Blago Update

BLAGO UPDATE....In a turn of events that should surprise no one, Barack Obama has investigated himself and discovered that his staff engaged in no wrongdoing in the Rod Blagojevich affair. According to investigation czar Greg Craig, the accounts he received from staff members "contain no indication of inappropriate discussions with the Governor or anyone from his office about a 'deal' or a quid pro quo arrangement in which he would receive a personal benefit in return for any specific appointment to fill the vacancy."

The reason Craig uncovered nothing wrong is almost certainly because nobody did anything wrong. Unfortunately, investigating oneself isn't likely to convince anyone who doesn't want to be convinced in the first place, which makes me think there really ought to be some way for prosecutor Patrick Fitzgerald to weigh in on this. I guess the rules don't allow it, and rules are rules, but still. In the Valerie Plame case, he at least released enough information in the charging documents to allow people to draw their own conclusions about who did what to whom, and perhaps, eventually, he'll do it this time too. It really doesn't seem right to just leave this hanging forever.

mojo-photo-etheridgewarren.jpgSinger Melissa Etheridge has posted a statement about the Rick Warren "wrangle" at HuffPo in which she describes meeting the pastor at an event for the Muslim Public Affairs Council over the weekend. She called the pastor "very thoughtful" and said he "regretted" comparing gays to pedophiles:

On the day of the conference I received a call from Pastor Rick, and before I could say anything, he told me what a fan he was. He had most of my albums from the very first one. What? This didn't sound like a gay hater, much less a preacher. He explained in very thoughtful words that as a Christian he believed in equal rights for everyone. He believed every loving relationship should have equal protection. He struggled with proposition 8 because he didn't want to see marriage redefined as anything other than between a man and a woman. He said he regretted his choice of words in his video message to his congregation about proposition 8 when he mentioned pedophiles and those who commit incest. He said that in no way, is that how he thought about gays. He invited me to his church, I invited him to my home to meet my wife and kids.

Hooray?

mojo-photo-darkknightdollars.jpgBox Office Mojo's chart of the past 365 days at the box office has a couple surprises, and none of them are reassuring about our nation's taste in movies. While even a cave-dweller would know that The Dark Knight snagged the most of our hard-earned cash in its batty claws this year, I bet you can't guess the #2 movie, or tell me what three (or four?) kiddie flicks giggled their computer-generated, disturbingly-anthropomorphic ways into the Top 10. It's all pretty depressing, to be honest, so take a deep breath and click "continues" to find out.

Yesterday I wrote about writer Nomi Prins' amazing challenge gift to help raise money to plug the budget hole left by some major funders who pulled out from supporting our Washington bureau. Now it's even easier to pitch in: we have PayPal! You can give any amount (of course). I just tried it--and trust me, if I could handle it, so can you.

THE DECLINE AND FALL OF THE NEWSPAPER....I was going to write a post about the subject du jour, namely whether or not newspapers could have done a better job of reacting to the rise of the internet, but via Matt, I see that Tim Lee has pretty much done it for me. Nickel version: Yes, it would have been great if railroads had converted into airline companies, if IBM had taken PCs more seriously, and if newspapers had embraced the web, but that kind of thing is really, really hard to do. That's why it so rarely happens. Cannibalizing your own business is almost impossible for both institutional and economic reasons, and knowing that you're in the generic transportation business, not the train business (or the generic computing business or the generic information business) isn't nearly as profound an insight as some people think. Anyone who thinks differently needs to run an actual business first and then report back on how they did converting its core business into something brand new.

In any case, I have my doubts that there was ever a long-term business model that could have successfully transitioned newspapers onto the web. Sure, the print news media could have done more — though simply asserting that newspapers could and should have been way more awesome isn't very helpful — but the advertising revenue just isn't there to support the kind of reporting infrastructure that the print version of newspapering supported. This isn't for lack of trying, either. Everyone and his brother has tried to figure out a more lucrative web-based advertising model for news, and so far no one has succeeded. Bright ideas are still welcome, of course, but most likely even the best newspapers will eventually die off and be replaced by something entirely different. I'm not as convinced as some that the replacement will be as good, but I suppose old fogies have said that before too more than a few times. We'll just have to wait and see what our brave new bloggy/twittery/decentralized news biz manages to deliver.

