Double Edition of Friday Levity!

Hysterical!

Friday Levity from Anonymous Blogger Elf

A little Friday Levity sent in from an "anonymous blogger elf". It's a reprint of a Dave Barry column--it's a little bit on the bathroom humor side of the equation for those so inclined.

Colonoscopy

FYI, for those of us over 50, this is from newshound Dave Barry's colonoscopy journal with additional commentaries from a doctor (note number 11, added just for Bruce):

I called my friend Andy Sable, a gastroenterologist, to make an appointment for a colonoscopy. A few days later, in his office, Andy showed me a color diagram of the colon, a lengthy organ that appears to go all over the place, at one point passing briefly through Minneapolis.

Then Andy explained the colonoscopy procedure to me in a thorough, reassuring and patient manner. I nodded thoughtfully, but I didn't really hear anything he said, because my brain was shrieking, quote, 'HE'S GOING TO STICK A TUBE 17,000 FEET UP YOUR BEHIND!'

I left Andy's office with some written instructions, and a prescription for a product called MoviPrep,' which comes in a box large enough to hold a microwave oven. I will discuss MoviPrep in detail later; for now suffice it to say that we must never allow it to fall into the hands of America’s enemies.

I spent the next several days productively sitting around being nervous. Then, on the day before my colonoscopy, I began my preparation. In accordance with my instructions, I didn't eat any solid food that day; all I had was chicken broth, which is basically water, only with less flavor.

Then, in the evening, I took the moviPrep.

You mix two packets of powder together in a one-liter plastic jug, then you fill it with lukewarm water. (For those unfamiliar with the metric system, a liter is about 32 gallons.) Then you have to drink the whole jug. This takes about an hour, because MoviPrep tastes - and here I am being kind - like a mixture of goat spit and urinal cleanser, with just a hint of lemon.

The instructions for MoviPrep, clearly written by somebody with a great sense of humor, state that after you drink it, 'a loose, watery bowel movement may result.' This is kind of like saying that after you jump off your roof, you may experience contact with the ground.

MoviPrep is a nuclear laxative. I don't want to be too graphic, here, but: Have you ever seen a space-shuttle launch? This is pretty much the MoviPrep experience, with you as the shuttle. There are times when you wish the commode had a seat belt. You spend several hours pretty much confined to the bathroom, spurting violently. You eliminate everything. And then, when you figure you must be totally empty, you have to drink another liter of MoviPrep, at which point, as far as I can tell, your bowels travel into the future and start eliminating food that you have not even eaten yet.

After an action-packed evening, I finally got to sleep. The next morning my wife drove me to the clinic. I was very nervous. Not only was I worried about the procedure, but I had been experiencing occasional return bouts of MoviPrep spurtage. I was thinking, 'What if I spurt on Andy?' How do you apologize to a friend for something like that? Flowers would not be enough.

At the clinic I had to sign many forms acknowledging that I understood and totally agreed with whatever the heck the forms said. Then they led me to a room full of other colonoscopy people, where I went inside a little curtained space and took off my clothes and put on one of those hospital garments designed by sadist perverts, the kind that, when you put it on, makes you feel even more naked than when you are actually naked.

Then a nurse named Eddie put a little needle in a vein in my left hand. Ordinarily I would have fainted, but Eddie was very good, and I was already lying down. Eddie also told me that some people put vodka in their MoviPrep. At first I was ticked off that I hadn't thought of this, but then I pondered what would happen if you got yourself too tipsy to make it to the bathroom, so you were staggering around in full Fire Hose Mode. You would have no choice but to burn your house.

When everything was ready, Eddie wheeled me into the procedure room, where Andy was waiting with a nurse and an anesthesiologist. I did not see the17,000-foot tube, but I knew Andy had it hidden around there somewhere. I was seriously nervous at this point. Andy had me roll over on my left side, and the anesthesiologist began hooking something up to the needle in my hand. There was music playing in the room, and I realized that the song was 'Dancing Queen' by ABBA. I remarked to Andy that, of all the songs that could be playing during this particular procedure, 'Dancing Queen' had to be the least appropriate.

'You want me to turn it up?' said Andy, from somewhere behind me. 'Ha ha,' I said. And then it was time, the moment I had been dreading for more than a decade. If you are squeamish, prepare yourself, because I am going to tell you, in explicit detail, exactly what it was like.

I have no idea. Really. I slept through it. One moment, ABBA was yelling 'Dancing Queen, feel the beat of the tambourine,' and the next moment, I was back in the other room, waking up in a very mellow mood. Andy was looking down at me and asking me how I felt. I felt excellent. I felt even more excellent when Andy told me that It was all over, and that my colon had passed with flying colors. I have never been prouder of an internal organ.

On the subject of Colonoscopies... Colonoscopies are no joke, but these comments during the exam were quite humorous..... A physician claimed that the following are actual comments made by his patients (predominately male) while he was performing their colonoscopies:

1. 'Take it easy, Doc. You're boldly going where no man has gone before!

2. 'Find Amelia Earhart yet?'

3. 'Can you hear me NOW?'

4. 'Are we there yet? Are we there yet? Are we there yet?'

5. 'You know, in Arkansas , we're now legally married.'

6. 'Any sign of the trapped miners, Chief?'

7. 'You put your left hand in, you take your left hand out...'

8. 'Hey! Now I know how a Muppet feels!'

9. 'If your hand doesn't fit, you must quit!

10. 'Hey Doc, let me know if you find my dignity.'

11. 'You used to be an executive at Enron, didn't you?'

12. 'God, now I know why I am not gay.'

And the best one of all.

13. 'Could you write a note for my wife saying that my head is not up
there?'

More Euro Default Speculation

With big loans or at least a forebearance for Eastern Europe and huge deficit problems in several EMU states there is increased speculation on collapse of the Euro. This is on my surprise list for 2009 (pretty sure, or at least talked about for a while). The thing hasn't even hit parity with the dollar so complete collapse is hardly imminent, howevr Trichet sure isn't helping much.

Full Bloomberg piece here and excerpt below:

“People said subprime could never blow up but it did and now they’re saying the exact same thing about the eurozone,” said Howard. “There’s no stopping what is now a downward spiral.” He declined to discuss his investments.

Hayman joins a growing number of investors seeing the possibility of a breakup of the $12 trillion euro bloc, conceived more than 10 years ago to cut unemployment, tame inflation and create a rival to the dollar. Societe Generale SA said this week Germany may refuse a bailout in an election year. ABN Amro Holding NV said Feb. 17 the crisis is “Europe’s subprime.”

Euro-region bank loans to Eastern Europe topped $1.3 trillion in the third quarter last year, or about 9 percent of the bloc’s gross domestic product, ING Groep NV said Feb. 18, citing Bank for International Settlements data. Now lenders face losses after extending credit to finance everything from industrial development to domestic real estate.

Irish banks took on debt equivalent to 11 times the nation’s own gross domestic product, Dutch-bank credit reached seven times GDP and Belgium four times, according to BNP Paribas SA.

Revisiting the Health Care Predicition on the Surprise List

One more prediction is starting to hit the windshield here with the release of the Obama budget entailing a few shots at the health care companies and providers. While early stage drug companies are not being directly hit, there are even some ancillary concerns there as overall drug prices may see some hits. I think my phrasing-"banking sector of 2009" was a little aggressive looking back (like how could it be that bad) but it should be choppy for quite a few sectors of what is now one of the few healthy sectors of the S&P left.

Interestingly, I still think health care IT plays are going to do incredibly well.

I am writing about the topic this morning because, this whole thing has horribly bad timing. It's interesting because in Japan they buy equity in the open market and in the United States are bizarre form of capitalism enacts policies that decimate capital. At some point, the rich folks are gonna be ticked.

