Monday, January 31, 2011

Looking good, ESPN

I've been fairly critical of ESPN here before, in large part because I think they let their "entertainment" side dominate their "journalism" side, which compromises their position in both regards. In my mind, it's a lot like the traditional "Chinese wall" conflicts of interest within banks and investment companies who both advise clients and originate deals--violate the Chinese wall, and you lose credibility on both sides.

So I read with interest this piece over the weekend from the New York Times, which detailed a fairly significant developing conflict of interest over at The Worldwide Leader.
When ESPN’s Erin Andrews reported that Texas Christian players were slipping in their new Nike cleats during the Rose Bowl on New Year’s Day, the detail seemed typical of the colorful tidbits that sideline reporters often provide to viewers. 
Two weeks after the game, it was revealed that Andrews had signed a deal with a Nike rival, Reebok, to endorse a sneaker line. Now, experts in journalism ethics and others are raising questions about whether her comments — given that the deal may have been in negotiation — constituted a conflict of interest, and whether any journalist should endorse a commercial product.
“I consider sports journalists and sports broadcasters to be ethically challenged in a lot of different ways, but even this has surpassed my wildest imagination,” said Joel Kaplan, an associate dean at S. I. Newhouse School of Public Communications at Syracuse University. The potential conflict created by Andrews’s deal with Reebok and her comments during the Rose Bowl was first reported by The Oregonian.
ESPN has said that Andrews rarely covers stories involving shoes, and that if she did, she would disclose her affiliation with Reebok.
Well played, ESPN. Really well played. Just don't even bother trying to pretend to be a journalistic outlet any more--what began to erode with "The Decision" has now eroded completely. Can we please get a viable competitor to ESPN? I'm looking at you, NBC/Comcast...

[New York Times]

The most important "if true" story coming out of Egypt

One of the most disturbing (and under-reported) stories to come out of Egypt this weekend was the allegation from multiple news outlets that many of the looters in Cairo are in fact government plants, hired by the government to help justify a militant response to the ongoing anti-government protests. As the Naked Capitalism blog notes, several international newspapers have picked up on this possibility--if it's true, it is one of the more disgusting governmental abuses to come along in some time, and it also shows an almost unfathomable level of desperation within the maligned Egyptian government.
Al Jazeera reported today:
[Al Jazeera reporter] Ayman Mohyeldin reports that eyewitnesses have said “party thugs” associated with the Egyptian regime’s Central Security Services – in plainclothes but bearing government-issued weapons – have been looting in Cairo. Ayman says the reports started off as isolated accounts but are now growing in number.
The Telegraph reports:
“Thugs” going around on motorcycles looting shops and houses, according to Al Jazeera. They say they are getting more and more reports of looting. More worryingly, one group of looters who were captured by citizens in the upmarket Cairo district of Heliopolis turned out to have ID cards identifying them as members of the regime security forces.
Similarly, Egyptian newspaper Al MasryAlyoum provides several eyewitness accounts of agents provacateur:
Thugs looting residential neighborhoods and intimidating civilians are government-hires, say eyewitnesses.
In Nasr City, an Eastern Cairo neighborhood, residents attempting to restore security told Al-Masry Al-Youm that looters were caught yesterday.
“They were sent by the government. The government got them out of prison and told them to rob us,” says Nameer Nashaat, a resident working alongside other youths to preserve order in the district. “When we caught them, they said that the Ministry of Interior has sent them.”
In Masr al-Qadeema, another district, scrap metal dealer Khaled Barouma, confirmed the same account. “The government let loose convicts. They let them out of prisons. We all know them in this neighborhood,” he said, adding that the neighborhood’s youth is trying to put the place in order by patrolling its streets with batons.
“The government wants people to believe that this is an uprising of convicts, which is not the case. The government is the one that is a criminal,” Khalil Fathy, a local journalist covering the events closely, said.
Scary stuff. It's hard to know what to trust and what not to trust in this situation, and the shutdown of internet in Egypt only further confuses the issue. But it also shows how far those in power will go to discredit their detractors--a dynamic that we in the United States certainly should not assume is unique to Egypt. Making a bad situation worse in order to attempt a power grab is the dirtiest of dirty politics, and something that I'd like to think is not possible in our country. But I have my doubts.

[Naked Capitalism]

Friday, January 28, 2011

Truth stranger than fiction

From the Dow Jones Newswires, a friendly reminder that gambling is prohibited on the floor of the New York Stock Exchange...
12:48 (Dow Jones) NYSE Euronext (NYX) issues “reminder” notice to exchange members that gambling is prohibited on trading floor and “a criminal offense in New York.” Write your own punchline about the financial crisis or the markets in general, but NYSE’s regulation department warns further against using post computers for “games of chance” or calling your bookie from the floor. “If you have any questions about whether a particular activity is prohibited, you should consult with your firm’s compliance officer, senior manager, and/or legal counsel,” according to NYSE notice.
This is just too bizarre not to share. It brings to mind this classic clip from Casablanca:



Shut down the exchange, folks--nothing to see here. No word yet if this notice is to blame for the steep decline in the markets today...

[Dow Jones]

Thursday, January 27, 2011

Clip of the Week

For the first time in Clip of the Week history, we've got co-champions. Both of them come from the world of sports, and both of them are so mesmerizing that I literally can't stop watching them.

First, from Maria Sharapova's Australian Open match earlier in the week, where there was a "dead spot" on the court. Apparently "dead spot" means "gigantic patch of velcro" or "place where laws of physics cease to exist".



Up next, and equally mesmerizing, is this shot from last night's NBA game between the Hawks and the Bucks. Earl Boykins sees your tennis dead spot, and raises you a perpetually spinning basketball.

Are we too specialized?

I've written here before about my opinion that our societal trend toward immobility (not just geographically speaking, but across different industries and job functions as well) has been a significant contributing factor to our persistently high unemployment rate. Lawyers are incapable of turning themselves into factory workers, bankers don't have the skills necessary to become I.T. professionals, and the result is a persistent mismatch of job seekers and job opportunities--and, in turn, greater shipping of jobs overseas.

