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Steamships, locomotives, electricity; these marvels of the industrial age sparked the imagination of futurists such as Jules Verne. Perhaps no other writer or work inspired so many to reach the stars as did this Frenchman’s famous tale of space travel. Later developments in microbiology, chemistry, and astronomy would inspire H.G. Wells and the notable science fiction authors of the early 20th century.

The submarine, aircraft, the spaceship, time travel, nuclear weapons, and even stealth technology were all predicted in some form by science fiction writers many decades before they were realized. The writers were not simply making up such wonders from fanciful thought or childrens ryhmes. As science advanced in the mid 19th and early 20th century, the probable future developments this new knowledge would bring about were in some cases quite obvious. Though powered flight seems a recent miracle, it was long expected as hydrogen balloons and parachutes had been around for over a century and steam propulsion went through a long gestation before ships and trains were driven by the new engines. Solid rockets were ancient and even multiple stages to increase altitude had been in use by fireworks makers for a very long time before the space age.

Some predictions were seen to come about in ways far removed yet still connected to their fictional counterparts. The U.S. Navy flagged steam driven Nautilus swam the ocean blue under nuclear power not long before rockets took men to the moon. While Verne predicted an electric submarine, his notional Florida space gun never did take three men into space. However there was a Canadian weapons designer named Gerald Bull who met his end while trying to build such a gun for Saddam Hussien. The insane Invisible Man of Wells took the form of invisible aircraft playing a less than human role in the insane game of mutually assured destruction. And a true time machine was found easily enough in the mathematics of Einstein. Simply going fast enough through space will take a human being millions of years into the future. However, traveling back in time is still as much an impossibillity as the anti-gravity Cavorite from the First Men in the Moon. Wells missed on occasion but was not far off with his story of alien invaders defeated by germs- except we are the aliens invading the natural world’s ecosystem with our genetically modified creations and could very well soon meet our end as a result.

While Verne’s Captain Nemo made war on the death merchants of his world with a submarine ram, our own more modern anti-war device was found in the hydrogen bomb. So destructive an agent that no new world war has been possible since nuclear weapons were stockpiled in the second half of the last century. Neither Verne or Wells imagined the destructive power of a single missile submarine able to incinerate all the major cities of earth. The dozens of such superdreadnoughts even now cruising in the icy darkness of the deep ocean proves that truth is more often stranger than fiction. It may seem the golden age of predictive fiction has passed as exceptions to the laws of physics prove impossible despite advertisments to the contrary. Science fiction has given way to science fantasy and the suspension of disbelief possible in the last century has turned to disappointment and the distractions of whimsical technological fairy tales. “Beam me up” was simply a way to cut production costs for special effects and warp drive the only trick that would make a one hour episode work. Unobtainium and wishalloy, handwavium and technobabble- it has watered down what our future could be into childish wish fulfillment and escapism.

The triumvirate of the original visionary authors of the last two centuries is completed with E.E. Doc Smith. With this less famous author the line between predictive fiction and science fantasy was first truly crossed and the new genre of “Space Opera” most fully realized. The film industry has taken Space Opera and run with it in the Star Wars franchise and the works of Canadian film maker James Cameron. Though of course quite entertaining, these movies showcase all that is magical and fantastical- and wrong- concerning science fiction as a predictor of the future. The collective imagination of the public has now been conditioned to violate the reality of what is possible through the violent maiming of basic scientific tenets. This artistic license was something Verne at least tried not to resort to, Wells trespassed upon more frequently, and Smith indulged in without reservation. Just as Madonna found the secret to millions by shocking a jaded audience into pouring money into her bloomers, the formula for ripping off the future has been discovered in the lowest kind of sensationalism. One need only attend a viewing of the latest Transformer movie or download Battlestar Galactica to appreciate that the entertainment industry has cashed in on the ignorance of a poorly educated society by selling intellect decaying brain candy. It is cowboys vs. aliens and has nothing of value to contribute to our culture…well, on second thought, I did get watery eyed when the young man died in Harrison Ford’s arms. I am in no way criticizing the profession of acting and value the talent of these artists- it is rather the greed that corrupts the ancient art of storytelling I am unhappy with. Directors are not directors unless they make money and I feel sorry that these incredibly creative people find themselves less than free to pursue their craft.

