But this year is also a little different. Kubler-Ross no longer applies as most of us have cycled through all the stages by now. But, with the passage of time, it is possible to start getting an historical perspective and draw parallels to other times. Doing so might remind of us of Georges Santayana’s edict:

Those who do not study history are condemned to repeat it.

Cruel month

September does not seem kind on New York. While most of us will spend time remember the events that, for my generation, marked the end of innocence and forced us to grow up, there have been other disasters both past and recent that have befallen Gotham.

A few generations ago, on September 16, 1920, one of the deadliest acts of terrorism on American soil targeted Wall Street: 38 people died and 400 were injured on that day, thanks in part to the poor timing of the perpetrators, who detonated their explosives shortly before the lunch hour. In the next 24 hours, in an act of defiance to the terrorists of the time, the bodies were removed, the street was cleaned up, and the stock market reopened the next day, kicking off an era of continued speculation known as the roaring twenties, a run that would end a bit over 9 years later.

The crash of 1929, which is often seen as the start of the great depression, did not actually happen in September but it is interesting to note that the beginning of the decline started in September with the stock market reaching its peak on September 3rd, 1929, followed by a 17% decline for that month. In other words, the speculative bubble brought on by increasingly complex financial instruments (margin positions came of age in the 1920s) for the time and speculation in the real estate market (the 1920s also marked the age of the skyscrapers, with such towers as the 40 Wall Street and the Chrysler building rising above the city).

Last year, in the first weeks of September, a bubble brought together by increasingly complex financial instruments (Credit Default Swaps) and increasing speculation around the real estate market, similarly brought the world economy to the brink of financial disaster. In those short weeks, the US government had to bail out Fannie Mae, Freddie Mac and AIG; Lehman Brothers went under, eventually bought out in bankruptcy court by Barclay’s. Wachovia, Merryl Lynch, and Washington Mutual all ended up being gobbled up by other banks; Goldman Sachs and Morgan Stanley changed their legal status to allow them better government protection; Similar economic activity quickly spread to the rest of the world, almost pushing some countries to go bankrupt (eg. Iceland).

The still on-going economic destruction arising out of that catastrophic month will continue to have a toll not necessarily calculated in human lives lost on a single day, as we did on 9/11, but it is very possible that the toll it will take on all our lives (and potentially on some lives lost) will be a strong and as long.

Parallels?

After the towers fell, on 9/11, and after the world had managed to cripple his operation, Osama Bin Laden swore to bring the US to its knees economically. And yet, it was the recklessness of our own people that almost became the tool of our own demise.

To say that 9/11 scarred us is to ignore a deeper, and somewhat more uncomfortable truth: much like the terrorist attack of 1920, the attack of 2001 did not stop us from becoming agents of our own financial demise. And while many of us will still grieve today and remember the friends and family members we have lost, the rest of the nation will look to this as an aberration, asking people why they have not moved on yet.

The answer, sadly, is that we, New Yorkers, we, the survivors of 9/11, we, the ones who lived through those horrible events and can still tell their tales, have yet to receive what we were promised. Sure, one will point to the fact that there is, finally, after 8 long years, a foundation for new buildings at ground zero, the truth is that there is still a hole in our skyline and a hole in our hearts.

We may or may not have liked the towers before 9/11 but we are still missing them. And so, as a sign of healing, the nation had promised us that it would never forget and that it would build new towers, maybe even higher and more magnificent, as a defiant sign that America does not give, America does not give-up and that terrorists may tear down our buildings but they could not tear down our optimism nor could they destroy our ability at turning adversity into triumph. The new towers rising above ground zero were supposed to be our phoenix, rising ever more beautifully out of the horrors of that day.

8 long years later, we are still waiting.

Scraping the sky

In the olden days, things were different: 90 percent the New York subway system was built, using private funds, in 4 years; the Woolworth Tower: 3 years; the Chrysler Building and 40 Wall Street: 2 years; and let’s not the city icon, which was built after the wall street crash.

Between its excavation starting on January 22, 1930 and ribbon cutting ceremony on May 1, 1931, the iconic Empire State Building was built in a mere 13 months, helping lift the spirits of New Yorkers as it showed that financial crashes may devastate us but that we, New Yorkers, we, symbols of American power, can still build amazing thing amazingly quickly. In a way, the Empire State helped lift the spirit of an earlier generation when it needed it most and that is what I would have liked to see happen at ground zero.

Sure, many people will say that the rules are different now, that workers’ protection and union powers slows things down. The argument might hold water if it weren’t for what happened over the rest of New York: The Time-Warner center was built in under 3 years. Same for the New York Times building; The Bank of America tower: 5 years, injuring more people in the process than were injured during the Empire State Building’s construction.

3 major skyscrapers since 9/11/2001, none of which is at ground zero. So why can’t we get a single tower over ground zero?

In 1931, a shinning beacon of hope rose above the city when the city needed it most. After eight years, WE are still waiting for ours.

In Memoriam

Carlos Dominguez, Mark Ellis, Melissa Vincent, Michael DiPasquale, Cynthia Giugliano, Jeremy Glick, David Halderman, Steve Weinberg, Gerard Jean Baptiste, Tom McCann, David Vera.

The Kindle Lawsuit

In my last entry, I pointed to the case of Justin Gawronski, who was mentioned almost as an aside in the New York Times article about Amazon deleting legally purchased and downloaded content from their users’ Kindle devices. At the time, I suspected that the deletion of annotations could eventually lead to lawsuits:

Beyond the irony of Amazon throwing a book like Nineteen Eighty Four down the memory hole (a large incinerator in that book), Amazon’s action raise troubling questions as to the ability of online providers to remove content they have not created. I leave it to legal scholar to assess whether Amazon could actually be considered to have infringed on the intellectual property rights of people whose annotations were removed along with the books.

Today, news comes out that this student is one of the plaintiffs in a lawsuit against Amazon, making this the first legal case to test what a cloud-based provider can and cannot do with legitimately purchased content. The complaint uses language similar to what I talked about:

2. With an uncanny knack for irony, Amazon recently remotely deleted any traces of
certain electronic copies of George Orwell’s “1984” and “Animal Farm” from customers’
Kindles and iPhones, thereby sending these books down Orwell’s so-called “memory hole.”

[...]

16. On or about July 16 and 17, 2009, Amazon withdrew from sale certain e-books,
including George Orwell’s “1984” and “Animal Farm.” Amazon then remotely deleted these ebooks
from purchasers’ Kindles and iPhones. In doing so, Amazon not only deleted the e-books,
but also rendered useless any electronic notes and annotations that consumers had made within
these e-books because the notes were no longer tied to the referenced or highlighted text.

While I had initially thought that the content was deleted, it turns out that the annotations are still available on the device, albeit without any context to them, which is what the lawsuit is now testing:

54. Plaintiff Gawronski and the Big Brother Work-Product Subclass suffered
damages because they created content on their Kindles within the purchased content that
Amazon deleted.

Most surprising is that the lawsuit did not look at Amazon’s infringement of its customer’s rights under the first sale doctrine. The first sale doctrine, which has been in place since the beginning of the 20th century, basically states that purchases can transfer a lawfully acquired copy of a copyrighted work without requiring permission from the copyright holder. Many people interpret this to mean that:

the copyright holder’s rights to control the change of ownership of a particular copy end once that copy is sold, as long as no additional copies are made. This doctrine is also referred to as the “first sale rule” or “exhaustion rule.”

It could be argued that, by taking the book away from its users, Amazon has controlled the ownership of a particular copy that had already been sold, even though no additional copy was made. It was surprising to not see the lawsuit also incorporating this point as it is probably one of the larger legal infrigements Amazon could be charged with when it comes to that incident.

The Apple Store and iPhone community

Meanwhile, while there are no legal rumblings yet around Apple’s treatment of its development community. With every incident of an app being denied access, it appears that a few more developers decide that, while the platform is exciting to use, developing for the iPhone is not worth the trouble. If it were one case, that could be considered a disgruntled developer; if it were two, that could also be ignored; but with every new incident, it appears another developer or group of developer decides that they’d rather not develop for the platform.