This is all a long winded way of saying health care is one of the last robust sectors left in the S&P and this could be the last little shove Mr. Market needs to push into into 600s and eventually the 500s. Combine the negative outlook for health care with a poorly managed economic policy by Treasury and we could be turning a 50% decline into a 65% decline. Full prediction list here with relevant excerpt below:

2. Health care ends up being the banking sector of 2009. Gainers in health care sector of the stock market end up being the big losers of 2009 (I've been somewhat perplexed by the upward trend in some names). Obama clears health care reform a lot more quickly than expected and enacts reforms that are significantly more severe in terms of constraining drug maker profits. Particularly in terms of drug pricing turning these companies more into public utilities. Obama offers government support for research into new drugs in exchange for price caps. These companies that have performed exceptionally well in the last few months take swan dives.

Cool Visual Technology from Gigapan

This is an awfully cool technology--click on the link here and you can zoom into to actual faces at the inauguration.

If You Are Not interested in Tax Policy--Skip this Post

Via the WSJ and sent by several folks today so I'm posting it:

The 2% Illusion
Take everything they earn, and it still won't be enough.
President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.

Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Mr. Obama is of course counting on an economic recovery. And he's also assuming along with the new liberal economic consensus that taxes don't matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation's primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively "small business" is defined. These owners will find a way to declare less taxable income.

The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

On that point, by the way, it's unclear why Mr. Obama thinks his climate-change scheme won't hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There's a reason that Charlie Rangel's Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.

Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don't ignore the data. And the reality is that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.

There are a lot of broken-hearted Obama voters out there who are betwixt and bewildered over a trillion in new taxes coming down the pike. I don't think anyone who paid attention to the actual campaign should be surprised at this budget.

The only surprise that was sneaky (super snearky)- is the phase out of things like the mortgage deductions at the higher income level. I believe that's about 300 billion or so in new stealth taxes and it's going to really surprise folks when they fill out their taxes.

It's actually something that was never really discussed or hinted at during the campaign that I am aware of.

Frankly, as long as the government is paying 3% on it's money, it should postpone new taxes as long as possible. That said, the government is not going to be paying 3% or so for much longer and rates at some point could go into the low teens. The budget assumes a 3% or so increase GDP next year--we'll be lucky if it doesn't decline.

In defense of President Obama, we have huge amounts of waste in health care and we are the only industrialized power that doesn't have health care. However, we spend so much money occupying countries, bailouts out our banks and so forth, kicking back residential mortgage costs to our citizens, we don't have the cash to afford health care.

However, that's just the small potatoes...at some point in the near future he is going to "Fix" social security. during the campaign, he talked about uncapping all income over 250K at 12%. That could move marginal rates to 39.6 (federal), Social (12), State&Local (11%) or 63%.

Whenever you have marginal taxes that start to hit north of 30%, you start to run into problems collecting it. The Democratic party is absurdly fixated on this mechnaism as the most efficent way to collect revenue when in truth, income taxes are a 20th century revenue tool for a 21st century economy.

You could put in place a consumption tax that could be even more progressive and collect far more revenue. More pointedly, if we had a consumption tax during 2000-2009 we could have collected far more revenue from the rich then we did using this 20th century tool called the income tax.

I am not sure this level of tax increases is going to get through the Senate-especially in the context of all these scandals where Democrats don't even pay taxes at the lower Bush rates. To get GOP rates they are going to have to put some bells and whistles to protect business owners or at least postpone the tax increases for a few years (enough time for the GOP to try and campaign on revoking them).

Oooh-- Fees on Spectrum Holders in Obama Budget?

This is pretty interesting, and I know some die hard Obama fans who hold licenses that didn't expect this--The new budget is going to assess fees on wireless spectrum holders. Basically this means, your cellphone bill is about to go up as the government charges fees amounting to about $4.8 billion over 10 years.

I actually think taxing all spectrum makes some amount of sense, however, you sort of need to disclose that to the license holders before they dished out a few billion to actually buy the licenses.

I could see after the term expires they could impose the fees as a condition of renewal (usually the licenses are just renewed as long as you aren't transmitting porn or something). However, if someone just paid 4 billion for some UHF spectrum the government previously gave away for free, and now you want to tax it for a technology roll out that may not occur for 5 years--that's going to be problematic for some people. And then on the back end the government wants to tax income more to pay for a broadband roll out that will happen a lot slower now because of special license fees.

From RCR below:

President Obama called for spectrum license fees in a record $3.9 trillion budget, released today, reviving a proposal that has failed to move in the past. But with the new Democratic administration intending to halve the projected $1.7 trillion budget deficit by 2013, the latest campaign to levy a fee on wireless carriers and other spectrum license holders could get more traction this time around in the Democratic-led Congress.

Wireless providers, which have paid billions of dollars to acquire licenses in government auctions since the mid-1990s, have opposed spectrum fees in the past and are expected to do the same as lawmakers take up the Obama budget

This part is pretty funny:

“We are currently reviewing the details of the proposal and look forward to participating in the next stages of this issue,” stated cellular industry trade association CTIA.

Oh I bet you are.

The Government Is Going to Catch a Falling Knife For You

Just Two Quick Points.

One. It's pretty clear from his comments that there isn't going to be a quick change to the mark to market rules. In fact, it looks like they are just starting the process of studying a rule change. My interpretation could be wrong but lots of his language was hey this is a good idea but we need time to figure this out. It's possible SEC is a lot further a long on this than is generally known but somehow I doubt it. Lots of people talk about the Federal Reserve "printing money" but there is quite of money that's being destroyed by this rule too artificially.

I think the ideal way to announce the new bank measures is to do the m2m rule change FIRST. Then do the rest--it raises the probably of success by quite a bit. Also, Geithner appears scared to come out in front of the cameras now because he got shellacked last time. It wasn't his personality got so upset, it was that the plan was purposefully ambigious. Amguity always costs money in financial markets. Just walk out in front of the camera, say what you are willing to do and won't do in specific detail.

Two. Lots of the noise being floated is about some sort of system where private money that invests in real estate assets is going to cap your downside, and leave you the upside. Basically, if you are willing to put capital in, it's going to catch a falling knife for you. WOW.

Obama Speech- Live Blogging

• The guy is still an outstanding speaker but boy he seemed to flub a lot more than I have ever seen him tonight. Teleprompter problem? Fight with Michelle?
  
• Energy, Health and Education. These really are areas where investment dollars do pay off (although strictly speaking dollars to education seems to have a different problem). However, energy and health care are areas where we really need to focus rather than using taxpayer dollars for NEA funding or sex ed.
• Lots of talk on energy--I love it.
  
• How about more talk about transportation infrastructure upgrades so we have mass transit 2nd to none. As opposed to being backwater compared to France?
  
• The key part is getting our "Banks Health". No, its the shadow banking system. Securitization. Banks are small potaters.
  
• He is going to have healthcare reform in this budget. I've had this debate with several folks in the IT Healthcare space..while he may not succeed he is sure going to try.
• Tim Geithner is a man out of his depth. I know what over your head looks like--and that's it. I really hope he gets up to speed fast.
• Cap and Trade. Ick. I knew this was coming. Most of that pollution is not petroleum its coal. Why not just do a gas tax with rebates to low income taxpayers so its not regressive. Please?
  
• Tim- mark to market rule change. That's all you gotta do to save your job. Thank me later.
  
• I am not a big Clarence Thomas Fan..the guy just doesn't have a very good mind. However, if Obama has a successful 8 years, he would be the first President I could see as a Supreme Court Justice. Great mind/ good heart/ sense of justice and judgement is how he got elected.
• Obama is really not comfortable yet with the financial crisis- this stuff is complicated. He is reading the words- but I don't think he's confident yet on the topic.
• If this budget has a huge ton of money for an energy grid--I'm not gonna mind.
  
• 10 months until troops out of Iraq. Hey how about Iraq pays for our troops? Supposedly we are getting out in 14 months with a 50k remainder after that. Iraq better be paying for that.
  
• More soldiers? Man we don't need more brigades. We need less occupations.
• Talking about raising income taxes. Consumption tax is what you want if you want to tax the rich. Income taxes only hit the people that want to get rich.
• Deficit of Trust? More like surplus of incompetence.
• Bullish defense talk--no matter what--I still think the Pentagon is going to get the axe. Maybe not this year, but within 2.
• Very ambitious agenda to do energy and do health care. The big problem will be the Senate. Most Presidents try and focus on a few issues but so many reset buttons are being hit this guy has a shot to drive a huge amount of change in very quickly. Oh yeah and he is gonna cure cancer too. The folks in the Senate will be the toughest roadblock.
  