The archetype of the modern science fiction movie was 2001 and like many legendary screen epics, a Space Odyssey was not as original as the marketing made it out to be. In an act of cinema cold war many elements were lifted from a Soviet movie. Even though the fantasy element was restricted to a single device in the form of an alien monolith, every artifice of this film has so far proven non-predictive. Interestingly, the propulsion system of the spaceship in 2001 was originally going to use atomic bombs, which are still, a half century later, the only practical means of interplanetary travel. Stanly Kubrick, fresh from Dr. Strangelove, was tired of nukes and passed on portraying this obvious future.

As with the submarine, airplane, and nuclear energy, the technology to come may be predicted with some accuracy if the laws of physics are not insulted but rather just rudely addressed. Though in some cases, the line is crossed and what is rude turns disgusting. A recent proposal for a “NautilusX” spacecraft is one example of a completely vulgar denial of reality. Chemically propelled, with little radiation shielding, and exhibiting a ridiculous doughnut centrifuge, such advertising vehicles are far more dishonest than cinematic fabrications in that they decieve the public without the excuse of entertaining them. In the same vein, space tourism is presented as space exploration when in fact the obscene spending habits of the ultra-wealthy have nothing to do with exploration and everything to do with the attendent taxpayer subsidized business plan. There is nothing to explore in Low Earth Orbit except the joys of zero G bordellos. Rudely undressing by way of the profit motive is followed by a rude address to physics when the key private space scheme for “exploration” is exposed. This supposed key is a false promise of things to come.

While very large and very expensive Heavy Lift Rockets have been proven to be successful in escaping earth’s gravitational field with human passengers, the inferior lift vehicles being marketed as “cheap access to space” are in truth cheap and nasty taxis to space stations going in endless circles. The flim flam investors are basing their hopes of big profit on cryogenic fuel depots and transfer in space. Like the filling station every red blooded American stops at to fill his personal spaceship with fossil fuel, depots are the solution to all the holes in the private space plan for “commercial space.” Unfortunately, storing and transferring hydrogen as a liquified gas a few degrees above absolute zero in a zero G environment has nothing in common with filling a car with gasoline. It will never work as advertised. It is a trick. A way to get those bordellos in orbit courtesy of taxpayer dollars. What a deal.

So what is the obvious future that our present level of knowledge presents to us when entertaining the possible and the impossible? More to come.

Greetings fellow travelers, please allow me to introduce myself; I’m Mike ‘Cyber Shaman’ Kawitzky, independent film maker and writer from Cape Town, South Africa, one of your media/art contributors/co-conspirators.

It’s a bit daunting posting to such an illustrious board, so let me try to imagine, with you; how to regard the present with nostalgia while looking look forward to the past, knowing that a millisecond away in the future exists thoughts to think; it’s the mode of neural text, reverse causality, non-locality and quantum entanglement, where the traveller is the journey into a world in transition; after 9/11, after the economic meltdown, after the oil spill, after the tsunami, after Fukushima, after 21st Century melancholia upholstered by anti-psychotic drugs help us forget ‘the good old days’; because it’s business as usual for the 1%; the rest continue downhill with no brakes. Can’t wait to see how it all works out.

Please excuse me, my time machine is waiting…
Post cyberpunk and into Transhumanism

The California Dream Act.

The banking industry is likely California Dreaming about the day when more states get their act together. …For those of us who think that the US will see a bubble in the education industry caused by its efforts to distribute human kind’s knowledge communities outside of the affluent elite, they shouldn’t hold their breath.

