Just how much the demand for financial innovation will fade is unclear, of course. “These things come in waves,” Mr. Philippon said in an interview. “If for the next 10 years, we go back to a ’60s-style economy, where big firms make investments without taking too much risk, finance will shrink.” But, he added, if the green revolution, alternative energy and biotech “turn out to be like electricity, then we will need them.”

Here's the upcoming green bubble again.

High and Low Finance - Wall Street May Be Looking at Withering Wages - NYTimes.com

Michael Lewis:

The era that defined Wall Street is finally, officially over.

There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. At the top of a very short list was Steve Eisman.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism.

The End

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley. 

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

I was sure that there was something like this lurking back a few years and sure enough, here it is.

The Big Picture | How SEC Regulatory Exemptions Helped Lead to Collapse

Not all vehicles have the space and design that allow this process to happen easily. Luckily, it is the most gasoline-hungry cars that do. Pickups, SUVs, vans, and the like represent about 80 million vehicles, with mileage of perhaps 13 to 16 miles per gallon. Converting these should be our first priority. The instincts of conservationists have been to improve what is already pretty good—compact cars with decent fuel efficiency. Our national priority to decrease the amount of oil-based energy dictates that we go after the low-mileage part of the fleet first.

Estimates show that converting these vehicles to dual-fuel operation, even with electricity providing no more than 50 miles of driving range between daily recharging, could cut petroleum imports by 50 to 60 percent—a stunning opportunity.

Our Electric Future

Howard Aiken said "Don't worry about people stealing your ideas. If your ideas are any good, you'll have to ram them down people's throats." I have a similar feeling when I'm trying to convince VCs to invest in startups Y Combinator has funded. They're terrified of really novel ideas, unless the founders are good enough salesmen to compensate.

But it's the bold ideas that generate the biggest returns. Any really good new idea will seem bad to most people; otherwise someone would already be doing it. And yet most VCs are driven by consensus, not just within their firms, but within the VC community. The biggest factor determining how a VC will feel about your startup is how other VCs feel about it. I doubt they realize it, but this algorithm guarantees they'll miss all the very best ideas. The more people who have to like a new idea, the more outliers you lose.

Why There Aren't More Googles

EMI, the world’s third largest music company, said today that it was making its music available online without a key anti-piracy measure in a deal with Apple Inc. to boost sales of digital music.

!!!

EMI Dropping Copy Limits on Online Music - New York Times

Securities regulators suspended trading in 35 over-the-counter penny stocks on Thursday that have been the subject of repeated "spam" e-mail campaigns enticing would-be buyers with advertisements like "Ride the Bull," "Ready to Explode" and "Fast Money."

Note to self: don't send stock spam to the chairman of the SEC.

SEC suspends trading in 35 penny stocks over 'spam' - MarketWatch

During December, Sony in particular turned in surprisingly strong sales — but not for its new PlayStation 3.

In a development that industry analysts said speaks to the strength of the video-game market and the lure of low prices, the nation’s best-selling console during the holiday season was Sony’s PlayStation 2, a six-year-old system.

Americans bought 1.4 million PlayStation 2s during the period. That was more than the Xbox 360, which sold 1.1 million units; the Nintendo Wii, which sold 604,000; and the PlayStation 3, which sold 491,000.

Demand Outpaced Supply for New Game Consoles - New York Times

LG Electronics plans to shortly put on sale a high-definition video disc player compatible with both the HD DVD and Blu-ray Disc standards, it said Thursday.

Finally!

LG to show dual HD DVD/Blu-ray player - Yahoo! News

Vanguard has filed a registration statement with the Securities and Exchange Commission (SEC) to offer a new international equity index fund: Vanguard® FTSE All-World ex USA Index Fund.

Vanguard − Vanguard to broaden international offerings