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→  gennaio 27, 2016


articolo collegato di Martin Sandbu

Arigged market price
Almost everything about Italy’s agreement with Brussels over the country’s so-called “bad bank” policy to rid Italian banks of its problem loans should set off alarm bells. It illustrates how halfhearted is Europe’s commitment to reform the way it does banking.

The agreement, as the Financial Times reports today, involves a scheme by which the Italian state will issue financial guarantees for packages of non-performing loans that are burdening the banks’ finances. The guarantees are supposed to help the banks sell off the loans to other types of investors such as hedge funds.

To be clear, getting bad loans off Italian banks’ backs is a good idea. At about €350bn or 17 per cent of the banking system’s total loan book (three times the European average, according to the European Banking Authority’s last transparency exercise), they constitute a large patch of rot on the banking system’s balance sheet. The uncertainty over the eventual size of the losses is bound to restrain both the banks’ willingness to issue loans and their ability to raise capital as and when that becomes necessary. That fact that Italian bank lending is growing again, which is very welcome news, is nevertheless no reason not to shift this uncertainty to investors willing to bear it and whose risk exposure does not damage the wider Italian economy.

It’s such a good idea, in fact, that it’s useful to ask why banks haven’t sold off these loans to foreign hedge funds already. The Italian government’s plan has been to issue guarantees on the bad loans to facilitate their sale. The sticking point with the European Commission has been how to price the guarantees so they don’t constitute a subsidy. The agreement supposedly ensures that the insurance against losses will be sold at the market price for similar loss insurance on equally risky products.

But if it’s the market price, why does the government need to be involved at all? There are plenty of investment banks in the world that will issue loss insurance at a price. And there is little reason to think that the Italian government’s risk assessment is more reliable than a third-party investor’s: on the contrary. The very notion that the government must provide the insurance because the market doesn’t should make us suspicious of the risk it attributes (or rather not) to the loans in question.

If banks are not already selling off loans to private investors, it’s because the price at which they are willing to sell is higher than the price buyers are willing to pay. The reason for that is most probably not that the banks know the loans are better than they look. Instead, it is that a price at which buyers would be interested would expose losses that the banks would rather be without — or pretend to be without.

The only way a state guarantee can get around this problem is by making the bad loans look more attractive to investors, and thereby raise the price they would consider paying to a level that flatters the selling banks. But don’t let Rome and Brussels fool the rest of us into thinking that this is a market price: if the government needs to make it happen, it’s a price at which there is no market.

The alternative policy is, of course, to write down the value of the trouble loans to their real market value, which could be done, for example, by forcing banks to auction them off to the highest bidder with no state-sponsored insurance (banks could buy the insurance privately if they thought it would sufficiently raise the market price). That this has not happened simply illustrates that Rome remains unwilling to apply the spirit of the EU’s new bail-in rules, which requires bank shareholders and creditors to share in any losses. Yet again, a proper restructuring is too much to stomach for a national government.

As Free Lunch has complained during a previous public bout of Italian bank rescues, this unreconstructed attitude illustrates that European governments are still not comfortable with the banking reforms they signed up to in 2012. That is dispiriting but not surprising. That Brussels is willing to play along, however, is both.

Other readables
- An idea developed to address the job displacement due to trade and globalisation may well have a new lease of life in an era of job loss through automation: Lori Kletzler argues for wage insurance, which would compensate displaced workers for the lower salary in whatever job they managed to find.
- New research documents the long-term effect of migrating from a poor to a rich country by comparing winners and losers of New Zealand’s immigration lottery for citizens of Tonga.
- Harvard economist Gita Gopinath chills the optimism about India that many — including Free Lunch — had allowed themselves to feel. about India’s economy. Investment is falling, not just because reform promises have not been kept, but because of growing rot in the banking system. Seventeen per cent of Indian bank loans are in bad shape, and the cost of borrowing has soared.