The Cali Dream Act could seem like an altruistic attempt to empower our desperate relatives converging on US cities, but there are some fiscally desperate economics behind this proverbial triumph over “social evil”, as if such a thing ever existed…LOL

For-profit and Not-for-profit education is big business…consider the $4.9B income of the Apollo Group, owner of University of Phoenix or the pride of the west coast’s $16.5B endowment at Stanford University. All of these are affected by the arbitrage (my favorite word smile ) in an industry… losing applicants with the confidence that a degree or certificate is honestly their best investment.

One thing is for sure, the US is the largest knowledge community on the planet currently, and one thing it can still sell the world’s consumers on, is that they’ll want to tap into the experience in their quest to secure the ideal 20th century standard of success. To be redundant, the 20th century American Dream is still the benchmark for making it in 2011 for the vast majority world around us…even as those of us investing in the future would harshly disagree. Where better to catch a dream life than in California…or even Michigan, with residents exiting at record paces.

The reality is that undocumented immigrants are a new class of Americans or non-Americans to sell long-term deferred and/or short term deferred loans. Its an ideal way to build collateral on the balance sheet of a lending company ;-). I’m not only expecting for more states to echo California’s legislative desperation/foresight (call it how you like), but I am expecting for the near future to offer American educations with State and possibly Federal assistance (at a taxable premium + interest) to undocumented immigrants of the US… and even foreign nationals with no immediate intent on coming to the US for legal or illegal residency. It’ll be called globalization…

The US education models designed by the non-profit traditional institutions and technologized (new word for me…lol) by the more agile for-profit institutions, will be distributed throughout the world at the rate of technologies acceptance in foreign countries.

And, of course, where there is government support (large pot of $), private speculation (smaller pots of $) will follow its low risks. fueling the distribution of what we know and what we are exploring.

I got this tweet today, as a part of a larger conversation that technological breakthroughs could help predict disruptive economic times. During the past 10 days or so, the US and global financial markets have taken a deep plung, as a result of, well, according to the CIOs (chief investment officers) and politicians, we don’t know. The new industry pins the almost unanimous economic decisions of sell sell sell, to the latest new is geo-political interactions and/or financial specific news.

We see headlines like “Downgrade Ignites a Global Selloff” at the Wall Street Journal, referring to the Standard & Poor’s downgraded credit rating of US treasuries, which by the way soared during the selloff of equities, because of their relative strength.

More importantly than what to buy, none of the headlines, nor the vague analysis captures the actual root-cause of this regular, or rather, irregular economic downturn occurring over the past decade. The general ideal that one should be able to buy low and sell high that once held true in the 20th century no longer exists. The root of the problem is in our use of technologies to error-proof redundant problems in the modern work world. Further, we know that mostly all errors exist by the hands of humans. Thus, error-proofing can be synonymous with human-proofing. We usually think of technologies that replace human activity as a device or software…”the robots”, and those do exist, but they are less of a threat than the methodological technologies.

We rarely think of a routine as a technology, but they are. Benchmarking is a technology. With all of the methodological expertise being poured into corporations over the past 30 years, we’ve finally got somewhere, efficient. How many times have you heard that word at the office? Since the late 1960s and the creation of Poka Yoke by Dr. Shigeo Shingo, and on to Lean-Manufacturing, and Six-Sigma, and most recently the 3rd version of IT Infrastructure Library (ITILv3), we are actively depleting the work force to ensure our qualitative (effectiveness) and quantitative (efficiency) superiority to the competition.

Its a difficult dialogue to have, because a valid argument is: what’s wrong with business being efficient? My answer would be: Nothing at all. The problem comes into play when human-kind has rendered its ability to distribute value, obsolete. In the past we’ve distributed value through a currency of some sort, and that currency (in primitive times and modern day) is backed by more than gold or bonds, it is also backed by faith in a philosophical system that a woman/man get paid for an “honest days work”, quite the primitive slogan. In a knowledge economy where people aren’t performing back-breaking work at the volumes that they used to, and 10 knowledge workers of the 1980’s can be performed by 1 Project Manager using 30 years of benchmarked data with soft/hardware help, it’s difficult to spread the wealth that we once did.

