If you Don't Think Gaming is a Big Global Trend

China is issuing currency restrictions for conversions between currencies in online games and their own renminbi.

See below: As China searches for an alternative to the dollar, it has another more immediate threat to its own currency. The growth of the online gaming industry has reached the point where virtual currencies are regularly being converted into cash and, in some cases, used to purchase goods directly. Not amused that people place more value in World of Warcraft credits than the renminbi, the government is fending off the impending currency crisis by issuing regulations restricting the use of virtual currencies to virtual purchases. China may have just found that global reserve currency "delinked from sovereign nations" it was looking for.

TechCrunch List of 100 Most Networked VCs

List of the top 100 "networked" venture investors. The idea here to measure the most prone to syndicate as those that have the best returns. However some entities on the list never do a deal with out secondaries or never do a lead so by definition will score well. So most networked does not necessarily mean best in terms of either highest IRR or the most number of home runs (Google like exits). However--I've notice the guys who are the most aggressive to reaching out to other firms, and spend a lot of time with feet on the ground syndicating deals just tend to do better. They end up having a better feel for what's happening in different segments and are able to make better judgments about when to deploy capital, and when to hold your powder.

Top 10 below and the rest via TechCrunch:

1. Draper Fisher Jurvetson
2. Sequoia Capital
3. Accel Partners
4. Intel Capital
5. First Round Capital
6. Dag Ventures
7. New Enterprise Associates
8. Kleiner Perkins Caufield & Byers
9. Benchmark Capital
10. Ron Conway

Thought Provoking Piece By Maureen Dowd and the Future of the GOP

Maureen Dowd has a column on the Mark Sanford ridiculousness. First of all, I don't really care about politician's personal lives and these scandals with Sanford and Ensign are uninteresting to me as an American other than the hypocrisy they personify.

Further, I would trade a politician with a few unpleasant personal imperfections for one that would address some of the competitiveness issues that are facing this country such as dependence on oil. Propose a $2 dollar "Freedom Oil Tax" and I'll campaign for you.

However, one has to wonder when will the GOP abandon this absurd strategy of appealing to extremist voters with religion as a crutch instead of having honest policy debates. Thomas Jefferson fought fairly aggressively about using religion in politics and he understood the danger and potential pitfalls of the strategy even back then and in his construction of the US constitution.

However, the GOP probably won't stop using this Carl Rove designed political strategy-until it stops effective in raising money for elections. That probably won't happen until the party becomes such an anachronism that even the religious right won't donate money to it because it's seen as a sure fire loser in any general election.

Some of the brightest lights in the party--seem to me to be the ones who avoid these issues. On the other hand, I'm not as much of a fan of Sarah Palin because I frankly doubt she believes in some of the ideas she espouses. If you look at Reagan--he believed in the policy positions he put out--and that sincerity got him votes from people who didn't agree with him 100%.

The GOP argues--"well at least we try to argue for upstanding behavior, even though we don't live up to it". However, isn't hypocrisy a much greater sin? Didn't Jesus say "Let he who is without sin among you, cast the first stone". Just look at the % of governors, congressmen, and senators from the GOP that have had several unappealing and distasteful "issues". It feels tome like 15-20% and that's only the ones we know about.

When folks like Colin Powell complain the GOP has gone too far right, Cheney makes comments about how he should leave the party and that they are destroying the party of Reagan. While Reagan was religious--he never struck me as an extremist and he didn't try and divide the country to solidify his vote in one segment by sacrificing national unity.

In other words, I've got to burn half the village to save it. Boy we have to get rid of that.

Maureen's writing in this piece is fantastic. Here are some special excerpts with the full piece here:

In a weepy, gothic unraveling, the South Carolina governor gave a press conference illustrating how smitten he was, not only with his Argentine amante, but with his own tenderness, his own pathos and his own feminine side.

He got into trouble as a man and tried to get out as a woman.

With Maria, he was no longer the penny-pinching millionaire Mark, who used to sleep on a futon in his Congressional office and once treated two congressmen to movie refreshments by bringing back a Coke and three straws.

No, he was someone altogether more fascinating: Marco, international man of mystery and suave god of sex and tango.

Mark was the self-righteous, Bible-thumping prig who pressed for Bill Clinton’s impeachment; Marco was the un-self-conscious Lothario, canoodling with Maria in Buenos Aires, throwing caution to the e-wind about their “soul-mate feel,” her tan lines, her curves, “the erotic beauty of you holding yourself (or two magnificent parts of yourself) in the faded glow of night’s light.”

Mark is a conservative railing against sinners; Marco sins liberally. Mark opposes gay marriage as a threat to traditional marriage. Marco thinks nothing of risking his own traditional marriage, and celebrates transgressive relationships. He frets to Maria in e-mail that he sounds “like the Thornbirds — wherein I was always upset with Richard Chamberlain for not dropping his ambitions and running into Maggie’s arms.”

Sanford should give his piety a rest. He told his cabinet that the Psalms taught him humility. (There’s a chance that a younger Argentine boyfriend of Maria’s also taught him humility, by jealously hacking into her e-mail account and leaking the governor’s missives.)

Sanford can be truly humble only if he stops dictating to others, who also have desires and weaknesses, how to behave in their private lives.

The Republican Party will never revive itself until its sanctimonious pantheon — Sanford, Gingrich, Limbaugh, Palin, Ensign, Vitter and hypocrites yet to be exposed — stop being two-faced.

Polachi Survey on Venture Capital Making the Rounds

You can read it here but the jist is pretty simple. Investors are worried about getting exits. i.e. getting paid. Still too much money chasing too few ideas for good businesses. That is definitely changing but the big question is will it change enough to restore rates of return to the asset class?

Bill Gurley Interview

Interview with Bill Gurley by Joseph Ansanelli. Bill went into the last round of Twitter at a relatively steep valuation. Will be highly interesting to see how that turns out.

On Venture Capital investing today

1. What are your top investment areas going forward?

We don’t really work that way. All I could tell you is what are the three most common investment themes looking back. We simply don’t sit around planning the future. We try to meet with as many great entrepreneurs as we can and then make a judgment on the quality of their vision versus the state of the market. Recent themes have been cloud computing, open source, user generated content (UGC) Internet plays.

2. What are the most important things you want to learn about a company in a first meeting?

• Quality of the idea – this is from both an economic standpoint and a defensibility standpoint.
• Quality of the founder – smart, motivated, goal oriented.
• Mode of operation – frugal vs. excessive.

3. It seems most VCs keep a list of deals they “missed”. What’s your list?

It’s long and painful.

I met with all of these companies at an early stage before they raised venture capital.
• Overture – Bill Gross was kind enough to show this to me
• Akamai – this was Mark Gorenberg’s deal at HummerWinblad, but I should have been supportive, and I missed it
• Skype
• Baidu
• And of course the big one: Google. I have profound admiration for John Doerr and Mike Moritz for knowing to step up here, especially at a high price. It was far from obvious.

I probably forgot 1 or 2, and I am confident there will be more.

On Entrepreneurs and Startup CEOs

4. On the “qualitative” side of things, what do you look for in a entrepreneur or startup CEO? and what turns you off as well?

On:
• Intellect
• Salesmanship without being overly promotional
• Pragmatism
• Resourcefulness
• Confidence

Off:
• Overly promotional
• Doesn’t listen
• Unwilling to focus
• Lack of appreciation for finance/economics.

5. What are the top 3 do’s and don’ts for an entrepreneur presenting at a Benchmark partners meeting.

I would suspect they are mostly the same (as question 4).

Here are a few tactical things for the partner meeting presentation
• Don’t bring people that don’t have a role in the meeting
• Always include at least one “financials” slide even if its more about costs than revenues — weird to have to ask, and even weirder to reply “we don’t have one with us”.
• Don’t use over 20 slides.
• Control the flow of the meeting.

On the Business of Venture Capital

6. Opentable (Nasdaq: OPEN) is one of the first “silicon valey” initial public offerings (IPO) since the economic downturn. Why do you think the company was able to get public and was received so well?

I actually believe that the buy-side has ample demand for IPOs. The key problem is a supply problem – most companies either don’t want to be public or aren’t willing to make the tough choices it takes to get public (healthy margins, sarbox implementation, etc).

Being public isn’t easy, and for the CEO and the CFO it’s downright brutal. I think that’s why the valley is obsessed with “alternative markets” these days. They want the benefit of liquidity without the headache of being public. I think they will be disappointed.