When Someone Starts a Pitch With

The phrase "the Truth is...."

I gotta wonder.... Do you actually believe what you are saying, or are you just seeing if you can convince me?

And in a totally unrelated note, Bill Gross is out with his latest version of talking his own book here.

M2M Decision Tree aka This is Your Last Chance Mr. Geithner

• I think if the government wants to institute a change to the Mark to Market rule it pretty much has to do it by tomorrow afternoon when the Treasury releases more details on it's latest and greatest plan.
  
• If they announce a new round of capital injections its quite possible they could actually do more harm to the banks that are left and set off a cycle of even more write downs.
• I really liked the move yesterday that suspended dividends. Everybody needs to do this--GE, B of A and Wells Fargo.
  
• Beyond the nominal vicious circle that has provided huge opportunity for speculators (like Goldman Sachs for example), it also has the potential to incite insolvency for other reasons beyond which has already occurred.
• The big downside for announcing a m2m is it would impair confidence in the markets. At this point there really isn't a lot of confidence to lose. Pretty much anything we do with mark to market is all upside.
• This needs to be done in coordination with our European partners for maximum upside impact.
• Needs to be done tomorrow and will result in a very big upside pop in several very large banks. Ideally, it would have been better to do this last options expiration for maximum impact on the shorts, but better late than never.
• Even when you fix the problem with banks the real problem is in the shadow banks who have pretty much stopped lending.
• Before you do any more injections or take control of anything or covert preferred into common--do the rule change first.
  

Holy Smokes- AIG with 60 Billion Quarterly Loss

If you were wondering where all those mortgage insurance losses were hiding look no further than AIG. They have not disclosed where this is coming from but my guess the culprit here is European banks. The Europeans were in a frenzy for the last decade lending to eastern europe and Russia and the losses here are really beyond the pale. Post last year on big trouble with European banks coming here.

Last last year when AIG collapsed the French Finance minister got on the Bat Phone to Hank Paulson to guarantee AIG. Why? Because lots of the European banks bought crazy amounts of insurance on their lending through AIG--much of it lending to emerging markets. Sure enough, Hank signed up the American Taxpayer for huge losses all while AIG hasn't been able to sell any meaningful portion of itself to try and pay the government back.

So why are we helping Trichet and the ECB with taxpayer dollar insure losses on securities that are being marked to market in a debt depression? The folly of this kind of nonsense seems to be continuing. It sort of feels like it won't stop until Treasury rates rise and the government loses all of it's bullets.

I think this is one more post for the argument to start letting bad corporations fail, but first thing is first. Adjust the mark to market rule and allow some time for these assets to price to maturity rather than to a panic market price. Then if it's still necessary, let AIG go. Seems like the government is going to get here regardless just they are going to wait until they no longer have the ability to intervene because they have frozen the capital markets completely.

Kinda like a shootout in the old west and you keep your head down till you stop hearing bullets.

Rumors of IPhone 3

Interesting chart out of RBC on the coming competitors for the IPhone. I think the chart somewhat underplays some of the competition, for example the HTC Touch Pro 2 has a much larger screen and a keyboard and a bit more powerful than the IPhone. For the record though, this RBC analyst is pretty bearish on Apple, Steve jobs and the impact of the depresslet on a company with so many high margin premium products.

Unfortunately, the rumor mill is that none of the IPhone/IPod iterations coming will have a keyboard. The reason? Well evidently Apple really likes the margin kick it gets by not having to manufacture several versions of keyboards for the device. If they rolled out a keyboard version it would be costly and problematic evidently to produce various version.

For me the features I am looking for specifically are:
1) A keyboard version.
2) Higher resolution screen
3) Better battery life
4) Running multiple apps at the same time (I like to multitask)

I think to some extent a lot of these bets and comparisons are off. My bet is that aside from say a nicely upgraded Iphone 3 with maybe 2 or 3 our of the 4 features above...Apple suprises everone with a larger version of the IPhone sort of as a combo Netbook/Tablet. Apple has been absent from the Netbook market and it's one of the faster growing areas of an otherwise painful market.

What would I really love with this tablet? I'd love a CDMA version for this device so it could be used on either Sprint or Verizon-- or hell even a version with WiMax on it assuming Sprint starts to roll out Wimax at a decent pace. It would have the advantage of not violating the exclusivity agreement with AT&T and it would not cannibalize IPhone growth too much.

Also, this would allow folks to get off of the AT&T network which is relatively horrible in San Francisco. Perhaps it has no air interface on it at all, and allows people to plug in their own cards for CDMA or GSM?

In another note, it looks like Verizon is going to be rolling out LTE first but many folks are delaying capital spending plans on LTE and relying on existing data. AT&T looks like it is pushing back LTE quite a bit.

Interestingly, if you look at which carriers have had the most advanced data networks in the past, that has not translated into superior performance. In fact, most of the alpha comes from having exclusive deals or overall selection of handsets. At some point, about two years ago, GSM carriers started to get a big leg up on handsets and this advantage has not really narrowed.

However, now that GPS and data is much more prevalent and important to users, is that trend going to remain the case?

Now, Sprint may get a little boost with the Pre- but I am not sure they can heal a 2 year would no matter how hot the device ends up being.

Oscar Impressions

• I have not seen "The Wrestler" yet, but I am a big fan of underdog stories and underdogs and underdog stories. Probably not a meritorious reason to award an Oscar but I was rooting for Mickey Rourke anyway. Sean Penn gave a great speech though, and his wife just gets more beautiful every year.
• Huge Jackman is one of the most talented actor/singers ets that exist but there was a little too much emphasis on the musicals. However, I still remember when he did a Saturday Night Live many years ago and it was probably the funniest one they have ever done. The Kangaroo skit in particular where he talks about childhood Christmas memories sticks in my mind. The skits from that show made me a permanent fan.
  
• Barbara Walters did an interview with the Jonas after the awards and I have to say, I just don't get it. In the last week or two for whatever reason these guys have been on TV singing. Whatever reason people seem to like them, I'm not convinced it's about the singing. Hanson at least the kids were good singers and that MMMbop song was impossible to get out of your head. Is it the purity ring thing and people are so perplexed by the rings they are waiting for the guys to slip up on stage? Did I mention I don't get it? I felt bad for the one kid though having diabetes however. I can't imagine having to prick your finger 10 times a day for the rest of your life.
  

Even in a Depresslet, VCs are Overinvested in Web Bubble Part 2

On the blog we've talked a bit about how the world is really not flat in a skeptical jab at Friedman"s book "The World is Flat". The guy seems to take trendy, semi vacuous concepts and extrapolate them into best selling books.

But he has really done it with this op-ed in the New York Times:

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves

Uh. No.

First of all, it's a horribly over invested asset class. There are way too many people chasing too few quality deals and driving up valuations. Even now in the midst of a mini "depresslet", VC's have way too much capital. LP's fund commitments over long periods of time, and most are still in the midst of commitments that were made in the boom. In turn, VC's often find themselves investing in the 50th next generation social networking idea that produces no revenue or innovation.

Why would we put money here when there are all sorts of investment that this country has been neglecting because it's been too focused on finding the next Google. Sometimes, it takes time fir existing technology to sink in before the next iteration begins. Instead there are areas that we absolutely know need money and are holding our economy back.

For example:

1. How about high speed European style trains on both the east and west coast. The west coast has a horrible train system and a high speed train from Seattle to San Diego could bring economic growth to areas like Sacramento that are suffering from the housing downturn.
2. A modern energy grid. This infrastructure is out of date and dilapidated. Let's get a modern grid up and our energy dependence down.
3. Health Care IT. This sector has been relatively backward and we spend far more per person int this country on a system that doesn't cover everyone. We are the only industrialized country without national health care and investment is needed here.
4. Computers and broadband in every home with a system for kids to get k-12 education via this connection. I think in many ways this kind of an education could be more efficient than our current system giving kids a much better education without a lot of the risks and costs of our current system.

