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The word subprime is hitting world headlines today, as the cause of a global stock market “correction”. I subscribe to various news feeds related to economics, including those belonging to authors Tim Harford (FT), Bob Sutton, and the authors of Freakonomics., so I’ve been hearing the rumblings for some time now. Business Week did a very good article on it, back in March, which is online here. I’d like to give my take on the situation, which should be prefaced with the standard “I Am Not An Economist” disclaimer.

A subprime lender is a financial institution that offers loans to debtors who have poor credit records. They might not use the word subprime here in Europe, but we have them too: the kinds of companies that put ads on cable TV, offering credit to people who have been turned away by banks. These are people who need credit more than most: you get a poor credit record because you took out too much credit in the past, since “too much” is defined as the amount that you can’t pay back.

Unforeseen circumstances can turn a comfortable financial situation nasty, so it’s normal to have insurance of different kinds, to “smooth out” the financial impact of unforeseen events. In the USA, however, many poorer people have been hit hard by disasters such as Hurricane Katrina and the flooding of New Orleans, and can not afford health insurance in particular. The federal Medicare scheme is inadequate, covering only the very poorest, and a middle class family can be bankrupted by a single car crash, even if they have health insurance.

The result is that you have more subprime borrowers than before, and subprime lenders are created to cater to them. The added risk to the lender is handled primarily through the application of higher interest rates, which is a double-edged sword: those who pay higher interest are those who can least afford it, meaning they are at even higher risk of defaulting on their subprime loans.

If a loan is secured on property – a standard subprime loan requirement – the bank can foreclose on the property, leaving the lender out on the street. This is not a theoretical exaggeration: in the poorer parts of the USA, it is happening with disappointing regularity, and the frequency is growing.

Why, then, is the crisis in subprime lending having such a global impact? The most direct effect is due to the fact that the subprime lenders re-sell the loans (or derivatives) to other financial institutions, including some in the Far East and Europe. The third-party exposure is limited, however: to quote the Business Week article, “the buyers of the loans started exercising their right to sell the bad ones back to the lenders at face value. The true value of these delinquent or foreclosed loans was far less than face value, but the lenders were forced to swallow the difference.”

In other words, the subprime lenders are carrying the can. Even if they can foreclose, the debtors often have bankruptcy protection, and the lenders lose money in the foreclosure process, rarely getting back the full loan value.

Indirectly, people in financial distress are a relative burden on an economy, simply due to their reduced standard of living. Property prices are being affected, with lenders making less on foreclosure, and less on new mortgages. On a wider scale, property prices and mortgage lending are key economic indicators, and the indicators in the USA are not good; the property bubble, that got a lot of mortgagees in to trouble in the first place, is deflating. This is similar to what happened in the UK in the early Nineties: they called it Negative Equity.

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At the beginning of 2006 I speculated that I would be doing less travelling. That suited me, simply out of general consideration for the environment. I didn’t need news headlines , or the European Union, to tell me that air travel is not good for it. So, I imagined, 2006 would be a quieter year for me, with fewer flights.

The reality turned out to be very different:

• April = 4 flights: Dublin <-> London, Dublin <-> Lisbon
• May = 1 flight: Dublin -> Copenhagen
• June = 5 flights: Copenhagen -> Dublin, Dublin <-> Amsterdam <-> Lyon
• July = 2 flights: Dublin <-> London
• November = 2 flights: Dublin <-> London
• December = 4 flights: Dublin <-> Dubai <-> Bangalore

That makes eighteen (18) flights in one year; eight of those for work-related reasons, the other ten for no good reason. By way of comparison, I calculate that I took nine (9) flights, half this year’s tally, in my first 25 years. Must do better this year – the environment needs me to cut back on the flying!

Besides, the romance has gone: RyanAir is working hard to make flying as exciting as taking a bus, and even though I didn’t fly with them last year, Aer Lingus are not that far behind, out of competitive pressures. I think I’ll take the ferry next time I visit the UK.

“Motorists indulging in brawls with autorickshaws drivers are a common scene on the busy Bangalore roads. But then, Thursday was an exemption.”

