So, the bail out.

The thing about unregulated markets is, on the one hand, they really are the most efficient economic system. But, on the other hand, that efficiency comes at two kinds of costs: screwing some bottom segment of the population on an ongoing basis (c.f., the percentage uninsured in the US insurance system), and screwing some now outdated segment of the population during any transition (c.f. US auto workers as we increasingly outsourced manufacturing).

Basically, then, US economic policy is a balancing game between two competing desires: we want our system to be efficient, but we also want it to be ‘fair’, by which we mean that we want to somehow protect any of those bottom segments and transitional segments we see getting screwed.

And, last week, it became clear that the segment getting screwed during the current transition was, more or less, all of us. A whole lot of different factors had made the financial system into a total mess, and letting the market work that mess back out (which, indeed, it would, eventually) would have probably led to a massive recession, huge unemployment, and a lot of other similar stuff we’d much prefer to avoid in the process.

So, in essence, who we were bailing out was not just some guys on Wall Street, but ourselves. If we wanted to avoid all that ugly recession / unemployment / etc. stuff, we didn’t have much choice.

Of course, there are better and worse ways to handle things, and I suspect highly that Paulson’s investment banking background and ties led him to a bail-out approach that’s messier than it needs to be, and one that relatively few economists favor.

The bill that just passed gives the government the ability to buy bad assets from banks. As NPR’s Adam Davidson analogized, that would be sort of like giving the government the right to come in and buy the junk from your basement.

The other, and in my opinion smarter, approach, would be a stock injection plan. Instead of letting the government buy the bad assets from banks, it would instead let the government buy a part of the banks themselves. This one, by Davidson’s analogy, like giving the government the right to actually buy part of the house. And then possibly to move in.

In the first case, we face a sticky short-term question – how much is a basement full of junk worth? In the current crisis, if we pay too much for banks’ bad assets, we flush money down the drain; if we pay too little, we don’t save the banks.

In the second case, however, we don’t have to figure out a price for the junk, and we already know the price for pieces of the bank – it’s called the stock price. Further, because of a number of complicated issues (like capital requirements), a single dollar spent in a stock injection probably equals many more – as many as twelve dollars – spent in buying bad assets. And finally, as when we did something similar a few weeks ago with AIG, owning a big chunk of a bank would let us shit-can the CEO and other management, limit executive pay, and generally effect the sort of ‘you get what’s coming’ justice that most Americans think would make a lot of sense.

Though, and here’s the part that bothers me, it probably makes less sense to you if all of those CEOs and execs are your long-time friends and golf-buddies, which is to say if you’re Hank Paulson.

Therefore, our bill mainly provides for that first kind of ‘buy the junk’ bailout.

Though, at the same time, tucked deep inside the actual bill – a much revised 451-page expansion of Paulson’s original three-page draft – are a couple of sections (106, 107 and 113) that would also give the treasury secretary the right to take the second, smarter, better for taxpayers but less good for bank executives, stock-injection plan.

I’m not sure if there’s anything we the people can do to convince Paulson to take that path. And I’m not even sure if electing Obama would mean a new Treasury Secretary, one who might be more likely to err towards that more populist approach.

But, either way, even if we just take the ‘buy the junk’ approach, it’s something we should all be happy about. Because, otherwise, we’re left solely to a market solution, and all of us are totally screwed during the transition.

We’d be to this current financial meltdown as Flint, Michigan is to globalization. Which, if you’ve seen Roger & Me, you know would totally suck.

Given my job, and my dorky financial background, I’ve been following the public market meltdown fairly carefully.

As have Jess, my friends, my colleagues, and my relatives. Yet, when I talk to most of them, they seem to be following only the surface details. They don’t fully grasp what a CDO or CDS really is, much less what the underlying causes of the chaos might be.

Blame for which, I think, falls at the feet of financial journalists. Sure, explaining complicated financial concepts and structures is difficult. But that’s exactly what they’re supposed to be doing: breaking jargon down to plain English, in a way that allows people to actually, fundamentally understand what’s going on.

So, as a bit of public service, let me take a quick stab at a concept several people have asked me about of late: naked shorts. If this works, and if there’s reader interest, I’d also be happy to circle back to explain other concepts that seem similarly confusing.

So, naked shorts.

As most people know, ‘shorting’ or ‘short selling’ a stock essentially means betting against that stock. In other words, when you buy a stock the usual way (called going ‘long’ on that stock), you’re betting that the value of the stock will go up. If you buy the stock for $10, the price goes up and you sell it for $15, you’d make $5.

A short, then, is the exact opposite. If you invest when the stock is at $10, and pull your investment back out when the stock has dropped to $5, you’d similarly make a $5 profit.

