Archive for March, 2009

I *thought* I understood what credit default swaps (CDS) were all about and the role they played in the collapse of our financial markets. But thanks to a terrific interview by Terry Gross, it’s finally really clicked me. On a recent edition of Fresh Air, Frank Partnoy did a great job of explaining it.

I knew that CDSs are essentially bets placed on so-called securitized mortgages. Specifically, a CDS is like a short sale. It’s a bet that a mortgage or (more accurately) a portion of a bundle of mortgages will default and not be paid back.   The underwriter of the CDS (an AIG for example) is essentially betting against you and has to pay you if the loans are not repaid. It’s obviously a lot more complex than that, since why would you buy something from a company that only made money when your investment turned out not to be a good one. (Why? It’s like placing a bet with a bookie. There’s supposed to be another gambler on the other side. If not, the bookie has to make good, paying for his risk out of the difference in the spreads.)

But here’s the important new insight I learned from Partnoy. These really are bets and the reason they’ve brought down our econoy is that there’s no limit to the number of bets that can be placed on a single underlying mortgage or traunch. As a simplistic example, for a $300,000 mortgage AIG can sell as many bets as it wants. Since the bets aren’t backed by the mortgage itself, let alone the collateral (the real estate), there could be tens of millions of dollars riding on that single mortgage. It’s not just the kind of leverage we’re used to in which you borrow money in order to make ore investments. No, these aren’t “investments* — they’re *bets*. And just like in Las Vegas, the amount that can be bet on something isn’t limited by the value of that thing. IOW, all of these bailouts are in order to cover the losses of bookies and to make sure that those who gambled get their payoffs.

Partnoy also explains how it came to be that Bill Clinton signed the deregulation that got us into this mess in December of 2000. It’s fascinating in a sick and twisted way. I actually look forward to learning more as more books are published over the coming years.

You know those “dealer options” offered when you buy a car? Things like rust-proofing and paint sealant? They’re totally unnecessary, of course, but they’re a significant revenue source for the dealers and the salespeople. They’re pitched as last-minute impulse-buy items, appealing to your fears and desire to get out the door.

I’ve owned or leased four Lexus cars, the current one being a 13-year old environmentally incorrect honkin’ V8 LS400 cruiser. (Our other car is a Prius.) Great cars. Until now I’ve had most maintenance other than oil changes, batteries and tires done at the local Lexus dealership. They’re expensive, but the service is good, fast, courteous and generally honest. Last week a radiator hose broke and I had to have the car towed to the dealership: a $13.40 part plus $145.00 for labor. Okay, that’s a lot of labor to replace a hose, but I’m okay with it.

But when when the service rep called after the initial inspection, he also pitched three other items. The latter two were described as “dealer-recommended items.”

• Replace the valve-cover gaskets.
• Annual “de-carbonizing”. [Flash video]
• Power-steering flush. [Flash video]

So the impulse/ripoff options have now made their way to Lexus service departments. Leaky valve-cover gaskets are to be expected on a 13-year old engine, and they’re not much of a problem. A little bit of oil oozes out and possibly drips onto the exhaust manifold, but at $900+ I can wait. Okay, thanks for noticing but I’ll pass. No harm in suggesting this one. But it’s those last two items that annoy me. Of course injectors need to be cleaned, but I’d be surprised if that isn’t covered by regular Lexus maintenance, which is very thorough. Same for the power-steering system.

Watch the Flash videos. Notice anything unusual? First, they’re not Lexus branded. Hmmm. Second, look at the URL. They’re from a site called Liqqid Express, which offers the headline “Featuring Online Menu Selling for the Service Department.” Another hmmm. Clearly, this is all about selling not service. Each of these services was quoted to me in the $100 range.

