Is the cloud bad?

So Richard Stallman has attacked the idea of the cloud as a ' trap aimed at forcing more people to buy into locked, proprietary systems'.

Cloud computing (a term I'm not particular fond of) is often used to describe various forms of service provision of the computing stack. The shift of parts of the computing stack (apps to hardware) from a product to a service based economy is a consequence of the growing ubiquity of particular areas of IT.

Simply put, cloud computing is an expected consequence of IT becoming ubiquitous and it provides a large number of benefits through economies of scale and componentisation. However that said, it's not without risk and the key issue for any consumer is interoperability and portability between the different providers. In practice, such portability will only ever occur with open sourced standards.

So, is the cloud a trap? Well, the cloud is not a bad idea but some of the current incarnations are. If it's not open sourced then be aware of what you're getting involved in, either as a customer or a potential partner. In the web industry, you're potentially handing over strategic control of your future business to a technology partner and in the long run Stallman is right to call that 'worse than stupidity'.

Shock, Horror ...

U.S. House of Representatives rejects the $700 billion bail-out and ..... world doesn't end.

If only people cared as much about the environment and global poverty rather than the money markets which most people have little or no understanding of.

Given the amount of naysaying and panic about something which really isn't that important, society is not going to collapse just because a few banks go to the wall, it's surprising how little panic and direction there is over something which does matter like the environment.

Our priorities are really screwed.

According to the U.N. Food and Agricultural Organisation, 854 million people are malnourished worldwide. There are so many better things which $700 billion can be used for.

Let's hope that the House of Representatives takes some time to think about what it is doing. This mad dash rush to shore up the banking community because Peter is crying wolf is not being done in average Joe's interest.

P.S. If you're going to spend such a vast sum, you should at least buy-out rather than bail-out banks and ensure that some of it is spent on providing protection for the poorest members of your community.

Is Gordon heading into Moron country?

After weeks of reasonably sensible actions, suddenly the Government has made a complete howler. The £22.2 billion savings part of the Bradford & Bingley business is being sold to Santander for between £400 million and £600 million, whilst we (the taxpayer) gets to be exposed to the £41.3 billion mortgage business consisting mainly of "toxic" assets including the self-certified and buy-to-let horde.

Let's understand this. The taxpayer is going to cover the £22.2 billion savings business by providing a £20 billion loan. It should be remembered that B&B was technically in default and the savings business should have been covered by the financial community through the FSCS. However, instead of this, the Government has loaned this entire amount (the £14+ billion from the FSCS and an additional £4+ billion required). This loan will be paid back out of the sales of the £40 billion of dodgy mortgages.

However £14 billion of the assets realised will go to paying back the loan which the Government gave to the FSCS to pay its dues. Basically we've lent them a pile of cash to pay for something which they owe and we will recover the loan by selling assets which weren't theirs in the first place.

You can also bet that all the good mortgages have already been securitised (estimated at over £15 billion). So, it looks like we have £25 billion of highly "toxic" mortgage assets to cover a £20 billion loan, of which £14 billion is "guaranteed" by the FSCS even though they already owe that money. However we don't know what all the other liabilities are, so not only are the members of the FSCS probably jumping for joy but we could end up losing quite a bit of cash.

I'd have been happier if we picked up the savings business at a knock-down price (including £14+ billion paid by the FSCS and guarantees that the first asset sales from the mortgage business would cover the outstanding liabilities) and put the mortgage business into ordered administration. To pick up the liabilities including other banks liabilities is just plain nuts.

The Government's job is look after the interests of society and not to bail-out the financial community. Stop wasting tax-payers money.

P.S. Before anyone says it's a good deal for tax-payers, if it was a good deal then Warren Buffet or some other investment guru would have "effectively" bought out the mortgage business and the £14 billion guarantee of the FSCS with a £20 billion loan. It's a sucky deal and bad business.

A touch of creative copying?

The recent SEAT Ibiza advert seems to remind me of the excellent Frontier Psychiatrist song by the Avalanches. If you watch the video closely you might notice a drum playing gorilla, now where have I seen that recently?

Ahoy there mateys

The housing market was hyper-inflated by excessive future borrowing. It's going to crash and a lot of people who have borrowed too much are going to get burned.

This is going to happen, the best that can be done is to put measures in place to protect the most vulnerable members of society and by that I mean the poorest. If you've been investing in property, it's unfortunate but it probably wasn't worth what you paid for it.

The "toxic" assets in the banking system mean that few banks are lending to each other creating problems on the money markets. Most of these weak banks were being torn apart through shorting but we've stopped that happening and furthermore we're exposing ever more tax-payers money to cover bankers failures.

In my view, this is just plain wrong.

We own a mortgage and loan bank - Northern Rock - and we should be directing all taxpayers money through it. The government should have bought out Lehman's European operation and combined the two to create an institution that competes aggressively on the financial markets as well as in the mortgage and loans business.

