You’re a developer in Columbia, Brazil, South Africa or Turkey. You know a little PHP. How do you quickly become a world class entrepreneur? How do you reach audiences of millions? You have access to a computer, but you have you have no capital. What would you do?

At Joyent, we have partnered with Mentez to help app developers in emerging markets . Mentez starts with competitions to generate successful applications. It’s American Idol done in Columbia or Mexico and focused on good code instead of terrible singing. Mentez helps with everything from technical support to help monetizing the businesses.

How do you monetize an application in Brazil? Mentez has already succeeded by taking successful applications to corporate sponsors. For example, they have taken one game application that gained reasonable traction and sold a sponsorship of the app to a large well known brand. As part of the Mentez agreement, the developer received 50% of all revenue generated. The revenue was much higher than the low value CPMs the developer could have received by going through a standard Facebook ad network.

Bottom line, the way that apps get developed is changing, and it is benefiting developers in Emerging Markets.

• Joyent gives them free infrastructure
• Mentez gives them training and business development assistance
• Facebook gives these developers access to a massive and powerful marketing and distribution tool

You have read the white papers, seen the blogs, attended the conferences. And you have bought into the hype.

Enterprise 2.0 tools are going to make your organization an innovation machine! I actually believe that’s true. Or, at least, I think they can go a long way to getting you there.

So, now what do you do? How do you get there from here. You can fight with your IT department. Get buy in from the whole world and his dog. Literally buy a web server that is installed in a rack somewhere within your company’s data center. You can set up Apache. Set up MySQL. You can install the long dreamed about Wiki.

It’ll take a while.

Or, you can go the SaaS route and try to get your company security people to “Get it” about using a product from small web company. You data will be on their servers. If your data is financially related, or perhaps includes medical information, you will have to reassure yourself that they have both the systems security to protect the data and the, more importantly, the internal processes to protect your data.

There is another…. way

Or, you can go over to a virtual appliance directory like the one at VMware and find a virtual appliance that includes your SocialText Wiki. You download it, find a Cloud Computing Vendor, and install it. The virtual appliance includes everything you need. Web server, database.

Virtual Appliances + Cloud Computing = Hybrid SaaS

You get all the security and control of running an application within your own environment, but you get the flexibility to fire it up and try it with just a few individuals or a small department without having to go through the political BS of getting IT to buy off on every single element of your Enteprise 2.0 vision.

The Enterprise 2.0 Conference

Today, Steve Wylie, who is putting together the
Enterprise 2.0 Boston 2008 conference asked if Cloud Computing should be considered as part of the Enterprise 2.0 Conference.

I think it should. Offerings like Joyent’s Cloud Computer are already being used by small businesses, large companies and everything in between as an infrastructure to develop and deploy new solutions. These solutions often begin as experimental applications that emerge into major mission critical components of successful innovative new business offers.

Enterprise 2.0 is emergence software, and Cloud Computing is a great way of enabling that.

I used to be a fixed income derivatives trader. I have a Masters in Economics, with a specialization in Econometrics and Financial Derivatives Pricing. I work in technology now because, while in grad-school, I learnt how to code FORTRAN-77. If you wanted to be a quant, and you wanted to price exotic financial derivatives, you had to solve partial differential equations. The only way to do that was to use numerical methods that involved backward induction. And unless you wanted to spend weeks doing it by hand, you were forced to code up a pricer leveraging FORTRAN-77, numerical recipes and code from my brilliant thesis adviser, Robbie Jones.

I got bored with trading at Wells Fargo, moved over to building derivatives trading systems, and since then, have spent time at technology companies and at Ernst & Young. While at EY, I worked in the Financial Services Advisory practice. I have seen and audited the risk management systems at a half dozen of the largest financial institutions in the world.

The WSJ isn’t explaining much

I have just finished reading How to Lose $7.2 Billion: A Trader’s Tale in the Wall Street Journal by David Gauthier-Villars and Carrick Mollenkamp.

Is it just me, or has the WSJ already sunk in quality since the Rupert Murdoch purchase?

The journalists don’t explain much.   Was Jérôme Kerviel working on a desk that clearly allowed proprietary positions?   It isn’t clear.   Was it a pass-through desk dynamically hedging customer accommodations?   It isn’t clear from the article.

