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Banks and Media Mis-Representation, Part 2

There’s a lot of mis-information about derivatives, options, collateralized debt obligations, etc. As usual, the media tends to portray them as reckless gambling, with no purpose other than to enrich bankers. That’s not the case.

I’ll begin by saying that both the government and the various financial institutions are not blameless in all this. But before we begin blaming, let’s understand what all these fancy things are.

And the answer to that question is: they are insurance.

Yup. They are a way to transfer risk from one person to another. Just like when you buy life insurance, or car insurance, etc. Let’s take simple term life insurance as an example. You might purchase a twenty-year, $100,000 policy for a premium of $400 per year. You will spend $8000. In financial terms, you have a guaranteed loss of $8000. However, you have avoided a possible loss of $100,000, the value of your life. If you die, your survivors will miss you, but they won’t miss your income, because they have the $100K.

Look at it from the insurance company’s point of view. They lock in a profit of $8000. But they have a potential loss of $100,000. If they sell lots of policies, and they’ve done their math correctly, the law of averages means they will come out ahead. The government further assures this by requiring them to keep fairly substantial cash reserves.

This is a simplistic example, of course, but it shows the basic concept. Now, let’s look at one that’s a bit more complex. Let’s assume you have a hundred-acre farm where you raise wheat. There are two bad outcomes: 1, a low price; and 2, a crop failure. More specifically, I’m going to say that any price below $5/bu is too low, and any yield less than 50bu/acre is a failure.

To protect against a low price, I want to BUY an option to SELL wheat at $5. This is a PUT option. According to the  Kansas City Grain Exchange options market, I can buy this for 33 cents per bushel, for September wheat. I’ll buy this insurance for 5000 bushels, so I am spending ~$1667. This is my maximum loss; this money is gone, just like an insurance payment.

When September rolls around, if the spot price of wheat is below $5, I can exercise my option and sell 5000 bushels at $5. Thus I have covered myself. I sell the rest of my wheat (if any) at the market price.

If the spot price of wheat is above $5, I let my option lapse. I sell all my grain at the current market price.

Here’s an example: Let’s say the spot price is $3, but I have a good harvest – 100 bu/ac.  I exercise my option to sell 5000 bushels at $5/bu. I sell the other 5000 bushels at $3 (market). I gross $25,000 (5000 *$5) plus $15,000 (5000 * $3), which is $40,000. But, I must subtract the $1667 “premium” I paid when I bought the option. I have ~$38,333 for my wheat.

To protect against crop failure, I buy an option to BUY  5000 bushels of wheat at $5/bu. This is a CALL option. These are trading at 32 cents/bushel. It costs me about $1600 for this.

At harvest, if wheat is above $5, I exercise my option (that is, I buy someone else’s wheat) and resell at market). If wheat is at, for example, $6, I make $1 per bushel profit, or $5000. This is independent of whether my crop was good or not.

Let’s say I get only 20bu/ac, and the price of wheat is $6. I sell my 2000 bushels at $6, or $12,000 total. I also exercise my option on the 5000 bushels, and I make $1/bu profit on those 5000 bushels, for an extra $5000. Total cash is $17,000. My option cost me $1600, so I net 15,900. Not a lot, but something.

Is there a drawback? Well, there can be. The person who SELLS me an option has almost unlimited risk. For example, the person who sold me the PUT option to sell wheat at $5/bu is in a world of hurt if wheat goes to, say $13, which it did not too long ago. He’s out $8* 5000 bushels, or $40,000.

This is why trading in options is not recommended for folks who don’t have deep pockets. The people who do have deep pockets, and are good at this, can make a lot of money. We call them speculators and we think they are evil people, but in point of fact they are simply providing a service to the farmers, just like insurance companies.

In the next post, I’ll talk a little more about what does and doesn’t work when dealing with complex financial instruments.

Banks and Media Mis-Representation, Part 1

Even since the financial crisis of 2008, the media have done an incredibly sloppy, if not purposefully biased, job of explaining what’s been going on. I’m going to take a crack at clearing up a few misconceptions.