We should certainly allow the shorting of institutions as we should be looking to see what other bargains we can pick up. Despite what the popular press might say, shorting is not some evil act responsible for all the world's gloom. Bankers are responsible for the mess that many banks find themselves in and you shouldn't blame the cassandra's of the financial world for exposing the lie which some banks have been telling. If individual banks are weak then let's turn that to our advantage.

The government's job is to serve society, however it would seem as if we are being told that our only options are to bail-out or the banking system fails. This is clearly not true. I certainly don't mind my taxes being used to buy-out banks particularly when assets are cheap and they can turn a profit in the future but I do have a real problem with bailing out bankers for their mistakes.

The banking community wouldn't miss a heartbeat before making a quick buck on treasury bonds or bleating about how they need help or how the government interferes too much and they'll happily crash the pound if it helps them too.

However, it's not just bankers that our government should take a real interest in. The huge land banks, the suggestions of acting like cartels, increasing unemployment in the building trade and the claims that our three million new homes target won't be met should pique our interest.

There is an easy solution - a national building company. A quick bit of legislation to force open auctions on any land which has uncompleted planning permission or is vacant, mixed with a healthy dose of short selling on a builder and any other trick we can find in order to snap it up cheaply and we could be well on our way. Flood the market with cheap and environmentally friendly homes and most voters will thank you, especially if they can get a decent mortgage from their friendly national bank. It will also give a much needed boost to employment.

However, we can do better. Since all the banks that have gone bust or needed emergency funding had their accounts signed off by one of the big four accountancy firms, it is quite clear that tax auditing isn't working as it should. So let's nationalise that industry too by introducing new legislation such that the tax office is the only one entitled to audit and sign off accounts. It's an entire new revenue opportunity for the government.

Why are we being so soft? The government should be embarking on pillage and plunder of the banking, building and other communities and not handing over pots of gold to them. The government could really clean up here and get some quality assets at knockdown prices. With a bit of cunning it could probably get them for free.

The tax-payer shouldn't be seen as an easy option but instead a ruthless operator. Ask yourself what would happen if the government finances were run by Warren Buffet. Do you see Berkshire Hathaway offering to bail out the industry or is it using the current situation to make handsome investments. Why should the government be any different?

Now we're involved, we should stop acting like villagers and start acting like pirates. We want a good return on any investment we make.

How's Joe?

Since the U.S. financial system seems to be on the verge of collapse, it's worth taking a look at the financial state of your average U.S. citizen (i.e. the size of the debt spread equally among all 304 million citizens, children included.).

Roughly speaking :-

• Credit Card Debt : $8,000 ($2.56 Trillion)
• Mortgage & Loans: $39,000 ($12 trillion)
• Government Debt: $32,000 ($9.8 Trillion)
• Overseas Financial Exposure (i.e. Mae & Mac): $17,000 ($5.2 Trillion)
• Current Budget for 2009: $10,000 ($3.1 Trillion)
• Total Potential Liability: $106,000

Of course this doesn't include the outstanding liabilities such as the amounts owed to overseas programs (i.e. make poverty history) and the environmental liabilities from years of excess.

Joe certainly seems to have been splashing the cash, especially since he's only got an average income of $28,567.

I wonder how long will it be before some "fool of a Took" decides that the solution is to print more money? If Wall Street can offload its "toxic" assets onto poor Joe, don't be surprised if they end up devaluing the little Joe has left.

vCloud ...

I was recently asked my views on the vCloud initiative. It's good that they are trying to create a marketplace of providers with portability between them, however it's unfortunate that the core technology is not open source as this creates an unnecessary weakness in the system.

In my view a smarter move would have been to open source the technology and act as the compliance authority to the marketplace. I suspect that this initiative will be either overtaken by an open source version or a larger proprietary "cloud" marketplace.

On the positive side, it does provide further justification to the idea of a utility computing marketplace. Though this is one where the providers hand over strategic control of the market to their technology partner.

Bad news ...

Despite what is often repeated, global climate has long been suspected to change rapidly. Modern evidence suggests that at the end of the Younger Dryas there was a rapid series of temperature increases, including a 2 to 5 degree change that occurred in 1-3 years.

No-one really understands how these changes occur and what events trigger it. The huge reserves of methyl hydrates stored below sub-sea permafrost are suspected of being a possible tipping point for a rapid change in global climate.

It should be remembered, that approximately 55 million years ago the Arctic sea had an average temperature of 20ºC and there was severe extinction rates in marine life. The cause of this is generally attributed to vast releases of methane from methyl hydrates.

In certain circles, it was believed that a sea temperature rise of around 5 degrees could start a massive scale release of methane. We already know that the Arctic region has seen a 4 degree increase in the last decade.

According to the Independent, researchers have seen areas of the sea foaming with gas bubbling through "methane chimneys".