When the markets sell off equities into cash, they are saying that the economy is inflated and weak. There are no buyers for the products being produced, because there are no jobs. There are no jobs, because of all of the error-proofing that proceeded them; and finally, it is exceedingly difficult to quantify what people’s knowledge, experience, existence is worth in the old paradigm. While it feels better to point the finger at the CEOs and Politicians today, of which I’d likely get a finger or two, the problem is that we are trying to distribute the wealth that still exists using an antiquated model.

If one looks at the M1&M2 numbers at the US Federal Reserve, they’ll notice that all of the money we need to fix/build anything still exists. This is the same across the globe. When the news says that money supply is lower, what they actually mean is that money distribution is lower, because the money supply, as the link shows is rarely diminished. As an economy retracts, funds return to its originator. The wealthiest of our species cannot justify how to spread a trillion dollars around, at the moment, because there fewer and fewer tasks to assign a wage and a human resource. I’ve got a few solutions to recommend in my next book project, Integrationalism: Essays on ownership and distributing value in the 21st century.

Dear Lifeboat Foundation Family & Friends,

A few months back, my Aunt Charlotte wrote, wondering why I — a relentless searcher focused upon human evolution and long-term human survival strategy, had chosen to pursue a PhD in economics (Banking & Finance). I recently replied that, as it turns out, sound economic theory and global financial stability both play central roles in the quest for long-term human survival. In the fifth and final chapter of my recent Masters thesis, On the Problem of Sustainable Economic Development: A Game-Theoretical Solution, I argued (with considerable passion) that much of the blame for the economic crisis of 2008 (which is, essentially still upon us) may be attributed the adoption of Keynesian economics and the dismissal of the powerful counter-arguments tabled by his great rival, F.A. von Hayek. Despite the fact that they remained friends all the way until the very end, their theories are diametrically opposed at nearly every point. There was, however, at least one central point they agreed upon — indeed, Hayek was fond of quoting one of Keynes’ most famous maxims: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else” [1].

And, with this nontrivial problem and and the great Hayek vs. Keynes debate in mind, I’ll offer a preview-by-way-of-prelude with this invitation to turn a few pages of On the Problem of Modern Portfolio Theory: In Search of a Timeless & Universal Investment Perspective:

It is perhaps significant that Keynes hated to be addressed as “professor” (he never had that title). He was not primarily a scholar. He was a great amateur in many fields of knowledge and the arts; he had all the gifts of a great politician and a political pamphleteer; and he knew that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is generally understood. Indeed the world is ruled by little else” [1]. And as he had a mind capable of recasting, in the intervals of his other occupations, the body of current economic theory, he more than any of his compeers had come to affect current thought. Whether it was he who was right or wrong, only the future will show. There are some who fear that if Lenin’s statement is correct that the best way to destroy the capitalist system is to debauch the currency, of which Keynes himself has reminded us [1], it will be largely due to Keynes’s influence if this prescription is followed.…

Perhaps the explanation of much that is puzzling about Keynes’s mind lies in the supreme confidence he had acquired in his power to play on public opinion as a supreme master plays on his instrument. He loved to pose in the role of a Cassandra whose warnings were not listened to. But, in fact, his early success in swinging round public opinion about the peace treaties had given him probably even an exaggerated estimate of his powers. I shall never forget one occasion – I believe the last time that I met him – when he startled me by an uncommonly frank expression of this. It was early in 1946, shortly after he had returned from the strenuous and exhausting negotiations in Washington on the British loan. Earlier in the evening he had fascinated the company by a detailed account of the American market for Elizabethan books which in any other man would have given the impression that he had devoted most of his time in the United States to that subject. Later a turn in the conversation made me ask him whether he was not concerned about what some of his disciples were making of his theories. After a not very complimentary remark about the persons concerned, he proceeded to reassure me by explaining that those ideas had been badly needed at the time he had launched them. He continued by indicating that I need not be alarmed; if they should ever become dangerous I could rely upon him again quickly to swing round public opinion – and he indicated by a quick movement of his hand how rapidly that would be done. But three months later he was dead [2].