When I was in journalism school, we were told that when there is a high similarity between three different events in a very short time, we ought to pay closer attention as it could be a trend. When that similarity pops over and over again, as in the case of the iPhone development community, it seems like a slow grumble is turning into something more potent.

But of course, one could argue that such grumbles are really nothing to worry about, as long as Apple can continue growing its user base. After all, the company makes more money selling devices that it does from the revenue generated by the app store.

True to some extent but that particular issue starts falling on its face when one considers two important facts:

1. Selling applications through the App Store is probably a more profitable business (as costs associated to the sale, as represented by a percentage of the revenue is probably lower than it would be on hardware).
2. Prominent users are starting to complain loudly.

Of course, none of this is going to single handedly stop the growth of the iPhone but what is increasingly appearing is that Apple is having a potential communication challenge on its hands. A single disgruntled developer or disgruntled user cannot bring the product down but a continuous stream of complaints starts creating the appearance of wrong-doing, potentially undermining the long term success of the offering.

Apple is still thought of by the majority of the people as a cool company (as Google and Microsoft once were), a shinning beacon highlighting the power of innovation and capitalism. As it grows marketshare, what was once considered OK as a way to help the company compete against larger players (the aforementioned Microsoft) is increasingly being considered as arrogant and evil.

What does it all mean?

Of course, at this point, if you’re still reading, you’re probably wondering how this is an example of a new hope. The new hope is arising out of the fact that a largely quiet population is now starting to fight back against the over-reach of large corporations into what level of controls such corporations will be able to excert. In the case of Amazon, the class action has the potential of redefining what a company can and cannot do with a purchase device. Such decision could also establish some precedents as to the use of kill-switches in electronic devices (or invertly, give large corporations more power and legally codify the level of control they have been afforded).

In the public arena, the push-back Apple is encountering from both its developer and early adopter communities could help establish new boundaries as to what is and isn’t accepted in terms of controlling access through online gateways (in the case of Apple, that gateway is the App store but one could argue that the social rules established around the App store could eventually extend to the kind of perception around what is and isn’t acceptable in terms of consumer ISPs blocking internet sites).

With each event, the online community is also establishing some precedent as to what will be considered acceptable in an environment where all data is stored not a user’s machine but on some remote corporate server.

In each of these individual cases, awareness is raised and with every other skirmish, more people become aware of the issues at stake. It is my belief that, as more people become aware, more people will require less corporate control and more individual control. And that gives me hope.

Update: The government is now looking into Apple’s removal of Google Voice related apps from their App store. This is getting interesting.

The Kindle Incident

For readers who may not know this, Amazon unveiled an interesting electronic reader called the Kindle, allowing people who bought it to legally purchase electronic copies of books. Along the way, Amazon also opened up a program allowing small publishers to publish books directly into their marketplace.

However, it appears that Amazon’s own quality control seemed to fail when it came to establishing ownership of the intellectual property uploaded to its site when two titles by George Orwell, Nineteen Eighty Four and Animal Farm, were uploaded and sold by a rogue bookaneer.

Subsequently discovering that it had sold e-books for which the publisher did not have rights, Amazon issued refunds to its customers and removed the books from the user’s device. Where it gets a little gray in terms of what they did is that, along with the removal of the books, they also removed any annotation users already had made, thus erasing content that was created ON the device if not FOR the device. The New York Times story on the deletion listed the following:

Justin Gawronski, a 17-year-old from the Detroit area, was reading “1984” on his Kindle for a summer assignment and lost all his notes and annotations when the file vanished. “They didn’t just take a book back, they stole my work,” he said.

Beyond the irony of Amazon throwing a book like Nineteen Eighty Four down the memory hole (a large incinerator in that book), Amazon’s action raise troubling questions as to the ability of online providers to remove content they have not created. I leave it to legal scholar to assess whether Amazon could actually be considered to have infringed on the intellectual property rights of people whose annotations were removed along with the books.

Amazon was justified in protecting the copyright holders for the infringing books but where it went wrong is when it over-reached by deleting content that was created by its customers. In that particular case, one could argue that Amazon was responsible for censorship. The company will need to change its systems and policies to ensure that it does not impede the customer’s experience. While it currently has only removed a couple of titles along with annotations, the company should ensure that it keep annotations separate so that any further title removal does not destroy user generated content. An extra nice move would be if the company were to replace the titles with their legal equivalent. The common should also be a lot more thorough in verifying intellectual property claims before offering titles, especially since they control every piece of the delivery chain from the intellectual property holder to the reader.

AT&T and 4chan.org

In a somewhat related incident, AT&T had a recent run-in with one of the most influential (and that does not necessarily mean good) entity on the internet: the 4chan.org community. 4chan is primarily and image and discussion board and word started to spread that AT&T customers had lost accesses to its images over the weekend. After a substantial amount of noise in several online forums, AT&T claimed that it had blocked the site because it was suffering from a denial of service attack from it.

What is interesting here is that AT&T acted without prior notice and blocked a site without providing any information upfront as to the reason for blocking the site. While AT&T stopped blocking the site as the result of a concerted effort by its fans, the founder of 4chan hit the nail on the head when he said (emphasis is mine):

In the end, this wasn’t a sinister act of censorship, but rather a bit of a mistake and a poorly executed, disproportionate response on AT&T’s part. Whoever pulled the trigger on blackholing the site probably didn’t anticipate [nor intend] the consequences of doing so. We’re glad to see this short-lived debacle has prompted renewed interest and debate over net neutrality and internet censorship—two very important issues that don’t get nearly enough attention—so perhaps this was all just a blessing in disguise.

Net Neutrality is the basic idea that any broadband provider should offer access to the internet without any limitations as to what kind of content can be accessed and here we have an example of an ISP selectively blocking a site. While the AT&T example is only the most recent one to come to light, it appears that this is a phenomenon that could become more common as internet service providers decide what kind of content takes too much bandwidth or for other reasons.

In the past, such censorship would have meant that a provider censoring access were to be considered as a publisher. In 1995, with Stratton Oakmont vs. Prodigy, the supreme court of the United States held that online services which were removing content from their online forums could be considered as publishers and therefore held liable for any content they gave users access to. Since then, Lobbyists in the telecom industry have ensured that such decision would no longer be applicable by getting the US Congress to amend the US code and reverse the Supreme Court decision.

The Urge to kill(switch)

About a year ago, a storm arose around rumors that Apple’s iPhone devices were sporting code that could disable applications running on them. The existence of such code, also known as a kill switch, was later confirmed by Steve Jobs:

Jobs confirmed that iPhones routinely check an Apple Web site that could, in theory, trigger the removal of the undesirable software from the devices.

He told the paper that Apple needed the capability in case it inadvertently allowed a malicious program to be distributed to iPhones through the App Store.

Once again, we see here a company with the best of intentions (protecting people from malicious programs) with its finger on a button that could be very scary if misuse. It is worth noting that Apple is not uniquely in this position as Google fessed up to having similar code embedded in Android-based phones:

Google may discover a product that violates the developer distribution agreement … in such an instance, Google retains the right to remotely remove those applications from your device at its sole discretion

And while one may think that such devices are limited to high end cell phones catering to a limited community, it appears that such devices are now becoming more common in children computers, cheap laptops, and even cars. And while many will claim that the solution to this is to open up source code, the Mozilla foundation itself has admitted to the appearance of such kill switch in the popular Firefox browser.

So kill switches are there for the best of intentions but how does one define those?

Apple and the App Store

The same kind of issue arises out of the treatment of applications to enter the Apple Application Store. A month doesn’t seem to pass by without another example of a developer seeing Apple remove his/her programs from their store.

