Global Guerrillas

THE MORTGAGE FIASCO IN SIMPLE TERMS

Here's a quick, down and dirty synopsis of what is going on in the US mortgage industry from everything I've read.  It's an early read of the situation, but I think it explains why many, if not most, mortgages in the US are now worthless scraps of paper.

Traditional mortgages are simply contract between you and your local bank:

• You agree to pay a certain amount every month (principal + interest) until the loan is paid off.
• Your home (the title) is collateral on that loan.
• If you don't pay the amount specified, your home is forfeit.

However, global banks wanted to take these dull mortgages and turn them into something institutional investors could purchase.  So, they developed a complex process to do this.

First, they sold the loans to the institutional investors (as securities that they are allowed to purchase according to their charters) by removing the collateral, your home, from the loan.  

Second, they were supposed to send the collateral to a special reserve in case they needed it.  To put it into this reserve (the trust) a complex process was developed that complied with the myriad rules controlling real estate (state, interstate commerce, etc.).  This process was supposed to be done in a specified time and a specified way in order to be legal.

However, the process of dealing with the collateral was so complicated/expensive the global banks didn't do it.  The collateral was NEVER attached.  So, the loans that were sold to investors became ONLY this:

• You agree to pay a certain amount every month (principal + interest) until the loan is paid off.

Note that there's nothing more to this loan.  No collateral.  No penalty for non-payment.  It's worthless.

Thing is, this isn't a paperwork error.  It's gross negligence, on the bank's part, that materially altered the relationship between you and the new owner of the loan.  Once the collateral was removed from the loan, it can't be reattached.  Your title can't be attach to any loan without your consent.  To do otherwise is theft, and that's exactly what every lawyer from here to timbuktu will be arguing.  

Of course, that's not going stop the banks from trying to "fix" this.  They've already tried fraudulently manufacturing paperwork to claim the title was properly sent to the reserve.  They got found out and foreclosures were stopped across the country.  Expect similar behavior in Congress and in the press.  

EXAMPLE: Networked Start-ups

Here's a great example of how the Maker Revolution in combination with global economic networks can become an engine of economic growth for resilient communities.   

The example is a new "start-up" that is "selling" a product called the Glif.  Essentially, it's a small piece of plastic that allows you to mount your iPhone 4 on a tripod.  It solves a niche problem quite nicely.  

To build it.  The team ( Thomas Gerhardt and Dan Provost) did their research and product development on their own (a labor of love).  They also printed a 3D plastic prototype.  To raise money for low cost per unit (and likely higher quality at this juncture) injection molding ($10 k fixed cost set-up), they turned to Kickstarter for funding.  

It has been an unqualified success, selling nearly 4,000 units for about $100 k in revenue.

Some items of note:

• The network of potential customers funds the effort.  It cuts out the expensive overhead of banks/venture capitalists. The network is also the retail outlet, not Amazon, during the early phase (saves $$).  Improved versions of this type of economic network could push this process to new heights.
• The development and production is potentially hyper local (more so if the final product was printed in 3D also).  Local hackerspaces are perfect for seeding this.

AUTOMATING THE MAKER REVOLUTION

Open source hardware is taking off.  Hackerspaces are spreading like wildfire (we'll see thousands, potentially tens of thousands, of these spring up in the next five years). To help this revolution zoom, we need an online system that standardizes and simplifies the description of the processes used to make the hardware.  For example:  Marcin over at openfarmtech has composed a replication document for partners developing the LifeTrac II open source tractor (see inset pic). It's a great effort, but so much more should be done.

So, what would a new system look like? Some ideas (drawn from a very similar system my team and I built 5 years ago -- it enabled globally decentralized printing of complex documents with exacting levels of quality):

• Specification standardization and conversion to standards.  Quality checks on the files to ensure completeness.  
• Process automation to simplify production.  Step 1, 2, 3, etc.  This could even include a ticketing system so more than one group could coordinate their activity.
• Bundles of automated quality control processes to ensure that the steps in the production process are done correctly.
• Lots more...

So, for anyone ready to get in front of the MAKER REVOLUTION (akin to the agricultural and industrial revolutions), this is the project for you (or me, if someone wants to fund it).  

