The thing Eisman had found was indeed a goldmine, but it wasn’t true that no one else knew about it. By the fall of 2006, Greg Lippman had made his case to maybe 250 big investors privately, and to hundreds more at Deutsche Bank sales conferences or on Deutsche Bank conference calls. By the end of 2006, according to the PerTrac Hedge Fund Database Study, there were 13,765 hedge funds reporting results, and thousands of other types of institutional investors allowed to invest in credit default swaps. Yet only a hundred or so of them dabbled in the new market for credit default swaps on subprime mortgage bonds. Most bought insurance on subprime mortgages not as an outright bet against them, but as a hedge against their implicit bet on them — their portfolios of U.S. real estate-related stocks or bonds. A smaller group used credit default swaps to make what often turned out to be spectacularly disastrous gambles on the relative value of subprime mortgage bonds — buying one subprime mortgage bond while selling another.

…A smaller number of people — more than ten, fewer than twenty — made a straightforward bet against the entire multi-trillion-dollar subprime mortgage market and, by extension, the global financial system. In and of itself it was a remarkable fact: The catastrophe was forseeable, yet only a handful noticed.

From a November 6, 2009 article in the Wall Street Journal:

According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.

From a 2005 report by The Nielsen Company:

By enabling entrepreneurs to start a business online and immediately reach a market of 157.3 million registered users worldwide, eBay has become the best place to start, grow and operate a small business.

Harvard Business School professor Clayton Christensen is the originator of the canonical Model of Disruptive Innovation, and a co-author of the 2008 book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. From Disrupting Class:

Students need customized pathways and paces to learn.

…The second [phase of the disruption of standardized education] will be the emergence of a user network, whose analogues in other industries would be eBay…

From The Flat World and Education: How America’s Commitment to Equity Will Determine Our Future, a forthcoming 2010 book by Stanford professor and Obama education adviser Linda Darling-Hammond:

21st-century schools should integrate new technologies for learning and create personalized structures for supporting students.

Stanford economist Paul Romer is the originator of New Growth Theory, which updates growth economics for the information age. From Romer’s entry on Economic Growth in the 2007 edition of The Concise Encyclopedia of Economics:

“The country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector.”

“Perhaps the most important ideas of all are…ideas about how to support the production and transmission of other ideas…North Americans invented the modern research university…As national markets for talent and education merge into unified global markets, opportunities for…innovation will surely emerge.”

From The Mystery of Economic Growth, a 2004 book by Harvard economist Elhanan Helpman:

Interest in growth theory abruptly revived…in the 1980s. The two key papers were by Romer (1986) and Lucas (1988).

…Romer (1990) also initiated the second wave of research on the “new” growth theory.

…A more detailed study of the U.S. economy is provided by Jones (2002). He found that between 1950 and 1993 improvements in educational attainments, which amounted to an increase of four years of schooling on average, explain about 30 percent of growth of output per hour. The remaining 70 percent is attributable to the rise in the stock of ideas that was produced in the United States, France, West Germany, the United Kingdom, and Japan.

In ‘1.0′ CE markets, sellers of worker (re-)training are likely to earn most of the profits.

From a May 20, 2004 article in The Economist:

“There has been a huge swing to custom programmes,” says Fiona van Haeringen of IESE, who attended a recent annual conference of business-education providers in America…Looking to this year, most saw growth coming mainly from customised education.

From Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change, a 2004 book co-authored by Christensen:

Modular, customizable corporate training has an advantage that interdependent M.B.A. programs can’t match — a product specifically designed for each employee’s needs.

…In contrast to the leading schools’ integrated structure, the on-the-job management education industry is a disintegrated one. Hundreds of specialized firms develop materials, others design courses, and others produce and teach them.

No other region of the world — or, more precisely, no other integrated set of regions — comes close to matching the quantity and quality of America’s post-secondary educators.

From The World Is Flat, a 2005 best-seller by Thomas Friedman:

America has 4,000 colleges and universities…the rest of the world have 7,768.

Sean Gallagher, a senior analyst at Eduventures:

U.S. education is perceived worldwide as the gold standard in higher education.