As always, any and all comments, criticisms, thoughts, and suggestions are welcome!

Bidding you Godspeed,

Matt Funk, FLS, PhD Candidate, University of Malta, Dept. of Banking & Finance

[1]. KE YNES, J. (1920). The General Theory of Employment, Interest and Money (Palgrave Macmillan, London).

[2]. HAYEK, F. (1952). Review of R.F. Harrod’s ‘The Life of John Maynard Keynes’. J of Mod Hist 24:195–198.

Perhaps the most important lesson, which I have learned from Mises, was a lesson located outside economics itself. What Mises taught us in his writings, in his lectures, in his seminars, and in perhaps everything he said, was that economics—yes, and I mean sound economics, Austrian economics—is primordially, crucially important. Economics is not an intellectual game. Economics is deadly serious. The very future of mankind —of civilization—depends, in Mises’ view, upon widespread understanding of, and respect for, the principles of economics.

This is a lesson, which is located almost entirely outside economics proper. But all Mises’ work depended ultimately upon this tenet. Almost invariably, a scientist is motivated by values not strictly part of the science itself. The lust for fame, for material rewards—even the pure love of truth—these goals may possibly be fulfilled by scientific success, but are themselves not identified by science as worthwhile goals. What drove Mises, what accounted for his passionate dedication, his ability to calmly ignore the sneers of, and the isolation imposed by academic contemporaries, was his conviction that the survival of mankind depends on the development and dissemination of Austrian economics…

Austrian economics is not simply a matter of intellectual problem solving, like a challenging crossword puzzle, but literally a matter of the life or death of the human race.

–Israel M. Kirzner, Society for the Development of Austrian Economics Lifetime Achievement Award Acceptance Speech, 2006

Dear Lifeboat Foundation family & friends,

This 243-page thesis and this 16-page executive summary deliver a tenable, game-theoretical solution to this complex global dilemma:

Our narrative tables evolutionarily stable strategy for the problem of sustainable economic development on earth and other earth-like planets. In order to accomplish the task at hand with so few words, we hit the ground running with an exploration of Bertrand Russell’s conjecture that economic power is a derivative function of military power. Next we contextualize the formidable obstacle presented of teleological thinking. Third, we introduce Truly Non-cooperative Games – axioms and complimentary negotiation models developed to analyze a myriad of politico-economic problems, including the problem of sustainable economic development. Here we present The Principle of Relative Insularity, a unified theory of value which unites economics, astrophysics, and biology. Finally, we offer a synthetic narrative in which we explore several crucial logical implications that follow from our findings.

Those interested in background details and/or a deeper exploration of the logical implications that follow from this theoretical development may wish to pursue a few pages of an comprehensive, creative, and thoroughly exhaustive letter of introduction to this abridged synthesis: The Principles of Economics & Evolution: A Survival Guide for the Inhabitants of Small Islands, Including the Inhabitants of the Small Island of Earth.

Those interested in considering how this game-theoretical solution informs “evolutionarily stable” investment strategy may also wish to take in a brief overview of my PhD research: On the Problem of Modern Portfolio Theory: In Search of a Timeless & Universal Investment Perspective.

Please feel free to post all thoughts, comments, criticisms, and suggestions.

Thanks for reading!

Sincerely,

Matt Funk, FLS, BSc, MA, MFA, PhD Candidate, University of Malta, Department of Banking & Finance

PS: The author would like to thank the Lifeboat Foundation, Linnean Society of London, Property and Environment Research Center, Society for Range Management, Professors Kurial, Nagarajan, Baldacchino, Fielding, Falzon (University of Malta), Lockwood (University of Wyoming), MacKinnon (Memorial University), Sloan (Lancaster University), McKenna (Notre Dame), Schlicht (Ludwig-Maximilians- Universität München) and his dedicated team at MPRA, author & astronomer Jeff Kanipe, Dr Willard S. Boyle, Dr John Harris, fellow students, family, and friends for their priceless guidance, support, and encouragement. He also sends out a very special thanks to Professors Frey (Universität Zürich), Selten (Universität Bonn), and Nash (Princeton University) for their originality, independence, and inspiration.

