Tuesday, January 16, 2018

Money Laundering "The Russian Laundromat and Blackpool Football Club"

From Lobster Magazine, Summer 2017:
The Laundromat is a 20 billion dollar offshore money laundering racket exposed last month by the Sarajevo-based Organized Crime and Corruption Reporting Project (OCCRP). Its deepest secrets are still hidden in the British Virgin Islands, where fewer than 25,000 residents of fifteen tropical islands host the registered offices of 800,000 offshore companies.

Researchers in the multinational OCCRP network have been tracking bankers who act as money launderers when they move the proceeds of both legal and illegal commerce – along with the profits of political corruption and tax evasion – out of Russia and Eastern Europe and into remote tax havens.

Between January 2011 and October 2014, the illegal network, known for years to bankers and businessmen in the former Soviet Union as The Laundromat, moved 20.8 billion dollars through Latvia and Moldova by false 1 accounting, from nineteen Russian banks, into the accounts of 5,140 companies at 732 banks in 96 countries.

In March 2017 OCCRP released details to 32 participating newspapers and news services worldwide. The Süddeutsche Zeitung in Munich immediately revealed that Deutsche Bank, the only remaining clearer of Latvian dollars with a US base, had processed 24 million US dollars for firms in the Laundromat scheme.

Deutsche Bank’s own analysis in 2015 had suggested that
‘There is strong evidence that a good chunk of the UK’s £133 billion of hidden capital inflows is related to Russia.’
Lucy Fitzgeorge-Parker of Euromoney described the part played by Latvian bankers:
‘. . . fictitious debts between UK shell companies were guaranteed by Russian entities, enforced by rigged Moldovan courts and then funnelled through the Latvian banking sector. Anti-corruption campaigners estimate that more than $20 billion of stolen money was washed by Russian officials and organized criminals before the scheme was exposed and shut down.’ 
In presenting its findings, the OCCRP’s opening online statement describes the scheme. 
‘Call it the Laundromat. It’s a complex system for laundering more than $20 billion in Russian money stolen from the government by corrupt politicians or earned through organized crime activity. It was designed to not only move money from Russian shell companies into EU banks through Latvia, it had the added feature of getting corrupt or uncaring judges in Moldova to legitimize the funds. The state-of- the-art system provided exceptionally clean money backed by a court ruling at a fraction of the cost of regular laundering schemes. It made up for the low costs by laundering huge volumes.’ 
Nicholas Shaxson, a consultant at Britain’s Tax Justice Network, has shown how offshore tax havens are now financially starving both the neo-liberal capitalist states and the European social democracies by diverting much needed tax revenue. In his Treasure Islands: Tax Havens and the Men Who Stole the World, he has this towards the end of the prologue:
‘Offshore connects the criminal underworld with the financial elite, the diplomatic and intelligence establishments with multinational corporations. Offshore drives conflict, shapes our perceptions, creates financial instability and delivers staggering rewards to les grands -- to the people who matter. Offshore is how the world of power now works.’ 
Then, in his first chapter, Shaxson quotes the economic academic Marshall Langer: 
‘. . .the most important tax haven in the world is an island . . .the name of the island is Manhattan. The second most-important tax haven in the world is located on an island. It is a city called London in the United Kingdom.’ 
Some big users of the Laundromat have been named. One of them is Georgy Gens, a Moscow businessman who owns the Lanit group , the information technology product distributor in Russia, for Apple, Samsung, and AsusTek Computer Inc (a Taiwanese multinational computer hardware and electronics company)....
...MUCH MORE (17 page PDF)

Monday, January 15, 2018


From Hollywood Palms Cinema (Chicagoland's only cinema with reel class (it's a pun! who doesn't like puns)):

What on Earth Is Going On in Tijuana?

Earlier today this story dropped out of one of the feeds.
As I've mentioned elsewhere, the people who put the Borderland Beat blog together literally risk their lives with each word they publish. We try to link at least once per month.

For geographic/demographic reference, Tijuana is a city of around 1.3 million on the Pacific ocean, 20 miles south of San Diego, CA.

From Borderland Beat, Jan. 15:

Tijuana BC 2018 : 77 Murdered in the First Two Weeks
By: Uriel Saucedo Jan 14, 2018
Angel F. Gonzalez Jan 7, 2018
Extra Material from: UniMexicali/ Uniradio Informa
The three people killed on Jan 6, 2018,  make of total of 32 violent deaths, ie, criminal murders in the first five days of this year. At least 5 people were found in various incidents  and Colonias of Tijuana in the last 24 hours. With this figure, January averages just over 6 people executed every day in its first five days.

At 11:35 am, Municipal Police officers went to the Colonia Valle Imperial, Section One, where they reported the presence of what looked like human remains. Elements of the Attorney General's Office of the State (PGJE) arrived moments later and, when going down to a ravine, they confirmed that they were indeed human bones. The remains were transferred to the facilities of the Forensic Medical Service so that the cause of death is defined and the deceased is identified through necropsy.
Minutes before noon, paramedics from the Red Cross went to Calle Ramón López Velarde, in Colonia Pórticos de San Antonio, where a man was attacked with a firearm. The rescuers attended to the victim, whom they found on a public road, with a bullet in the head. 
The assaulted, around 35 years of age, did not present vital signs and was declared lifeless at the scene. According to witness statements, the victim was shot by three individuals who, after carrying out the assassination , fled on foot and were not located.

In another incident, at 2:30 p.m., an unconscious man was located on Jacaranda street in the El Florido First Section subdivision. Upon the arrival of the Red Cross paramedics, it was discovered that the man had been attacked with a firearm and abandoned in flower beds.

On Calle Article 5 of Colonia La Esperanza a man was shot in the thorax and abdomen. Paramedics confirmed the death and that his attackers had fled in Ford Explorer type vehicle. (apparently no police authorities arrived at the scene ????? )

A night watchman and/or Security Guard was found murdered at the establishment he was stationed, the Unidad Deportiva Tijuana  on Calle Via Rapida Poniente, Colonia 20 de Noviembre. The man, named Señor Cruz, 54,  showed signs of aggression and torture and died of severe wounds to his head delivered by blows. Señor Cruz was apparently asleep at the time of the arrival of his attackers.

A calcinated human body was found dumped on Calle Jose Maria Morelos in Ejido Chilpancingo. No information available on the identity of the person or witnesses.

Four men escaped on foot in the Colonia El Florida 1 Parque Industrial; a man was found murdered by bullets to the head on Calle Matanucos and another victim was found still alive but with several bullet wounds and thus was taken to the General Hospital.

Colonia Urbivilla del Prado 2: A dead male was found in the middle of a street with several bullet wounds to his body, apparently dumped there, while the perpetrators of his murder fled in a Dodge vehicle.

One identified victim, Jorge Reyes Aguilar, 41 years old , was assassinated by gunshots in different parts of his body. In this case neighbors made a 911 call to Authorities when they heard the sound of gunfire across the street. He was found in a second floor apartment.