The key to reviving the economy is not stimulus bills that encourage us to buy more crap from China, or invest in Web bubble part 2. We need to put money into neglected areas that will raise the ROI of our entire economy. Let's talk about things worth investing in....

It's almost the same thing, except identical.

This is the latest idea out of our new Transportation Secretary here:

Take a long, hard look at your car's odometer. Now imagine paying a tax on each one of those miles.

A mileage tax idea is gaining steam at the state and federal level. You would pay a tax on each mile driven instead of paying a gas tax on each gallon you buy. Transportation Secretary Ray LaHood says with people driving more fuel-efficient cars and putting fewer miles on their cars the revenue from the gas tax is dropping.

LaHood said now is not the time to think about raising the gas tax. "The idea of raising taxes during a very bad economy I think is the least appealing of all the approaches," he said. "We really need to think outside the box."

Seems like kind of a tough way to track mileage driven to say nothing of the Orwellian privacy concerns. Hey, it's too bad we can't invent some sort of liquid to put into cars that automatically dissipates the greater the distance you drive the car. The technology is probably a generation away but hopefully scientists in Washington can get some early start on this breakthrough idea. Then we could just charge almost a fee per gallon or something so the more you drove, the more tax you would pay.

So he doesn't want to do a gas tax increase because people are buying more fuel efficient cars so he wants to invent a new tax using GPS that effectively measures miles driven that will cost a lot more to implement and measure where everyone goes for the government in their own private vehicles?

Do a gas tax, then rebate the extra to low income Americans if you are concerned about the economy. Or put a tax on low mileage cars and provide a rebate to fuel efficient cars. They are all economically equivalent and you can manage the impact on low income taxpayers.

Israel Trying to Send Nixon to China?

Netanyahu is going to attempt to form a government in Israel and my guess is he is going to succeed. My hope is that this is going to be a case of "Nixon going to China" in the sense that only the most conservative government can

I am not a Netanyahu Fan-while he is incredbily eloquent, his ideas are the same old tired ideas that have brought nothing new to the middle east for decades.

Interestingly, he has been pretty strong in advocating regime change for Hamas (good luck) and an attack on Iran. At the same time, stories are hitting about a larger uranium stockpiles in Iran as well as a big cash crunch inside of Iran that is facilitating a deal.

I also think that while many have talked about the progress of Iran inside of Iraq, they have over reached just a bit. In time, some of that is going to backfire.

The big challenge for Obama is not only how does he stick to goals of peace in the region, but also how is he going to constrain Netenyahu against Hamas and a strike on Iran which could endanger the mission in Iraq.

Full piece in the Times here and excerpt below:

But in his plea for unity, Mr. Netanyahu pointed to the existential threat to Israel that would be posed by a nuclear Iran and the global economic crisis that he said could cost hundreds of thousands of Israelis their jobs.

Such major challenges, Mr. Netanyahu said, required “a new approach” of unity and of “joining hands.” Striking a more positive and conciliatory tone, he said the goal was to seek “peace with our neighbors and unity among ourselves.”

A broad government joined by the center and left would likely promote a more pragmatic agenda and avoid friction with Israel’s most important ally, the United States.

Mr. Netanyahu will have up to six weeks to put together a governing coalition. He was tapped for the premiership after he gained the endorsement of 65 mem

bers of the 120-seat Parliament, from religious parties and those on the far right.

Also a quote from the London Times gives you a clue there might be a strike--most of the opposition will be from the US, not Russia since they'll be in favor of anything that will get oil up. Excerpt below and full piece here:

Immediately after he was invited to become the next prime minister by President Peres, Mr Netanyahu lost no time in restating his warnings about a nuclear-armed Iran, calling it the greatest existential threat faced by Israel since its creation. His words came a day after the UN announced that Tehran had acquired sufficient uranium to build a nuclear bomb — a “red line” development Israel has said it will not tolerate

Interesting Madoff Revelation--No Securities Bought for Decades?

So evidently this guy hasn't bought a security for his "investors" for decades? So essentially this is all fake profits paid out but no actual losses? I think there is some sort of statue that limits the claw back of past profits otherwise this would be a matter of collecting all payouts of past profits in the past. In instances where you couldn't collect, it'd be a simple writedown.

Just fascinates me that he never actually made any bets. Usually ponzi scheme psychology involves some sort of belief that they can "make it up" down the line. Instead they usually get deeper in the whole then whenever the tide rolls out, the scheme gets outed. Instead this guy just sits on cash or treasuries?

Perplexing guy.

Nice Primer on Credit Crisis

Hat Tip to Barry Ritholtz for finding this nice video below. Good primer for congressmen or Treasury officials before going on TV and talking about this stuff.

If You Give a Mouse a Cookie, He's Gonna Want a Glass of Milk

• With all the nonsense going on post Geithner plan, the government needs to come out with a modification to the "Mark to Market" rule for liquidity challenged instruments. This really needs to happen immediately. Market prices are not valid if there is no liquid market for those instruments. I understand the argument of market purists and consider myself somewhat of a market purist as well , but at some point you have to admit a theory is not working in practice and adjust to reality.
• Once the rule has been changed--WAIT to see what happens. Don't announce any new plans. All the pain is showing up in these banks but the real pain is in the shadow banking system and the interplay between the two is causing a lot of problems. Let the rule change settle in and see what happens. Once you see how the market reacts, then implement a plan with specific details to address current and potential pitfalls in one fell swoop.
• The government absolutely needs to stop rewarding bad behavior by pouring money into the hands of the worst bank managers, borrowers and lenders. People are just absolutely stupefied for some reason why things keep getting worse. Why should things get better when you keep giving money to the people who manage risk imprudently? If you give a mouse a cookie, he's gonna want a glass of milk.
  
• I understand that bad actors often benefit from plans designed for recovery, however, those stimulus plans need to be available to all economic actors equally, not specifically targeted towards the bad actors. What do I mean by this? When the government makes cheap money available to people who over borrowed, it makes money more expensive for the rest of the borrowers who didn't mismanage their debts. Instead, the government should utilize programs like buying agency paper that lower rates in general, rather than targeting borrowers who got in over their heads.
• If you want to target a mortgage plan on those who are stuck in their homes and can't refinance because of massive changes in property value, the government needs a 50% equity kicker in return for principle reduction on that loan. Half that kicker needs to go to the lender so that lender has the chance to recover some money in 10 years when prices stabilize.
• For financial entities the the m2m rule change does not help--they need to be taken over by the government and liquidated over some longer period of time. In the mean time, they can be aggregated and sold off in pieces when possible. These sales ca be used to pay off their debt obligations. If there is not sufficiant money to pay their debt off, those lenders are going to have to write the debt off. No free passes for anyone who took imprudent risk.
  
• We need a way to facilitate the write down of about 50% of the privately held debt in the system. We will break the central bank if we continue on this course of mindlessly converting private risks and contractual obligations into private ones. Many many people have made the equivalent of trillions of wealth off of creating these obligations, now you want to pay these obligations off by converting it into a taxpayer debt? No thanks.
  
• At some point, you have to take the pain. The govt keeps trying to avoid this process for political purposes but it simply lengthens the process while actually making it worse by increasing leverage levels--not bringing them down to the levels they need to go to. You need an over correction on the downside so investors start to come in and supply and demand starts to work again. Until then you are just wasting time and increasing agregate public+private debt levels.
  