Along those lines, former Congresswoman Heather Wilson wrote a provocative op-ed for The Washington Post this weekend, wondering aloud whether our students (and thereby, our society) had become overly specialized.
For most of the past 20 years I have served on selection committees for the Rhodes Scholarship. In general, the experience is an annual reminder of the tremendous promise of America's next generation. We interview the best graduates of U.S. universities for one of the most prestigious honors that can be bestowed on young scholars.
I have, however, become increasingly concerned in recent years - not about the talent of the applicants but about the education American universities are providing. Even from America's great liberal arts colleges, transcripts reflect an undergraduate specialization that would have been unthinkably narrow just a generation ago.
As a result, high-achieving students seem less able to grapple with issues that require them to think across disciplines or reflect on difficult questions about what matters and why....
An outstanding biochemistry major wants to be a doctor and supports the president's health-care bill but doesn't really know why. A student who started a chapter of Global Zero at his university hasn't really thought about whether a world in which great powers have divested themselves of nuclear weapons would be more stable or less so, or whether nuclear deterrence can ever be moral. A young service academy cadet who is likely to be serving in a war zone within the year believes there are things worth dying for but doesn't seem to have thought much about what is worth killing for. A student who wants to study comparative government doesn't seem to know much about the important features and limitations of America's Constitution.
I wish I could say that this is a single, anomalous group of students, but the trend is unmistakable. Our great universities seem to have redefined what it means to be an exceptional student. They are producing top students who have given very little thought to matters beyond their impressive grasp of an intense area of study.
This narrowing has resulted in a curiously unprepared and superficial pre-professionalism.
One of the first things to come to mind as I was reading Ms. Wilson's op-ed was my own post from months back on the questionable future of the liberal arts education. With tuition rates skyrocketing across the country, it's irrational and impossible for a student to choose to attend a college without first thinking of his job prospects upon graduation. In that kind of an environment, those schools that best align with what large employers are looking for can typically expect to receive the best students. The logical endgame is that the companies--not the school administrators or the faculty or the students themselves--are the ones ultimately calling the shots as far as curriculum and academic focus. That's backwards.


The problem as I see it is not "overspecialization" per se, but the age at which we are now specializing. By the time most students arrive at their college of choice, they have likely already been funneled down a very specific path--the "superficial pre-professionalism" that Ms. Wilson refers to. Once upon a time, both high school and undergraduate college programs focused on providing a solid grounding in the basics; specialization was left to the companies and the graduate school programs, which is mostly (in my opinion) where it belonged. The earlier we have begun to specialize, the less nimble and adaptable we have become--that's a significant problem in a world that can change as rapidly as our technological world can and does.

Our nation's top universities must not allow themselves to turn into mere training grounds for our largest corporations. They must maintain their focus on producing well-rounded graduates who can make our country and the world a better place--not just those who can make their companies more profitable. Unfortunately, maintaining that focus is not always good business for the school itself, nor does doing so justify the ever-increasing tuition and fees that they charge. The question for our universities is whether or not they can resist the temptation of catering to the corporate whim. So far, it's not looking too good.

[Washington Post]

Wednesday, January 26, 2011

America is dying

Or, it soon will be... that's the only explanation for this:


Yup, that's exactly the kind of innovation we're looking for to get us out of this economic mess. Better yet, pizza with a cookie crust! Now we're talking...

Tuesday, January 25, 2011

Quote of the Week

As we all prepare for tonight's State of the Union address, which is sure to produce its own treasure trove of quotable moments, it's time for this week's Quote of the Week.

This time around, we're going to turn to Twitter for our quote, for the first (and hopefully last) time. With Tiger Woods eagerly awaiting his 2011 PGA Tour debut (along with my brother-in-law... go Will!), he decided to answer a couple questions on his Twitter feed.

Tiger, who slipped to #3 in the World Golf Rankings despite not playing yet this year, was asked by one Twitter follower (Twitterer? Tweeter?) what he thought of this clip from the now-defunct Chappelle's Show. His response:

This week's QUOTE OF THE WEEK 

"At least I was #1 pick back then, fo’ shizzle."
                                   -Tiger Woods, via Twitter

Nice to see Tiger has a sense of humor about it all. We'll see this week if the personal and professional struggles that plagued him last year are a thing of the past or not. 

Chappelles Show
The Racial Draft
www.comedycentral.com
Buy Chappelle's Show DVDsBlack ComedyTrue Hollywood Story

Learning the wrong lessons

I was disappointed (though hardly surprised) to hear yesterday of the dramatic and tragic airport bombing in Moscow. I've long worried that all of our expensive efforts to make airplanes safer have been in vain because they have largely ignored the airports themselves, and in fact possibly ironically made them less safe.

Specifically, as I've mentioned here before, I think that the incredibly long security lines that TSA screening has created makes those crowded "unsecure" areas among the most dangerous places a person could put himself. Why would a terrorist bother trying to sneak contraband onto a plane when he could just as easily create as much terror and human injury by simply detonating a bomb in the security line? Unfortunately, as soon as the news of the Moscow bombing broke, it was already clear that some people were in danger of learning the wrong lesson from the incident.
Experts say it is significant that those who masterminded the attack chose to bomb the arrivals hall of the airport -- Moscow's busiest -- because it was an easier target than the heavily-policed departures area.
"Arrivals has always been thought of as the 'soft' area of an airport," explained CNN's Richard Quest.
"Nobody is flying anywhere, the baggage has all been screened, because it has been on planes already, and crucially, people are leaving the airport. It's very rare that you ever saw somebody carrying a bag in to arrivals."
Security analyst Will Geddes told CNN: "The arrivals area is generally less secure .You have a large proportion of members of the public, people meeting friends and family...
Experts agree that airports worldwide, not just those in Russia, are likely to review their procedures in the wake of the Moscow attack...
And Quest said airports may begin screening people who come to meet friends and family at arrivals.
"What will happen is that the barrier will get further and further back, so no longer is it just at departures, but at the airport door, or in some cases on the road as you drive up to the terminal.
I think that all of this analysis is missing the point--in my mind, it's not significant at all that this incident happened in the arrivals area. It's only significant that it happened in the airport, rather than on an airplane. It just as easily could have happened in the departures area (in the security lines that I mentioned) as in the arrivals area. As this article suggests, our TSA would have been completely incapable of detecting an attack like the one perpetrated in Moscow.

We can move the security checkpoint all the way out to the interstate if we want to, but then you'll just have a long queue of cars (waiting to be inspected) that create a newly inviting target for terrorists. Sooner or later, no matter how much "security" you provide, there will inevitably be a crowd of people waiting to get into the secure area. Simply put, there will always be inviting targets for terrorists--trying to minimize those targets may be a laudable goal, but it misses the point.


We can't realistically prevent terrorism by removing the terrorists' targets--we never would have thought of the World Trade Center (or the Pentagon) as a target, until it became one. It is a very natural and human desire to want to gather in a central location, and by the very definition of terrorism, that means that we will naturally leave ourselves vulnerable to attack.

