Silicon Valley is the new Fannie Mae

Tim Draper has it rough
Tim Draper has it rough

VCs have a tough job. They have to turn a giant pile of money into more money. However, they are not allowed to do it the sensible way, which is to invest in European index funds1. They have to do it by investing in half-baked ideas dreamt up by kids in a garage.

Some time ago, banks had a similarly tough job. They had to turn money into more money, and they had to do it by lending it to people to buy houses. The customers would pay back the loan plus interest. A decade ago, interest rates were unusually low, and this cut the banks’ profits. They had to make more home loans than ever before to get the same returns.

But there were only so many people out there who wanted to buy houses. There were only so many people who deserved to buy houses.

The banks did what any smart business would do: They invested in marketing. Fannie Mae, the nation’s biggest provider of mortgages, created the term “American Dream” and defined it as owning a house with a white picket fence and a kidney-shaped pool. The American Dream is a manufactured marketing scam to convince more people to buy houses.

Own the American Dream! Only $4999/month for the next 3 decades. Plus shipping and handling.
Own the American Dream! Only $4999/month for the next 3 decades. Plus shipping and handling.

After the financial crisis and stuff, Fannie Mae went bankrupt and that dream died. Americans locked on to a new Dream. A dream where we aren’t enslaved to mortgages and corporate employers. Screw owning a house, I want to own my own company.

The new dream is Entrepreneurship.

Blame Quantitative Easing or Swensen’s Asset Allocation model: Venture Capital is seeing a lot of inflows. And VCs have to do their jobs, which is to invest in startups. Therefore it is in their best interest that lots of people quit their corporate jobs and start, or work at, a startup.

Welcome to the new marketing scam. The pages of TechCrunch2 teem with stories of who raised how much money and how easy it was. Look, this 8-month old company is suddenly worth a Billion dollars3! All they did was write an app! Anyone can write an app.

In Silicon Valley, every day is just like this.
In Silicon Valley, every day is just like this.

Silicon Valley is the best place to do it, of course. Sam Altman, Paul Graham, Marc Andreessen, and Peter Thiel all say so. They cite many different reasons, but the biggest one is that way they don’t have to get off their asses and leave Sand Hill Road to meet with founders.

Dear VCs: You are not allowed to bitch about the high burn rates of startups while simultaneously urging their founders to live in the most expensive city in the nation. Doing so makes you a hypocritical shit.

So, what’s your dream today? Who fed it to you, and why?

1 This does not constitute investment advice.

2 The founder of TechCrunch is also an LP at multiple VC firms, which should really be a disclosure in every single article they publish.

3 Don’t believe everything that you read.

Math Professor Uses Statistical Physics to Explain why Hipsters all Look the Same

Update: The Washington Post does a deeper dive on the science of hipster fashion, because they too have nothing better to do.

"I work in San Francisco". A delightful reddit post.
“I work in San Francisco”. Subject of a delightful reddit post.

Submitted for publication by Dr. Jonathan Touboul:

Synchronization may depend on the precise shape of the distribution of the delays: for synchronization to emerge, one needs both sufficiently long delays and sufficient coherence (small standard deviation of the delays). This yielded the unexpected phenomenon that synchronization among hipsters depends on the distribution, in space, of each individuals, when the delays are function of the distance between two individuals.

I see this as symptomatic of a more serious problem: Now that demand for quantitative traders on Wall Street has fallen, Math PhDs have nothing better to do than to study what hipsters are wearing.

Wait, are people still getting PhDs in mathematics? What is this, 1950?

References:
Touboul, J. The hipster effect: When anticonformists all look the same. Oct 2014.

Well That Didn’t Take Long…

From the WSJ:

In his keynote at the Money 20/20 conference Sunday evening, New York Superintendent of Financial Services Benjamin S. Lawsky grabbed headlines in the bitcoin world by announcing a proposal to create a lighter-touch “transitional BitLicense” for small digital-currency startups.

Gee, I wonder what went down at Ben Lawsky and Arthur Levitt’s super special lunch meeting last week. Besides Mr. Levitt, that is.

See Also:
Spreading the Bitcoin Love

Public is the New Private

Remember when privacy was a thing?

valueform

2006, America was hungry for leverage and risk. Valueforum was the place to go to discuss retail investments. It had paywalls to keep the riffraff out; serious investors did not want to share their ideas with the pedestrian class.

Then Twitter came along. As if Facebook friends weren’t enough, now people could broadcast their personal lives to the world. Why would anyone want that, the old people asked.

One old person took the Twitter API and turned it into a financial news network curated by the masses. Everyone knew that Jim Cramer and Larry Kudlow spent their careers spouting nonsense; Stocktwits simply democratized that opportunity.

I went on TV and recommended Bear Stearns and Wachovia Bank in 2008. That's why I have my own show!
I went on TV and recommended Bear Stearns and Wachovia Bank in 2008.
That’s why I have my own show!

Funny thing, when you get large numbers of people working collaboratively, they come up with better insights than the ideas out of Cramer’s orifice.

Previously, whisper numbers were quietly circulated among the privileged on Wall Street. Then a former Stocktwits team member founded Estimize — any homeless person with an internet connection could submit their own earnings forecasts, and be heard.

estimize

For a long time we fooled ourselves into believing that information was special, and if you’ve got something good, you keep it for yourself. The internet taught us that the world is a pretty big place. No single thought is ever unique. The only thing left to do is make sure others recognize that we thought of it first.

Hence the race to document ideas on Twitter, on Estimize, on Sand Hill Exchange. If you’ve got something good, make sure the whole world knows you’ve got it.

And if you’re Hunter Walk of Homebrew, make sure the whole world knows that the whole world knows you’ve you got it.

Spreading the Bitcoin Love

Once upon a time, NY State Superintendent of Financial Services Ben Lawsky proposed banning Fractional Reserve Bitcoin Banking. This would effectively ensure that Bitcoin could never support economic expansion.

Earlier this week, two bitcoin companies, BitPay and Vaurum, hired former SEC chairman Arthur Levitt as an adviser, because they needed advice on regulation, and how to seduce regulators to change regulation to their liking.

Let me show you how it’s done, Arthur said. And the next day he had lunch with Superintendent Lawsky, after which they exchanged flirtatious tweets like prepubescent paramours.

Arthur Levitt is so very special! And Ben Lawsky is good and fair! Oh, get a room, you two. I’m counting the days til Lawsky retracts his “Bitlicense” proposal.

See Also:

Hey Ben! Remember this press release you issued?

NY DFS RELEASES PROPOSED BITLICENSE REGULATORY FRAMEWORK FOR VIRTUAL CURRENCY FIRMS –NY Dept of Financial Services