I complained to the service director who replied in email “…Both of those services are of value to our customers; that is why every Lexus dealer in the [San Francisco] bay area offers these services…There are many services that are good ideas for your car that are not in the manual. Lexus puts the minimum requirements in the owner’s manual for maintenance that is due on these cars…”

I don’t know if it’s still the case, but Lexus (corporate) used to be extremely fussy about quality dealerships and service departments. The survey they send out after every service appointment can (or could) cause a lot of grief for the dealership. I plan to voice my concerns to Lexus when I receive my next survey. If, as the local service director says, this is something that is going on all over the bay area, I wonder if it’s approved or at least sanctioned by corporate Lexus. I’ll be interested in their response.

In any case, I plan to look for another shop to perform maintenance in the future.

Yesterday YouTube launched YouTube EDU, featuring videos of lectures from more than one hundred colleges and universities. As of a few minutes ago we’ve imported 6,216 individual videos and added a YouTube EDU widget to the SpokenWord.org homepage.

I’m a huge Paul Krugman fan, and today’s column (The Market Mystique) may be one of his most important.

Even during the “go-go years,” the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P…On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s.

Obama’s team is composed of the wrong people focused on the wrong task. Rather than protect “the economy” they’re trying to protect the financial services industry because that’s where they came from and what they know. It’s a case of the Innovator’s Dilemma: they’re trying to change a system from the inside. It won’t work.

If you don’t believe it’s the same old people, just read Congress Passes Wide-Ranging Bill Easing Bank Laws from the NY TImes nearly ten years ago. [Thanks, Warren.] It’s spooky.

“Today [November 1999] Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

Lawrence H. Summers is now Director of Obama’s Economic Council.

As surprisingly few experts have said — indeed, Obama himself has hinted at — we need to shrink the financial services industry. As a society we need to devalue the institutionalized gambling (highly leveraged risk taking) and we need to make it less attractive to make money by playing with money as opposed to creating real value. That’s not easy to do, of course, but one way is as a byproduct of regulation. It’s a governor; a throttle. If we make it harder for people to make money by placing big bets with our money, fewer people will do so. Krugman says:

But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.

As another example of where our government is focused, consider interest rates. An illiquid bank can borrow money from the Fed at less than 1%. But that bank is allowed to charge you and me, who are likely better credit risks than the bank itself, more than 20%. U.S. credit-card debt now exceeds $1 trillion. If the Congress really wants to fix the economy by helping people repay their mortgages and student loans, why don’t they address these usury practices? Could it be because they’re trying to protect our financial institutions rather than the people? Surprisingly, I find myself agreeing with many conservatives who are against all these bailouts. Maybe we should just let the whole thing collapse and make a fresh start of it all. It might be the better decision in the long run. And it might happen anyway, exacerbated by the loss of $2+ trillion in bailouts and stimulus.

Thanks to 452 survey responses to date, we again have some terrific feedback. Most of it wouldn’t interest you, but the demographic data remain fascinating. Listeners to The Conversations Network:

• 90% are male
• 59% are at least 40 years old
• 42% have a Masters degree or better (Still blows me away.)
• 39% have household incomes of US$100,000 or more
• 55% are in the U.S.

Initial thoughts on a search API for SpokenWord.org here. Comments? Use the forum.

Over the next hour we’ll be adding virtually the entire audiobook catalog (close to 40,000 titles) from Audible.com to SpokenWord.org. You can listen to free MP3 previews on SpokenWord.org and if you like what you hear, you can click through to Audible.com’s site to purchase the complete audiobook.

Why did we decide to include programs that are only available with usage restrictions or DRM (digital-resource management) from sources such as Audible.com? Two reasons: (1) We want to be a source for all spoken-word recordings; and (2) We receive affiliate-program commissions from vendors, which helps us bring you SpokenWord.org for free. We recognize that the inclusion of fee/DRM content is controversial and we’re trying to do so with full transparency.

Before launching this feature we discussed it at length internally. We also surveyed the members of The Conversations Network, 89% of whom told us they wanted us to include commercial/DRM programs so long as we made it clear what was free and what wasn’t and so long as commercial/DRM programs didn’t become a majority of the site. If you believe our presentation of these programs is in appropriate, please join our discussion. We’re always trying to improve the content and presentation.