→  agosto 12, 2015


articolo collegato di John Gapper

After software engineering and financial engineering comes linguistic engineering. Google this week raised its market capitalisation by $25bn by shuffling around some executive jobs and changing its name to Alphabet. Who knew that swapping your tiles in a game of corporate Scrabble was worth so much?
Everyone reads what they want into the new letters. For Larry Page, Google’s restless co-founder, Alphabet means jettisoning the cares of running a corporation and becoming a full-time inventor and venture capitalist, while Sundar Pichai takes the leadership of Google. For employees, it brings the hope of more valuable share options. For Wall Street, it spells clarity.
Only governance renegades would invent a structure with one board for Google and Alphabet, the founding triumvirate — Eric Schmidt, Sergey Brin and Mr Page — stacked above Mr Pichai, and Ruth Porat as chief financial officer of both. “Google is not a conventional company,” wrote Mr Brin and Mr Page in their 2004 founders’ letter, and by heavens they meant it.
Still, being conventional is not the best way to build an innovative business or to make profits. Warren Buffett runs a unique combination of industrial conglomerate and investment fund at Berkshire Hathaway, and it has worked well for him. He made his largest ever acquisition this week, buying Precision Castparts for $32bn.
Berkshire and Alphabet are different kinds of businesses. Mr Buffett values cash flow and mature brands; Mr Page prefers to create things. One of the purposes of this week’s reshuffle is to prove to investors that not as much as they fear is being spent on experimental start-up projects, such as Project Loon’s high-altitude balloons providing internet access to remote areas.
Mr Page’s naming of Mr Buffett as a role model in providing “long-term, patient capital” to an array of businesses is not idle. He thinks that a multi-business group with a guiding intelligence at the centre can beat the single-sector company favoured by investors. The “conglomerate discount” applied by Wall Street can be defeated.
In principle, that is an odd thing for Mr Page to believe. Google’s technology, after all, uses online auctions and markets — the wisdom of the crowd, not human curation. Why should conglomerates such as Alphabet, with their entrenched interests and fiefdoms, be better than capital markets at allocating capital efficiently? Does he trust in inside knowledge only when the insider is himself?
But he is right. Conglomerates can outperform when they exploit their advantages and remain disciplined rather than falling prey to empire-building. Their ability to build a cadre of skilled managers and to pick the right investment projects is strongest in research-intensive industries that invest in intellectual property, which is Alphabet’s territory.
Neil Bhattacharya, a professor at Southern Methodist University in Texas, found in a study that multi-business companies ran operations more efficiently than single-sector ones. They had particular advantages in areas such as software and life sciences because managers could judge more accurately than stock markets which projects were likely to succeed.
This is counterintuitive, given US investors’ liking for simplicity, and view of conglomerates as inefficient. Public conglomerates in the US are valued at discounts of 10 to 15 per cent to single-sector companies, according to Boston Consulting Group — though the discount is lower in Europe, and Asian conglomerates often trade at a premium.
The suspicion originates in the 1970s and 1980s, the era of companies such as ITT and RJR Nabisco. Michael Jensen, a Harvard professor, later criticised the “billions in unproductive capital expenditures and organisational inefficiencies” at conglomerates, praising the trend toward “smaller, more focused, more efficient” enterprises.
Big corporations remain prey to temptation. Boston Consulting Group found that the conglomerate discount is partly due to conservatism. They tend to invest heavily in their original businesses, which may be stagnant or in decline, while undervaluing newer divisions with more potential. Microsoft, for example, suffered from trying to reinforce its Windows franchise.
Yet even investors who are suspicious of quoted conglomerates delegate capital allocation and management oversight in private markets to informed insiders. Venture capital and private equity funds are both forms of conglomerate — they invest capital in a broad portfolio of businesses on behalf of outsiders who believe that such funds possess superior expertise.
Why, though, should investors seeking exposure to new companies buy shares in Alphabet, which then channels Google’s surplus cash into its own venture and growth funds, Project Loon, self-driving cars and life sciences? They could instead invest money directly in a venture capital fund. Why take the longer and less-direct road?
It depends on trust. Investors could also have bought shares in Precision Castparts last week for less than Berkshire Hathaway paid this week, but they do not complain because they trust Mr Buffett. Alphabet’s shareholders must believe in Mr Page and Mr Brin’s ability to use their intelligence and avoid the traditional pitfalls.
To judge by the shares this week, they prefer a conglomerate called Alphabet to a company that had not made plain what it was. Strange as it seems, it is a rational choice.

