Saturday, June 25, 2016

Brexit disrupts the European Union.

Fintech disrupts banks

Fintech disrupts the banking and insurance industry, (see the previous blog ) The World Economic Forum's insights on the future of banking  uses a document from Citi  DIGITAL DISRUPTION How FinTech is Forcing Banking to a Tipping Point to project gloom (loss of jobs, etc), because the paper is produced by one of the largest US banks and a leading target of fintech.

Brexit disrupts European Union (EU)

So I ask myself: isn't Brexit disrupting EU, in the same way fintech disrupts banking and insurance?


I wonder how many people know what European Union  is and how it works I thought I knew, but I didn't. After some googling and I realized it is a giant labyrinthine bureaucracy.  It has reminiscences of Kafka (who in real life was clerk at an insurance company in Prague). Kafka accumulated the famous frustration, we named Kafkaesque ;  "something having a nightmarishly complex, bizarre, or illogical quality".

The best way to understand EU is to quote in the end of this blog the entire article by Gareth Harding Explaining the EU: United in Complexity

UK exit from EU is not irrational. Brexit is the messenger who tells us that EU must by broken and rebuilt for the 21st century.

After reading, we should spare UK of any accusations, and take our hats off

Addendum

With over 20 years experience describing how the European Union works, what it does and what challenges it faces in speeches, articles, lectures and trainings, I thought I could explain what the EU is all about in terms that anybody could understand. How wrong I was.
In the last month I have given half a dozen ‘EU in an hour’ talks to visiting groups of American politics, journalism and international relations students - who are all extremely keen, bright and willing to ask questions. But almost invariably, the students leave the classroom flabbergasted at how needlessly complicated the EU is and suspecting that I have made up some of the Byzantine decision-making procedures just to mess with them.
This is how the average talk goes:
Me: So basically, you have three main institutions: The European Commission, Parliament and Council.
Q: I thought there were four?
A: Well, yes, if you include the European Council.
Q: Wasn’t that one of the three you just mentioned?
A: No, that’s the Council of the European Union. Which is different from the Council of Europe, which is a non-EU body that meets in Strasbourg.
Q: Doesn’t the European Parliament meet in Strasbourg?
A: It does. But so does the Council of Europe. And to be precise, the Parliament also meets in Brussels.
Q: So, just to be clear, the Parliament has offices in both Brussels and Strasbourg?
A: Yes, and Luxembourg, where a lot of the support staff are based. But anyway, let’s go back to the institutions I mentioned before. Firstly, the European Commission. This is often called the EU executive body.
Q: So like the U.S. President?
A: Not really. The Commission can’t declare war or veto laws. But it can do trade deals. So it has some executive functions, but also some legislative.
Q: But my textbook says the parliament and EU Council are the two law-making bodies?
A: Correct, but the Commission proposes all draft laws.
Q: Wait. What? How can an unelected body propose laws? Shouldn’t that be the Parliament?
A: No, the Commission has what they call the ‘sole right of initiative’ because it is supposed to represent the European interest and be free from national prejudices.
Q: But don’t EU member states propose Commissioners?
A: Yes they do. But when they arrive in Brussels they have their national hard drives erased. In theory. Unlike the Council of the EU, which represents the naked national interests of the 28 states.
Q: So the Council is a bit like our Senate? One member per state, regardless of size?
A: Yes, except big states like Germany have many more votes than small states like Malta.
Q: So it’s not really like our Senate?
A: Er…no. Anyway, the Council makes laws, along with the Parliament. It also adopts the EU budget, which is about €140 billion a year.
Q: That’s not much. I thought the EU was the world’s biggest economy?
A: Ah, yes, the total GDP of the 28 member states is the biggest in the world but Brussels is only responsible for about 1% of that.
Q: The Council meets in Brussels right?
A: Yes, except in April, June and October, when it meets in Luxembourg.
Q: You’re kidding?
A: I wish I was.
Q: So who’s in charge of the EU?
A: Ah, the Kissinger question. In one word – nobody. In reality, there are three presidents - of the European Council, Commission and Parliament. The first two are basically chosen by EU leaders and the third by MEPs. None are directly elected to the post by voters. Oh, and there’s also a presidency of the Council of Ministers.
Q: Wait, what?
A: Well, every six months a different EU state is in charge of chairing ministerial meetings. At present, that is Latvia but on July 1 that changes to Luxembourg. However, meetings of foreign ministers are presided over by EU foreign policy chief Federica Mogherini, who is also vice-president of the European Commission. And Eurogroup meetings are chaired by Dutch Finance Minister Jeroen Dijsselboem.
Q: Hang on, what’s the Eurogroup?
A: Well, that’s the meeting of EU finance ministers from the 19 EU states that use the euro?
Q: What? I thought the EU had a single currency?
A: It does, but not for all its states. Britain, Denmark and Sweden decided to keep their own currencies and some central European countries are not ready to join the Eurozone yet.
Q: You’re making this up aren’t you? The EU can’t possibly be that complicated.

