November 8, 2009 - November 14, 2009 Archives
Nov 13 2009, 5:15PM
Supreme Court Considers Patenting Abstract Ideas
This week, the Supreme Court considers a case that could have a major effect on patent law. Bilski and Warsaw v. Kappos poses the question of what kind of abstract ideas can be protected as intellectual property. In the case, Bernard Bilski and Rand Warsaw attempted to patent a business method that consisted of a hedging process to help companies have more predictable energy costs. The patent was denied. Though the decision is upcoming, one New York Times article portrays the Justices as being skeptical towards the idea that any intangible ideas or processes could be patented. I think this is an extremely difficult question.
Nov 13 2009, 4:21PM
A Better Health Care Reform Strategy: Don't Talk About It
It seems that the more we talk about health care reform, the less popular it gets:
Nov 13 2009, 4:16PM
Rock Music, Oil Production and Causation Fallacies
Nov 13 2009, 3:54PM
Can The FHA Avoid A Bailout Through Higher Premiums?
Yesterday, I wrote about the how the Federal Housing Authority is on the road to a bailout, with its cash reserves quickly drying up as mortgage losses soar. This would be a significant departure from history -- the FHA has always been self-sustaining. It has done so by its mortgage insurance premiums paying for any losses its portfolio has incurred. Unfortunately, defaults are higher these days than FHA management anticipated, so the premiums might not be enough. This points to an obvious way for the FHA to avoid a bailout: it could increase premiums. While a possible solution, I doubt it would happen.
Nov 13 2009, 2:50PM
FDIC Finalizes Forced Prepayment Of Insurance Fees
The Federal Deposit Insurance Company (FDIC) has finalized its plan to replenish its quickly drying up insurance fund by ordering banks to prepay their insurance fees through 2012. Back in September, when this plan was cited as possibility I criticized it, because I don't think now is the time to drain the fragile banking industry of $45 billion in cash. Through the accounting treatment of how these fees will be paid, they won't endanger banks' stability. But I think this is still a bad policy from an economic standpoint.
Nov 13 2009, 2:38PM
Why are Consumers Down if Production is Up?
Nov 13 2009, 1:47PM
Will Disney's New Park In China Increase U.S. Media Access?
The news that Disney will be building a new theme park in Shanghai appears to be a no-brainer from a business standpoint: what company wouldn't want a foothold in a nation with a booming economy and over one billion consumers? Wealthy Chinese travelers sometimes visit other Disney theme parks located in the U.S., Paris or the more convenient Hong Kong. But having a location on mainland China will make it even easier for the entertainment conglomerate to become a part of modern Chinese culture. Yet, could Disney's presence there do much to open up media access for the rest of the West? A Bloomberg article says no, but I think it might.
Nov 13 2009, 12:59PM
Maybe Unemployment Doesn't Matter for Democrats, After All
Nov 13 2009, 12:15PM
JP Morgan CEO To Washington: Create A New Resolution Authority
Congress got a message today from Wall Street -- over their morning coffee while perusing the Washington Post. JP Morgan Chairman and CEO Jamie Dimon wrote an op-ed urging the nation's political leaders to end the too big to fail problem by creating a new non-bank resolution authority. He's probably pleased to see that both the House and Senate regulatory proposals would provide the Federal Deposit Insurance Corporation with precisely that role. I am too. But while I agree with Dimon's general plea, I am not on board with everything he says.
Nov 13 2009, 11:44AM
Maddoff's Computer Accomplices Charged
If they're found guilty, as far as I'm concerned, they should get what Madoff got. He couldn't have perpetrated this massive fraud without this sort of assistance, and if the complaint is correct, they quite clearly knew that swhat they were doing was helping to destroy the life savings of all their investors. White collar crime needs to feel a little more dangerous.
Nov 13 2009, 11:34AM
Landmark Eminent Domain Case Ends In Tragedy
Now Pfizer is pulling out, following their merger with Wyeth. Incoming mayor Robert M. Pero wanly says: "Basically, our economy lost a thousand jobs, but we still have a building".
Nov 13 2009, 11:22AM
Could Job Sharing Help Fight Unemployment?
Nov 13 2009, 10:48AM
Should The Poor Celebrate Bigger Wall Street Bonuses?
Most people would probably answer the question above with a resounding "no!" Of course the poor aren't better off with greater income equality, right? Well, they might have reason to cheer the recent news that Wall Street bonuses will soar this year -- at least according to Robin Hood Foundation executive director David Saltzman. Bloomberg reports that he's thrilled bankers will have big bonuses burning holes in their pockets, because that means a lot more donations for non-profit organizations like his. Is his exuberance warranted?
