In February of 2000 Hank Paulson, then CEO of Goldman Sachs, testified to the Senate Banking committee requesting that they reduce restrictions on the financial services industry, allowing investment banks like Goldman Sachs, Morgan Stanley, Merill Lynch, Bear Stearns, and Lehman Brothers, to leverage themselves upward of 20 to 1 — to risk more than 20 times what they could bare to lose.

The request went denied then in 2000 by a regulating body still containing many members appointed by Clinton but was approved only four years later by the regulating body installed with the Bush administration.

Now, Secretary of Treasury Hank Paulson, a Bush appointee himself, asks the American people to pay for the results of those misguided and destructive business decisions and the ineptitude of officials, who realized too late the danger approval posed.

America confused, bewildered and driven by fear, agrees begrudingly to a 700 billion dollar bailout plan for financial institutions — the death of Socrates all over again.

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If I told you these circumstances were all that were neccessary to undo the great promise of America, you would likely have doubts. You, stubborn and loving of America, would with all that you were say “No. America is greater than that.” But my friends, there can be no doubt now, that we have traded all we once were away — we have become all we had ever hoped to avoid: Rooted in corruption; heartless and descrimitive; deluded beyond perhaps all sense of hope for a future.

We have given the Doctor Frankenstein’s of this particular American monster absolution.  Whats more we have placed them back in control of the laboratory to further ruin the great experiment that is the American dream.

They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety; Benjamin Franklin saw the soul of America and understood its fragility — our most recent actions will serve to prove him right. It is not what we have bought with these banks full of debt, but instead what we have had to sell of ourselves first in order to ever take ownership.

The S&P 500 fell below 1000 today. The DOW below 9500.  Some call for a DOW in the 8000 range, others as low as the 7000 range over the next year. Jeff Mackey from CNBC put it rather well the other day from his chair on CNBC’s Fast Money, when he talked about his two best positions for this market. The positions were cash & fetal.

Its shaping up to be another memorable October for people working in, or who report on, the Financial sector. The last 12 months have shown that anything is possible in financial markets. Credit spreads have widened to never before seen levels. Any short-term lending mechanics, but especially Commercial Paper, are frozen stiff. “Easy Money” is anything but.

This time just last year — on October 5th, 2007, the Dow Jones Industrial Average closed at a price of 14,066.01 on a volume of 29,190,300. To put things into perspective, today — October 3rd, 2008 — the Dow Jones Industrial Average opened at 10,483.96 on 264,270,000 average volume.

The next 12 months prove to be interesting for those who find themselves in the boundaries of what remains of Wall St.  The coming earnings seasons will expose with certainty, the fact that we are (and have been) in a recession. Between dwindling credit, falling consumer confidence and spending, and growing unemployment statistics, there are few reasons to expect that companies will turn anything like the profits to which Wall St. is accustomed. In fact, it will be intriguing to see what innovation and consolidation take place in order that many major players are able to survive.

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The credit markets have pretty much frozen as banks are unwilling to lend to consumers or each other in a deafening reduction of confidence.

Many banks made mortgage loans with impossible terms or to unqualified borrowers. These banks then invested in securities backed by these now failing loans. It is this hidden potential for toxic holdings that reduces bank-to-bank confidence. And even a banks own self-confidence in consumer lending, if the bank itself relies on borrowing.

The reaction from the US government to this problem has been to provide liquidity to reinflate confidence. This has been unsuccessful, largely because, its dependent upon setting a floor on the US mortgage market and/or mortgage-backed securities market despite a natural state of correction in both. Price-fixing will not help lending between banks nor free-markets. Since inter-bank lending is immediately crucial to the economy, I present my own idea for solving this problem with our banking system.

Two important points; first, lending is both in the near-term costly and risky. Second, the current rash of government backstop-lending is no different with few exceptions (since the government controls the rules of the market).  This is the more important power of the government, not its ‘infinite’ supply funds, but its ability to control the rules. 

