Digging Deeper Graves

I wrote to my senators asking them not to use taxpayer money to bail out homeowners that took on more debt than they could afford. There are plenty of ways to correct incentives and rewarding bad behavior is not one of them. Senator Murray's form letter of course did not nothing to address my concerns, but I was suprised to read that he actually told me he's doing his best to make things worse:

For example:

To help educate borrowers of their options to avoid foreclosure, I secured $180 million in the Fiscal Year 2008 Consolidated Appropriations bill to provide housing counseling services across the country. Housing counseling programs assist borrowers with mortgage modification and restructuring so they can avoid or mitigate the losses associated with foreclosure.

What exactly is the impact of this other than putting us another $180 million in debt and driving down the dollar further? I could support this if Senator Murray would offer to give me a portion of these funds in return for "counseling" borrowers, but I don't see this as part of the deal.

In addition:

In addition, I was a key leader in pushing S. 2338, the FHA Modernization Act of 2007, sponsored by Sen. Christopher Dodd (D-CT), through the Senate. The FHA Modernization legislation provides the FHA new flexibility to tailor products to customers based on their credit rating, income, and relative risk. FHA modernization is a key component in addressing the subprime crisis because it will enable the FHA to offer safe, alternative mortgage options - as opposed to adjustable rate mortgages - to borrowers.

Why is the government still in the mortage business at all? You're going to take my tax money and use it to subsidize borrowers so a sane consumer like myself remains priced out of the market indefinatly? Jee, thanks! I feel much better now after reading how you are busy in Washington D.C. helping me out!

Tragedy of Incentives

One of the Daily Dish's guest authors raises the issue here of America's delusional assumption that Iraq's care about the whole. Part of this may hark back to the negative connotations people have concerning incentives. I am referring to something along the lines of: "Altruism is what good people do, bad people need incentives to achieve the same results". As an example, in high school the founders of the US were never discussed as having benefited from the break from England, but they went from being the second class (below the ruling British) to being the elite as a result. They also got to shape the future of a nation and become one of the few models for democracy the world has ever known. How cool is that?

We should be asking questions like "Does the ruling party in Iraq feel like a stable Iraq is there only option? If not, how do we incentivize them to create a stable Iraq?". But if we are trapped in the 'good people are altruistic' mode, we can't ask those kinds of questions and hope to find an answer.

NPV of user

What is equation for valuating users that incorporates referrals? I haven't found this on the web anywhere and they didn't teach it at Wharton so I thought I should write up what I've managed to stumble through on my own. I probably am just missing the right terminology to do a proper search for it; maybe a reader can help.

1. It costs money to acquire a user. Let's call this the cost per click (CPC)


2. It not all clicks lead to registered users. Let's call this the conversion rate for ads (CONV-ADS)


3. Each registered user is worth money. We can break this out in terms of click through rates etc. but for now lets just stick to average revenue per user (ARPU)


4. Each user refers one or more users (REF)


5. Each referred user has its own conversion rate (CONV-REF)


6. Finally, refers take time. We can break out average time per referral and use a yearly discount rate, but to simplify let's assume you did that and now just have a discount rate per referral iteration (DIS)

The equation starts out like this:

NPV = -CPC + CONV-AD * ARPU

Which is simply chance of getting a registered user times value of that user minus cost of acquisition.

Now to add referrals, we change the value of that user:

NPV = -CPC + CONV-AD * (ARPU + REF * CONV-REF * ARPU)

This prices in the value of the referrals to the value of the original user. The discount rate leads to:

NPV = -CPC + CONV-AD * (ARPU + REF * CONV-REF * (1 / (1 + DIS)) * ARPU)

But of course each referal can refer someone else:

NPV = -CPC + CONV-AD * (ARPU + REF * CONV-REF * (1 / (1 + DIS)) * (ARPU + REF * CONV-REF * (1 / (1 + DIS)) * (ARPU + REF * CONV-REF * (1 / (1 + DIS)) * ...

You get a geometric series which converts back down to:

NPV = -CPC + CONV-AD * ARPU / ( 1 - X)

Where X = REF * CONV-REF / ( 1 + DIS)

This converges if X < 1, otherwise you get infinite value per user. Of course this assumes conversion rates, referral rate and ARPU are constant as your user base grows and therefore can't really 'price' infinite iterations of referrals, but I'm finding it useful to do sensitivity analysis on various changes to web sites when I set N in the geometric series to something like 3 rather than infinity as above.