1. The bank “bailout”. This has been presented as a gift of billions of dollars to the banks. It wasn’t, it was a loan, and it has been paid back.

Why rescue banks? Well, we need them. Banks are sort of like phone companies; they are exchanges that let millions of people interact more easily. Can you imagine what a PITA it would be if you couldn’t mail a check to pay a bill?

Suppose a major wireless carrier became insolvent – say AT&T. Suddenly they can’t meet payroll, and they send everyone home. The economic dislocation would be huge! Your cell phone wouldn’t work, your Internet would work, even your land line might not work, depending on where you live.

Furthermore, shutting down the company punishes thousands of ordinary workers who are NOT at fault. Why should they lose their jobs?

The better solution is for the Feds to step in, take over day-to-day operations, fire the CEO and the board of directors, and bring in (or promote) some new people to run the company.

Same thing with banks. In fact, this is what the FDIC does, and does very well, a few times a month. Smaller banks become insolvent fairly often, and the FDIC is literally world-famous for the efficiency with which it steps in and cleans up the mess, so that ordinary folks don’t get hurt. But for some reason the biggest banks are exempt from this. It makes no sense.

The result was that when some big banks became insolvent, they were rescued by a much more ad-hoc process, and it was not done as well as it could be. For one thing, the Feds did NOT fire the CEO and the boards of directors, as they should have. But, overall, the Feds did the right thing in keeping the big banks going. A general collapse of banking would be a crisis almost impossible to imagine. In the 1930s, many people never used banks, and could do okay without them. Today, that’s not true. We’d be utterly screwed, and far poorer, if the banking system collapse.

Ways to Kill a Team

– Set your own private agenda. People will notice, and once they realize that there are hidden agendas and undeclared goals, they’ll quit trying. Why try to win a game where you don’t even know the rules?

– Believe that you are better than anyone else on the team at their job – even if it’s true. Economists refer to the law of comparative advantage. Even if you truly are better at every task in your organization that the people working for you, don’t act on that. Focus your talents on those aspects where your value is most valuable.

– Fail to put yourself in others’ shoes. Especially customers’ shoes. Too often a company creates a strategy that’s good for the company, but not the customers. Netflix did it not too long ago, and it darn near killed them.

– Play Favorites. This leads to the next rule, dividing the group.

– Divide the group establish rivalries. Not to be confused with competition, which can be good. One way to tell the difference is by seeing how many people can win. If only a few people can, it’s a bad idea. Once classic example is a sales competition; for example, to say that whoever sells the most product in the next 90 days wins a trip to Hawaii. Most people on the team know that have no chance of winning, so why try at all?

– Restrict the flow of information. This is similar to having one’s own agenda – people will figure out that they are not seeing the whole picture, and therefore have little chance of “getting it right”, and so they will likely stop trying.

– Insist that you’re right and the others are wrong. There may be cases where you are indeed right and they are not, but find a way to let them discover that. Propose a test of evaluation. Take some time to explain background information they may not have considered.

– Think negatively or be a pessimist. A healthy skepticism is a good trait in an engineer or scientist, and in many other disciplines as well. There’s a difference between asking yourself, and the team, “what could go wrong?” versus “it can’t be done.” On the other hand, large or complex projects that break new ground are going to trip over unforeseen problems. Allow for it.

– Denying the existence of “bad news”. Some managers like to tell subordinates to never bring them bad news. This is a bad idea. As just mentioned, complex projects discover unforeseen factors; to assume there will be no problems just because you don’t know specifically what problems will occur is foolhardy. Give people the space to explain the challenges they are facing and to solicit help without being branded as “someone who couldn’t handle it.”

The corollary of this is Punish bad news, aka shoot the messenger. Don’t. Make a point of acknowledging them in front of the team, and praising them for identifying a problem early before it gets too complex.

– Guard your turf. Like private agendas and not sharing information, this causes other to decide not to play nicely with you, because you aren’t playing nicely with them.

– Hog credit. Give all credit to your team. Your credit was in assembling and leading them, not in the work they did – even if you did some of it.