The only viable way of preventing terrorism over the long term is trying our best to prevent the creation of terrorists. Why do people resort to terror? Who becomes a terrorist? What can we do to prevent the process of terror cell creation? These are the questions we need to answer if we are going to prevent terrorism--NOT questions like how can we prevent large crowds of people from gathering in the same place, which is by definition a fool's errand.

I don't know how to answer the questions I posed in the previous paragraph, but I can assure you that long-standing military presences in foreign lands isn't helping. Diplomacy is a tricky game for sure, but its intelligent use is the only hope we have of preventing incidents like that in Moscow yesterday. "Securing" the arrivals area is at best a red herring. I am hopeful (though not confident) that we will learn the right lessons from yesterday's attack.

[CNN]

Once again on animal communication

I wrote a few months back about communication among different species of dolphins, and this article from the Daily Mail seemed to be an interesting follow-up.
Prairie dogs talk to each other and can describe what different human beings look like, according to scientists...
Professor Con Slobodchikoff, of Northern Arizona University, has been studying prairie dogs for 30 years.
He is particularly interested in deciphering their language because to do so would 'open the door for understanding how other species communicate'.
The prairie dog's barks, yips and chirping sounds are really a sophisticated form of communication that contains a vocabulary of at least 100 words, Professor Slobodchikoff claims.
'The little yips prairie dogs make contain a lot of information,' he said.
'They can describe details of predators such as their size, shape, colour and how fast they are going.
'They also can discriminate whether an approaching animal is a coyote or a dog, and they can decipher different types of birds.'
Professor Slobodchikoff and his students hid themselves in prairie dog villages and recorded the noises the rodents made whenever a human, hawk, dog or coyote passed through.
What they found was that the prairie dog issues different calls depending on the intruder. The researchers discovered this by analysing the recorded calls for frequency and tone...
To further develop this line of investigation, Professor Slobodchikoff gathered four volunteers and had them walk through a prairie dog village four times. On each occasion they wore the same clothing, except for different colour shirts.
The prairie dogs responded by issuing different calls, depending on the colour of the volunteers' shirts.
Professor Slobodchikoff then discovered they also issued different calls for varying heights, and even for abstract shapes including cardboard circles, squares and triangles.
He told NPR: 'Essentially they were saying, "Here comes the tall human in the blue," versus, "Here comes the short human in the yellow."'
Interesting stuff. Of course, I've always been interested in animal communication, so much so that I have the audio from this clip as my cellphone ringtone (it's not annoying at all, I swear):



I'm hoping that our scientist friends can continue to learn about different modes of animal communication, so that maybe one day I can tell my ridiculously nervous cat Jobu to chill the f*** out... but that's probably wishful thinking.

[Daily Mail]

Monday, January 24, 2011

Awesome

Yup, these are my people.
An Abington man charged with making bombs in his home told police he built the devices to blow up snow banks.
Abington Police Chief David Majenski said Leo J. Powers, 23, whose last known address was 45 Margaret Road in Abington, is charged with threatening to commit a crime and possession of incendiary devices.
After serving Powers with an emergency restraining order at the Washington Street rooming house where he was staying, police learned that he had a box of ammunition and a box with “powders” in it at his former address, Majenski said.
Majenski said Powers told police he devised a way to use the materials to blow up snow banks.
Only in New England would someone think it was a good idea to risk jail time just to avoid shoveling. To be honest, though, given some of the winters I experienced up there growing up, I'm surprised I didn't come up with that idea myself.

[Patriot Ledger]

Incentives vs. Grants

I came across an interesting post this weekend from economist Robin Hanson (whose blog I've teased here once before) on the topic of charity. He writes (bolding mine, italics his),
I’ve overheard many folks lately discussing what sort of charity most deserves their money. They consider the plans of various charities, and try to analyze the chances that such plans will lead to good outcomes. Most folks I’ve heard have been favoring various intellectual charities, where the money goes mostly to pay intellectuals to develop and communicate ideas. And most of these folks also seem to spend lots of time consuming intellectual ideas. They read a lot, and have many opinions about what previous ideas were interesting and useful.
Such folks would do well to review the advantages of prizes over grants, and consider becoming charity angels. Let me explain.
Consider a donor who seeks to encourage or induce some sort of result in the world. With a grant, such a donor must decide ahead of time who seems to have a promising ability and approach. But with a prize, a donor need only decide after the fact who seems to have achieved a lot. Once potential awardees see a pattern of achievements being rewarded by prizes after the fact, they will gain an added incentive to achieve, an incentive roughly proportional to the prize amounts being offered. And the prize process avoids much of the added waste of grant proposals, review, search, etc. (Promising potential winners who are strapped for cash can obtain resources by selling their future prize rights in capital markets.)
Since it is much easier to evaluate what has worked than what will work, folks who read a lot of intellectual work and who are inclined to support future intellectual work via charity should consider making a habit of just giving money to those who have already accomplished something noteworthy.
Instead of "Incentives vs. Grants", I just as easily could have titled this post "Rewards vs. Gifts"--when deciding to give to charity, should we reward someone for achieving, or simply for trying? There are dozens if not hundreds of well-meaning charities that try very hard to achieve a result, but end up having little measurable impact. It's not that they don't do some good, nor am I trying to suggest that they should be dissolved. It's just that they could--and probably would--be better and more efficient if they were forced to strive to meet well-determined goals.

Sure, our social ills are "hard" to solve, but they are certainly achievable goals. If the prize is large enough, you'll be amazed what human beings (or groups of them) can achieve. For examples, I refer back to this post from November (or even this one from October), which enumerated some pertinent instances where properly-created incentives led to seriously beneficial outcomes.

To be sure, providing an incentive will not always lead to the desired outcome. If the incentives are not large enough, or they are simply designed improperly, we shouldn't expect to see any substantive improvement in the conditions we are targeting. But I would argue that our current system represents the epitome of a poor incentive structure--we give money to organizations somewhat indiscriminately on the promise that they will do good things, and they don't have to give a dime back to us if they fail.

Businesses wouldn't last long if they structured their deals in that manner, but for some reason we expect charities to thrive in that same type of scenario. In charity as in business, we need to create real accountability in order to see the results we desire. Without accountability, any success is purely coincidental.

[Overcoming Bias]

Friday, January 21, 2011

Clip of the Week, Part II

This one came to my attention too late to be yesterday's Clip of the Week, but it's mesmerizing. I'll use the YouTube description to tee it up, rather than paraphrasing.
The yellow dots are aircraft. 
It is a 24 hour observation of all of the large aircraft flights in the world, condensed down to about 2 minutes. You can tell it was summer time in the north by the sun's footprint over the planet. You could see that it didn't quite set in the extreme north and it didn't quite rise in the extreme south. 
Notice that as evening approaches, the traffic is predominantly from the US to Europe and when daylight comes, the traffic switches and it is predominantly from Europe to the US.

