Month: February 2009

Google Adopts Take No Prisoner Policy Against Patent Trolls

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About 2 years ago, Google made a policy decision to stop settling law suits with patent trolls, including going after them for legal fees.

I think that we will see a lot more of this from companies with deep pockets, because paying people to make them go away has resulted in an explosion of law firms whose business model is to find dodgy undeveloped patents, and then use those to extract nuisance money.

It’s a protection racket.

It’s a good development, but the real solution is to change the law:

  • Eliminate the patent court, because when you create a body that just handles patents, patents handle everything.
  • Eliminate software, business plan, species, gene, and tax deduction patents (yes, you can patent a tax deduction).
    • Note that genetic technology can and should remain patentable, it’s the genes and the species that were not patentable until about a decade ago.
  • Treat patents like civil rights laws, allow the person who is restricted by the to file suit against the holder of the patent.

Patents are not about property, they are about encouraging innovation,* and our current regime is discouraging innovation.

*The Copyright Clause of the Constitution, “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” (emphasis mine)

Israel Demanding Shalit Return in Exchange for Truce

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It’s not going to happen, because if Hamas cuts a deal to release Shalit, even if it gets a truce and (somewhat more) open borders, it cuts its own throat.

Because Hamas’ credibility comes in large part from its absolutist positions,* a negotiation which results in Shalit’s release would be seen by many of their supporters as a capitulation and a defeat, and this would compromise their political viability, both in Gaza and in the West Bank.

The short form is that if Hamas did this, they would be signing their own death warrant.

*I was going to use the “takes no prisoners” metaphor, but given the situation here, it just doesn’t work.

Kyrgyzstan Makes it Official

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The Kyrgyz ruling party voted to close the airbases.

It comes down to three things:

  • The Kyrgyz wanted a better deal.
  • The initial deal mostly gave money to family the now overthrown despot, and the Kyrgyz were honked off by that.
  • A Kyrgyz citizen was shot on base by a US soldier, and no meaning action was taken by US authorities against the soldier, inflaming local anger.

This, along with Russia giving them a better offer, was more than enough for them to kick us out of their airbase.

Economics Update

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Well, I guess the lede is that the Federal Reserve is cutting its 2009 economic forecast….Reality has a way of doing that.

Real estate is ugly today, with housing starts and applications for building permits falling to record lows, which is not surprising as it’s clear that there is a significant overhang in inventory.

That overhang in inventory is why builder sentiment is at the staggering number 9, with 50 being neutral.

It’s not pessimism, it’s sanity.

We did get another jump in mortgage applications, but that’s just a refi surge when the numbers go below 5%.

We also saw a record slide in GDP for OECD nations in Q4 of 2008.

On the brighter side, I’m not in the Ukraine, where industrial output shrank by 34.1%, which is return to the stone age type numbers.

We also have record lows from Taiwan’s central bank, which cut its benchmark rate to 1.25%.

We also have some insurance news, including our friends the monoliner bond insurers.

First, we have MBIA splitting itself. It’s separating its municipal bond insurance from its mortgage backed securities interests, which is likely a good thing in the long run, though S&P downgraded them from AA to BBB+, which, while not junk bond status, is rather too close to junk bond status for comfort.

Additionally, Moodys cut ratings mortgage insurers MGIC, Radian, Republic, and Genwort.

We are actually seeing some indications that the price drops in commodities are dropping, most notably the Baltic Dry Index of shipping costs has doubled recently, which indicates more cargo, particularly in terms of raw material.

Obama’s housing rescue plan appears to have strengthened the dollar, and driven oil up today.

A Good Article on Why the CDS May Still Destroy US

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This is a good read on why credit default swaps are destroying our financial system.

The money quote:

These are deliberate flaws built into the game that include the lack of a central counterparty, no effective limit on dealer leverage and a schizophrenic pricing methodology that has nothing to do with the several different types of underlying risk contained in these contracts. It is a market designed by and for the seller, to the disadvantage of the buyer. But CDS may also be thought of as a poker game where the dealers have few chips on the table.

It comes down to excessive leverage, and the author, Christopher Whalen, is rather more of an optimist than I am about the outcome and how soon the mess will be straightened out.

Hopefully Jail, Absent That, Disbarment

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Newsweek has gotten reports that the report from the Office of Professional Responsibility (OPR) of the Department of Justice on the legal opinions of Jay Bybee, John Yoo, and Steven Bradbury is a strong condemnation of their legal reasoning.