A few more wounded were found at various locations, transferred via the Red Cross to the General Hospital and all attackers sighted by any and all witnesses reported seeing them flee in vehicles down dark streets.

In the first 14 days of this year, the death toll has reached the number of 77 dead. Among the latest cases reported during the night of Saturday and early Sunday, there were up to four violent deaths in different parts of the city....MORE
The story, or at least last year's story, is even getting coverage in the South China Morning Post:
January 15, 2018

Over on the Golfo de Mexico side of the country Borderland Beat has:
Sunday, January 14, 2018
Saturday, January 13

And in the interior:

"If you think your smartphone is addictive, you ain’t seen nothing yet."

From Hacker Noon:

"The Attention Economy is the Addiction Economy: A Call for Emerging Tech for Good"
Hi, I’m Cris Beasley. I host a podcast about emerging tech, founded AI startup and ran product management at Mozilla for federated authentication. I’ve worked with data scientists, cryptographers, privacy and security engineers for fifteen years to build technology that’s more humane.

We are not brains in a jar. With beeps and vibrations constantly notifying of us on what we’re missing out on, we’ve become the most anxious and medicated cohort in modern history. Recent scientific breakthroughs are putting technology even closer to the skin, adding the potential to make it far more addictive. The time is now to understand how to create technology which enhances our humanity instead of enslaving us to it.

Tristan Harris, former product ethicist and design philosopher at Google, explains how Facebook, YouTube, Snapchat and Instagram intentionally hijack our minds and manipulate us to maximize the amount of time we spend on their app. We all feel the death by a thousand cuts of push notifications, emails and infinitely scrolling feeds, but what we seem to forget is how deep the contrast is between today and the world before smartphones.

It is not an exaggeration to say the attention economy is killing our children, or rather more accurately — that our children are killing themselves. Since 2009, the rate of teen girls committing suicide has doubled. This increase is causally linked to the number of hours spent looking at screens, especially social media.
Jean Twenge: iGen: Why Today’s Super-Connected Kids Are Growing Up Less Rebellious, More Tolerant, Less Happy — and Completely Unprepared for Adulthood — and What That Means for the Rest of Us
I’m not writing this to bum you out. I am here to take action on the potential abuses of the next wave of technology. Consumer hardware has already shipped for VR, AR, and biosensors that measure markers of the stress, activity, health and emotional state of a human.

Code for Science
This time around we must bring more minds and perspectives to the table in deciding what our technology to bring into the world. We have foundational research to do to even find out what enhances well-being and which ones do harm. We don’t even know this yet.

To that end, I’m exploring a project tentatively named Hack Reality to connect volunteer software developers with neuroscientists, game designers, psychologists for the shared purpose of building emerging tech which isn’t addictive.

When we find a good practice, we also patent it and put it into the commons for academic and non-profit uses. Licensing the patent to large companies could be a sustainable long-term revenue stream to grow the effort. When we find a particularly dangerous practice, we defensively patent it to keep it out of hands which would do harm....
"If you think your smartphone is addictive, you ain’t seen nothing yet."

"CDC postpones nuclear disaster response briefing"

We're all going to die.

From The Hill:

The Centers for Disease Control and Prevention (CDC) has postponed a briefing on how to plan and prepare for nuclear disaster.

The briefing, originally scheduled for Jan. 16, has now been replaced on CDC’s website with an event focused on public health responses to severe influenza. CNN first reported that the nuclear briefing had been postponed.

The planned event attracted attention early this month because it came the same week that President Trump boasted on Twitter that his nuclear button is “much bigger and more powerful” than that of North Korean Leader Kim Jong Un.

Kim had said during an annual address, “The entire United States is within range of our nuclear weapons, a nuclear button is always on my desk,” provoking the response from the president.
The events are part of the CDC’s “Grand Rounds” public health lectures, a monthly series that spotlights major public health issues.

“While a nuclear detonation is unlikely, it would have devastating results and there would be limited time to take critical protection steps," the CDC said in an advisory earlier this month announcing the event on nuclear disaster....MORE

Although not contra the "We're all gonna die" meme, Aubrey de Grey wants to put it off as long as possible:
Why This Aging Expert Thinks First 1,000-Year-Old Person is Already Alive

"Can Chinese AI Chip Makers Compete with Nvidia?" (NVDA)

Not yet.

However...the fact China not only built the world's fastest supercomputer but did it with chips they designed and manufactured themselves, see 2016's "Milestone: China Builds The (NEW) World's Fastest Supercomuter Using Only Chinese Components (and other news) INTC; NVDA; IBM" combined with our first hit of the three cities named in: November 21, 2016 "Artificial Intelligence: What Could Derail NVIDIA? A Lab in Shenzhen; A Basement in Moscow; An Office in Bristol (NVDA)", albeit a year later:

"Sequoia Backs Graphcore as the Future of Artificial Intelligence Processors" (NVDA; INTC)
November 13, 2017
BRISTOL, England, Nov. 13, 2017 — Graphcore has today announced a $50 million Series C funding round by Sequoia Capital as the machine intelligence company prepares to ship its first Intelligence Processing Unit (IPU) products to early access customers at the start of 2018....
makes one think the lab in Shenzhen idea is not as far out as it had been.

From Nanalyze, January 11:
There is a new arms race, but we’re not talking thermonuclear war—unless we give machines the launch codes. Artificial intelligence is one of the key technologies that we cover, and it’s been a wild ride the last few years. Industries from healthcare to recruitment have embraced AI to gain efficiencies and a competitive edge. Heck, even Coca Cola is giving you Coke with AI. While the software can be sexy, it’s the hardware, or computing power, which has made many of the advancements in AI possible. One of the companies leading the charge is Nvidia (NASDAQ:NVDA), which has become the gold standard for big computing applications ranging from gaming to supercomputers to neural networks. More than a few AI chip startups have emerged in the last year or two, but the real competition will likely come from established players like AMD or Google. And then there’s China.

Most companies would want to be Nvidia, whose stock gained more than 100 percent in the last year.
We recently told you about all the ways China is Kicking America’s Ass in Tech. We didn’t mention AI because China isn’t there. Yet. However, the Chinese government has plans to reach parity with the United States in AI as early as 2020. It’s putting up the money to do it, starting with a $2 billion AI business park that will be home to 400 enterprises. The country hopes to generate about $60 billion from AI technology by 2025.
Credit: 2017 China-US AI Venture Capital State and Trends Research Report
Despite the official line, Chinese companies are still going with Nvidia, which signed a deal last year to provide its new Volta GPU chips into data centers run by three of China’s biggest tech companies—Alibaba, Baidu and Tencent. It’s little wonder that Nvidia’s stock gained more than 100 percent last year and is off to a scorching start in 2018. Wired reported that Nvidia is in the Chinese government’s crosshairs, urging its industry to develop a chip that is 20 times more powerful and energy efficient than Nvidia’s M40 chip used for artificial neural networks.

