Wednesday's Top 10: Too big to fail and too big to manage; A rocket tax?; Complex systems and black swans; 2 mln Internet opinion analysts; Dilbert

Here's my Top 10 links from around the Internet at 10 am today. As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz. 

See all previous Top 10s here.

My must read today is #3 about negative externalities and a tax on satellite launches. I liked Gravity a lot. 

1.  Too big to fail - And too big to manage. That's the view of former ING CEO Jan Hommen in this FT interview on the big global banks. He should know.

The Dutch government had to bail out his bank.

He raises a good point about size and global-ness.

Sometimes really, really big companies are not good at managing risk.

Some might argue Fonterra faces the same challenge.

Here's a now contrite Mr Hommen:

“When you look at how big this company was, we were everywhere,” Mr Hommen said in an interview. “Running a global empire is not that simple. Running two global empires – one in banking, one in insurance – was even more difficult.”

2. A rocket tax? - Anyone who has seen Gravity (it has amazing pictures of space junk destroying things) and thinks about economics (which means me) will love this piece from Quartz about the prospects for a tax on rockets to fix the problem of space junk.

Earlier this year, a group of economists from Indiana-Purdue University, the US Federal Communications Commission, and the US Naval Academy tried to figure out how to limit the potential damage to a satellite industry that is responsible for everything from internet communications to GPS networks, and which was worth some $170 billion in 2012.

“Orbital debris is space pollution,” the authors wrote in their study. “Space debris, an externality generated by expended launch vehicles and damaged satellites, reduces the realized value of space activities by increasing the probability of damaging existing satellites or other space vehicles.”

The study found that commercial satellite firms launch more satellites than is “socially desirable,” and they use launch technology that is more likely to create debris “because they only compare individual marginal benefits and costs of their technology choice and fail to take into account social benefits and costs.” That puts space debris squarely into the category of a “negative externality,” much like regular Earth-bound pollution, where the costs are unfairly borne by a third party—in this case just about everyone else on Earth.

3. The new US$100 bill - FT reports today is a bad day for counterfeiters. Their favourite note has been changed to try to stop them in their tracks. The new US$100 bill has a 3D security ribbon and a new watermark, but it's still made of paper. When the note is tilted, images of bells and numeric 100s move side to side and up and down. The ribbon is woven into the note rather than printed.

Cool.

But our plastic money is cooler.

4. Peak soil - We've had peak everything else so we may as well have peak soil. Here's The Week on why nutrition is disappearing from food and what can be done about. They key is re-mineralisation. I grew up on a dairy farm in Galatea where there is a shortage of all sorts of nutrients such as cobalt and selenium because of the various volcanic soils around. We used to put out salt blocks for the cows.

Take phosphorus, for example. Vegetables and fruits grown in phosphorus-abundant soil have less starch and sugar, and feature higher concentrations of other important minerals and nutrients. Yet, the nutrient-rich produce looks the same as if it had been grown in phosphorus-deficient soil, making it difficult for consumers to rally behind the cause. Getting a critical mass of consumers is especially important because the cost of reintroducing a healthy supply of phosporus into just an acre of soil is about $10,000.

That's the crux of the problem for remineralization. While reintroducing phytonutrients and minerals into our soil would require a widespread commitment to invest more in our food, rallying the masses to get behind soil enhancement poses some unsurprising challenges. As David Montgomery, author of Dirt: The Erosion of Civilizations says, "Unfortunately, saving dirt just isn't a very sexy issue."

5. Dr Evil and Austin Powers - This Microsoft video featuring Steve Ballmer as Dr Evil and Bill Gates as Austin Powers is fun in a retrospectively accurate way from the point of view of shareholders.

6. Black swans - This academic paper in 1996 from Richard Cook at University of Chicago on complex systems is accidentally prescient about the problems of complex systems and catastrophic failure uncovered during the Global Financial Crisis.

He was writing about power and computing networks, but could easily have been talking about the Global Financial System.