The advent of popular CE markets is likely to create opportunities that said educators will want to pursue, as many of America’s other subject-matter experts almost certainly will.

From the December 11, 2006 issue of Business Week:

Megastudy has built a booming business by tapping into the anxieties of parents such as Kim. The [Korean] cram school company burst onto the scene in 2000, offering videotaped lectures online. Today its Web site lists 2,000 courses.

…Megastudy’s meteoric rise owes much to its popular lecturers. Son has signed up top talent by offering a 23% cut of online sales of videos — a deal that earned one English teacher $2 million last year.

As demand for CE increases across more and more segments of the education market, it is likely that more and more CE talent will be based in America.

From Clusters of Innovations: Regional Foundations of U.S. Competitiveness, a 2001 report published by the Council on Competitiveness:

Regional economies are the building blocks of U.S. competitiveness. The nation’s ability to produce high-value products and services depends on the creation and strengthening of regional clusters of industries that become hubs of innovation…These clusters enhance productivity and spur innovation by bringing together technology, information, specialized talent, competing companies, academic institutions, and other organizations. Close proximity, and the accompanying tight linkages, yield better market insights, more refined research agendas, larger pools of specialized talent, and faster deployment of new knowledge.

From an article in the October 7, 2006 edition of The Economist:

You might have thought that the advent of the Internet would have eroded the connection between place and talent. In fact, the opposite is happening. Bright people gather in university cities such as Boston and San Francisco, or in technology hubs such as Austin, Texas, or Redmond, Washington, or in rural idylls such as Camden, Maine, and Jackson Hole, Wyoming. They cluster together because they feed off each other’s intellect. Christopher Berry, of the University of Chicago, and Edward Glaeser, of Harvard, have studied the distribution of human capital across American cities. They found that in 1970 about 11% of people over 25 had a college degree, and they were fairly evenly distributed throughout the country. Since then the proportion of Americans with college degrees has more than doubled, but the distribution has become much more uneven.

So, again, online markets for CE that become popular in America can be expected to catalyze the creation of many jobs for U.S. residents.

Better still, providers of these markets can be expected to end the reign of America’s kleptobankers.

Understanding why starts with knowing about the so-called “problem of collective action.”

In their 2006 textbook, International Economics (7th ed.), Paul Krugman and Maurice Obstfeld define the problem:

While it is in the interests of the group as a whole to press for favorable policies, it is not in any individual’s interest to do so.

Krugman and Obstfeld continue:

In a now famous book [The Logic of Collective Action], economist Mancur Olson pointed out that…the problem of collective action can best be overcome when a group is small (so that each individual reaps a significant share of the benefits of favorable policies) and/or well-organized.

The group must have the means to buy changes of policy.

Krugman and Obstfeld, summarizing canonical research findings:

Politicians are, indeed, for sale.

Successful entrepreneurs in a given industry are the small group who have the motive and means to buy policy changes that disadvantage the industry’s old guard.

From The Innovator’s Prescription, a 2009 book co-authored by Clayton Christensen:

Regulations ultimately change in reaction to [disruptive] innovators’ success in those markets.

From elsewhere in the book:

Those disruptors that successfully dismantled the regulations that stood in their way succeeded by circumventing the regulation — by innovating in a disruptive market that was beyond the regulators’ reach or was peripheral to their vision.

For a banking entrepreneur, a peripheral market that is ideal to disrupt is one wherein:

• the act of consuming makes customers (more) creditworthy
• a lot of money can be made directly (i.e., independent of banking)

Creditworthiness correlates positively with educational attainment. Moreover, education is big business, and CE is disruptive to standardized education.

For a banking entrepreneur, the ideal niche to occupy in the CE industry is provider of a popular online market.

Providers of these markets can expect to increase profits dramatically by:

1. introducing a loan program for CE consumers
2. making the popularity of the company’s market and loan program mutually reinforcing (e.g., a borrower who performs well as a student is rewarded with a lower interest rate)
3. becoming a bank, as a means of increasing the amount of money the company can lend
4. introducing other loan programs and financial services that complement the market (e.g., loans to small businesses, so more jobs are available to CE consumers)

The business model of these banks, then, will center on facilitating genuine wealth creation.