7. What do you think about the suggestion that today’s venture model of large funds and big investments does not work in a world where companies can get real traction both as a consumer company or a enterprise company by leveraging services such as amazon’s ec2 and all the available open source solutions?

I don’t think the data proves this theory out. With the exception of Salesforce.com and Siebel, I don’t know of any multi-billion dollar public companies that didn’t have venture capital. You might be able to build a feature for $1mm, but its much harder to build a company. All of the $B Internet companies have/had venture backing.

This doesn’t disqualify the accusation that some funds are too large. They are different issues.

8. Clearly, the startup world is much more “flat” with companies existing across borders and getting started around the world. What is your long-term view on Silicon Valley as the “epicenter” for venture capital in the next 10-20 years?

We are tremendously excited about the future of Silicon Valley — it is our unquestionable focus as a venture firm. We want to be the best firm in Silicon Valley.

That’s not a reflection on the opportunities elsewhere. I happen to be very bullish on China, Russia, and Brazil when it comes to venture opportunities. I just think those will be best served by local firms on the ground in those regions.

9. Benchmark has a unique structure in that all partners are equal – equal pay, equal carry, equal votes, etc. Why has that worked and why haven’t more firms adopted that model?

It works for 3 key reasons.

First, our partner’s don’t need to negotiate compensation every time they raise a new fund, so we are incented to all work together versus proving our worth to one another. My partners deliver value-add to the companies I work with all the time.

Second, it keeps a high bar on who comes in. There is no junior team at Benchmark.

Lastly, as an entrepreneur, you are always dealing with a General Partner that has a say in the firm — your deal won’t get trumped by the “Senior partner” back at the shop.

Others don’t adopt it for the same reason other partnerships in legal, investment banking, and real estate haven’t — it’s good to be king (from a financial standpoint).

On Twitter

10. Benchmark recently invested in Twitter at a pretty lofty valuation. What drove the investment and how are they going to make money other than the often-rumored acquisition?

See my answer to question #3 above.

Driving Momentum in Cloud Computing

I thought this condensed analysis of the Akami CEO's speech on Cloud Computing by Katie Fehrenbacher was very good. Love the approach myself. Full piece via GigaOm here or you can watch the video of the whole talk below.

6 Key Ingredients for What Is Cloud Computing:

1. Computing accessed via the Internet — not proprietary networks that enterprises have used before.
2. Outsourced and shared infrastructure — without shared you won’t get efficiencies.
3. Scalable resources that you get on-demand.
4. Metered use — only pay for the piece you use.
5. Need a new level of reporting and insight, plus a new level of security.
6. 10 years of history led us here.

Why the Cloud Is Inevitable:

1. Acceptance of web-enabled technologies, from the consumer side inside the enterprise, IM, social networking, etc.
2. Economics of shared infrastructure is better.
3. It’s a faster way to get applications to market.
4. Security has gotten good enough for public Internet and sharing infrastructure.
5. This model is much more efficient and greener. The IT industry is the fastest growing culprit of the carbon footprint problem.

Cloud Computing Enablers:

– virtualization
– infrastructure as a service
– application platform as a service
– software as a service
– we think the piece that is missing here is optimization layer — that’s Akamai

Top CIO Concerns With Cloud Computing:

1. Security
2. Performance
3. Availability
4. Integration
5. Customization

The Trouble in Honduras

What a strange situation where our own government ---Clinton and Hugo Chavez are taking the same position that the President of Honduras should be reinstated and Chavez threatening to invade.

If we had a "Freedom Tax" on oil, we would not need to put up with this guy. But I digress...

Could the Honduran government just not impeach the President of Honduras for violating the prior court order? Seems like that's the way to go. The coup and shipping him out of the country --seems poorly thought out. VIA WSJ:

Several leftist Latin American leaders met in neighboring Nicaragua on how to manage the first coup in Central America since the end of the Cold War. After being sent into forced exile in Costa Rica on Sunday, Mr. Zelaya turned up in Nicaragua on Monday to be greeted by fellow leftist leaders like Venezuela's Hugo Chavez, Nicaragua's Daniel Ortega, and Ecuador's Rafael Correa.

In Managua, Mr. Chavez defended Mr. Zelaya by casting the dispute as a rebellion by the region's poor against elites, according to AP.

"If the oligarchies break the rules of the game as they have done, the people have the right to resistance and combat, and we are with them," Mr. Chavez said. He threatened to "overthrow" the new Honduran leader sworn in by lawmakers, Congressional President Roberto Micheletti. Mr. Micheletti replied in an interview with Honduras' HRN radio on Monday: "Nobody scares us."

The coup stemmed from a bid by Mr. Zelaya, a frequent critic of the U.S., to stay in office past the end of his term in January. Mr. Zelaya wanted to hold a referendum on Sunday asking voters if they wanted to vote at a future date to scrap the constitution. Mr. Zelaya's opponents say his aim was to end the constitution's limit to a single presidential term.

Energy Bill Passed Friday

The global warming bill passed the House Friday. A coupel surprises to me:

1) The WTO came out with some clarifying language that allows countries to impose tariffs for countries that do not have similar levels of "climate enforcement" yet the Obama administration. Without this kind of protection, it's really just a job export bill. I am a die hard free trader but trade has to be fair unless we want to keep borrowing from the Chinese.

2) Hard to see this getting through the Senate in its current form. But if oil starts to move into the 80s and threatens 100 it could enable passage in some form.

3) It's described as a bill to get us off of foreign oil but very little of our oil imports go to fuel factories and heat homes. Most of that is coal and natural gas or nuclear which is all domestic.

Want to get us off foreign oil? A $2 dollar a gallon gas tax with rebates to low income Americans.

Our as others have called it "the Freedom Tax". Love that. I am defininely pro freedom.

Madoff: Got to be Something More to This

The 120 year sentence sounds really good but I'm not sure it does anything to either 1) Find out who helped Madoff pull off the scam 2) Encourage a process of asset recovery. What incentive does he have to cooperate and turn over more hidden money?

On issue #1: Seems somewhat implausible that Madoff's brothers, sons and wife had no idea anything was going on on a scam that went on for decades? The brothers and sons worked there, one would think after a few decades some kind of slip would occur.

On issue #2: All these transfers of wealth to his sons and other family members seem like a "fraudulent converyance to me". Supposedly his sons are not talking to him now but the whole thing feels like a setup where the sons actually "turned him in" and were "shocked".

I really hope we have not seen the end of this and legal means will be used to try and recover the money transferred to his family. Why should Ruth Madoff even get $2.5 million? Wouldn't surprise me that a man this duplicitous would figure out a way to stash at least $10 million somehow somewhere and his family knows about it?

The whole effort to paint Madoff as this sole perpitrator and everyone else around him as innocent smells fishy.

Fred Wilson Interview--

Nice interview with Fred Wilson who is probably the best Social Media investor out there and a pretty strong thinker overall. He's been in the space earlier then most anyone and been persistent and patient which venture investors need. It's a wide ranging interview where he talks about everything from stock picks to his investments in Twitter and Zynga as well as some of his best/worst deals.

It's a very long interview and the good parts start in the last 20 minutes or so. The best parts are when Fred talks about montetization at Twitter which is something I am sure they never talk about (sarcasm if you couldn't tell). If Fred got offers for anything north of 800 million I hope he takes it and runs. It's not that I don't believe in Twitter btw.

The interesting part is where he talks about some sort of connected ecosystem with Twitter and Facebook updates all connected and people building their updates on top of that. Sort of an interesting forecast of how things will unfold.

He also says Zynga is his best investment which I am not sure I understand the logic of. I like Zynga a lot too, although it might have something to do with Zynga doing a round right now. He uses his blog and these interviews to help his investments...just a smart guy.

Full interview HERE.

Talented Kid

On the Chinese Dollar Swipe this AM

Why can't our Treasury respond with a statement like this:

"We welcome the integration of the Chinese Yuan into the global economic system. To that end, a free floating Chinese currency with reduced investment and trade barriers will only speed this transition and enhance global economic growth. This would include the development of an active fixed income market inside China. The Chinese consumer can only be aided by less expensive imports and access to the Chinese market by global exporters."

As the crisis abates, we need to start strumming this drumbeat. The US as a reserve currency hurts exports and moves jobs abroad. It also retards growth of strategic industries that have to locate abroad because of an artificially inflated currency.

We need to stop protesting too much.

Greenspan in FT

Greenspan, is voicing concern here that Bernake is not watching inflation enough. I guess Bernake is too busy fighting the deflationary spiral in real estate prices caused by a reckless and irresponsible lack of underwriting standards?

