Saturday, August 14, 2010

"Don't be Evil" - End of Open Internet.

When you see someone tries to fix something that  is not broken you can conclude that either he is crazy or there is more to it than meets the eye.

The ongoing debate about net neutrality gained fierce momentum with Google and Verizon reportedly  (I first read it in NY Times) agreeing in principle about ending the internet as we know now. If true, that would be the end of "Open Internet" as we see it today.

Google and Verizon came up with a two-page policy document. The full text is available here. Whilst a cursory read would seem that their intention is harmless, read between the lines:

Here is "Five sentences from the Google/Verizon proposal that could change the net forever" -  Matt Schafer's Blog:

1. “Prioritization of Internet traffic would be presumed inconsistent with the non-discrimination standard, but the presumption could be rebutted.”

Interpretation: Favoring some traffic over other traffic is not okay, but an ISP could do it anyway if they have a good argument for it.

2. “Broadband Internet access service providers are permitted to engage in reasonable network management… (and) to prioritize general classes or types of Internet traffic.”

Interpretation: ISPs can throttle/prioritize traffic in whatever way they feel is necessary for the sake of the network.

3. “Because of the unique technical and operational characteristics of wireless networks, and the competitive and still-developing nature of wireless broadband services, only the transparency principle would apply to wireless broadband at this time.”

Interpretation: Since wireless Internet is “different” from wired Internet, net neutrality is not applicable to wireless Internet.

4. “The FCC would enforce the consumer protection and nondiscrimination requirements through case-by-case adjudication, but would have no rulemaking authority with respect to those provisions.”

Interpretation: The FCC has no authority to make rules to keep the Internet a level playing field for everyone.

5. “The FCC would have exclusive authority to oversee broadband Internet access service, but would not have any authority over Internet software applications, content or services.”

Interpretation: The FCC has no power to regulate ISPs at any level, but it can “oversee” ISPs and punish them after the fact with $2 million dollar fine.

Because we are so used to open Internet all along, it is really hard to imagine it being closed. So What does it mean?

It means that till now, Internet was a freeway with no tolls. It will now have two lanes. One fast lane and one slow lane. The fast lane would only be affordable to those who are willing to pay and the majority of smaller players would have to content with the slower lane.

Whilst debate is going on amongst consumer class expressing concern over discrimination which was hitherto unimaginable, the real danger lies somewhere else: It hinders entrepreneurship on the Internet.

We, as users, may not be required to pay in the short run - but in the long run they can charge us. But it will definitely affect those internet businesses who are not willing to pay their ISP for "faster" delivery of content to consumer.

Imagine you happened to invent an amazing algorithm for search. Far superior to Goole's algorithm and your search results are stunningly more relevant and accurate than that of Google. And, you are operating out of your garage and dreams about taking on Google - just the same way Sergey and Larry took on Yahoo! when they started Google.

Here comes the punch! Google pays a billion dollars to ISPs to deliver their search results faster and your  search results, though really good, comes excruciatingly slow because you cant afford to pay as much as Google.

The winner here is Google and the losers are many. main loser is the consumer. We are denied good technology because the inventor is discriminated by the ISP based on how much he can pay.

Well, I know this is a bad example because if you happen to stumble upon an algorithm like that, you will have the backing of at least one big VC - and money will not be a problem. But what if you don't want to dilute your equity and decide go go without a VC?

Extend the impact to other businesses: Bloggers, Online tutors, Tradesmen who advertise on the internet and a whole heap of people who make a living out of it and aspires to make it big one day. What happens to them? Those who can afford to pay will survive and those who can't will perish.

Imagine this happened in the '90s when Google was still in the garage. Yahoo! might have shut Google out and Google would never have born. You would not be using  gmail, google earth or google maps.  Or Amazon - Barnes & Nobles would have shut them out.

So, What is really happening?