→  giugno 24, 2015


articolo collegato di Martin Sandbu

The referendum on UK membership of the EU is still some time off but the rhetorical attacks have begun, calling out those who wanted Britain to join the euro, most of whom have retracted their support or tried to forget it. Eurosceptics do not intend to let them get away with it. If you were so misguided as to have supported the euro then, they argue, surely we cannot take seriously your argument for continued EU membership today.
So, even if euro membership for the UK is not on the agenda, it is important to revisit the case. And the sceptics’ argument is unfounded: there is a good case to make that Britain would have fared better in the crisis inside the single currency than it did outside.
The eurozone’s terrible economic performance weighed heavily on Britain, dashing hopes of a recovery led by investment and exports. It happened because European leaders failed to pursue the best policies — in particular, their failure to end the credit crunch and loosen monetary conditions sooner, and their choice to push austerity even in economies with ample fiscal space.
The important question, therefore, is how the UK would have changed the eurozone’s policies from the inside. The answer is: in ways that would have brought growth back faster.
Take monetary policy first. The Bank of England would be a heavyweight inside the euro, and not just on account of its economy’s size. The BoE’s intellectual pole position on monetary matters and its feel for financial markets, honed by centuries in the middle of the City of London, would have made it a leader within the European Central Bank.
How would that influence have been used? The BoE understood the need for extraordinarily aggressive policy much better than its counterpart in Frankfurt. In October 2008, the ECB raised rates while the BoE embarked on a loosening that cut rates by four percentage points in less than six months. It has kept them at 0.5 per cent since March 2009, the month in which it launched an asset purchase programme that has accumulated government bonds worth a fifth of annual national income.
In contrast, the ECB raised rates twice in 2011, which helped throw the eurozone back into recession with knock-on effects on UK growth. And it took Frankfurt six years to follow Threadneedle Street’s lead on asset purchases.
Britain’s central bankers would have fought for similarly aggressive policies on the ECB’s executive board. Indeed the country’s huge, wobbly banking sector would have left them — and the rest of the ECB ­— with no other choice. (Even outside the euro, UK banks have trillions of liabilities denominated in euros, which the BoE could not have printed in the case of a run. Within the euro, that would have been the ECB’s problem.) One of the euro’s largest economies could not have been bullied the way smaller countries at risk were treated.
We cannot know how successful they would have been, but it is clear eurozone monetary policy would have tilted in a more pro-growth direction, and one that more confidently stabilised financial markets. Had the ECB started a broad bond-buying programme in early 2009, before the sovereign debt crisis was on the horizon, yields might never have spun out of control as they did.
What about fiscal policy? George Osborne, chancellor of the exchequer, can seem more fiscally conservative than Germany. But his original economic plan relied on eurozone demand for UK exports picking up the slack left by brutal deficit consolidation. From his perspective, the optimal policy would have been rapid cuts for high-deficit countries but compensatory stimulus in those with room to do so. That implies resisting Germany’s push for deficit cuts by all. This could have spared the eurozone a second downturn and shortened the UK’s patch of stagnation.
So in the fiscal sphere, too, British euro membership would have tilted policy in the direction of growth. And the influence could have been substantial. Recall Prime Minister David Cameron’s “veto” of the contractionary fiscal compact. In the event it was no veto: Germany pressed ahead, via an intergovernmental treaty committing 26 states to balanced budgets. But its intent was always to change fiscal policy for the currency union as a whole. One eurozone member could have stopped it.
To deny that British euro membership would have made the crisis better for all is to ignore the difference the UK would have made. Perhaps this is credible if one thinks Britain is as mismanaged at home and ineffectual abroad as Italy. But that is a strange view to take for those who believe Britain is so much more capable than its neighbours that it is better off outside their team.