• We continue to see the fallout from the Geithner plan. At some point, I would love to know what the process was that went into announcing the non-plan plan? What kind of people do they have in Treasury? The ambiguity associated with that plan was guaranteed to get this horrible result. The drop in the market is specifically attributable to the amiguity and uncertainty imbedded in that horrible, ill concienved non plan. It set out a short selling firestorm under the largest banks in the country, specifically, Bank Of America, CitiBank, and Wells Fargo. These banks are trading like they are going to be imminently nationalized.
• People keep saying there was no other choice for Treasury Secretary. Gun to my head I would have picked Jamie Dimon. If asked to serve publically, the guy would have had no choice. Geithner still has the opportunity to pull this out with a more specific plan next week but he'd be better off by announce the m2m rule change, then letting that play out through the financial system.
• As I write this--new statement coming out of the WH with commentary on bank nationalization kick back from the Geithner plan. That gives the Administration some uptick until Wednesday or so. In the mean time, fix that very destructive rule.
  

Boston Tea Party Part Duex?

Mortgage Revolt Via the Drudge Report on CNBC here.

I Miss Barnie Frank's Original Housing Plan

The Administration is out with a new housing plan today with all sorts of guarantees where the government is covering further declines in home prices. This plan should really be called get your house for free, especially if you had no business buying one in the first place all at the expense of the American taxpayer.

Remember the very first plan that Barnie Frank put out there last year? It had a provision where big chunks of equity upside were exchange for debt forgiveness. It was actually a good plan. This is one of those cases where George Bush should have taken Barnie Frank up on his version of the bill and now we've got something far far worse.

I actually liked that bill and as a taxpayer it wasn't so offensive because nobody was getting a free ride. If say 25% of the upside (if housing prices rebound in 10 years) goes to the lender, and 25% goes to the government, then at least there is the potential for the US taxpayer to recover some money while keeping the borrower in his/her home. The other 50% of the upside the borrower captures.

And if for some reason Democrats find the age old idea of converting debt into equity, then they should have made the plan apply to every last person in the United States. Instead, allow everyone to refinance at these subsidized rates. Instead, the rest of tax payers are going to likely get higher mortgage rates so that the lower rates for the deadbeats can be paid for.

Most importantly, what about all the honest citizens who want to buy houses in the future. We are putting all this good money after bad which will serve to raise borrowing costs for anyone buying a new house in the future. Should some new couple that buys a home pay for the sins of a prior generation. When is this senseless policy of rewarding bad bankers, borrowers and BAD LENDERS going to end?

Instead this plan appears to be just a blank check for people who took more risk then they could afford and there is no prospect for the government to recover leaving a generation of taxpayers with the bill. Like every other program starting with the Bush administration we are rewarding bad behavior first at the expense of the people who were financially responsible.

We've been using a capitalist system since World War II, and now we've decided after one serious crisis to throw every principle out the window and reward those who through irresponsible behavior have put our entire economy in jeapordy. That ain't right. I hope something in this plan requires Senate approval and the GOP blocks the hell out of. Someone kidnap those Senators from New Hampshire and demand they don't bolt from this time.

GM to the Govt-- Please Sir, May I have Some More?

Specifically 30 billion more?
Prepackaged Bankruptcy is the only way to go here. CRUSH those debt holders and convert them to equity, and the labor contracts need to go. Do it in a way that protects suppliers to minimize fallout but a bankruptcy judge is the only way to do this.

Bankruptcy negotiations are tough but they are exceedingly efficient. They are the only way to solve this problem once and for all. As soon as Bush punted on this in November, he abdicated any hope for protection of the taxpayer.

This needs to be handed over to a non political person to do the kind of negotiations that only someone like that can do. Right now this thing is being run right out of the White House Staff. Exactly the wrong place for it. We need political courage and some modicum of good judgment. President Obama has refrained from selecting a car Czar but that's exactly what we need, and pronto.

To Fix the Economy, Start With The Chink in The Armor

Congress has passed a stimulus bill but let's chat about what's going to be in the next stimulus bill (Congress isn't even close to done yet). I want to talk a little bit more about why I am just a big believer in launching an massive energy infrastructure program and why I think efforts to stop the falling knife in housing are not where government money should go.

• First, the GOP likes to smack talk the Democrats stimulus bill but the truth is the GOP bill would have been far worse. We are in a liquidity trap and there is no way tax cuts work now. This is coming from a guy who does not believe in income taxes as a the right revenue tool for the government. Tax cuts are ordinarily great but other than perhaps cutting the corporate income tax, income tax cuts won't do much in the United States. Our corporate income taxes are much higher then elsewhere so lowering them will help move more income to the US. Other than that though, lower taxes can't help us.
  
• Paul Krugman was on CNBC talking about when you fill a tire you don't necessarily have to start with the hole. Not a Krugman fan here but I think that's a correct statement. Why try and stimulate housing when prices there are too high? They are way above trend and mean reversion is going to happen sooner or later. The longer we try and put it off, the longer this droll dull crisis drags on for.
• But for the last 50 years, where have we dramatically under invested to the point of neglect? We have had no energy strategic plan for our nation in a century where energy supplies are constantly in contention with conflicts worldwide.
  
• There is going to be another big stimulus plan soon. Let's forget about all this other nonsense like subsidizing principal reductions or interest rates for home purchase. We've been over stimulating this actually very small sector of the economy for decades. This has led to a historic inflation in these asset prices in some markets up to 2 to 3 times where they should be above trend. Trend for real estate has tended to revert to 1% above inflation if that. Not 300% in 3 years as in some markets.
  
• Instead we need a $750 billion plan to give us a national energy grid that connects our cities for the 21st century. This is the spot in the tire we need to invest in.
  
• This trillion dollar investment could give the US a permanent competitive edge without launching a trade war and allow US manufacturing to be more competitive with emerging manufacturing in China and Brazil.
  
• It's true that even now Solar, Wind and Geothermal cost a lot more than coal. But with economies of scale these technologies could be driven to points that make energy cheaper worldwide. We should encourage production and investment in this vital sector worldwide simultaneously so that costs are driven down for everyone. But the US can and should lead this effort.
• More than anything this effort is psychological. Right now people need confidence. They have been battered by excessive lending that is now bringing millions who entered the middle class and importantly by oil prices shooting up to $147 . We need to start with the real chink in our competitive amour and a massive $750 billion investment in our future over 4 years would make a huge difference. While it wouldn't solve our problems over night, within 18 months a plan like this would start to pay dividends in increased payrolls and technology benefits.

Write your Congressman!

Japan Shrinks 13% at Annualized Rate

Previously we've talked on BlindReason about how surplus countries get hit the hardest during large systemic wide downturns. In the 1930s that was France and the United States who were huge exporters.

Today, the large surplus countries are Japan, Germany and China. Interestingly we have not seen numbers out of China that match the magnitudes of declines out of China. That's either because 1) they are faking the numbers or 2) it's still such a command/control economy they are simply shifting external surpluses into domestic demand. Probably a little bit of both is happening.

Also, rather humorous comments from high level Chinese ministers hoping for guarantees the US won't try and issue debt or debase the currency. This hurts China even more since they have an artificial and rather ridiculous exchange rate.

What's the big question here for the Chinese? I believe the question here is "Or What?"

It's sort of silly -what other currency are they going to put assets into? Certainly not the Euro. Are they going to go into agency debt? Buy commodities which are falling? And Gold can only hold so many billions before it start to hit orbit.

Full piece here and excerpt below:

• 
  

Japan is heading for its worst recession since the second world war after the world's second biggest economy shrank in the last quarter at its fastest rate for 35 years.

The economy contracted by 3.3% between October and December, as firms were hit by weak exports and a fall in demand at home, the cabinet office said.

At an annualised rate of 12.7%, the decline in Japanese GDP was three times that of the US during the same quarter. GDP fell by 1.5% in the eurozone, and by just under 1% in the US.

Most economists expect the trend to continue well into the year amid warnings that Japan faces a recession on a scale not seen since the war.

"There is no question that this is the worst recession of the postwar period," the economic and fiscal policy minister, Kaoru Yosano, told reporters.

Last quarter's slide in GDP was only marginally smaller than the 3.4% contraction seen in 1974 after the first Middle East oil shock.

The collapse in external demand for Japanese manufactured goods accounted for 3% of the contraction, as major auto and electronics makers slash production in an attempt to reduce their huge inventories.