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Adafruit Industries (a maker company) adds:  There are a few options…

• Wikis of all shapes and sizes (we like dokuwiki)
• Instructables
• Make: Projects

The big challenge is making documentation as part of the product and project. Each summer we’re asked if we have interns or jobs available and each year we say “document some projects you’ve made and send us links” – unfortunately not many have rallied to do this.

Twitter: @johnrobb

Spending some time on Twitter again (it's been years).  

JOURNAL: Financial Meltdown 2011?

Josh Rosner, a well respected banking analyst (via Naked Capitalism).  He maintains:  What if nearly all of the mortgages that were securitized (mortgage loans that were bundled and sold as securities) over the last decade are actually unsecured or worthless paper?  A couple court cases forced by actions like this, could set off the stampede.  

For more detail check out Yves (the author of Naked Capitalism) on BNN.  With mortgage securitization, the entire system of distrust created by transactional morality is being hoisted on the petard of its own complexity and greed.

JOURNAL: Open Source Jihad

A resource manual for those who loathe tyrants… a disaster for the repressive imperialistic nations:the open source jihad is America's worst nightmare.  Al Qaeda's stated goal for Inspire. 

Al Qaeda in the Arabian Peninsula put out a magazine this summer called Inspire.  It's a slick glossy e-zine. What really makes it interesting isn't how slick the magazine is.  Instead, it is the purpose of the magazine: to promote "open source jihad" by providing readers with the tools they need to plan, motivate, organize, and pull off effective attacks against Western targets (i.e. specifics on recipes for bombs that don't use controlled substances and how to's on secure Interent communications via the software Asrar Al-Mujahideen).

This is yet another example of how young, innovative insurgents around the world are embracing open source warfare (OSW).  

JOURNAL: Moral Decay?

Moral decay is often cited as a reason for why empires/civilizations collapse.  The slow failure of the US mortgage market, the largest debt market in the world and the shining jewel of the US economic/financial system, is  a good example of moral decay at work.  

Why is this market failing?  It's being gutted -- from wholesale fraud and ruthless profiteering at the bank/servicer level to strategic defaults at the homeowner level -- because a relatively efficient and effective moral system is being replaced by a burdensome and ineffective one.  What shift?  Our previous moral system featured trust, loyalty, reputation, responsibility, belief, fairness, etc.   While these features were sometimes in short supply, on the whole it provided us with an underlying and nearly costless structure to our social and economic interactions.  

Our new moral system is that of the dominant global marketplace.  This new system emphasizes transactional, short-term interactions rather than long-term relationships.  All interactions are intensely legalistic, as in: nothing is assumed except what is spelled out in the contract.  Goodness is solely based on transactional success and therefore anything goes, as long as you don't get punished for it.  

In this moral system, every social and economic interaction becomes increasingly costly due to a need to contractually defend yourself against cheating, fraud, and theft.  Worse, when legalistic punishment is absent/lax, rampant looting and fraud occurs.  

Given the costs and dangers of moral decay, it's not hard to see why it can cause a complex empire/civilization to collapse.

JOURNAL: Weak Social Networks?

Social networks are effective at increasing participation—by lessening the level of motivation that participation requires....   Facebook activism succeeds not by motivating people to make a real sacrifice but by motivating them to do the things that people do when they are not motivated enough to make a real sacrifice.  Malcolm Gladwell's recent article (Small Change) in the New Yorker (where he contrasts the +/- of weak tie networks with hierarchies).

In abstract, weak tie networks do have deficiencies: they don't provide enough motivation for risky action and they often lack strategic coherence.   However, in the real world, solutions to these problems are already evolving.  Some we've already seen include:

• Lots of small, local networks with strong ties between individuals embedded within a much larger weak tie network (we've seen this in the open source insurgencies in Iraq and Afghanistan).  
• Light coordinating networks that are limited to enabling strategy and conducting public relations for a larger weak tie network (MEND, Tea Party, 4Chan, Wikileaks, al Qaeda, Linux, etc.).
• Disruptive methods of attack that are easy for participants in weak tie networks to put into play.

No silver bullet yet, but this is a process in evolution.

NOTE:  I think the problems Gladwell cites have more to do with the death of protest movements as a means of social change than any deficiencies seen in weak tie networks.

