Alex Hopmann’s Blog

Now that the iPhone 3.0 software is introduced, its time to start dreaming about what the next hardware might bring. My assumption at this point is that Apple is going to refresh the hardware every summer, and that if they do a good enough job that I (and tons of other suckers) are just going to buy the new one every year like clockwork.

So given that I’m overall pretty happy with my iPhone, certainly more happy than I have been with any phone 9 months into ownership, what are the top things I would improve?

• 64GB storage. 32GB seems like an easy bet given that there is an iPod Touch with it, but with USB drives out in the market with 64GB, is a 64GB option too much to ask? The fear is it would push the price point out to $399 (64GB USB drives are still a bit more than $100 right now). My 16GB has done pretty well so far, but I’m starting to push on its limits.
• Better wireless circuitry. Of course its hard to tell how much is AT&T, how much is the phone hardware, and how much is software issues, but it certainly feels like I occasionally have a harder time connecting, especially for data connections than makes sense.
• Better GPS. It seems like the micro GPS chips have been improving rapidly and having a GPS chip that syncs faster would be very nice.
• Better camera. I find myself taking a surprising number of photos using my phone now since I always forget my camera. Its actually not that bad for a “paste a quick snap on Facebook” scenario, but 4-5MP and less grainy would be really nice.
• Standard USB port for charging. This one I assume I’m not going to get unless the pressure from the EU forces them into it, but being able to use a standard micro-USB port to charge the thing would be great.

Given that you pay almost $1000/year for service, Apple really does have a good business model on their hands if they can come out with an incrementally better device every summer for $299. Just with normal wear it can make sense to get a new one every year or two and Apple needs to keep pushing just enough improvements to get people into the new model. The 3g refresh last summer appears to have done the trick for most people, and frankly if they can do 3 out of the 5 things above, it will be a pretty easy decision for me.

As expected, spurred to quick action by the wave of outrage, the government has begun to counter the A.I.G. bonus situation with what are probably some really bad reactions. 538 has a great write-up of some of the unintended consequences of the bill the House passed the other day. I do think something should be done about the A.I.G. bonuses, again, because I think that while $165 million is just a drop in the ocean of the multi-trillion dollar crisis, I do think this goes to the fundamental credibility of whether the industry is set up to work in our societies best interest in fixing the mess they created, as opposed to continued short-term cashing out while the getting is still good.

Although its obviously coming with its own set of political grandstanding, the approach taken by the NY Attorney General, Andrew Cuomo seems more reasonable. Rather than pass a law that has lots of side effects, we likely have plenty of existing laws that make a situation like this- executives signing contracts with each other that set up guaranteed payments, irrespective of job performance and from an (effectively) insolvent organization. I would hope that this would be sufficient to get the involved parties at A.I.G. to realize that its in their own self-interest to give the bonuses back, as well as make sure that similar situations will not happen again in the near future.

Meanwhile the one thing that I’d love to see more of is scrutiny of the actual work that this group has been doing unraveling their toxic deals. Have they been using the government money to cut good deals in the interest of A.I.G. and its shareholders (the US taxpayer), or have they been doing their own sweetheart hand-outs to the other Wall St. companies like Goldman. Are they just paying out these insurance policies at 100% despite the underlying bonds still being in fine shape, or are they striking an appropriate hard bargain so that no one walks away unduly profiting from the governments assistance?

Goldman is still claiming they have no exposure to A.I.G. but if that is true, among all the other government largess to Goldman why do they have more than $12 billion in payments from A.I.G. and other unwinding of these contracts?

There have been several reasonable articles pointing out that our anger about the A.I.G. bonuses, while probably justified, is probably not the best thing to be spending our attention on now. The A.I.G. bonus thing represents a mere $165 million amid trillion dollar outrages. As Planet Money (one of my favorite news sources lately) points out, shouldn’t the President and Treasury officials be focused on the bigger issues?

Besides others point out, these contracts, while probably inappropriate are contracts, and isn’t preserving the soundness of contracts more important than lashing out against these people?

