Tag Archives: PhD

The Madness of Investors

This post about photo start-up Color on the NY Times website makes me utterly despair for the nature of modern capitalism.

Before the company had launched even a single product, Color raised $41 million from investors. That seems, to me, an absolutely stupefying amount of money. Given that Color’s first product (a perplexing and unfathomable iPhone app) flopped horribly, it seems now like an incredibly grave error.

It all stems (the NY Times speculates) from a desire not to miss out on the next Facebook, or Twitter, or Google. That’s all well and good, but in some ways this amounts to a get rich scheme; if it was that easy to pick out the next winners from the next losers, then everyone would be doing it, and we’d all get rich.

InĀ pursuit of easy money, they’re taking unconscionable risks. It feels like many of the bubbles of old; presumably what they’re hoping for is to fund a lot of companies, and then hope that the return on the investment is of such Facebookian proportions that it drowns the losses. It’s madness, because if that scale of success doesn’t materialise, you lose the money.

Finance is, essentially, a utility. The function of it is move money from places where it is in surplus to where it is needed. As always, I grasp towards a physics analogy: it’s supposed to move the market from a higher energy state, to a lower energy state through a path that would otherwise be low probability. In doing so, it allows work in the system; jobs created, products made. The finance industry, for its part, takes a small amount of the energy it releases for itself. Overall, the system, the market, the economy, is better off for the action.

The trouble is that the financial sector has given itself airs. They see themselves now as creators, and players in the system in their own right, rather than the facilitators and plumbers that they should be. So they take risks, play the system, create complicated schemes of financial instruments to manipulate the market to accrue money into their own hands.

The trouble with all of this is that banks can then create situations where they actually help to destroy value. We saw this sort of reckless stupidity in the credit crunch, and we see it here, too.

What we should be doing is encouraging companies to start small, and bootstrap themselves. Make a product, sell a product, make money. Use the money to grow. Take finance where you need it, but only when you need it to make more money, where a return is unlikely. Controlled, steady, sensible growth.

What banks seem to want is growth like an algal bloom, or an infection of smallpox. Big bang growth, get-rich-or-die-trying growth. Short-termist, irresponsible, madness.

I’m honestly a little surprised that the financial industry has survived the last recession relatively unscathed, and apparently with their ways throughly unmended. These people ought to be legally responsible for the harm they do, in the same way a plumber would be responsible for an explosion caused by a botched gas installation. Instead we let them get away with wreaking the most awful harm on our economies, and ruining lives.

In other news, I’m going to try and make a commitment to updating on a more regular schedule, and hopefully being a little more personal with it. Had a bit of a trend to the essayist in recent(ish) posts, so I’m going to steer away from it.

Basically, the problem is that I’m either working or I should be working on my PhD most of the time, so blogging has taken it in the neck. Haven’t even finished my new blog design yet…