Archive for the ‘Economy’ Category

The Day Google Became Just Another Company

February 16, 2010

Baseline Scenario’s James Kwak hit the nail on the head when describing Google Buzz’s controversial launch. I.e. the king is naked:

Not the day they launched Google Buzz, but the day that Google Buzz product manager Todd Jackson responded to legitimate privacy concerns by writing this piece of meaningless corporate PR spin worthy of, well, any other company out there: “Google remains completely committed to freedom of expression and to privacy, and we have a strong track record of protecting both.”


Paul Volcker (Finally) Prevails

January 21, 2010

The Wall Street Journal reports a shift in policy regarding big banks, showing Paul Volcker’s opinion is finally taken in account:

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.

This is good news insofar as it seems to show that the “big banks are indispensable” pablum has worn out in the WH.

How Supposed Free-Market Theorists Destroyed Free-Market Theory

January 20, 2010

Dan Geldon over at The Baseline Scenario examines the important role contract complexity played in the recent financial debacle, and still threatens our financial system:

In the years leading up to the crisis, the proliferation of fine print, complex products, and hidden costs and dangers – and the push against government regulations over them – exemplified the larger pattern. While touting complexity as a form of innovation and railing against every attempt at government interference, supposedly pro-market forces used that complexity to clog the gears of free market machinery and to reduce competition and maximize profit.

When consumer credit contracts are buried in so much legalese that even experts can’t understand all the terms –­ I heard one former CEO of a top financial company admit privately that his lawyers couldn’t explain various mortgage terms and conditions — how can anyone believe the mortgage contract represents meaningful free choice? What consumer is able to weigh the benefits and costs of individual financial product features buried in the fine print and decide what to take and what to leave?

The corporate assault on comprehensible contracts is important because contract law has been the bedrock of capitalism for a long as there has been capitalism. By enabling free choice, meaningful contracts maximize economic efficiency. The assumption behind von Hayek and other theorists is that robust contract law facilitates a vibrant economic system and minimizes the need for government intervention in the economy. But that went out the window when von Hayek’s theory itself was used to manipulate contracts. Now that products and fine print have become so perverted and incomprehensible, how can anyone expect contracts to steer the market in economically efficient ways?

We now know that the problem of complex contracts did not just harm consumers. Municipalities across the country were lured into buying toxic derivatives and institutional investors were routinely abused at the hands of complex products. Stories about Wall Street’s math wizards purposefully cramming dangerous and confusing products down the throats of the unsuspecting are commonplace and legendary.

Financial Times: Big Banks Rigged The Market

January 20, 2010

Philip Stephens reports the atmosphere in both British political circles and finance circles:

When Lloyd Blankfein met politicians in London a little while ago he brushed aside warnings that investment banks faced higher taxes if they ignored the rising public outcry about multibillion-dollar bonus pools. The Goldman chief executive seemed to believe governments would not dare.

That misjudgment – a measure of the breathtaking hubris that, even after all that has happened, continues to separate bankers from just about everyone else – may explain Goldman’s response to the British government’s decision to apply a 50 per cent tax to this year’s payouts.

It is a measure of how far the political debate has shifted against the financial plutocrats that George Osborne, the Tory shadow chancellor, has applauded the Swedish plan (a permanent “stability levy” to discourage excessive risk-taking). If the Tories win the coming general election, they would support a worldwide levy along similar lines. It is “unacceptable”, Mr Osborne remarked the other day, for the banks to be paying big bonuses rather than building resilience against future crises.

Tax and regulation should not be used as weapons to settle scores, however tempting that might be. But the banks have had it too good for too long; and the rest of us are now paying the bill. Institutions in the vanguard of spreading liberal market economics around the world were all the while making fortunes in markets that were rigged to their advantage.

Goldman’s Cayman Casino

January 13, 2010

The Real News Network interviews McClatchy’s Greg Gordon about Goldman Sachs’ complicated offshore transactions in the Cayman Islands.