Among other things, it looks like, “the report could be forwarded to state bar associations for possible disciplinary action.”

They pursued criminal charges against lawyers and judges in the Nuremberg trials, and they should do so here.

Hell Freezes Over

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Yes, Alan “Bubbles” Greenspan is now saying that bank nationalization deprivitization is likely the least bad solution to the banking crisis:

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

This from a close friend, and acolyte of, Ayn Rand.

Hint to Geithner and Summers, when Alan fracking Greenspan says it’s time to nationalize, it’s time to nationalize.

Why Geithner Sucked on the Bank Rescue Plan Rollout

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Well now we have an idea as to why Geithner’s unveiling of the stimulus package sucked. According to the Washington Post, a few days before the scheduled announcement date, Geithner discovered that the plan would not work, and he had to change it.

He wanted to do his “bad bank” thing, but, as people have been saying for weeks, if you pay fair value, the banks are insolvent, and if you pay enough to keep them afloat, then you waste trillions of taxpayer dollars.

So, now we have the public-private partnership and “stress tests”.

The question is whether he made this choice because he realized that he wrong, or if it was because he knew that he couldn’t sell the bad bank.

Given Geithner’s history, his last job was as an employees of those investment banks, I believe that he still wants to bail out the banks with no cost, but he hasn’t been able to figure out a way to sell it.

Bill Moyers has an interview with former IMF chief economist Simon Johnson, and he says that we need to break the oligarchs who got us into this situation, just like the IMF did with 3rd world nations. (video and transcript at link)

I agree with Mr. Johnson on nationalization pre-privatization, and I do not believe that Timothy Geithner will do this.

His career has been made as a protege of people like Lawrence Summers and Robert Rubin, and so he is joined at the hip to Wall Street.

Auto Industry Update

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To get a perspective on just how bad the auto industry is hurting right now, look at this graph from Calculated Risk.

It’s monthly the total auto fleet in the united states divided by auto sales, which gives you the turnover rate, basically a measure of how long it would take to replace every car on the road right now.

It’s gone from 10 years to 23.9 years, meaning that if this were baseline sales, the average age of the auto fleet would reach 29.9 years.

It’s clear that something, either auto sales, or the number of cars on the road, or both, will have to give, but this is just nuts.

It’s not surprising then that unions for GM subsidiaries in Europe want the car maker to spin-off of Opel and Saab. They know that they are viable, but that they will be sacrificed by the folks in Detroit.

So, while all this is going on, GM and Chrysler have to make their pitches for their recovery plan today, in order to get federal money.

At this point, there is only one thing that I know, any bailout should make Cerberus pay. The private equity firm that now owns Chrysler were looking for a quick flip on their investment, and they are unwilling to put any skin in the game.

As a first step, Cerberus must open its books to regulators.

Not Enough Bullets: TARP Recipients

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So, after taking billions of dollars of money from the treasury, and trillions from the Federal Reserve’s sh%$pile for cash program, we now discover that they are overcharging for federally guaranteed loans:

Since the Federal Deposit Insurance Corp. started guaranteeing debt in November, banks have charged clients, including themselves, more than $375 million in fees on $154 billion of deals in the U.S., according to data compiled by Bloomberg. Pittsburgh-based PNC Financial Services Group Inc., which received $7.6 billion from the U.S. Treasury, paid Citigroup and JPMorgan Chase & Co. 30 basis points, or $6 million, in December to sell FDIC-backed notes due in three-and- a-half years. A month later, JPMorgan and two other banks charged Freddie Mac 7.5 basis points for a similar offering.

(emphasis mine)

Also, the bailed out banks continue to maintain lavish offices, complete with office staff, for their recently ousted CEOs:

Looking for Charles O. “Chuck” Prince, ousted 15 months ago as Citigroup Inc.’s chief executive officer? Just call his extension at the bank, which still pays for his office and secretary in Midtown Manhattan.

Former Citigroup investment-banking head Michael Klein also has a free office and secretary after receiving a $34.3 million exit package when he quit in July 2008. John Reed, 70, who hasn’t worked at the bank since he resigned as co-CEO in 2000 with a $5 million parting bonus, is entitled to an office and secretary for as long as he wants.

Sanford I. “Sandy” Weill, who retired as chairman in 2006, is ending a 10-year consulting contract with the bank in April after just three years. The agreement gave him millions of dollars in perks, including an office, car and driver and use of company aircraft, which he gave up in February.