Thursday, January 20, 2011

Clip of the Week

Not a lot of great stuff out there this week (except this video of the flooding in Australia, which gets me to shake my head every time), so I'll just post one of the videos that's been keeping me (ahem) busy today.

It's a series of clips from the cast of The Simpsons on "Inside the Actors Studio", which cracks me up. There's something about seeing real people speak in the voices of characters we know only as cartoons that just never gets old. I'm a particular fan of Hank Azaria, who in addition to creating some classic characters is also great on his feet and hysterically funny. Enjoy.

An update on the changing face of the music industry

Two weeks ago, I wrote about Dave Matthews Band and the rapidly changing music industry. In that post, I mentioned that total sales of music had contracted 25% since the industry peak in 1999, showing no sign of picking back up.

This week, we have more confirming evidence that the old record-label model of selling music via albums is slowly becoming obsolete.
In the latest sign of waning consumer demand for recorded music, the Billboard 200 album-sales chart just registered a dubious distinction: The No. 1 position was held by an album that sold fewer CDs and downloads than any predecessor since at least 1991, when accurate weekly tallies first became available.
The 44,000 units sold by the band Cake's sixth album, "Showroom of Compassion," marked the second week in a row that the No. 1 album notched a new low-water mark. Last week's chart was dominated by Taylor Swift's "Speak Now," which sold just 52,000 copies according to Nielsen SoundScan.
Album sales simply aren't what they used to be, and that's a reflection of technology enabling and revealing customer preferences. Regardless of how record labels prefer (or preferred) to sell their music, consumers prefer to purchase their music piecemeal--cherry-picking their favorite tracks and creating their own playlists and mixes on their iPods and other mp3 players. Call it the "mix-tapeization" of the music industry.

For decades, consumers had no choice but to purchase albums. It was the only way they could own or listen to the music they loved, so they shrugged their shoulders and handed over their money. Technology has enabled more choices, and the consumers' preference has been made loud and clear. It's not that there aren't still successful albums and consumers willing to buy them; it's just that there are many fewer of them than the old model seemed to suggest.

Freeing the consumer from the tyranny of the album model should be a net positive for the industry--it allows for artists to see more clearly what consumers like and don't like, and what they are or are not willing to pay for. This kind of customer feedback is vital for any successful business, and it's exactly the type of feedback that the music industry wasn't getting for so long.

Certainly, record companies are the player who will be hurt the most by the decline in album sales. But musicians are arguably better off--they never made much money from album sales to begin with, and now they can waste less time producing tracks 4 through 15 of a mediocre album, and more time focusing on producing more of the premium content that their listeners actually want. That, and more time touring, which as Dave Matthews has taught us, is where the real money lies.

[Wall Street Journal]

JFK, 50 years later

Fifty years ago today, President John F. Kennedy stood up and delivered his famous inaugural address, the takeaway line from which was, of course, "ask not what your country can do for you; ask what you can do for your country".

As Kennedy spoke to his nation at the height of the Cold War--just months before the construction of the Berlin Wall--there was significant uncertainty as to the future viability of capitalism and the U.S. way of life. Today, we find ourselves at a remarkably similar inflection point, beset by doubt and anxiety, with China threatening to play the role of a 21st-century Soviet Union.

Once again, we find ourselves wondering (and arguing) about the role of the state vs. the role of the individual, and what we as individuals must do to ensure the next generation of American prosperity. Kennedy's famous call to arms would be equally viable and important today, living as we do in an unprecedented era of entitlement.

Since Kennedy took the podium a half-century ago, federal government spending has certainly increased (albeit not linearly), but more importantly, our debt ratio has skyrocketed as government revenues have consistently failed to keep pace with spending increases.

Though Kennedy (and Johnson finishing out his term) succeeded at driving down levels of spending and debt, their gains were short-lived. In recent years, the trends toward increased spending and debt have been extended to troubling degrees. Simply put, no American generation since Kennedy's inauguration has asked for more from its government while providing less.

Note that the last two points on each chart represent projections based on an assumption of fairly robust economic growth over the next two years--if growth is slower than projected, the first chart will not experience the dip that is currently projected, and the second chart may go parabolic.

Our nation's response to the economic crisis of 2007-2008 was essentially the antithesis of Kennedy's plea--at every opportunity, we looked first to Washington to see what our politicians could do to ease our pain. We spent and spent and spent, but we sacrificed nothing in the way of increased taxes to support those new spending programs. Say what you will about the success or failure of the many programs enacted over the past few years--either way, the message from the American people was clear. Government must be the solution to our problems, because we are helpless to solve them ourselves.

If the 21st century is indeed to be another American century, this newfound relationship with government cannot continue. We must heed President Kennedy's words, and ask hard questions of ourselves--what can we do to help each other, to ensure the next generation of economic prosperity? A state, after all, is nothing but a collection of individuals--this is what Kennedy understood so well.

I have mentioned here before my firm belief that the economic prosperity of our nation depends on our own ingenuity and a return to the entrepreneurial roots that once made this country great--and can once again. The confidence, self-reliance, and individualism that defined our nation's frontier era must never be forgotten. As one last call to arms, I'll turn to Kennedy's own words, from that same speech fifty years ago today.
I do not believe that any of us would exchange places with any other people or any other generation. The energy, the faith, the devotion which we bring to this endeavor will light our country and all who serve it. And the glow from that fire can truly light the world.
Well said.

Wednesday, January 19, 2011

Why to blog

One of my favorite bloggers, Barry Ritholtz of The Big Picture blog, wrote something of a mission statement this morning for why he blogs (and why he thinks others should--or should not). It definitely resonated with me, since it in large part described why I blog. I thought I'd pass it along, in case any of you were wondering why I write; below is an excerpt.
I can think of many reasons why someone might start and maintain a blog:
Blogs? Yeah We Got That
         1. You have something to say
         2. You enjoy the craft of writing
         3. You want to figure out what you think, and do so in public
         4. You want to be part of a larger community of like minded individuals
         5. You have a hobby or interest that you are really, really into
         6. You want to maintain a presence on the Intertubes
         7. You have an expertise and you want to share it
         8. You have an eye for content (text, graphics and video) and you enjoy leading other people to them
         9. You want to create a permament online record of what you are reading, looking at or thinking about
         10. You like engaging in debate with total strangers
That’s off the top of my head.
Note that each of these bullet points begins with YOU. Blogs are about what YOU want to produce, regardless of how many readers shows up. The Big Picture would more or less be the same content with 100 or a 100,000 daily readers.
People are often surprised to learn that I write for me, not for the readers. That keeps it honest (as opposed to the SEO-driven content-farm material). It also helps to quiet the voices in my head.
I don't think it's quite as selfish a pursuit as Barry might indicate in his last paragraph, as his bullet points #7 and #8 are certainly outward-looking and important reasons to blog. He goes on to emphasize his belief that making money should never be the primary purpose of maintaining a blog--it may be an ancillary benefit, but if it's the only point, the blog will lose its soul.