Tuesday, June 21, 2016

Disrupting the mortgage industry

Note: a day after publishing this post, New York Times published How Housing’s New Players Spiraled Into Banks’ Old Mistakes . It documents the thoughts from this blog
I did recently some research about financial services. Here is a refreshing example of the good way to disrupt a bank business. As always, it is the way we treat the customers. And customers are people. Better said, it is the way we treat people

What is Fintech

It's a segment of the technology startup scene that is disrupting sectors such as mobile payments, money transfers, loans, fundraising and even asset management.

Fintech was added to Oxford Dictionary on line only in 2016  Many – including tech savvy and clued up entrepreneurs – don’t quite have a handle on.

The modern name was coined after 2010. Previously, it applied to the back office of banks or trading firms  These technologies emphasize machine learning, predictive behavioral analytics, data-driven marketing. It appears  by far the machine learning (ML) has the biggest impact

Fintech is a modern business disruptor, impossible to ignore. Mortgages will change because the people changes and have different expectations

Affirm startup

Quoting Max Levchin the founder of the startup Affirm and a leading member of the PayPal Mafia
The millennial demographic that we are trying to serve is growing. We are on the track to become really, really big. It isn’t hard to convince people in this country that financial institutions are really, really broken and there is an opportunity to build something that could revolutionize the entire system.

MSN Money reports the net worth of millennial ranging from $20K at the age of 35, zero at the age 30, to negative (34K ) at the age of 22. This why the latest generation avoids banking and prefers to use whatever application from fintech disruption

When asked why he had to start with consumer lending, Max replied
I see building any bank as an exercise in building trust. To get there, you have to go through a lot of trust building. This is not easy at all. In the universe, there are some things people are willing to trust. 
Today, people don’t like their bank — they make money when you screw up or make a mistake. 

How Affirm structures a loan 



The millennial customer (or any customer)  selects a budget and the payments are spread accordingly to  his needs. There are no hidden charges, no arrears and interests for past due, no penalties. You may be a month or two out of a job, you may have a child, you may move apartments. Life is not steady, is event driven. Missing a payment does not mean people are dishonest

Disrupting the financial companies business

It is virtually impossible today  to start a new bank or insurance company. How To Start Your Own Bank claims you can start a community bank, which to me is an exception. Or you must be another Max Levchin.

People must feel pleasure, not fear when dealing with banks.

Using legacy tools like FICO, with no "Machine Learning",  the traditional (not community) banks place us in inflexible silos.

FICO is 60 years old. They started in 1956, when 80% of the US population was not born yet, never mind millennials. Actually millennials are uncomfortable with institutions like FICO, which rate people and decide their fate based on the past, using actuarial static calculations.  Machine Learning has yet to be adopted


Bloomberg says
Of the 7 million Americans who experienced foreclosure from 2004 to 2015, only 7.3 percent obtained a mortgage again.
That means, under the current system of big banks running the mortgage business for the nation, FICO-like thinking made an invisible tattoo on the foreheads of seven million American families, saying "Thou shall never own a home again"

The Mortgage Industry: Ripe For Disruption

The existing mortgage industry in US is "too challenged, too inefficient, too costly and too unresponsive to the needs of business and consumer alike". See  Collingwood Group White Paper: The Mortgage Industry is Ripe for Disruption, which can be downloaded from http://info.collingwoodllc.com/mortgage-industry-ripe-for-disruption 

The disruptive business models exploit advanced technology. It  takes the guess out via machine learning. predictive behavioral analytics and data-driven marketing.
2015  National Association of Realtors Home Buyer and Seller Generational Trends reported for the second consecutive year that millennials represented the largest share or 32 percent of recent home buyers.
Dealing with millennials, we know it means change.

The Big Short

 But before change is possible, we must clear the mess from the past.

Dr. Michael Burry, {Played by Christian Bale)  a California physician suffering from Asperger’s Syndrome and Bipolar Disorder who became fascinated with the bond market coupled to mortgage-making with falling lending standards in 2004. He made the move from medicine to mortgage funds with the help of a sizeable inheritance.

There is a book (2010) and a movie: The Big Short  is "a dramatic retelling of the 2007-8 financial crisis It  focuses on the lives of several American financial experts who predicted and profited from the build-up and subsequent collapse of the housing market and credit bubble in 2007 and 2008.