Nov 13 2009, 10:22AM
Y2K's Lessons for Health Care, Climate Change
Nov 12 2009, 5:50PM
Australia's Wine Industry in Crisis. Seriously.
Nov 12 2009, 5:31PM
The Federal Housing Authority Is In Trouble
Well this isn't good. The Federal Housing Authority's (FHA) cash reserves are well below the minimum amount required by law -- and are in danger of drying up completely. A little over a month ago, I speculated that the FHA might be next in line for a bailout. Today's news makes that outcome appear even more inevitable.
Nov 12 2009, 4:11PM
How Badly Did Banks Want To Be Saved?
Today I listened to a panel discussion at the Cato Institute about the financial crisis. The participants debated aspects of Robert Pozen's new book "Too Big To Save?" In it, he dissects the causes of the crisis and explains how he believes those problems could be prevented in the future. There was an interesting point of disagreement among Pozen and another panelist concerning whether the U.S. government should have provided the banks with such attractive terms for the bailout money they accepted. Pozen doesn't think so, and I agree.
Nov 12 2009, 3:10PM
Home Purchase Applications At Lowest Level Since 2000
I keep hearing that the housing market is improving. In fact, some criticized Washington's extension and broadening of the home buyers' credit on the grounds that there is enough demand for buying houses already. So this news from the weekly home purchase applications survey conducted by the Mortgage Banker's Association (MBA) surprised me:
The seasonally adjusted Purchase Index is at its lowest level since December 2000.
It decreased a whopping 12% last week, compared to a week earlier. How can this be?
Nov 12 2009, 2:42PM
Two-Year Itch: Unemployment Benefits Hit 99 Weeks
This statistic is tragic, and it has short and long term implications for our economic policy and our national identity.
Nov 12 2009, 2:03PM
Federal Reserve Finalizes New Overdraft Rules
The Federal Reserve today issued its final rules concerning bank overdraft fees. About a month ago, I wrote about how several prominent banks had already begun allowing customers to opt out of the ability to incur overdraft fees. While clearly good news for chronic overdrafters, I worried about greater cost this policy change could impose on those who never attempted to withdraw more money than they had. The Fed's rules appear mostly in line with that new trend that some of those banks have already begun moving towards.
Nov 12 2009, 1:30PM
Viral Loop Interview Part II: Why Facebook Beat MySpace
In Part Two of my interview with Adam Penenberg, the author of the new book on viral marketing called Viral Loop, he revealed how to find out your dollar-value on Facebook; how a game called Zynga makes a
fortune off of "virtual goods"; and how the banner ad is killing online
journalism. (Part One of my interview is here.)
Your book suggests that friend networks are only going to
grow in value, as companies rely on their customers to spread their
products. Might this cause a backlash?
Nov 12 2009, 1:20PM
Senate Slams Securitization
In reviewing the House's financial regulation plan a few weeks ago, I was very critical of its ideas for reforming securitization. In fact, I said that the proposed changes could mark "the beginning of the end of securitization." The Senate's plan (.pdf) released this week also seeks some asset-backed market changes. Its plans are potentially even more debilitating to the industry. But it also, separately, proposes a few good ideas.
Nov 12 2009, 1:06PM
America's Fundamental Problem, in a Sentence
The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.
Nov 12 2009, 12:51PM
Chavez's Economic Problems Turn Nasty
For a long time I have been saying (along with a lot of other people), that Hugo Chavez was running his country into the ground. He diverted investment funds from PDVSA, Venezuela's state-run oil company, into social programs. As long as the price of oil kept rising, he could do that. Unfortunately, Venezuela's sour, heavy crude is particularly hard to get at and refine, and requires a high rate of investment in order to keep production up. As a result, the number of barrels per day (bpd) that Venezuela produces has declined pretty sharply since he took office in 1999.
Nov 12 2009, 12:36PM
Viral Loop Interview Part I: The Fastest Way to Make $1 Million
Journalist Adam Penenberg is the author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves -- a book that is getting rave reviews in the business press, and garnering attention from media watchers fascinated by the way it's being marketed by its author. In Part One of my interview with Professor Penenberg, the reporter who also caught infamous fabulist Stephen Glass, we discuss the legacy of viral marketing, from town criers to Tupperware parties to Twitter.
What is a "viral loop"?
Nov 12 2009, 12:07PM
Bear Stearns Bankers Walk Free
The first of the big trials this go around just ended in a bust:
Nov 12 2009, 12:07PM
Obama Applies The Patented Summit Approach To Jobs
Obama today announced that he'll hold a summit on job creation at the White House, as the economy has begun to grow again but unemployment, which typically lags behind economic indicators like GDP, is still on the rise.