Solar Roadways?

Well, maybe. Check out:

It’s an interesting idea, and certainly has at least some applications. But there are some questions:

  • How will it survive heavy truck traffic? Big trucks pay a lot in road taxes because they cause that vast majority of wear and tear on highways. They break concrete; won’t they also break glass, even strong glass?
  • What about cost? Current solar cell prices are around a dollar per rated watt of nominal capacity. This works out to around $15-$20 per square foot, or for two lanes of Interstate, over $2.2 million per mile, just for the panel.
  • A solar cell parking lot is a clever idea, except that when cars are parked there, they shade the cells. Using them for, say, an apartment parking lot, which is likely to be empty during the day, is a good idea. Using them for a shopping center, not so much.

Plans2Reality made a donation. Heck, we’re dreamers; we worked hard to explain the advantage of Solyndra’s tubular design to the marketplace, with some success.

And they’re may be niche markets for it. What about airports? Lots of concrete, no shade. Even if it’s not strong enough for runways, it would be great for taxiways, gates, etc. And the built-in lighting ought to be very useful. So, good luck to them!

P2R High Velocity Marketing Competes at the Mojave Mile

On April 12 and 13, Plans2Reality LLC will field its two-bike racing team at the Mojave Mile Top Speed Shootout – “The Fastest Mile in the West”. Riders compete for the fastest top speed in a standing-start mile.

What does motorsport racing have to do with technology marketing? A lot, actually. Building a competitive machine for any type of motorsport competition requires top-shelf technology, but it also requires that you deliver in a timely manner. No one cares how fast your car is if it is not ready in time for the start of the race. Designing and building a competitive vehicle strengthens “agile” development as well; one must be in a continuous cycle of test, improve, test again, while at the same time always hitting your major “release dates” (read “start of the race”).

So, wish us luck, and check back next week for pictures and videos.

Special thanks to Design Group C for construction help and Tracy at Social Strand Media ( for promotional tips.

The Drawbacks to DITA

Does DITA have drawbacks? Yes, of course.

  • It’s more complex than most typical wiki makeup languages. To some extent, this is a reflection of its power, but it also means that casual users can really hurt themselves.
  • DITA output must be created – compiled, in effect – using some fairly complex compilers. Again, this is to some extent the source of DITA’s power, but it also means that you need a person skilled in developing and maintaining the DITA compiler.
  • You are going to have hundreds of DITA files, so you are going to need some sort of source-code repository system. This can be GIT or SVN, but you may need more.
  • DITA is very aware of the ‘elements’ within each DITA topic, so to get the full advantage of DITA, you need a way to track and manage element IDs. Content Management systems exist to do this, but they are expensive and require their own level of expertise.
  • So-called DITA-aware editors are available, but many of them cost several hundred dollars per seat. (There are plug-ins for Eclipse that handle DITA fairly well, and are free.)

Should your organization be using DITA? It depends on your goals and needs. We’ll dig into this in the next post.


The Advantages of DITA

In our last post, “Do You Need DITA?”, we looked at what DITA was. Next, we will look at its advantages.

  • It’s probably the best method available today for creating content that needs to appears in different formats, e.g. PDF, web, mobile, etc. Commands are available to choose between long-form and short-form names based on the available display area. For example, a pop-up might say simply “DITA”, while a PDF might say “Darwin Information Typing Architecture (DITA)”
  • It reduces translation costs. Because it is extremely modular, only changed DITA files need to be re-translated. Updates to the primary-language content (e.g., English) trigger translation only for files that have changed. Furthermore, DITA supports certain types of do-not-translate and lock functions, to further minimize the amount of translation to be done.
  • It supports content re-use. Several techniques are available to let you standardize chunks of content, (e.g. notes and warnings, boilerplate) and yet also customize re-use. For example, a set of instructions common to a range of products can be written once, with specific product nomenclature added automatically.
  • It is highly structured, and more-or-less forces authors to follow specific templates and structures. You cannot, for example, digress into theory in the middle of a sequence or steps.
  • Each ‘element’ in DITA content has an identifying label. This gives you very fine-grained control of content re-use. (An element can be a simple as a word or phrase, a step, a figure, a sequence of steps – almost anything, really.)