What is happening right now is that the little guys are able to take on established, big, brick and mortar businesses with their intelligence and innovation alone. Internet is the only platform where the small guy can even dream of taking on the big guys. And big businesses don't like it. They want to block the way for ever and would like to be in a position of power.

Google is getting fat and doesn't like idea of sharing eyeball revenue with anyone. Well, it is happening. With more potential competition out there in garages, big companies don't like the idea of their share of the pie getting smaller and smaller. Facebook's ad revenue projections for next year is a billion dollars. Where does this come from? I bet half of it would have been Google's if Facebook didn't exist.

All the innovations so far on the internet was possible because the platform was same for you, me or Microsoft. For the first time in the history of the world, something was out there which was truly democratic. And like all good things, it wont last.

Luckily (or is it?), Google and Verizon reportedly agree (or so it would seem) that the wired internet would be spared from the discrimination. And that discrimination would only between different types of data - for example - video, audio and data. That means, wireless internet is open for discrimination. Why is that?

 I can't pinpoint what exactly it is. It is a hunch: it has something to do with Android. Android is outpacing all other platforms - Apple's iOS or Nokia's Symbian.

I think wireless internet is the future. No, I am sure now. Why else would the big corporations are salivating on it - leaving room for interpretations? Why else would Google and Verizon fix something that is not broken?

Sunday, April 18, 2010

"What is our Bauxite doing in their mountains? What is our furniture doing in their forests?"

Not my lines, of course. Arundhati Roy's. She is talking about (See her Essays: "Mr Chidambaram’s War" and "Walking with the comrades") multi-trillion dollar loot. This time it is from the mineral belt - Jharkand, Chatisgarh, Orissa and parts of West Bengal, Maharashtra and Andhra Pradesh. On one side: the tribals living in these forests and mountains for centuries, who will never survive in what we call our civilized society.  Other side: Government of India, Respective state governments and powerful companies like: Vedanta Resources Plc (P. Chidambaram was a director in this company), Hindalco, Tata Steel, Jindal Iron and Steel, Mittal Group, Essar Group etc, and... all the mainstream medias.

First reaction of the intellectually disabled: Oh! These anti-development talk.

We are talking about $4 trillion in the form of Bauxite (key raw material for production of Aluminum) in the state of Orissa alone - and that itself is 4 times India's GDP - to give you an idea about the size.

Thats good - India will get $4 trillion! - Just from Orissa! Vow! 

Will we? For every $1, we get 7 cents. 93 cents would go to the corporations. Thats $3720 Billion for Big corporations (comprising of say, 1000 rich people) and $280 Billion for the development of 1100 Million People. How does that sound? 

After Kickbacks and layers of corruption and inherent inefficiencies, we would be lucky to walk away with a net of $100 billion. The price: The elegant Mountains and virgin forests, the ecosystem, a whole civilization - and a permanent scar in our conscience.

By the time the welfare money (if, any) filters through a million levels of bureaucracy, the needy would be long gone - they would be left begging in our cities.

It is estimated every square inch of land in these areas are covered by MoUs with the corporations. And there are more than 100 MoUs signed so far.

As always, the labelling was done: The tribals are "Maoists" and are therefore the "gravest internal security threat" according to our Prime Minister.

Arundhati Roy calls the choice the "Bush Binary" (Are you with Saddam or US?)  - you are either with us or with them. As if there is no choice in between. Most importantly, as if that is a choice.

So, on whose side are you? Are you pro development or anti-development? Does being on the side of tribals mean that you are against progress? Are things that simple? Watch...

Has she mocked Gandhi? I dont think so...

And who are these Maoists?

For the greener ones amongst us, production of 1 tonne of Aluminium will use 1400 Tonnes of water and would leave 15 tonnes of CO2 into the atmosphere. See "Keep the Bauxite in the Mountains" by Felix Padel & Samarendra Das.

