Whats interesting– and what has always been interesting– is the stuff that doesn’t work, that no one knows how to price, the frontier stuff: adding technology no one really knows how to use to find functional models for pricing assets that no one to date knows how to price (thereby making those assets more valuable), and finding ways to make markets more liquid (driving established price levels higher) in the process. The classic example of new pricing of assets is the invention of mortgaged backed security pricing technology by Solomon Brothers in the 1980s– and what that did to real estate. The classic example of more liquid pricing is what Enron did (legally and legitimately) with natural gas, making huge profits for Enron and anyone else who owned natural gas or derivatives.

That’s the stuff everybody looked at before this crisis. But after this crisis it turns out that it can also be interesting to do the opposite: not to add but to remove technology, to show how existing pricing model technology are wrong. This is what the “heroes” of this crisis did, like Paulson, Taleb, and Soros to some extent: Showing that models in use do not provide correct valuations drives asset prices lower, making things less valuable. Removing assumptions about credit both causes deleveraging and makes markets less liquid, driving established price levels lower. Incidentally, removing liquidity can also cause price increases and this is mostly what we’ve seen in attempts to influence supply rather than pricing directly (the Hunt brothers, for example, with silver — driving it higher, and OPEC, for example, with oil. What the economy in general is suffering now as credit contracts: prices going lower).

But what some out there are talking about is a kind of frontier finance and frontier systems for asset management and asset exchange. That’s the stuff that some bleeding edge entrepreneurs are always working on. And its frontier because they aren’t dealing with actual portfolios. They aren’t asset managers. They generally don’t really have anything to work with at all. Most of the finance stuff involves real portfolios. Many try to create stuff out of thin air– without any portfolios and really without any assets, which is why what they do is/was so different from most of the stuff you read about and incidentally, in my opinion, why it isn’t generally profitable, unless it becomes a media sensation and profits from that. They actually came up with stuff that would have applied to portfolios in some ways but in most ways relied on metaphor: they invent a whole discourse involving “human capital” to make up for their lack of actual capital. And, they invent virtual currencies and netbean dollars to make up for the lack of real dollars, and they end up with real debt which is a kind of negative portfolio unless you flip it upside down and realize that this debt is someone else’s actual asset and actual portfolio.

This translation effect between existing, real capital and metaphorical or virtual capital is quite interesting. Really, the whole field is more fictional than fiction itself. In this space, participants run their lives and finances (in so far as there were any), more like a Pynchon novel than like a portfolio. So what would you call this? Bootstrapping financial system experiments. Assets as abstractions. How to increase the value of imaginary assets? Maybe new and quicker methods for implementing and prototyping imaginary assets. A means by which to put imaginary assets into real market play. Picturing assets. Abstract assets and abstraction. If one recalls Bruno Taut’s utopias, the difference between the architect/builder and those drawings is the difference between what they do and what the guys with the cash do. I’m not saying that their stuff didn’t exist– it did. But they were, for the most part, only outside the real cash market. What could it be called? technologies for asset imagination?

Jeff Skilling of Enron used to talk of making markets, which has a double meaning. On the one hand it means providing liquidity, being the specialist on the NY Stock Exchange, being what they call a “market maker”. The “good” side of Madoff’s business and the main reason why people trusted him was that he was a legitimate market maker for the NASDAQ. But Skilling also meant a second thing: making markets where there really weren’t any markets there before. Like in broadband, which wasn’t traded, or say the new market for carbon credits. Someone had to make, as in “create”, those markets. This is a highly entrepreneurial and specialized activity, and its possible to say that fictional utopian economists and entrepreneurs did this, in some sense. I read a typically standard story recently in a magazine about the woman who created the market for pomegranate juice with the POM heart and the double bottle, you know it. In a sense, virtual technology entrepreneurs tried to create a market where there wasn’t one before, but they were trying not primarily with marketing savvy (as she did with POM) but with technology. In markets, cash is made by not actually looking at the content, but by looking at the eyeballs that drive a sale to cash. Content is empty in the eyes of markets: witness the difficulty of creating a green energy market where the cash doesn’t match up in the big picture.

Because financial innovation generally involves portfolios and most small tech innovators don’t have a portfolio, in this sense they exist more in the technology business… building things. Content creation. But the greatest successes in technology markets have always been “making markets” in this second sense– making a new cash market where none existed before. Like GOOG for searching (reference books and libraries), MSFT for windows (use a computer more like using a analog telephone), or to a lesser extent AMZN, which expanded a real-world market for books to an online superstore, or EBAY translating the peer-to-peer habit of garage sale negotiation to online. Theres no real market innovation in any of these businesses except for moving an existing proven cashable process into a new market space. What innovators have worked on generally has been the technological backbone improvements for financial transactions. Not like visa or MasterCard or verisign, but more like an experimental or alternative backbone for financial transactions and asset sharing. They’ve done a lot of work on highly theoretical abstract stuff, some of which has had or could have had applicability. Most innovators just have never been in the applicability (some like the word “market solutions”) business, and this gap has complicated the implementation and market-making abilities of emerging technology more than anything.

A lot of discussion within the Group has revolved around the difference between making these networks mimic and mirror design uses, primarily for human benefit (or detriment, in the case of unregulated commerce and persuasive technology), AND, what these social networks of internet attached devices might present as, if left to the designs of the mathematic adhesive gluing the components together alone.

Using cellular automata and premade HCP/Ambient Personality scripts, we are currently working on attaching such evolving scripts to interaction devices, so that these objects data POV may have a means for communication back out into a shared space with human social networks. Initial modeling tests have been quite humorous, which clearly indicates there will be a demand in human social networks for entertainment and advertising value. But then again, what doesnt have advertising value any more?

Jacob Rabinow “the individual in government research and innovation”, in ‘innovation and us research: problems and recommendations’, ed. W.Novis Smith and Charles F. Larson (Washington D.C.: American Chemicaal Society, 1980), 161