A Cambrian Explosion
That goal landed Beijing-based Cambricon Technologies $100 million in funding last August. Alibaba and Lenovo participated in the Series A, which was led by the Chinese government’s largest state-owned investment holding company. That investment propelled Cambricon, founded only in 2016, into the Unicorn Club of companies valued at $1 billion or more. Cambricon hopes to put its AI hardware into one billion smart devices and corner as much as 30 percent of China AI chip market in three years, China Money Market reported. The company recently appeared on CB Insights AI 100 startups list.

Last year, the company released a ton of new products, including three AI processors that can be used in all sorts of applications, from computer vision to autonomous driving to natural language generation. Cambricon also produced a couple of high performance machine learning chips for servers, one market where China lags behind despite being home to more supercomputers than the United States (many of which sport Nvidia hardware). That’s not surprising, as AI Chinese startups like Cambricon have been mainly focused on chips for mobile devices and wearables. In 2016, for example, it made $15 million in licensing fees for its Cambricon-1A chip from smartphone manufacturers and wearable device makers.

A Really, Really Smart Phone
In fact, it makes sense that much of the Chinese AI chip market has been focused on mobile applications, given the country’s emphasis on mobile technology, from social media and e-commerce on WeChat to eSports gaming. Case in point: Semiconductor manufacturer HiSilicon, owned by Chinese telecommunications giant Huawei Technologies, released a wicked fast Kirin 970 processor that features a traditional CPU, a Nvidia-like GPU and an NPU, for neural processing unit, which handles the AI workload. The NPU particularly excels at image recognition, processing a reported 2,000 images per minute. Here how it compares to less-smart smart phones:...MUCH MORE
One thing not mentioned in the Nanalyze report that is critical to understanding Chinese R&D is the importance of the People's Liberation Army (Navy) and the advantage the closed loop of academia, end-user and PLA contracted-and-government-owned companies conveys:

Military AI: China, Russia and the U.S. are Running Neck-and-Neck in an Arms Race
China might be ahead, tough to tell but that's the way to bet.... 
So, we'll try to stay on top of developments and let you know when we see something out oif Shenzhen.

Or Moscow.

U.S. and German Interest Rates After the Euro Rally

He seems to be having some formatting problems on the blog today so, much as we try to avoid copying and pasting entire pieces this should be an easier read than sending you over with a jump.
Here's  Macro Man's homepage.

From Macro Man:

Keeping It Simple...Bund vs. UST Rates after the EUR rally 
As the US continues to slog through a winter marked by one sub-zero reading after another, let’s do some KISS trading--keep it simple, stupid.

Last week the short USD theme went from sideshow to the main stage of the market’s three ring circus. As noted here, the BoJ woke up to the possibility that the economy is perking up quite nicely, and higher global interest rates caused the YCC flows to dry up, leading to news of a “stealth taper”. Well, if you’re strategy is to buy bonds at a certain yield, and nobody shows up to sell them there, you don’t have much to do! So while I wouldn’t put much stock in the BoJ’s pseudo-announcement that they will be buying fewer long end bonds, nor the flatlining balance sheet--the turn in sentiment and momentum is significant. JPY has finally joined the party, and I think we’ll see correlations to G7 FX increase to historic norms until Kuroda and Co. give us a signal about where the asset-purchase scheme is going next. KISS: stay short USD/JPY, scandies and selected EMFX until further notice…

And rates….the UST selloff stalled out last week, despite some very good retail sales and CPI data out on Friday. Maybe the higher rates theme is running out of steam? I think that’s a strong possibility--as I noted last week, I think there is more downside than upside for US economic data, even if that doesn’t mean a reversal in Spoos or UST yields. Let's stick with the theme above--a resurgence in economic growth, investment and outright optimism in countries where the word of the decade has been “malaise”.

Sure, euro-area inflation came out week again, but you can’t ignore this jump in PMI. 

And look who shows up at the top of the table: France and three of the four PIGS! This resurgence is broad-based, and dragging along countries with significant excess capacity.
The ECB is starting to make some rumblings about how they can retool their asset purchase program. There are a number of things they can do--but easing up on buying duration seems like a good place to start. EUR-strength will be a consideration--but if this move doesn’t continue towards 1.25 I don’t think it will be a factor.

There still seems like too much complacency in the rates market. You can see in this pic how the correlation to 10y UST has been very strong lately--interesting to note that the correlation early in the year was pretty weak, but is 65% over the past three months.

Yet we saw a big move higher in bund yields late last week driven by the minutes from the last ECB meeting. bunds underperformed UST...which went hand in hand with the strengthening EUR. Given the fundamentals and 10y bund yields still trading inside the highs of last summer, I think yields can continue to move higher from here. I’d be careful with the bund/UST spread since there is a beta component there (if you trade dv-neutral, your long ust/short bund trade can get barbequed on a global move higher in rates) but what I see in the chart here is a spread too cheap given the underlying fundamentals: there is still value in the market pricing in some combination of higher European rates and monetary tightening.
Then there are articles like this one, which highlights GMO’s Jeremy Grantham abandoning his value-based principles and thinking about just how far this “melt-up” rally in stocks can continue.

I won’t go into any detail here other than to say this market won’t die of over-valuation. Something will break it. We just don’t know when or why.

Motherboard: "Facebook Is Deprioritizing Our Stories. Good." (FB)

From Motherboard, Jan. 11:
A society that relies on a centralized portal to get its news may very well be doomed.

Thursday, Facebook CEO Mark Zuckerberg told the New York Times that the social network will revamp its news feed to emphasize “meaningful interaction” between friends and family. As a result, the news feed will significantly decrease the number of posts you’ll see from news outlets such as Motherboard.


This move has been long-rumored, and has been looked at by many in the industry as an incoming algorithmic apocalypse that will have far-reaching impacts on the bottom lines and ultimate survival of outlets whose readers find them through Facebook. But my hope is that we’ll come out of this with a healthier news media.

For the last few years, the articles much of the news industry publishes—and even the formats they publish in—have been dictated by the whims of a tech giant that seems to have more interest in experimenting with its algorithm than serving its own users, let alone the readers of third party media companies. As advertisers left traditional media companies for the promise of targeted ads on Facebook (and Google), news outlets were forced to align themselves closely with their biggest existential threat.

Entire business models have risen and fallen with Facebook’s tweaks to its opaque algorithm: First, companies chased Facebook virality, regardless of the content of their articles; then, they made videos specifically to chase engagement on Facebook’s newsfeed; then, Facebook prioritized live videos, which, in one case led to a Washington Post journalist literally eating his newspaper article on camera (later, the company would pay media companies to make these videos, a program it quickly dropped). Serious reporting and journalism became “content” subject to A/B testing and paid promotion. Small changes to the news feed would make the views on our articles rise and fall; analytics experts in the industry would ask other outlets: “Is everyone getting screwed by Facebook, or just us?”
In the end, Facebook didn’t care about media companies.....MORE

"A Field Guide to Deception"

From MIT's Technology Review, Jan. 9:
A crowdsourced psychology experiment reveals that when it comes to dishonesty, there are three kinds of people.