For me, I definitely enjoy the craft of writing--and the introspection and thought process that writing requires (points #2 and #3); those are really the primary reasons I have this blog. But I also enjoy the conversation that it sparks; I like getting pushback from both my friends and strangers, because it challenges me to reconsider the things I think (and my reasons for believing them).

Blogging is always a very introspective pursuit, which I believe is what Barry is trying to get at. You write about what you believe, and see if others agree or disagree, rather than simply writing what you think people want to hear (as is a frequent criticism of the mainstream media). So that's why I write; the question now is, why do you read? I tend to think the reasons are fairly similar to my reasons for writing--that's my goal, anyway.

[The Big Picture]

Gambling vs Insurance

I came across a post over at Falkenblog (a fairly interesting blog that I just recently started reading) that discussed the paradox of people's proclivity both to gamble and to buy insurance. Eric Falkenstein writes,
People clearly like to gamble, and are willing to pay a premium for the exposure to random payoffs with large skew. This is contrary to the usual assumption that people are risk averse, and necessitate a positive expected return to take a gamble. 
Early on in utility theory, Friedman and Savage (1948) seized on this anomaly to argue that the curvature of an individual's utility function differs based upon the amount of wealth the individual has. This curving utility function would thereby explain why an individual is risk-loving when he has less wealth (e.g., by playing the lottery) and risk-averse when he is wealthier (e.g., by buying insurance)... 
The basic problem is that 
1) People pay to buy insurance. 
2) People pay to gamble.
It's still a puzzle, though every so often a new paper shows up to solve it.
Falkenstein's paradox made me think back to my very post here at The Crimson Cavalier, "On Insurance and Flat Tires" (for a refresher, I found a nail in the sidewall of my tire, and I was able to get the tire replaced for free, because I'd bought the "Tire Protection Plan", something I almost never do). In that post, I argued:
It is rare for the average individual or investor to do even basic expected value math (Expected loss = Probability of loss x Amount of potential loss) to determine what price they should be willing to pay for insurance. Insurance companies know this, and profit massively from it. Why, then, do people do this? Well, for the same reason that I'm an incredibly happy man this morning, that's why...
Frankly, it's biological--or, at least, psychological. We as humans are hard-wired for "loss aversion". While it may seem counter-intuitive, losing $100 causes us more pain than gaining $100 yields pleasure. It's bizarre, but it's true. Therefore, avoiding a $100 loss (or a $150 loss in the case of my flat tire) is actually more exciting than stumbling into a $100 gain. Yes, you heard right. I'm happier this morning than I would be if I'd come back to my car and seen a 100 dollar bill sticking out of my tire.
I think that this dynamic is key to deciphering Falkenstein's insurance/gambling paradox. I would argue that the reasons we buy insurance and the reasons we gamble are in fact one and the same.

When insurance pays to cover the costs of our crisis events, the excitement (or relief) that we feel at not having to pay to recover our loss more than compensates the added premium we paid along the way. Gambling is much the same. In both cases, we feel an incredible rush when we receive an unexpected gain. Not having to pay for a loss feels to us very much the same as an unexpected gain.

Ultimately, the decision to purchase insurance is not as simple as "risk-aversion", nor is the decision to gamble as simple as "risk-seeking". Rather, both decisions entail very complex psychological preferences with respect to our mental coding of gains and losses--our brains do some very strange accounting when it comes to unexpected financial results. (I'll link again now to the paper I linked to in my first post on insurance, in case you suffer from severe insomnia or masochistically enjoy reading dense academic treatises).

Of course, not all people suffer from this paradox. I, for one, avoid purchasing insurance whenever possible, but do enjoy gambling--you could call me a bit of a risk-taker, though I of course prefer to just think of myself as a coolly rational trader. Others will conversely avoid gambling and purchase insurance whenever possible. But the willingness to both gamble and purchase insurance should not be read as irrational or even necessarily inconsistent--it's just a reflection of our complex psychological wiring and the way we code gains and losses. I'll see you in Vegas.

[Falkenblog]

Tuesday, January 18, 2011

Quote of the Week

Last week, I wrote briefly about Facebook (and its apparent attempts to take over the world) while discussing the unceremonious decline of MySpace. This week, I'm writing about Facebook again, but this time it's for my Quote of the Week.

I mentioned in my MySpace post that Facebook--with an assist from Goldman Sachs--was essentially trying to rewrite the rules of our financial landscape, by trying to design a mechanism to offer shares to the public without, you know, going public. Today, that attempt seems to have gone bust, leaving both Facebook and Goldman with a fair amount of egg-in-the-face. Without further ado, courtesy of The Wall Street Journal:

This week's QUOTE OF THE WEEK

Goldman Sachs Group Inc. slammed the door on U.S. clients hoping to invest in a private offering of shares in Facebook Inc., because it said the intense media spotlight left the deal in danger of violating U.S. securities laws.
                                    - Liz Rappaport, Aaron Lucchetti, Geoffrey A. Fowler; Wall Street Journal

I've got plenty to say about this, but I'll give the first shot to Naked Capitalism's Yves Smith, who brought the quote to my attention.
On the surface, this looks like doublespeak of a very high order. The US is a rule based legal system, which means a violation of securities laws is a violation of securities laws, or more precisely, a violation of law can be determined by mapping a fact set against statutes, regulation, and case law. So the idea that legality has anything to do with media coverage is spurious.
But perversely, Goldman’s truthiness is an accurate account of the real state of affairs. Goldman sees that securities regs operate in the world of Schrodinger’s cat, where legality is in an indeterminate state until someone takes the trouble to look. And that remains true of what happened during much of the crisis. Tom Adams and I have written long form of the abuses that took place in CDOs, including probable market manipulation, lack of arm’s length pricing, and collusion by CDO managers, and we have argued separately that CDOs were the driver of the toxic phase of the subprime bubble. But no one seems willing to go there because the forensic work looks to be too daunting.
So the corollary of the Goldman uncertainty principle is: make anything so complicated that mere mortals are deterred from understanding a product or a business practice, and no one will open the box wide enough to see whether it is legal or not.
Amen. I've spent plenty of time over the last couple of months trying to navigate SEC and other regulatory agency rules to determine which ones do and do not pertain to me and my own business. It's not always easy to know what does and doesn't constitute a violation, but Goldman--and Facebook, by extension--seems to think that they've only committed a crime if someone points it out. There's certainly a little more to the story than that simplistic conclusion implies, but that confusion only further proves Yves' point.