How much can you pay as compensation for these people? And how do you fix the social responsibility for the big corporations? I always felt Corporate Taxes are not a good enough yardstick. There should be a system of extraction of money from these corporations based on some broader criteria like human costs, current and future impact on ecosystems etc. In other words, there should be a holistic view rather than the profit view.

If you have made up your mind to sell the family silver, why sell it cheap?  Why not 80 cents for you and 20 Cents for the corporations? I am sure that 20 cents will cover the cost of production, marketing and associated dirt.

Remember, we help these companies steal them. We work for them, we make money for them. By not reacting, we are responsible.

What can we do? I have a solution. We can buy shares in these companies and make an immediate profit. Then dump it and donate half the money to fund resistance.

The ending trouble

We all suffer from "Starting Trouble"...

Just to prove I was alive all the time... (click on the picture - It is my draft list- list of incomplete blogs) 

Almost all of the blogs I published including this one might have had an editing time of say, 3 hours. The idea is, the weak eggs go to the draft. They are allowed to hatch on their own until they become the Godzillas I can't ignore. 

Either the Godzillas don't scare me or I have ending trouble.

Saturday, July 11, 2009

Why Gold?

From about 1815 to 1915, all the major currencies like Pound, Franc, Dollar, Mark etc was gold backed. This meant their exchange rates were also linked to gold. One Dollar would be defined as say, 1/30th of an ounce of gold. Pound was say, 1/6th of an ounce of gold. Therefore the exchange rate between USD and Pound would be $1 = 0.2 Pounds.

This was simple mathematics and it made sense. If you had $30, you can take it to a Bank and demand 1 ounce of Gold. The banks were obliged to keep gold reserves. They were fully solvent.

First world war changed this. Urgency for financing the war gave way to partial gold back-up. Governments started printing currency notes without gold back up.

Thus, currencies became partially gold based. They became non-convertible (to gold) nationally. But internationally, gold back-up continued. All transactions between international banks, exports etc were backed by gold.

Even this partial gold base prevented countries from printing paper money. How?

Lets say one country prints paper money to boost their domestic money supply. What will happen?

As money supply increases, prices will rise. It would be much cheaper to buy imported goods than to produce. Import would mean outflow of gold. As gold reserves are limited, they will be forced to keep this in check and look for efficiency in production or reduction in money supply.

Simple, isn't it?

If the world had kept gold standard, the economic growth as we see today would not have happened. But the growth would have been more natural and organic.

Fractional reserve banking system was the steroid. It lead to credit creation. $1 million in printed currency based on $10000 gold reserve would become $10 million in credit. This credit would drive the economy. So, $10,000 became $10 Million.

Worldwide, especially in the western world, all the governments are used to this opium of fiat currency. They are addicted to it. The parasite took over the host and became the host itself. Gold gave way to paper.

What is finance? It is just a way to facilitate the meeting between capital and the generation of goods and services, which we call economy. But, now finance is the king. Real capital and real economy - for which we introduced finance - is forgotten. In the U.S, all the growth in the last 25 years has been in finance. Clever guys created instruments called derivatives which could be based on the price of anything from pepper to oil or the thickness of your backyard grass. The turnover of these derivatives were higher than the turnover of actual commodity or instrument they supposedly represent.

It is a bit like self-fulfilling betting results. I will explain.

Imagine you are a part of a vast digital network of gamblers, numbering in the millions. You are betting your substantial portfolio on the results of a general election happening in your country. There are two candidates - X & Y. You see that in the betting market, X has more odds, meaning the betting market expects Y to win. Even though ideologically you are with X, you want to win and hence you bet on Y. Now that you are committed, you will make sure that not only you, but all your friends and relatives vote for Y on the voting day. The betting market now influenced your real life.

We forget why the betting market was skewed to Y in the first place. It is because big money got there before you did and made it look like a win situation for their man Y. You were part of the crowd lead by these pied pipers.