→  giugno 14, 2015


by Wolfgang Münchau

So here we are. Alexis Tsipras has been told to take it or leave it. What should he do?
The Greek prime minister does not face elections until January 2019. Any course of action he decides on now would have to bear fruit in three years or less.
First, contrast the two extreme scenarios: accept the creditors’ final offer or leave the eurozone. By accepting the offer, he would have to agree to a fiscal adjustment of 1.7 per cent of gross domestic product within six months.
My colleague Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors. Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, I come to a figure of a cumulative hit on the level of GDP of 12.6 per cent over four years. The Greek debt-to-GDP ratio would start approaching 200 per cent. My conclusion is that the acceptance of the troika’s programme would constitute a dual suicide – for the Greek economy, and for the political career of the Greek prime minister.
Would the opposite extreme, Grexit, achieve a better outcome? You bet it would, for three reasons. The most important effect is for Greece to be able to get rid of lunatic fiscal adjustments. Greece would still need to run a small primary surplus, which may require a one-off adjustment, but this is it.
Greece would default on all official creditors – the International Monetary Fund, the European Central Bank and the European Stability Mechanism, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later.
The second reason is a reduction of risk. After Grexit, nobody would need to fear a currency redenomination risk. And the chance of an outright default would be much reduced, as Greece would already have defaulted on its official creditors and would be very keen to regain trust among private investors.
The third reason is the impact on the economy’s external position. Unlike the small economies of northern Europe, Greece is a relatively closed economy. About three quarters of its GDP is domestic. Of the quarter that is not, most comes from tourism, which would benefit from devaluation. The total effect of devaluation would not be nearly as strong as it would be for an open economy such as Ireland, but it would be beneficial nonetheless. Of the three effects, the first is the most important in the short term, while the second and third will dominate in the long run.
Grexit, of course, has pitfalls, mostly in the very short term. A sudden introduction of a new currency would be chaotic. The government might have to impose capital controls and close the borders. Those year-one losses would be substantial, but after the chaos subsides the economy would quickly recover.
Comparing those two scenarios reminds me of Sir Winston Churchill’s remark that drunkenness, unlike ugliness, is a quality that wears off. The first scenario is simply ugly, and will always remain so. The second gives you a hangover followed by certain sobriety.
So if this were the choice, the Greeks would have a rational reason to prefer Grexit. This will, however, not be the choice to be taken this week. The choice is between accepting or rejecting the creditors’ offer. Grexit is a potential, but not certain, consequence of the latter.
If Mr Tsipras were to reject the offer and miss the latest deadline – the June 18 meeting of eurozone finance ministers – he would end up defaulting on debt repayments due in July and August. At that point Greece would still be in the eurozone and would only be forced to leave if the ECB were to reduce the flow of liquidity to Greek banks below a tolerable limit. That may happen, but it is not a foregone conclusion.
The eurozone creditors may well decide that it is in their own interest to talk about debt relief for Greece at that point. Just consider their position. If Greece were to default on all of its official-sector debt, France and Germany alone would stand to lose some €160bn. Angela Merkel and François Hollande would go down as the biggest financial losers in history. The creditors are rejecting any talks about debt relief now, but that may be different once Greece starts to default. If they negotiate, everybody would benefit. Greece would stay in the eurozone, since the fiscal adjustment to service a lower burden of debt would be more tolerable. The creditors would be able to recoup some of their otherwise certain losses.
The bottom line is that Greece cannot really lose by rejecting this week’s offer.