My Kindle 2 arrived while I was away for a few weeks. Just unboxed it. In a word: Yes. The new Kindle addresses virtually every complaint I had with my 1.0 Kindle. And it’s sooo much lighter than my Sony PRS-505. Hooray.

Just a week after crossing the 1,000-member threshold, SpokenWord.org has set a new record, at least for itself. As of an hour ago we’ve got 100,000 spoken-word audio and video programs in our database.

Over on the discussion mailinglist from AIR (The Association of Independents in Radio), we’re revisiting the recurring discussion about RMS levels in spoken-word audio files. Two days ago Gregg McVicar asked: “So what was the RMS value that you found to be the sweet spot for podcasts?”

Unfortunately, it’s a very complex answer. I’m not trying to be elusive or secretive. It really is complex. There isn’t a single value that works for even two different audio-editor applications let alone all of them. If I posted a realistic spoken-word .wav file and said, “this is standard,” and then you measured the RMS level of that track in various apps such as Pro Tools, Sound Forge, Soundtrack Pro, etc., each app would give you a different value. (Try it!)

The reason is ‘silence’. Each application has a different way of excluding segments of silence from the RMS calculation. In fact some of the most-expensive utilities don’t exclude silence at all, rendering them virtually useless for this aspect of spoken-word processing. (Is one recording half as loud as another because the speaker in the first one pauses twice as long between words?)

So the answer to Gregg’s question is that The Levelator adjusts speech to -18.0dB RMS, but that isn’t a value you can plug into any other program. If you are looking for an answer relative to your audio-processor of choice, the best way is to run a real-world program through The Levelator then measure the resulting RMS level using your software. The level your application reports as the RMS level is *your* answer to what we’ve found to be the sweetspot for podcast RMS levels.

Personally, I love the discussion of RMS levels, particularly because it’s so full of prejudices and misinformation. But I’m sure it’s not as interesting to many other people. It’s a problem I’ve worked on personally for some time, and I continue to geek out on it. If you share my passion on the topic, or if you want to know more about how The Levelator deals with RMS levels, you may enjoy a page I just posted entitled The Levelator™ Loudness Algorithms.  I would have posted this earlier, but I wanted to first run it by Bruce Sharpe, our resident math professor and designer of The Levelator’s algorithms. I’m just the concept guy on this one.

I’m starting to think about the APIs for SpokenWord.org. I’ve posted my early thoughts on our forums in the hope of generating a conversations with developers who might use them.

The greatest challenge in keeping SpokenWord.org running on a daily basis is dealing with rogue RSS feeds. We’ve got a bit over 3,000 feeds at the moment, most of which are being scanned every hour. But I just checked the admin report, and 27 feeds (nearly 1%) have been disabled for one reason or another.

For those of you in control of your feeds, here are some of the problems we encounter on a regular basis.

• HTTP 404 errors. If your server isn’t accessible, we can’t read your feed.
• Invalid characters. One bad character in your feed keeps our parser from reading the whole thing.
• Missing GUIDs. Globally Unique IDs (GUIDs) are very important.
• Duplicate GUIDs. (They’re supposed to be Unique!)
• Incorrect MIME types. Should be:
  • application/rss+xml
  • application/atom+xml
  • application/xml
• The following are common, but they’re wrong:
  • text/xml
  • text/plain
  • text/html

The GUID issues deserve more discussion. When you rescan feeds every hour, one of bigest challenges is to figure out if an <item> is old, new or modified. Here’s our logic:

• If we’ve never seen this GUID before, we assume it’s a new <item>.
• If we’ve already ingested an <item> with this GUID, we check all the pertinent elements and attributes for changes.

The GUID allows you to make changes like correcting a spelling error in a title. We see the unchanged GUID, notice that the title has changed, and just replace the title. Without the GUID, we have a helluva time trying to figure out whether an <item> with a one-character change in its title is just that or a whole-new program. We want you to be able to correct your titles, descriptions and media URLs without our system creating a duplicate program. Only your proper use of GUIDs makes that possible.