His other job consisted of betting on whether European stock markets would rise or fall. The roughly 20 traders on the Delta One desk were supposed to offset each bet that a stock index would rise with another bet in the opposite direction in order to keep risk at minimum levels. The difference between the parallel bets would generate either a profit or a loss.

That is a seriously terrible explanation.   Any trader worth his or her salt can take huge risks even with hedges in place.

There are 50 different ways to bet on an index.   What was this guy trading?   What kind of hedges were supposed to be in place?   What were the risk limits?   Were there notional limits?   Delta limits?   Vega?   Theta?

There is no mention of any of this in the article.   In other words, for people who really know this business, and honestly, it really isn’t that hard to figure out, the article doesn’t explain anything.

And for people who don’t know much about financial derivatives, the article gives a completely false sense that the truth has been explained.   It hasn’t.

SocGen was up by 500 Million Euros… but didn’t notice

The article does say that this trader had SocGen up by 500 million euros as one point, but that the bank didn’t notice.

I have one question only: “How?”

Derivatives trades may be complex bets, but they do result in real money flowing back and forth.   That real money comes out of real bank accounts.   Eventually, the CFO has to notice.   Something like

“Holy Crap!, we have 500 Million more Euros than we thought we would”

And, when your bets start to get into the Billions of Euros, if you are betting exchange traded futures, real margin calls start to happen.   If you are betting OTC derivatives, other banks, with half way decent internal controls, start calling you up and asking for more collateral.

The SocGen CFO and the head of Treasury should have noticed.

Fake Emails Fooled the Mid Office?   Come On!

Beyond that, the fact that any trader could produce fake emails to calm a back office is… well BS.  Here’s how it works at every major bank I’ve ever seen:

1. Trader does a trade with Bank X and enters it into the trade capture system
2. A back office person directly contacts their counterpart at Bank X and confirms the trade.   The variation is that the back office person gets a daily report from Bank X (or Exchange Y).
3. The second back office person sends a legal confirmation to Bank X, which is then sent back.

This double confirmation process makes it impossible to fake trades.   The process above is how it works for Over The Counter (OTC) trades.   It essentially follows the same pattern, but is much more automated for exchange traded derivatives.

And What About the Market Risk Management?

The article talks about all the fancy quants working at SocGen.   Without a nose for profit and a drive for blood, all the math in the world ain’t worth a damn.

But, quant geeks should be able to get you a half way decent risk management report.   And if not, you can buy one from BlackRock or some similar shop.

A stupidly simplistic report would show trades netted out and thus allow fake trades to mask the impact of real positions.   But no one with half a brain uses such simplistic reports.    You split the trades apart.  You find out were the notionals are out of whack.

- Look here, Bob is betting $10M on March DAX contract, and $50B on the June one.   Hmmmm

A $7.2B loss.   This doesn’t look like a rouge.   This looks like one poor patsy being forced to act the scapegoat for gang of bumbling arrogant fools.   Fire the CEO.   Fire the CFO.   Fire the entire trading management team.   Morons!

Here’s a simple question. I have a Apple Airport Extreme. It generally works brilliantly. I love it.

I want to open up my WiFi. Donate it to my neighbours. To anyone parked in front of my house. Anyone with an iPhone. Apple says that it can support up to 50 users. I am guessing few people would actually use it very much. And I am hoping everyone else gets the same idea.

There is a little bit of a problem. I know that people can run programs like aircrack-ng and hack into your network in a way that would let them see every credit card you enter, all your bank passwords, etc.

So, here’s my request to Apple . Please make a new version of the Aiport Extreme that has two networks on it. One that is open and one that is closed. Ideally, Apple could set it up so that the Extreme would give priority to the closed network traffic. Thus, no one would ever have to worry that donating their excess bandwidth would harm their own performance.

Why should Apple do this. Two reasons. First it would encourage the use of iPhones, because more free wifi makes iPhone users happier. AT&T’s dead slow network certainly doesn’t cause extreme joy. Second, it would give Apple users an excuse to show off their wonderful Apple technology is a socially cool way. No more would Apple users just show up with cooler laptops. Now they would show up with gifts in hand. An Apple Extreme owner would be a good neighbour.

I’d happily put this little badge in my window: