SFA - It probably deserves an acronym at this point.   The US Senate has failed to take up comprehensive Climate /Energy reform.  Paul Krugman identified several culprits, like greed and John McCain's cowardice.   I'm not so sure.  

It seems like the American people must be held responsible for the choices they (we) are making collectively.  The Senate mostly just reflects what is common sense and while most Americans now believe there is a Problem (with a capital P_) with the global climate, they really aren't sure what to do about it.  Sure, its ignorant and myopic, but that's not new.   Money talks, the masses tune out. 

Those of us who have seen this juggernaut of Climate disaster coming are too caught up in the righteousness of the moment.  Yep, the planet is cooking.  Yep, the oil and coal industry is bad.  Yep, most people just want to go back to watching reality TV.  So, now what??? 

“We can remain the world's leading importer of oil, or we can become the world's leading exporter of clean energy. We can allow climate change to wreak unnatural havoc, or we can create jobs utilizing low-carbon technologies to prevent its worst effects. We can cede the race for the 21st century, or we can embrace the reality that our competitors already have: The nation that leads the world in creating a new clean energy economy will be the nation that leads the 21st century global economy.

That's our choice: between a slow decline and renewed prosperity; between the past and the future. “
(President Obama, June 30, 2009)


I would add, we can't wait until everyone understands the peril, we need to move forward now.  We have one thing to fear and that is inaction. 

As I read a recent set of local environmental priorities published by an environmental coalition,  I was struck by the fact that it would - in theory - allow a climate doubter to be elected. I think we need to be done with that, and I would want to know whether the candidates actually believe in climate science based facts or not.  Its not enough to be in favor of clean energy and energy efficiency and energy independence, we need elected officials at all levels who "get it".  Basically, I'm a single issue voter and I'm going to start communicating that to my elected officials. 

This brings me to my larger point, that we need a new voter block for this.  One that is so solid and uncompromising that no elected official ever seriously considers crossing us.  "Climate first" might have the right ring, although I'm still looking for the three letter acronym.  I know there are lots of groups out there trying to be this thing, CAN (Climate Action Network) is one, 1-SKY campaign is another.  What these campaigns lack is a unifying "ownership thing".   Its "my climate" !!  Its "my planet", at least as much as it is anyone else's.   These campaigns also are very "enviro-centric"; the choir singing to the choir trying to get marginally larger.   Of course I support them, but well, I'm looking for something more... some group that says, ok, we are going to be seriously tough on any politician at any level that ignores the reality of climate change science. i.e. That we don't care what their stance is on any other issue, but on climate, they are either with us or they are against us.

Could it really be as simple as that?

Today I was excited to find a site dedicated to the gap between rich and poor and done in a way that is approachable and compelling. I recommend catching one of the videos such as:  http://www.gapminder.org/videos/poor-beats-rich/  . 

Hans is on a mission to explain that developing world vs developed world is not the right frame - as outdated as 1950's TV product commercials.

I see this as a first step in communicating the importance of measuring and effectively communicating human progress.  That is, if we can talk about up and down of the DOWJONES with the avidness of watching a race, with multiple channels around the world, couldn't we all get equally jazzed about the idea that progress is being made on the MDGs? 

Now, how do we communicate climate change and progress toward reducing the long term emission trends, making near term adaptations possible, and the development of new technologies and new market-approaches to reducing the human-civilization impact on eco-system services? 

Yesterday in Seattle the EPA took testimony on their Endangerment finding for greenhouse gases.  Under the Bush Administration, the EPA was instructed to essentially ignore the science.  Obama has wasted no time in reversing that. 

Coverage has been tremendous: 

Grist online:   http://www.grist.org/article/2009-05-21-seattle-epa-climate-rally/

Local NBC affiliate, King5 TV:  http://www.king5.com/video/index.html?nvid=364163

Climate Solutions' KC Golden testifies about the breach of the "Intergenerational Contract"  http://www.youtube.com/watch?v=gYULvkK5CNU

I also testified...

You know, I guess I get a little tired of hearing about what is wrong with international development.  There are some great and accurate negative commentaries, don't get me wrong.  Soon after my own Peace Corps experience in Africa I read a damning book about Somalia and USAID, something about the path of good intentions leading to no-good places. 

In the 1980's and '90's we had a backlash to an initial set of aid projects that often failed as soon as they were done - and a renewed focus on "Appropriate Technology", and technology transfer.  This is illustrative of an overall theme in the delivery of aid, whenever something is done "to" someone, rather than "with" someone, you get predictably bad results.  Setting aside humanitarian/disaster relief, the challenge has always been to fit into the local context in a way that is long-term beneficial.  I'd say that the elusive win-win is only elusive if you don't pay attention to it.  So, it was never about the appropriateness of the technology per se, but how the technology is introduced as part of an overall effort.