→  maggio 16, 2015


articolo collegato di Douglas Coupland

I look at apps like Grindr and Tinder and see how they’ve rewritten sex culture — by creating a sexual landscape filled with vast amounts of incredibly graphic site-specific data — and I can’t help but wonder why there isn’t an app out there that rewrites political culture in the same manner. I don’t think there is. Therefore I’m inventing an app to do so and I’m calling it Wonkr — which somehow seems appropriate for a politically geared app. I dropped the “e” to make it feel more appy.
What does Wonkr do? Primarily, you put Wonkr on your phone and it asks you a quick set of questions about your beliefs. Then, the moment there are more than a few people around you (who also have Wonkr), it tells you about the people you’re sharing the room with. You’ll be in a crowded restaurant in Nashville and you can tell that 73 per cent of the room is Republican. Go into the kitchen and you’ll see that it’s 84 per cent Democrat. You’ll be in an elevator in Manhattan and the higher you go, the percentage of Democrats shrinks. Go to Germany — or France or anywhere, really — and Wonkr adapts to local politics.
The thing to remember is: Wonkr only activates in crowds. If you’re at home alone, with the apps switched off, nobody can tell anything about you. (But then maybe you want to leave it on . . . Many political people are exhibitionists that way.)
Wonkr’s job is to tell you the political temperature of a busy space. “Am I among friends or enemies?” But then you can easily change the radius of testability. Instead of just the room you’re standing in, make it of the block or the whole city — or your country. Wonkr is a de facto polling app. Pollsters are suddenly out of a job: Wonkr tells you — with astonishing accuracy — who believes what, and where they do it.
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Here’s an interesting fact about politics: people with specific beliefs only want to meet and hang out with people who believe the same things as themselves. It’s like my parents and Fox News . . . it’s impossible for me to imagine my parents ever saying, “What? You mean there are liberal folk nearby us who have differing political opinions? Good Lord! Bring them to us now and let’s have a lively and impartial dialogue, after which we all agree to cheerfully disagree . . . maybe we’ll even have our beliefs changed!” When it comes to the sharing of an ethos, history shows us that the more irrational a shared belief is, the better. (The underpinning maths of cultism is that when two people with self-perceived marginalised views meet, they mutually reinforce these beliefs, ratcheting up the craziness until you have a pair of full-blown nutcases.)
So back to Wonkr . . . Wonkr is a free app but why not help it by paying say, 99 cents, to allow it to link you with people who think just like you. Remember, to sign on to Wonkr you have to take a relatively deep quiz. Maybe 155 questions, like the astonishingly successful eHarmony.com. Dating algorithms tell us that people who believe exactly the same things find each other highly attractive in the long run. So have a coffee with your Wonkr hook-up. For an extra 29 cents, you can watch your chosen party’s attack ads together . . . How does Wonkr ensure you’re not a trouble-seeking millennial posing as a Marxist at a Ukip rally? Answer: build some feedback into the app. If you get the impression there’s someone fishy nearby, just tell Wonkr. After a few notifications, geospecific algorithms will soon locate the imposter. It’s like Uber: you rate them; they rate you. Easily fixed.
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What we’re discussing here is the creation of data pools that, until recently, have been extraordinarily difficult and expensive to gather. However, sooner rather than later, we’ll all be drowning in this sort of data. It will be collected voluntarily in large doses (using the Wonkr, Tinder or Grindr model) — or involuntarily or in passing through other kinds of data: your visit to a Seattle pot store; your donation to the SPCA; the turnstile you went through at a football match. Almost anything can be converted into data — or metadata — which can then be processed by machine intelligence. Quite accurately, you could say, data + machine intelligence = Artificial Intuition.
Artificial Intuition happens when a computer and its software look at data and analyse it using computation that mimics human intuition at the deepest levels: language, hierarchical thinking — even spiritual and religious thinking. The machines doing the thinking are deliberately designed to replicate human neural networks, and connected together form even larger artificial neural networks. It sounds scary . . . and maybe it is (or maybe it isn’t). But it’s happening now. In fact, it is accelerating at an astonishing clip, and it’s the true and definite and undeniable human future.
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So let’s go back to Wonkr.
Wonkr may, in some simple senses, already exist. Amazon can tell if you’re straight or gay within seven purchases. A few simple algorithms applied to your everyday data (internet data alone, really) could obviously discern your politics. From a political pollster’s perspective, once you’ve been pegged, then you’re, well, pegged. At that point the only interest politicians might have in you is if you’re a swing voter.
Political data is valuable data, and at the moment it’s poorly gathered and not necessarily well understood, and there’s not much out there that isn’t quickly obsolete. But with Wonkr, the centuries-long, highly expensive political polling drought would be over and now there would be LOADS of data. So then, why limit the app to politics? What’s to prevent Wonkr users from overlapping their data with, for example, a religious group-sourcing app called Believr? With Believr, the machine intelligence would be quite simple. What does a person believe in, if anything, and how intensely do they do so? And again, what if you had an app that discerns a person’s hunger for power within an organisation, let’s call it Hungr — behavioural data that can be cross-correlated with Wonkr and Believr and Grindr and Tinder? Taken to its extreme, the entire family of belief apps becomes the ultimate demographic Klondike of all time. What began as a cluster of mildly fun apps becomes the future of crowd behaviour and individual behaviour.