Sure as hell beats working for a living, I guess.

It appears to me that we have our own oligarchs in the United States, and we need to deal with them appropriately.

Unfortunately, I can’t find Vladimir Putin on my speed dial.

Ahhhh….Sweet Sanity

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It appears that U.S. and Iran will be working together to combat the Afghan drug trade.

This is basic common sense. Diplomacy can be based on common values or common interests, and there is a common interest here: The Shias in Iran, and the Sunni Taliban hate each other, the Taliban going so far as to murder Iranian diplomats, and Iran as a huge drug problem, with supplies from Afghanistan at its root.

There is a common interest here, and it can be the basis of joint action.

When Did Steny Hoyer Grow Some?

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Because he is now leaning on Pelosi to take a tough stand with Harry Reid:

House Majority Leader Steny H. Hoyer (D-Md.) is pushing Speaker Nancy Pelosi (D-Calif.) to take a harder line with the Senate after a trio of Republican senators forced Congress to trim billions from the $787 billion economic stimulus package.

It’s not clear how far Pelosi is willing to go in standing up to the Senate — or, realistically, what effect Hoyer and Pelosi combined could have in the face of the 60-vote hurdle Senate Democrats face.

But after last week’s stimulus votes, Hoyer called on Senate Majority Leader Harry Reid (D-Nev.) to force Senate Republicans to mount actual filibusters if they want to stand in the way of bills “so that the American people can see who’s undermining action.”

….

(emphasis mine)

I’m not sure what is going on, but I’m not complaining.

Economics Update

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Only a few bits of news, besides the auto bailout update, which I will cover later, but they are fairly significant.

First, the New York Fed’s Empire State Manufacturing Index hit another record low, though it has only been kept since July, 2001, so that’s not an enormously long time.

On the other side of the pond, though we have rumors that Ireland is on the brink of defaulting on its debt, which could make things very ugly very quickly.

It would likely also trigger events that would lead to defaults by other nations, the Baltic republics and Ukraine come to mind, as a rush for the doors starts.

Oil is down again, and the continued flight to safety has driven the dollar up.

Filubuster Reform

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There appears to be a lot of discussion on the blogosphere right now about how the filibuster.

Some are calling for outright abolition, and some are calling for significant changes in the rules governing the filibuster.

I made a graph of cloture motions (Data from the Senate web site), and it speaks volumes.

The first thing to notice is that cloture votes did not break double digits until the 1971-1972 session.

I it was at some point in the 1970s (I’m unable to find it on “the Google”, but it was at some point in the 1970s*), that people no longer had to talk to filibuster: It became a courtesy, not a rule, just the magnanimity of the Majority Leader that if a cloture vote failed, the legislation was pulled.

In addition, the requirements for the filibuster where changed in 1975 from 2/3 of those present and voting to 60% of all Senators in good standing (hence the issues with Kennedy having to show up on the stimulus).

There are a number of problems:

  • A non vote should never be counted as a no
  • What had been a measure of last resort until the end of the 60s has expanded to become a tool of electoral gamesmanship, and so has created a de facto 60 % supermajority to pass anything.

This is further complicated by the fact that there are times where we want the minority to be able to obstruct the majority.
vote. (*cough* Janice Rogers Brown *cough*)†

So, what do we do about a process that has created the disgusting spectacle of a man with a brain tumor, another one having to rush home from his mother’s funeral to break the filibuster, and Republicans admitting paying off the losing candidate in order to tie up the appointment of a Senator in court.

My opinion is that we start by enforcing the rules as they actually exist, and not accord the minority power that they do not have.

Courtesy is a two way street, and the abuse of the filibuster shuts that down.

Make them talk, and let them go hoarse, and have to stay in the Senate.

What’s more with CSPAN covering Congress, the spectacle of Senators talking for hours and days will not only be broadcast locally on cable, it will find its way to Leno, and Letterman, and Jon Stewart, and they will look like complete tools.

If it’s that important, they will still talk. If it isn’t, they will STFU.

As to actual rules changes, that is a difficult thing to do, at least until one side or the other breaks 60 Senators, but I would suggest that the 60% be retained, but that it be of the votes cast, which means that those who support the filibuster need to stay in order to thwart it.

*Another reason to hate the decade, along with Disco, Polyester leisure suits, and pet rocks.
†F%$# you, gang of 14.