Just strikes me as a tad arrogant and almost everything he writes comes off to me as an attempt at rehabilitation. Greenspans big gamble is all these banks would self correct and he didn't watch as bad underwriting went from just a few banks to virtually every major bank. Literally asleep at the wheel.

VIA FT:

nflation is a special concern over the next decade given the pending avalanche of government debt about to be unloaded on world financial markets. The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt.

The Federal Reserve, when it perceives that the unemployment rate is poised to decline, will presumably start to allow its short-term assets to run off, and either sell its newly acquired bonds, notes and asset-backed securities or, if that proves too disruptive to markets, issue (with congressional approval) Fed debt to sterilise, or counter, what is left of its huge expansion of the monetary base. Thus, interest rates would rise well before the restoration of full employment, a policy that, in the past, has not been viewed favourably by Congress. Moreover, unless US government spending commitments are stretched out or cut back, real interest rates will be likely to rise even more, owing to the need to finance the widening deficit.

Government spending commitments over the next decade are staggering. On top of that, the range of error is particularly large owing to the uncertainties in forecasting Medicare costs. Historically, the US, to limit the likelihood of destructive inflation, relied on a large buffer between the level of federal debt and rough measures of total borrowing capacity. Current debt issuance projections, if realised, will surely place America precariously close to that notional borrowing ceiling. Fears of an eventual significant pick-up in inflation may soon begin to be factored into longer-term US government bond yields, or interest rates. Should real long-term interest rates become chronically elevated, share prices, if history is any guide, will remain suppressed.

The US is faced with the choice of either paring back its budget deficits and monetary base as soon as the current risks of deflation dissipate, or setting the stage for a potential upsurge in inflation. Even absent the inflation threat, there is another potential danger inherent in current US fiscal policy: a major increase in the funding of the US economy through public sector debt. Such a course for fiscal policy is a recipe for the political allocation of capital and an undermining of the process of “creative destruction” – the private sector market competition that is essential to rising standards of living. This paradigm’s reputation has been badly tarnished by recent events. Improvements in financial regulation and supervision, especially in areas of capital adequacy, are necessary. However, for the best chance for worldwide economic growth we must continue to rely on private market forces to allocate capital and other resources. The alternative of political allocation of resources has been tried; and it failed.

Energy Bill and the WTO

The WTO (World Trade Organization) is out with policy guidance around tariffs on policy for "environmental protection". That's pretty big news actually because it allows governments to impose tariffs in imports from countries that pollute more than domestic producers. That's bad news for China.

Probably no coincidence this is coming out right at the same time the House Energy bill is coming for a vote (today).

Just a quick reaction to the bill. Most of our oil consumption comes from cars, not heating factories and homes. How do you call something an energy bill that does relatively little to actually get us off of foreign oil?

Have not seen a final version of the bill (I don't think it's done yet) is a job export bill. If you don't have corresponding tariffs it is a job export bill.

Bernake Testimony

Some notes on the Fed testimony, the hearings, and the current environment:

• A lot of the accusations thrown around by Congress were pretty inflamatory. Is some of it based on fact? Sure, but it's taken out of the context of the time and the responsibilities of the regulator.
  
• Other than a late start lowering rates, Bernake has pretty much executed prevailing economic thinking pretty flawlessly. Not only that, he's uses existing Fed powers to be extremely creative and innovative in terms of structures to stabilize the banks.
• The decision not to do big write downs on the debt of the banks and using government guarantees to protect these lenders, as far as I know came from Paulson, not really Bernake. Paulson picked the approach then Beranke helped to execute.
• On the negative side, I think I must have been watching some other testimony than all the commentators because I thought the testimony came off badly. He looked like he was hidinding something and was visibily shaking. The whole statement that he didn't directly or indirectly pressure BofA strained credibility. Come on now, it was a transaction that was so huge it was systemic in nature and was designed to make both entitities and the system overall more stable. Of course he pressed Ken Lewis. Own it Ben.
• All this talk about Larry Summers getting the Fed Job. Summers is a policy wonk. This guy loves economy theory and debating the stuff. The Fed job is powerful but it's also about just 1 or 2 things. Larry Summers would be misplaced in the job and most probably ineffective and unhappy unless you want to turn it into an "activist" Fed which would be horrible.
  
• The statement on the Lehman collapse is also not really owning up to what actually happened. It is true that tools they had were not conducive to engineering some kind of loan to Lehman but the statute 13.3 gives the Fed almost unlimited ability to exchange cash for a security interest. My own bet is when the full story is told here, Paulson pushed not to save Lehman because at the time there was a political backlash building against the GOP for leadin bailouts in too many insitiitutions.
  
• Bernake has executed economic theory around how you handle a depression like scenario is pretty textbook. In fact, he's moved a bit beyond the textbook with some exceedinly "creative" uses of Fed powers. If the economy goes into a huge downturn, it won't be becuase he didn't execute the theory well, it will be because the theory is bad.
• Lately a lot of people have been looking at trends in price stability before the creation of the Federal reserve. At some point, we should look at some of the assumptions the Fed has about monetary supply growth and look for different ways we can run monetary policy.
  
• The interesting testimony is most probably going to come from Paulson who probably used his authority a lot more recklessly. Paulson is waiting for the "heat" to die down and will probably appear in early July.
  

Bernake probably did pressure Ken Lewis. What prudent regulator would not have put pressure on him to consumate that transaction? I've described Ken Lewis the Bernie Ebbers of Banking and it's a relatively warranted comparison other then buying his own stock on margin.

Lewis was trying to make a gamble to see if the government would blink and Bernake and others called him on it. Better to just be honest about what was done then to try and obfiscate. Despite all that, I think Bernake is intelligent, sensible, and he has proven to execute some extremely creative ways to get credit into the system. He probably deserves the nomination again given his performance.

Protests Crushed Today--Barbaric

A government that beats its own people--barbaric and by definition anachronistic. This is what happens when you put a religious cult in charge of your country.

Freedom Tax on Oil

I love this piece by Friedman who is proposing a $1 dollar Freedom Tax on oil. One of the biggest reasons for me to start this blog was to talk about energy and ideas like taxing all oil imports. I love Friedman's proposal but I'd rather just have an even stiffer tax on all oil imports at something like $30 dollars a barrel. W e could offer rebates to the old and the poor, and use the money to fund transportation, the auto bailout, health care or just to pay down our own debt.

Why is a tax on oil imports preferable to a tax at the pump? US producers are the highest marginal cost producers and a tax at the pump actually discourages domestic exploration. A tax like this on oil, one way or the other, will get us off oil imports within about 20 years as new technologies in hybrids are rolled out. It's the single most important thing we could do to improve our nation's competitiveness.

Some might argue that the tax on oil would hurt consumers despite rebates for the poor. One way or the other, the price of oil is going to go up over time regardless. The US still consumes about 25% of all world oil production--would you rather the US government get that increase in price as tax revenue, or have that revenue go to dictators that want to kill us?

It's not anti trade either since oil production is governed by a cartel. People forget that just back during World War II, the largest oil exporter was none other than the US. Being a net exporter of this commodity that gave us independence and allowed us to control our own economic destiny- a trait this country has lost.

If we did not have to import our own oil, we would have almost no trade deficit and wouldn't have to borrow from China or anyone else. It's an energy strategy issue, a national security issue, and the President's reluctance to propose this as the underpinning of a national energy policy is perplexing. Worried you won't get the votes? Offer the GOP more drilling rights to get their votes. It would mean a much more competitive and independent country.

Via NY Times:

“People do not change when you tell them they should; they change when they tell themselves they must,” observed Michael Mandelbaum, the Johns Hopkins University foreign policy specialist. And nothing would tell Iran’s leaders that they must change more than collapsing oil prices.

Mr. Obama has already started some excellent energy-saving initiatives. But we need more. Imposing an immediate “Freedom Tax” of $1 a gallon on gasoline — with rebates to the poor and elderly — would be a triple positive: It would stimulate more investment in renewable energy now; it would stimulate more consumer demand for the energy-efficient vehicles that the reborn General Motors and Chrysler are supposed to make; and, it would reduce our oil imports in a way that would surely affect the global price and weaken every petro-dictator.

Insides of an IPhone

Pretty neat. From ISupply. If you bought all these parts it would cost you about $179.