 Financial terminology and the chronology of the financial crisis is highly complex and difficult for a traditional audience to comprehend in a two-hour movie. From collateralized debt obligations (CDOs) and tranches to credit-default swaps and mortgage-backed securities, the production team employs a simple, yet stylistic approach to defining the tools that helped sink the global economy (for more, read The 2007-2008 Financial Crisis in Review.)
Words like  MBS (mortgage backed securities), CDO (collateralized debt obligations}, and many more.  mean nothing, except when, experiencing the results. The original mortgage from the builder is sold to Countrywide (for example), then to one of the big five banks and then is securitized by some Wall Street trust and sold to investors world wide. When the housing market collapses, and the homeowner discovers the value of her home is as low as one half the price she paid for it. In other words she is in default, by doing nothing and in spite for paying on time for five years.

Homeowners in distress do not deal with neighborhood bank, but with some remote shareholders spread around the world who want the highest profits generated

Are foreclosures necessary?

With top 5 Banks running the show their foreclosure activity is high.  and more painful in US  than other parts of the world


According to an expert familiar with the situation:
I think [foreclosure] a symptom of the current system and will continue to create problems in our banks'  way of  handling residential homes. We have now loans not directly related to the home owner, held in institutions that have no  direct relationships with the home owner. These are trusts that are acting on behalf of shareholders to make money from the homeowners. So the trust, uses a servicer to handle the customer service part of the mortgage. In the old day was a relationship based on solving problems and make home ownership sustainable, but now the servicer motivation is just to charge fees. The more fees they charge you, the better off they are. The generate fees by creating situations, such as default, that arises from the bank, when they mistakenly put an amount due there, which should not had have been there. The homeowners is faced to either have to pay that, or potentially face a foreclosure process. The homeowner can not start making payments because they did not pay the additional bill. Many feel as if they are victims of an extortion
Is the mortgage industry today supposed to be about foreclosures? Taking away homes from millions of Americans is ethical? Do we want our system to perpetuate for ever this model? Can't we find a system creating real wealth?

Defending against abusive foreclosures?

 They are  very few law firms specialized in foreclosure fraud, and very few options, for a a variety of reasons:
  1. The banks' tacit policy is "if you sue us, we are going to make it hard and tough for you". 
  2. You are dealing with a part of law that is constantly changing; it makes more difficult to keep up with the law, not only to be aware of it, but also to advance it. That takes a lot of extra work. 
  3. You are dealing with clients that are very stressed out because their home is part of their life. Many clients don't have any money to pay for the legal service.
We need a new type of startups, a consumer legal firm startup, to be a match for the banks' powerful legal machine and stop them.

Experts say they need to have at least 10 cases that went to trial that have hit big. This will change the industry, because the trusts' shareholders will be so upset, and there will be so much bad press that will give power to the individuals. That's why these cases are so much better than class actions.

Perhaps an individual homeowner may get ten million awarded if she has the right case, the right attorneys to convince the judiciary. Then this is significant. And if it can happen multiple times, 5 or 10 times,  we will have an industry that will stop operating for profits only.

Funding Law Firms as startups

What people want from a lawyer?  Millennials,  are seeking an attorney who is a specialist. The second thing, they want empathy, someone who cares, and who will do everything that can be done to fight for them. Third, they want communication on their case, and their calls returned. Venture Capital and large investors funding of law firms is new.

In my opinion,  a funded law firm will redefine what it means to be an attorney and clean the way for a renewed mortgage industry model.

Bottom line  

Should the mortgage industry be always in the shade of foreclosures? 

No.

But how to change? Buckminster Fuller was an extraordinary American;
In 1927 Fuller, then aged 32, lost his job as president of Stockade. The Fuller family had no savings to fall back upon, and the birth of their daughter Allegra in 1927 added to the financial challenges. Fuller was drinking heavily and reflecting upon the solution to his family's struggles on long walks around Chicago. During the autumn of 1927, Fuller contemplated suicide, so that his family could benefit from a life insurance payment.
Then, a voice spoke directly to Fuller, and declared:
From now on you need never await temporal attestation to your thought. You think the truth. You do not have the right to eliminate yourself. You do not belong to you. You belong to Universe. Your significance will remain forever obscure to you, but you may assume that you are fulfilling your role if you apply yourself to converting your experiences to the highest advantage of others.

The motto from the Collingwood Group White Paper:
The Mortgage Industry is Ripe for Disruption
http://info.collingwoodllc.com/mortgage-industry-ripe-for-disruption 






Friday, June 10, 2016

Google's new Cloud Data Center Strategy

I am a long time grid and cloud computer observer, blogger and dreamer.

Three years ago, everyone thought Amazon, Google are the very personification of cloud computing.