The existential risk reduction career network is a career network for those interested in getting a relatively well-paid job and donating substantial amounts (relative to income) to non-profit organizations focused on the reduction of existential risks, in the vein of SIAI, FHI, and the Lifeboat Foundation.

The aim is to foster a community of donors, and to allow donors and potential donors to give each other advice, particularly regarding the pros and cons of various careers, and for networking with like-minded others within industries. For example, someone already working in a large corporation could give a prospective donor advice about how to apply for a job.

Over time, it is hoped that the network will grow to a relatively large size, and that donations to existential risk-reduction from the network will make up a substantial fraction of funding for the beneficiary organizations.

In isolation, individuals may feel like existential risk is too large a problem to make a dent in, but collectively, we can make a huge difference. If you are interested in helping us make a difference, then please check out the network and request an invitation.

Please feel free to contact the organizers at [email protected] with any comments or questions.

well-in-an-oasisIt’s easy to think of people from the underdeveloped world as quite different from ourselves. After all, there’s little to convince us otherwise. National Geographic Specials, video clips on the Nightly News, photos in every major newspaper – all depicting a culture and lifestyle that’s hard for us to imagine let alone relate to. Yes – they seem very different; or perhaps not. Consider this story related to me by a friend.

Ray was a pioneer in software. He sold his company some time ago for a considerable amount of money. After this – during his quasi-retirement he got involved in coordinating medical relief missions to some of the most impoverished places on the planet, places such as Timbuktu in Africa.

The missions were simple – come to a place like Timbuktu and set up medical clinics, provide basic medicines and health care training and generally try and improve the health prospects of native peoples wherever he went.

Upon arriving in Timbuktu, Ray observed that their system of commerce was incredibly simple. Basically they had two items that were in commerce – goats and charcoal.

According to Ray they had no established currency – they traded goats for charcoal, charcoal for goats or labor in exchange for either charcoal or goats. That was basically it.

Ray told me that after setting up the clinic and training people they also installed solar generators for the purpose of providing power for satellite phones that they left in several villages in the region.

They had anticipated that the natives, when faced with an emergency or if they needed additional medicines or supplies would use the satellite phones to communicate these needs however this isn’t what ended up happening…the-road-to-timbuktu

Two years after his initial visit to Timbuktu, Ray went back to check on the clinics that they had set up and to make certain that the people there had the medicines and other supplies that they required.

Upon arriving at the same village he had visited before Ray was surprised to note that in the short period of only two years since his previous visit things had changed dramatically – things that had not changed for hundreds, perhaps even thousands of years.

Principally, the change was to the commerce in Timbuktu. No longer were goats and charcoal the principal unit of currency. They had been replaced by a single unified currency – satellite phone minutes!

Instead of using the satellite phones to call Ray’s organization, the natives of Timbuktu had figured out how to use the phones to call out to neighboring villages. This enabled more active commerce between the villages – the natives could now engage in business miles from home – coordinating trade between villages, calling for labor when needed or exchanging excess charcoal for goats on a broader scale for example.mudshacks-in-timbuktu

Of course their use of these phones wasn’t limited strictly to commerce – just like you and I, they also used these phones to find out what was happening in other places – who was getting married, who was sick or injured or simply to communicate with people from other places that were too far away to conveniently visit.

In other words, a civilization that had previously existed in a way that we would consider highly primitive had leapfrogged thousands of years of technological and cultural development and within the briefest of moments had adapted their lives to a technology that is among the most advanced of any broadly distributed in the modern world.

It’s a powerful reminder that in spite of our belief that primitive cultures are vastly different from us the truth is that basic human needs, when enabled by technology, are very much the same no matter where in the world or how advanced the civilization.