– from a front page story in today’s Deccan Herald, about yesterday’s autorickshaw strike.

Common? I suspect this writer is “sexing-up” the story. Somewhere between a car and a motorbike in size, the autorickshaw is one of Bangalore’s essential services. The strike was called in protest over an increase in fines imposed on drivers of un-roadworthy vehicles. I was surprised to read that one main service the autorickshaws provide is ferrying kids to school – so much so that the authorities were seriously considering closing some schools, but that didn’t happen. They’re all back on the road today: we were nearly T-boned by one at the entrance to Electronics City.

For years I’ve been a little worried about a demographic trend that has the potential to stop “positive evolution” in its tracks. By “positive evolution” I mean the idea that evolution leads to better, smarter people. Perhaps it’s considered elitist to wish for such a thing, and I know that assuming it would be a fallacy, but one may hope, may one not? After all, we don’t have another life to look forward to, so it’s natural for me to wish for more from this one.

I’m hardly the first to wonder where the human race is heading – as any Devo fan will know – but the trend that worries me is the falling birth rate in the developed countries in general, and among the most intelligent and educated sections of society in particular.

Unfortunately, in the absence of education and intelligence, it’s back to “survival of the fittest”, in my estimation. Today that seems to mean “breed like bunnies”. In poor countries this seems to imply “have many children, because some will die, and who will look after you in your old age?”. In the lower demographic strata of Western societies, especially Europe, this is read as “have many children, because the government will pay you and do what you can’t do for them”. I won’t get in to the politics, but this is compounded by poor education and awareness of family planning, which religion sometimes plays a part in. The Catholic ban on contraception is the obvious example here.

I keep in touch with various people I’ve met over the years: many of them are not married, and those who are have families of one or two children. One friend has a third on the way, which is very much the exception. I’m not exactly “high class”, whatever that is, but my acquaintances are all professional, working people, the “salt of the earth”.

Compare and contrast that with the poorer countries of the world, and the less-educated parts of the developed countries: Africa, Central America, the US South. I was shocked to see the 2005 statistics for Afghanistan, which had a birth rate of 46.6 per 1000 per year, and a 20 per 1000 death rate, that still leaves them which a 2.67% growth rate. I have all the stats in a spreadsheet, so I can sort them by the different factors, and they make sobering reading. The poorest countries – nearly all in Africa – are growing the fastest, thwarting any attempts to improve their living standards.

In the USA, this trend has not gone unnoticed by Mike Judge, creator of Beavis and Butthead and Office Space, whose new film Idiocracy was belatedly “dumped” in US cinemas and has not made it to Europe yet, if it ever does. It imagines an ordinary man who spends 500 years in stasis, and emerges in to a world that has gone downhill, intellectually, leaving him the smartest person in it by far.

In my view, even if things don’t go all the way down that road, we are still facing a “cap” on the intelligence of the human race: with the smartest people the best at reading the signs all around them and having small families, while the lumpenproletariat* think only of their short-term needs and desires, and not about how their world will be affected by their profligacy.

I am well aware that talk of “improving the human race” carries all sort of negative connotations, from elitism to eugenics, and I’m not suggesting any kind of direct intervention in what I perceive as a negative trend. However, what strikes me as most relevant to this forum is the way organized religion prevents individual people from realizing their potential in many different ways. Wilful ignorance of leaders, obstructions to family planning initiatives, education sabotaged by religious beliefs… those are the areas where I hope Prof. Dawkins’ book can make a difference, perhaps eventually proving me wrong!

* I’m kidding! Please stop hitting me with copies of Das Kapital!

(I wrote the following as a comment to an article lamenting the decline in fertility in the developed countries. Like many respondents, I’m not convinced it is a problem. Other comments have noted that attempts by countries such as Germany to import skills have been a failure: the immigrants tend to use more resources from the social system than any benefit they brought in – which is not an anti-immigrant opinion, just a demographic fact. I’m an immigrant, after all!)