Iran Election Cartoon

The Mullah's Strategy

Really interesting and also sad to see the extreme crack down on all protestors as well as mass arrests throughout Iran. There was supposed to be a big Mousavi protest today outside the Iranian parliament. Just a couple thoughts:

• The Ayathollah is no doubt influenced by the strategies used in the 1979 revolution. The protests went on for a year and the Shah really refused to crush any protests. This allowed the protesters to organize and grow stronger. I think the Iranian regime is hoping that if they crack down hard now they can prevent this counter revolution from taking hold.
• The most significant thing about this movement is it potentially represents a counter revolution to one of the most anachronistic and backward regimes on the planet outside North Korea. The Iranian revolution in 1979 some would say was on the same level as the French Revolution. It laid the seeds for extreme 8th century religious movements across the middle east. Many of the forces inside Iran are calling into question that there is anything in Shia Islam that calls for a government by priests.
  
• It's interesting to note a lot of the writings of pre 1979 Iran. A lot of these people were angry because they viwed Iran as backward. They would compare Iran to Japan and ask how Japan had gotten so far ahead. How would those protesters change their views now if they saw how bakcward and isolated Iran has become over the past 30 years. It's really been pretty horrible.
• Amazign to see Russia come out and support Ahmadi-Nejad. Stands to reasosn that the Russian eletions themslelves are not much less crooked.

Rafsanjani About to Outflank Supreme Leader in Iran?

An amazing story if true. The most "regime friendly" way for Iran to resolve this dispute would be to replace the Supreme Leader which there have been rumors Rafsanjani was trying to do with their Assembly of Experts and Guardian Council. No idea how "confirmed" the sources for this are but I hope it is true. More here via Eursaia.net.:

A source familiar with the thinking of decision-makers in state agencies that have strong ties to Supreme Leader Ayatollah Ali Khamenei said there is a sense among hardliners that a shoe is about to drop. Ali Akbar Hashemi Rafsanjani -- Iran’s savviest political operator and an arch-enemy of Ayatollah Khamenei’s -- has kept out of the public spotlight since the rigged June 12 presidential election triggered the political crisis. The widespread belief is that Rafsanjani has been in the holy city of Qom, working to assemble a religious and political coalition to topple the supreme leader and President Mahmoud Ahmadinejad.

"There is great apprehension among people in the supreme leader’s [camp] about what Rafsanjani may pull," said a source in Tehran who is familiar with hardliner thinking. "They [the supreme leader and his supporters] are much more concerned about Rafsanjani than the mass movement on the streets."

Ayatollah Khamenei now has a very big image problem among influential Shi’a clergymen. Over the course of the political crisis, stretching back to the days leading up to the election, Rafsanjani has succeeded in knocking the supreme leader off his pedestal by revealing Ayatollah Khamenei to be a political partisan rather than an above-the-fray spiritual leader. In other words, the supreme leader has become a divider, not a uniter. [For background see the Eurasia Insight archive].

Now that Ayatollah Khamenei has become inexorably connected to Ahmadinejad’s power grab, many clerics are coming around to the idea that the current system needs to be changed. Among those who are now believed to be arrayed against Ayatollah Khamenei is Grand Ayatollah Ali al-Sistani, the top Shi’a cleric in neighboring Iraq. Rafsanjani is known to have met with Grand Ayatollah al-Sistani’s representative in Iran, Javad Shahrestani.

A reformist website, Rooyeh, reported that Rafsanjani already had the support of nearly a majority of the Assembly of Experts, a body that constitutionally has the power to remove Ayatollah Khamenei. The report also indicated that Rafsanjani’s lobbying efforts were continuing to bring more clerics over to his side. Rafsanjani’s aim, the website added, is the establishment of a leadership council, comprising of three or more top religious leaders, to replace the institution of supreme leader. Shortly after it posted the report on Rafsanjani’s efforts to establish a new collective leadership, government officials pulled the plug on Rooyeh.

Meanwhile, the Al-Arabiya satellite television news channel reported that a "high-ranking" source in Qom confirmed that Rafsanjani has garnered enough support to remove Ayatollah Khamenei, but an announcement is being delayed amid differences on what or who should replace the supreme leader. Some top clerics reportedly want to maintain the post of supreme leader, albeit with someone other than Ayatollah Khamenei occupying the post, while others support the collective leadership approach.

Amazing interview on CNN with Iranian Protester

The most interesting point on the end. Via CNN:

Mohammad: Excuse me, sir. I have a message for the international community. Would you please let me tell it?

Roberts: Yes, go ahead.

Mohammad: Americans, European Union, international community, this government is not definitely — is definitely not elected by the majority of Iranians. So it’s illegal. Do not recognize it. Stop trading with them. Impose much more sanctions against them. My message…to the international community, especially I’m addressing President Obama directly – how can a government that doesn’t recognize its people’s rights and represses them brutally and mercilessly have nuclear activities? This government is a huge threat to global peace. Will a wise man give a sharp dagger to an insane person? We need your help international community. Don’t leave us alone.

Chetry: Mohammad, what do you think the international community should do besides sanctions?

Mohammad: Actually, this regime is really dependent on importing gasoline. More than 85% of Iran’s gasoline is imported from foreign countries. I think international communities must sanction exporting gasoline to Iran and that might shut down the government.

RIM is Biggest Victim in Apple Launch this Weekend

Interesting numbers from IPhone launch regarding RIM. The single biggest source of new users for the IPhone? Rim Blackberry at 12%.

I continue to think Rimm is in between a rock and a hard place with Apple and Palm.

Just as an side. That acquisition of Nortel's LTE equipment by Nokia Siemens is very interesting. LTE is going to be the next standard with launches in the next two years globally. The market concentration there is awfully high with this venture owning an awful lot of the LTE share which is a good thing. The only thing I don't have a view on yet is how does a market leader in mobile phones go head to head against Samsung, Apple, Rimm, HTC and others. Nokia has some great products in the mobile phone space but the space is changing so quickly their market share leadership could be at risk. Right now I don't know how you get at the LTE without getting the mobile phones which I'm not sure about. Nokia could nose dive just like Ericsson did.


Just for disclosure, Short Rimm, Long a very small amount of Nokia Leaps for now.

If You Think Steve's Health is Not a Material Event

You probably think the Iranian election was a triumph of pluralism and democracy. Okay that's a bit of an exaggeration but I love to have fun with the headlines. I just saw someone on TV try and argue that what the board was doing made sense and I had trouble understanding the defense of his position. Steve Jobs is probably the bests innovator in the last 50 years, perhaps a lot longer than that given how he has transformed the PC industry and now wireless.

So all this means the issue of material disclosures around the health of Steve Jobs is all over the news again. This really is a symptom of some sort of fiduciary dysfunction with the board.

You have to disclose all material issues for public companies. Steve is probably the most impactful CEO out there and if his health is an issue you have to disclose it and not doing so in unethical. Period.

Look, I love what Steve has done for wireless--he's turned it into an interesting segment again and done wonders for technology. If it wasn't for Steve, our best hope for an interesting product would be the fall release of the Zune.

If I were Steve, why not just make a disclosure that if you want to invest in Apple you should assume the CEO has serious health issues and he may have to exit his role at any time. If investors have to assume the worst, then Apple can't be accused of misleading them about the ability of the CEO to continue in his role and innovate. This whole guessing game about maybe he is healthy or not, with inside scoops on friends of friends who say they heard something happened is bad for the company, bad for succession plans and not ethical.

The fact this saga is still dragging on and being handled improperly is a sign of some kind of board governance issue. Somebody isn't communicating with somebody or is afraid to tell someone the truth. I imagine there is quite a bit of emotion involved and it's a difficult situation trying to tell someone who is deathly ill what to do about a company they have created not once but twice (by saving Apple with his return).

One can hardly blame the board from deferring to Steve's wishes given how important he is to the company but it also shows the board is not properly functioning. It also highlights how important he is to shareholders and how material his health really is.

That said, I wish Steve Jobs a happy/healthy recovery and hope he stays with Apple a very long time. Get better soon Steve Jobs.

If We Needed A Health Care System in a Pinch

Lots of folks on the Sunday morning talk shows seem mystified in trying to find some sort of plan that works. While there are many criticisms one could make of the plans in every other industrialized democracy, the fact is ANY SINGLE ONE of those plans would be better than what we have.

At any time, we could take the plan from Canada, the UK, Holland, France, Belgium, Italy or pretty much any industrialized country and the system is far far better than what we have now. The more I look at the numbers, the more amazed I am at how bankrupt and corrupt the current system is.

Great Piece on What Real Health Reform Would Require

Lots of pieces on health care these days. For me the keystone of any real reform revolves around eliminating the practice of paying on a per procedure basis. The system we have now just generates too much over consumption.