I read What Cloud and AI Do and Don’t Mean for Google’s Data Center Strategy. About a year ago, Google brought in new people to revitalize their cloud computing.
 The Alphabet subsidiary has been taking big steps to show that it is “dead serious” about its cloud business, to quote Diane Greene, the founder of VMware whom Google hired last year to lead this charge.
In March 2016, only tree month ago, we read  Google to Build and Lease Data Centers in Big Cloud Expansion

The man in charge is Joseph Kava, a Google VP who leads the company’s data center engineering, design, and operations. This is what he says that I thought is worth commenting

Hybrid Strategy 

We all know that as people move to the public cloud, they are developing a hybrid strategy. They are still keeping some of their apps and some of their systems either on-premise or in their colo, and they’re offloading a tremendous amount of workloads to the public cloud providers
Of course we knew, but this is the first time Google admits it! The Diane Green team made a difference Ericsson right from the beginning adopted the hybrid model and said that we are not too late in cloud computing. From hyperscale Ericsson website
The problem: the infrastructure is dictating the business, instead of the other way around. It’s time to say goodbye to traditional IT infrastructure. Say hello to the new era of digital industrialization. 
One can not create the IoT as part of the networked society, or the Planet as a Service by hosting everything on Google or Amazon classic public on demand clouds.

Google proved Ericsson right, and not the other way around

 The Internet of Things

 The question asked is: What implications do you think IoT has for Google’s data center strategy? Joseph Kava replies
We’ve already had the Internet of Things. They’re called smartphones. Android has over a billion registered things that are chatting with our data centers all the time. 
Well, this is not so. Google Android and Apple IoS  are platforms for smart phones using a specific OS When a platform enters the market of a pure pipeline business, the platform virtually always wins as business model.

Phones are not made to chat to data centers (yet). They are designed to send voice and text to other human beings Android can not offer a service secure and reliable to make one phone, the same phone, accessible in 187 countries seamlessly. Ericsson has both the experience and technology to do that with any IoT device, not only phones
Having the next billion interconnected things doesn’t really worry me, because those devices, whether they’re your refrigerator at home, or whatever those internet-connected things are going to be, they’re generally not going to be as chatty with data centers as your smartphone is. We’ve already dealt with it.
Published studies of small scale IoT pilot trials contradict what Mr. Kava says. Just read IoT technologies hit their awkward tween years
Even with pilot projects, the data volume generated by IoT technologies is massive.

Machine Learning Tensor Processing Unit boards 

 Goggle's TPU

This shows Google's leadership
There are customized hardware platforms that machine learning runs better on. It doesn’t affect the way we design our data centers, 
The Tensor Processing Unit board. The TPU is a chip, or ASIC, Google designed in-house specifically to power Artificial Intelligence systems in its data centers
 Based on this, a year ago, a computer system beat a professional human player at the ancient Chinese board game Go. The AI system, AlphaGo, was built by Google and trained using machine learning techniques.

This how it works:
The chip is tailored for machine learning. It is better at tolerating “reduced computational precision,” which enables it to use fewer processors per operation. “Because of this, we can squeeze more operations per second into the silicon, use more sophisticated and powerful machine learning models and apply these models more quickly, so users get more intelligent results more rapidly,” 
The machine learning in Data Center is key in processing big volume of Data. Derek Collison from Apcera predicts all data will be ingested in Machine Learning engines and he says
I do believe that the notion of Hadoop 3.0 would  simply be, "we will not even bother with it."  We are going to plug our data in the Google Brain project 
Ericsson is a majority shareholder in Apcera.

If things are too beautiful to be true, you are right. There is new skill to learn on how to program many core processor. Please see An Interview with David Ungar, IBM Research

Nvidia Tesla P 1000

In April 2016, Nvidia announced a new chip called the Tesla P100 that’s designed to put more power behind a technique called deep learning. This technique has produced recent major advances such as the Google software AlphaGo that defeated the world’s top Go player.

Intel's  Xeon E7 v3 and Lustre* file-system, which is part of the Intel Scalable System Framework (Intel SSF}

From Intel's 18-core Xeon chips tuned for machine learning, analytics
With its new top-line Xeon E7 v3 server chips based on the Haswell microarchitecture, Intel hopes to capitalize on the demand for this type of server. With up to 18 CPU cores, the chips are Intel’s fastest, and designed for databases, ERP (enterprise resource planning) systems and analytics related to machine learning....
Complex machine learning models can’t be distributed over the cloud or a set of smaller hyperscale servers in a data center. Instead, a more powerful cluster of servers is needed to run deep-learning systems, where the larger number of cores could power more precise analysis of oceans of data.

“To create an algorithm to look across thousands of genomes, and to look for correlations, is not the sort of workload that existed a few years ago,”


People still believe this


There are too many new developments that are not reflected in this graph. It shows the past, not the future. The future is in having a cloud as reliable and easy to use as a cell phone worldwide.

Note; The opinions on this blog are mine and not of my clients and or employers

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