Today’s Quote

“If you would not be forgotten, as soon as you are dead and rotten, either write things worth reading, or do things worth the writing.”
– Benjamin Franklin

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Get Naked

Given my job, and my dorky financial background, I’ve been following the public market meltdown fairly carefully.

As have Jess, my friends, my colleagues, and my relatives. Yet, when I talk to most of them, they seem to be following only the surface details. They don’t fully grasp what a CDO or CDS really is, much less what the underlying causes of the chaos might be.

Blame for which, I think, falls at the feet of financial journalists. Sure, explaining complicated financial concepts and structures is difficult. But that’s exactly what they’re supposed to be doing: breaking jargon down to plain English, in a way that allows people to actually, fundamentally understand what’s going on.

So, as a bit of public service, let me take a quick stab at a concept several people have asked me about of late: naked shorts. If this works, and if there’s reader interest, I’d also be happy to circle back to explain other concepts that seem similarly confusing.

So, naked shorts.

As most people know, ‘shorting’ or ‘short selling’ a stock essentially means betting against that stock. In other words, when you buy a stock the usual way (called going ‘long’ on that stock), you’re betting that the value of the stock will go up. If you buy the stock for $10, the price goes up and you sell it for $15, you’d make $5.

A short, then, is the exact opposite. If you invest when the stock is at $10, and pull your investment back out when the stock has dropped to $5, you’d similarly make a $5 profit.

Most people, however, are also entirely unclear on how that actually can work. So, to illustrate, let’s talk about your car, rather than a stock.

Imagine that you own a car. Then imagine that, for a small fee, you let me borrow that car from you.

So far so good. Now imagine that I sell your borrowed car for $10,000. A year later, say I want to give you your car back. So, I go on Craig’s List, and I find the same make and model. Only, by now, it’s selling for just $5,000. Which is excellent for me, since I can buy the car and give it back to you for $5,000, then pocket the $5,000 difference between that and the original sales price.

Voila. I just ‘shorted’ your car.

What, then, is a ‘naked’ short? Basically, the exact same thing. Except without borrowing the car first.

Of course, if I do that with cars, instead of ‘naked shorting’, it’s called ‘fraud’. I just sold you something I don’t actually own.

In the financial markets, however, it makes at least a little sense.

If I buy the car from you, you have to actually deliver it to me. And then if I sell it again to somebody else, I have to deliver it to him or her next. With cars, that isn’t a problem, as people tend to own them for a while. But with stocks, it’s entirely possible for the same share to be bought and sold and bought and sold countless times in a single day. So before stock trading went digital, actually delivering all of the stock certificates back and forth any time someone shorted a stock was doubtless a pain in the ass.

In that situation, a naked short made sense. Better to wait a couple of days to see who the ultimate holder of those stock certificates would be before loading up the wheelbarrow and sending them over.

Plus, in ye olde stock market, buyers and sellers were actual people, who traded back and forth with each other every day, and who therefore had ongoing relationships and a basis for interpersonal trust.

In a digital world, that network of trust is largely gone, and the underlying rationale – saving the work of transfering physical stock certicates – no longer makes any sense. Yet the practice persists – or, at least, did so until it was banned last week.

In all honesty, I suspect the actual impact of naked shorts has been oversold, and that they did relatively little to contribute to our current mess. But they do make a great example of, and can serve as a kind of microcosm for, the current crisis.

Because, it turns out, bringing old financial practices into a new, digital world, a world that no longer maintains direct relationships between buyers and sellers or lenders and borrowers, and doing so without carefully re-looking at the new implications of those old practices, is a recipe for all kinds of disaster.

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Avast

Ahoy! It be International Talk Like A Pirate Day! Shiver me timbers!

And what better time be than this to recall the greatest pirate of all time, and the patron saint of all entrepreneurs, Blackbeard.

Ay, Blackbeard. And if ye don’t believe he was true an entrepeneur, observe the only records recovered from the Adventure, his fine yet sunken craft:

Such a day, rum all out- Our company somewhat sober- A damned confusion amongst us !- Rogues a-plotting – Great talk of separation- so I looked sharp for a prize- Such a day found one with a great deal of liquor on board, so kept the company hot, damned hot, then things went well again.

Arrr, that be running a startup indeed! Yo ho, yo ho, a pirate’s life for me…

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Square

Until recently, I’d never worn a pocket square, assuming they inevitably took a suit or blazer to the far side of that fine line between ‘fashionable’ and ‘foppish’.

But, a few months back, for reasons I no longer exactly recall, I picked one up. And, wearing it, I started started getting compliments. Not on the pocket square itself, but on the suit. And not just from friends and colleagues, but from cashiers, doormen, waitresses and security guards.