This is not good.

The problem is that whilst we talk about how we discount the environment in market economics and how we should solve this problem with financial instruments, the environment simply doesn't care. The environment gets to set the rules, not our economic or political system.

Our first duty should be to the environment, everything else is inconsequential. Instead of doing this, for the past twenty five years we've been hoping that technology and the market will come to our rescue.

We've been leaving it to chance.

Let's hope our risk assessments have been somewhat better than the wizards in the financial community, because this is one toxic asset which no government can bail us out of.

What a Lehman ...

According to today's announcement by Barclays Capital, ten thousand Lehman employees plus the business they created is worth $250 million whilst their office and two data centres are worth $1,500 million.

That's going to bruise a few egos. Thanks to Leon for spotting this.

Standards and Innovation

The emergence of standard components for ubiquitous and common activities does not impair innovation but accelerates it. This is the principle of componentisation; the speed at which a system develops is directly related to the level of organisation of its subsystems.

Mashing up web services to create a new application depends upon layers of standard components, including standard protocols, operating systems, CPUs etc. If there were no standard components and you had to start with chip design before writing an application, the rate of innovation on the web would be snail like.

The only people who oppose standardisation are generally those who sell their product on the basis that it provides a differential. Of course, an activity which is ubiquitous is not a differential in any sense of the word. The arguments against standards are false.

"Cloud" computing is ripe for emerging standards and those standards won't hamper innovation, they will accelerate it.

Deepest, darkest ...

I arrived back today from my week long trip to deepest, darkest southern France. No internet, no phone and completely off the grid for a whole week.

I had a fabulous time.

The food and wine was outstanding, being not only better but also cheaper than the fare served up in UK establishments and supermarkets. Trips like this provide a sobering reflection on how the UK is still fervently rip-off Britain.

The pace of life was slower, more friendly and overall appeared more healthy. There was little of the bling bling narcissism and rap-a-long grotesques which litter our culture.

Concerns over the credit crunch appeared far and few between. Few eyebrows were raised at the news that Lehman bankers, analyst and traders who had gambled and profiteered profusely were about to lose their jobs. However, there was genuine concern for the large number of secretaries, cleaners, security guards and others who would also lose their livelihoods and are probably least able to cope. It was disappointing to note that the UK press seemed only to concern itself with the former, those most responsible for the problems and not the latter, those most likely to be seriously affected.

A week away from reading the popular press shows how the bling bling nature of our lifestyle certainly seems to permeate everything. This lack of caring for the weakest and the worship of all things Mammon is an American import we would do well to lose.

Other imports which we should also consider returning include the abundant slaughter and torture of our language. On arrival back in the UK, I was immediately struck by how many businesses were a "solution" to something.

"SeaFood Solutions", "Coach Travel Solutions" ... the list is endless. However I'm perplexed as to what the problem is that SeaFood is a solution to, and how a coach solves a coach travel problem. This massacre is not however confined to commercial enterprises, as Professor Van Gore eloquently explains in the New Statesman :

"We will broker the skills need of employers and employees within the city at whatever level is required; that is, we do not just concentrate on skills at university level but actually do the necessary brokerage work."

I think he means that they will help graduates find jobs. If only people would take a more simple approach to life, then maybe we would all understand what is going on and the consequences of all this complex financial instrument collapse would never have happened.

Heads we win, tails you bail us ...

Whether it's the environment or the economy, we've been heavily discounting the future and storing up trouble for ourselves. In the world of finance, we currently have close to $600 trillion of forward contracts (an agreed transaction at some point in the future), weak reserves and a mountain of debt.

The future just doesn't look friendly.

So what is the hapless banking community which is mainly responsible for this travesty going to do about it? Beyond paying PR firms and lobbyists to blame the government, it seems as if the plan is to wait until the taxpayer bails them out.

The great bailout has already started in the U.S. with the billions (some estimates are as high as $100bn) that has been piled into Fannie Mae and Freddie Mac. Unfortunately this is not just about the use of taxpayers' money to prop up financial institutions but also the exposure of the U.S. taxpayer to a further $5.5 trillion of mortgage debts. Let's not be coy about this, the U.S. has just shelled out a huge wad of cash and exposed every U.S. citizen to a further $20,000 of debt in order to underwrite some of the excesses of the financial community.

In simple monetary terms, the average U.S. taxpayer has just been done over. No wonder the financial markets are happy, who wouldn't be.

Whilst over the next few years the market will go down, it will also recover at a later date. I fully expect that at such point in time there will be all sorts of pressure to put Mae and Mac back into private hands; market knows best and all that. It would be good to see governments takes a VC like approach to their acquisitions (such as Northern Rock in the U.K.) and look for a good 10x return on investment.

If we're going to be exposed to the risk in the downturn, then when the recovery happens we should be looking to take as much of the profits as possible.