Goldman's goal here was to blur the line between legal and illegal market activities, and they got tripped up by a technicality in the process. That's life when you're operating in the gray areas, and both companies deserve the negative repercussions that they're experiencing today. Good try, guys, but if you want to go public, go public.

[Wall Street Journal]
(h/t Naked Capitalism)

If states were countries

I came across this graphic over the weekend, which I thought was at the very least interesting. It aligns the states in our union with the nations in the world whose GDPs are most similar. For example, the state GDP of Texas (about $1.15 trillion) is approximately the same as the GDP of Russia (about $1.23 trillion). Crazy, isn't it?

Or, in the words of The Economist itself, "Who would have thought that, despite years of auto-industry hardship, the economy of Michigan is still the same size as Taiwan's?" Well said.


[The Economist]
(h/t Businomics Blog)

A butterfly flaps its wings in Australia

Hope you all had a fun and relaxing holiday weekend. I certainly did, with one glaring exception. That aside, the weekend passed by without my mentioning the flash flooding in Australia, which has become the latest in a long line of natural disasters that have captured the public's attention. I was particularly drawn to this video, which is pretty dramatic:



But what makes this natural disaster particularly interesting is the wider repercussions that it may have (beyond the usual human suffering, etc.). To wit:
While Australia is reeling from the immediate impact, the broader impact of 2010-11 weather patterns may have much bigger ramifications for food and energy prices in Australia and abroad.
The post focuses on the possibility, increasingly endorsed by top meteorologists, that the heavy Australian rains are the result of a super La Niña, the last of which was seen in 1973-4,the time of the last severe flooding in Queensland. Super La Niñas are hugely disruptive to agricultural production and can have other nasty knock-on effects (some contend the 1917 La Niña helped spawn the 1918 influenza pandemic).
In this case, the damage of a super La Niña will not only increase food costs at a time when price rises and food scarcity are already a major concern, but will likely extend to energy prices as well. That one-two punch would be particularly devastating to China.
In Australia, fruit and vegetable prices are projected to increase 30% this year as a result of La Niña. And recall Australia is a major agricultural exporter, so production shortfalls there will hit other markets. Super La Niñas tend to impair food output overall. 2007-8 saw a borderline super La Niña, and we saw sharply higher food prices in the first half of that year. Note that the UN’s Food and Agriculture Organisation reports that staples are already more costly than at any time in 2008.
We were reminded in the financial crisis of 2008 just how interconnected the world is, and how globalization has led to an increased risk of just about any disruption causing a global ripple effect. The Australia flood has the potential to become the latest example of the downsides of globalization and specialization. If a butterfly flaps its wings, etc. etc...

This potential food price shock is clearly the last thing we need, especially with the Fed aggressively printing money like it's going out of style. Chairman Bernanke likes to pretend that he will be able to nip inflation in the bud if and when the time comes, but exogenous shocks like this are far beyond any government or pseudo-government agency's control. Let's just hope that something like this doesn't happen in California--if it does, we could really be in for some trouble.

[Naked Capitalism]

Friday, January 14, 2011

Interesting take on the Arizona shootings

Matt Taibbi has received a lot of praise lately--deservedly so--for his high-quality investigative writing with Rolling Stone. He wrote insightful pieces on both Goldman Sachs and the Tea Party, both of which received a fair amount of recognition and accolades.

Earlier this week, he wrote a very level-headed response to the Arizona shootings on his blog, wondering aloud whether the media had a role in the incident--and whether there was anything that could be done to change that role going forward. I do recommend reading the whole thing (it's not particularly long), but I'll excerpt it here nonetheless.
Watching the coverage yesterday I was genuinely revolted by the reflexive ass-covering efforts by virtually everyone involved in either the politics or political media businesses. I turned on Fox just out of curiosity last night, and saw one pundit after another point out that Jared Loughner was probably a schizophrenic, a statistical aberration, and that no wider conclusions can or should be drawn by the actions of one lone nutcase. We can already see that the "Jared Loughner acted alone" defense is going to be widely employed. But I don't think that explanation is really going to fly...
If we're being honest with ourselves, we in the media understand that our job descriptions do not entirely overlap with the requirements of good citizenship. If you're in a marriage, or are a parent or living with parents, or have brothers or sisters or close friends, when you argue over a difficult issue, you don't just take out all the weaponry in your arsenal and blast away. In the interests of preserving the relationship, and because you respect and love the other person as a human being, you argue as politely and respectfully as possible. And your goal in arguing is always to fix the actual problem -- there's no other, ulterior motive.
That's just not the case in either journalism (and I should know-- more on that momentarily) or politics. In politics, you don't need to treat everyone with decency and humanity, just 51% of the crowd. Actually, given that half or less than half of all people don't vote, the percentage of people who require basic decency and indulgence is probably even lower than that, maybe 20-25% of the population. There's plenty of power and money to be won by skillfully stimulating public anger against some or all of the rest, and there are few rewards for restraint.
In the media, the situation is even worse. You can make vast fortunes riling up mobs. And because it's a fiercely competitive market, there's an obvious and immediate benefit to using superheated rhetoric -- it's more entertaining, gains more attention, and definitely gets more viewers and listeners and, er, readers.
And not only is there no incentive for restraint, there's actually a huge disincentive for restraint, because for many of us in the punditry world, our livelihoods depend upon cultivating audiences who come to expect a certain emotional payoff for tuning in. If you've trained them to expect to have their prejudices validated and their sense of Superiority Over the Other stroked every time they turn on your program, they're not going to like it when the show comes on and the editorial storyline is completely opposite.
Of course, any discussion over whether the media has a role must ultimately fall back on the consumers of the media's products--all of us. We can whine and complain all we want about how much we hate reality TV and the incendiary tone that political coverage has taken, but we watch it nonetheless.

I've spoken many times here about how much I hate the college football machine that has made untold millions for the NCAA and its institutional and corporate partners, but at the end of the day, I still tuned in for the BCS title game on Monday night, even as I railed against it on Facebook and via text messages to friends. I can blame the NCAA and ESPN all I want, but let's be honest--it's my fault.

The only power we all ultimately have in life is the power to walk away, to choose not to run. TV sucks and the networks are all throwing in the towel? Don't watch. They'll get the message. But as long as we are willing to watch, listen, or read the inflammatory rhetoric that continues to be spewed out by the national media, we'll simply get more and more of it.