Everybody is familiar with the sense of shock and betrayal at having been lied to. At the same time, people are familiar with the temptation to lie to benefit themselves. Many will have done so.

And that raises an interesting question—given the chance to lie for their own benefit, which people will take the opportunity? What percentage always tell the truth regardless of how much is at stake?  And what percentage always lie to maximize their gain?

Psychologists also want to know whether these behaviors are intuitive. Are we hard-wired to lie or tell the truth? The answer has important implications for our understanding of human nature and our efforts to encourage or discourage certain behaviors in society.

Today we get some insight into these questions thanks to the work of Hélène Barcelo at the Mathematical Sciences Research Institute in Berkeley and Valerio Capraro at the Middlesex University Business School in London. They have devised a clever way to test our inherent veracity and say their data suggest that humans fall into three categories: the good, the bad, and the angry.
At the simplest level, deciding whether to lie is a binary problem—either we tell the truth or we don’t. Psychologists have devised numerous experiments that explore this scenario.

But in the real world, the decision is usually more complex. It involves a calculation to determine the benefit we can gain from lying but also the punishment it might engender, and whether the potential benefit outweighs the potential loss.

Psychologists have devised ways to test this, too, by offering people lots of different ways to lie so that they must calculate which one benefits them the most.

But no experiment tests all these factors at the same time. Until now.  Barcelo and Capraro have devised an ingenious experiment that tempts people to lie and also gives them the opportunity lie in different ways that change the benefit to them.

The experiment is an online test for workers on Amazon’s Mechanical Turk crowdsourcing website, available to many different people. “By looking at the distribution of choices, we can divide people in types according to the strategy they implement,” say Barcelo and Capraro....MUCH MORE

Timeline: The First Decade Of Alternative Lending

From CB Insights, Jan. 4:
As alternative lending matures into what some in the industry are calling "alternative lending 2.0," we look at the sector's evolution since 2005. 

UK-based lender Zopa pioneered peer-to-peer (P2P) lending in 2005, quickly followed by US contenders Prosper Marketplace and LendingClub in 2006. These companies allowed borrowers to cut out financial institutions, while promising transparency, efficiency, and lower costs.

By December 2014, venture-backed alternative lenders OnDeck Capital and Lending Club had gone public on the NYSE. By 2015, equity funding to the alternative lending industry had hit an all-time high, with private companies including SoFi, Avant, and Kabbage receiving a collective $6.3B from investors.

In the following two years, however, momentum in the space slowed: 2017 saw the highest number of acquisitions, mergers, and shutdowns in the sector to date, while a formal crackdown in China aimed to reduce the thousands of players operating in the country’s sector.

So where does that leave the state of alternative lending today?

In this post, we analyze how regulation, consolidation, and exits have impacted the alternative lending sector — and what to expect moving forward.
As the relatively unregulated alternative lending industry continues to grow in loan volume, regulators are starting to pay attention. Below, we look at of some of the major regulatory moves to date across major markets.

United States
The US has taken a largely reactive regulatory approach to alternative lending, attempting to apply existing rules and regulations to the emerging field. 

Rather than a single rule-making body tasked with monitoring and regulating the alternative lending space, regulation comes through a collection of federal agencies. 

Consumer Regulations
The Consumer Financial Protection Bureau (CFPB) is the federal agency in charge of regulation for all consumer-based financial products.

In October 2017, the CFPB finalized a rule aimed at payday lenders, requiring them to determine upfront whether consumers can afford to repay loans via credit checks on CFPB registered systems. This rule covered all loans that require consumers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments.

While these restrictions are unlikely to affect any major alternative lending company operating now, they prevent startups from creating payday lending companies.

Fintech Innovation
Congressman Patrick McHenry proposed sandbox regulation in September 2016 as part of a new bill, the Financial Services Innovation Act of 2016 (H.R. 6118.), which still remains in the House.
If passed, fintech companies would be required to demonstrate to regulatory agencies that their innovations serve the public interest, improve access to financial products and services, and do not impose undue risk to consumers or the financial system....MUCH MORE

U.S. Shale Can’t Offset Record-Low Oil Discoveries

Yes...but tonight, we dance!
From OilPrice:
The U.S. shale resurgence has been one of the main themes in oil markets this year, while OPEC’s production cut deal to deplete the oil overhang and boost oil prices has been the other key development in 2017.

U.S. shale production is expected to grow over the next few years as the companies that survived the worst of the downturn showed resilience in the face of the lower-for-longer oil prices. But three years of low oil prices also led to the global oil industry slashing investments in conventional oil exploration, and deferring or revisiting development plans.

This has led to the lowest ever volumes of oil discoveries in 2017, Rystad Energy said last week. While the low level of discoveries is not an immediate threat to global oil supply, it could become such ten years down the road, according to Rystad Energy.

In ten years’ time, U.S. shale production may have peaked, at least according to OPEC that sees shale peaking after 2025, although the cartel has conceded that U.S. tight oil has defied previous forecasts and has increased production more than initially expected and will continue to do so in the short term.

This year has seen less than 7 billion barrels of oil equivalent discovered globally, a volume as low as last seen in the 1940s, Rystad Energy has estimated. What worries analysts the most is the fact that this year the reserve replacement ratio—the amount of discovered resources relative to the amount of production—was a mere 11 percent, compared to 50 percent in 2012, Sonia Mladá Passos, Senior Analyst at Rystad Energy, said....MUCH MORE

ICYMI: Lombard Odier was the investor Behind a Blockchain Catastrophe Bond Trade

This sounds more like a proof-of-concept that secondary trades can be effected rather than something that is going to sweep the market off its feet but more power to 'em if it makes sense.

From Artemis, January 8, 2018 :
Asset manager Lombard Odier was one of the investors that participated in the first blockchain based secondary trade of catastrophe bond notes, as the firm’s ILS investment team purchased a chunk of the near $15 million Dom Re IC Limited 2017 private cat bond.

The Insurance-Linked Strategies (ILS) team at Lombard Odier Investment Managers, the asset management arm of the Lombard Odier Group, said that its purchase of catastrophe bond notes using a blockchain platform is believed to be among the first secondary market transactions completed using a blockchain.

The Lombard Odier ILS team purchased the cat bond securities for the LO Insurance Linked Opportunities Fund through a delivery-versus-payment (DVP) settlement from Solidum Partners AG, the Swiss based catastrophe bond and ILS investment fund manager.