Renaming some of the terms will probably make this equation less web centric, but the web vocabulary is what I'm most familiar with these days.

Money blinders

The Economist comes to the conclusion that the west no longer controls worldwide money supply here. I think they are underestimating money supply growth greatly; what about all the counterfeit currency the North Koreans are printing? That won't show up in official reports. The M0 increase may be concentrated in the west so even their assumption that all the growth is in emerging markets may be wrong.

Yay! Inflation!

I just ran across this peice at the PI, that espouses more inflation as the solution to all of Seattle's our housing woes. Perhaps rather than visiting the 'West' Mr. Trahant ought to visit a country in say, South America, that was lucky enough to enjoy the pleasures of hyperinflation. I'd love to see his spin on why this is a good thing; it should bring a chuckle or two.

China & The Greenhouse Effect

It looks like China's position on global warming is shifting a bit. A couple speeches have trickled out recently (here and here) indicating the gravity of the issue is starting to be talked about within the country. But China Daily's own reporter's article about the need to penalize foreign firms reminded me of how ludicrous China's positions still can be. The article itself somehow blames foreign companies for the fact that China's government hasn't cared about the environment for years (never mind the fact that Exxon can pollute far more at a Texas refinery than say one on Antwerp; China's standards might not so different from America's in some places). There was a similar argument when they fought for 'developing' status in the Kyoto agreement. Just because your government failed to implement capitalism sooner and you are therefore years behind in development, doesn't mean you should get a free pass now. If anything, China is greatly benefiting from the know-how from advanced economies. If the Chinese government wanted to, they could have avoided the mistakes made by other countries and had a cleaner environment from the start. Now China has embedded dirty technology interest groups that will fight the transition to clean tech, much like what we see playing out in US.

Republican Genius

I love this:

Looks like Harry Reid is being the least bi-partisan majority leader in history. The filibuster is there to protect minority rights. If minorty rights get abused by a majority leader who simply tries to ram through non-bipartisan legislation, what else do you expect?

Found in the comments section here of a post detailing the explosion in filibusters in this senate term. The Democrats are so out-classed. From the sidelines it always looks like both parties believe the public to be irrational decision makers, but only the Republicans bother to take advantage of that fact. Of course bad decisions lead to bad policies, and you can't fool everyone all the time, but in the long run we're all dead anyway, no?

McCain in the Economist

The Economist piece on John McCain last week is a touch specious. What's wrong with firing someone that was "part of Mr McCain's political family"? Perhaps McCain was not happy with the fact that "his campaign managers ... spend like drunken sailors" and decided to fire them. It's called accountability. Here's a link for those unfamiliar with the term.

Hillary Clinton's Disappointment

My two cents on this Hillary discussion: she lacks courage. In the 2004 election she declined to run, knowing full well that we had a president that tortures people and that she, out of all the potential Democratic canidates, had the best chance to deny him a second term. Yes, I'm sure her political calculus told her to wait, that the odds of her winning in 2008 would be higher than in 2004, but 2004 is when the country needed her most.

Proof of arithmetic series

I derived this proof of an arithmetic series. I very much doubt it's anything new. But I didn't see it on Wikipedia or after a quick Google search so I figured I'd record it here for the net.



1) Sum of i as i goes from 1 to n : 1 + 2 + 3 + ... + n

2) Add the summation to itself, but think of adding the second summation backwards:


1 + ... + n

n + ... + 1


3) If you think of the first Sum as (i), then the second sum becomes (n - i + 1)

4) So 2 * the sum is (i) + (n - i + 1) or (n + 1) for each item in the series

5) Since there are n items in the series, the 2 * sum value is n * (n + 1)

6) for a single series, we end up with (n * (n + 1) / 2)


It's pretty straightforwards to convert this proof for a series of arbitrary interval.

Seattle Police II

As an update, later that day an officer did come to our buildling. The person I saw on the street had already been arrested for an unrelated crime. There was not a way to link our breakin with the person however. My landlord found his missing wrench so it couldn't have been the one the person was holding. The officer said that the reason police are hesitant to confront the street people sometimes is that they do not want to talk action without a partner present. I can't blame them for that. Backing three guys high on herion in an ally probably isn't the safest thing to do.