Corporations are just collections of people, nothing more. And they don't have any power at all unless we as consumers give it to them. I'd love to blame this on the media or on the politicians, but all they're doing is responding to what their audience is asking for. We got what we asked for, as plain as that.

If we want our media outlets to begin behaving responsibly, we all as consumers and citizens need to behave in a way that ensures that their profitability and responsible citizenship go hand in hand--in other words, punish them in the pocket for behaving in ways that make America worse. We can't just expect the media to change their ways; we all need to look in the mirror and ask whether our own actions have helped fuel these societal shifts (and of course, they have). Until we do that, we can only blame ourselves.

[Rolling Stone]

Thursday, January 13, 2011

Clip of the Week

I was trying to come up with a clever lead-in for this week's Clip of the Week--a video from TED.com, which I've featured here once before--but I really couldn't manage to do a better job of teeing it up than the folks over at TED themselves. So I'll let them take over, and I hope you enjoy this week's clip (warning: at 10 minutes, it's a bit longer than most Clips of the Week).

"It takes an entire civilization to build a toaster. Designer Thomas Thwaites found out the hard way, by attempting to build one from scratch: mining ore for steel, deriving plastic from oil ... it's frankly amazing he got as far as he got. A parable of our interconnected society, for designers and consumers alike."

Unfortunate update

Sometimes when times are tough (and they've certainly been that lately), it can become excessively easy to jump on a supposedly happy story simply because they seem so rare. Such is the case of Ted Williams, the "golden voice" who I wrote about here last week and who immediately became a national sensation. Turns out there was a lot more there than initially met the eye, and I'm definitely guilty of having jumped to the "happy story" conclusion.
Ted Williams, the homeless "golden voice" internet sensation, voluntarily checked into substance abuse rehab for his alcohol and drug dependency after admitting on a television show that he was still drinking, a spokeswoman for "The Dr. Phil Show" said Wednesday.
Williams, 53, has been on a whirlwind spiral of publicity since a Columbus (Ohio) Dispatch reporter videotaped him panhandling on a roadside. The video quickly went viral on the internet, and he was offered several announcing jobs, including a contract with Kraft Foods.
He said in several broadcast interviews in the past week he has been sober for the past two years after years of addiction, a problem that separated him from his family and left him homeless for years...
Dr. Howard Samuels, the CEO of The Hills Treatment Center in Los Angeles, said he was not surprised to learn Williams was still drinking, given that the experienced "such an extreme from having nothing to having money and fame in such a short period of time."
"The hardest thing for an alcoholic is to have success," Samuels said. "Because the alcoholic, on a very deep level, has a very difficult time with success."
There were early warning signs in the Williams story, including news that he had in fact abandoned his wife and children and maybe wasn't the best guy to be glorifying on a national stage. He was then briefly arrested and questioned with regard to an altercation with his daughter in a hotel lobby, and now this.

There's so much to this story that it's a little hard to know where to begin analyzing it--the power of YouTube, the perils of instant fame, the all-encompassing 24-hour news cycle that pounces on celebrity and sucks it for all it's worth (don't forget to tune in to Dr. Phil for the follow-up with Ted's wife and daughters today!)--and behind it all, the public's insatiable appetite for entertainment at the expense of others.

As desperate as we all may have been for a happy story in these difficult times, we are often equally quick to jump on the man on his way down and marvel at the sordid and salacious details of his scandalous fall from momentary grace. This potentially happy story has apparently turned tragic, and it's hard to know exactly whom to blame. I am certainly not immune from criticism, nor is the man himself. It's just sad, plain and simple.

[CNN]

Wednesday, January 12, 2011

The cautionary tale of MySpace

With Facebook threatening to take over the world while completely redesigning the nation's financial landscape, I think it's a wise time to pay attention to this little bit of news, which seems to have gotten lost in the shuffle amid all the excitement over the Verizon iPhone.
MySpace said Tuesday that it is laying off 500 employees, cutting its staff by 47%.
"Today's tough but necessary changes were taken in order to provide the company with a clear path for sustained growth and profitability," CEO Mike Jones said in a written statement. "These changes were purely driven by issues related to our legacy business, and in no way reflect the performance of the new product."...
Once king of the social networking world, seven-year-old MySpace has fallen behind younger and nimbler rival Facebook. Acquired by News Corp. in 2005 for $580 million in cash, the site's active user base now hovers around 130 million -- far short of Facebook's 500 million.
Projections for Facebook's future have gotten a bit out of hand, which is hardly anything new for tech companies. I think Facebook is a very fine company in many ways, but one that continues to struggle a bit with how to properly monetize their large subscriber base. They're definitely doing some things better than MySpace did, but there was a time when people predicted similar explosive growth for MySpace (it was once the second-most visited site on the internet behind Yahoo), and we see now how that story has ended.

Before we start investing our lives' savings in Facebook and predicting that it will take over the internet, we need to remember just how vulnerable tech companies can be in their early stages, and just how quickly the industry can change completely on them (hello, AOL, Gateway, Netscape, and Lycos).

Facebook may indeed be primed to join the big players with explosive growth. Or, it could end up like MySpace, just another company that never quite figured it out. More likely, it'll be in for a decade-long bumpy ride--much like Microsoft, Amazon, eBay, etc. If they can wait out those bumps while not overplaying their hand, they'll do just fine. But there are definitely warning signs, and MySpace is a cautionary tale.

[CNN Money]

Tuesday, January 11, 2011

Quote of the Week

This week's Quote of the Week isn't so much a quote as it is a phrase. Specifically, it's the definition of a phrase, as listed in the Urban Dictionary. Thanks to Paul Kedrosky for the heads-up.

This week's QUOTE OF THE WEEK
"when the economy picks up"
January 10, 2011 Urban Dictionary Word of the Day
Common beginning or ending to a sentence. It can serve to:
1. provide an excuse for why one has not yet done something.
2. suggest a vague intention of doing something later (similar to how Spanish speakers use the word "mañana.")
3. add minimal credibility to an idea that is a pipe dream.
1. There's no point in looking for a job until the economy picks up. 2. I'll start my business when the economy picks up. 3. Unemployment levels will go back down to the levels they were in the late 1990s when the economy picks up.
Perfect. A catch-all excuse always comes in handy. I recognize that my Quotes of the Week have been a little, well, weak lately... but I expect that to change once the economy picks up.