Solidum had issued the Dom Re IC private cat bonds in August 2017 using its own private blockchain (ILSBlockchain) that was made available to participants in the transaction issuance on an invitation-only basis. Solidum said that the Dom re private cat bond issuance was the first to be settled using a blockchain.

Simon Vuille, Portfolio Manager, ILS team, Lombard Odier IM, commented, “Using blockchain markedly lowered the transaction costs relative to other DVP settlement methods where costs are prohibitive for transactions of this size....MORE
Regarding "proof-of-concept", the second (bolded) link says the original (primary) package:
...was issued using Solidum Partners Guernsey-domiciled transformer vehicle Solidum Re (Guernsey) ICC Limited, with one cell named Dom Re IC Limited hosting the underlying reinsurance contract and acting as the issuer for the $14.8 million of notes.

It’s the first example of a catastrophe bond securitisation of insurance risk that has been digitised onto a private blockchain to facilitate the process of settlement. In fact this is believed to be the first securities settlement process using the blockchain that isn’t just a proof-of-concept.
The private blockchain, named “ILSBlockchain” by Solidum, has effectively replaced the role of a traditional settlement system, such as a Euroclear or DTC, providing a peer-to-peer way to manage settlement of the note issuance.

The transaction saw Dom Re IC Limited issue $14.8 million of notes, due 2023, representing a securitisation of a reinsurance contract, to 6 investors, which are all ILS funds....
The bolded link goes on to state:
...Solidum said that secondary traders [the Lombard Odier transaction] can become participants on the ILSBlockchain in order to acquire notes and broker-dealers could also sign onto it, in order to facilitate trades between participants.

So it’s not quite the same as “a blockchain cat bond” might be seen, as this is in reality a cat bond that has been reflected in the blockchain to enable settlement to be effected in a more transparent, lower cost and more efficient manner....
Although the size wasn't mentioned if it was in the $2 - 3 million range, it was indeed small but interesting nonetheless.

Here's the Lombard Odier press release on the deal.

Investment & Pensions Europe also picked up the story.

Sunday, January 14, 2018

"Dean of Wall Street Lawyers Sees Sweeping Bitcoin Regulation Coming"

From Bloomberg, Jan. 11:
H. Rodgin Cohen, the dean of Wall Street lawyers, says it’s just a matter of time until U.S. regulators launch a sweeping response to bitcoin.

As global banks increasingly help investors bet on virtual currencies, federal authorities will develop a joint strategy for policing the burgeoning market, Cohen predicted in an interview. It would make sense for the Financial Stability Oversight Council -- a group of regulators led by the Treasury Department -- to take the lead, he said.

“Cryptocurrencies create so many issues that no one agency can be legitimately expected to deal with them, and FSOC would be an ideal place to bring the agencies together,” said Cohen, 73. “The objective is to make sure there’s a focused regulatory approach and understanding of the positives and negatives of cryptocurrencies.”

Cohen, who’s played a key role in responding several major banking crises, advises many of the biggest firms in part because of his experience predicting Washington’s actions.....MORE
We've already mentioned one of the cases the SEC will be relying on for regs on offerings, the damn beavers, (dam beavers?) in September's "What Is A Security? The SEC and ICO's, Crypto, the Weaver's Beaver Case and Rule 10B-5".
I suppose I should put something together on Howey pretty soon as well.

"CES 2018: Most Absurd Technologies To Come"

From Futurism:

CES: Consumer Excess Show
Each year tech nerds from around the globe converge on Sin City for the International Consumer Electronics Show (CES) to get first looks at the near future of gizmos. Walking the floor of the expo, you’re surrounded by some truly incredible tech that will certainly enhance our lives. Conversely, you can also stumble onto some earnest tech that ranges from unnecessary to downright terrifying. Here’s a collection of some of the most absurd technologies from CES 2018.

Robot Strippers
CES isn’t just a straight-laced trade show. There are tons of corporate-sponsored parties and after-hours events that allow attendees to partake in some of the more leisure-focused offerings of Las Vegas. Most of these events entice party-goers with promises of access to big names in tech or with free food and drink. Others might go a little overboard with their PR stunts. This year, that honor (or shame) is bestowed upon Sapphire Gentlemen’s Club and their creepy Orwellian robot strippers.
Unfortunately for everyone involved, these bots are less Pris and Zhora from Blade Runner and more like a scintillating pair of gyrating fax machines. The website of Sapphire Las Vegas invited patrons to “Come watch sparks fly as the Robo Twins shake their hardware and leave everyone wondering if those double Ds are real or made in ‘Silicone’ Valley.” How charming.

However, it seems that the organizers of this spectacle completely missed the point of these particular robots. The artist who built the bots, Giles Walker, said that he was influenced by the increasing numbers of CCTV cameras which made him want to explore voyeurism and turn that on its head by making the cameras themselves “sexy.”

Weight-Loss Brain Zapper
Weight loss is a multi-billion dollar industry filled with fads and endless gimmicks promising to not only help you lose weight but to do it with the least amount of effort from you. Usually, when a weight loss product sounds too good to be true, it likely is. This brings us to the second of CES’s absurd technologies, the allegedly headache-inducing headset from Modius Health.

The plastic headset features two dangling electrodes that you attach to pads that you stick behind your ears. The headset is said to send electrical signals to your hypothalamus, the hypothesis being that stimulating the hypothalamus makes you want to eat less.

The company’s website has a “science” section where it touts the results of a study. However, the study only included 15 people over the course of 16 weeks. Neuroscientist, Sandra Aamodt, told The Verge, “I can say with confidence that they haven’t tested it carefully enough to prove that it does work. If someone approached the FDA for approval of a weight-loss drug based on evidence like this, they’d be laughed out of the building.”...MORE

NOAA: "January 2018 La Niña update: summiting the peak"

From the National Oceanic and Atmospheric Administration, January 11:
Now that we are smack dab in the middle of winter in the Northern Hemisphere, the time of year when ENSO tends to have its more reliable impacts in the United States, it’s go-time for paying attention to what’s going on in the Pacific. And the latest CPC/IRI ENSO forecast says…[drum roll please]…La Niña is here to stay for this winter with a 85-95% probability before transitioning to ENSO-Neutral conditions during the spring.

Sidenote: Also, who is this person writing this post who is definitely not Emily? I’m Tom and I’m filling in for Emily this month (see footnote for Emily’s whereabouts). And just like a normal substitute teacher, don’t be surprised if I end this article early and just make you watch a video. So buckle up!
December 2017 sea surface temperature departure from the 1981-2010 average. Graphic by climate.gov; data from NOAA’s Environmental Visualization Lab.
Settle down class, time to go over what’s going on in the Pacific
We are certainly in the midst of a La Niña event as sea surface temperatures across the central/equatorial Pacific continue to remain colder than average. In fact, in December the SSTs in the Niño3.4 region—the box in the Pacific Ocean where we look for La Niña or El Niño conditions—were  around 1°C cooler than average for the second consecutive month. Three-month average anomalies of 1°C mark the cutoff between weak and moderate ENSO events, putting this La Niña on the cusp of a moderate event, should the anomalies last one more month.