Perhaps we are not so different after all?
Timbuktu

Originally posted @ Perspective Intelligence

Two events centered on New York City separated by five days demonstrated the end of one phase of terrorism and the pending arrival of the next. The failed car-bombing in Times square and the dizzying stock market crash less than a week later mark the book ends of terrorist eras.

The attempt by Faisal Shahzad to detonate a car bomb in Times Square was notable not just for its failure but also the severely limited systemic impact a car-bomb could have, even when exploding in crowded urban center. Car-bombs or Vehicle-Borne IED’s have a long history (incidentally one of the first was the 1920 ‘cart and horse bomb’ in Wall Street, which killed 38 people). VBIED’s remain deadly as a tactic within an insurgency or warfare setting but with regard to modern urban terrorism the world has moved on. We are now living within a highly virtualized system and the dizzying stock-market crash on the 6th May 2010 shows how vulnerable this system is to digital failure. While the NYSE building probably remains a symbolic target for some terrorists a deadly and capable adversary would ignore this physical manifestation of the financial system and disrupt the data-centers, software and routers that make the global financial system tick. Shahzad’s attempted car-bomb was from another age and posed no overarching risk to western societies. The same cannot be said of the vulnerable and highly unstable financial system.

Computer aided crash (proof of concept for future cyber-attack)

There has yet to be a definitive explanation of how stocks such as Proctor and Gamble plunged 47% and the normally solid Accenture plunged from a value of roughly $40 to one cent, based on no external input of information into the financial system. The SEC has issued directives in recent years boosting competition and lowering commissions, which has had the effect of fragmenting equity trading around the US and making it highly automated. This has created four leading exchanges, NYSE Euronext, Nasdaq OMX Group, Bats Global Market and Direct Edge and secondary exchanges include International Securities Exchange, Chicago Board Options Exchange, the CME Group and the Intercontinental Exchange. There are also broker-run matching systems like those run by Knight and ITG and so called ‘dark-pools’ where trades are matched privately with prices posted publicly only after trades are done. As similar picture has emerged in Europe, where rules allowing competition with established exchanges and known by the acronym “Mifid” have led to a similar explosion of types and venues.

To navigate this confusing picture traders have to rely on ‘smart order routers’ – electronic systems that seek the best price across all of the platforms. Therefore, trades are done in vast data centers – not in exchange buildings. This total automation of trading allows for the use of a variety of ‘trading algorithms’ to manage investment themes. The best known of these is a ‘Volume Algo’, which ensures throughout the day that a trader maintains his holding in a share at a pre-set percentage of that share’s overall volume, automatically adjusting buy and sell instructions to ensure that percentage remains stable whatever the market conditions. Algorithms such as this have been blamed for exacerbating the rapid price moves on May 6th. High-frequency traders are the biggest proponents of algos and they account for up to 60% of US equity trading.

The most likely cause of the collapse on May 6th was the slowing down or near stop on one side of the trading pool. So in very basic terms a large number of sell orders started backing up on one side of the system (at the speed of light) with no counter-parties taking the order on the other side of the trade. The counter-party side of the trade slowed or stopped causing this almost instant pile-up of orders. The algorithms on the other side finding no buyer for their stocks kept offering lower prices (as per their software) until they attracted a buyer. However, as no buyer’s appeared on the still slowed or stopped counter-party side prices tumbled at an alarming rate. Fingers have pointed at the NYSE for causing the slow down on one side of the trading pool as it instituted some kind of circuit breaker into the system, which caused all the other exchanges to pile-up on the other side of the trade. There has also been a focus on one particular trade, which may have been the spark igniting the NYSE ‘circuit breaker’. Whatever the precise cause, once events were set in train the system had in no way caught up with the new realities of automated trading and diversified exchanges.