The latest example is that of a developer who apparently committed the crime of offering an application that allowed iPhone users to use Google Voice, a Voice over IP program. And apparently, similar applications were subsequently removed from the Apple App Store.

While no official word has been given as to whether the fact that application were potentially representing a threat to the business model of Apple’s exclusive partners in the telecom industry, it doesn’t seem to be too much of a stretch to think so.

Can such intention be considered in the best interest of the end user? or in the best interest of the device manufacturer? And can such intention be changed retroactively, leveraging the presence of an existing kill switch?

Questions about the future?

In a previous entry, I’ve argued that we were moving to an economy where goods tended to be rented rather than bought. Embedded in what I was trying to communicate there was the question around what ownership actually means.

If an external party can control when or how you can use a device or decide on what you can or cannot see, or select what programs you can install on it, are you still owning it?

And while today’s corporate interventions are based on the best of intentions, what about tomorrow’s? or the next day’s? Will those intentions still sync up with yours?

Balancing the budget

Balancing the budget, or at least lowering the growth of the current deficit, may be a way to signal a change in our national priorities. Doing so would not only appeal to fiscal conservatives but also work as an example to everyone in the country that the days of financing through debt are over. Sending such a strong signal would ensure larger support for some of the programs that are truly needed in terms of restoring the country’s infrastructure and ensuring that every American has access to education and healthcare resources.

The first item would probably be a repeal of the tax cuts enacted in 2001 and 2003. Such financial leger de main didn’t make sense then and it still doesn’t. Repealing those cuts would put anywhere from US$200 to US$300 billions back into the government coffers, which goes some way towards solving the budget deficit gap.

An order asking for a two percent across the board cut for all 2009 discretionary spendings would add about $240 billion in funds, helping handle the rest of the deficit (except for TARP)  and allowing the country to get closer to a balanced budget. The total budget would still represent an increase from the 2008 budget, just not as large a one. Making the cuts mandatory across the board would ensure that the pain is evenly spread and not based on any ideological directives.

Retiring the debt?

Another big question that could be considered would be around what to do with our national debt. Before TARP, interest on the national debt for 2009 were considered to be around US$260 billion. To put this in context, it’s more than what we spend on Medicaid yearly (US$215 billion); or 63 percent of what we spend on Medicare (US$409 billion); or 40 percent of what we spend on social security (US$644 billion); or a bit over 8 percent of the national budget… and that’s just the interest.

Not only that but today, for every US$100 the US government currently spends, it borrows US$14. That’s pretty scary because that money doesn’t come for free and that means that our interest payments will continue to increase over time.

So one could ask whether retiring some of that debt through accelerated payment might be a way to help create a surplus in the future. Since the debt will be crushing on future generations, why not take the hit now and find ways to use some of today’s entitlements as ways to offset those extra payment. For example, if we were to pull out of Iraq, we probably would end up with US$50 to US$100 billion in spendings that are no longer necessary. Assuming we had balanced the budget by other means, could we look at investing that money into retiring our national debt. The premise is the same as that of repaying a little more on your mortgage every month: if you did that, you might shaves years of interest on the back end. In the case of the country, that could means trillions of dollars that could be reinvesting in the country.

Encouraging Investment

Our current infrastructure is crumbling. Whether it is roads, bridges, railroads, or the electric grid, we are dealing wht a 20th century architecture that is not suited for our 21st century needs. For example, one of the biggest holdups in getting cleaner energy in the country is that the electric grid is not built in a fashion that would allow routing energy from low population areas to heavily populated one. Rebuilding the grid to solve that problem would cost about US$60 billion over several years. But here’s an interesting tidbit: that rebuilding could be done by the private enterprises that currently run the grid. The challenge would be in getting different states to agree to play together on setting common rules for building it out, coupled with some possible tax cuts to offset the initial investment costs. Something similar to the tax abatment on internet retail could be put in place around energy to stimulate, for somewhere around 4-5 years, the investment into new infrastructures through some form of private-public partnership.

Also in the public private partnership side would be the creation of a national service program allowing students to go to college for free in exchange for doing national service. The program would take the form of up to 4 years of college tuition paid for in exchange for up to 6 years of working for the country (The program would be sliced in one year increments, with tuition for one year being paid in exchange for 18 months of service). That service could take the shape of work as a government employee either at the state or federal level. Initially, the program would only be available for education through public universities. Private universities who are match the difference between the cost of a public offering and their own cost would later be added to the program, which might help curtail the rise in the cost of education. Service would be compulsory for anyone who has taken a government grant but there would be an opt-out clause that would allow someone to repay the loan in full, with interest, in their first year out of college, allowing them to join the private sector after that.

A few months ago, I started getting the feeling that we are in the process of moving into a post-boomer era, and highlighted some of my thoughts on the subject. This was a surprising change of pace to my readers, who are generally more used to my studying things with technology as my focus lense but it was the beginning of an evolution in my thinking.

As the first rumbles of the economic crisis started appearing a couple of years ago (HSBC, my employer at the time, was one of the first companies to aggressively write off bad loans), I started wondering whether the crisis in the mortgage space was only the beginning and thinking that the credit card crisis was probably going to dwarf the mortgage crisis if it ever happened.

At the time, however, I had been so focused on looking at the world with a technology focus that I was failing to find the words to really describe what I was witnessing. My gut was telling me that this was a big turn but I neither had the audience nor the vocabulary to express my thoughts in a clear fashion.

Furthermore, not being a citizen yet, I felt that it might be presumptuous of me to point to the ills of a country that was hosting me as a guest, a country that had offered me so much opportunity. So I kept quiet.

But I now believe that it’s time to attempt to highlight a few things that do not appear to be part of the debate surrounding how to deal with the current crisis. And since I have the luck of dealing with readers who generally are much smarter than I am (and many of them much more powerful than most people), I thought that maybe, just maybe, I could get some of the basic discussion started here, spreading a meme around the concept of a culture crash.

In this particular case, I think the issue is around the destructive culture of credit America has been cultivating with the rise of the post-WW2 generations. I am not saying baby boomers because they are only part of the problem, as my own generation ( Generation X) and the following one, are also involved in the same destructive addiction to credit.

At issue is the concept that over-extending oneself is a good idea. It may be because I am coming from a foreign country, or it may be for other entirely different reasons but I have always had an aversion to credit. When I took my first mortgage, I worked hard to try to repay more of the principal than was requested by the bank. My concept was simple: I thought that if I could repay my loans early, I’d give away less as interest and could then use that interest to pay myself. It turned out to be a smart move but I have no idea as to how I came around to that conclusion. The funny thing is that I had discovered the concept of, to put it in terms that are now being used by every pundit, “liquidity is king.”

Whether it is credit cards, mortgages, or other forms of loans (student loans, car loans, etc…), I’ve always been suspicious of the idea that one could spend more than they had. I was aware of the concept of assets but ultimately, I felt that assets should be, for the most part, tangible. And a bank account with cash in it is about as tangible as things get.

Living in the USA, however, I have always been surprised by how much of a credit culture the country has. When asking for a mortgage, I had to fight my bank to get a “lower” mortgage amount because they felt I was asking for too little. The idea of lowering the risk (both mine and the bank’s) of financial default seemed to go counter to many in the go-go run-up of stock prices in the dotcom era, following by the go-go run up of real estabe prices in the recent housing bubble. Sure, I didn’t spend a lot of time jetting around the world on a lot of vacations as I toiled to ensure that my mortgage was paid off (and it took me a few years to do so)  but I discovered that many of the people who had run up their bills based on the promise of paper fortunes represented by their dotcom options were the same people who were financially wiped out when those paper gains evaporated.

The same phenomenon seems to have repeated itself with the housing crisis, as people refinanced their houses to take cash out and traded those houses as investment vehicles up until the point where the virtual gains they had made in the run-up on prices evaporated.

The similarities between the dotcom crash and the housing crash are a little eerie and, with the benefit of having gone through one of those crisis, I am now starting to gain perspective on the other one.