Isn’t it a basic point that any given country or region is limited in the number of people it can support? NB: by “support” I’m factoring in everything, including politics & aid – factors that will change the numbers, drastically, but don’t invalidate my basic point. When the land can not support the people, they will starve, or leave; as this point is neared, costs soar, and people can’t afford to have large families any more. I see this here in Dublin, too – one colleague of mine is being so badly hammered by the care costs, for his one (1) child, that a second is out of the question, unless they move to a cheaper country (ideally where the in-laws are).

My take on this: in any mature society, the population will stabilize, because some resources are fundamentally limited – such as land to build houses on. A country like Japan has gone just about as far as it can down this road. Yes, the balance is currently on the side of the elderly, and the young are bearing the burden of caring for them, but is that the way it’s always going to be? To be blunt: more of the Baby Boomer elderly will die per year than normal, which means the resources they use (esp. property) is freed up more quickly, restoring the balance eventually.

So, in a stable society the supported numbers are stable, and the population can adapt to them, eventually. (Oversimplification, I know!) In an unstable society, the number of people a country can support can change suddenly, due to factors beyond the control of the people. Zimbabwe is a great example: people are starving because of recent politics, not because of poor land or lack of natural resources, and there is hope that that can be reversed.

But in other parts of Africa, where countries & regions have been poor for generations, I would say the supported population is stable at a level well below the actual population. I really do not understand why women continue to have large numbers of children – or why men continue to force repeated pregnancy on women. They KNOW most of the children will die, but they still have them, and we get badgered by charities to “save the children”!

I think we don’t need more people: we need better people, which means dedicating more resources to each of them. Which means lower fertility is a good thing, in my opinion.

Saturday night, and there’s probably nothing on TV. I say “probably” because I haven’t checked; too busy reading, and enjoying a free concert. The Eagles are well in to their second set at Lansdowne Road, about 200 metres from my window. Right now I can hear Joe Walsh soloing on Don Henley’s Dirty Laundry, the third of his solo tracks they’ve played tonight, along with at least one of Joe’s and one of Glenn Frey’s (I think).

An interesting post tonight, from the Radical Mutual-Improvement blog, asks: What are your beliefs about money? It has a list of questions I’ll try to answer:

Do you believe more money will make you happier?
To a point. Money can’t buy happiness, but it can buy off the causes of unhappiness, after which you have no-one to blame but yourself.

Do you spend money as soon as you get it?
No – I’ve been in “saving & investment” mode for at least 5 years now, eventually I’d like to buy a place to live. The house price situation in Dublin makes this impossible for the forseeable future.

Do you have enough money?
For my current needs, yes, but the future is uncertain.

Where does money come from?
It’s an expression or relative value: it’s a number that specifies how people see the values of various things at various times.

Does making money require hard work?
I think there’s enough evidence to suggest that the easiest way to make money is to have money.

Does money corrupt?
No. If a person is corrupt, money is just the vehicle that carries them across that burning bridge.

What can money buy?
Anything acquired or created by people. Including people.

Is there a shortage of money in the world?
See “Where does money come from”, and Economics 101 about what happens when governments try to print money with no value behind it.

Do you want to be rich?
Do you deserve to be rich?
Depends on how you define “rich”. In some ways, I feel that I am already rich, but it’s not reflected in my bank balance.

How much money does it take to be rich?
If you don’t have to worry about money, you’re rich. There are people who don’t have to worry, but still do, which is missing some important point.

The concert is almost over; a single encore (Hotel California) isn’t enough, they’re doing a Joe Walsh number, possibly Rocky Mountain Way. Half the taxis in Dublin are tailgating outside my door, cruising round the block, as the first crowds hit the street. That extended voice-box solo would clear any venue, which must be why it’s at at the very end of the show.

Not had enough? A Don Henley number, All She Wants To Do Is Dance. Already Gone? Or staying for the closer, Desperado? The thousands who have already left probably didn’t know that was coming, and so what if they went past the 11PM watershed? Good Night, Dublin.

Though I’m based in Dublin, Ireland, I’m not an “Irish Blogger”. The fact that I’m not Irish is only the half of it: I seem to have a completely different attitude to the “local” bloggers, starting with the concept of “local”.