As we've seen from numerous contracting scandals in Iraq, the federal government can be great a handing out money (sometimes literally shrink-wrapped piles of it), but less skilled in tracking where it goes. So it's without much surprise that we now see it throwing hundreds of billions of relatively unaccounted for dollars at financial companies as part of the Troubled Asset Recovery Program (TARP). But if senators Diane Feinstein (D-Calif.) and Olympia Snowe (R-Maine) get their way, the free-for-all may soon be reined in. According to a statement released today, they plan to reintroduce their Accountability for Economic Assistance Act (.pdf) to the Senate when it reconvenes in January. "At present, we don't know whether these companies are using these funds to fly on private jets, attend lavish conferences or lobby Congress," says Feinstein. "This bill puts clear restrictions on how funds can be used and mandates public reporting requirements to allow taxpayers to find out how their money is being spent."

The bill's provisions, according to the press release:


  • Prohibit firms receiving economic assistance from Treasury or emergency loans from the Federal Reserve from using such funds for lobbying expenditures or political contributions;
  • Require that firms receiving assistance provide detailed, publically available quarterly reports to Treasury outlining how federal funds have been used;
  • Establish corporate governance standards to ensure that firms receiving federal assistance do not waste money on unnecessary expenditures; and,
  • Create penalties of at least $100,000 per violation for firms that fail to meet the corporate governance standards established in the bill.
  • Twitter Followup

    TWITTER FOLLOWUP....Via James Joyner, Michael Arrington writes on his blog that he thinks Twitter has ruined uber-twitterer Robert Scoble's life:

    I asked Robert how much time he actually spends on those services. He monitors them all day, he said, hitting refresh over and over on both (he doesn't use desktop clients to manage the services, and he says he doesn't like real-time streaming feature on Friendfeed). In addition to watching all day, he says he spends at least seven hours a day, seven days a week, actually reading and responding directly on those services.

    That's 2,555 hours over the last year....It is an addiction.

    What is the cost of this addiction? Well, I'll put his family life aside, that's his business. But his blog has clearly suffered. He now posts only a few times a week, sometimes sporadically writing multiple posts in a day but often skipping 3-4 days in between. A year ago, Robert wrote multiple posts, every day. I used to read his blog daily, now I visit once a week.

    As an aside, I'll note how amusing it is that in the same way that people once complained that blogging crowded out "serious" long form work like books and magazine pieces, people are now starting to complain about Twitter crowding out "serious" blog posts. The worm, she does turn.

    Anyway. I created a Twitter account a couple of days ago after I posted about it, since I figured that was the only way to get a better sense of what it was all about. So far, I've tweeted twice, so obviously I haven't exactly embraced the form. But in a way, I think Arrington's post captures one of the problems with Twitter: like Facebook, it doesn't really make too much sense unless you spend a lot of time with it. It doesn't have to be 2,555 hours a year, mind you, but both Facebook and Twitter strike me as things that are perhaps moderately useful if you use them occasionally, but potentially highly useful if you're logged into them constantly and use them as primary tools for keeping in touch with people. That's unlike the blogosphere, where most people pick three or four blogs to follow and read them once a day for 20 minutes or so, and it's one of the things that makes these services hard to "get" unless you're totally committed to them.

    Of course, I could be full of hooey here. But that's my take so far.

    Sand in the Gears

    SAND IN THE GEARS....Dean Baker explains to Ezra Klein why so few economists predicted that the economy was headed for disaster: there's not much risk in agreeing with the conventional wisdom and being wrong, and there's not much reward in bucking the conventional wisdom and being right:

    [W]hat would an economist expect to happen in a situation in which option one carries no risks and reasonable expected rewards and option two carries enormous risks and only moderately higher expected rewards? In short, the incentives in the economics profession, just as in finance, strongly encourage a lack of original thinking.

    Actually, I think this is too simplistic. There are some exceptions, of course, but even the economists who saw the housing bubble for what it was mostly didn't predict that its bursting was going to cause a massive global credit crunch and the biggest slowdown since the Great Depression. In fact, to a large extent, we still don't quite know why the reaction to the housing bust has been so severe. So there's a genuine question here that's worth diving into in more detail.

    Still, I think Baker is basically right, and it's worth keeping in mind how the incentives work in the finance industry. Suppose, for example, that everyone on Wall Street knows there's an investment strategy that will pay off big 19 years out of 20, but implode in that one remaining year. What's the right thing to do?

    Obviously, the answer is: follow the flawed strategy. If you don't, and everyone else does, then within a couple of years you'll either get with the program or you'll be out of a job. Even in the absence of any kind of fraud or collusion or mass insanity, following a strategy that you know will be disastrous 5% of the time is simply too profitable to pass up.

