Where’s the next boom? Maybe in `cleantech’

October 6, 2009

Energy breakthroughs could be the next big thing, but how many jobs can they generate?

By Jordan Robertson, AP Technology Writer
9:33 pm EDT, Tuesday October 6, 2009

SAN FRANCISCO (AP) — Our economy sure could use the Next Big Thing. Something on the scale of railroads, automobiles or the Internet — the kind of breakthrough that emerges every so often and builds industries, generates jobs and mints fortunes.

Silicon Valley investors are pointing to something called cleantech — alternative energy, more efficient power distribution and new ways to store electricity, all with minimal impact to the environment — as a candidate for the next boom.

And while no two booms are exactly alike, some hallmarks are already showing up.

Despite last fall’s financial meltdown, public and private investments are pouring in, fueling startups and reinvigorating established companies. The political and social climates are favorable. If it takes off, cleantech could seep into every part of the economy and our lives.

Some of the biggest booms first blossomed during recessions. The telephone and phonograph were developed during the depression of the 1870s. The integrated circuit, a milestone in electronics, was invented in the recessionary year of 1958. Personal computers went mainstream, spawning a huge industry, in the slumping early 1980s.

A year into the Great Recession, innovation isn’t slowing. This time, it’s better batteries, more efficient solar cells, smarter appliances and electric cars, not to mention all the infrastructure needed to support the new ways energy will be generated and the new ways we’ll be using it.

Yet for all the benefits that might be spawned by cleantech breakthroughs, no one knows how many jobs might be created — or how many old jobs might be cannibalized. It also remains to be seen whether Americans will clamor for any of its products.

Still, big bets are being placed. The Obama administration is pledging to invest $150 billion over the next decade on energy technology and says that could create 5 million jobs. This recession has wiped out 7.2 million.

And cleantech is on track to be the dominant force in venture capital investments over the next few years, supplanting biotechnology and software. Venture capitalists have poured $8.7 billion into energy-related startups in the U.S. since 2006.

That pales in comparison with the dot-com boom, when venture cash sometimes topped $10 billion in a single quarter. But the momentum surrounding clean energy is reminiscent of the Internet’s early days. Among the similarities: Although big projects are still dominated by large companies, the scale of the challenges requires innovation by smaller firms that hope to be tomorrow’s giants.

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Wall Street’s Math Wizards Forgot a Few Variables

September 14, 2009

by Steve Lohr
Monday, September 14, 2009
The New York Times

In the aftermath of the great meltdown of 2008, Wall Street’s quants have been cast as the financial engineers of profit-driven innovation run amok. They, after all, invented the exotic securities that proved so troublesome.

But the real failure, according to finance experts and economists, was in the quants’ mathematical models of risk that suggested the arcane stuff was safe.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

That failure suggests new frontiers for financial engineering and risk management, including trying to model the mechanics of panic and the patterns of human behavior.

“What wasn’t recognized was the importance of a different species of risk — liquidity risk,” said Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.”

In the future, experts say, models need to be opened up to accommodate more variables and more dimensions of uncertainty.

The drive to measure, model and perhaps even predict waves of group behavior is an emerging field of research that can be applied in fields well beyond finance.

Much of the early work has been done tracking online behavior. The Web provides researchers with vast data sets for tracking the spread of all manner of things — news stories, ideas, videos, music, slang and popular fads — through social networks. That research has potential applications in politics, public health, online advertising and Internet commerce. And it is being done by academics and researchers at Google, Microsoft, Yahoo and Facebook.

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Banks Say Auction-Rate Investors Can’t Have Money

June 6, 2008

By Darrell Preston June 6 (Bloomberg) — Franklin Biddar wants his money, and says Bank of America Corp. won’t let him have it. The 65-year-old real estate investor from Toms River, New Jersey, said he hasn’t had access to cash the bank invested for him in auction-rate preferred shares ever since the market seized up in mid-February. Even when Biddar agreed to sell $100,000 worth of the securities to Fieldstone Capital Group, Charlotte, North Carolina-based Bank of America wouldn’t release the bonds, saying the transaction wasn’t in his interest, he said.

“I can’t do anything,” said Biddar, who was so eager to unlock his money that he was willing to accept 11 percent less than what he paid for the securities. “Bank of America got me into these securities that are supposed to be as safe as a money market, and now they won’t get me out.”

Bank of America, UBS AG, Wachovia Corp. and at least four dozen other firms that sold $330 billion of securities with rates set through periodic bidding are thwarting attempts to create a secondary market that would allow investors to access their cash, according to investors. Dealers claim they are saving customers from needless losses on securities they marketed as similar to cash-like instruments.

“By allowing customers to sell at a discount, the banks allow customers to establish damages,” said Bryan Lantagne, the securities division director for Massachusetts Secretary of State William Galvin. Lantagne is head of a task force for nine states looking at whether brokers misrepresented the debt as an alternative to money-market investments.

Investor Lawsuits

At least 24 proposed class action suits have been filed since mid-March against brokerages over claims investors were told the securities were almost as liquid as cash.

Investors ranging from retirees to Google Inc. in Mountain View, California, have been trapped in auction-rate bonds for more than three months after dealers that ran the bidding suddenly stopped supporting the market as their losses mounted on debt linked to subprime mortgages. Before February, dealers routinely bought securities that went unsold, reassuring investors that they could get their money back on a moment’s notice.

About 99 percent of public auctions for auction-rate securities sold by student-loan agencies and closed-end funds fail, as do 48 percent of those for municipals, according to data compiled by Bloomberg. UBS, which cut the value of auction-rate securities held for its customers by 5 percent in March, said yesterday it plans to close its municipal bond business.

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