What if the Federal Reserve in coordination with the FDIC opens a new window.  This window will help banks lend to each other without lending them a thing. For a smartly set (perhaps percentage based) premium to the bank borrowing, the US government would — like a bank certifying a check — hold in escrow the amount of some bank-to-bank loan. Then, on at least these occasions, US banks could ensure transactions with each other through the help of their shared regulators and assistance providers.  Obviously, when and where these banks felt more comfortable, they could go back to working together directly.  The impact of the premium is disincentive to using the window.

This would be self-sustaining through premium collection and would not be harmful to the banking system or US tax-payer. I believe something as simple as this could help form an insurance for slowly winding down the operations of other windows at the Federal Reserve.  The windows could then help to support each other until varying crisis are resolved.

So its about time we reintroduce an old friend. I brought him — the idea — out a bit early. And then put him away because the idea is alarmist. Its an idea I’ve hated to have fostered at all quite frankly, but its one that is hard to deny given whats transpired.  Super-bust.  I’ve written about it before in June with Back to The Future. And back in March with Four Magic Words and Four More Magic Words: Where is my Money.

I never could have imagined things would happen as quickly as they did, certainly not using the information in front of me — isn’t that what they all say though? The talk now in Washington is, if we don’t accept Paulson’s $700B billion to $1.2 trillion bail-out plan and fast, we’ll not be able to avert serious systemic damage.

The fact is, we’ve already experienced and some of us truly suffered, serious systemic damage.  For instance, here’s a new piece of trivia for you to shop around the office: When was the last time the US had no major Investment banks? Or, what did the US credit market look like then? We care because, as of today, there are only specialty houses and the boutique investment bankers left.  Bear Stearns exploded back in March — it took JP Morgan Chase and $30B of Fed loans to put out the flames. Merill Lynch got bought by (shudder) Bank of America.  Both Goldman Sachs and Morgan Stanley were run off of Wall St. and toward the lender of last resort, the Fed, having converted to commercial banks.  And Lehman Brothers is odd man out with the Fed for whatever reason and goes essentially bankrupt.

Paulson’s plan will do nothing to bring back the vast financial innovation, command of respect, and pure flow of capital these companies brought to the face and body of the US economy. They are causalities of a lack of oversight in a system where you’re insolvent by association. Thats exactly why Paulson wants Congress to give him a permnant supply of rockets for his bazooka. But is that what America really needs: our tax dollars with Hank Paulson, running the World’s Biggest Hedgefund?

“Imagine that you are creating a fabric of human destiny with the object of making men happy in the end, giving them peace and rest at last, but that it was essential and inevitable to torture to death only one tiny creature - that baby beating its breast with its fist, for instance - and to found that edifice on its unavenged tears, would you consent to be the architect on those conditions? Tell me, and tell the truth?”
- Fyodor Dostoyevsky, Brothers Karamazov

One of the most observable yet understudied socioeconomic changes in the US over the last century, has been the integration of a credit system whose sum value while virtual, has been forcibly bloated to equal that which was actual. It is a structure which has inflated the value of American currency, the appetite of the American consumer, and made less visible the need for mindful economic discipline — discpline in general.  It is a structure that popularized passive budgeting, over-spending, and the carrot-on-a-stick philosophy that comes from keeping up with the Jones’. More importantly and obviously more general, this is a structure that changed our society.

The change has created a set of conditions that poise the US for a dangerous and likely disastrous economic retraction — leaving us the same old questions we had when we set-out. And yet these conditions will give birth to newer, deeper questions about the future (and who we are). For while it is arguable that this explosion of virtual wealth may have incited some social mobility or led to some amount of social progression, I fear both those advances however great, have also been as equally virtual.

Certain ultimate questions take shape upon the horizon: What social or cultural changes will lead Americans to the discipline needed to excel with the changes ahead? And: Is this generation ready for a world where it must pick between dinner or a movie?