Most people, however, are also entirely unclear on how that actually can work. So, to illustrate, let’s talk about your car, rather than a stock.

Imagine that you own a car. Then imagine that, for a small fee, you let me borrow that car from you.

So far so good. Now imagine that I sell your borrowed car for $10,000. A year later, say I want to give you your car back. So, I go on Craig’s List, and I find the same make and model. Only, by now, it’s selling for just $5,000. Which is excellent for me, since I can buy the car and give it back to you for $5,000, then pocket the $5,000 difference between that and the original sales price.

Voila. I just ‘shorted’ your car.

What, then, is a ‘naked’ short? Basically, the exact same thing. Except without borrowing the car first.

Of course, if I do that with cars, instead of ‘naked shorting’, it’s called ‘fraud’. I just sold you something I don’t actually own.

In the financial markets, however, it makes at least a little sense.

If I buy the car from you, you have to actually deliver it to me. And then if I sell it again to somebody else, I have to deliver it to him or her next. With cars, that isn’t a problem, as people tend to own them for a while. But with stocks, it’s entirely possible for the same share to be bought and sold and bought and sold countless times in a single day. So before stock trading went digital, actually delivering all of the stock certificates back and forth any time someone shorted a stock was doubtless a pain in the ass.

In that situation, a naked short made sense. Better to wait a couple of days to see who the ultimate holder of those stock certificates would be before loading up the wheelbarrow and sending them over.

Plus, in ye olde stock market, buyers and sellers were actual people, who traded back and forth with each other every day, and who therefore had ongoing relationships and a basis for interpersonal trust.

In a digital world, that network of trust is largely gone, and the underlying rationale – saving the work of transfering physical stock certicates – no longer makes any sense. Yet the practice persists – or, at least, did so until it was banned last week.

In all honesty, I suspect the actual impact of naked shorts has been oversold, and that they did relatively little to contribute to our current mess. But they do make a great example of, and can serve as a kind of microcosm for, the current crisis.

Because, it turns out, bringing old financial practices into a new, digital world, a world that no longer maintains direct relationships between buyers and sellers or lenders and borrowers, and doing so without carefully re-looking at the new implications of those old practices, is a recipe for all kinds of disaster.

In the perennial Cyan fundraise, once again stuck in a patch of waiting for high-net-worth investors to move their money.

As my VP of Development commented today, they may be liquid, but they seem to be very high viscosity.

A lot of my life seems to revolve around playing money middleman; waiting for investor dollars to come in for a project so I can turn around and send those dollars back out the door.

And the problem is, while Cyan and everything it does is hugely, consumingly important to me, it’s absolutely not so to our angel and institutional investors. So, even when they want to move ahead, even once they’re fully committed, it inevitably takes weeks and weeks and months to drag through trading documents and sending wire information and refreshing and refreshing and refreshing our bank’s web site to see if the funds have hit.

In the meantime, then, I’m forced to tell the people waiting on the other end, ‘any day now,’ and ‘really, any day,’ while I wait and they wait and we all wait together and they start to hate my guts for how long this is all taking even though I swear to god I’m just the middleman and none of this is my fault.

During the second world war, a reconnaissance group of soldiers became lost in the Alps on a training mission. It was winter, they had no maps, and they seemed hopelessly lost.

They were preparing to die, when one soldier found a map crushed down at the bottom of his pack. With the map in hand, they regained their courage, bivouacked for the night, and proceeded out of the mountains the next day to rescue.

Only when they were recuperating in the main camp did someone notice that the map they had been using wasn’t a map of the Alps at all; it was a map of the Pyrenees.

When you are lost, any map will do.

Still alive, still busy as f*ck, still essentially working two full-time jobs.

Latest bit of CFNYC news: the CrossFit hype continues, with cover stories the past two weeks in Men’s Journal and Muscle & Fitness.

Latest bit of Cyan news: looks like we just locked worldwide distribution rights to the film adaptation of Interpreter of Maladies.

No sleep till Brooklyn.

Though we’ve been searching for a new space for CrossFit NYC for some time (having even previously appealed to you all for help – thanks David and Chris!), we’re still no closer to actually moving.

As of today, it appears our third almost-home is falling through at the contract stage. This time, the landlord suddenly realized that a gym involves members coming and going – in other words, foot traffic – and decided he didn’t really want such a populous use of the space.

So, though we’ve managed to extend by legal wrangling the lease in our current location to April 30th (no mean feat, given we previously knocked down our downstairs neighbors’ ceiling), the countdown’s on.

Add in Cyan and wedding planning, and the ulcer countdown is doubtless on, too.