Excerpt Below and full piece via WSJ:

The President's speech was remarkable for many things, but most of all for the way the audience of physician members sat and took their lumps. The fact that they clapped at times, and even gave him a standing ovation, surprised me. The speech was a model of clarity, full of the kinds of truths we in medicine have managed to dodge and distort for years. But keep in mind he was speaking to the AMA, the organization most responsible for conditioning the public to respond to the words “socialized medicine” with the fight-or-flight response one has on seeing a rabid skunk approaching.

President Obama pointed to the problem of “a system of incentives where the more tests and services are provided, the more money we pay.” As if to rub it in, he added, “And a lot of people in this room know what I’m talking about.”

Oooo, there was that “corrupt” word again, even though he did not say it. This part of the speech drew no applause, just stony silence.

Prevention is a good thing to do, but why equate it with saving money when it won’t? Think about this: discovering high cholesterol in a person who is feeling well, is really just discovering a risk factor and not a disease; it predicts that you have a greater chance of having a heart attack than someone with a normal cholesterol. Now you can reduce the probability of a heart attack by swallowing a statin, and it will make good sense for you personally, especially if you have other risk factors (male sex, smoking etc).. But if you are treating a population, keep in mind that you may have to treat several hundred people to prevent one heart attack. Using a statin costs about $150,000 for every year of life it saves in men, and even more in women (since their heart-attack risk is lower)—I don’t see the savings there.

Poor McAllen, Texas. It happens to be the focus of a recent “New Yorker” piece by Atul Gawande, a piece that President Obama referred to in his speech to the AMA, because health care costs in McAllen are twice that of comparable cities while health outcomes are no different. The reasons are complex but probably because good physicians are ordering lots of tests, calling in lots of consultants, making good use of the equipment they own and the imaging centers they might have a stake in (and yes, they think they can be objective in ordering an MRI or CAT scan that sends the patient to their own facility); it has to do with hospitals competing with each other for the kinds of patients with conditions that are reimbursed well, and wooing patients, wooing high-volume physicians (some of whom are invited to invest in the hospital) to make full use of their PET scan, their gamma knife, their robotic-surgery facility, their cancer center, their birthing center. That was Atul Gawande’s conclusion, and I would concur.

But I’d like to officially let McAllen off the hook and say that having practiced in five states, including 15 years in the great state of Texas, we are all complicit in practicing just that kind of medicine if you look hard enough and if you looked at us individually. Conflicts of interest are rife; they are almost the rule. So is the ability to wear blinders so we are (mostly) oblivious to our conflict.

Which brings me to my problem with the president’s plan: despite being an admirer, I just don’t see how the president can pull off the reform he has in mind without cost cutting. I recently came on a phrase in an article in the journal “Annals of Internal Medicine” about an axiom of medical economics: a dollar spent on medical care is a dollar of income for someone. I have been reciting this as a mantra ever since. It may be the single most important fact about health care in America that you or I need to know. It means that all of us—doctors, hospitals, pharmacists, drug companies, nurses, home health agencies, and so many others—are drinking at the same trough which happens to hold $2.1 trillion, or 16% of our GDP. Every group who feeds at this trough has its lobbyists and has made contributions to Congressional campaigns to try to keep their spot and their share of the grub. Why not?—it’s hog heaven. But reform cannot happen without cutting costs, without turning people away from the trough and having them eat less. If you do that, you have to be prepared for the buzz saw of protest that dissuaded Roosevelt, defeated Truman’s plan and scuttled Hillary Clinton’s proposal. The good news is that the AMA, representing perhaps 15% of active practicing physicians, is not as powerful as it was in Truman’s time, and in the eyes of the public and many in medicine, it’s identity in the reform debate, is that of a protectionist, self-serving, organization; as a result, even their most progressive statements are viewed with suspicion. I’ve found the views of the American Medical Student Association particularly exciting—the next generation of physicians I sense has a deeper commitment to affordable health care for all than ours; they are, simply put, better people.

Paper on Iranian Election Discrepancies

Piece by Chatham House doing an in depth analysis of Iranian irregularities. The numbers were pretty obviously false but it shows some provinces with a turnout of over 100%. That's pretty good. Download the PDF here.

Weekend Levity-Health Care Reform

Bill Maher has a brilliant piece on medical reform. Just a couple thoughts to add in there:

1. Health costs went up 9% last year where prices in the rest of the economy went through the floor.
2. We spend 17% on our health care and almost 50 million people are uncovered. The next highest is Switzerland at 11% and they cover everyone. In a few years it will be 20% which means your wages will slowly be sucked into health care until you can't afford food and housing.
3. In the last 50 years almost every industrial sector has become more efficient with lower prices and greater output. What about the way our health care system prevents innovation and encourages over consumption and higher costs?
4. This piece is hysterical.

Forget Outsourcing to China and India, Try Detroit

Hearing a lot more anecdotes of startups getting free office space, programmers all in for less than India compensation levels, and overhead at close to nil. This trend actually started before August 2007 and with the changes in relative currency levels, inflation and deteriorating costs in the US --it's definitely picking up.

Failed Gambit by Iran's Supreme Leader....

May mean a new Supreme Leader. The fake election numbers I think came straight from the top. His speech today, instead of being conciliatory, pretty much banned protests.

It looks like protests tomorrow will in fact go forward. I think the answer here is a new Supreme leader (although the ideal one is they get rid a relegious dictatorship entirely). Looks like Rafsanjani is going to try and convene the council to put pressure on the Supreme leader.

I think tomorrow is a huge day if the protests go forward with Mousavi. If he actively supports the protests it could mean a point of no return and the situation could escalate.

With the protests tomorrow and a NK ship about to be intercepted should be an action packed weekend.

Paul Tudor Jones on Failure

This is a speech by Paul Tudor Jones to a 9th grade class on Failure. It's a must read. Hat tip to Paul Kedrosky for finding it.

Paul Tudor Jones - Failure Speech June 2009

Bullish Thoughts on Microsoft Even Though Its Still Horrible Code

Been some light posting of late and just wanted to do a quick post on Microsoft with some highlights of how some of the upcoming product launches at MSFT and its competitors might impact the landscape:

• Windows 7 is essentially Vista but vastly improved. It's the closest thing to comparable I have seen to Mac OS and might at least slow the market share gains. They've successfully narrowed the gap here. (not eliminated, but narrowed).
  
• The IPhone actually drives Mac desktop sales and Microsoft still has no effective counter to this. When people buy an IPhone it's more likely their next PC purchase is a Max. When they get a phone with Microsoft OS on it, they think of strategies to get their IT guy at work fired.
  
• They did a good job with Bing and that leads me to believe there won't be a dilution acquisition with Yahoo. Bing is decent and people are using it. Hugely highlights Google vulnerability.
  
• The equity should outperform the S&P at least until the launch of Windows in the fall.
  

After a 9 month horizon, issues still remain around a few notable issues:

1. Declining dominance in desktop OS as Apple and others gain share. Windows 7 has the potential to fix some of this. Bill Gates wants to save the world with his billions but someone still needs to save the world from his bad software.
   
2. Over reliance on a 1990s monopoly to preserve market share rather than innovation. They still copy other people's work.
3. It's ability to gain momentum in mobile OS is not going well in an incredibly competitive space. Part of the problem with their mobile phone strategy is they keep trying to put windows on the phones.
   
4. and it's success in internet search is by no means guaranteed with the launch of Bing. Additionally, there ability to innovate continues to be impaired and they continue to rely on small marginal changes in products that mimic the ideas of their competitors in order to maintain a prior monopoly market share.
5. Gaming continues to look good for these guys. This part of MSFT has done well for a long time and no near term events are going to change this. Sony Playstation pretty much lost the war.
   

If you couldn't tell I'm long the equity and not really happy about it. Microsoft has lagged the market for a while now, represents a value and is likely to garner superior performance.

Dear Palm CEO- What it Would Take to Get Me To Switch

Now that you have the Mobile OS down and your first product launched. Here is what it will take to get me to switch.

First of all I should say I really wanted to switch from my IPhone when I tried the device out. Any even casual reader of the blog has noticed I am not a fan of AT&T's oligarchic type behavior calling them the telecom version of the old Soviet Politburo. The device while awesome was not quite enough to get me to throw in the towel-

I've made a list of things Sprint and Palm could do to make me switch. I really just need the first two and I'd jump all over the new device:

• Larger OLED Screen at least 3.5 inches in size. The bigger the better. I'm not sure we are going to get a foldable OLED --that spreads out into 8.5 by 11 but at the least the lower power consumption and better quality launched in January or so will steal a lot of Apple IPhone lovers.
  