This is for John–

1.  Thinking on Your Feet

Few people might call analysis an art, but it is — ask any developer. When you have to come up with a way to fix a train when its moving along the tracks (patch a broken, already released product) , you learn fast how to think on your feet.

Another way to put it: when you develop software, over time, you begin to restructure your thoughts so that almost any inquiry can fit inside a formalized optimization problem.  It goes something like “What is the ideal way to handle this?” After answering that question in the multitude of ways its presented developing software, the programmer literally has learned optimized internal methodologies. This in turn further improves how they handle future analysis.  And before long like rolling lava, this optimized way of thinking covers all things and creates a new mental landscape. Smarter… Faster… Stronger…

Except maybe as an acrobat on the high-wire, few other jobs will provide such powerful training with thinking on your feet.

2.  Mastering Discovery

Developers need a lot of other software tools for making software.  And they are without a doubt the very definition of power user when it comes to how most of those tools were designed to be used.  So its often that a developer will discover a bug in the very tools used.  What so great about that?

These instances teach you discovery! They teach you how to remain skeptical and studious, so that one day from learned proper analysis, you are astute enough to see such problems coming down the pike and perhaps inspired to deal with things differently in your own creations– all gratifying..

Sometimes though, there is just no more instant a form of gratification than being first.  First in line.. first to make it home– first to find a problem.  Mastering discovery means just that, being first when it comes to finding (and if possible solving) problems.  But, it also means being a developer sometimes comes with all the gratification and arrogance of approaching your SAT proctor and saying suggestively, “Excuse me, sir.  I think you’ve gotten this question wrong.”

3. Being In-Demand

Lets face it, we’re surrounded by technology.  And one of the best things about being a developer — being a technologist — is simply the fact that right now, every one needs you!  Mostly due to the truths surrounding #4 on this list.

4. Making it Look Easy When its Not

One of the best things about being a software developer, is that we’re usually able to make it look incredibly easy given what the heck we’re actually doing.  We type some jumble into some window on our screen and suddenly, we can all socially network on the web;  communicate and search based on geographic location; blog about our day; become closer to one another and the information that binds us to one another.

To draw a metaphor other developers might need concrete, nails, hammers, sheet rock, a giant truck to carry it all and the laborers. Not us; a desk if you got one otherwise our lap will do and these days the obvious Internet connection, is pretty much all we need.

The reality is though, our job — software development — is intensely challenging, making the success all the more sweet albeit not so easy to share.

5. Making Friends/Solving Problems

Then there are times you can share it.

One of the most true statements about sociality with people is that shared trials and tribulations can bring people together more smoothly and easily than most other sets of circumstances.  The effort to share survival is an ultimate and immediate trust-builder.

When you and your co-worker manage to save the company $100,000 outage, keep some cracker from making it all the way into some critical system, find a faster way to complete some business process, or even just provide a friend a URL that makes their personal lives easier somehow, you’re making friends,  solving problems.  You’re contributing to something that is truly the masterwork of every developer: a unified framework for solving problems, creating a better perhaps less hectic life for everyone.

I read a rather enticing post from some other blog entitled 5 Best Things About Being a Developer. This post was enticing in that it was so shill, I could think to do no other thing in response to its content, than write: 5 Most Ridiculous Things About Being a Software Developer.  Apparently, the author had a few of his 5 Best Things happen the day he wrote it  up — how quaint.  These items I’ve scribed below are however, the things that happen to us software developers every day and are not quite as inspirational.

1. Writing Code That Works The First Time Maintaining Code That No One Wants to Exist

You know that script/program/library/object/method that you and your boss both hate.  It rears its ugly head time and again; it ruins perfectly good days.  No matter how many times you try to explain the need to scrap the code involved, no one’s interested.  Its either too time-consuming, too costly, or my favorite line of all time: “It opens us up to too much risk.”   That line should be followed by the Office Space-famed “Riiiight” every time its used.  Imagine how insane it would be if we took that perspective on any other facet of innovation: “Automobiles!?  Oh, no.  We’re sticking with horses.  That opens us up to too much risk!” From a standpoint of business and innovation, and considering this logically (heaven forbid), isn’t it much more risky to have technology running your operation where change is too terrifying a proposition?