Before I get to my main point, I’d like to go over a few pieces of this situation-

• It seems like these contracts were created in the time right during the collapse of A.I.G. before the government really stepped in. One can assume that the people inside knew by that point that something was horribly wrong and that it was likely the government was going to step in to help. From what we know right now (including that the current CEO says that he had no wiggle room to adjust the results) the contracts seem unduly beneficial towards the employees. Fred Wilson wrote a bit about bonuses yesterday and it just seems unheard of to be creating contractual bonuses that don’t seem in any way related to actual performance, are short-term focused (in industries I’ve worked, retention compensation gets paid out over a period of you staying for 5 years), etc. The problem is due to the amazing lack of transparency, we don’t know the details of these contracts yet or how they got created or who they were given to or how those people performed, but presumably that is what Cuomo is trying to find out. But it seems suspiciously like a bunch of guys, all with one foot out the door gave each other binding sweetheart deals in the moment before the government stepped in.
• I think it IS totally appropriate to shift some of the attention to how well these guys have performed rather than their personal payouts. The fact that they have been spending the bailout money to resolve the companies obligations with their trading partners is not a problem- in theory, that is what the bailout has been for. But the reports are (again, with little real data, amazing lack of transparency given the situation, etc, etc), they have been cutting the worst possible deals and basically just handing over huge sums of cash to the other folks in the industry. Many of these positions were insurance on various bond offerings, where if the bond offering failed, A.I.G. would cover the losses. But what I’ve read is that A.I.G. is paying out cash at 100% on the $ for these even in cases where the underlying bond is still fine. The analogy someone said was you buying fire insurance, and then the insurance company paying you off 100% even though the house didn’t burn down.
• The above together look like a bunch of guys who are not working in the interest of the company that pays them, or the shareholders (the tax payers) but rather cut themselves a sweet deal and are now handing out wads of cash to the very folks that are likely to be offering these individuals their next jobs.

The $165 million in bonuses itself isn’t such a big deal, but for the recovery of the financial system to work, the people of the United States have to feel like we can actually trust the people fixing stuff to work on actually fixing it, not starting more fires.

Which leads to the biggest point and back to Jon Stewart vs. Cramer. I feel increasingly like a good chunk of the current world financial system is just a big scam. If you want to look at the “big picture”, ignore Madoff and his Ponzi scheme, and consider that it looks like a big chunk of the financial industry is fundamentally corrupt and using their ability to hide what really goes on to collectively scam the whole of society. Let me stop for a second to point out that there are tons of people in the financial industry that are hard working competent people who are just doing what they can to provide access to capital, create markets with fair price discovery, and provide safe places for people to invest their savings. But the Stewart / Cramer confrontation just highlights the overall big picture that just about all the big firms (Lehman, Goldman, Citi, A.I.G), and a big chunk of the financial media were all participating in this system that wasn’t about a well functioning market but was rather about coming up with some scheme to make .5% return on some obtuse derivative and then leverage it 60-1 into real money, and meanwhile go hype up some rumor on some stock (Cramer tries to blame the shorts, but there is just as much or more artificial boosting stocks for people who are long).

And all of this was fueled by two key elements- a system that was fundamentally non-transparent, and short term compensation. The industry worshiped the notion that a good hedge fund (or private trading desk at a big bank) would come up with some proprietary system and would then do their trades with tons of different counter-parties so that no one could catch on to the system. But this also meant that there was no way for people to judge risk, no way to judge market saturation to the point of illiquidity (assuming that the “system” didn’t rely on creating illiquidity in the first place to in effect corner the market on some obscure derivative which often backfired for example in the cast of LTCM).

And that brings us back to the $165 million in A.I.G. bonuses. $165 million is nothing compared to the $10+ trillion Ponzi scheme that we fear we are all wrapped up in. But the reason that it IS important is that it does represent that the heart of what has gone wrong all along is still happening- short term windfall compensation and financial dealings that are not looking out for the interests of the right parties. It represents the erosion of fundamental trust in the system. It represents the fear that we won’t be able to fix things without a major overhaul, that the core DNA of Wall Street, and many of the people that work there are fundamentally out of touch with what we need to maintain a stable, functional financial system that actually meets the needs of society.