This is what happened in the case of oil last year. Large business houses were betting on it, driving the real price up. It happens to commodities, your food, real estate, anything and everything. Warren Buffet calls these derivatives "financial weapons of mass destruction".

Niall Ferguson, the famous economic historian, wrote an article in Vanity Fair in 2008:

"We have witnessed the death of a planet. Call it Planet Finance. Two years ago, in 2006, the measured economic output of the entire world was worth around $48.6 trillion. The total market capitalization of the world’s stock markets was $50.6 trillion, 4 percent larger. The total value of domestic and international bonds was $67.9 trillion, 40 percent larger. Planet Finance was beginning to dwarf Planet Earth"

The facilitator became larger than the deal. Parasite became bigger than the host.

Let us come back to gold. Do you know that there is a big gap between the supply and demand of gold? The total world wide demand for gold is about 4000 tonnes per annum. The supply is only about 2500 tonnes. But then, why aren't we seeing the price rise in gold that it actually deserves? Who is filling this gap? Who is keeping it down artificially? What is their purpose? How do they do it?

I know the who part. It is western central banks and the U.S Federal Reserve.

Why? Beacuse this is very vital to their strong dollar policy. The low price of gold has a sort of a calming effect in the economy. To maintain the illusion that that the paper you are holding is valuable. Not to cause a flight towards the precious metal. Which would be disastrous and destructive now.

How? I actually do not know. May be they are selling it from their reserves. Deceit has its own ways. You will get more answers when Ron Paul's bill to audit the Fed passes in the Senate.

For 6000 years, mankind held gold as valuable. All these years what we have managed to dig out is about the size of a 20m cube - about 140,000 tonnes.

Here is how I see it. This may be crazy - may be there is no scientific basis. But this is how my mind works. I am just a common man. Prove me wrong if you can.

If this were the original and only money, this should represent that $48.6 trillion that Niall Ferguson was talking about. I mean what the world is truly worth. Any growth would be offset by additional mining of gold.

Now I do my math. You will not find this anywhere. It is my original thought.

I will round things up. $48.6 trillion to $50 Trillion.

$50 Trillion divided by 140,000 tonnes should give me intricate value of gold per tonne. $50*1000*1000*10,00000 divided by 140,000*1000*1000. Then you multiply the result by 31.1034768 to convert it to $ value per ounce.

This works out to be about $11,108 per ounce of gold. This is the real intrinsic value. The current value is about $900.

Add the frenzy on top and on a speculative day, it could go to $20,000 per ounce!! People are mad, they are crazy. You can't predict what will happen once hell breaks loose. There simply aren't any financial or economic models available.

As the D-day approaches, you will see a sudden plunge in the value of gold. I bet my dear life that this will happen. That is only a red herring. Big money is trying to make you sell so that they can buy it at low value. Don't be disheartened. Keep buying. It should pay off.

Therefore, I am with 6000 year history. Not with a piece of paper invented about a couple of hundred years back. I want to make sure I am holding the real asset at the time of reckoning. My minimum point of argument would be not to look like an idiot at the crucial time. I don't want to get caught swimming naked when the tide turns low.

What about you?

Thursday, July 9, 2009

The end game is on

Cybersecurity Act of 2009, if passed in the U.S Senate, will be the beginning of the end of free speech. This bill gives the President virtually complete authority to do anything with the internet.

The similarities are unmistakeable.

Amidst 9/11, they passed an Act which gave them power to arrest and jail a person indefinitely without trial.

The TARP program was announced with a veiled threat of an impending market collapse. Billions went into executive paychecks and bonuses. Trillions of dollars went to Wall Street extortionists.

Now the U.S government is creating a situation of terror to pass this bill. They are screaming of cyber attacks on all government agency websites which could affect national security. You will see some dramas if this bill doesn't pass. Some of the "crucial" websites would be under "attack" in 9/11 mode!

The real stories are always ignored in CNN, Foxtel,CNBC etc. Only a few of us ignore mainstream media and seek the truth from internet. Now they are taking it over.