I guess what most people don’t realize is risk is success — taking risks is what teaches you things — or as the Zen aphorism goes: The obstacle is the path.

2. Finishing a Project Never Feeling a Project is Finished

Oh, its done alright — just about, anyway — just that last 10%.  Its in the “Shoelace Phase” as I like to call it. The whole shoe is there but that leaves that last part of tying the bow.  Then, quite suddenly, someone not even involved with the shoe realizes something is missing among the myriad not-physically documented requirements, and you, Shoemaker, are back to the beginning.

Most software projects fail in just such a way, as they fail to collect accurate requirements which determine the necessary state of a release candidate.  Worse, if such a final state can be determined, the expectations of that state are rarely appropriately managed, resulting in end-user’s who feel surprised or unsatisfied with the final product; more relevant, a developer who is surprised or unsatisfied with the final product.

3.  Optimization / Re-Factoring / Reducing the # of Lines of Code Bloating / Re-Inventing the Wheel / Needlessly Increasing the Complexity of the Lines of Code

“We need something to get a file from A to B.”  You offer to use a transfer protocol and an existing transfer client.  But, no.  Thats rarely reasonable or robust enough. The route everyone loves is: E-Mail!  So, you bloat your own e-mail client that is a transfer protocol client by the time your done.  Lovely work, I suppose you could mark that under #5  — “Learning Something New and Useful.”

Of course, the only excuse for those kinds of software development sensibilities is a hefty amount of time spent smoking crack.

“Thats going to take re-factoring, perhaps re-design… ” Very common words of the software developer.  How about at least one common response? “Nothing takes a re-design, come on! Just build your more advanced (in other words, your system with a more accurately recorded set of requirements) on top of the old system (the system with nearly no recorded set of requirements that only exists in motion).”  In laymans terms:  Build me a train that runs on eggshell tracks while its on its way to its first stop — I’ll be in the back adding cars, so hurry up.

4. Seeing Marketing For a Product You Work On

As many times as this happens, I can not resist informing whoever is nearby that the entire product came about because a few people scribbled some things down on a napkin and handed them to me on a Monday morning (and told me to “be creative”).  Nor can I ignore the urge to explain precisely how much money they are making off each individual sale and how little they took into account the potential customer. The few times I’ll keep my mouth shut in these types of instances, are when the product is in fact so piss-poor there is no reasonable way to explain my involvement while at the same time absolving myself of having been a part of such worthless engineering.

Any one who sits there cheering proudly is the kind of fan-boy who does that no matter the nature of the product.  For developers, critique is king.

5. Learning Something New & Useful Ignoring Best Practices For Irrational Reasons

Remember all those wonderful things you learned in your first few projects?  Good, cherish them.  The rest of the time you’re going to be told there is little time to make use of them; no time to develop test cases; no time to actually write down requirements; no time to discuss certain aspects of certain features with the actual users; no time to explore that experimental way of filling this need, only the same-ole’ broken ways they’ve learned to accept so far.

Remember the insane look you got when you suggested making a web form to replace executing business processes through specially constructed, shared E-Mail messages? Remember how they told you The Web was just a fad?

For years people have learned from hacking — its the most ancient human art. But, it seems the US has slid so far from its foundation, that now the sheer construction and presentation of information can within itself be considered in some way criminal.

A judge acting as thought-cop told 3 MIT students they were not to discuss their latest hack. Since the halt order, the availability of the information in the presentation has fluctuated. Decius makes mention of the evolving legal manifestation on Memestreams.

I believe information like this ought to be free, and so: a complete form of the content of the halted Defcon presentation is right here (in PDF format). Enjoy.