So, again, providers of CE markets that become popular in the U.S. can be expected to buy changes of regulation that outlaw kleptobanking in America.

How, then, to expedite the advent of CE markets that are popular in the U.S.?

One obvious possibility: “jobs stimulus” that subsidizes American consumers and producers of CE, and American providers of CE markets.

A case for such stimulus that expands on this article is detailed at OpportuniTV.com.

Excerpts:

“From NurtureShock: New Thinking About Children, a 2009 book that appeared on the New York Times bestseller list for two months:

“When a child gets to choose, they presumably choose activities they’re motivated to do [says Dr. Silvia Bunge, a neuroscientist at the University of California at Berkeley]. Motivation is crucial. Motivation is experienced in the brain as the release of dopamine. It’s not released like other neurotransmitters, into the synapses, but rather it’s sort of spritzed onto large areas of the brain, which enhances the signaling of neurons.” The motivated brain, literally, operates better, signals faster.”

“From The Sandbox Investment — The Preschool Movement and Kids-First Politics, a 2007 book by David Kirp, a professor of public policy at the University of California at Berkeley:

The Seventeenth Congressional District [in Texas]…is among the most lopsidedly Republican in the nation…But in the race for a seat in the U.S. House of Representatives that same year [2004], a Democrat named Chet Edwards bucked long odds and won, running 37 percent ahead of the national ticket.

…Edwards’s opponent [was] Texas state legislator Arlene Wohlgemuth…The conservative establishment went all out to get her elected.

…What undid her were the cuts she’d inflicted on the budget of the Children’s Health Insurance Program, generally known as CHIP — 150,000 youngsters removed from the rolls, half a million denied any dental and eye care, all in the name of lean government. “Children were never my primary concern,” she said. It was a remark she grew to regret.

…According to the exit polls, 11 percent of the voters — enough to swing the election — said that Wohlgemuth’s record on children had made up their minds. A quarter of those who supported Edwards said they were thinking foremost of children.”

In particular, this stimulus can expedite the introduction of particular online markets. These markets will provide new and improved ways to showcase and earn money from expertise. Dynamics in these markets can be expected to output prices and other information that will be key inputs to the process of popularizing a CE market. For details, see the Jobs Quickly page of OpportuniTV.com.

How, then, to alert policymakers to the above information?

Consider joining the below-introduced Facebook group, and inviting friends to join. To confirm your intuition regarding how these steps can help, visit the 2 Steps page of OpportuniTV.com.

The Facebook group:

Customized-education $timulus = jobs, kids’ physical brains improved, etc.

Group Description:

We want “jobs stimulus” in the U.S. that subsidizes American consumers and producers of customized education, and American operators of associated online markets.

One reason:

A child’s brain “literally operates better, signals faster” when the child’s education is customized (source: Nutureshock, a 2009 book that appeared on the best-sellers list of the New York Times for two months).

About guest author Frank Ruscica:

Set out to become a comedy writer, recognized the need to develop a comic persona, settled on an approach for doing so. A byproduct of taking said approach: a business plan for establishing a popular online market for CE. The plan has been praised by analysts at Microsoft, Amazon.com and top venture capital firm Draper Fisher Jurvetson? The plan is adapted and expanded on at OpportuniTV.com.

A fantastic post about disrupting education.

Rolling Stone reporter Matt Taibbi “calls out” a comment I left on his blog. The comment excerpts from this blog entry of mine.

From After the Frat, a blog:

A brilliant idea by Frank Ruscica about how to finally get out of this economic quagmire.

A fusion of the internet and higher education, arguably America’s two greatest assets, to create affordable, customized, and high quality education for everybody. This would accelerate the growth of a young and extremely profitable industry while teaching the skills required to aggressively compete in the data driven global economy.

WOW.

Check it out, http://www.opportunitv.com/

This was not a public service announcement. I am not getting paid for this. I actually think its a great idea.

Whew!

Earlier reviews can be seen in footnote [1] of the Introduction page.