Of course, we can’t forget that La Niña is a coupled ocean-atmospheric system. So what is the atmosphere doing?

For the month of December, the thunderstorm activity across the equatorial Pacific looked pretty La Niña-like with reduced precipitation near the date-line and farther east while enhanced precipitation fell across the broader Maritime continent in the western Pacific Ocean.  Backing this up, the Equatorial Southern Oscillation Index, which monitors areas closely related to ENSO along the equator, measured 0.9 for December. Positive values reflect lower than average pressure in the western Pacific and higher than average pressure in the central/eastern Pacific Ocean (2).
 Departure from average of the surface and subsurface tropical Pacific sea temperature averaged over 5-day periods centered on January 3, 2018. The vertical axis is depth below the surface (meters) and the horizontal axis is longitude, from the western to eastern tropical Pacific. This cross-section is right along the equator.


Media: "If Facebook stops putting news in front of readers, will readers bother to go looking for it?"

Two from Nieman Lab.
First up the headline story:

The idea that the value of a piece of news is defined by likes and comments — that taking in information without getting into a back-and-forth with your uncle about it is somehow unworthy — is actually a profoundly ideological statement
I gave a talk at NYU’s Studio 20 last month. It was a review of the year in journalism innovation; I’ve given it at the program’s graduation each of the past four years. It’s a nice opportunity to look back over the past 12 months and see what mattered.
I headlined the first section of my talk “OUR FRIENDLY NORTHERN CALIFORNIA OVERLORDS” and went through some of the highs and lows in Facebook’s relations with the news business. The evolution from “fake news on Facebook didn’t affect anything” to “sorry, didn’t mean to be so dismissive.” The steady decline in Facebook traffic to major news sites. The “experiment” where Facebook decided to screw around with the journalism ecosystem in six countries — each with its own relatively recent history of civil war, dictatorship, or just fragile democracy — by shipping most news out of the News Feed.
The last slide of that section was just one sentence: I kinda think Facebook wishes it wasn’t in the news business.

That felt at least a little controversial at the time. People forget that the “News Feed” wasn’t originally meant to be about news, at least as editors define it. Facebook (and its sidekick Instagram) today have literally billions of people creating #content, things their friends want to see or read, for free; meanwhile, real news was just one hassle after another. Publishers complaining about money! Conservatives complaining about bias! Its own employees complaining about electing Donald Trump! Facebook had become the single largest distributor of human attention in the history of the world, and it seemed like professionally produced journalism was almost more trouble than its worth.
You started to see this in 2015, when Facebook announced it would be boosting content from friends and family over content from Facebook pages, like news organizations. In 2016, a newly proclaimed set of “News Feed Values” emphasized that “friends and family come first.” In 2017, Mark Zuckerberg spent a lot of energy talking about Facebook’s role in building communities, writing that “I want to emphasize that the vast majority of conversations on Facebook are social, not ideological. They’re friends sharing jokes and families staying in touch across cities.”...MORE


Facebook drastically changes News Feed to make it “good for people” (and bad for most publishers)
News publishers that have relied on Facebook for traffic will suffer.
Facebook is making big, immediate changes to News Feed. The company will now prioritize content from friends, family, and groups over “public content like posts from businesses, brands, and media,” CEO Mark Zuckerberg wrote in a post Thursday night. News publishers that have relied on Facebook for traffic will suffer: “Some news helps start conversations on important issues,” Zuckerberg wrote. “But too often today, watching video, reading news or getting a page update is just a passive experience.”

The change, Facebook admits, is major. Users will be given “more opportunities to interact with the people they care about,” which necessarily means less publisher content, Adam Mosseri, Facebook’s VP of News Feed, wrote in a post Thursday:
Because space in News Feed is limited, showing more posts from friends and family and updates that spark conversation means we’ll show less public content, including videos and other posts from publishers or businesses.
As we make these updates, Pages may see their reach, video watch time and referral traffic decrease. The impact will vary from Page to Page, driven by factors including the type of content they produce and how people interact with it. Pages making posts that people generally don’t react to or comment on could see the biggest decreases in distribution. Pages whose posts prompt conversations between friends will see less of an effect.
“News remains a top priority for us,” Campbell Brown, Facebook’s head of news partnerships, claimed in an email to large publishers, adding, “News stories shared between friends will not be impacted.”...MORE
 Personally, I think the arguments in last Monday's ""Facebook Can’t Be Fixed" (FB)" make the most sense.

Mr. Obama, Mr. Cameron, About that Libya Thing

First up some background from Al-Monitor, January 5:

Hifter set to cast wide influence in potential Libyan elections
In a surprising move, Gen. Khalifa Hifter, Libya’s eastern military strongman, announced his acceptance of elections in Libya as a way out of the political deadlock in the war-ravaged country. Spokesman Brig. Gen. Ahmed al-Mesmari announced the decision in a news conference Dec. 27.
However, Mesmari said his boss agreed to the elections only if they are organized under “United Nations and Arab League supervision,” while calling on the country’s parliament to pass a new electoral law within “reasonable time.” Both conditions are likely to be met since the United Nations is in charge of the whole political process in the country and the current election law is likely to be amended because different political groups and a large number of the general public reject it given its unclarity and its favoring of independent contestants over political parties. The current election law also does not exempt holders of dual nationality citizens from running in elections, which directly violates Libya’s current citizenship law.

This sudden but significant development raises the following question: What made Hifter change his mind and how important it is for the UN-proposed elections, due sometime in the spring, and for the country on the eve of the seventh anniversary in February of its so-called revolution, which has caused chaos in the North African state since 2011?

But let’s not forget that this is not the first time the commander of the largest military force in the country committed himself to elections. In a meeting hosted by French President Emmanuel Macron in Paris on July 26, 2017, Hifter made a similar commitment. But no elections took place to see if the military man would honor what he agreed to. Furthermore, Hifter had rejected the elections and announced Dec. 17 the end of the Libyan Political Agreement (LPA) signed on Dec. 17, 2015. So why should Hifter be trusted this time?

It appears that Hifter’s biggest fear was being isolated by the world community and regional powers, including his main backers such as Egypt, if he refused the proposed elections. The UN Security Council reiterated in a Dec. 14 statement its support to the political road map proposed by UN special envoy Ghassan Salame, including holding elections to try to stabilize Libya after years of lawlessness. Egypt and other countries repeatedly expressed their support for the LPA as the only way out of the chaos in neighboring Libya.