"[I]n in December, we'll be holding a forum at the White House on jobs and economic growth. We'll gather CEOs and small business owners, economists and financial experts, as well as representatives from labor unions and nonprofit groups, to talk about how we can work together to create jobs and get this economy moving again," Obama announced today during brief remarks before departing for Alaska en route to his week-long Asian trip.
Sound familiar? It is.
A couple weeks after taking office, the Obama formed his President's Economic Recovery Advisory Board, which includes economic experts, former administration officials, plus business and labor leaders. In May, it held its first quarterly meeting--something that could, presumably, look like what will happen at the jobs summit in December, but probably with more administration officials, breakout sessions, and fanfare.
Also in February, Obama held a Fiscal Responsibility Summit, pulling in lawmakers from both sides of the aisle to hold working groups. He invited lawmakers to the White House to discuss the stimulus, too, and he did the same for health care reform in March for a summit that included major industry players, then had those industry and labor leaders back to the White House in May to announce a deal in which everyone backed his broader goals for reform and pledged to cut costs.
Bringing multiple sides, both within government and without, "to the table" has been a buzzword of the Obama presidency, but we haven't seen much of it since those early talks with the major health care players, and December's meeting will mark a return to something we saw a lot of in Obama's early days.
Nov 12 2009, 11:04AM
It's Good That Windows 7 Was Partially Inspired By Mac
In the tech world yesterday, there was a big stink about a Microsoft group manager saying that Windows 7 was partially inspired by Mac's operation system. Obviously, such a comment is sure to make Mac lovers snicker. A Microsoft spokesperson subsequently denied the validity of that manager's statement. I can't help but wonder, is there really any doubt that Microsoft considered Mac in its operating system redesign -- and can anyone really fault it for doing so?
Nov 12 2009, 10:02AM
White House to Use TARP to Fight the Debt
Nov 11 2009, 4:45PM
The Senate's Disappointing Rating Agency Reform Proposal
So far, I've been pretty positive about the Senate's version of systemic risk regulation (.pdf). In a proposal that otherwise calls for sweeping changes to the current regulatory framework, I was extremely disappointed to see the meager reforms the plan has in mind for rating agencies. It essentially seeks to have the ratings industry work as before, but with some minor changes. That's kind of like giving a new coat of paint and oil change to a rusty 1973 Ford Pinto with an engine that once exploded: even if you get it running once more, it might just blow up again under certain conditions.
Nov 11 2009, 4:14PM
10 States Hurtling Toward California-Level Disaster
Nine more states are "barreling toward an economic disaster" according to a new Pew poll that sees deep service cuts and temporary tax hikes to avoid fiscal calamity. Some of these states will be familiar to Atlantic Business readers. I've been leading the funeral cry for the united states of MichiCaliFlAriVada (that's Michigan, California, Florida, Arizona and Nevada), and all five states are on Pew's list. Rounding out the ten are Illinois, New Jersey, Oregon, Rhode Island and Wisconsin. Here's the graph from the Pew Center on the States:
Nov 11 2009, 3:30PM
Jeffrey Sachs on Obama's "Inadequacy"
Nov 11 2009, 3:00PM
The Ugly Commercial Real Estate Picture
The commercial real estate market is a mess. I've mentioned this in the past, but a Bloomberg piece today presents some analysis worth highlighting. It includes a fascinating chart, but mostly focuses on a report by Randall Zisler, chief executive officer of Zisler Capital Partners LLC. He says, "A crisis of unprecedented proportions is approaching." If his analysis is correct, then it could happen.
Nov 11 2009, 2:00PM
A Few Notes On The Proposed Super Bank Regulator
In my summary of the Senate Banking Committee's new systemic risk regulatory proposal (.pdf) yesterday, I already mentioned its plans to consolidate bank regulators into one new regulator called the Financial Institutions Regulatory Administration (FIRA). This suggestion is significant enough that I think a little more detail is worth noting. I'm on board with the general idea, but I doubt it will happen.
Nov 11 2009, 1:32PM
Should Obama Have Set Cost Limits On Health Care Reform?
Ezra Klein considers the $900 billion price tag Obama put on health care reform, and calls it "the $900 billion mistake". It is not enough, he says, to put together a good bill, and as a limit, it seems pretty arbitrary:
Nov 11 2009, 12:50PM
No Unemployment Recovery Until 2013
Nov 11 2009, 12:29PM
Pulling the Plug
The only comfort is, I'm not sure if anyone ever bought the top-notch twaddle about electric cars; I assume the administration, and voters, mostly made the decision based on how many angry interest groups a collapse would produce. Still. It's worth keeping in mind every time we hear companies demanding money from the government based on their outstanding future contributions to society. Which you hear an awful lot, these days.