So, feeling adventurous, I picked up two more. A different check, and an emboidered white. I tried them in the breast pockets of other suits and jackets, and the results were the same. People liked my clothing better. Not just the pocket sqares, but the whole outfits.

I’m still not sure exactly why this happens. Perhaps it’s an Emperor’s New Clothes effect – an assumption that anyone with a pocket square must take fashion seriously, and, consquently, that whatever they’re wearing must be fashionable.

Or perhaps it’s just that a pocket square is slightly unusual enough to catch people’s attention, to cause them to look at something – a suit – they’d otherwise largely ignore.

Whatever the reason, though, it works. By now, a jacket looks almost naked to me without a handkerchief in the front pocket.

But don’t take my word for it. In the last month, I’ve spotted pics of Tom Brady, Jay-Z, Daniel Craig, and Nicholas Sarkozy all sporting poking pocket squares. Not a bad crowd with whom to keep company.

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Wetting Myself with Excitement

First, an admission:

I pee in swimming pools.

I blame this on my early surfing days, around Santa Cruz and Half Moon Bay. The water there is freezing, fifty degrees at the height of summer freezing, so people surf wearing wetsuits.

And even so, they get cold. Really cold. Cold enough that peeing in a wetsuit, something that initially sounds utterly and ridiculously repulsive, starts to seem like a perfectly reasonable idea, an efficient and convenient way to warm up.

Which is to say, like pretty much all Northern California surfers, I have frequently peed in my wetsuit. And, frankly, it’s only a small, small step from that to just peeing in pools in general.

Of course, I don’t do it without a sense of guilt. Or, more to the point, without a sense of fear. Fear of the chemical that turns pool-pee red.

I don’t know when or where I first heard of this stuff, but it was clearly early in childhood, as it’s stuck with me as a vividly imagined threat ever since. If I pee in a pool, I let out just the tiniest bit, then wait to make sure there’s no color change.

Or, at least, I did. Until this afternoon. When, after a conversation with my brother David about that chemical, I Googled it up to find out more about how it worked.

At which point, I was stunned by the, in retrospect totally obvious, discovery that the red-turning pee-triggered pool chemical [doesn’t exist at all](http://www.snopes.com/science/poolpiss.asp)! It’s just something lifeguards tell kids to keep them from the exact same sort of pool-peeing in which I’ve been engaging.

I’m thrilled by this revelation. And will also now totally understand if you don’t invite me to your next pool party.

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Carded

Two weeks ago, with the initial frenzy dying out, and lines at the Apple Store once again down to reasonable lengths, I picked up a 3G iPhone.

Then, a few days ago, I left it in a cab on my way home from the gym.

At which point I discovered that, as I’d bought the phone with my American Express Platinum card, it was completely covered by their Purchase Protection Plan. A five minute conversation, a quick fax of the receipt, and they had credited the full cost of the phone back to my account.

Set aside the access to airport lounges, the free companion tickets on domestic flights, and the excellent, excellent concierge service (which, on my bachelor party trip to New Orleans, got us tables for seven at two restaurants – Chez Paul and Luke – that had claimed to be totally booked); the iPhone refund alone made using that card and that card alone totally worthwhile.

Don’t leave home without it, indeed.

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The Pits

But enough about weddings. Back to the important stuff, like shaving.

Two nights ago, on a whim, I shaved off my beard.

Taking a few days off from it seemed a good idea, a chance to let my sensitive skin recover from constant beard-hair poking. But shaving seems to have immediately dropped ten years off my age. Which is to say, I look like I should be at Freshman orientation. Perhaps not wise considering that I spend most of my time these days talking with institutional investors, trying to convince them that I have the wisdom and gravitas to well manage tens of millions of their dollars in the world of film.

So, in short, I think the beard is coming back.

But, as karmic counter-balance, last night I shaved my armpits.

Well, not really shaved. More like substantially trimmed.

Before, standing in the shower, scrubbing my armpits, I was thinking about Jess’ long-standing product idea, Man Wash, a special scrub for guys that would somehow get armpits squeaky clean. Because, in my case, even after some serious and multi-cleanser scrubbing, there’s still a faint hint of post-shower pit-stink.

And it occurred to me there in the shower that the problem had to be the hair. I googled it up, and it seems others have thought the same thing.

So, off the armpit hair came. I don’t yet have any definitive results for how it will work, but my pits do smell excellent right now, even according to Jess. Which is surprising, because she normally otherwise accuses me of waking up smelling like a ferret.

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