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Wonkr (and Believr and Hungr et al) are just imagined examples of how Artificial Intuition can be enhanced and accelerated to a degree that’s scientifically and medically shocking. Yet this machine intelligence is already morphing, and it’s not just something simple like Amazon suggesting books you’d probably like based on the one you just bought (suggestions that are often far better than the book you just bought). Artificial Intuition systems already gently sway us in whatever way they are programmed to do. Flying in coach not business? You’re tall. Why not spend $29 on extra legroom? Guess what — Jimmy Buffett has a cool new single out, and you should see the Tommy Bahama shirt he wears on his avatar photo. I’m sorry but that’s the third time you’ve entered an incorrect password; I’m going to have to block your IP address from now on — but to upgrade to a Dell-friendly security system, just click on the smiley face to the right . . . And none of what you just read comes as any sort of surprise. But 20 years ago it would have seemed futuristic, implausible and in some way surmountable, because you, having character, would see these nudges as the trivial commerce they are, and would be able to disregard them accordingly. What they never could have told you 20 years ago, though, is how boring and intense and unrelenting this sort of capitalist micro-assault is, from all directions at all waking moments, and how, 20 years later, it only shows signs of getting much more intense, focused, targeted, unyielding and galactically more boring. That’s the future and pausing to think about it makes us curl our toes into fists within our shoes. It is going to happen. We are about to enter the Golden Age of Intuition and it is dreadful.
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I sometimes wonder, How much data am I generating? Meaning: how much data do I generate just sitting there in a chair, doing nothing except exist as a cell within any number of global spreadsheets and also as a mineable nugget lodged within global memory storage systems — inside the Cloud, I suppose. (Yay Cloud!)
Did I buy a plane ticket online today? Did I get a speeding ticket? Did my passport quietly expire? Am I unwittingly reading a statistically disproportionate number of articles on cancer? Is my favourite shirt getting frayed and is it in possible need of replacement? Do I have a thing for short blondes? Is my grammar deteriorating in a way that suggests certain subcategories of dementia?
In 1998, I wrote a book in which a character working for the Trojan Nuclear Power Plant in Oregon is located using a “misspellcheck” programme that learnt how users misspell words. It could tell my character if she needed to trim her fingernails or when she was having her period, but it was also used down the road to track her down when she was typing online at a café. I had an argument with an editor over that one: “This kind of program is simply not possible. You can’t use it. You’ll just look stupid!” In 2015 you can probably buy a misspellcheck as a 49-cent app from iTunes . . . or upgrade to Misspellcheck Pro for another 99 cents.
What a strange world. It makes one long for the world before DNA and the internet, a world in which people could genuinely vanish. The Unabomber — Theodore “Ted” Kaczynski — seems like a poster boy for this strain of yearning. He had literally no data stream, save for his bombs and his manifesto, which ended up being his undoing. How? He promised The New York Times and Washington Post that he’d stop sending bombs if they would print his manifesto, which they did. Then his brother recognised his writing style and turned him in to the FBI. Machine intelligence — Artificial Intuition — steeped in deeply rooted language structures, would have found Kaczynski’s writing style in under one-10th of a second.
Kaczynski really worked hard at vanishing but he got nabbed in the 1990s before data exploded. If he existed today, could he still exist? Could he unexist himself in 2015? You can still live in a windowless cabin these days but you can’t do it anonymously any more. Even the path to your shack would be on Google Maps. (Look, you can see a stack of red plastic kerosene cans from satellite view.) Your metadata stream might be tiny but it would still exist in a way it never did in the past. And don’t we all know vanished family members or former friends who work hard so as to have no online presence? That mode of self-concealment will be doomed soon enough. Thank you, machine intelligence.
But wait. Why are we approaching data and metadata as negative? Maybe metadata is good, and maybe it somehow leads to a more focused existence. Maybe, in future, mega-metadata will be our new frequent flyer points system. Endless linking and embedding can be disguised as fun or practicality. Or loyalty. Or servitude.
Last winter, at a dinner, I sat across the table from the VP of North America’s second-largest loyalty management firm (explain that term to Karl Marx), the head of their airline loyalty division. I asked him what the best way to use points was. He said, “The one thing you never ever use points for is for flying. Only a loser uses their miles on trips. It costs the company essentially nothing while it burns off swathes of points. Use your points to buy stuff, and if there isn’t any stuff to buy,” (and there often isn’t: it’s just barbecues, leather bags and crap jewellery) “then redeem miles for gift cards at stores where they might sell stuff you want. But for God’s sake, don’t use them to fly. You might as well flush those points down the toilet.”
Glad I asked.
And what will future loyalty data deliver to its donors, if not barbecues and Maui holidays? Access to the business-class internet? Prescription medicines made in Europe not in China? Maybe points could count towards community service duty?
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Who would these new near-future entities be that want all of your metadata anyway? You could say corporations. We’ve now all learnt to reflexively think of corporations when thinking of anything sinister but the term “corporation” now feels slightly Adbustery and unequipped to handle 21st-century corporate weirdness. Let’s use the term “Cheney” instead of “corporation”. There are lots of Cheneys out there and they are all going to want your data, whatever their use for it. Assuming these Cheneys don’t have the heart to actually kill or incarcerate you in order to garner your data, how will they collect it, even if only semi-voluntarily? How might a Cheney make people jump on to your loyalty programme (data aggregation in disguise) instead of viewing it with suspicion?