JOURNAL: Social Media Insurgency

Here's an interesting social media insurgency called "Rethink Afghanistan." It's a combination of a blog site with movie clips and a Facebook group that's already generated ~48 k likes.  As part of this effort, it's taking effective aim at Petraeus.  

On a similar note here's an article about "brand jacking." Fernando Motolese, a creator of viral videos, recently approached French food giant Danone (known as Dannon in the United States) with an unusual proposition. He had filmed a gross-out humor video about the gastrointestinal effects of Danone's Activia yogurt, and he intended to release it on the Internet. Would Danone pay him a few pennies each time the video got viewed? If not, Motolese said, he might upload an even more offensive spoof.

THE NEXT SOCIAL NETWORKING JUGGERNAUT

Some fun thoughts about social networks (a side benefit of having spent the last couple of months up to my eyeballs in social networking data).  It may or may not be useful.

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Up until now, Facebook and Twitter have just been riffs on blogs. These networks are pretty much dealing the same ideas the community building blogging software was talking about back in 2001.*  Essentially:  blogs + RSS (really simple syndication) = knowledge/social networks for organizations.  Another similar approach is what LiveJournal was doing with teenagers.

The above implies that the real next generation of social networks (2.0) is not just more of the same.  That revolution has passed.  It's something else entirely.  So what is it?  My belief is that this next phase is going to be driven by the following: a combination of software that makes group formation/mx easy and online gaming,

A sign that at least part of this is on the right track: Facebook has just jumped into this area with some new grouping features that they think is critical to their future.

Here's a restatement of the opportunity to turn Facebook into the equivalent of AltaVista/Yahoo of social networking:

• Software that makes grouping easy... from initial recruitment, first member recognition, rules for behavior, enforcement, goals, and reward allocation. Everything you need to build a group that operates as a club, a tribe, or a company. 
• Open MMOG (massively multiplayer online game) functionality.  Basically, a set of functionality that enables people to build their own games on the network.  As in:  You get points for....  Your quest is..  Your reward is....   This gets even more interesting if you believe, as I do, that all real world social networks (like the global economy) are just poorly written MMGs (massively multiplayer games) with obscure/hidden/rigged rules.
• To really do this right, by avoiding cognitive slavery and zooming the platform to new levels: the entire platform should be owned in large part by the users.  Make the users of the platform financial partners (based on their participation) and this could turn into something that gives modern capitalism a run for its money.

* NOTE:  As an example of some early (albeit clunky) thinking on social networks, read some the posts I made to my old k-logs group during 2001 thru 03. K-Logs (knowledge management weblogs) was a relatively influential discussion group back in the early days of social networking, when there were only a couple of hundred (soon a couple of thousand) of us in the blogging universe (I'm not claiming any prescience on this, only noting the similarity).

LINKS: 7 OCTOBER 2010

The posts have been MUCH slower than usual since the summer.  I've been working on a new product.  It's very close to release, so I can start to ramp up the posts again.

Here's some random items of interest:

• Latitude.  An interesting presentation on the "Sharing Economy."  Nice thinking. People are most interested in sharing infrequent-use items that have a high barrier to ownership or a high burden of ownership. Cut that premise into a MMOG economy and something interesting will happen....
• Michigan to make it illegal for people to build farms on their land in Detroit?
• Naked Capitalism gets hit by DDoS attacks. The logfiles show massive traffic spikes. So I guess I’m annoying people who like fighting dirty.  This is pPotentially due to the author's relentless coverage of rampant fraud in the US mortgage market, which is the biggest debt market in the world. Fraud on this scale is only rivaled by what we saw in Russia after the collapse of the USSR.  This is very similar to the situation Orlov anticipated.
• Resilient tech:  Growing plastic.  Eben Bayer: Are mushrooms the new plastic? While our approach appears less sophisticated than plastics, living cells should be considered fantastic near nano-tech type assemblers. The mycelium we use in our process transforms ag-byproducts into a natural polymer, and it does it at room temperature & pressure & at any scale. The plastics industry requires supply chains that stretch around the world and giant facilities to perform the same feat.  Eben Bayer on Twitter.
• America's path to permanent war.  Andrew Bacevich's MIT lecture on his new book:  Washington Rules
• Globalization and modularity:  Modularity is a characteristic of healthy ecosystems.  The global economy works against modular structures (hmm, sounds like yet another refutation of Ricardo).
• 3D printing can handle even large parts.  Printing all of the parts required for a custom car or aircraft is not that far away. 
• The US and Shell get Henry in South Africa.
• Damon Vrabel.  The US is spending all of its money fighting the wrong enemy. The "War on Terror" has become the most successful military diversion in history, having lasted twice as long as WWII so far. While the US and other countries are under severe attack by financial powers through the corporate system and the currency and bond markets, the US military is convinced that people living in remote deserts are the threat.  Shades of the losing side in the cold war. 