Nov 11 2009, 11:55AM
Are U.S. Wages Too High?
The last thing Americans want to hear at a time like this is that they're being paid too much. But that's precisely what an article today from Breakingviews.com appearing in the New York Times argues. It says that U.S. wages need to decline in order for the nation's businesses to compete in a global economy. As much as I hate to say it, I think the piece's logic makes a lot of sense.
Nov 11 2009, 11:30AM
Could You Balance the Federal Budget?
The Budget Challenge game at FederalBudgetChallenge.org puts next year's budget in your hands and tallies the budget implications of your chosen policies. More helpfully, the folks at FBC include a sidebar that explains some of the consequences of each measure. Obviously the game isn't an all-inclusive menu of spending and tax options -- and balancing the federal deficit during the rump of a recession is a long-term project rather than a check-off list for a single fiscal year -- but it's an interesting game, nonetheless.
Nov 11 2009, 11:16AM
Does Excess Debt Lead to Bubbles?
About a week ago, I was having drinks with a friend and discussing John Kenneth Galbraith's dictum that "all financial innovation involves ... the creation of debt secured in greater or lesser adequacy by real assets," wrote the economist John Kenneth Galbraith in 1993. And "all crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment."
Nov 11 2009, 11:15AM
Swinging The Ax At The Drug Companies
Nov 11 2009, 10:50AM
The Senate Plan's Resolution Authority
Given my strong dedication to the idea that we need a non-bank resolution authority, I couldn't resist addressing this aspect of the Senate's new systemic risk regulatory proposal (.pdf). It's a lot like the House's version, but there are some nice additional details it includes and a few important differences.
Nov 11 2009, 10:48AM
Should We Listen to Murdoch's Google Threat?
That's my take, too. Here's one small reason why.
Nov 10 2009, 5:21PM
The Proposed Agency For Financial Stability
As mentioned earlier, I've begun tackling the Senate Banking Committee's mammoth systemic risk-targeted regulatory proposal (.pdf). The first section creates an "Agency For Financial Stability" (the "Agency"), which would function as systemic risk regulator. I want to compare and contrast this with the House draft's approach. Frankly, the Senate's version is better.
Nov 10 2009, 4:56PM
Scary Charts! What Do They Mean?
Nov 10 2009, 3:45PM
Health Reform "Heavy on Health and Light on Reform"
I like Rahm Emanuel's line a lot:
Nov 10 2009, 2:29PM
Dodd's New Financial Regulation Bill
Senate Banking Committee Chairman Christopher Dodd (D-CT) announced his plan for financial regulation today. A few weeks ago, I dissected a draft out of the House Financial Service Committee that sought to accomplish essentially the same task. The two plans differ in some very significant ways. Rather than blog my way though this one, I thought it might be more useful to note some highlights, and then dig a little deeper into several interesting topics in subsequent posts.
Nov 10 2009, 2:26PM
Reading the Dodd Proposals
Bruce Bartlett argues that reading the health care bill is a waste of time. Not only is it all written in legalese, but also, many of the provisions simply alter sections of other bills, so unless you have some sort of hyperlinked database, much of the language is meaningless.
The same could be said of the draft financial services bill that has started circulating. I have it, but haven't looked at it yet because a friend who has--and is a security lawyer--says that it's similarly impenetrable. His thoughts:
Nov 10 2009, 1:02PM
The University with the Best Media Buzz Is ... (Not Harvard)
Let's take a look at these rankings and decide whether they mean anything.
Nov 10 2009, 12:15PM
Could AIG Really Repay The Government?
Moodys think so. Reuters reports that the rating agency appears to be impressed with AIG's restructuring plan, saying that the insurer will likely be able to repay its entire government loan and a great deal of the equity stake. That's pretty impressive, considering how much it owes -- up to $180 billion, which includes around $80 billion loans. Is Moodys being a little too optimistic? It depends.
Nov 10 2009, 11:56AM
Is the Jay Leno Experiment Imploding?
-- NBC has lost 1.8 million viewers in the with the Jay Leno experiment (down 45%)
-- CBS has lost 162,000
-- ABC has gained 245,000
Worse, NBC's 10PM advertising rates are down as much as 70 percent:
Nov 10 2009, 11:17AM
Blame Obama for the Job Losses?
Eh, I'm underwhelmed. Bush made similar claims about the powers of his tax cuts. That's what presidents do: claim that they have magical powers over the economy. Then when things get better, they take credit, and when they don't, they claim things would have been even worse without them.