Once you assign a GUID to a program, never change it. That means never. And make sure your GUIDS are truly globally unique. Using a unique URL from your site as a GUID is a good way to do this. No other site is likely to include http://yourdomain in their GUIDs. And never, never, never reuse a GUID for another program. You’d be amazed at the number of feeds that include the same GUID for more than one <item>. I’ve designed our system to immediately disable any feed in which a duplicate GUID is detected.

As a somewhat defensive move, but also to help those who submit RSS/Atom feeds to SpokenWord.org, I’ve added code that runs submitted feeds through the W3C RSS Validator. We’ll accept Warnings, but if your feed generates Errors from the validator, we will reject it. My next step is to likewise call the W3C validator when we encounter a problem and to after-the-fact disable feeds that don’t validate.

Okay, so Lucas is gonna kill me for the comparison, but is it just coincidence that only three weeks after Muzak filed for bankrupcy, Lucas Gonze launched his new site, Fresh Hot Radio? I think not. Lucas is one of those true web pioneers who’s always a few steps ahead of the rest of us, so I’m not sure I yet understand all the implications of his new site. It’s subversively simple. Open it in a web browser tab or new window and listen to the music. That’s it. Options? Nope. It’s not a stream — all the files are played using Flash from their original locations — but it plays like one, except you can pause and skip. It’s Lucas’ personally curated music. There’s no social-networking facility. It’s just for you. You can, however, click through to the source of each song to explore further. Think of discovering new up-tempo music and he artists who create it.

I look forward to the day when all elevators are playing Fresh Hot Radio instead of that Muzak stuff.

Just passed a milestone: 1,000 registered members on SpokenWord.org. And we’ve got nearly 100,000 programs and book chapters in the database. And it’s stil working.

I haven’t tested it yet, but there’s a lot of buzz about SILK, a new high-quality voice codec for Skype. If it’s as good as the gossip suggests, it’s going to invalidate some of the information in our Skype for Interviews video.

A few weeks ago we started using an online service, Kampyle.com, for all The Conversations Network’s web sites including SpokenWord.org. Kampyle.com is one of those services like Google Analytics and ShareThis.com: They do one relatively small thing and they do it very well. In the case of Kampyle.com, it’s website or application-software feedback. On SpokenWord.org, for example, you’ll notice the yellow triangle that always floats in the lower-right corner of your browser. Click it, and you get a convenient form for sending us feedback, reporting a bug, etc. From the user’s perspective, it couldn’t be much easier. But the real magic is on our side. For example, here’s just some of the metadata we get from Kampyle.com when you report a problem:

For debugging a web site, this is invaluable. It typically saves us at least one complete email exchange with someone reporting a problem. No longer do we have to ask, “What OS and browser are you using?” Given that we’re still at the stage where we have a fair number of JavaScript and CSS problems, this alone has made deploying Kampyle.com worthwhile. In fact, I was initialy concerned that adding a floating widget to our pages would itself create CSS nightmares, but my fears have proven unfounded. We’re not getting ay complaints about it. And ever since we added the Kampyle.com widget, our website feedback has increased about 400%. I only wish we’d had it avaialble during our alpha-test. Very cool.

We just added the entire audiobook catalog from Podiobooks.com to SpokenWord.org. That picked up 6,087 chapters from 284 books, with more being added every day. You’ll find one of the most-recent Podiobooks on our home page or you can browse the entire collection. Special thanks to Ray, Evo, Chris and Tee for creating a great site and for making it so easy to pull in their catalog.

We’ve only been running our annual survey for a few days, but we’ve already had 389 responses. Some early highlights:

• 47% use iTunes on OS X or Windows.
• 63% subscribe to one or more of our RSS feeds.
• 89% are male.
• 41% have a Master’s degree or higher. (This has been consistent year after year and still surprises me.)
• 55% are in the U.S.
• 38% didn’t realize The Conversations Network was a 501(c)(3) nonprofit.