Both work for the same masters. Bush and Obama. Latter is the made up face of imperialism.

What are you doing - you Americans? Watching TV 6 hours a day and eating burgers while your freedom is being snatched away from you?

Shame on you.

Sunday, June 21, 2009

All about Dollar

U.S Dollar is going through its most critical phase now. It is facing an unprecedented test of confidence. All these years, U.S was exporting paper ($) and importing real goods. This may come to an end soon.

Lets study the history of the mighty dollar first. Dollar was fully pegged against gold from 1800's onwards. An ounce of gold was worth around $20. This price never fluctuated much till 1970's - mostly it was in $20-$22 price band. Thus, for nearly two centuries, the value of the dollar remained stable against the gold.

Then, the most infamous president in U.S history, the most crooked of them all, Richard Nixon, removed the gold standard and made it a fiat currency - well not quite - he pegged it against the oil. In a masterstroke, he laid the foundation of dollar imperialism by forcing the biggest oil exporter in the world (Saudi Arabia) to trade its oil in dollar.

That single act changed everything. Dollar became the world's most preferred currency. If China wants to import oil, they have to pay in USD. Not in any other currency. They have to earn USD first by exporting goods to U.S.

This is the reason why no central bank in the world wants their currency to rise against the dollar. China is artificially controlling the value of yuan so that it will not rise against the dollar. If it does, well - it actually is - it will be expensive for the U.S to buy goods from China and China won't get dollar through export. And if it doesn't, China won't be able to buy oil.

Through that single act, U.S managed to get an unlimited credit card. A card for which there is no repayment - not even a minimum amount due.

U.S had gone a step further with oil exporting countries. Not only they have to accept USD as the trading currency, but they will have to invest the proceeds - USD - into U.S treasury bonds. U.S will use the interest on those bonds as a return for lending them their military and other technologies - for example construction.

This is called petro-dollar recycling. U.S will print this worthless papers called treasury bonds, sell them to these suckers and the suckers will feed U.S with their resources. By suckers I mean every other country on earth.

Then U.S went one step further. If anyone steps out of the line (like Saddam did - he tried to trade oil for Euro), they will use military force. And how does U.S feed this most destructive force on Earth? With your money!!

It is estimated that the recent bailout of U.S economy cost anything between 12-15 trillion dollars. How did they get the money? They just printed it. Conjured it out of thin air! None of those trillions went into real economy like commodities or other goods and services. All of it had gone to financial services - mostly false economies. It went to those who had made a casino out of U.S economy - who literally blackmailed U.S Government with the threat of bankruptcy.

This is not the end of the story. Worse is not over yet. U.S will need another infusion of trillions of dollars. We have only seen the beginning.

Citibank recently reported a profit after the bailout. I am not sure about the numbers. But it was pathetically clear that it was done to boost the share price. Months before that profit announcement, the regulators amended an accounting treatment to suit Citibank.

Suppose you have an investment for $250 Million dollars in some bonds or fancy financial instruments. The current market value of it is $1 Million. The old accounting practice was mark to market - meaning you are supposed to record the market value and write $249 million loss to your P&L. This is conservative, sensible accounting. If I am not mistaken, in India, the norms are tighter. If the market value has gone up to say $500 million, still you will record it at $250 Million. You are not allowed to show the notional profit in your P&l, unless you actually gain the profit by physically selling the investment.

Do you know what U.S Government did? They invented a new accounting method. Even if the value of your investments fell down by 99%, you can still value it at its original cost or even higher, depending upon what a computer model predicted as its potential value. Translated into layman's words - never trust the balance sheet of any U.S Bank from now on.

Why did the U.S government allowed this? Because they are the biggest shareholders of Citibank. They wanted Citibank's share price to go up at any cost. They wanted the Federal Reserve balance sheet to look healthy now that people like Ron Paul are demanding a Federal Reserve audit.