Nov 10 2009, 10:39AM
How to Get Free WiFi in Airports on the Holidays
But wait! Some key cities -- including Chicago, New York and Washington, DC -- aren't on the list. Is there another way to finagle free Internet from the terminal?
Nov 10 2009, 10:30AM
Well Fargo's Bailout Payback Dilemma
Wells Fargo has a dilemma: it wants to pay back the government for the $25 billion in bailout money it took, but doing so while retaining its Tier 1 capital-asset ratio would require raising new equity, diluting its stock's value for its current shareholders. As a result, it may seek to pay back the bailout over the next few years through putting a portion of its profit towards its tab. Doing so, however, would require it to pay a hefty preferred dividend to the U.S. government each year. The New York Times' DealBook broke down this problem yesterday. It considers one solution, but there might be a better one.
Nov 9 2009, 4:35PM
Should We Tax Soda and Fruit Juice?
Nov 9 2009, 4:20PM
Credit Won't Lead The Recovery
A question I've often wondered during this recession is -- what will lead us out? With unemployment above 10%, it probably won't be consumers. That leaves business. Yet, some news out from the Federal Reserve makes that hope look a little bit grim as well. In the Fed's "October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices," trends for banks' credit practices are revealed. In short, credit likely won't be leading us out of the recession either.
Nov 9 2009, 3:20PM
A Secret List Of Giant Banks
There's some criticism around the idea that the list of large financial institutions that will be subject to heightened regulatory requirements under new systemic risk regulation should be kept secret. I wrote about this feature during my eight-part series on the new systemic risk draft proposal being mulled over by the House Financial Services Committee. At first, I said that there were some legitimate reasons for secrecy. Upon greater reflection, however I'm not sure I even see the point, given the purpose of the list.
Nov 9 2009, 2:53PM
The Bad Politics of Health Care Reform
Nov 9 2009, 2:30PM
Understanding Custom OTC Derivatives
Most OTC derivatives are highly standardized, heavily traded products that are more fairly described as unfamiliar than complex. Nonetheless, a small corner of the market comprised of customized, or bespoke, trades has captured the imagination of both the public and the press. The descriptions put forth to date muddle the scale of the market, purportedly in the hundreds of trillions of dollars, with words like "complex" and "arcane," all to convey a sense of simultaneous condemnation -- the result of some vague concept of inherent mischief -- and unholy admiration for the wizards who put these "black boxes" together. In an effort to tone down the more florid descriptions of bespoke trades, what follows is introduction to the market conditions that cause certain market participants to prefer bespoke trades to more standardized alternatives.
Nov 9 2009, 1:55PM
Blaming the President for Unemployment
Right now," "immediate economic emergency," "requires urgent action," "can't wait." Wow! He gave the impression that job creation would be his top priority, that action would be swift and effective, that his solutions would not only stanch the hemorrhaging, but reverse the trend.
Nov 9 2009, 1:29PM
Verizon To Offer An iPhone Nano?
A smaller iPhone -- through Verizon? It could happen. Computerworld reports:
Apple Inc. will launch a smaller "worldmode" iPhone next year that will be ready for Verizon Wireless to sell in the third quarter of 2010, according to an analyst report citing unnamed handset maker sources in Taiwan.
I'm skeptical about the validity of this report for a few reasons. But even if it is true, I just don't see the point.
Nov 9 2009, 1:14PM
Why Google's AdMob Buy is Smart
Nov 9 2009, 12:48PM
The Health of the Nation
So the House passed a landmark health care bill, and everyone's trying to figure out what it all means. Is passage of a substantial reform now near-inevitable, as the White House seems to be claiming? Or was this the peak, as the Republicans claim?
Nov 9 2009, 12:05PM
Fannie To Write-Off Tax Credits
The Treasury has rejected Fannie Mae's plan to sell its low-income housing tax credits, so the company may have to write down their value to zero. I wrote about Fannie's attempt to sell the credits to Goldman Sachs last week. I found the idea very questionable from a taxpayer standpoint, and the Treasury agreed. But writing down these the credits isn't something that should be surprising, or really a problem.
Nov 9 2009, 11:52AM
Why is America So Bad at Job Stimulus?
Nov 9 2009, 11:19AM
Netflix For Clothes
As a Netflix user, I have come to enjoy the simplicity and convenience of updating an online queue and having new movies to watch come in the mail. According to a New York Times article this morning, another company seeks to emulate the Netflix model -- but for high-end clothing. This is an intriguing idea to be sure. I just worry about the logistics.
Nov 9 2009, 10:45AM
Are Wages Rising?
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