For starters, I place very little importance on location and/or nationality. Of course these factors will be relevant to what I write, because they’re interesting details, but I could be in the UK, Europe, USA or Canada, for all the fundamental difference it makes to me. There are countries where location is a major influence – countries with reduced internet or press freedom – but Ireland is not one of those.

This is partly why I find the upcoming Web2Ireland conference amusing, but not terribly interesting. It’s got an Irish slant to it. It’s organised by an Irish government body, Enterprise Ireland. I’m not in the target market, as the blurb says:

Web2Ireland is for entrepreneurs, investors, software developers and for those in academia, politics and public policy.

Finally, and most importantly, my views on Web 2.0 would be completely out of place. I wrote a bit about this last week, but I would summarize my position as seeing Web 2.0 as an attitude that informs what you do and how you do it. It’s not a product, or a technology, or a standard, or anything else that can be neatly packaged in a form fit for sale to anyone.

While government is all about centralisation of power and resources, the web is about decentralisation, disintermediation, the removal of barriers between people and information. I see no need for any national government, Irish or otherwise, to try to “shape the agenda” or “help our country catch up”. It’s already here, because it’s already everywhere, it does not respect borders any more than Web 1.0 does.

Besides, how Web 2.0 is it to have a registration process that involves downloading and filling in a Microsoft Word document? Web 2.0 is as Web 2.0 does, people. This sends the message that your parochial little conference will be all talk, and no action. No thanks; I can wait for reboot at the beginning of June, my flights and hotel are already booked.

Last week a report was released by the AIB, one of Ireland’s major banks, on the property market here. While noting that the prices would increase by about 20% over this year and next, the salaries earned by people would not increase by half that.

The official inflation rate here is about 2%: this figure is used by the government in calculating its obligations to the European Union, and by employers when calculating salaries. This figure obviously does not include any consideration of house prices.

To put some perspective on the situation: the benchmark I’m familiar with is the multiple of your salary that you should expect to pay for a house. When I first investigated mortgages, years ago in South Africa, the general advice I received was that a mortgage should be no more than 3-4 times your salary; similar advice was used here, I read today, and banks used to limit mortgages to 3-4 times salary. Even today, an Irish online mortgage broker gave me several estimates, all around 4x my salary, yet this does not correspond with the incredible increase in mortgage amounts, and lengthening of mortage terms (up to 40 years!), in effect today.

In 1998 the average house price was 7x individual salary: in 2006 the figure is 11x. As a single person, My requirements are below-average, and once I factor in the deposit (from savings), home ownership was a possibility in 1998, the year before I arrived here. It’s not even remotely within reach today. My chances of owning a home in the Dublin area, already slim, are not going to improve.

I have serious objections with the concept of a property ladder – once I figured out what people meant by that, I was properly horrified. It assumes that it is natural to want bigger and bigger homes, as one gets older, which is not unreasonable; but it also assumes that the value of your current house will increase, by itself, and continue to do so. If there is ever a time when this ceases to be true, there will be a rush to get out of the housing market, further depression of prices.

The same AIB report talks, eupmemistically, about “reduced likelihood of a soft landing” for housing investors; in other words, there is the possibility of a crash. I would welcome this, both for my own sake, and as a salutary lesson for anyone silly enough to buy in to a bubble, which is what this is today. However, there are huge amounts of money floating around, with the maturity of government-backed savings schemes (SSIAs), I don’t see this to be likely. There is still a general perception of property as most reliable investment available, better than pension schemes; in my view it is short-sighted to invest all your equity in a single market.

With that, I should now spend some time on my current rented residence: it’s Spring, so we shall have Cleaning, starting now. I probably won’t finish today; why should I rush or exert myself unduly? I’m on holiday for the next two weeks.

This is an interesting article from the Wall Street Journal, about the “original content” industry. It confirms something I have long suspected, but hoped I was wrong about. (A recurring theme in my experience of the Internet.)

Google, the search engine, operates by scoring web pages using a methodology they originally called PageRank, though the actual system in use today is more complex and confidential. It provides search results based on many factors, including the uniqueness and ubiquity of references to the topic you’re searching on. It is subject to intense scrutiny by “Search Engine Optimizers”, a nascent business model that already has the abbreviation SEO.