• Better battery life. The OLED screen will help with that.
• Better rate plans and more carrier choices. Sprint's data network is a bit under rated but more choices here is better.
  
• Right now the carriers are using the hot PDA's to try and lock people in to much higher rate plans. Before the trend had been declining ARPUs for several years. With plenty of IPhone and Blackberry competition the trend should start to reverse.
  
• Do a "wireless data" only device that can go on any carrier and can use VOIP for it's voice plan. Say 50 bucks a month for non tethered data. Voice calls take no bandwidth. Tough to get past the carriers but someone is bound to let you slide by. A democratic FCC might help you here.

I've played with the Palm. It's really a pretty solid offering. If I just got those first two elements-- a 3.5 inch or greater OLED screen and improved battery life I'd be in right now.

A Quick Note on the Health Care Stall

A couple quick reactions to the President's health bill which is stalling in Congress becasue it is being scored at $1.6 trillion in extra costs.

• People are proposing all these creative ideas like a 1.5% national sales tax, raising the top marginal income tax by 2% or taxing soda and other vice snack foods.
  
• Given that we spend 17% of all our national income (GDP) on health care, doesn't it suggest that we already have the spending part of the equation figured out already? Switzerland at 11% has its entire population covered.
  
• We have to instead figure out why we are wasting so much money. We should be able to get everyone insured for 15% of GDP with full preventive care and some level of protection in case of a catastrophic illness.
• It's going to be interesting if Congress actually comes back with a set of new taxes rather than cutting out the waste. Something is just wrong with the math and our country can't survive spending this much.
• Just taking the existing system, which costs too much, and extending it to everyone makes it a much larger problem. Everyone needs preventive care at least since legally hospitals can't refuse treatment.
  

The Ayathollah's Big Gamble

This piece gives a nice account of some of the behind the scenes gymnastics. Could the end game here be the removal of Khameni who normally has a term for life?

Via New Republic:

Supreme Leader Ali Khamenei--whose rule has been absolute and whose words have been the law of the land--is facing the most public challenge to his authority. His two decades since succeeding Ayatollah Khomeini have been defined by a tendency to keep his options open, a verbal dexterity that allowed him to skirt tough political positions, and an appearance of impartiality in Iran's fierce factional feuds. His caution has been the key to his success and survival.

View Larger Image Ayatollah Khamenei

But Khamenei has thrown this caution to the wind by unabashedly favoring Mahmoud Ahmadinejad. Four years ago, his support was instrumental in getting the little-known Ahmadinejad elected president. Even as criticism of the president has been on the rise in the country over the past year, Khamenei reportedly promised Ahmadinejad and his cabinet four more years at the helm.

The ayatollah failed to recognize the mounting tension over this month's presidential election--what former president Ali Akbar Hashemi Rafsanjani described in a pre-election letter to him as a seething "volcano" of discontent. Even Sobhe-Sadeq, the political organ of the Islamic Revolutionary Guard Corps, warned in a lead editorial that the opposition's use of the color green had become dangerously similar to the kind of "color revolution" that dethroned governments in Ukraine, Lebanon, and Georgia. (Khamenei had even commissioned a group of scholars three years ago to investigate the evolution of these "color revolutions.")

Only hours after the polls closed, Khamenei issued a statement urging everyone to support the supposedly reelected president. Khamenei seems to have underestimated Ahmadinejad's opponent, Mir Hossein Mousavi who has proved willing to defy, if not challenge, Khamenei's dictates. Following Mousavi's lead, angry demonstrators swiftly took to the streets, with protests erupting in major cities and universities across the country. On Monday, June 15, hundreds of thousands of Iranians flooded the streets of Tehran to protest the election results.

What makes this moment different from past incidents of confrontation between the regime and the people is that, this time, many pillars of the regime are part of the opposition. Aside from Mousavi, who was prime minister for eight years, Rafsanjani, former president Mohammad Khatami, former speaker of the parliament Mehdi Karubi, and many other past ministers and undersecretaries are now leading the movement demanding new elections. Moreover, since the demonstrators come from all walks of life, it is more difficult than in the past to accuse them of immaturity or youthful impertinence, or of falling prey to the designs of the "Great Satan."

Recognizing the growing tide of popular discontent, Khamenei blinked. He indirectly conceded that the election--which he had previously described as a divinely designed victory for the Islamic regime--might have been rigged. The twelve-man Guardian Council--which he appointed to "carefully" look into the allegations of fraud--will likely follow Khameini's lead in their ruling. The question is how cowed the cleric will be in the face of powerful and persistent opposition.

The regime still has the capacity to contain the disgruntled demonstrators and maybe even co-opt their leadership. But the majestic power of large peaceful crowds, tasting the joys of victory embodied in acts of civil disobedience, and brought together by the power of technologies beyond the regime's control, is sure to beget larger, more confident, and more disciplined crowds. When people defied Khamenei's orders by gathering en masse on Monday, the regime's armor of invincibility--so central to the regime's authoritarian control--was cracked. Without it, the regime cannot survive, and reestablishing it can come only at the price of great bloodshed.

But if Khamenei wants a crackdown of this magnitude, he will have to turn to the Iranian Revolutionary Guard Corps (IRGC)--a move that brings its own political costs. The IRGC was created by Khomeini shortly after the Islamic revolution as a more ideological and loyal alternative to the traditional military. The IRGC gradually became a force in its own right, developing its own air force, intelligence, officer academy, and think tank. Many commanders started companies that quickly dominated the economy by winning major government contracts. Today, a substantial number of provincial governors, mayors, cabinet ministers, undersecretaries, ambassadors, and managers of major state companies are from the IRGC's ranks.

The IRGC has largely accepted the leadership of the clergy and Khamenei's role as commander in chief. But while Khomeini strictly kept them out of politics, Khamenei has encouraged them to get involved in his political battles. In his eight-year tug-of-war with the reformist movement led by Khatami, Khamenei used the IRGC more than once to suppress Iran's rapidly developing civil society and student movement. The most egregious example of this militarization of politics came in the 2005 presidential election, when Khamenei, worried about a possible Rafsanjani victory, reportedly ordered IRGC members to vote for Ahmadinejad and take members of their family with them to the polls. The rise of Ahmadinejad, himself once a member of the IRGC and reportedly an engineer in its infamous Al-Quds Brigade, has further encouraged the IRGC to seek an increasing share of political power.

It is difficult to imagine the IRGC quelling the current protests and then simply turning power over to the clergy. If a political compromise cannot be reached between the regime and the opposition, and the IRGC is used in suppressing the protests, its commanders would likely expect a bigger role in the government. It is even conceivable that faced with irresolution among the clergy, they will act on their own, and establish a military dictatorship that uses Islam as its ideological veneer--similar to Pakistan under Muhammad Zia-ul-Haq.

Khamenei thus finds himself in a difficult situation as a result of his incautious gambit with Ahmadinejad. Whether he gives more power to the IRGC or to the opposition, there is little chance that he will emerge from the current crisis with his supremacy intact.

Geithner Financial Reform Package Meets Heavy Resistance

Just a couple focused reactions to the Geithner plan.

• I was surprised we didn't see a lot more consolidation of financial regulatory agencies. It's a maze as is, and the more regulators you have for one company, the more turf wars and consequently potential regulator shopping and loopholes.
  
• For me the most important thing is controlling leverage in the economy. It seems to me that it's a natural extension of the Fed's responsibility to watch general levels of debt, and when those levels begin to grow uncontrollably it should be investigated and a remedy proposed.
• This "council of regulators" idea sounds like bad government at its worse. Disappointing to see Mark Warner get behind this kind of an idea.
  
• I have always considered myself a proponent of free market ideas, however, Adam Smith's Free hand requires a bit of a steadying hand from regulators from time to time. We are getting debt bubbles far too frequently and about 50% of these bubbles are real estate related. If we just tempered real estate bubbles alone, we'd remove quite a bit of economic instability.
  
• This consumer agency sounds a little odd. What the heck is it supposed to do? It can'tbe good. Investment bankers and mortgage bankers got a lot of bad press for bad loans, but what about the people that lied on their mortgage applications? How come none have faced any consequences?
  