Here’s an idea: what if metadata collection was changed from something spooky into something actually desirable and voluntary? How could you do that and what would it be? So right here I’m inventing the metadata version of Wonkr, and I’m going to give it an idiotic name: Freedom Points. What are Freedom Points? Every time you generate data, in whatever form, you accrue more Freedom Points. Some data is more valuable than other, so points would be ranked accordingly: a trip to Moscow, say, would be worth a million times more points than your trip to the 7-Eleven.
Well then, what do Freedom Points allow you to do? They would allow you to exercise your freedom, your rights and your citizenship in fresh modern ways: points could allow you to bring extra assault rifles to dinner at your local Olive Garden restaurant. A certain number of Freedom Points would allow you to erase portions of your criminal record — or you could use Freedom Points to remove hours from your community service. And as Freedom Points are about mega-capitalism, everyone is involved, even the corn industry — especially the corn industry. Big Corn. Big Genetically Modified corn. Use your Freedom Points that earn discount visits to Type 2 diabetes management retreats.
The thing about Freedom Points is that if you think about them for more than 12 seconds, you realise they have the magic ring of inevitability. The idea is basically too dumb to fail. The larger picture is that you have to keep generating more and more and more data in order to embed yourself ever more deeply into the global community. In a bold new equation, more data would convert into more personal freedom.
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At the moment, Artificial Intuition is just you and the Cloud doing a little dance with a few simple algorithms. But everyone’s dance with the Cloud will shortly be happening together in a cosmic cyber ballroom, and everyone’s data stream will be communicating with everyone else’s and they’ll be talking about you: what did you buy today? What did you drink, ingest, excrete, inhale, view, unfriend, read, lean towards, reject, talk to, smile at, get nostalgic about, get angry about, link to, like or get off on? Tie these quotidian data hits within the longer time framework matrices of Wonkr, Believr, Grindr, Tinder et al, and suddenly you as a person, and you as a group of people, become something that’s humblingly easy to predict, please, anticipate, forecast and replicate. Tie this new machine intelligence realm in with some smart 3D graphics that have captured your body metrics and likeness, and a few years down the road you become sort of beside the point. There will, at some point, be a dematerialised, duplicate you. While this seems sort of horrifying in a Stepford Wife-y kind of way, the difference is that instead of killing you, your replicant meta-entity, your synthetic doppelgänger will merely try to convince you to buy a piqué-knit polo shirt in tones flattering to your skin at Abercrombie & Fitch.
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This all presupposes the rise of machine intelligence wholly under the aegis of capitalism. But what if the rise of Artificial Intuition instead blossoms under the aegis of theology or political ideology? With politics we can see an interesting scenario developing in Europe, where Google is by far the dominant search engine. What is interesting there is that people are perfectly free to use Yahoo or Bing yet they choose to stick with Google and then they get worried about Google having too much power — which is an unusual relationship dynamic, like an old married couple. Maybe Google could be carved up into baby Googles? But no. How do you break apart a search engine? AT&T was broken into seven more or less regional entities in 1982 but you can’t really do that with a search engine. Germany gets gaming? France gets porn? Holland gets commerce? It’s not a pie that can be sliced.
The time to fix this data search inequity isn’t right now, either. The time to fix this problem was 20 years ago, and the only country that got it right was China, which now has its own search engine and social networking systems. But were the British or Spanish governments — or any other government — to say, “OK, we’re making our own proprietary national search engine”, that would somehow be far scarier than having a private company running things. (If you want paranoia, let your government control what you can and can’t access — which is what you basically have in China. Irony!)
The tendency in theocracies would almost invariably be one of intense censorship, extreme limitations of access, as well as machine intelligence endlessly scouring its system in search of apostasy and dissent. The Americans, on the other hand, are desperately trying to implement a two-tiered system to monetise information in the same way they’ve monetised medicine, agriculture, food and criminality. One almost gets misty-eyed looking at North Koreans who, if nothing else, have yet to have their neurons reconfigured, thus turning them into a nation of click junkies. But even if they did have an internet, it would have only one site to visit, and its name would be gloriousleader.nk.
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To summarise. Everyone, basically, wants access to and control over what you will become, both as a physical and metadata entity. We are also on our way to a world of concrete walls surrounding any number of niche beliefs. On our journey, we get to watch machine intelligence become profoundly more intelligent while, as a society, we get to watch one labour category after another be systematically burped out of the labour pool. (Doug’s Law: An app is only successful if it puts a lot of people out of work.)
The darkest thought of all may be this: no matter how much politics is applied to the internet and its attendant technologies, it may simply be far too late in the game to change the future. The internet is going to do to us whatever it is going to do, and the same end state will be achieved regardless of human will. Gulp.
Do we at least want to have free access to anything on the internet? Well yes, of course. But it’s important to remember that once a freedom is removed from your internet menu, it will never come back. The political system only deletes online options — it does not add them. The amount of internet freedom we have right now is the most we’re ever going to get.
If our lives are a movie, this is the point where the future audience is shouting at the screen, “For God’s sake, load up on as much porn and gore and medical advice, and blogs and film and TV and everything as you possibly can! It’s not going to last much longer!”
And it isn’t.