Fed Delayed Disclosure of Controversial AIG Payout

January 10, 2010

McClatchy Newspapers’ Greg Gordon reports:

Emails between the Fed and AIG made public Thursday reveal a months-long disagreement over how much the public should be told about what ultimately became a back-door bailout of AIG by taxpayers.

One series of emails describes how a lawyer for the Fed scratched out language from a regulatory filing prepared by AIG saying it had paid “100 percent of the par value” to satisfy the exotic bets, called credit-default swaps.

The payments, including $13.9 billion to Wall Street behemoth Goldman Sachs, have been a flashpoint for controversy. A special inspector general tracking the use of bailout money recently criticized the New York Fed for overriding AIG’s attempts to settle the swaps for lesser sums.

What strikes me here is not only that the taxpayer was kept in the dark, but also that AIG was forced to pay it’s credit default swaps to banks in full without negotiating. In other words, it was a stealth bank bailout.

Accountability Deficit

January 9, 2010

Bill Moyers talks with MOTHER JONES journalists David Corn and Kevin Drum who offer a hard look at the obstacles to real reform of the financial industry.

MOTHER JONES’ special report on the nexus between Wall Street and Congress is very much worth the reading:

MAYBE WALL STREET should open a casino right there on the corner of Broad, because these guys simply cannot lose. After kneecapping the global economy, costing millions their homes and livelihoods, and saddling our grandchildren with massive debt—after all that, they’re cashing in their bonuses from 2008. That’s right, 2008—when amid the gnashing of teeth and rending of garments over the $700 billion TARP legislation (a mere 5 percent of a $14 trillion bailout; see “The Real Size of the Bailout”), humiliated banks rolled back executive bonuses. Or so we thought: In fact, those bonuses were simply reconfigured to have a higher proportion of company stock. Those shares weren’t worth so much at the time, as the execs made a point of telling Congress, but that meant they could only go up, and by the time they did, the public (suckers!) would have forgotten the whole exercise. It worked out beautifully: The value of JPMorgan Chase’s 2008 bonuses has increased 20 percent to $10.5 billion, an average of nearly $6 million for the top 200 execs. Goldman’s 2008 bonuses are worth $7.8 billion.

They make an important point. Namely that, as citizens, our means for action is Congress. I.e. the only thing politicians need more than money is votes, and that is where the heat might well come from:

So is Wall Street in the clear? Just a few new regulations here and there, and then it’s game on? The pollsters I consulted agreed that anyone tracking popular anger in the coming months should be watching not the Dow but the unemployment numbers. Anger prompted by joblessness will focus on politicians, not hedge fund managers. Which means that if politicians let Wall Street get away with shenanigans that kill jobs, they could end up paying for it with their careers. “Wall Street has probably weathered the worst,” Rep. Sherman says ruefully. “And Washington has not faced the worst.”

As they point out in the interview, even the Wall Street Journal reports that there is Much Talk, But Little Changed on Wall Street

Applying State Gambling Laws to Wall Street?

November 30, 2009

Given that Wall Street is in many ways a casino, the idea of using State gambling laws to rein in parts of the financial industry is making it’s way in the Senate. Les Blumenthal reports:

WASHINGTON — Sen. Maria Cantwell wants to use state gambling laws to regulate parts of Wall Street, saying someone needs to police financial markets where “casino capitalism” involving highly speculative trades she likens to sophisticated betting continue unabated and threaten to create yet another financial crisis.

“She’s going for their jugular,” Michael Greenberger, a University of Maryland law professor, said of the effort by Cantwell, a Washington state Democrat. Greenberger was a top official at the Commodity Futures Trading Commission during the Clinton administration who unsuccessfully fought to regulate such trading.

Cantwell wants to repeal parts of a 2000 law that barred states from using their gambling laws to help rein in the nearly $600 trillion derivatives market.

Internet Content: Free Doesn’t Mean Costless

November 26, 2009

The recent announcement that News Corp and Microsoft were in discussion over a deal where Microsoft would pay News Corp for removing itself from Google’s indexing, stirred up the internet.