Meanwhile, the risk of dangerous investment securities (the so-called structured investment vehicles) seem to have been balanced by taking a few bad loans and mixing them with good ones. The problem was that these mixes got increasingly complex and, as I was talking to a friend of mine involved in developing some of those products, my gut feel got stronger. The thing in my discussion with said person (who shall remain anonymous in order to protect the guilty parties) was that “no one really understands many of those investment products anymore.” It felt a bit like a house of cards to me but once again, I figured that I didn’t really know enough to talk smartly about it.

Until this current crisis.

Students of history are familiar with the concept of a run on the bank. As I was reading up on such issues as part of my preparation for a speech, I started thinking about how brittle our economic system really is. Ultimately, most of the financial markets are based on people’s perception of value and, if that perception changes, the whole thing can unravel pretty quickly.

I think we are now at the tipping point of a major shift in the perception of what a good financial decision is. Wall Street may be the most impacted by this for now but I suspect that it will spread relatively quickly (my gut tells me the perception will be generalized globally within the next 3-12 months). The change is coming from the fact that growth may no longer be considered as valuable as tangible assets.

During the dotcom days, I received a couple of crash courses in perception management. The first one was going from VC to VC with a plan trying to raise around a million US dollars for a start-up. The company was slated to be profitable within 2 years and would grow at 15-20 percent afterward, per our projections. To say that our financing efforts were not going well was an understatement. The moment of realization came when, in another disastrous meeting, a VC told us “you’re asking for a million dollars, and will only give us 15-20 growth after the initial couple of years. Your plan lacks ambition.” The whole time, we had been basing our plan on realistic achievable numbers and I failed to understand why we were considered to not be ambitious. Things got worse and, in a fit of desperation, my business partners over-rode my decision of conservative growth based on solid revenue and created a projection set based on year on year tripling of the business, starting with an initial investment valuing the company in the 15-20 million dollar range. I thought were were going to be laughed out of the room by the first VC we presented this but something truly scary happened: not only did the VCs like it, but some of the people who had previously given us a soft no were now banging on our door, trying to get into the round. Of course, we took a first round, and a few more afterward, and enjoyed a nice liquidity event that achieved a nice profit for the initial investors. The company continued on air until the dotcom crash, which it didn’t survive as a going concern.

The lesson here is that VC investment, IPOs, the housing bubble, etc… all have one thing in common: they are based on the idea of future payout, due to year on year growth that is often based on numbers that are wishful thinking in the best of cases ( and outright fraud in the worst cases, as we have learned from Enron and Worldcom)

I think this concept is now hitting the wall. The problem is that it has yet to be replaced by something else as we are moving through the irrational stage that generally marks the end of every great cultural movement. So the operative word is “sell, sell, sell” and confidence has shaken some of the mightiest institutions on Wall street as it will shake up other institutions soon.

On Wall street, they are now well aware of that reality and some of the cooler heads are realizing there may be some ways to profit from the stampede by acquiring assets at fire sale prices.

However, I’d venture that both the panic and the cool reaction are relatively contained right now. Contained to people in the financial industry, the media (who have never seen a crisis they can’t hype), and the reacting investors.

A few days ago, I was at a party in the tech community, and the happy atmosphere reminded me of the euphoria I had experience in the late 1990s, only a few months before the dotcom bubble went crashing down. As I travel in the murky waters between Wall Street and the technology world, I was shocked by the contrast between the panic I was witnessing in the financial space, and the relentless optimism I encountered in the tech space. The assumption that the crisis is contained to Wall Street was well engrained (and may yet change as more people see their 401k go down) but I started wondering about the disconnect. When presented with the issue, one person pointed out that a lot of people would go to grad school, as had happened after the last dotcom bubble and the only thing I could think of, upon that remark was “and where will they get their student loans from?”

Once again, I was getting stuck in the credit mindset and it made me uneasy but it came from the realization that credit is a core basis for the current US economy.

What I suspect is now going to happen, after the credit culture crash, is a move to core value, with people working hard to save up in order to buy things in cash. Actually, I hope that that is the case because any other option only seems to provide a short term band-aid to a major problem. If we fail to take the opportunity to move beyond the credit mindset, the next crisis will make this one look as easy to deal with as the dotcom crash currently looks to us: a big deal for a few people but ultimately something we can get past.

And I’m afraid that we will continue to spiral down the road of an ever increasing amount of debt until such time as there is no other thing to do but crash the culture in order to reset it.

$700 billion is a pretty large figure (TechPresident has a good post that puts it in perspective) and it’s one that will only increase the national deficit.

But interestingly, there’s a way to cover the $700 billion. If we are in a time of crisis, we all have to tighten up our belts: the president has said that the alternative is a really bad economy so I’d assume we are all in this together and we all need to pull in. With the figure of $700 billion being rougly $2300 per person, there’s no way we can ask for everyone to chip in that exact amount. But what if we decided to spread paying it back over several years.

So I started playing with the national budget simulator, a handy little tool which has older budget figures but can give us some ideas.

The first thing I did was repeal the Bush tax cuts from 2001 and 2003. If we are in an economic crisis, we have to figure out a way to get the country back on track so repealing tax cuts that were creating when the economy was arguably in a better state might do the job. Doing so against the 2006 Budget would have yielded $294.88 Billion. That gets up about a third of the way through paying for the bailout. So, if you repeal the 2001 and 2003 tax cuts over a 3 year period, you pay for the bailout. In times of crisis, that might work.

But that was the easy part. What if we need to pay for this in one shot. If that’s the case, we’d need to find another $400 billion in the budget:

• Get rid of reconstruction aid for Iraq gets us $6.84 billion. With $80 billion in oil revenue currently running for the Iraqi government, we could argue they can cover their own reconstruction cost and eliminate this.
• Cutting untaxed foreign profit would yield another $15.74 billion. You could argue that in times of crisis, we need to focus on internal profit and foreign profit is fair game.
• a 20% cut in defense research and development would yield another $13.62 billion (from base of $68.129 billion) but slow down our ability to develop new weapons.

But those are all small cuts and other cuts could have negative impact on the economy so, looking at most of the budget, the only way to get anywhere near the $700 billion mark would be to repeal those tax cuts from 2001 and 2003. They were expensive then but are now downright unaffordable and one could argue that it would be our patriotic duty to cut them.

Ideas, comments, suggestions as to how to raise the $700 billion are welcomed in the comment thread.

So without further ado, here are my prepared remarks:

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Good afternoon,

I know many of you are probably wondering why a history of currency would be on the program at a Web 2.0 conference. So let me first dispel a few concerns you may have:

• History can be a useful indicator of what may happen in the future. Under a historical lens, Web 2.0 is pretty easy to predict as the natural descendent of community organizing and lowered cost of communication and mediation.
• Web 2.0 will impact currencies and that will probably be the biggest thing historians of the future may remember about Web 2.0

So, in the next few minutes, I’m going to take you on a trip through roughly 60 centuries of history (just the highlights, I promise) and will show you how each major shift in the evolution of currency reflects what we consider pillars of the Web 2.0.

Having done so, I will attempt to take you through the next 25 years and project how Web 2.0 may fundamentally redefine how we think of currency, and present some of the challenges and opportunities this historical change may present.

So here we go…

About 4000-5000 BC, the basis of most trading was something called barter. Barter is simple to understand, really. At its most basic level, it goes something like this:  “I have fish and you have some chickens. How many chickens will you trade me for my fish?”

The other guys says he will give me 5 chickens for my 10 fish and, if I feel it’s a fair trade, we make the exchange.

So that’s all good but one can’t live off fish and chicken alone. And eventually, I go back to the guy and he tells me he’s not interested in fish but if I can find a cow to sell him, he’d be willing to exchange 50 chickens for it. So now, I’m out looking for someone who will give me a cow in exchange of some fish.

That may work for a couple of goods but you can see how inefficient an approach it is.