More nodes same assumptions

On one level this seems to defy conventional thinking about security – more diversity greater strength – not all nodes in a network can be compromised at the same time. By having a greater number of exchanges surely the US and global financial system is more secure? However, in this case, the theory collapses quickly if thinking is switched from examining the physical to the virtual. While all of the exchanges are physically and operationally separate they all seemingly share the same software and crucially trading algorithms that all have some of the same assumptions. In this case they all assumed that because they could find no counter-party to the trade they needed to lower the price (at the speed of light). The system is therefore highly vulnerable because it relies on one set of assumptions that have been programmed into lighting fast algorithms. If a national circuit breaker could be implemented (which remains doubtful) then this could slow rapid descent but it doesn’t take away the power of the algorithms – which are always going to act in certain fundamental ways ie continue to lower the offer price if they obtain no buy order. What needs to be understood are the fundamental ways in which all the trading algorithms move in concert. All will have variances but they will all share key similarities, understanding these should lead to the design of logic circuit breakers.

New Terrorism

However, for now the system looks desperately vulnerable to both generalized and targeted cyber attack and this is the opportunity for the next generation of terrorists. There has been little discussion as to whether the events of last Thursday were prompted by malicious means but it certainly is worth mentioning. At a time when Greece was burning launching a cyber attack against this part of the US financial system would clearly have been stunningly effective. Combining political instability with a cyber attack against the US financial system would create enough doubt about the cause of a market drop for the collapse gain rapid traction. Using targeted cyber attacks to stop one side of the trade within these exchanges (which are all highly automated and networked) would, as has now been proven, cause a dramatic collapse. This could also be adapted and targeted at specific companies or asset classes to cause a collapse in price. A scenario where-by one of the exchanges slows down its trades surrounding the stock of a company the bad-actor is targeting seems both plausible and effective.

A hybrid cyber and kinetic attack could also cause similar damage – as most trades are now conducted within data-centers – it begs the question why are there armed guards outside the NYSE – of course if retains some symbolic value but security resources would be better placed outside of the data-centers where these trades are being conducted. A kinetic attack against financial data centers responsible for these trades would surely have a devastating effect. Finding the location of these data centers is as simple as conducting a Google search.

In order for terrorism to have impact in the future it needs to shift its focus from the weapons of the 20th Century to those of the present day. Using their current tactics the Pakistan Taliban and their assorted fellow-travelers cannot fundamentally damage western society. That battle is over. However, the next era of conflict motivated by a radicalism from as yet unknown grievances, fueled by a globally networked generation Y, their cyber weapons of choice and the precise application of ultra-violence and information spin has dawned. Five days in Manhattan flashed a light on this new era.

Roderick Jones

Many years ago, in December 1993 to be approximate, I noticed a space-related poster on the wall of Eric Klien’s office in the headquarters of the Atlantis Project. We chatted for a bit about the possibilities for colonies in space. Later, Eric mentioned that this conversation was one of the formative moments in his conception of the Lifeboat Foundation.

Another friend, filmmaker Meg McLain has noticed that orbital hotels and space cruise liners are all vapor ware. Indeed, we’ve had few better depictions of realistic “how it would feel” space resorts since 1968’s Kubrick classic “2001: A Space Odyssey.” Remember the Pan Am flight to orbit, the huge hotel and mall complex, and the transfer to a lunar shuttle? To this day I know people who bought reservation certificates for whenever Pan Am would begin to fly to the Moon.

In 2004, after the X Prize victory, Richard Branson announced that Virgin Galactic would be flying tourists by 2007. So far, none.

A little later, Bigelow announced a fifty million dollar prize if only tourists could be launched to orbit by January 2010. I expect the prize money won’t be claimed in time.

Why? Could it be that the government is standing in the way? And if tourism in space can’t be “permitted” what of a lifeboat colony?

Meg has set out to make a documentary film about how the human race has arrived four decades after the Moon landing and still no tourist stuff. Two decades after Kitty Hawk, a person could fly across the country; three decades, across any ocean.

Where are the missing resorts?

Here is the link to her film project:
http://www.freewebs.com/11at40/