This essay has seems to have prompted widespread anger from libertarians. I think that one of the core failures of the modern libertarian movement is that it is so hip linked to laissez-faire capitalism that its proponents are willing to sacrifice individual liberty in support of private economic interest. Live by the sword, die by the sword I guess. Of course, many of those who seem the most outraged by this are the same who promoted Sarah Palin as a libertarian. In my mind, these people discredited their movement before the financial crisis reached a boiling point. This is just another nail in the coffin.

The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system.

For reference, here is a pretty decent explanation of the credit crisis:

In this ultra-low rate environment, where prices were appreciating, and most mortgages were being securitized, all that mattered to the mortgage originator was that a BORROWER NOT DEFAULT FOR 90 DAYS (some contracts were 6 Months). The contracts between the firms that originated mortgages and the Wall Street firms that securitized them had explicit warranties. The mortgage seller guaranteed to the mortgage bundle buyer (underwriter) that payments were current, the mortgage holders were valid, and that the loan would not default for 90 or 180 days.

So long as the mortgage did not default in that period of time, it could not be "put back" to the originator. A salesman or mortgage business would only lose their fee if the borrower defaulted within that 3 or 6 month contractually specified period. Indeed, a default gave the buyer the right to return the mortgage and charge back the lender the full purchase price.

What do rational, profit-maximizers do? They put people in houses that would not default in 90 days -- and the easiest way to do that were the 2/28 ARM mortgages. Cheap teaser rates for 24 months, then the big reset. Once the reset occurred 24 months later, it was long off the books of the mortgage originators -- by then, it was Wall Street's problem.

Technically, thats Option-ARM mortgages. See also figure 1.7 on page 8 of this report which shows a massive reset of Alt-A and Option ARM mortgages in 2011. I don't fully understand this chart as it juxtaposes Option ARMs, which are a type of loan with Subprime, which is a type of credit score, but presuming its accurate we may see a second wave housing crisis hit in 2011.

Update: According to this information those option-arms are going to reset sooner.

To the core point, these loan originators took advantage of a loop hole in contracts written by brokers and created loan products that were doomed to fail, and a whole bunch of housing speculators got in on the deal. Wall Street shouldn't have offered that deal, but it did. Regulators should have been allowed to act, but were not. The idea that the market will always forsee these things is wrong. Sometimes the market drives off a cliff.

How the financial collapse killed libertarianism. - By Jacob Weisberg - Slate Magazine

Capital calls are due when investors in venture funds have to make good on their promises to commit money to funds. Unlike hedge funds, venture funds don’t collect all of their money at once. They secure promises from limited partners — rich people, endowments, and pension funds — to wire money at certain intervals over a number of years.

“The last time we saw this happen was from 2001 to 2004, when individuals didn’t make capital calls even though they were obligated to do so,” he added.

Whats going down in the venture industry.

Dreaded capital calls at venture funds may not be met » VentureBeat

Another very MemeStreams like company with a whole lot of veture funding.

Twine, a bookmarking and knowledge-tracking application developed by Radar Networks, is leaving its closed beta tonight with an array of new features, in hopes of becoming one of the definitive websites of the next generation of the Internet.

Here is an interesting observation:

But the most likely problem would be that it’s just too early for something like Twine. About half of web users don’t even use search engines yet, so it might be a symptom of the Silicon Valley bubble to assume large numbers of people want an information tool like Twine.

Twine goes fully public with next-generation bookmarking » VentureBeat

Google’s new test feature, “Mail Goggles,” part of the free Gmail service, can save those who send the occasional (or frequent) tipsy (or inebriated) email a whole lot of regret and an even bigger headache in the morning.

When the goggles are active, they will require you to solve a few easy math problems before you hit “send.” Basically Google’s logic is that if you’re sober enough to solve the problems, then you’re sober enough to deal with the repercussions of your actions.

Ha!

Do You Email Under the Influence? Try ‘Mail Goggles’ » The StartUp Blog at PartnerUp

PartnerUp, a Deluxe Company, is an online community for entrepreneurs and startups that help them find people for their businesses, such as co-founders, business partners, advisors, board members, and skilled technical people. In addition, PartnerUp helps entrepreneurs ask for and offer up advice, find commercial real estate, and find resources for their businesses.

The PartnerUp team blogs on the StartUp Blog, an up-and-coming blog about entrepreneurship, small business, and startups. If you get a chance, check it out at startup.partnerup.com.

This sounds vaugely interesting.

PartnerUp’s Weekly Opportunities » VentureBeat

October 2008 will be remembered as the time in which the credit crunch came to a head not only for the economy as a whole but for the tech community in particular.

Fucked Company 2.0

TechCrunch Layoff Tracker

A wave of job losses has started to spread across California’s Silicon Valley as the trademark optimism of the region’s technology start-ups has turned to pessimism amid the financial market rout.

The rapid reversal in mood has reawakened memories of the dotcom bust in 2001.

Cyan Banister, co-founder of Zivity, an adult entertainment website that last week cut eight of its 22 staff, said: “We needed to clamp down and weather whatever storm is about to hit.”

A companion story to the Seqouia video.

FT.com / In depth - Job losses spread in Silicon Valley

Its about god damn time someone said this:

But what if he is (Muslim)? Is there something wrong with being a Muslim in this country? The answer is no. That's not America. Is there something wrong with a seven-year-old Muslim-American kid believing he or she could be president? Yet I have heard senior members of my own party drop the suggestion that he is a Muslim and might have an association with terrorists. This is not the way we should be doing it in America.

Thank you, Mr. Powell, for having the guts to confront this issue. Living in the south, I take it for granted that the Christian majority views people who hold other religious views with suspicion. I take it for granted that the establishment is Christian even if we don't have a federal establishment of Christianity. The notion that practice of Islam ought not to disqualify a person from being President has been whispered in private for months but I take it for granted that such a perspective is not acceptable publicly... not persuasive to those who raise this as an objection to Obama's candidacy. Its easier to attack their misinformation rather than engage the fundamental questions of religious tolerance, and the identity of America. But those questions ought to be engaged, and it is heartening that our nation has leaders who are willing to do so.

Colin Powell Endorses Barack Obama

This is a presentation Sequoia Capital gave to all the CEOs of the companies it funds.

What gets me is that this is exactly the same thing they were saying in 2001/2. If this message ever changed from "control costs and get profitable immediately" to "you can use venture capital to build an idea into a business over time" I never got the memo. Clearly the later sort of company has recently appeared on the scene, but just recently, and with a lot of skepticism from those of us who have been around the way. But I guess thats over now. Back to the same old message of "if you actually need venture capital you're not the sort of company investors are looking to fund."

I really think innovation should be less tied to the business cycle...

Sequoia Capital on startups and the economic downturn

Jose Mugrabi said in an interview: I feel safer with Warhol than with U.S. Treasury bonds.

Can't say I blame him. There is no where to run.

Helicopter