 Stupid Salespeople Tricks – a Rerun. Consider yourself warned.

Erick Mack and David Allen are preparing their Lotusphere session. Interesting to listen to the Podcast: Listen in as David and I discuss Notes and Lotusphere 2009

Blogger Obiutary: Doris Dungey, Prescient Finance Blogger, Dies at 47

The Aardvark no longer speaks. (via)

Joel Spolsky on his style of leadership: How Hard Could It Be? Recommended!

Wired: How Gadgets Helped Mumbai Attackers

Coding Horror: Tending your software garden

I had mentioned Dave´s post on listening lately, but there is more: Jay Rosen in an interesting thread on Friendfeed, where journalists argue why they do not listen to users. And Dave again: If you never listen you never learn. Full ack.

WebWorkerDaily reminds to take the Time to Think Twice About Free.

Powers of Empathy. Read the post and figure out, whose words are looked at. (via)

Looking to 2009: Phil Fersht chatting with Peter Allen of TPI

Another post by 37signals on their use of Amazon EC2: Using the EC2 environment for fewer moving parts

Und noch ein paar für die deutschsprachigen Leser:

Selbsttest – Welche Bürotypen nerven Sie? (via)

Alle Jahre wieder: Der verflixte Resturlaub

Wednesday lunch buffet

A couple of small picks from the great Internet buffet, easy to digest, with good nutrition for your brain:

• A take on typography by Eyolf Østrem in his blog things twice, comparing LaTeX vs. Word vs. Writer. Good stuff.
• Not many Nobel laureates have a own blog, but Paul Krugman is always worth a read: The Conscience of a Liberal
• ChiefHomeOfficer.com linking to an interview with Guy Kawasaki. Guy admitting a mistake he made  years ago when asked to interview to be the first CEO of Yahoo! about 15 years ago. Guy said that with his second child on the way, he didn’t want to drive two hours round trip each day. He turned them down.
  

  If I had taken the interview and gotten the job, I would have made $2 billion and not be up at 5am doing radio interviews…

  Agreed. But I guess he is also well off, even without $2 billion 😉

• Technorati taking drastic measures in the current financial crisis. Well, Loic had to do this already a couple of weeks ago at Seesmic, but this does not make it better.
• What happens if a product delivered as SaaS is discontinued? Figure out yourself if you are using I want Sandy or Stikkit. Not due to the fact that the company is hosed or run out of money, but because the founder and mastermind, Rael Dornfest has been hired by Twitter and has decided that values of n, his company is shutting down the products. Not that I have an answer, but are alternatives available? (via)

Facts do not cease to exist because they’re ignored

Finally took the time to watch the lecture of Dr. Albert Bartlett on Arithmetic, Population and Energy that Volker mentioned a couple of weeks ago.

Dr. Bartlett examines the arithmetic of steady growth, continued over modest periods of time, in a finite environment and applies these concepts to populations and to fossil fuels such as petroleum and coal:

It’s a great pleasure to be here, and to have a chance just to share with you some very simple ideas about the problems we’re facing. Some of these problems are local, some are national, some are global.

They’re all tied together. They’re tied together by arithmetic, and the arithmetic isn’t very difficult. What I hope to do is, I hope to be able to convince you that the greatest shortcoming of the human race is our inability to understand the exponential function.

…

What’s the first law of sustainability? You’ve heard thousands of people talking endlessly about sustainability; did they ever tell you the first law? Here it is: population growth and/or growth in the rates of consumption of resources cannot be sustained.

…

Now, you are important people because you can think. If there’s anything that is in short supply in the world today, it’s people who are willing to think. So here’s a challenge. Can you think of any problem, on any scale, from microscopic to global, whose long term solution is in any demonstratable way, aided, assisted, or advanced by having larger populations in our local levels, state levels, national level, or global level? Can you think of anything that can get better if we crowd more people into our cities, our towns, into our state, our nation, or on this earth?

…

So I hope I’ve made a reasonable case for my opening statement, that I think the greatest shortcoming of the human race is our inability to understand this very simple arithmetic.

Transcript – watch the 8 parts on Youtube: 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8

Take the time, it is a brilliant lecture that is quite eye-opening. Especially when you look at what arguments politicians throw at us sometimes when talking about growth.

Foresight

Nice interview of Nassim Nicholas Taleb by Lloyd Grove (via Bruce Schneier) for Portfolio.com.

Seems that the writing on the wall was quite early to be seen:

N.N.T.: Yeah, I only do things where there’s a natural stimulation. I had no natural stimulation to sit in a meeting, so I would not sit in a meeting, and that has worked for me. I want to free up the time to think—that requires the details in my reading and my writing and thinking. Enjoyable activities. When I’m writing, if I get bored, I’ll stop immediately, mid-sentence, that’s it, I don’t write anything that bores me…You have a copy of The Black Swan? Let me show you, I think I have it here, page 225, in the footnote. Read it.

L.G: [Reads] “Likewise, the government-sponsored institution Fannie Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry, their large staff of scientists deem these events ‘unlikely.'”

N.N.T: That’s the central point. The rest is noise.

L.G.: You wrote that footnote in 2005?

N.N.T: Yes, but actually I saw their positions in 2003, when a very smart journalist, Alex Berenson of the New York Times, came to me and said, Can I show you the risk of Fannie Mae? When I saw it, I almost choked. [In Berenson’s August 2003 article, Taleb was quoted as saying Fannie Mae and other major holders of mortgages and mortgage-backed securities chronically underestimate the odds of a big move in interest rates that could decimate the value of their portfolios, over-relying on computer models that don’t account for rare but devastating events, i.e. black swans. “The fact that they have not blown up in the past doesn’t mean that they’re not going to blow up in the future. The math is bogus,” he told the Times.]

The rest of the interview is also worthwile reading.

I have the book for a while on my Amazon wishlist, but now I´m gonna order it. Finally.