So, what actually works.  In the context of aid and development projects I think these three are important:

#1.  From my experience, you ask a lot of questions and listen.  Its a bit like software requirements gathering - most users don't really know how to express what they want or need, what's really important and what they would actually used if you delivered it.  You have to tease it out of them in small iterations.   You also cannot rely solely on one person to define the type of approach you take with an aid project. 

#2.  Develop a local understanding.  Having friendships with people around the world is immensely rewarding.  It also helps you gain new perspectives.  The corollary is that conversations with people from your own culture can become  strange.

#3.  Emphasize business models.  It was pretty obvious to me as a young business grad that the effect of one importer bringing a cheap bicycle was having a much bigger impact than all of the aid projects put together.  There are some areas where the gov't has to take a role, and private approaches are not appropriate, but if you don't consider how to create a long term demand (with associated revenues) then its a drop in the bucket and not effective. 

So, let's start with: I'm a huge fan of Kiva.org.  When I was working at Grameen Foundation, I had several conversations with folks at Kiva as they were getting started and felt a real connection to their success.  This is a powerful way of connecting people around a financial model of empowerment. 

Recently co-founder Matt Flannery has come to Seattle WA (my hometown) on two separate occasions, and in both cases, there was a huge turnout.  Larger than any turnout I'd seen for a Seattle event for Grameen Foundation, Unitus, Global Partnerships, or Accion - all of which have offices or are headquartered in Seattle. 

The obvious thing is that the peer-to-peer concept is very powerful.  But it isn't new as a concept: Alex Counts, fouder of Grameen Foundation, suggested in his book "Give Us Credit" that if each American could give just $1 to a specific Bangladesh familiy, that could translate into a huge amount of money for lending - and this money would be recirculated and help millions get out of poverty.  Peer to peer is also very similar to the "Adopt a Child" programs promoted by UNICEF and others starting in the 1980s.

So, the less obvious thing is that the disruptive approach to crowd based intelligence (or collective popularity contests depending on your view) is creating entirely new dynamics - Kiva is a beneficiary of this. 


The rest of the Microfinance sector, the Networks of MFIs that have been around for a decade or longer have not yet gotten into this model successfully.  This is despite the fact that they do have most elements of the equation - they have relationships with MFIs (and vetting processes), they have technology teams or innovation groups, there is a demand for promoting the MFIs who are their "customers", and there is the obvious need to gather new donors and supporters?

Why is this?  Are there not enough Millenials/digital natives hired by these organizations? (maybe)  Is there room for only one "kiva" in the market ? (that doesn't seem likely)  Are the transaction costs just too high and the ROI too low?  Are there reputational issues that Kiva can take on that these organizations cannot?  Is it just too disruptive to their existing relationships with MFIs and how they do financing and support? 

These institutions do play an important role in the industry - setting terms of reference, promoting the sector, developing capacity at MFIs, creating new product innovations, generating public policy support, etc.  All of these things might be of interest to the same people who attend these meetings in Seattle or participate in Kiva lending. It seems that there should be a way to have these models to work more closely together.  

Over the past two years, I've traveled frequently to Pakistan.  I don't pretend to be an expert, but what I know is that for politicians there, dealing with the "troubles" in the tribal areas is a third rail.  In the past, the public has blamed the Politicians for caving to American Gov't pressure, and blamed the ISI (the feared security agency) for games within games within conspiracies.  What I would add is that there seems to be a very strong and persistent mythology that someone or some group at the top is always in charge, that nothing happens without the ISI or some other gov't official condoning it.  During every bombing, every twist and turn of the Political scene, the explanations became more and more convoluted to conform to this one underlying assumption:  someone is in charge.  One Pakistani I met when I described this just rolled her eyes, saying yes, there's a conspiracy for every Pakistani. It apparently is a frequent saying. 

It seems to me that the Taliban have exploited this to their advantage.  It will take a cohesive societal decision on the part of the Pakistanis, not external pressure, to deal with the cancer of extremism. 

Today, the weather in Seattle is snowing and cold.   The rest of those living at this latitude may be surprised to know that with only 2"-4" of the snow on the ground, the city sort of grounds to a halt as mayhem on roads causes traffic tie ups and over-stuffed buses get stuck and people staying home hit the internet only to find their ISP capacity inadequate to the surge.  Hysterical, really, unless you have to be out in it. 

For my part, I'm staying at home and sweeping snow off the steps in between copious amounts of Peet's coffee. 