I’ve missed out on most of this, because the kinds of things offered by scammers are not the things I ever search Google for, to put it bluntly. If I ever thought I could find Viagra(TM) or other drugs by searching Google, I would be quickly disabused of that notion; years of fighting spam email have given me a good idea of what the scams are. SEO, in my opinion, is merely an extension of spam email to search engines.

Comment Spam, Link Blogs, and so on – the tools of SEO – are ways of increasing the ubiquity of links to those “businesses”: a way to get links to your site from thousands of other sites. This site has been mostly resistant to those, because of the filters I put on comments – allowing only a couple of links, and none of the blacklisted scam keywords. I now use WordPress 2, which builds in the Akismet spamcatcher, to good effect.

The WSJ article is about the other issue, of uniqueness. As the author found, there is a sub-industry dedicated to “content creation”, where all the “author” is expected to do is make their work unique enough to pass Google’s filters. It doesn’t pay well, has no respect for copyright, and is generally an insult to any author worthy of the title.

Once again I’m reminded of the Tragedy of the Commons. Google is providing its search results at no (direct) cost to either its users or those whose pages it searches and ranks. For example, this site has been searched repeatedly, and is highly ranked for certain specialities, such as the Akai MPC1000 that I wrote a FAQ on. There is not much competition in this area, but in areas where there is, it seems that anything goes.

It might not be related to scams, exclusively – and the SEO businesses would have you believe there are legitimate applications – but I have to ask what the point is. After all, any modern business model relies on differentiation: what are you offering that someone else is not? SEOs are selling a shortcut to differentiation by putting you, and not someone else with an identical offering, at the top of the results returned by Google. Yet: if your business model is valid, by the standards imposed by e.g. a bank loan committee, you do not really need SEO, do you? Conclusion: it is not a tool for a legitimate business, yet legitimate businesses have already been caught in the act. (Why did BMW think it necessary, for example?)

In the field of internet search, where we are bombarded with Information yet starved of Knowledge, where Attention is the most limited and valuable commodity… SEO still appears, to me, incredibly shortsighted and counterproductive. I’ll stop writing and post this, before I start swearing about bottomfeeders…

I’ve only once had someone contact me about a broken link on this site, but that doesn’t mean there haven’t been any. Today I took a little time to go through the referer logs, not just to pick out the weird referers, but mainly to analyze who or what is using this site. I also fixed a few links that had been left broken in the recent changes.

The majority of hits on stereoroid.com are from search engines. Not all of them are marked as such, and some supply false or missing browser details (e.g. from the UNIX wget command), but you can easily tell them from the access patterns and timings. The number of direct cracking attempts are small; two in the month of March, attempting to access standard mailing scripts by name. Not gonna work here, folks.

Comments are another story: disabled for the moment, until I can investigate further, perhaps defeat the scripts by renaming the files and links. I can see only one attempt at automated comment spam this month, but I can’t say the same for Referer spam: I can see many hits with the same referer, but since I don’t have the referer logs viewable publicly, it’s pointless – no links up for search engines to jump on.

I’m not the only one being hit by this same spammer, who I’m not going to link to, but search for andrewsaluk spam for many similar reports from others. Sounds like a amateur script kiddie using some crude “search engine optimization” (SEO) methods. If the culprit really is someone named “Andrew Saluk”, he’s doubly a moron for using his real name. I’ve just modified my htaccess file to block any referers with that name, as suggested at candygenius:

RewriteCond %{HTTP_REFERER} andrewsaluk
RewriteRule .* - [L,F]


Let’s see what effect that has. From Whois I can tell that the Domain is registered to a Florida address, but the server is in St. Petersburg, Russia. It appears to be an online Texas Hold-Em site: abandon hope, all ye who enter credit card details, unless you actually intend to bankroll the Russian Mafia. Other reports suggest it’s hosted in China; perhaps it’s multiple servers, or moving around.