As one last point, I’ll say that I am concerned that the reaction of government in trying to fix this is going to be the wrong one. There is too much of a temptation to just create a bunch of regulation saying that you can’t do this, you can’t do that, and those kind of regulations will never keep up with the market and will strangle legitimate dealings. Back in September I suggested radical transparency for the financial industry and the more this crisis has progressed, the more convinced I get that it would really represent the best solution (hey, even Wired jumped on my bandwagon). If the deepest current problem is a trust issue, this kind of switch to full transparency becomes the only cure. The financial firms that rely on some proprietary trading scheme aren’t going to like it, but those don’t actually add to society- they just leach off it with very real and painful external costs (bailouts when they fail).

From today’s NYTimes-
“A.I.G. made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout,” Mr. Cuomo wrote in the letter. “Something is deeply wrong with this outcome.”

Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.’s fragile state. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses of $1 million to $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.

Nice! $4.6M to NOT stay.

Although frankly those guys appear to suck so much that maybe paying to get rid of them IS the right thing.

On the other hand, the latest story is the reason they need to “retain” them is that otherwise they will go out into the market and use their insider knowledge to trade against the A.I.G. positions and get rich that way. If that is true, it sounds like insider trading, fraud, or some other type of crime, but it doesn’t mean its not what is happening even as we uncover this stuff.

Kat and I joined a crowd of 15,000 people to do the annual St. Patricks Day dash yesterday (Sunday). We have recently been getting into running as part of our plan to get into shape and our big goal is the Seattle Rock and Roll half-marathon at the end of June. Since we had never done a “race” before, we wanted to do a smaller one to get a feel for what its like being in a huge crowd of people before the bigger race.

The weather was miserable. It was 33 degrees and snowing which was the worst possible for the combination of cold + wet. Any colder and it wouldn’t have been wet- just snow. Any warmer and it would have been, uh, warmer (and just as wet). We were jumping up and down trying to stay warm before the start and while getting going helped warm up some, my hands were still pretty cold and we were in no mood to hang out after.

The Seattle PI (soon to be online only) has some good pictures to get a feel for what it was like. And here is the grainy photo of us from my iPhone-

Alex and Kat freezing in the snow before the St Pattys Dash

Overall the race bit was not bad. I was actually pretty happy that the 3.75 miles felt pretty easy for me, even with the slight uphill most of the first half. The crowd was pretty annoying. We were in the second wave where they still timed you, and followed some advice to start a bit back to avoid the main crush. I didn’t mind the folks running at just about any speed, but the many folks who were walking (even after just a mile or so) felt like they were much more in the way. There were also a bunch of people pushing strollers which were supposed to be strictly against the rules in the section we were in. I’m all for people working out that way, but in a race with 15,000 people it gets in the way of other people- get a baby sitter!

The other super annoying thing is that despite the timing chip that I believe can record start & finish times, they only posted the time from the starting horn which is pretty meaningless so the timing chip thing was a waste of time. I don’t especially care about the time in comparison to other people, but I’d like to have known what it was just for my own training goals.

I think we might be doing the San Francisco Bay to Breakers to try out a bit longer race in May. They seem to have a few more organized “waves” of people with different paces so maybe that will work out better.

Some progress finally-The New York Times is reporting that the NY Attorney General is investigating the A.I.G. contracts with employees-

“In his letter, sent to Edward M. Liddy, A.I.G.’s government-appointed chief executive, Mr. Cuomo said that he has investigated the insurance company’s compensation plan since last fall. The attorney general is seeking the list of employees who will receive these bonuses, as well as their job information and performances. Mr. Cuomo said that the company had failed to heed a previous request for this list.

He is also demanding the contracts guaranteeing these bonuses and the names of individuals who developed and negotiated the agreements.”

I’m sure everyone has seen all the attention about the great Stewart vs. Cramer showdown on the Daily Show this week. The most amazing thing to me is how wacky the press coverage has been, especially the people who should know better. The thing is, what Stewart is attacking is not just CNBC and the charlatans on the so-called cable “news” networks, but also the broader media itself that hasn’t had the guts to say or do anything about it.

The New York Times TV critic posts a snarky thing about the show that totally missed the point. Its not a boxing match, its not about two dueling personalities. Even the revelation during the show of the video clips of Cramer pretty much straight-out admitting to criminal market manipulation and encouraging others to do the same is not the most important bit (although it was also missing from most of the coverage). Its about the nature of media itself. Where has the NY Times been all along? I didn’t get a chance to listen to the whole “On the Media” radio show this week, but the web-site doesn’t give any indication that they paid any attention either.

