Sunday, July 19, 2009

The Great Moderation: Technology and Monetary Policy

Below is a paper I wrote on the moderation in business cycle volatility experienced from the 1990s through the mid-2000s. I explore the impact of the information technology revolution and innovation in monetary policy on the behavior of prices and output. Viewed through the current lens of the 2007 recession, one potential variable that I would like to investigate is the buildup of moral hazard in the financial system. Let me know what you think or if you have comments.
Changing Business Cycle Dynamics V2.1

Thursday, July 09, 2009

reCAPTCHA's Business Model

If you use the web, chances are you've been asked to use a "captcha." A captcha is a way of differentiating between humans and machines by asking users to transcribe garbled text that is unreadable to a computer. Whether it's preventing spam on blogs or verifying website sign-ups, captchas keep malicious programs from sending spam and consuming energy. Captchas have been around for almost a decade and are fairly commonplace, but an organization called reCAPTCHA is pushing the envelope in terms of how data is used and has some strong potential for being a lucrative company.

reCAPTCHA is a project from Carnegie Mellon that offers a standard captcha service for free to any web service. What is innovative about reCAPTCHA is that the service asks for two words to be transcribed before allowing users to proceed. The first word has a known value and is the test, while the second word is displayed so that reCAPTCHA can learn its meaning. If enough users agree on the meaning of the second word to a point of statistical significance, chances are that the meaning of the garbled word has been found.

Here are two examples from reCAPTCHA's website.

Original scanned image:

The computer's translation of the image into text, with unreadable parts highlighted:

reCAPTCHA is currently working with the Internet Archive and the New York Times in an effort to convert books and old papers to text so that they can be preserved, searched, and kept accessible for generations to come. In addition to the altruistic applications of reCAPTCHA's technology and data, it could have a very lucrative business model. There are several companies that are digitizing books, including Google and Amazon. reCAPTCHA could license it's technology to help these companies transcribe books more quickly and accurately. Another potential business could be to license their technology to law firms that have to sift through thousands of pages of written documents to gather evidence and build their case. Using this technology would save them time and reduce labor costs for these firms. reRAPTCHA is a great example of a free service that is generating huge amounts of data and using it in a valuable way.

Update 9/16/2009:
Google has acquired reCAPTCHA and will by applying it's technology to digitize more content. Google is essentially buying time so that they don't have to wait to build out their OCR library. From the Google Blog:
This technology powers large scale text scanning projects like Google Books and Google News Archive Search. Having the text version of documents is important because plain text can be searched, easily rendered on mobile devices and displayed to visually impaired users. So we'll be applying the technology within Google not only to increase fraud and spam protection for Google products but also to improve our books and newspaper scanning process.

Wednesday, July 01, 2009

GM's Press Release: $1 Handle is Too High

General Motors released an interesting press release today. While most companies encourage institutional investors to buy their stock, GM today actually asked investors to sell their stock, which is currently trading under the the pink sheets symbol GMGMQ. GM is currently in Chapter 11, and it is extremely unlikely that there will be any recompense for equity holders. The press release is accessible here and is displayed below:
GM management has noticed the continuing high trading volume in GM's common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in Chapter 11 generally receive value only if all claims of the company's secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value.
If it is highly unlikely that the company will have any value after bankruptcy proceedings, why are GM shares shares trading as high as 90 cents? The shares will soon be worth $0.00, but at the moment there are short sellers who profited as the stock fell and are covering their positions by buying shares. This theory makes sense, but still, $1 a share and over a half billion dollar market cap is too high for a company worth nothing.