About six months ago I found myself getting interested in playing poker, perhaps even Texas Hold-Em. The game has been the subject of major publicity recently, with high-stakes tournaments in Las Vegas and on board ships, and what appears to be a gentle learning curve through low-stakes games. The idea was that I could round up a few interested people here and play for chips or pennies. Sadly, two things have served to almost kill what interest I had:

1. the way the game is presented as predatory and antisocial, with a strict hierarchy of predators and prey. There are many people trying to get in, but gaining skill carries a price, and there are enough people skilled at reading your tells, waiting to take your money off you. Hardly the social fun I had in mind;
2. the rabid commercialism surrounding it, especially online. It seems like everyone has a scheme to make money off the game online, but what’s the point? If you can’t try to read your opponents twitches – the social side of the game I was interested in – it becomes just another card game, as random as Blackjack.

Do you trust a strange server to be programmed to play fair? Who’s to guarantee that one of your fellow players is not also running the server, and can see your cards, or control what you’re dealt? To me, the game only makes sense when you, and you alone, can watch the cards, and the people, in person. Why would you play it online – in the hope you’re going to win money? The money pulled in by the likes of “partypoker” should be enough to discourage anyone from getting involved.

Lastly; for some interesting reading on the relationships between SEOs and online gaming, including (allegedly) some established names, have a read of this.

An interesting BBC documentary tonight is discussing the “Global Dimming” phenomenom, after new data suggests that the amount of solar energy reaching the earth’s surface has fallen by 10-30% since the 1950s.

The culprit is pollution, of course, which (scientists suspect) was implicated in serious famines in Africa in the 1980s and 1990s. So we should simply cut out pollution, right? We already are doing a lot about pollution, and surely we should do more? Can we guess how much difference this would make? After September 11, 2001, all aircraft in the USA were grounded, and a few researchers noticed the immediate difference it made to the air quality and the colour of the sky. (A year later, on September 11, 2002, few planes were in the air, as a mark of respect. I personally noticed how clear the sky was over Dublin, and took a few photographs for my sky portfolio – see the image gallery. )

What researchers found was: from September 11-13, 2001, the absence of aircraft, and the cleaner air that resulted, meant an increase in average temperature of over 1°C; a huge difference to see from a change to one factor over so short a period. In Europe, thanks to regulations, pollution levels have fallen, and temperatures have risen. This documentary paints an alarming picture, one in which the only way to avoid an environmental catastrophe is to stop the use of all carbon-based fuels, pretty much immediately. In other words: we’re all screwed.

I’ve long been familiar with the corrupt state of the music business, from the stories told by Janis Ian, Robert Fripp, Morrisey and others, but I wasn’t aware of the Bay City Rollers fiasco until a documentary I saw tonight, asking a simple question: where the fcuk did all the money go?

I had dismissed them as a pure pop group, even back then when my age was in single figures, and I’ve heard nothing tonight to change my mind. They would be called a “boy band” today, frankly, and talk of a “critical reappraisal” is falling on deaf ears. Still, that doesn’t explain away the scandal in their finances.

They broke up rather acrimoniously, starting with the departure of since Les McKeown after an on-stage bust-up in Japan. He arrived home at the same time as a £24,000 American Express bill, which meant near-instant bankruptcy and eviction from his home. The other members heard about this, investigated their own positions and found themselves no better off.

The documentary culminates in a meeting between Les and his erstwhile manager, Tam Paton, complete with company statements that Tam could not explain. The current staff at BMG, owners of BCR’s former label Arista, even rope Les in to help promote a new compilation album and video package, unaware that the band will not see any royalties from the deal, only direct promotional payments.

So, what actually happened? Basically, they signed it all away, blindly authorising the creation of offshore trust accounts and publishing companies. The rest will take lawyers and accountants to unravel. My advice for any new band: set the band up as a separate legal entity, with its own accountant and a lawyer on retainer: don’t trust anyone else to look after you and your money. If you have a manager, keep his/her duties clearly defined, and don’t give anyone power of attorney!

Sir Jimmy Saville’s comment: “They should all be rich, living on huge Scottish estates, but I’ll be surprised if they are. In this business, for each person making money, there are four or five to take it off him.”