→  maggio 15, 2015


AOL has 4,000 employees but only one Digital Prophet. That would be David Shing, or rather Shingy . He earns his six-figure salary by telling companies about branding and the internet, and has an elaborate mullet.

One of Shingy’s go-to platitudes is that mindshare (whatever that means) equals market share. In AOL ‘s case the two seem to diverge. The public perception of the company – among those who realise that it still exists – is associated with the dial-up modems of the 1990s. In terms of market share, AOL has carved out a niche in the advertising business. In online video advertising, it has the fourth-largest reach in the US, MoffettNathanson reckons. Its programmatic advertising sales – using automation to distribute ads across AOL-owned content and sites such as Facebook and Twitter – grew 80 per cent from a year ago in the most recent quarter.

Verizon ‘s $4.4bn acquisition of AOL is the latest in a string of ad-tech deals, which include Yahoo ‘s purchase of BrightRoll and Comcast ‘s of Freewheel. Set aside AOL’s content and dial-up businesses, and the price tag is slightly more than two times its trailing annual ad sales. That looks cheap next to the Freewheel deal, at 10 times, or the BrightRoll deal, at six. Verizon plans to integrate some of AOL’s video advertising technology into an à la carte mobile video offering to be launched this summer.

The big question is how much more Verizon will have to do to make its new ad business profitable; it makes no money at present. Few details have been disclosed. But licensing or creating content is costly (just ask Netflix ). Shingy approves of the deal, of course, saying that the world of context and content is replacing the age of social media.

For Verizon, buying an ad tech company is the first and easiest step towards creating a video business. Will the next steps will go as smoothly? Shingy’s confidence is not infectious.