Back then, people started realizing the same thing and so there was a move to find some way to simplify things. Communities started gathering around some goods that they would agree were useful as a basis for trade: grain, honey, rice, etc…

And, through these actions, the concept of money was born… and with it, the basis for what defines a currency was established:

• It provides a standard measure of value for goods and services
• It serves as a medium of exchange
• It serves as a method of storing value

Let me get into those points in more details before we move on.

A currency provides a standard measure of value for good and services. If I go back to my example of chickens and fish, I can look at currency as a go-between. By establishing that a fish is worth 1 pound of grain and a chicken is worth 5 pounds of grain, I can then extend the model to a cow is worth 100 pounds of grain and a house is worth 1 ton of grain. From this data, I can infer that a house is worth more than a cow, which is worth more than a chicken and so on…

However, none of this can happen if there isn’t an agreement amongst everyone that a particular currency has value. You could call that a certain wisdom of the crowds and that’s where currency starts overlapping with web 2.0. We’re going to get to more details about that later.

The second point is that a currency serves as a medium of exchange. Because everyone agrees that grain is a great way to make those comparisons, I don’t have to go around and try to make conversions from one item to another. I trade the item against grain and then can use the grain to “buy” something else. In that sense, I can exchange any good for grain and grain can be exchanged against any other goods.

Once again, this only works if people agree on it as a medium of exchange. And that, in turn, represents a form of metadata about a trade. Sort of like if people were to tag an item with the same term. And once again, we get to a position where it overlaps web 2.0 as the crowd is now working together to establish value and therefore define markets.

And because currency is metadata, it can also serve as a way to store value for future use. For example, if I fish, there’s only so long I can keep my fish before it spoils. By selling it immediately (ie. Trading it for its currency equivalent), I can avoid that spoilage and store its value for future use. So, in a sense, currency serves as a storage medium.

But the fact that it works as a storage medium can be both an advantage and a disadvantage. As storage for value, the currency itself become valuable. And when something is valuable, well, some people try to acquire it through means other than production. From here, we end up with theft, pillage, war, etc… And from all this carnage, we get to the point where people try to find ways to protect their currency (and, almost as often, their lives).

In around 3000 BC, in ancient Egypt, some people come to the insight that, by storing their currency together and agreeing to share the cost for an army to protect that currency (which, at the time, is grain), they may be protecting themselves from loss. Along the banks of the Nile, granaries start to appear and they become a place for storing currency: people come in with the grain they received as a form of payment for whatever it is that they sold. And the first accountants appear, keeping track of what amount of currency people have in their accounts.

Everybody is happy and celebrates as they have discovered a fantastic way to store their currency and keep people from threatening them. Across Egypt, people pat each others on the back until, well, until the first currency crisis.

Around 2200 BC, severe drought made grain more scarce. The result was that disbursements (taking grain out) started to move at a higher rates than deposits (putting grain in). And some people found themselves in a situation where they had spent all the grain they had and had a hard time producing anything they could sell. In this case, the value of the currency (grain) increased because the currency became more scarce.

Eventually, the problem affected the top of the economic food chain, aka. The pharaoh and, as a result, local people started opting out of pharaoh rule and attempting to take control of their own currency. When all was said and done, about 200 to 300 years later, grain was abandoned as a currency as it was considered that a currency that can be eaten is a currency that can have a problem. So metals, which could be turned into tools, which themselves could be melted again to turn them back to metals, started emerging as the dominant form of currency.

This is important because it finally moves currency to something that is more abstract. Metal may be a commodity that, without any work, could be considered of little value but, as an abstract construct of value, it works. And for the next few centuries, that’s the case.

Some interesting alterations in terms of the ways money is stored and carried happen during that era. For example, in a number of countries like China and Sweden initially, people realize that metal may not be the most portable of currency for large transaction and so places where currency is stored (now called banks, because, initially they were sitting on river banks) start issuing the equivalent of paper receipt for storage and people start trading those receipt. Here, we see the emergence of two key components of a more modern system:

• First, the concept of representative money, where a piece of paper can be redeemed for a certain amount of metal, therefore representing that metal.
• Second, the emergence of paper as money, creating another layer of abstraction in the transactions.

With the move to paper, currency becomes sort of an I.O.U., representing a certain value but not possessed of that value in itself. This shift, called the shift to representative currency, is important because it establishes currency as an even more abstract concept. The piece of paper you receive is basically a receipt that can be redeemed for some equivalent amount of metal but it isn’t the metal in itself. So here, we see currency basically becoming free-floating metadata, asserting worth without necessarily showing it.

The problem is that the distance from a bank where the paper note can be redeemed becomes a factor in terms of exchanging the banknote.

Enter John Law.

Law is an interesting character: he’s a Scottish economist who, at age 23, shoots a man, is tried and found guilty of murder. He’s thrown in jail, manages to escape and lands in France. While there, he gambles a lot and comes upon two major observations:

• People have taken to trading the paper bills as if they were coins
• Paper is divorced from the metal it represents

From there, he deducts that whoever could control the flow of paper bills could start issuing more IOUs than they have metal for.

With this, he comes up with the concept of a reserve bank, assuming that he could have a bank with only 75 of the cash reserve needed to cover the IOUs it had issued. But there’s a problem with that: in order to control the flow of paper bills, he needs support from a government. And initially, most people think it’s a crazy idea and won’t go for it. But Law convinces some more junior people that it’s a good idea and, eventually, one of his patrons hits the jackpot: Philip D’Orleans rises to power and quickly realizes that he’s running a country where the government has a substantial deficit. So he puts Law in charge of creating a national bank and law sets out to create the first government controlled reserve bank, issuing more paper than it has metal currency for.

It’s a pretty radical idea. Law is dealing with a society where everyone agrees that what you see is what you get as far as currency goes but then he leverages the agreement that paper is a representation of what you get and, after having taken over control of the currency flow, he turns that into what you see is what you get if no one rushes the bank.

Because with his second insight, John Law creates the concept of fractional reserve banking, which basically means that the bank, at any given time, only holds a fraction of its obligation.

But fractional reserves can be a little scary: they work well as long as people trust that the bank can repay them. And most of the time that’s not an issue because while a person needs to pick up their gold or silver or whatever other metal the currency is traded against, another person probably doesn’t need his or hers. So it balances itself out in some sort of common good.

Where the system can fail is when everyone decides to take their metal out at the same time: remember, the bank doesn’t have enough metal in its safe to cover all the currency it’s distributed. That problem is actually an echo chamber problem.

A run on a bank, the situation I’m talking about, generally begins with a whisper: somebody has heard that the bank is having problem and concludes that money you’ve deposited there is no longer safe. That whisper starts spreading and, thanks to an echo chamber type of effect, people worry that their money is no longer safe in this bank. Since they don’t want to lose that money, they run to the bank and withdraw all their money from the bank. Problem is, they are not alone and quickly tens of thousands or more people start doing the same. Because of that massive onslaught, the bank no longer can meet its financial obligation and actually does fail.

This happened in the 1920s with the great depression and it’s happening now (that’s why the government is busy bailing out a number of financial institutions.

But let’s return to history. In the 1940s, after World War II, the Bretton Woods accord established some global rules for currency exchange against gold. But most of the reconstruction of Europe ended up being backed by US dollars to the point where the US held somewhere around 65 percent of the global gold reserves. In 1960, an economist called Robert Triffin figured out a problem with what had happened: there were more dollars in the marketplace than there was gold to back it up. In the early 60s, an ounce of gold was worth about four to five dollars more in London than it was in New York.

Due to many political and economic events throughout the 60s, the possibility of a run on gold and a run on the dollar started increasing and on March 17, 1968, the possibility became reality, creating a substantial money crisis. The whole financial system teetered on the edge of collapse during that era and eventually, the Bretton Woods accord was abandoned. On August 15, 1971, US president Richard Nixon announced that the US would no longer convert dollars to gold. In fact, he added the US would not convert dollars to anything.