I suspect that a lot more commentary is coming to the seemingly endless commentary we've already seen on the Financial Crisis (which has the feeling now of a slow moving train than an immediate impact], but since I feel like I have a few slightly novel takes on the crisis, I'll put this entry out there, warts and all.

About six months ago I had just returned from a Microfinance conference in Tunisia at which I had some conversations with analysts from various institutions, as well as entrepreneurs from around the region, and came away even more pessimistic about the Global outlook than previously.   So,I sat down and sent an email to friends and family in which I tried a hand at economic predictions.   I warned then that I thought that the sub-prime mess was bigger than the industry captains were letting on, and far more out of control than even the Fed or Treasury were aware.  I based this partly on rumors and side stories in various economic papers, and partly on the theory that information was not flowing well in the system, that the concept of "perfect information" allowing markets to self-correct was severely hampered for all sorts of reasons.  I also felt that there was a possibility that the long-expected de-leveraging of the US consumer would converge with the oil price shock and a number of other downward economic pressures.  At the time, I was reflecting on some of the more pessimistic views out there, but still only gave the likelihood of a "financial crisis" at about 20%. 

Nonetheless, I kept remembering George Soros' theory of historical discontinuities in economic systems.  In hindsight, that does appear to be what we have experienced or are currently experiencing.   Only recently did I come across a concept that I think I had been trying to articulate.  That is the Ludic Fallacy, which relates to the decision by people in the financial services industry to trust statistical models for valuation of assets without fully understanding that the model is based on the wrong level of analysis. 

In Sept, I sketched out a theory that is more conjecture than fact, nonetheless, here it is. 

To XXXX:

The lack of faith in the financial markets working is a fundamental issue and it is at least partially spurred by underlying complexities of derivatives that "cannot be priced", and are "carried at book value".   Why can't they be priced? 

Many reasons are given, but one that is overlooked is the difference between modeling and transactions.  Modeling takes starting data and feeds it into algorithms and comes out with a result.  Transactional data reports on what has occurred.  In the Mortgage industry, the mortgage payment transaction data is poorly tied to the original mortgage-financed house transaction.  In the 1990's large lenders established MISMO (mortgage data standard) that helped create better transparency into the mortgage transaction and this helped to accelerate an eco-system of buyers and sellers of mortgages.  The mortgages were sold one by one and then bunched, and then the financiers got involved and started to split up the risk.  [The situation at Freddie Mac and Fannie Mae is even more confused, but to keep the story simple, we'll leave that out.] 

This is where things got entangled. 

Financiers were essentially modeling the risk and creating derivatives on the risk, and then more derivatives on ever finer models of risk.  Slicing and dicing the mortgages on the original transaction made sense from a certain perspective.  After all, you can establish correlations between house prices, demographics, macro-economic effects, etc.   This means that you can assign probabilistic values to each flow within a revenue stream. [NB This gives the illusion of operating at the correct level of statistical analysis. ]

Aren't these assets backed by a specific flow of revenue? 
 
In theory, the derivatives can be fairly accurately priced based on better economic data, better and more accurate and finer grain models, but what the bean counters want are the actual flow of revenues from the underlying securities.  This was never enabled, partly because the system and data standards work was never done.   Lots of effort went into MISMO, [Fannie and Freddie standards, etc] and then into SEC backed XBRL, but very little into such things as XBRL-GL, the transaction layer that would allow the many software systems to talk to each other about payments made into specific accounts by specific individuals.  I came across this bizarre fact when I wrote a paper about data standards for Microfinance and securitization - I was trying to base the approach on existing data standards and found that there were only preliminary thinking done on this from the formal financial sector, not a rich set of solutions as I would have expected.   So, without this essential commonality, [allowing data about financial risk to be traded as a commodity], complex derivatives have had to stay predominantly in the world of the model, rather than the world of actual transactions.   Assets are thus assets in theory, and one can always argue with valuations, but fundamentally, the lack of full transparency into underlying transactions makes such theoretical valuations less robust.  Simply put, financiers and bankers don't actually talk the same language and neither do their underlying systems. 

Admittedly, this overstates the issue, however it is probably important enough to look into how these modeling vs transactional tensions are resolved over time and especially in time for the next bubble.  My fundamental message, I suppose is that there is no substitute for completely granular transparency.  While it may not have saved us from the greed and dishonesty, it could have helped holders of these securities to know the current actual value instead of an imaginary "book value".   [NB.  This definitely overstates my case.  Transparency doesn't actually do anything unless there is a market mechanism to price effectively, and it seems like that was also missing as everyone was making money on the way up.  The other thing missing of course was the regulator to ensure that Transparency actually meant something to the financial markets. ]