Are there drawbacks to DITA? Yes, of course. But that’s a topic for our next post.

Do You Need DITA?

DITA, the Darwin Information Typing Architecture, is an XML-based system for creating content that can easily be re-purposed for multiple output formats, that is, PDF, web, mobile, etc. Quite a few companies are using it. Should yours be one of them? This series of blog posts will look at the pros and cons of DITA.

What Is DITA?

DITA can be described as a strongly-typed language for expressing technical content in a highly modular way. It is semantic in nature; its meta-data describes the nature and purpose of all content, rather that how that content is to appear. In this regard, DITA is somewhat similar to DocBook, and different from HTML and most Wiki or web markup languages.

DITA strongly encourages you to write small, modular “topics”, then create your content by linking topics together using “maps”. Numerous conditional-compilation and output-format-specific options are available.

NEXT: The “pros” of DITA

Jawbone Shows How Customer Service Is Done

Now this is great customer service!

Jawbone apparently had some technical issues with early versions of their new UP health monitor. Did they hide behind lawyers? No. They stepped up and did the right thing. Read the letter from the CEO, below. It’s great customer service – far above what you’d expect!

Jawbone understood that p*ssing off the early adopters would kill the product, and maybe the company. Why don’t more companies know this? Does yours?



  • THE UP™

To the UP community:

Earlier this year, we unveiled Jawbone’s vision to help people live a healthier life with UP. We’ve been thrilled by the passionate response to this product. We heard from tens of thousands of you through emails, tweets, blog posts and on our forums about how you’re changing your lifestyle and becoming consumers of your own health. In just four weeks, UP users have collectively taken over three billion steps, gotten more than 300 years of sleep and captured hundreds of thousands of meals.

While many of you continue to enjoy the UP experience, we know that some of you have experienced issues with your UP band. Given our commitment to delivering the highest quality products, this is unacceptable and you have our deepest apologies. We’ve been working around the clock to identify the root causes and we’d like to thank everyone who has provided us with information and returned their bands to us for troubleshooting. With your help, we’ve found an issue with two specific capacitors in the power system that affects the ability to hold a charge in some of our bands. We’re also fixing an issue with syncing related to the band hardware. Typically, these issues surface within the first seven to ten days of use. The glitches are purely performance related and do not pose any safety risk.

We’ve also received helpful feedback on the application experience, including bug reports, ways to make signup and finding friends easier, user interface suggestions and new feature requests. Your comments are invaluable as we continue to improve, so please keep them coming and check back frequently for updates to ensure you’re always enjoying the latest features and enhancements.

We recognize that this product has not yet lived up to everyone’s expectations – including our own – so we’re taking action:

The UP No Questions Asked Guarantee

This means that for whatever reason, or no reason at all, you can receive a full refund for UP. This is true even if you decide to keep your UP band. We are so committed to this product that we’re offering you the option of using it for free.

The program starts December 9th and full details can be found at

For most of you, this program is simply meant to offer peace of mind. Please continue to enjoy your UP band and keep sharing your experience with us. If you encounter any problems with your UP band, contact Jawbone directly for your choice of a replacement and/or refund under this program. It’s that simple.

Jawbone remains deeply committed to addressing all issues with UP, investing in the category and giving our customers the tools to live a healthier life. We’ve temporarily paused production of UP bands and will begin taking new orders once these issues have been sorted out. In the meantime, we’ll continue to release app updates for existing users.

We regret any disappointment we’ve created for our community of users and appreciate the trust you’ve put in us. The fact that you’ve taken the time to talk with us and help us make a better product is simply phenomenal. Our customers have always been part of our team and we’re incredibly grateful for that.

Please know that we’re doing – and will continue to do – everything we can to make things right. This is just the beginning for UP and we are excited to keep improving until we realize the powerful vision of what this category can be.

If there is absolutely anything else we can do for you, please let us know.

Hosain Rahman