    Given that, what should be the role of the government in trying to prevent systemic meltdown? Regulations that target fraud are useful, but remember: even if everyone is purer than Caesar's wife, they'll still be forced to follow the flawed strategy. They can't afford not to, and unless they're smart enough to predict precisely when the 5% of disasters will take place (and few are), the collective result is some kind of periodic meltdown.

    My own guess is that the answer is a set of regulations that slow things down. Something that throws just a little bit of sand in the gears of the global finance machine and prevents bubbles from growing quite as quickly as they otherwise might. Baker has proposed a small fee on financial transactions, for example, and that seems like the right kind of idea. I've long thought that very modest capital controls might also be a good idea, even for advanced economies. In the mortgage market, requiring even a small down payment plays the same role.

    I think one misconception that's become awfully popular recently is that the current meltdown is a "black swan" event, a perfect storm that happens only once a century or so. But I think Paul Krugman has made a persuasive case (in both the original edition of The Return of Depression Economics and the new one) that the kind of bubble related disaster we're seeing now is simply a common feature of the modern, global, hyper-fast, hyper-unconstrained financial market. The only difference is that it's mostly affected only small countries in the past couple of decades, and now it's worked its way all the way up the food chain — and if we don't introduce a little bit of institutional deliberation and constraint into the system, this won't be the last time we see it. Given the limitations of human wetware, after all, there may be such a thing as a financial system that's too efficient.

    You know who Bernie Madoff is. But what about Dwight Schar, Patrick Soon-Shiong, or Richard Baker? These three men have the dubious distinction of winning spots on the America's Greediest 2008 Top Ten compiled by the Too Much online newsletter.

    Madoff didn't make the list. (He doesn't need the publicity--or exposing--these days.) But what's interesting is that most of the honorees are not household names. Schar is head of NVR, a giant homebuilding firm. In the past six years, he has collected $625 million in compensation, and his company's stock has plummeted. Soon-Shiong sold a pharmaceutical company to a German company for $3.7 billion; the company, the only source of much-in-demand blood thinner, was attractive because in 2007 it had made $253 million on merely $647 million in sales. (Talk about mark-up!) Baker is a Louisiana congressman who gave up his House seat to become CEO of the trade association for the hedge fund industry. In Congress--no coincidence--he had chaired a subcommittee that had overseen the hedgers. And, by the way, jumping from watchdog to pitchman, Baker boosted his annual compensation from $163,000 to $1 million.

    As one reads the list, a natural reaction would be: who are these people? (Steve Jobs does make the cut.) And the larger point is this: our economy is controlled--and we are held hostage--by a host of CEOs, money-managers, and assorted masters-of-the-universe who are not so masterful. They screw up--and they still get to keep the mansions and the yachts. But many of the rest of us pay. GM's top execs have to fly commercial--boo-hoo-hoo; their workers lose their livelihoods. And because the high-fliers on Wall Street thought they could spin debt and swaps into gold (for themselves) by creating all sorts of new financial products that would be free of pesky regulations, American taxpayers have to bail out Big Finance institutions deemed too big to fail.

    Saving the Lada

    SAVING THE LADA....The government plans to bail out the country's big automakers and the public is unhappy over the deal. Old news? Sure, except it's happening in Russia too:

    The dozens of demonstrations that have cropped up across Russia in recent weeks haven't been particularly big. However, they have been significant as the first notable show of widespread dissent in the near-decade since Prime Minister Vladimir Putin cemented his hold on power.

    Organizers say they will keep up the pressure unless the government reverses its decision to raise taxes on imported automobiles.

    ....The tax hike, which will be determined for each vehicle based on a complicated formula, will drastically increase the cost of foreign cars and trucks. Vehicles older than 5 years will be slapped with a duty of at least 70%, making their importation unprofitable.

    This dynamic is playing out everywhere: governments all want to bail out their auto companies, but not every auto company can survive. There's just too much vehicle manufacturing capacity in the world, and there has been for a while.

    However, this story also suggests that, against all odds, it may be the consumers of the world who prevent a mass outbreak of new beggar-thy-neighbor tariff rules. National governments understandably feel a lot of pressure to protect their local industries, but it might turn out that their publics don't really agree. Americans don't like American car companies all that much, it turns out, and Russians don't like Russian car companies either. Siberians would rather buy a Toyota than a Lada.

    This might not turn out to be case for every industry, of course, but I wouldn't be surprised if it restrains central governments from going too far down the protectionist path. Imports are just too popular with the unwashed masses.