LINKS: 28 SEPTEMBER 2010

Some random items of interest:

• Crime wars from CNAS.  This report aside:  Has the beltway's CNAS become the McDonalds of military theory?  
• Interesting data/analysis on mass murders.   ...the trough in the mass murder rate during the 1940s and 50s may have been due to the upsurge in pro-social indicators like marriage, family, jobs, college attendance, home ownership, church attendance and an overall higher standard of living.   NOTE: the opposite of this being:  economic over social/income stratification (10's, 20's, 80's, 90's, 00's).  
• Al Qaeda in Iraq surges.  Baffles "experts (why do we continue to spend the big bucks employing these beltway experts when they get the basics of 21st Century insurgency wrong ?!?).  Here's some more from the article: Each member in a cell of the group, which numbers from 6 to 20 fighters, is trained in a range of specialties. The cell’s leader, or emir, has the authority to plan attacks, often working in concert with other insurgent groups, including Baathists. The organization is designed so that the loss of any individual, including a leader, has as little effect as possible.  NOTE: Why did it resurge?  The same reason for why it declined.  It got too big and aggressive for its partners/competitors in the Sunni open source insurgency.  It became a threat.  As a result, they killed it with US help.  Now that it's rightsized, it fits nicely within the insurgency and is free to grow again.  (hoisted from the comments, thanks)
• Opposition to the establishment of a US Internet blacklist.  Another example is the effort by the US to get backdoors into Internet/wireless communications.  China as the model for the future of the nation-state -- economic dictatorship (the Chinese, at least, delivering economic growth in exchange for this, we just deliver economic growth to the top 1%).
• Flows of Pakistani Taliban.  CBS.
• M. Lotus.  Another look at the Tea Party as an insurgency.  TARP as trigger.
• A short pause in the march towards...  Graber was also charged with possessing a “device primarily useful for the purpose of the surreptitious interception of oral communications" -- as in: having a video camera on a public street.
• HFT as a security risk.  Roderick Jones and Concentric takes a look at high frequency trading.  Nice application of superempowerment for disruption and small group enrichment.
• Data leak at corporate spy? 
• Cogitamus:  we think, therefor we are.  Collaborative knowledge culture and gaming. 
• Micro-entrepreneurial smash.  Colin Brayton is starting a daily newsletter on Brazilian business.  $10-15 a month.  There's still probably an open source business model here for less than english language paper worthy business news (twice daily, 5-7 stories per issue), $25 a month.

JOURNAL: Notes from Underground

Here's some food for thought:  Globalization has brought about an age when the only tests used to judge anyone's behavior are:

• Does it make you money or its equivalent?  The corollary is that the greater the amount of money acquired, the better the behavior is.  
• Did you get away with it?  This test is merely based on legal enforceability (were you caught in a place that matters) and the degree of punishment (will the punishment negate or exceed the benefit of the behavior).  Morality, virtue, ethics, shame, actual legality, etc. aren't considered factors.

Why is this so?  It's the only set of behavioral tests that are globally portable.  As in, we can't agree on anything at a global level except the minimal rules needed to interconnect (which is similar to how the Internet and the Web spread). 

Disagree?    Insets:  the city of Bell, CA and Wall Street Bankers.

COGNITIVE SLAVES

The companies that have created the most new value in the last decade, are Internet companies like Facebook, Google, etc.  They've created hundreds of billions in market value, driven by billions in financial profits.  Good for them, but bad for us.

Why?  IF these companies represent the most valuable new industry of the early 21st Century, where are the jobs that will provide prosperity for millions today, and potentially tens of millions in the future?  They don't exist.  These companies create few real jobs.