Complex systems possess potential for catastrophic failure. Human practitioners are nearly always in close physical and temporal proximity to these potential failures – disaster can occur at any time and in nearly any place. The potential for catastrophic outcome is a hallmark of complex systems. It is impossible to eliminate the potential for such catastrophic failure; the potential for such failure is always present by the system’s own nature.

7. Now there's a fun job - As an occasional moderator on Interest's comment sections, I found this BBC article about China's army of 2 million Internet content moderators profoundly depressing. It would have to be the world's worst job creation scheme.

Tang Xiaotao has been working as a monitor for less than six months, the report says, without revealing where he works.

"He sits in front of a PC every day, and opening up an application, he types in key words which are specified by clients.

"He then monitors negative opinions related to the clients, and gathers (them) and compile reports and send them to the clients," it says.

8. The story of Dread Pirate Roberts - The arrest of Ross William Ulbricht and the closure of Silk Road last week by the FBI is fascinatingly modern story about how the Internet works and how the Government will always get you in the end. Kim Dotcom should read this. Bitcoin enthusiasts should definitely read it. 

Ulbricht called himself Dread Pirate Roberts after the character in The Princess Bride. Ulbricht is not a great advertisement for libertarianism.

This Arstechnica piece is excellent. It unravels how the FBI found him.

Sure, you could buy meth, LSD, cannabis, heroin, and MDMA on the Silk Road, but the hidden website wasn't (just) about drugs. Silk Road was, said its owner, about freedom. In January 2012, as part of a "State of the Road Address" posted in the site's discussion forum, the Dread Pirate Roberts explained the site's goal: "To grow into a force to be reckoned with that can challenge the powers that be and at last give people the option to choose freedom over tyranny."

To that end, the Dread Pirate Roberts built the Silk Road marketplace in 2011 as a "hidden" service accessible only over the encrypted Tor network. To connect, users first had to install a Tor client and then visit a series of arcane site names (the most recent was silkroadfb5piz3r.onion), but the reward was a simple, effective marketplace to buy drugs from sellers all over the world using such Internet commerce staples as escrow accounts and buyer feedback. The product was shipped through the mail, direct from seller to buyer, keeping the Dread Pirate Roberts clean. The only link between him and the drugs was the money, and Roberts eventually took only the electronic currency called Bitcoin to make this hard to trace. He even ran a program called a "tumbler" to route incoming Bitcoin payments through a complicated series of dummy transactions, so as to make them infeasible to trace through the public Bitcoin blockchain. Out of each transaction, Roberts took a cut—8 to 15 percent, depending on the size of the sale.

This eventually earned Roberts a pirate's treasure. By 2013, Silk Road had nearly one million user accounts. In the 2.5 years the site operated, it facilitated 1.2 million transactions worth 9.5 million Bitcoins—or about $1.2 billion in total money exchanged. (Bitcoin values varied widely over this period.) Roberts picked up a cool $80 million in commissions.

9. How much wood can a woodchuck chuck? - Pimco's Bill Gross puts his finger on the big question in global markets right now. How high will interest rates rise before the highly leveraged nature of households and governments stops any recovery in its tracks? We're about to find out in New Zealand. It looks like America already has.

The critical question to ask in terms of the level and eventual upward guide path of the policy rate is how high a rate can a levered economy stand? How much wood can a woodchuck chuck? How high a rate can a homebuyer handle? No one really knows, but we’re beginning to find out. The increase of over 125 basis points in a 30-year mortgage over the past 6–12 months seems to have stopped housing starts and importantly mortgage refinancings in its tracks. It was the primary “financial condition” that Chairman Bernanke cited in his September press conference that shifted the “taper to a tinker to a chance” that maybe they might do something next time.

10. Totally Jon Stewart on 'Shutstorm' 2013. Good to see the Americans starting to pronounce words like we do in New Zealand. Who needs to pronounce thungs with a I when a U is just at good.