Hifter is indeed popular, at least in eastern Libya. However, it is difficult to express that popularity in numbers since there is no professional opinion polls in the country. But it is worth noting that during the summer of 2017, a public campaign launched by activists supporting him called on the Tobruk-based parliament to mandate him, without elections, to lead the country for the coming four years. Despite all of this, it is very doubtful that Hifter will run in the elections at this time, given the prevailing lack of trust and his own fears....MORE

And from the Libya Observer some Turkish mischief making:

Libya demands explanations from Turkey and Greece over explosives-laden ship
The Presidential Council has established contacts with Turkey and Greece to verify the news of the seizure of a ship in Greece carrying containers loaded with explosives after leaving a Turkish port.
The Libyan Foreign Ministry said in a statement on Friday that it had demanded Greek authorities to inform it of the latest results regarding the investigations, stressing that it is following the case with the relevant authorities in Greece and Turkey through diplomatic channels.

The Ministry expressed deep alarm and condemnation in what they described as “any attempt to harm Libya in any way”, stressing that the government is committed to international laws and norms and relevant United Nations resolutions....MORE
So I guess the question is: What on earth were the Western Powers thinking when they destabilized Libya back in 2011?
And does "You break it, you own it" mean what I think it means? That there's going to be a nasty, nasty war and the West will have to get involved?

Regarding the headline, President Obama has gone on record: "Obama: Aftermath of Gaddafi overthrow, 'worst mistake as president'"
I'm not sure about Mr. Cameron but he was also in it up to his eyeballs.

"Welcome to the post-digital world"

From Prospect Magazine, December 11, 2017:

Quantum computers will take us beyond the binary age, into a perplexing new era. And they're already here
Each day, humans create 2.5 quintillion bytes of data. A byte is the amount of data needed by a computer to encode a single letter. A quintillion is one followed by 18 zeros. We float on an ocean of data.

You’d arrive at an even bigger number if you put it in terms of “bits”, the ultimate basic building block out of which every wonder of the digital age is built. A bit is simply a one or a zero or, equivalently, a single switch inside an electronic processor that must be either on or off. Put eight in a row, and you’ve got enough combinations to label and store every character on your keyboard—there are thus eight bits to the byte.

These days your newspapers, your tax records, your shopping list and perhaps your love life are nothing more than a long series of  “ons” and “offs” generated by the digital processors that lurk in your phone, your car, or your TV. The correct sequence of ones and zeros is all that computers need in order to control the traffic lights at the end of your street, run a nuclear power station, or find you a date for next Friday night. From one perspective, they are simply doing—on a vast scale—the tallying and reckoning we have always done on our fingers: on our digits.

The “digital age” is a colossal achievement of human ingenuity. But this world of ones and zeros is not an end state. Humankind has passed through other ages before: bronze, iron, the era of steam and then of the telegraph, each of which constituted a revolution, before being brought to a close by some further advance of human ingenuity. And that raises a question—if our present digital age will pass just like all the rest, what might come after it?

We are starting to see the answer to that question, and it looks as though the successor to the age of the digital computer will be a startlingly new kind of device—the quantum computer.

In 1981, Richard Feynman, the Nobel prize-winning physicist, presented a paper at the California Institute of Technology with the title “Simulating Physics with Computers.” “What kind of computer are we going to use to simulate physics?” Feynman asked, and he chased that first question with a second: “what kind of physics are we going to imitate?” The answer to that came clear as a bell. “Nature isn’t classical, dammit,” said Feynman, “and if you want to make a simulation of nature, you’d better make it quantum mechanical, and by golly it’s a wonderful problem because it doesn’t look so easy.”

Feynman had it dead right. What he was proposing was not easy. Instead of a computer that ran according to the laws of classical physics—such as all conventional computers—he was proposing a computer that ran according to the most advanced picture of the physical world known to science: quantum mechanics. Feynman was putting forward the idea of a computer that ran according to a completely different set of scientific principles. It was a stunning suggestion. The laws of quantum mechanics relate to the behaviour of subatomic particles and packets of energy. The idea that quantum mechanical states could be harnessed and somehow used for computation was deeply provocative.

A quantum computer would work in a completely different way to the classical kind. Instead of “bits”, it would use “qubits,” that is, quantum bits. Feynman proposed that a machine of this sort would allow scientists to model quantum states and gain new insights into the behaviour of atoms and particles. But there were possibilities beyond pure science. Quantum computers would be able to carry out operations at many times the speed of traditional computers. Not only that, they might be able to do things that a conventional computer could not do at all.

All of which would have struck Feynman’s 1981 audience as pretty far-out. Even now the idea of a quantum computer has a tang of science fiction about it. Which it should not, because quantum systems already exist. You can go online and use one right now. In May 2016, IBM debuted its “Quantum Experience,” which allows users to access a quantum system through a cloud application and run algorithms and experiments. In the summer of 2017, IBM upgraded the processor behind the application and in November announced plans for an even more powerful device.

BM is not alone. Google is currently experimenting with an even more powerful quantum chip, and has plans to upgrade it further. In April 2017, a number of Google’s senior researchers released a paper called “Characterising Quantum Supremacy in Near-Term Devices.” In that abstruse-sounding title, the phrase “quantum supremacy” is the most significant. It denotes the moment when a quantum computer can perform operations that a classical computer cannot. The paper’s authors, who include Hartmut Neven, Engineering Director at Google and the founder and manager of its Quantum Artificial Intelligence Lab, wrote in their paper that “quantum supremacy can be achieved in the near-term.”
The potential of quantum computer technology is enormous and billions of dollars are being poured into research by companies, including not only Google and IBM but also Facebook and Microsoft, by universities in the US, UK, Australia and elsewhere, and by the Chinese government (which has invested heavily in developing quantum communication systems.) This brings with it a huge freight of complex challenges and questions and the most central question of all, aside from how you make one, is what a quantum computer would actually do. The answers to that are not straightforward, and involve negotiating a dense mash of computer science, physics, mathematics and philosophy.
Scott Aaronson is a Professor of Computer Science at the University of Texas at Austin. He is a leading authority on quantum computing and I spoke to him extensively in researching this article. “If you are interested in what is the ultimate limits of what we could compute or what we could know,” he said, “then in some sense you need to know something about quantum computing. Because this is the most powerful kind of computation based on the understood laws of physics.”
Humans have always looked at the heavens. The first Babylonian star catalogues date from 1,200 BC. The Egyptians used astronomy to calculate the timing of the flooding of the Nile and it was the Greek thinker, Aristarchus of Samos, who in the third century BC first suggested that the sun was at the centre of the solar system. Over a thousand years passed before that idea entered western science, when Copernicus made his pronouncements on the heliocentric model. In the seventeenth century, Isaac Newton set out the law of universal gravitation, an immense moment of intellectual progress which gave such a powerful picture of how the universe behaved that it remained broadly unchanged for nearly two hundred years....MUCH MORE

Saturday, January 13, 2018

Hawaii: Mobile Alert Saying a Ballistic Missile was Headed for the State Just a False Alarm

Is Kim Jong-un prank calling the Honolulu police or something?

