Archive for the ‘Organizational Convention’ Category

Invention #10: Governmental Liquidity Taker

Thursday, September 18th, 2008

Invention: Governmental Liquidity Taker

Type: Organizational Convention

Summary: The trillion dollar hedge fund industry is moving towards systematic trading, predominately focused on short-term, high frequency trading strategies known as “statistical arbitrage.”  The only good that these firms provide is liquidity and efficiency to electronic markets, which is an atleast 10s-of-billion dollar industry if not higher.  These services should be provided by a 1st or 2nd party governmental entity.

Explanation: In order to provide liquidity and efficiency to the markets while refocusing financial markets on investing in commercial interests and not taking advantage of market discrepencies the government should take two steps.  One) A goverment liquidity taker, run by the federal reserve, should be created.  This firm will establish zero-risk, high frequency trading strategies both providing liquidity and efficiency while taking the alpha generated by the strategies and putting it back in the fed to either be retained or re-issued.  Two) The government should move to put limits on holding periods so that other firms can not compete in the high frequency trading space.  As little as a few second holding period should suffice in giving the governmental entity enough of an advantage such that only legitimate trading activity will be profitable.

Utility: The markets remain liquid and efficient while arbitrage generated funds are returned to the federal reserve for re-issueance or for building up the strength of the dollar benefiting the US financial system on the hold.

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Invention #5: Employee Invest / Divest Option

Monday, August 25th, 2008

Invention: Employee Invest / Divest Option

Type: Organizational Convention

Summary:  Employees gain ownership in their company as long as they are there and when they leave, the company purchases back the equity over a period of time for redistribution.

Explanation: After employees join and stay at an organization they begin to accrue ownership in the company through shares being awarded at the end of each term. The allotment may be divided based on democratic process or other method. Once they leave, after a grace period, these shares are purchased back by the company for redistribution at market levels.  With this convention all current employees are able to gain and increase their ownership in the company, incentivizing performance and efficiency.  Former employees will have their investment returned to them, generating real returns on the lasting success they were able to build.

Utility: This convention can be applied to most business types, except perhaps unstable industries with high growth or a contracting market.  It incentivizes long term thinking and short term performance to gain additional equity while protecting the equity currently earned so that it grows.  Equity continually stays with current stakeholders with little being outside the company, and that which is outside the company, is continually being bought and returned to the company/current employees.

Application: One possible example would be that of an independent coffee house:  Owner 1 starts the coffee house with 100% equity of a business saleable for $100,000.  He hires 3 employees.  Employee 1 works 40 hours/week, employees 2 and 3 20 hours per week.   After 5 years, Employee 1 owns 5% and Employees 2 and 3 2%/piece of a company worth $200,000.  Owner, who still owns 91% of the company, decides to leave.  Employee 1 hires another employee.  Over the next 5 years, Employee 1 owns 15% of the company, Employee 2 and 3 owns 5%/piece, employee 3 owns 3% and the owner has sold an additional 19% of a $250,000 stake, which nets him roughly $50,000 in payments and still owns 72% of the company.   Employee 2 also leaves.  After 1 years, he has sold back 2% of his stake at $5000 and still holds an additional 3% to be bought back in the next 1-2 years.

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