Faced with approval ratings of around 10%, the prime minister, Taro Aso, is reportedly mulling a fresh stimulus package worth ¥20-30 trillion (£150bn-£230bn), on top of the ¥12trn he has already unveiled since last autumn.

Interestingly, amidst all of this Trichet reminds strikingly behind every other central bank in the world. This guy is still remember the Weimar Republic while prices are in free fall. Because of the late action, Germany may end up feeling the hit a lot more given its large surplus and dependence on exports. Trade in the past has worked as a tool to generate extreme amounts of wealth, and now it serves as a barometer of decline.

Meanwhile, the Japanese Finance Minister was accused of showing up drunk to the G-7 meeting this weekend. Yikes.

A Problem with my Flux Capacitor

Great post by Fred Wilson on Apple's strategy on Flash, the App Store, and its propensity to control as much as possible. Full piece here and excerpt below:

I don't think that will work. In fact, I don't think the iTunes/iPod strategy has much life left in it. Things like Pandora, MySpace Music, music blogging, and other forms of streaming music will eventually chip away at that franchise. But leaving the digital music situation alone for the moment, the mobile web is not going to be dominated by a single device and a single app ecosystem. I don't even think an app ecosystem is the long term solution for the mobile web. It's a bridge enviroment that allows for rich experiences on devices that don't have reliable high bandwidth connections yet.

But the mobile web will eventually just be the web. And a big part of getting it there is to get the tools that allow us to seamlessly consume rich media on the web onto mobile devices. To me that means Flash. I'm rooting for Adobe and its allies like Nokia and Palm (and hopefully Blackberry) to win this game. If they do, we'll all be much better off because of it.

I agree with Fred. I think as an intermediate strategy Apple is doing great. The hardware is still a year or so away from being truly robust and capable of delivering laptop quality experiences. However, longer term the differences between Apple and it's competitors are starting to narrow.

Look at hardware for example. It's beautiful hardware- But with Apple switching to an intel architecture the insides of its machines are virtually identical to what you can buy at Dell. However, if you buy it from Dell you can often get it for 50% or more off what Apple charges on it's high end products.

Apple makes software margins on their hardware products by making sexy designs that people lust after. A Macbook Pro is less than an inch thick in an slick case with an elegant design. If Dell simply could refine its case manufacturing (I think they might tbe trying with Adamo), they could be offering some heat to Apple. With so many applications moving to web based formats, (I used to use outlook for Gmail, but Gmail is FAR better) this allows Apple to migrate more users.

Of course, Apple still has the lead in the OS department. Vista was an utter turd and even with the major improvements made it still is slow too bootup, has poorly done coding and is irritating to run compared to Mac OS.

However, I've seen Windows 7 and it's on a much more even playing field. Plus you don't have to deal with the issues of Apple warranties which a cursory browing of the web will show a lot of ticked off people (and business users).

If I have an issue with my Dell, I call a phone number and a Dell Dude shows up at my desk and fixes it Johnny on the spot in front of me while I watch. With Apple, I make a reservation at my closest Apple Store and which can take up to a day. Wait in line, then best of all, I get to negotiate with a 15 year old high school girl to fix my computer. Is your average business user going to put up with that?

If you so much as breath on the thing wrong, they'll turn it into a court case if you want that warranty honored.

Apple Genius "Uh Sir, you have a 1/8th dent in the lower clamshell near the magsafe adaptor and i think it's caused structural failure in your warp drive"

Me: "So, you're saying you think I dropped it"

Apple Genius "Yeah that's what I just said"

I love Apple products and I fight to use them over Windows products whenever I can. Without a doubt they have the initiative in Mobile OS (gaining the most market share) and the same with laptops (altho not netbooks). That means a lot of the outliers in the Apple experience need to adapt. At some point you are going to have to allow folks to put any app they want to on their IPhone.

At the same time, they've been rather slow in innovating since the IPhone came out. The 3G device really isn't that much better than the 2G device. In a few months I suspect we are going to see a more robust offering. We'll see.

Friday Levity from Jon Stewart

The Daily Show With Jon StewartM - Th 11p / 10c

American Grandstand - Bank Hearings

Daily Show Full Episodes
Important Things With Demetri Martin

Funny Political News
Joke of the Day

A little financial levity from Jon Stewart. Mobs, especially congressional ones, deserve a little mocking.

Twitter in the Times

For those of you who have not gotten Twitter yet--there is a persuasive article in the Times on how it can be a very useful tool. Piece here.

More Apple IPhone Update Rumors/Reports

This chart is out of an RBC report today which further highlights the rumors of a high end update to the IPhone this summer. The report talks about a big upgrade to the screen that goes head to head with

Stuff that would be nice to have:

1. A High Rez Screen at 3.5 inches or greater (When are we getting OLED) 800 x 480 resolution
   
2. Keyboard. I was a blackberry addict back in 1999 when they used to use SMR spectrum to send emails. You got this awesome battery life since you didn't voice hogging all the juice. That was the problem with the early combo devices because you didn't have two different types of drain rates on one single battery. In any event, I miss the keyboard of the blackberry.
   
3. Multiple applications open at the same time. I am the kind of guy who likes to keep options open. That includes swapping apps.
4. Better battery life. I presume this requires the chips with some lower power consumption on a 3g radio. This is going to be tough with a much better screen?

Stuff I'd love to have

1. ATT to fix its 3g Network in San Francisco. Put up some more cell towers for gosh sakes. Do you guys need help getting sites?
   
2. I'd rather the phone be on VZ or Sprint. The CDMA 3g networks are just far better.
3. I want power augmentation with solar cells inside the display on my screen.
   

The other bottom line is wow Apple's competitors needs to step up their game. I am glad that Palm is stepping up the heat although I've heard rumors of delays of at least the Pro and most probably the Pre too. i.e. the stuff just ain't done. What about a solid competitor also from Motorola. Apple exerts just this huge premium on their products and their warranties are voided if you breathe wrong on the machines. I'm excited about the new devices coming in June from Apple but wanna see others besides Palm step up their game.

Oh there is also a rumor that Cisco is going to buy Rim. Cisco has been moving into the consumer space for a while now but I hate this idea because too much of RIMM's based on the idea that their value added software won't eventually be disintermediated. When that happens they'll start to look just like Motorola. Mr. Chambers if you want to buy a phone company buy Motorola, at least then you know it can't get that much worse.

Great Tool but Is it a Business?

Back in the 1990s Netscape was a lesson for me that you could have an out of the ballpark win but not really have a business. Even today do browsers actually generate revenue-10 years later what's the revenue model? A lot of these social networking applications are similar in that they have a tremendous user base and provide a great amount of utility but don't actually put out revenue. About 2-3 years in you see them hire someone with the title that looks like "VP of Revenue Generation" or "VP of How to Get Some Cash". The lucky guy comes on board and then spend a few years trying to much with the model to attract advertising or some other revenue stream without undermining what makes the service/application attractive to its current user base.

Some of this is exploratory and a gradual process of building tools that once they all fit together become a business that is greater than the whole. Look at the new Latitude produt from Google. Google has had a great strategy in location based services for a while and they get that this area is strategic and are deploying a collection of tools and fitting them together in a way to take advantage of this trend. They are probably the best positioned company to take advantage of the coming book in location based services and social networking although there is no question that there is plenty of room for startups in the space with good strategic market position (good marketing/positioning is key here).

A lot of times you can have amazing technology or a great idea but if it doesn't play well with already established social networks you are unable to build any critical mass of users. Often even the most interesting ideas need that critical mass to be a valuable user experience.

It also seems to me that applications that are closest to actual transactions (not a lot of models like this) are the ones that have the best chance of creating a revenue model that will work.

It's pretty embarrassing but I just started using Twitter about a week ago. It's really just another form of communication and I find the tool rather useful. Specifically, if I am riding in a cab or on the train I'll often just browse various tweets to get a sense for what folks are talking about.