That announcement is appropriately called the “Nixon Shock” because with it, Nixon puts an end to the concept of a representative currency established by John Law. In its place is now the concept of a Fiat currency, a currency that is traded not because it has a guaranteed value but because the government says that this currency MUST be accepted as a form of payment.

And so currencies now float, not based on a physical value but based on what people think that value ought to be: today, dollars, euros, pounds, and yens have a particular value not because it is set against actual goods but because people believe that the government that backs those currencies will continue to do so in the future.

So let’s go back to our fundamentals of currencies: they have to be an agreement and that’s where we get to web 2.0 and its impact on currency.

Which gets us to more recent times. During web 1.0, a number of companies starting thinking that the internet, because it was global in nature, needed a global type of currency. So technologies like Digicash, Cybercash, Ecash, Flooz, Beenz, appeared in an attempt to mirror cash and create new currencies.

But they had many problems. First of all, the different systems were hard to use, often requiring software to be installed on the users’ machine. That limited participation and, if you remember one of the fundamental rules of currency creation is that users generally agree on using a common currency.
The second part was that the systems actually went too far in trying to emulate cash. So, just as you need to go to an ATM to get cash today, most of the system used the concept of a purse that was to be refilled from a different area. But why go to an ATM to withdraw cash when you’re on the Internet? Why not say, “I have money in my account, refill my wallet if it’s empty. ”

The third, and probably most important part, was that once spent, the currencies were transferred back into some real world currencies like the dollar or pound sterling (and no euros because this is all happening before the euro became a consumer currency.) That was the biggest mistake because currencies weren’t really traded.

The dotcom bubble crashed and, along with it, most of the virtual currencies that had been introduced. It wasn’t a very big deal because people didn’t hold much money in those currencies.

Meanwhile, a parallel development having absolutely nothing to do with currency creation took form across the internet: because of its global outreach, the net was a perfect place for people to play games together. At any given time of day or night, there was always someone interested in a game of chess or backgammon or something else. Some games went beyond the basic board games and leveraged the concept of role playing games that had been so attractive to so many computer geeks.

And over the years, as computers became more powerful, the quality of the graphics improved. And as the games improved, new point systems were created for each quest allowing to trade work (game-related achievements) for goods (better weapons, magic potions, housing, etc..)

Those points took various forms. So games like World of Warcraft or Lord of the Rings online, which are set in a medieval-like type of environment, turned to gold as their achievement point systems. Linden Lab, with created Second Life, created the Linden Dollar, and so on and so forth.

But then… then something really unexpected by most of the game makers happened: people started exchanging those virtual currencies for real world ones. Looking back now, it seems to make total sense: the challenge, for a lot of those games, is that it takes a lot of time to acquire virtual currency.

Here, in the developed world, time tends to be at a premium. Most of us are multitasking constantly because we just don’t have enough time to do everything that we would like to. But because we spend a lot of time working or doing other things, we don’t have much time to play games. On the other hand, we tend to have more disposable income than people in underdeveloped countries.

For example, in 2005, the average annual salary (and let me make this clear, I’m talking average annual salary) for a Vietnamese worker was 1200 dollars. That’s 1200 dollars a year. That same year, in the Guangdong province of China, that number was $2,778.

Some of those people are in their early 20s and when they get out of work, they go out and spend some of their money to play video games. At some point, a few entrepreneurs around southeast Asia realized that if they paid ANYTHING to those players, they might be able to get past some of the more boring tasks and resell the accounts to people with little free time. A new economic model was born and all of a sudden, World of Warcraft gold started getting traded against US dollars and euros.

Students of currency history could have predicted this. Remember, currency is a social agreement on the value of something and here, those virtual currencies became an agreement on a value of time.

While initially the phenomenon was one of supply arising from southeast Asia to meet North American and European demand, it eventually went around full circle. When China decided to start requiring that people register their work occupation as “virtual workers” for people dealing with that type of trade, over 750,000 people applied in the first quarter. That’s three quarters of a million people in China alone claiming to make the majority of their living from creating goods they sell against virtual money.

And Asia is where it actually gets very interesting because frictions between the government and virtual currencies are becoming more common.

Meet Tencent. Cute little penguin, right? Well, that little penguin is currently at war with the Chinese government. It started relatively innocuously. Tencent provides an IM system and offered a virtual currency, the QQcoin, to be used so one could upgrade their online avatar (an avatar is basically what your online character looks like) and allow for people to give gifts to other avatars. Not a big problem until a few other web sites started accepted QQcoins as payment for services, and eventually for goods. In May 2007, the Chinese authorities started issuing warnings about the QQcoin. By November 2007, they were blaming it for impacting the Yuan, the national currency.

That industry, which people have called the virtual world economy, real money trade, or RMT, currently represents anywhere between 2 and 4 billion US dollars of transaction flow a year. That’s up from inexistent less than 5 years ago.

So let’s keep that number in our minds and move to the next set of influences Web 2.0 is having on currency. As you know, Web 2.0 in increasingly about giving power to the user and increasing peer to peer relationships.

I talked earlier about the virtual currencies that popped up during the web 1.0 phase. There was one company which, at that time, came up with the idea of moving currency from one Palm device to another. For those of you in the audience who may not remember that time, Palm devices where the spiritual grandfathers of the iphone or most smartphones today. Well, the Palm thing didn’t work out for them, so they figured they’d start moving money via email. Oh, and they renamed the company around the name of the product: Paypal.

I think everyone here knows the rest of the story. Paypal has become a leader in moving money on a person to person basis with something as simple as an email address in terms of identification. That simplified transactions and many people around the world are actually using paypal today to move money from one currency to another.

And while many may snicker at the idea that moving money from something as ridiculous as the Palm, well, it was just a question of timing and marketplace. Currently, in Kenya, M-PESA is doing the equivalent of 10 million US dollars in daily person to person transaction on mobile.phones. That 3.6 billion dollars a year.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

Meanwhile, marketplaces like prosper.com and zopa have started allow users to make loans to each other via a web interface. It’s called peer-to-peer lending, basically, people lending money to other people, or as most of those companies claim, they’re Ebay for money.

According to the online banking report, it will be a US$9 billion a year business by 2017.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

So if we take the trends we’ve just explored:

• Virtual currencies have grown to be traded as if they were real currencies
• People are moving money from one person to another via the internet or mobile devices

We may be able to come up with the conclusion that where this is going, in the long run, is an area where exchanges could be set up either online or on mobile devices to use virtual currencies are real currencies.

And if we assume that this first step is possible, then it’s not too far away from the next step, which is an explosion in the number of currency offerings we may see in this world.

What we’re seeing here is the first shot in what I think is the next evolutionary step in the history of currency and it’s an evolution that could either be a transitional phase without major disruption or a massive change in the way people are interfacing with currency: this could be our generation’s Nixon Shock.

The issues around this new world are significant.

The first issue is around who is controlling those currencies. For most of history, currency was under the control of the currency issuer. But in the last couple of centuries, there’s been an increasing trend towards government control of currency.

How will government react when their own currency is challenged? And will their reaction matter? After all, the Chinese governments actions to date, as far as the QQ is concerned haven’t stopped trading.

What will happen in terms of tax collections? Will government have to start accepting currencies beyond their own as agreed form of payments? And if they accept other forms of currency, will they have to accept other government-run currencies as form of payment?

How will criminal behavior be dealt with? Today, criminal elements can be tracked because whenever they have to deal with some currencies, they have to eventually deal with banks. And because banks are regulated, criminal behavior can be intercepted. What happens when those money flows move outside of the financial institution control? Shouldn’t governments think about regulating those institutions as money transfer operations ?

What happens when the number of currency explodes? Sure, computer systems can do the conversion without problems but how will WE assess the worth of a currency?