• They are trying to fix section 13,3 which gives the Fed the ability to lend to anyone in exigent circumstances. It's perhaps the most powerful statute other than the President's ability to fire nuclear missiles. However, the last time this was used was in the 1930s, it's a huge power to lend to anyone but it's used like once a century. Adding a political component to this where Congress is involved scares me. The last thing we want to do is add a political component to what the Fed does. If we want to give the Fed more power, we need to keep it independent.
• Right now we are in a thematic shift where government believes it has all the answers and a political belief that the private sector is the source of evil. Hopefully this doesn't take us too far.
  

VIA FT:

The Fed’s new role as systemic risk regulator will be supplemented by a council of regulators, according to the reform plan, but the Treasury secretary is determined that the real power resides with the central bank. “You cannot convene a committee to put out a fire,” he said.

Mark Warner, a Democratic member of the committee, said the council would be a better place to house the new powers if it were not “emasculated” by design. “I don’t believe it would have to be a debating society,” he said.

Richard Shelby, senior Republican on the banking committee, said a “grossly inflated view of the Fed’s expertise” lay behind the plan. David Vitter, a Louisiana Republican, said that the new emphasis on the Fed was “really crossing a line” and compromising the bank’s independence.

Even the Fed’s supporters worry that the traditionally independent institution will be drawn into politics. The Fed is already the subject of two hearings due in the House of Representatives in the next few weeks.

Elsewhere in Washington, companies and their lobbyists are encouraging members of Congress to pick apart the Treasury’s white paper, anxious to avoid extra costs and scrutiny associated with the reforms.

Lendell Porterfield, head of Porterfield & Lowenthal, a lobbying firm whose clients include a range of financial companies, said the planned Consumer Financial Protection Agency could prove onerous, with its powers to demand changes to products.

“You’re not just hitting the big institutions,” he said. “You’re hitting local community banks that did not cause the problem who have members of Congress and senators who care about them. I do think there will be push back. I think there will be significant push back.”

Mr Geithner urged Congress to pass legislation speedily. “Every financial crisis of the last generation has sparked effort at reform, but past efforts have begun too late, after the will to act has subsided,” he said. “We cannot let that happen this time.”

The early signs of discontent – even from Democrats – chime with predictions from congressional aides that the plan could be heavily delayed or substantially rewritten in the Senate.

In the House of Representative, the financial services committee, chaired by Barney Frank, is leading the legislative process and the Democratic majority is prepared to move fast, on Thursday setting out a timetable of hearings and mark-ups for bills.

Republican representatives laid out an alternative agenda, with more consolidation between regulatory agencies and an enhanced bankruptcy regime for failing companies rather than the proposed resolution authority, which would lie with the Treasury secretary.

Omnious Speech out of Iran's Supreme Leader

Pretty amazing speech coming out of Iran as Khamenei (Supreme Leader) throws down the gauntlet to protestors. He has insisted the key demand around a new election will not be met and that

• He drives the point home that all four candidates are "part of the regime" and efforts by some to paint it as some sort of counter revolution are false (sort of true however Moussavi may change his stripes)
• Khamenei straight up says that while all candidates are part of the regime, he likes Ahmadi-Nejad better because his views are "closer to mine". To me this is a relatively large clue that the Supreme leader is the most like source of the election fix. He and Moussavi do not get along and it would not surprise me if he decided to tilt the election well before votes were even counted.
  
• He uses the argument that since the gap in votes was SO high at 11 million that there cannot possible be fraud. That's true unless the numbers were totally fictitious.
• At this point if these protests do actually continue, it will quite something to see. My gut continues to be that in the end Moussavi backs down here and no real change occurs.
• If Ahmadi-Nejad stays in power, it's going to make hawks in Israel and America a lot happier because it will be far easier to organize sanctions and perhaps air strikes to contain their nuclear program.
• Talks about the election as a sign of God and the results show the hand of God and are a sign to all of Iran's enemies. Ok.

Excerpt Via the NYTimes:

Opposition leaders, he said, will be “responsible for bloodshed and chaos” if they do not call stop further rallies.

He said he would never give in to “illegal pressures” and denied their accusations that last week’s presidential election was rigged, praising the officially declared landslide for the incumbent, Mahmoud Ahmadinejad, as an “epic moment that became a historic moment.” He spoke somberly for more than an hour and a half at Friday prayers to tens of thousands of people at Tehran University, with Mr. Ahmadinejad in attendance. His sermon was broadcast over loudspeakers to throngs in the adjoining streets, and the crowds erupted repeatedly in roars of support. Opposition supporters had spread the word among themselves not to attend.

“Street challenge is not acceptable,” Ayatollah Khamenei said, according to a rendering by the BBC. “This questions the principles of election and democracy.”

There was no immediate response from opposition leaders.

The ominous speech sharply increased the confrontation between Iran’s rulers and supporters of the main opposition candidate, Mir Hussein Moussavi, who have accused the authorities of rigging the vote and called for or encouraged the huge silent marches in Tehran for the last four days. No rally was planned for Friday, and opposition supporters did not appear to be gathering impromptu.

He blamed “media belonging to Zionists, evil media” for seeking to show divisions between those who supported the Iranian state and those who did not, while, in fact, the election had shown Iranians to be united in their commitment to the Islamic revolutionary state.

“There are 40 million votes for the revolution, not just 24 million for the chosen president,” he said, referring to the official count that gave Mr. Ahmadinejad more than 60 percent of the ballot.

Ayatollah Khamenei said the election “ was a competition among people who believe in the state.”

He also spoke of the religious roots of “our revolutionary society.”

“Despite all the diversions, our people are faithful,” he said, but urged young Iranians to lead more spiritual lives. “The youth are confused. Being away from spirituality has caused confusion. They don’t know what to do,” he said.

He accused what he called arrogant Western powers, particularly Britain and the United States, of showing their hostility to the Iranian Islamic revolution in remarks casting doubt on the election. And he warned them not meddle in Iran’s affairs, accusing them of failing to understand the nature of Iranian society.

Throughout the week of protests, Iran’s leaders have offered conciliation, while simultaneously wielding repression.

On Thursday, for instance, the government offered to talk to the opposition, inviting the three losing presidential candidates to meet with the powerful Guardian Council.

But the government’s offers of modest and reluctant concessions have been accompanied by continued arrests of prominent reformers and efforts to stifle the flow of information by limiting Internet access and pressuring reporters to stay off the streets

There's Another Phone

So this is a rumor, but based on the the lack of innovation from the last IPhone release other than a better chip, as well as some consolidated rumors from other sources I believe there is another phone. Or at the very least, we are going to get a major hardware update from Apple around the time they normally release there IPod updates. Here are a couple of thoughts, all speculative of course:

• First, let's admit that other than a speedier cheep there really is very little hardware wise to get excited about IPhone 3G S. So what happens come fall when Apple inroduces the updated IPod. Is it simply going to be an updated chip? Are people going to even bother with that? The compass? Come on. That's awfully boring even for a market leader that wants to preserve margins and can afford to keep the product on cruise control and still gain share.
  
• I think we get a "Video" IPhone that is included a 7-10 inch screen. Call it a Video Phone, call it a Mac Tablet, whatever, it's bigger with a camera in front for Video IChat.
  
• My bet is its going to be larger than people think in an attempt to take on the tablet space and lend itself towards the 10 inch side of things. Apple is losing too much in terms of potential sales on the tablet side to just do nothing. If they don't they will have to continue price cuts and margin hits in their Mac line and that camel has already been milked.
  
• This will be a device will be double the screen size of the IPhone. Unlike existing IPods it will have a slot for an air interface card to allow you to be carrier agnostic. I.e. you can put a CDMA, GSM or even a WIMAX card into the device. Might also help with the pending anti trust investigation that a few senators are launching to investigate exclusive contracts. What does this mean? It means you can use an application like Skype on your IPhone on any carrier you want and still have voice.
  
• This may be a big Steve Jobs showcase, turtleneck and all, where highlights the smooth stylings of the new Video Phone and allays some health concerns.
• It will have the long awaited Video IChat, an OLED Screen (if it has an OLED screen it will be on the small side) and a completey different form factor.
• It won't have a keyboard but it would make me really happy if it did. Steve Job's merciless war on buttons probably won't end here but one can hope we get an option for one. "I have a need--a need for keys" (if you got that obscure cultural reference please write in for your special gift).
  
• In terms of release date, we may get it a soon as September in conjunction with the normal Ipod update. I just can't imagine the Apple is going to be content with simply introducing such an extremely limited processor update for the IPod. There's got to be a better update than what we got.
  