From The Hill:

Hawaii officials say 'false alarm' on alert about inbound ballistic missile
Hawaii officials said Saturday that a mobile alert saying a ballistic missile was headed for the state was a "false alarm" after people received the alert detailing an imminent threat.
Sen. Tulsi Gabbard (D-Hawaii) issued a tweet saying that "there is no incoming missile to Hawaii," saying she had confirmed with officials the alert was a false alarm....MORE
And on other Twitter feeds:

How Did Blackbeard Pass the Time When Not Pirating?

From The Guardian:

Fragments of book recovered from wreck of Blackbeard's ship 
Remains of notorious pirate’s ship in North Carolina yield evidence that it was carrying a copy of Edward Cooke’s Voyage to the South Sea

 Pirate treasure … a contemporary image of Blackbeard. Photograph: Hulton Archive/Getty Images 
The notorious 18th-century pirate Blackbeard may have whiled away the hours between raids by curling up with a good book, according to a new discovery.

Archaeological conservators in North Carolina working on the wreckage of Blackbeard’s flagship, the Queen Anne’s Revenge, found 16 tiny fragments of paper “in a mess of wet sludge” that had been in the chamber of a cannon. They worked for months to conserve the fragments, the largest of which was the size of a US quarter, discovering as they worked that a few words were still visible on some of the fragments.

After months of work, the researchers have determined that the fragments came from the 1712 book by Captain Edward Cooke, A Voyage to the South Sea, and Round the World, Perform’d in the Years 1708, 1709, 1710 and 1711.....MUCH MORE

"Citadel’s Ken Griffin revealed as buyer of Chicago’s priciest home"

There are no hundred-million-dollar residences in Chicago.

From The Real Deal:
Daytona Beach-born hedge fund manager Ken Griffin bought the top four floors of JDL Development’s unfinished Chicago condo tower, No. 9 Walton, for $58.5 million.

The deal, which took place in November 2017, is the most expensive home sale ever made in the Chicago area — and, according to Crain’s Chicago, the bill could climb even higher to around $80 million as the expansive unit still needs to be finished. (The previous record-holding sale was a four-acre estate in Glencoe which sold for $19.5 million in 2014.)

Griffin’s condo, one of a handful of the building’s 71 units that was purchased unfinished, has 12 to 18-foot high ceilings — an element that seems to have been customized for Griffin, reports Crain’s — with outdoor areas on each floor, panoramic views and a private pool.,,,MORE

Economics is quantum

From Aeon Magazine:
David Orrel is a writer and mathematician. His research on complex systems has been featured in the Financial Times, BBC radio and New Scientist, and his writing on science and economics has been published in World Finance, Bitcoin Magazine and The New Economy, among others. His latest book is The Money Formula: Dodgy Finance, Pseudo-Science, and How Mathematicians Took Over the Markets (2017), co-written with Paul Wilmott. He lives in Toronto.
Money and brains are both quantum phenomena – so it's not surprising that economics is overdue for a quantum revolution 
'I'm not absolutely certain of my facts,’ wrote P G Wodehouse in his story ‘Jeeves and the Unbidden Guest’ (1925), ‘but I rather fancy it’s Shakespeare … who says that it’s always just when a fellow is feeling particularly braced with things in general that Fate sneaks up behind him with the bit of lead piping.’

It certainly seems to be the case in science that, just before a field is completely disrupted by a major discovery, someone has to make a statement that sums up the field’s complacency for future historians. For years in the future, people can look at it and think, they had no idea what was about to hit them (and sometimes the lead pipe is used more than once).

In 1894, this task fell to the American physicist Albert Michelson, later Nobel laureate, when he announced that ‘it seems probable that most of the grand underlying principles have been firmly established, and that further advances are to be sought chiefly in the rigorous application of these principles’. A few years later, those principles were hit by the discovery that, at the subatomic scale at least, nature moves in sudden quantum leaps and jumps.

A century on, at the 2003 Presidential Address of the American Economic Association, the job fell to the Nobel laureate, economist Robert E Lucas Jr, who told his audience: ‘My thesis in this lecture is that macroeconomics in this original sense has succeeded: its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.’ A few years later, that conclusion was shattered by the discovery that the economy had suddenly leaped off a cliff.

Lucas’s optimism was not out of place at the time. With its visions of ‘efficient markets’ and ‘rational expectations’ all firmly grounded in mechanistic equations, economics was the undisputed queen of the social sciences. But the question now is whether history will repeat itself in another sense. In physics, the quantum revolution reshaped the field. Will the financial crash lead to a similar reshaping of economics? After all, mainstream or neoclassical economics is explicitly based on the classical mechanics of the 19th century, with people seen as individual atoms, their behaviour guided by deterministic laws. Surely it is ripe for an update?

Indeed, in recent years there have been many calls for economics to reinvent itself, most noticeably from student groups such as the Post-Crash Economics Society, and Rethinking Economics. In 2017, the United Kingdom’s Economic and Social Research Council announced that it was setting up a network of experts from outside economics whose task it would be to ‘revolutionise’ the field. And there have been countless books on the topic, including my own Economyths (2010), which called for just such an intervention by non-economists.

But progress has been slow. Back in 2008, the French physicist and hedge-fund manager Jean-Philippe Bouchaud wrote the paper ‘Economics Needs a Scientific Revolution’ in the journal Nature. In late 2017, he provided an update to the Financial Times: ‘Following the financial crisis, many of us hoped that the economics profession had finally realised that their models were not representative of how the real economy works, and that their flawed methods would quickly change. That assumption was wrong.’ He concluded that: ‘If we don’t embrace new methods of modelling the economy, we will be as blind to the next crisis as we were to the last one.’

One problem is that, while there have been many demands for a revolution, the exact nature of the revolution is less clear. Critics agree that the foundations of economics are rotten, but there are different views on what should be built in its place. Most think that the field needs more diversity and should be more pluralistic, and feel that the emphasis on economic growth for its own sake needs to be reconciled both with environmental constraints, and fair distribution. Many, including Bouchaud, argue that economists need to adopt techniques from other areas such as complexity theory. There have been attempts to base the subject more on data than on theory. And, of course, the idea of rational economic man – which forms the core of traditional models – should be replaced with something a little more realistic.

But what if the problems with economics run even deeper? What if the traditional approach has hit a wall, and the field needs to be completely reinvented? What if, as with 19th-century physics, the problem comes down to ontology – our entire way of thinking and talking about the economy?
And what if the metaphorical piece of lead piping that mugged both physics and economics was in each case exactly the same thing – namely, quantum reality?
For a start: what is economics? If you ask an economist, or look in a textbook, it turns out that most follow the English economist Lionel Robbins, who wrote in 1932: ‘Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’ Or as it is often paraphrased, economics is the science of scarcity.

And if you ask, what is the point of economics – what is it trying to do? – then the typical answer is to say that economics is about optimising utility. Or as one book put it: ‘Economics is about happiness.’...