And, as currency initially proliferate, there will eventually be a move towards an agreed upon set of new currencies because remember that currency is ultimately, about an agreement value by all of us. But when some of those currencies die, what will happen to the people holding them? Will the dead currencies be converted to emergent ones? And what happens if the dead currencies are ones that were controlled by governments? Will they fight for survival?

I unfortunately don’t have any of the answer to those questions but if there is one thing I know, it is that where questions exist, opportunities abound.

And with that said, I would now like to open up the floor for discussion.

But today, I can say that I got past most of the funk. Sure, I still look up in the sky when a plane flies lower than expected; Sure, I still get some chills down my back when I get close to ground zero; but, for the most part, I can go about my life without being reminded of what happened.

Today, my concerns have evolved: it’s more about building a better future for the generation born after 2001, that of my son, than it is about dwelling on that horrible and unfortunate date.

But today is also a time for reflection: there is still only a construction site on ground zero, the result of wrangling by different factions about what the place should be: it may be weariness on my part but maybe the best way to honor the dead would be to put your own agenda aside and try to figure out where the common ground is. Whether you were affected directly, through the loss of friends and loved ones, or indirectly (and, let’s face it, most of us in the USA were affected at least indirectly), a way to celebrate might be to reach out to someone you generally wouldn’t and try to understand what ground you share.

7 years ago, New Yorkers pulled together. 7 years ago, we were all as one but somewhere along the way, the country went back to being apart. Why not make today a day to bring all of us together again as New Yorkers, as Americans, as members of the human race.

In Memoriam: Carlos Dominguez, Mark Ellis, Melissa Vincent, Michael DiPasquale, Cynthia Giugliano, Jeremy Glick, David Halderman, Steve Weinberg, Gerard Jean Baptiste, Tom McCann, David Vera.

My journey to this moment is one that, in retrospect, would pretty much a given. Since 1992, I’ve been involved on the outer periphery of presidential elections. In the mid-1990s, for a brief period, I was even lucky enough to be present when policies and legal precedents that continue to shape the Internet were established.

In the last presidential election, I took a week off from work to put my money where my mouth was, volunteering with the A.C.L.U. to help protect individual citizens’ right to free assembly and free speech during the New York Republican convention. I’ve had many memories from that week but what stuck most, in my mind, was the courageous group of three Republicans who, one night during that week, went down to Union Square, where most people were protesting against the GOP, and set up individual spot asking the protesters to debate them. The exchanges were both fiercely partisan and cordial and I am still amazed by the fact that people who sat on opposite extremes of the political spectrum could not only sit down and talk with each other but do so in a manner that may have helped all participants.

And yet the time passed and it took me another few years to even apply for American citizenship. But last year, I finally decided to make the leap. And the leap was made on one small but crucial and all to often taken for granted right: the right to vote.

I have not posted any partisan thoughts on this site when it comes to American politics. It was a conscious decision: back then I was a resident alien (yes, that’s the technical term) and I felt that to use this bully pulpit to discuss American politics would be in bad taste. As a non-citizen, I felt that I had little or no right to really voice my opinion as loudly because I considered it to be in bad taste.

But things started bugging me. It’s not that I was starting to dislike America but rather that I started to dislike how the administration was dismantling the idea of America that has been set down by the founding fathers. People who know me well know that I can be a bit obsessive about the US constitution and the bill of right. And what I felt, after a few more years of the Bush era, was that this administration was going against a substantial amount of what the founding fathers intended.

A worse crime than attacking the foundation of the American republic though, was in the way it was done, attempting through twisted logic, to paint that attack as in line with what the founding fathers intended. To besmirch their names in such a way was, I think one of the final straw.

The people who assembled in Philadelphia in 1776 and declared that enough was enough put their necks on the line for us with the declaration of independence. And the people who, 11 years later, came up with the US constitution did the improbable: they decided that, having defeated the mightiest army of the time, they would not accumulate and aggregate the power amongst themselves but rather, they would form a country where checks and balances would rule the day to ensure that the people had the strongest voice possible.

So the states would act as a check on federal powers; 3 branches of government would balance each other out to ensure that none became too strong; even those would be balanced as internal mechanisms would limit the authority of any single person within that branch.

George Washington, who had initially had a hard time prosecuting the war but eventually turned things around to win a country was given a chance at becoming the country’s new king. But not only did he turn down that opportunity, he did not seem to argue for a strong executive branch. Once in power, he not only avoided the trappings of royalty, but also set foreign policy precedents by declaring the US as a neutral nation in foreign conflicts, and eschewed any attempts at war, preferring peace.

Alexander Hamilton believed that the country’s burden ought to be shared by all. However, while heading the house of representative, he decided to sway votes to ensure that his political opponent (and a fierce advocate against that idea), Thomas Jefferson, could become president because he felt that doing otherwise would undermine the legitimacy of the country.

Thomas Jefferson, a slave owner, decided to deride the practice of slavery in his initial draft of the declaration of independence and time and time again, pushed for laws that ended up dismantling some of his own interests.

The men intended on building a new country based on equality and justice for all, even if that meant that they would no longer be guaranteed worship but instead would be considered equals to all. And for this, I would say that they were not just mere men, they were supermen.

But somewhere, somehow, things started going horribly wrong in our times. And I suspect that the main issue has been one based on economics, with many people believing that the golden rule (”he who’s got the gold makes the rule”) should be the basis for our nation. That golden rule led to a belief that each American is an individual and, as such, has little or no responsibility to the rest of society. It elevated the individual to a place where kings would be OK, and thus, the belief of a strong president, stronger than congress or the courts, started to take hold.

And so, a new era of selfishness replaced the basis of selflessness that our founding fathers intended.

I could recount the ways in which those things can be illustrated by the actions of this administration. Whether it is a rush to war (and here, I do not talk about Afghanistan, a war that was based on facts and a real enemy but rather about Iraq, a war that was “sold” because it appealed to a certain group) or the belief that corporations can be above the law (for example, the telecom prosecution exemptions currently being discussed which, I’m sure, are leaving every criminal trying to figure out how they can present their trade in a way that will make them benefit from the same approach large telcos do), something went amiss.

But things going amiss are not the reason to become citizen of a country like the United States, a country that was founded on optimism, hope, and renewal.

And hope, renewal and optimism seems to be the flavor of our times. While we are still living in dark ages, there is a sense that a new breed of politics, a new breath of fresh air, may be allowed its place at the public table. In fact, I would even be so bold as to say that wild concepts like substance over style could have a chance to enter this election cycle.

Granted, Obama oozes style, with the type of delivery that not only presents new ideas but voices them in a way that people find it inspiring. Granted, McCain offers substantive policy but I am not wild about that sustance, as it provides a view of an America angry at the world, and fearful of others.

And that, ultimately, is what this precious voting right comes down to. By now, having lost half of the people who generally read my site (an assumption I’m making because I suspect that the previous few paragraphs will leave many of my Republican leaders angry), I can say that a lot of my thinking about getting US citizenship revolved around the right to vote and the right to belong. The USA, only 7 years ago, was a country that, for the most part, welcomed non-Americans. But since 9/11, things have changed and there seems to be a growing resentment of foreigners, largely dictated through policy pronouncements that would make the founding fathers spin in their graves.

So I am now a new citizen and, on election day, I will most probably go out and vote FOR Barack Obama. Voting FOR someone is an opportunity I missed in the 2000 election cycle (I have to admit that, had I been a citizen in 2004, I would have been more intent to vote AGAINST George Bush than FOR John Kerry).

But of course, there is a lot of work to do between now and then, and there is more than one election to go. This country, my country, is in trouble and I, like many others, have worked to do. And I hope that one or more people, having read this, will consider reconnecting with their civic duty.

But do not take this for my telling you who to vote for. Whether you believe in John McCain or Barack Obama only matters to me inasmuch as I might have to work with or against you politically. However, what would really touch me more than anything is if you, reader in any country where leaders are chosen by election, could reconnect with your community and help improve it by restoring real political dialogue, just like those republicans, with whom I respectfully disagreed on a warm night in August 2004, who decided to talk to their non-republican counterparts. On that night, all those involved may have come from different political factions but they talked in the language of exchange of ideas that so many decades ago inspired the world and defined one country, my country, the United States of America.