The most vociferous are the “information-wants-to-be-free” crowd, most of whom are to young to have known a world without the web, who are genuinely confused about the nature of Google Inc. They see searchability by Google as equivalent to participation in democratic society—and any resistance to offering up one’s content to exploitation by Google Inc. as resistance to the natural openness of interactive media and bottom-up civilization.

Douglas Rushkoff at The Daily Beast shares my point of view on the matter and argues it better than I ever would:

As an early cyberpunk, I see their point—as well as the confused logic informing it. Greedy monopolists controlled media for a long time, and formed huge conglomerates with interests beyond providing people with the content they needed. Media companies moved into the business of delivering eyeballs to sponsors, instead of content to readers. Recording companies bilked the artists who created the music. Taking content for free seems justified when it is being taken from big bad companies. And making content ourselves, as well as distributing it freely to one another, is now correctly understood as a basic human right.

But we can’t confuse our actual right to make and distribute content freely with Google’s perceived right to freely exploit the content everyone makes. Google is not in this for the fun of it; they make money off their searches. By making our content available to Google, we make Google’s searches more valuable. If we don’t feel our content is being made more valuable in the exchange, then we don’t have to accept this searchability as some precondition of Internet citizenship.

Another aspect of the “information-wants-to-be-free” crowd is that they don’t seem to realize that Google is the only one making revenue out of the current model:

Advertising is certainly one option. But when Google becomes the meta-frame around all the content in everyone else’s publications, then Google’s ads are the only ones that really matter. Google’s ads are the ones that show up when we are searching for content, and open to suggestion. That’s the Internet equivalent of the moment we are flipping through the magazine—not the time we are spending when we deep inside an article and oblivious to the extraneous information beckoning from beyond its borders. Once we have clicked on the article and are brought to the interior of the publication on offer, we go into content mode—reading, rather than searching for relevant information, including ads.

Since the search engine is now extracting the ad revenue that used to go to the content provider, it makes sense that the search engine should pay some of that forward.

Finally, regarding freedom and Big Google:

Our labor is not free. Open source is a beautiful way of collaborating; but what’s happening on the free Internet is more akin to the “crowdsourcing” of journalists and other content creators by advertisers who no longer have to pay them—only the search engines that parse their articles. Why must everything we create or do be presumed free for everyone to use, in any context, and open to comments from anyone in the world? Searching me, and what I create, should be a privilege enjoyed by those to whom I offer it—not a right bestowed onto every person, company, and government on the planet.

Openness of this sort is not freedom. It’s the forced relinquishing of everything we do to the hive, and to Google. We end up with fewer new ideas, less original content, and more links, copies and regurgitations of yesterday’s ideas. The people and companies who index ideas end up getting the money, while the people who actually have ideas and waste their time creating content end up broke.

This last quote addresses the one concern I have with Google’s current attitude: the pervasiveness of it. Google’s management seems to this day oblivious to concerns and complaints regarding the intrusive nature of their operating mode.

News Corp & Microsoft Discuss Blocking Google Indexing

November 23, 2009 reports:

Microsoft has had discussions with News Corp over a plan that would involve the media company being paid to “de-index” its news websites from Google, setting the scene for a search engine battle that could offer a ray of light to the newspaper industry.

The impetus for the discussions came from News Corp, owner of newspapers ranging from the Wall Street Journal of the US to The Sun of the UK, said a person familiar with the situation, who warned that talks were at an early stage.

However, the Financial Times has learnt that Microsoft has also approached other big online publishers to persuade them to remove their sites from Google’s search engine.

News Corp and Microsoft, which owns the rival Bing search engine, declined to comment.

If a deal is struck between Microsoft and News Corp, this could have huge consequences. In effect, other news content providers could follow suit which would bring Google to revise its stance regarding complaints from news organizations that Google doesn’t financially participate in news gathering. To this day Google has been pretty dismissive of those complaints.
I am curious to see what gives.