California Should Default--and a National Policy Extrapolation

Paul Kedrosky aruges below that the State of California should default on his debt. I couldn't agree more. Furthe, I think the most glaring problem in the last 18 months is the lack of debt write downs in many private sectors as well where the government has stepped in to try and prevent people from losing money. Sometimes, people need to lose money. And all these green shoots people keep hoping for won't appear until we let the forest burn all the way down. We've basically left the country with a series of oversized stumps that "block the sunlight" that prevent any real recovery.

Via Infectious Greed:

The State of California is having another horrible week. This one started with the legislature missing Monday's deadline for a new budget to be submitted -- a deadline that laughably ungovernable California has dutifully missed every year since 1986 -- and it continued with S&P putting the state on credit watch for a possible downgrade.

Bill Lockyer, the state's treasurer (sic.), ignored the former news, but, via his spokes-thingie, went bat-shit nuts at the latter development. Why? Because he knows there is precisely zero chance the state's on-beyond-incompetent legislature will entirely close California's $24-billion and growing budgetary deficit. At best we might see it halved through cuts, a goodly chunk of which will be phantom and/or punts to the future. So that means Treasurer Lockyer must make up the difference with Other People's Money, which puts him on the bond-flogging trail sometime this summer. That will be at higher than usual higher yields, but not nearly so high as yields would be if S&P followed through on its threat and downgraded California's droopy, A-rated GO bonds.

The root issue, of course, is that California is insolvent, and irritating people like S&P analysts keep noticing. The state -- let's call it Latvia by the Pacific -- has a $24-billion budget gap that must be closed for it to continue operating (and I use that word advisedly). Without a clear sense of how that will happen rational creditors are going to be increasingly skittish about filling the hole. Now, does that mean California can't sell enough bonds to backfill the gap this time? You bet it can, and it will. This is part Schwarzenegger/Lockyer Financial Theater, and partly a laughably transparent attempt to demonstrate budgetary semi-competency in hopes of a few basis-points of relief on the inevitable bond sale. That's all.

Because California has $5.7-billion in debt servicing obligations. And while that will grow, debt occupies pride of place in California's constitution -- only education must be paid off before the next slug of cash goes to creditors. Get that? Healthcare, prisons, and other frivolities can all go to rack and ruin, but creditors must be paid, constitutionally speaking. That means, if you're looking at this through the gimlet eyes of muni-bond ghouls, that California has something like $50-billion in budgetary space to make its $5.7-billion in payments. It's pretty easy to calculate that California can make the payment nut, even if it has to close hospitals, release prisoners and stop patrolling the highways to do it.

And that's the problem. Because while California won't default, at least not right now, for practical purposes it should. Its income and expenses are structurally out of whack, not merely temporarily so. The imbalance is an artifact of a bygone era, one that won't come back any time soon -- perhaps not in our lifetimes. So, default. Say "whoops", financially speaking, and bite it. Better now than later. But California can't. It operates at the mercy of its creditors, and when this bit of theater is over said creditors will buy more debt, and California will keep making payments on it, right up until it can't.

Why the President is Right On Iran

Amazing to see all these anti Obama comments and editorials regarding his position on Iran. McCain for example is deriding the President for not coming out with a strong condemnation of the government in Iran.

The President I think recognizes that overt interference by the US government would only undermine reformist forces inside Iran. Old ideas here are counter productive. Even now the government is trying to blame the existing protests on "external forces" and US intervention.

Even WSJ has a piece called "Obama's Abdication" here.

What a crock. I don't support the president on everything, but his foreign policy has been very much "a new product". He is thinking a lot more smartly about what America's strengths are, it's place in the world, and our history. It's in this context that he has formulated much more Zen-Like and forward policies that recognize that the United States is often used by dictatorships as a scapegoat to keep minorities in power and maintain the status quo.

This crisis in the Iran looks to be headed for some sort of compromise and at best a re-vote that puts a man in power that while much less dangerous than Ahmadi-Nejad he is still a bit of a religious nut. At best we are getting the (considerably) lesser of two evils here.

Samsung Brings the Heat To the IPhone

Lots of Talk about the new IPhone but other than a speedier processor it's a relatively lightweight update. We've got Samsung which is working to conquer the North American cell phone market with the new Omnia II. It's got a 3.7 inch OLED Screen and a keyboard that slides out and all sorts of bells and whistles.

The screen looks just amazing.

VIA BGR:

• Windows Mobile 6.1 Professional (upgradable to 6.5)
• Massive 3.7-inch WVGA AMOLED touchscreen display
• TouchWiz 2.0 UI
• Advanced R Touch (Resistive Touch) that “enables faster, more accurate touch response”
• 480p video recording and playback
• HSUPA 5.76Mbps, HSDPA 7.2Mbps
• Wi-Fi
• Up to 48GB of storage

Protests in Iran Reach 100K with Shootings

Several hundred thousand Iranians are out protesting now as the very young population of Iran is really craving a connection to the modern world. The is the first time we've seen some real rallies. The first few days the protests in Iran looked more like a bunch riled up Laker Fans.

It would be very interesting if you actually saw a change in the regime. The size of the demonstrations is to the point where the mullahs that run Iran are definitive concerned but with oil lower it's probably a safe bet that nothing is going to happen. However, let's wait a day or two. If this continues all bets are off.

Here is the interesting thing to me about all of this. Everyone is outraged that Iran had fraudulent elections with even Germany summoning the Iranian ambassador. Yet if you look at the elections in Russia they were just as dirty. The same old tricks in Russia are used to outlaw new parties yet there is no equivalent outrage. Gary Gasparov who tried to run in Russia as well as many other were squashed by Putin and no real opposition was actually allowed to run. What would happen if that Russian election happened now?

Has Obama changed the equation so much now that everyone wants "Yes We Can". No question I expected a significant change in the foreign policy dynamic with Obama's election but it's been more significant than I expected. I'd love a world with democracy in every corner and a change in both Iran, and Russia I think would make the world a lot more stable and prosperous.

Top 5 Signs of Voter Fraud in the Iran

So there was supposedly huge turnout in the Iranian elections, over 130% of the population voted.

I supposed I should not have been too surprised there was going to be fraud, but the Iranians don't appear to have their election rigging down to a science. This post over at Informed Consent does a great job at pointing out some of the biggest head scratchers out of the "election results". For example Mousavi who is an Azeri, not an ethnic Persian lost to Ahmadinejad in his home city at 57%. That's not much lower than the rest of the country.

There are reports of violent protests throughout Iran. Hard to imagine they would have this robust of a turnout, and not have some kind of backlash.

It's been argued by some that Iran has a vibrant democracy. The system is just a religious oligarchy with an elected "Supreme Ruler" and religious body that approves all candidates. Further, they not only approve an extreme subset of the people that want to run, they also rig the election so the candidate they want always wins.

Excerpt below from Informed Consent:

Top Pieces of Evidence that the Iranian Presidential Election Was Stolen

1. It is claimed that Ahmadinejad won the city of Tabriz with 57%. His main opponent, Mir Hossein Mousavi, is an Azeri from Azerbaijan province, of which Tabriz is the capital. Mousavi, according to such polls as exist in Iran and widespread anecdotal evidence, did better in cities and is popular in Azerbaijan. Certainly, his rallies there were very well attended. So for an Azeri urban center to go so heavily for Ahmadinejad just makes no sense. In past elections, Azeris voted disproportionately for even minor presidential candidates who hailed from that province.

2. Ahmadinejad is claimed to have taken Tehran by over 50%. Again, he is not popular in the cities, even, as he claims, in the poor neighborhoods, in part because his policies have produced high inflation and high unemployment. That he should have won Tehran is so unlikely as to raise real questions about these numbers.

3. It is claimed that cleric Mehdi Karoubi, the other reformist candidate, received 320,000 votes, and that he did poorly in Iran's western provinces, even losing in Luristan. He is a Lur and is popular in the west, including in Kurdistan. Karoubi received 17 percent of the vote in the first round of presidential elections in 2005. While it is possible that his support has substantially declined since then, it is hard to believe that he would get less than one percent of the vote. Moreover, he should have at least done well in the west, which he did not.

4. Mohsen Rezaie, who polled very badly and seems not to have been at all popular, is alleged to have received 670,000 votes, twice as much as Karoubi.

5. Ahmadinejad's numbers were fairly standard across Iran's provinces. In past elections there have been substantial ethnic and provincial variations.

6. The Electoral Commission is supposed to wait three days before certifying the results of the election, at which point they are to inform Khamenei of the results, and he signs off on the process. The three-day delay is intended to allow charges of irregularities to be adjudicated. In this case, Khamenei immediately approved the alleged result