Do you know how the balance sheet of the Federal Reserve will look like?

On the liability side, $15 Trillion. On the assets side, companies like Citibank, Fannie mae, Freddie Mac etc.

How do you think a Country which borrows $4 billion a day will be able to pay back these trillions? If I were the creditor to U.S, what would I do? I would try to find out an ingenious way to come out of this s*it.

That is what countries like China, Saudi and Japan are doing. They are all thinking hard to come out of this unscathed. If dollar loses its reserve currency status, all these creditors would lose trillions because the treasury bonds would become worthless. Not that it already isn't.

There could be 3 situations. situation one - the bullet become larger. Somehow, all these will subside and we all wait for the next bubble to burst and then the bailout becomes much, much larger and eventually uncontrollable. Instead of biting the bullet now, you bite an cannon ball later and die.

Situation two - all these U.S debts would be consolidated in a bank like IMF as SDR's - special drawing rights. That would mean that instead of dollar, international transactions would be in some other form like the SDRs. I have an inkling this is the way things would eventually go.

Situation three - Instead of spending, U.S begins to save. Instead of importing stuff, they consume less and begin to export stuff. This would mean a 180 degree turnaround - a complete U turn. Unless the rest of the world sees a clear, tangible shift towards this, most likely it would be situation 1 first and then situation 2.

In situation 2, USD would be worthless and U.S would be indebted in some other sensible global currency forever. Hyperinflation would hit U.S economy. In comparison Zimbabwe (inflation - 1000000%) would look like a rich country.

The problem with one country controlling the reserve currency is that unless that country shows fiscal responsibility, the rest of the world suffers - of no reason their own. Like Iceland did. Like the rest of the world suffers now.

To my friends in U.S and elsewhere : switch your investments to Gold or real estate in an asian country like India. India's economy is really unique. Exports form only 20% or less of our GDP. Our domestic economy is one of the strongest in the world. Holding onto your USD or related instruments, you are taking the risk of your life.

You can make money out of this. Short USD and go long on gold.

Peter Schiff tells us a story about asians and an american in an island:

"Some people that got stranded on an island, and I think it was 6 or 7 were Asians and there was one American and as soon as they were on the island they had to divide up the jobs. And one Asian was given the job of fishing, the other one was hunting, one of them got the job of gathering fire wood. So they all had jobs, and the American was assigned the job of eating. And so at the end of the day, they would all gather around and prepare this feast and the American would sit there and eat it. But he would´nt eat it all, he´d just leave enough crumbs so he could give to the 6 Asians so they could go on and repeat it again tomorrow, spend all day preparing a meal for the American to eat. Now, the way modern economists would look at it, they would say “Well, this American is vital to the whole island economy. Without him nobody would have to fish, nobody would have to hunt, nobody would have to gather fire wood. He is creating all this employment on the island”. But the reality is, every Asian on that island, his lot in life would be dramatically improved if they kicked the American off the island because now they would have a lot more to eat or maybe they wouldn´t have to spend all day hunting and fishing and they can lay on the beach a little bit

Thats the silver lining of the whole thing. If the dollar collapses, the rest of the world may face a temporary crisis. But the living standards for the rest of us would be much, much higher. Asian countries would be the biggest beneficiaries.

Lets kick this cancer out before it is too late.

Note: Please also see my earlier post on the subject:

Thursday, June 18, 2009

"Thakarachenda" - a movie by Avira Rebecca.

Ever tasted hunger? Ever faced homelessness? Ever felt what it is like to be at the receiving end every day of your life?

If you want to know how life is at the bottom of the pyramid, watch this movie.

Click on the title - it will take you to the story.

Good movies in Malayalam are so hard to come by these days. It was released (?) in 2007.

Watch it, my friends. Experience how it is like to be poor.

If possible, watch it with your kids. Tell them about poverty. Let them know that the comforts we take for granted carry a price tag.

This is an honest movie. And it shows.