The distressing part is that in reality these companies actually employ hundreds of millions of people, particularly young and otherwise un or underemployed superusers.  People that work for them day in and day out for free: finding, sifting, sorting, connecting, building, etc.

Let's take Facebook as an example.  Currently it's valued at ~$25 billion by the market.   However, it could be argued that ~100,000 superusers out of 500 million part time users, are the reason that Facebook is valuable.  They generate the core network that is the backbone of the tool.  Their devoted use, high levels of connectivity, and loyalty forms the engine that grows Facebook, year in and year out.  They are the materials, labor, and product of Facebook's assembly line.  Yet they aren't paid for their effort.  They aren't generating wealth for themselves or their families.  

How much wealth?  If we awarded 4/5 ths of the value of Facebook (and the same exercise could be done with Google at a couple of million superusers) to its superusers, leaving the tool managers $5 billion in value, each superuser would now be worth $200,000 from their contributions to this tool alone.  But they aren't.  They haven't earned a penny for their effort. 

One way to look at this is that we are truly in trouble.  If the industries of the future are based on cognitive slavery, we all lose.  However, as an entrepreneur, an optimist (believe it or not), and a believer in the potential for social/economic improvement, I think this can be corrected.  I believe it's possible to build tools and the companies that manage them, in a way that actually rewards the people that do most of the work.  All we need to do is make it possible.

NOTE:  The use of the term 'slavery' is a literary device akin to the slang 'wage slave."  It implies being compelled to do something against your will due to external pressures.  That pressure is commensurate with the value people place on online social connectivity.  
NOTE2:  Please don't compare this to TV.  TV viewing is passive.  TV viewers don't create, produce, and market the TV shows/content they watch.  

LINKS: 22 SEPTEMBER 2010

Some random items of interest:

• Drug inspection ruse.  Nice.
• High risk Natural Gas pipeline segments in bay area (CA). 
• Stuxnet.  A professional grade software worm that is designed to take control and destroy industrial systems.  It has infected 45,0000 industrial systems worldwide. "Stuxnet is a 100-percent-directed cyber attack aimed at destroying an industrial process in the physical world. This is not about espionage, as some have said. This is a 100 percent sabotage attack." What's interesting is that it is weaponized software aimed at a very specific industrial target. This is a great example of replication (and self-replication) as it applies to open source warfare and systems disruption.  The future of warfare has already happened, most people haven't realized it yet.
• 4Chan attacks the Tea Party.
• 4Chan's "Low Orbit Ion Cannon"  Nice.
• Salon's Leonard:  Bad things happen with high unemployment.
• Measuring the efficiency of black markets.  The price of weed.
• A friend sent me this from the book of Mencius (Chinese Literature): Where the humane and worthy aren't trusted, the state will be hollow and empty. Where ceremony and rightness are lacking, high and low will suffer turmoil. Where affairs lack governance, wealth and goods won't cover expenditures.
• Ushahidi.  Mapping tool for emergency response and decentralized groups.  
• Obama vs. the perpetual war machine.  Woodward's take on why Obama was forced to design his own strategy for Afghanistan.  
• BATMAN program.
• New Google tool shows where traffic is being blocked/censored globally.  Actually, I'd like a URL based tool that shows whether a site is being blocked by corporate/government censorship software.

JOURNAL: Notes on the Tea Party's Open Source Organization

Newcomers "often don't understand how badly we need you to lead the way," he says. "If this is an area of concern to you," he admonishes, "the way the Tea Party Patriots works is that you guys really lead the organization. We're a relatively small group of people who are just trying to help coordinate. We're not in charge; we're not telling anybody what to do. You need to take a leadership role and stand up."  From "How the Tea Party Organizes without Leaders"

Jonathan Rauch over at the National Journal has written an excellent article on the organization of the Tea Party.   As my friend Reihan Salam points out, this article is in a very similar vein to an article I wrote earlier this year on the Tea Party as an open (source) insurgency that formed due to the loss of sovereign legitimacy caused by the financial bail-outs.  There's too much goodness in Jonathan's article to quote, so I strongly recommend that you read it in full. 

NOTE:  I thought it was interesting, that many in the Tea Party leadership are using the business book, "The Starfish and the Spider" as an organizational bible (it does a great job of explaining the basics of open source organizations).  That makes sense, since this movement has modest goals and is operating within a low threat environment.