My friend Shane thinks Ben Stein’s dumb! But Ben’s been “in the business” so he know something about this. So have I been “in the business. There are reasons the expression “put lipstick on the pig exists!” There is a reason brokers and investment bankers work on commission. They are there to sell you stuff. So here is my challenge to all those “nosepickers” who blog about how Ben’s wrong. Describe for me the securitization process through which the Fannie Mae and Freddie Mac hedge the credit risk on the loans they buy. Then briefly describe how they hedge the interest rate risk too. Then describe how you “mark to market” a structured product in an ill-liquid secondary market.

My friend Shane thinks Ben Stein’s dumb! But Ben’s been “in the business” so he know something about this. So have I been “in the business.

There are reasons the expression “put lipstick on the pig exists!” There is a reason brokers and investment bankers work on commission. They are there to sell you stuff.

So here is my challenge to all those “nosepickers” who blog about how Ben’s wrong. Describe for me the securitization process through which the Fannie Mae and Freddie Mac hedge the credit risk on the loans they buy. Then briefly describe how they hedge the interest rate risk too. Then describe how you “mark to market” a structured product in an ill-liquid secondary market.


FICO, Risk and Making a Mess

I spent several years working in the mortgaage industry, new product development, when it was hot-hot-hot vs., the chill in the air coutesy of the so called “sub-prime mess.”

I say “so called” because the situation isn’t exactly what the media reports, although it does report facts about what isn’t a pretty sight at all.

This interview with the CEO of Bank of America Kenneth Lewis highlights what I intend to discuss.

Escalating asset values have the ability to entrance people. yet all assets are not the same. If you feel rich because you have lots of Apple stock or, better yet, you got in on the ground floor with Google’s IPO, well good for you!

But that isn’t quite the same as owning a 3 bedroom home in the suburbs of LA or having a $1 million invested with a “neat” hedge fund or owning 10 shares of Berkshire Hathaway.

These assets differ is such a profound way but to the mortgage lender/broker of the period 2002 to 2006,  they mattered very little  compared to the FICO score of the applicant.

In fact, the consideration of a home as an asset, and the financial industry’s interpretation of deft distortion of the history of this “asset class” is at the heart of a problem of perception, which is what I beleive is at the root cause of the current malaise.

Risk Assessed [Or is that Obsessed!]

I am always asked how to balance business risk and technical risk on projects. Most of the business risks are more important than technical risk but try telling that to the kids with the keys to the car.

Technology risk is usually one of the failure of imagination. The evils of functional decomposition rise up on every software project. Attack that risk today and you’ll earn your pay tomorrow!

More on this insidious practice later. But please promise me you’ll look into logical composition right away. If there is one thing you can do for your project right now, its avoid “thinking inside the box.”

What is that loud noise anyways and why is it so darn dark?

What is that loud noise anyways and why is it so darn dark?


Outsourcing Works: NOT

If a hot stockmarket in India can’t help the leading outsourcing companies in India, then what do they know that we don’t? It would appear that Wipro, Infosys and TCS are banking on a US recession for profit.

Risk Management

I feel very sorry for the mortgage industry these days. Despite their best efforts to quantify and manage the risk for their counterparties in the securities business, something really was lost in translation.

Could it be that risk patterns changed to an extent that traditioanl underwriting standards failed? Did product development get ahead of risk management to such an extent that cash flow or asset deterioration either less in assesing risk?

I’d give that a qualified: YES!

I don’t think the risk managers even cared or even thought about a downturn in housing. I do think they considered that risk was transferred to their counterparty and they worried less about it “backing up” than packaging the product.

In IT, this happens every day as IT owns the process but fails to consider results with equal fervor. You can Agile your way through a program or project but if you think you don’t own the results then I’d say you don’t get the purpose of product management.

Greenspan: Basically a Politician

The book on Greenspan is that his genius kept inflation low and the economy humming through both Republican and Democratic administrations. Monetary policy is such a blunt instrument that it would be dificult for it to be directly attributed with either creating or undermining successful manipulation of the economy.

But if ” The Fed’s” use of moral suasion in the economy is a measure to be considered to determine economic outcomes, Greenspan will be remebered very positively. While many disliked his opaque style, few will argue he didn’t matter.

Greenspan’s hold on the business community through recent prosperous times was universal. There is little scope for argument on this fact. There certainly was a very vocal body of opinion that greatly disagreed with The Fed in general and Greenspan in particular, James Grant comes to mind, yet this was an unpersuasive minority.

Recently, critics are coming out of the woodwork, years after the fact, criticizing Greenspan’s hold on The Fed’s interest rate policy. This underwhelming command of the obvious glance into the rear view mirror is plainly pettifoggery. Parsing economic history based on revisionism motivations is best played by academics for vey low stakes.

Greenspan was a politician who won reappointment after reappointment. Winning ugly is still winning. I’ll save my defense of the avoidance of deflation in the economy for another post. But that was the fear in the post Tech-Internet Bubble, believe it or not.

Greenspan's Mea Culpa: The Nosepickers React

The blogoshpere is full of wisdom, insights, breaking news and most important, points of views the main stream media will never really get. But it is also full of shit! Cranks of all kind and people I think are nosepickers. A nosepicker is someone who just can’t resist the urge to share their opinion on not the body of the story, but the nose.

Typically, public dispays of actual nosepicking are just as annoying as nosepicking posts. There have no humour, no special facts just a little petty pick of some protruding facts that are not entirely inconsequential but merely so.

Kaizen

As fond as I am of reading of the “Toyota” approach, I do tire of the sprinkling of Japanese within the text of an essay.

It isn’t so much that I object to the masterful way in which the author uses a Japanese term to express lean concepts as much as I yearn for mere simplicity in natural description.

Much of what has been invented in our modern world can be captured in the nglish language.

Improvement is innovation. Innovation speaks more clearly to those who use the language of business: English. It is a clear term. It resonates to even those who seek to control the work environment rather than improve it. So use it, or more importantly, practise it daily, record it and communicate it.