Growing income inequality and the blight of Fed policy

I've written here many times before about my belief that current Fed policy (zero-interest rate policy, quantitative easing, etc.) is not only incredibly dangerous, but also enriches the richest of Americans at the expense of the poorest. Along those lines, Tim Iacono over at The Mess That Greenspan Made passed along this article from The Telegraph's Ambrose Evans-Pritchard, which expounds on my belief while also providing some very interesting (and damning) empirical data to support it.
There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.
Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc.
Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.
Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards – not stamps -- currently worth about $140 a month under President Obama’s stimulus package.
The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.
Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.
The actual number of jobs contracted by 260,000 to 153,690,000. The “labour participation rate” for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).
“Corporate America is in a V-shaped recovery,” said Robert Reich, a former labour secretary. “That’s great news for investors whose savings are mainly in stocks and bonds, and for executives and Wall Street traders. But most American workers are trapped in an L-shaped recovery.”
The whole article is worth a read, as it describes the danger of extreme income inequalities, while also detailing America's decades-long march to its current point. Fed policy may at some point make our headline economic numbers look decent, but the devil is in the details--any policy that enriches the richest at the expense of the poor and middle class will be fleeting in its success. We must fight the Fed. Save us, Ron Paul!

[The Telegraph]


Monday, January 10, 2011

More on creative destruction and the book business

In a miracle of good timing, Professors Posner and Becker (whose Becker-Posner Blog I've excerpted here before) have decided this week to take up the issue of creative destruction, especially as it pertains to the bookstore industry. As you'll recall, I wrote about creative destruction twice last week, here and here.

As always, Becker and Posner both wrote on the same topic, with slightly different angles. I'm not going to bother excerpting them here, since they're both difficult writers from whom to pull sound bites. But if you were interested in the concept and want to read more about it, I encourage you to read both of their takes (particularly Becker's interesting views on the shifting of activities out of--and then back into--the home).

Becker's take
Posner's take

More fun with Census information

I wrote once before about the Census data, and now that people have had some time to digest the Statistical Abstract of the United States, there's some more fun data coming out. The New York Times posted this graphic, summarizing some of the behavioral changes over the last 10 years.


Some of the highlights:
  • Our red meat consumption per capita decreased by nearly 5%, from 113.7 pounds to 108.3
  • But our vegetable consumption decreased much more, by about 7%
  • A record 41% of all live births were to unmarried women (yikes)
  • 5 states have more pigs than people
Good times.

[New York Times]

One of the saddest things I've ever heard

I hate to start the week off on a down note, but this wasn't exactly the happiest of weekends with the events in Arizona.
Christina Taylor Green, the dark-eyed, energetic granddaughter of former Phillies manager Dallas Green, existed in the brief interlude between two great American tragedies.
Born just hours after the horrific attacks of Sept. 11, 2001, the 9-year-old was killed Saturday in the Arizona massacre in which a congresswoman was critically injured and five others, including a federal judge, were slain.
"She liked having that birthday," her mother, Roxanna, recalled in a Sunday telephone interview. "She thought it was a holiday when she was little. We had to set her straight."...
The youngest of two children of Green's son, John, she was among 20 people shot by a lone gunman at a Tucson shopping-center meeting sponsored by U.S. Rep. Gabrielle Giffords (D., Ariz.).
Giffords is in critical condition but expected to survive.
The third grader at Mesa Verde Elementary School had gone to the event with a neighbor because she had recently been elected to the student council and already had an interest in politics, authorities said. The neighbor was shot four times but survived.
"It seemed like such a good idea," her mother said. "We never imagined anything like this could happen."
When the neighbor took the young girl to witness our government in action, I'm pretty sure this isn't what she had in mind. While it may be tempting to point fingers in the aftermath of this tragedy, I don't think that's particularly fair.

The fact is, what has come to pass for "political discourse" these days has become increasingly inflammatory and divisive, and an incident like this was almost inevitable in response. It's not particularly relevant which side of the aisle was affected by the attack--what's clear is that we need to get our act together and stop vilifying each other, or else.

This incident is a tragic and sobering wake-up call. Let's hope we learn the right lesson from it, rather than using this as an excuse to ramp up the political rhetoric.

[Philadelphia Inquirer]

Friday, January 7, 2011

Important foreclosure update (hooray!)

In yesterday's post about the foreclosure mess, I made a brief late note to keep an eye on the Massachusetts Supreme Court case (the so-called Ibanez case) regarding the validity of certain foreclosures. I wrote:
Keep an eye on this case in the Massachusetts Supreme Court, which could potentially void certain foreclosures and score a "win" for homeowners' rights in this mess. We can't allow our rights to be trampled in order to ensure short-term economic (and housing market) stability. The rule of law and due process must be preserved at all costs, period; let's hope that's what happens here.
It seems that my prayers have been answered, and quickly at that.
US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.
The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.
“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.
Wells Fargo, the fourth-largest U.S. lender by assets, dropped $1.10, or 3.4 percent, to $31.05 at 11:41 a.m. in New York Stock Exchange composite trading. US Bancorp declined 28 cents, or 1.1 percent, to $26.01.
The 24-company KBW Bank Index fell as much as 2.2 percent after the decision was handed down.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures.
This ruling is almost certain to be appealed, but that's hardly important. With this decision now on the books establishing precedent, you can reasonably expect a flood of similar "wrongful foreclosure" lawsuits to be raised around the country.

Other states' courts obviously do not need to agree with, honor, or abide by the Massachusetts decision, but the precedent is no less important. The banks are in for a very serious sh**storm, and a well-deserved one at that. It doesn't matter if the homeowners in question were in fact in default on their mortgages (and in this case, they were). The rule of law and due process is what matters, and it must be protected.


The only (and I do mean the only) thing that ultimately separates first-world economies from third-world economies over the long run is viable protection of property rights. For more on that point, I encourage you to read here; the gist of it:
  • Not only will a weakened structure lead to a consequent lack of trust in the legal property system, which further encourages informal market activity (black markets), but it also negatively influences investment decisions by an investor or multinational interest for fear of a lost return.
  • The degree to which intellectual property is protected also highly influences a country's inventive character as it shapes the flow of innovative ideas and products that are developed, which in turn affects creative and economic wealth.
In essence, if people don't have legitimate reason to believe that they will own (and continue to own) the fruits of their labor, they will be less likely to produce any fruits at all. They'll be even less likely to engage in any type of research and development activity that leads to innovation, lest they invest heavily in a new technology and then see it stolen from them (whether by other individuals, corporations, or the government) before it can become profitable. This is the essence of U.S. patent law.

Housing rights are the most fundamental of all property rights--chip away there, and you'll undermine the economy at large. We can't afford to trade short-term economic stability for long-term economic viability. That's why this ruling is so important.

[Bloomberg]