I sort of think of it like the SMS version of blogging. Where I've found folks in their 20s use SMS a lot more than people in their 30s/40s it's an exceptionally useful tool. It's like a shorthand version of email much like tweeting is a shorthand version of blogging. (as a I've said on this blog I love SMS but the revenue model carriers charge is highway robbery and shows you we have an oligarchy in telecom because something with a marginal cost of $0.0 is being charged at $.25)

This same concern applies to all the tools like blogging tools or other social networks apps. Really cool tools but no path to revenue and at least for a few years no exits via M&A.

While i love the Twitter tool (and I like the investors in it too), I have to wonder how are you going to monetize this thing. Much like Netscape you tend to moneteize tools like this during big upswings in valuations -aka bubble periods. Not for nothing but we may not be in a bubble period for a while. Just something I'm wondering about.

More Time to Polish the Ambiguity?

I got a question. What was the point of this speech exactly-- there were no details. What was the point of delaying it from Monday to Tuesday? They needed more time to polish their ambiguity?

Geithner About to Do His Talk

Just one thing. Nothing about this plan is going to work no matter how clever you are until you reduce the debt. You can't keep ignoring this problem. All private debt needs to come down by 50% or more in aggregate and anything less than this is just prolonging the pain. I really hope we get something with this in there otherwise I'd be concerned it's a waste of time and money.

UPDATE: Wow the guy didn't even do any Q&A. When they come out with the next solution after this one to fix the crisis I bet he will do Q&A. He is gonna have to. No signs here of facing the music here and allowing this write downs to take place.

Chart of the Week

Washington Post does an absolutely great chart diagraming the pork Stimulus bill. Really disappointed in this plan but I love the chart as its a wasted opportunity to prepare the country for the future.

CBO on Unstimulating Stimulus from Congress

CBO came out with an economic analysis estimating the long term impact of the economic stimulus plan being contemplated by Congress. The concept they are using to do the analysis is called "crowding out" where the CBO estimates the increase in long term interest rates by the extra debt and the impact that will have on the economy. In short, the impact would actually be negative in terms of long term economic growth. (we'd lose jobs and income).

Since I posted on it a few weeks ago, treasuries have been getting slightly smacked almost every day. However, even with this new debt the real problem is not what rates will be in 6 months, it's what they will turn into in 5 years once this crisis passes. While times seem tough now, the late 70s and early 80s were no picnic either and that's where we could head if we shift all this debt to the public.

It's one of the reasons why if you do a stimulus it has to be on something that improves infrastructure in a fashion that impacts competitiveness. Other than cold fusions, the most impactful thing on the horizon would be a next generation energy grid. The rest of the stuff in the current stimulus is pretty much wasted money. Full entry here.

Macroeconomic Effects of the Senate Stimulus Legislation

In a letter sent today to Senators Grassley and Gregg, CBO analyzed the macroeconomic effects of an initial Senate version of the stimulus legislation (the Inouye-Baucus amendment in the nature of a substitute to H.R. 1, which is the House stimulus bill). CBO estimates that the Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by between 0.4 percent and 1.2 percent by the fourth quarter of 2011. CBO estimates that the legislation would raise employment by 0.9 million to 2.5 million at the end of 2009; 1.3 million to 3.9 million at the end of 2010; and 0.6 million to 1.9 million at the end of 2011.

Those estimated effects are slightly greater than those of H.R. 1 (as introduced) in 2009 and 2010 (particularly in 2009), but lower in 2011, because more of the overall rise in spending and fall in revenues occurs in the first two years under the Senate legislation.

Most of the budgetary effects of the Senate legislation would occur over the next few years. Even if the fiscal stimulus persisted, however, the short-run effects on output that operate by increasing demand for goods and services would eventually fade away. In the long run, the economy produces close to its potential output on average, and that potential level is determined by the stock of productive capital, the supply of labor, and productivity. Short-run stimulative policies can affect long-run output by influencing those three factors, although such effects would generally be smaller than the short-run impact of those policies on demand.

In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to “crowd out” private investment—thus reducing the stock of private capital and the long-term potential output of the economy.

The negative effect of crowding out could be offset somewhat by a positive long-term effect on the economy of some provsions—such as funding for infrastructure spending, education programs, and investment incentives, which might increase economic output in the long run. CBO estimated that such provisions account for roughly one-quarter of the legislation’s budgetary cost. Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output), CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net.

Blankfein in FT Op Ed

Interesting Opion piece by Goldman's Blankfein on the financial implosion. Interestingly, he actually argues for keeping mark to market since it helped Goldman "reduce it's own risk exposure". It should read "we made a lot of money on this rule because it helped us to go short the debt and equity of financial markets since we saw an implosion coming". Massive shorting of debt (through CDO insurance etc) and equity in a lot of ways added to the lack of liquidity in many of these instruments where for long periods of time there were only sellers and no buyers. As forced panic selling starts it makes those market prices totally unrelated to the income stream of the securities.

Secondly. Didn't mark to market force a lot of these assets up in price artificially as well? Consequently this forced many to move more aggressively into these securities further forcing market up? If one had used more traditional sources of valuation such as cash flow, wouldn't the securities have risen much more slowly?

Lastly, is it a coincidence I have two blog entries today- one from Lloyd Blankfein and the other from Spinal Tap? Or is there a connecting theme between the two?

Lloyd Blankfein is obviously one of the closest people to this issue so here is his piece via the FT below:

Since the spring, and most acutely this autumn, a global contagion of fear and panic has choked off the arteries of finance, compounding a broader deterioration in the global economy.

Much of the past year has been deeply humbling for our industry. People are understandably angry and our industry has to account for its role in what has transpired.


Last, and perhaps most important, financial institutions did not account for asset values accurately enough. I have heard some argue that fair value accounting – which assigns current values to financial assets and liabilities – is one of the main factors exacerbating the credit crisis. I see it differently. If more institutions had properly valued their positions and commitments at the outset, they would have been in a much better position to reduce their exposures.

For Goldman Sachs, the daily marking of positions to current market prices was a key contributor to our decision to reduce risk relatively early in markets and in instruments that were deteriorating. This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions.

As a result of these lessons and others that will emerge from this financial crisis, we should consider important principles for our industry, for policymakers and for regulators. For the industry, we cannot let our ability to innovate exceed our capacity to manage. Given the size and interconnected nature of markets, the growth in volumes, the global nature of trades and their cross-asset characteristics, managing operational risk will only become more important.

For policymakers and regulators, it should be clear that self-regulation has its limits. We rationalised and justified the downward pricing of risk on the grounds that it was different. We did so because our self-interest in preserving and expanding our market share, as competitors, sometimes blinds us – especially when exuberance is at its peak. At the very least, fixing a system-wide problem, elevating standards or driving the industry to a collective response requires effective central regulation and the convening power of regulators.

Capital, credit and underwriting standards should be subject to more “dynamic regulation”. Regulators should consider the regulatory inputs and outputs needed to ensure a regime that is nimble and strong enough to identify and appropriately constrain market excesses, particularly in a sustained period of economic growth. Just as the Federal Reserve adjusts interest rates up to curb economic frenzy, various benchmarks and ratios could be appropriately calibrated. To increase overall transparency and help ensure that book value really means book value, regulators should require that all assets across financial institutions be similarly valued. Fair value accounting gives investors more clarity with respect to balance sheet risk.

The level of global supervisory co-ordination and communication should reflect the global inter-connectedness of markets. Regulators should implement more robust information sharing and harmonised disclosure, coupled with a more systemic, effective reporting regime for institutions and main market participants. Without this, regulators will lack essential tools to help them understand levels of systemic vulnerability in the banking sector and in financial markets more broadly.

In this vein, all pools of capital that depend on the smooth functioning of the financial system and are large enough to be a burden on it in a crisis should be subject to some degree of regulation.

Spinal Tap on the Financial Crisis

Hat tip to Paul Kedrosky for finding this clip. The last 30 seconds are pretty hysterical. Had to put it up.

If I Was Dictator for an Hour

My Stimulus Package to get us out of the 2008 Depression:

If I were a dictator for an hour—this is what my package would look like—it comes to $1 trillion with 100 billion in new taxes in energy and $750 billion of it spent over 4 years. I have no cuts in income taxes favored by the GOP and very few if any wealth transfer programs favored by the Democratic Party. It’s all investment in comparative advantage in infrastructure and telling a story about a more competitive America that can compete nose to nose with manufacturing in China.