The even deeper point is the extent to which the media has been falling down on their jobs of actually calling people on BS and lies. The “present both sides of the story” by printing quotes from a couple of people but in general have been amazingly lax about bothering to investigate, dig up any real facts, or make it clear when the quote from that CEO is just a lie.

A great example is today’s New York Times article about the outrageous bonuses that prints the quote from the A.I.G. CEO Liddy “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

That quote is presented unchallenged in the New York Times, but let me just pick at it for a second. To quote one of my favorite Saturday Night Live bits lately, Really? REALLLY?!? These are the “best and the brightest”? Really?!?!? These are exactly the same guys that just incurred > $200 BILLION in losses directly for your company (we still don’t know the full extent because these guys are still hiding it in their accounting), these are the guys that already incurred a $170 BILLION tax-payer bailout directly, these are the guys that precipitated the worst crisis in decades, costing the US taxpayers over $1 TRILLION so far, costing the economy many times that. These are your “best and brightest”? These guys should be indicted for fraud and/or reckless negligence.

Beyond my indignation, the reporter could have done some basic fact checking. Are $3 million bonuses really necessary to retain Wall Street guys in the current economy right now? If these guys were fired, would anyone even hire them? (”lets see, on your resume, it says you worked for A.I.G. Let me call your references… You say you lost $100 billion in your last position?”) Frankly, from folks I know in the financial industry, most that still have jobs are just pretty happy to have them. And I’ve heard the quality of the resumes that show up at any company that is hiring at all are through the roof. Trust me, if these guys are the sort that are just out for a quick buck and will quit if they don’t get their big payday right now, A.I.G. and their shareholders, the US taxpayer (80% ownership) are much better off without them.

Everyone is also taking at face value the notion that these guys have contracts that require the payments. I’m pretty confident that their contracts have clauses that if they are fired “for cause”, they aren’t owed bonuses. If the contracts don’t have that clause that would be pretty direct evidence that the contracts themselves were part of a fraudulent scheme to lock in a payday in anticipation of a government bailout, which again would void the contract. And let me just say that I’m pretty confident that losing $200+ billion would count as a valid reason to get fired. I can just picture these guys trying to contest it as a improper termination in front of a jury (watch last week’s Law and Order if you want an example of what that looks like).

The bottom line is that the mainstream press, all of them, just doesn’t dig in on this stuff anymore and they accept the truthiness as a normal form of communication. We find ourselves in this strange position where Jon Stewart, the guy with the talk show on Comedy Central appears to be the only one we can rely on anymore.

Innovative new TV remote control featured on CNET.

Various blogs are all in an uproar over the Kindle iPhone app and whether this is a good idea or not. I’m going to come down on the “very good idea” side and say that this makes me more likely to get a Kindle (and more importantly invest in the Kindle eco-system by buying some content).

The big issue for me is the profusion of devices. I don’t want to carry around a phone, a music player, a book reader and a laptop. One of the things I really like about my iPhone is that it acts as a good music player so I can just carry one device.

Having said that the form factor of a given device isn’t perfect for every situation. I downloaded the Kindle app to my phone and tried it out and it was very well done (I got the sample first chapter of the new Neil Stephenson book), but it seemed like it would be a painful way to read a whole book. The key thing is that the iPhone app and device both sync the same books and can share the place you left off reading + bookmarks. So if I were to buy a Kindle device I’d end up of course getting content for it, but if I left it behind I could still do a little light reading from anywhere which is a really cool scenario.

The other angle behind giving away the software of course is that Amazon is presumably more motivated by getting people to invest in their content than in selling the actual devices. Apple has done an amazing job getting their device COGS down so that they make a profit off $199 iPhones, but Amazon is much newer to the hardware space and were at least implying that they can’t sell for much more than the $359 without losing money. But it doesn’t take that many $10 digital books to turn into real money and if their free iPhone app gets you to spend a bunch of money and locks you into your Amazon digital library, they win too. From that perspective it would make sense for them to make a PC version too- if I could read real books on a normal Windows tablet that would probably push me over the edge for sure.