Let’s first take a look at the data points from recent weeks:

1. RockStar Games releases “Grand Theft Auto 4″, picking up US$500 million in its first week of release.
2. Barack Obama uses younger demographics to win democratic nomination.
3. Primetime no longer so prime as younger viewers shift time and place of shows.
4. Some VCs look to demographics as an opportunity space.

All those data points seem to highlight a major shift in the demographics of influence. For most of my lifetime, the core influencers have been the baby boom generation (aka. my parents’ generation) and their hold on politics and consumer behavior from the late 1960s on has been uncontested up until now.

But that may be changing.

Media

Up until recently, media consumption was divided between TV, radio, and print when it came to news and movie theaters, recorded media (VCR in the 80s and DVD now), TV, and live performance (and I’m grouping both live music and theater in that category) for entertainment.

In the 90s, we successfully established the Internet as a source of delivery for news but most efforts to do turn the net into an entertainment channel failed due to network and CPU constraints. Those constraints disappeared since the turn of the century and the net started to take a stronger place as an entertainment channel in the last few years.

While the net is slowly eating up the traditional media budget, another market is started to eat into the pie and that is videogames: it first started within a small subset of the overall population (males under 35) but is slowly starting to spread to a wider population as can be seen with the success of the Nintendo Wii and of certain virtual worlds (like Club Penguin or WebKinz, aimed at kids).

Similarly, it appears that traditional media is suffering from a slump in their own advertising revenue as a result of not only decreasing audience but also decreasing amounts of support from advertisers due largely to the fact that most non-digital assets are not easy to track in terms of response rates (an issue I’ve addressed in the past in several different posts.)

So the question now is where the value will reside moving forward. Many of the smarter media companies are now starting to understand that their product is not necessarily in the delivery medium (for the longest time, print publishers have assumed that their goal is to deliver paper-based products; music publishers were tied to whatever format, be it record, 8 tracks, tapes, or CD, they packaged their product in; TV producers have looked to their channel as the center) but that the value they add is in the packaging and financing of interesting offerings in a cross-media fashion. This is the driver behind efforts like the recent acquisition offering of CNET by CBS and Ars Technica by Conde Nast.

What we will see here is a progressive move to anytime, anyplace as far as any entertainment or news package is concerned. Mass media is not really dead, it’s just made up of an aggregated model now. This is a model that some stars like Madonna understand and have adapted to, according to the New York Times (emphasis mine):

Madonna’s show, to promote her new album, “Hard Candy,” was also part of a technologically sophisticated, 21st-century product rollout that involved multiple media tie-ins. It was broadcast live on the Internet by MSN and on cell phones worldwide by Verizon and Vodafone. In addition to the 750 spots given to fans on the line — that’s on a line, not online — about 1,000 were given to radio contest winners, and 200 to members of Madonna’s fan club, which now has a social-networking component.

The secret here is to appeal to the audience on its own terms and where it is. Some less savvy executives may think this is a temporary blip but I suspect that, as far as media is concerned, it’s only the tip of the iceberg. Talk to teenagers today and they have little understanding or patience for media that does not fit their needs.

This, however, does not mean that everything needs to be free. Many new media advocates will claim that, in the new world, copyright is dead and value from media can only be extracted indirectly. For example, they see rock concerts as the way to extract value from music tracks that are distributed for free. While those types of economics are fine, they seem to leave some money on the table. For example, it is true that teenagers look to the value of an MP3 track as low or even 0. However, the same teenagers buy music from the itunes store or download and pay for ringtones. And let’s not forget last year’s experiment by Radionhead, which put all of its album online for free in a “pay what you wish” model: if people will always opt to go for the free option on a good, then Radiohead’s US$10 million first week sale for their CD doesn’t make sense. Once again, this goes back to the new fundamental rule that, as long as you offer your goods across a wide array of media, you will maximize your offerings.

Politics

In the intro, I also talked about Barack Obama and how he appears to defy the prognostication made by many commentators. I would venture to say that the reason for his continued success in the face of any existing model is also based on the realization that he, as a candidate, can make himself available in any media form. A measure of the online success in multiple media shows the story (thanks to Techpresident, we can easily see that data as it relates to MySpace, Facebook,  YouTube, Technorati, eventful, meetup,  and traffic data accoring to Compete and Hitwise.) When looked through the traditional lens of comparing election cycles to earlier ones, as most TV commentators appear to do, the Obama campaign can’t survive. But the problem is that such lens does not include the data above.

For all my lifetime, the storyline of American media consumption and of politics has been largely formed around one single demographics class: baby boomers. My generation, Generation X, was considered a wasted one as Baby boomers looked at it as poitically apathetic, and generally seen as a bunch of slackers with no interest in corporate lives. There might have been some element of truth to the story line as members of Generation X came of age in a cynical world where they were told that the corporate life was no longer a guarantee of lifetime employement and where they were consistently reminded that social security would fail and they would pay for the system but not benefit from it. As a result, many turned away from traditional institutions and started building alternatives.

The most visible alternative model is the rise of the Internet economy which was largely built by 20 and 30 something and funded by older people who understood some of the value being created. But along the line, many other things changed: first, the work-hard/play-hard ethic moved, as people got a bit older, to a need for a better work/life balance. This was a byproduct of dropping the boundaries between office and home. As the two merged, a new set of boundaries needed to be created.

As more of those boundaries changed, some social mores were also affected. In a way, one could argue that the boomer’s self-obsession created a counter effort that led to more collaborative and more society-centric views. Because they had been beaten down by their elders, GenXers tried to build a system that swung the pendulum on the other side: one where age/culture/race/sex/etc… were de-emphasized through the electronically mediated space of the Internet. This is not to say that all the problems associated with those categories went away but I suspect that a study of demographics would show younger people to be more tolerant and generally more on the left side of the political spectrum than older people (maybe a representation of Churchill’s “Show me a young conservative and I’ll show you a man without a heart. Show me an old liberal and I’ll show you a man without a brain“)

Enters Obama, a candidate who, by most measure can be considered further to the left than Hillary Clinton. When he talks, he highlights partnership, and generally looks to a more “European” approach to society. This seems to be a rebuke of much of the individualist type of policies highlighted since the Republican era. And that’s where the pundits start having trouble. Is the 2008 presidential cycle like 2004? 2000? 1996? 1992?

The truth of the matter is that the 2008 election cycle is unlike the other ones because of a substantial demographic change. Obama’s voters tend to be people who have not previously been very involved in the political process. Some are from particular racial background but I suspect that a bigger part of the story is the demographic clash that’s coming our way.

The interesting thing is also the type of opportunity this can present from a political messaging standpoint and an issue standpoint. Some of the issues that were considered as dangerous to approach in previous election might now be safer due to the different outlook (for example, I have read somewhere (and don’t remember where, which is why I’m not linking to it) that younger Americans tend to be more willing to pay higher taxes in exchange for a bigger social net).

I suspect that the Obama campaign is currently surprising pundits for three main reasons:

1. It understands that media and politics are intertwined and works hard to run itself as a media organization.
2. The campaign understands that media is now participatory, and ought to be consumed across multiple channels when the consumer wants to.
3. The campaign understands that it can find voters where no other campaign has gone to get them. That means bigger registration drives and an increase in the number of new people signed up on the voter’s rolls, something that could have a very important impact not only in this election but in a lot of future ones too.

Conclusion

I am sure that I’m only scratching the surface of a pretty important phenomenon with this entry but I have to admit a fair amount of surprise as to why this doesn’t seem to be more noticed. I also wonder whether my assumption here are wrong and what the larger impact of such a demographic shift could be. I’d appreciate comments from others as to what they think it ought to be.