Not only is the 1 trillion in new borrowing at 3% worth it—we’ll be able to pay this debt back early with a more competitive and vibrant economy with a higher long term growth rate and more jobs for the middle class.

• $80 Billion: Aid To States. Many states that have increased their spending by 40% need to impose some drastic cuts in what they spend. However, better for those cuts to take place later rather than now. These states need a temporary cushion to prevent any panic contractions that might push us further into a depression. It's also a really economically efficient way to stimulate the economy.
  
• $750 Billion for an energy grid over 4 years. We need infrastructure programs that will make this country more competitive. Lower energy costs and no more oil supply shocks make a huge difference in our long term ability to create industries and jobs. This crisis is not going to end over night-we need long terms investments in infrastructure to allow our country to compete with China.
• $150 Billion for Extension of Unemployment insurance, food stamps etc. This spending is highly effective and needed and also very temporary. These are wealth transfer payments but guess what--this is when you are supposed to do them. Many people are out of work and they are not going to get jobs any time soon and they need income to stay in their homes and feed there families. At best, we won't start growing again until the latter half of this year. These folks need time until jobs come back.
• $75 Billion for IT infrastructure to 1) put a computer in every home and 2) extend broadband to rural areas and currently untapped areas
• $75 Billion in Tax Credit for manufacturing of next generation energy technologies such as solar, wind, and geothermal. A lot of this is produced abroad and we need to encourage manufacturing inside the United States
• Lower the corporate tax rate to 15%. This is free money. Make America the most competitive manufacturer on the planet and bring businesses back from Europe and Asia. If we are a corporate tax haven, companies will flock here and bring jobs with them. This is a proposal that will not only increase US domestic investment but create jobs as well. Also, companies that locate in tax havens with lower tax rates may choose to locate here again. 15% of something is better than 30% of nothing.
• $0 Tax cuts to individuals. We are in a liquidity trap-tax cuts are useless here. People who loves tax cuts need to take an economics class-they don’t work in this situation. I don’t believe in income taxes as the most efficient revenue collection mechanism but this is not when you cut them. It’s a waste of money and has a very low economic multiplier.
• $100 billion in new Taxes on Oil Imports. This would be used to offset subsidies for fuel efficient cars and next generation technologies to get us off oil. It would also include a rebate to low income taxpayers to offset any tax they pay at the pump so the tax is not regressive.

TARP or TRAP?

Looks like the Tarp II announcement is being pushed from Monday to Tuesday. A big part of it is going to be significant mortgage modification. Anybody else get the feeling that the best game in town is to be behind on a ton of debt so the government will come save you? One wonders when the government is going to shoot it's last bullet so we can bottom with the 50% write downs in debt occurring and we can begin a healthy recovery.

Some banks are talking about 20% principal reductions en masse. My thing is, when are we going to stop utilizing a strategy of rewarding bad judgment as a matter of public policy? People are so shocked things keep getting worse but why should they when the government continues to reward failure in bank management, bad decisions at auto companies or people that lie to get loans.

Is it not then reasonable to assume that this crisis won’t end until the government runs out o cards to play here? It seems like every program is gamed by financial players like Bill Gross at Pimco and elsewhere as they move money behind wherever the government goes next. Why shouldn’t they? It’s free money with little to no risk?

Perhaps the real sign of an end here is the end of the government’s seemingly bottomless bag of tricks. To do that, you need the currency to start to drop and interest rates to start to rise. Once that happens, government wont be able to issue debt to finance the latest and greatest creative ideas.

Secondly. If the government is going to restructure all of this debt, how about we do it the old fashioned way by exchanging the debt for equity. For example in exchange for a 20% principle reductions, 33% of the equity goes to the bank and the government in some pro rata fashion. This way, if the home appreciates 10 years later the government has say 33% of the appreciation in equity. This would at least make the American’s who were responsible in their borrowing feel somewhat less stupid? Just giving people 20-40% reductions in their principle without any conditions and no change in equity is just as offensive as all these bankers making billions off these bad loans.

P.S. On all this brouhaha on the bonus compensation for bankers last year. It’s over a few hundred thousand employees with an average of like a 140K or so. Try living in New York City on that get back to me before getting too outraged. And most of it gets taxed anyway. Is it slightly offensive given the bailout—yeah I admit it is but it’s small potatoes here.

What you should care about is the trillions of bonuses they earned in the prior years based on 1) selling CDO insurance that they had no ability to honor (fraud) 2) writing mortgages for people that had no income or assets to support the loans and sticking the government with the bill (bad underwriting). Not only Investment Bankers benefited from these fake transactions but mortgage brokers and realtors all earned commissions on fake transactions. If you get a bonus and it turns out the financing documentaton was fruadulent should everyone in the food chain be responsible from the realtor to the mortgage broker to the bankers who sold the debt to investors? Instead of worrying about a few billion, worry about the trillions that were collected on essentially fraudulent transactions.

Could one not argue that these organizations are effectively bankrupt and this compensation was fraudulently conveyed?

You can’t make an ex post facto law but there has to be a way to go after at least some of this money under current laws. Time for someone to get creative with existing law and apply it to all this fraud in the last 3 years.. Where is Elliot Spitzer when you need him.

Lots of ideas for posts---but tied up...

For just a bit longer...some ideas comin tho.

New Earth Like Planet Found- Geithner Asks Natives for TARP Advice

Okay so I was half kidding about the natives being found but this is the first extrasolar planet we have found that is rocky and Earth-Like... just a little more distance out and it's possible you could have a planet with water on it. This particular one is just too close to its star to have any life on it.

The reading I've been doing on genetics makes me wonder that there absolutely has to be critters on some of these water bearing chunks of rock out in the galaxy. Carl Sagan's old formula pretty much supports that idea and in some cases his assumption ratios were probably low.

One would argue that what we know about the utter random patterns in genetics would lead to some kind of intelligent life on those planets too. Maybe they could give us some advice on the TARP?

I do wonder though if you operate from the premise that where life exists, you can presume eventually intelligent life will arise. I'm not sure that our own example supports that theory given we only have one class of primates that does anything to alter the environment in a systemic way. One could argue that competing primates wiped each other out early on (Neanderthals) so we don't have lots of human races competing for turf now, but why hasn't an intelligent species arisen in other animal groups--why just primates?

Just wonderin.

Full piece here via Science News.

Market to Market Rumors

Some rumors are abound that the government is going to materially modify the mark to market rule for securities that are illiquid. This is something that even FASB has recently changed its mind on with a report here.

There were early signs that this rule was causing some distortions even 18 months ago but many purists have resisted the change on grounds it would be hiding bad assets.

I love economic theory like anyone but if a theory doesn't work in practice it means the theory is incorrect or incomplete and needs to be modified. If trading volume is very light and there are only sellers, the panic pricing only yields more fear and panic. It's the one policy move they are talking about that could actually be meaningful despite the losses already taken. For assets that are going to be held to maturity there are all sorts of other methods of valuation that can be used such as discounted cash flow that provide more accurate views of value.

I think it was Aristotle who said with a lever you could move the world. Lots of these banks have huge balance sheets with absolutely no equity and a very small shift here could have some interesting effects.

Great Quote By Rubenstein comparing Private Equity to Sex

Carlyle Group co-founder David Rubenstein gave the opening keynote at a Harvard Business School conference this past weekend, and reportedly said the following about private equity:

“I analogize it to sex. You realize there were certain things you shouldn’t do, but the urge is there and you can’t resist.”

I don't even know where to begin with this one.

Daschle Pulls Out

So I had this fantasy scenario that with all these folks evading taxes in the incoming administration we might start to see some sort of income tax revolt with jury trials turning not guilty in for ordinary citizens. People forget this country was founded on a tax revolt.

In my little fantasy/thought experiment--the government would then be forced to implement the far more efficient consumption tax as a revenue collection system.