Felix Salmon

Zach Seward got himself a great scoop when he procured a confidential AP memo which takes a very aggressive stance about protecting the company’s intellectual property. Here’s how the memo begins:

The evidence is everywhere: original news content is being scraped, syndicated and monetized without fair compensation to those who produce, report and verify it. AP’s legal division continues to document rampant unauthorized use of AP content on literally tens of thousands of Web sites. The problem is quickly spreading to mobile, where new applications are cropping up daily that do little more than repackage the efforts of AP and others, siphoning off consumers and revenue from those whose content is being exploited.

It continues by talking about “the urgent need to regain control”, adding that “it is difficult to overstate the importance of taking action at this moment… AP has both business and legal imperatives to assert its intellectual rights”.

This is all pretty unambiguous stuff. But Seward seems to be backpedalling desperately from the obvious conclusions, after one conversation with the AP’s general counsel, Srinandan Kasi.

Kasi said that the AP thought Andy Baio’s Associated Repress site was “wonderful”. He said that a hypothetical blogger copy-and-pasting an entire news article would probably be “perfectly fine”. He even, pace those “new applications cropping up daily” in the mobile space, said this:

A mobile developer who wanted to include the AP’s articles or videos in an iPhone application could do so, probably without paying for access. Addressing the hypothetical developer, he said, “If this becomes a runaway success, I want to be part of this kind of business arrangement with you. In the meantime, if you want to experiment, go at it.”

The impression that Kasi gives, via Seward, is that the AP is benign at heart:

When you look at the things that we’ve actually enforced or pursued, it’s a small handful of situations. Even the ones where there’s a lot of noise being made, it is to point out the kind of conduct, of systematic conduct that we want to have addressed. But if you really push it to the extreme of, ‘OK, how many do we legally enforce in a court of law?’ It’ll be less than the number of fingers on a single hand.

This is really hard to square with the black letter of the memo, with its talk of the “legal imperatives” facing the AP. And in fact, if you examine it closely, it’s much more invidious than it sounds.

Essentially, the AP is encouraging the rest of us to remix its work — on the understanding that, statistically speaking, most of us will fail. On the other hand, if we succeed — if we go viral, like Shepard Fairey, or start making non-trivial ad revenue, like Newser, then they’ll come at us with expensive lawyers, and they won’t be friendly. What’s more, they feel that it’s strategically necessary to be very aggressive in protecting their intellectual property in such situations.

This isn’t a FUD campaign designed to make people wary of using AP content. It’s worse than that: it’s an attempt by the AP to outsource innovation to others, and then, in the handful of cases where the innovative gamble pays off, grasp substantially all the benefits of that innovation for themselves. Call it a “be evil” strategy. How else can you explain the Fairey lawsuit?

Greg Ip says that the Fed would have expanded its quantitative-easing program by now were it not for political considerations:

If the programmes are doing some good, why is the Fed not expanding them? The outlook has improved, for one thing: America’s economy is levelling out, it noted on August 12th. But the main reason is political, not economic. The Fed’s Treasury-purchase plan prompted charges that it was inviting hyperinflation and had subordinated itself to the government’s deficit needs. Alan Greenspan, a former Fed chairman, says inflation will exceed 10% if the Fed fails to shrink its balance-sheet and raise rates, and 3% for a time even if it does.

Needless to say, that is not the Fed’s view: it still foresees rising unemployment and falling inflation. But many officials have concluded that, for now, the benefits of buying more Treasuries do not outweigh the costs of a damaging rise in inflation expectations and a perceived loss of independence.

I can see why the Fed would decide against printing more money if doing so raised inflation expectations in a harmful manner. But that’s a basic consideration in making monetary policy decisions, and doesn’t really count as “political, not economic”.

So what’s the political consideration here? If second-guessing politicians means that the central bank fails to do something it would otherwise have done, then that central bank has lost independence. If the Fed’s doing what the politicians want, it has lost independence already. So what’s it worried about?

I think that what Ip is trying to say is that central banks have a lot of independence so long as inflation expectations are low, but if they’re perceived to have lost their grip on inflation, then that perceived independence can evaporate very quickly. (This is all about perceptions, interestingly enough: inflation expectations, rather than actual inflation and perceived independence, rather than actual independence.) And so in order to maintain a reputation for independence, they will be inclined to favor the arguments of political hawks. It’s a way of second-guessing themselves into having less independence in reality, just for the sake of keeping more independence in the public mind. Or something.

That said, at the margin, this phenomenon acts in favor of tighter monetary policy, even as politicians generally tend to agitate for looser monetary policy. So maybe these things largely cancel each other out.

In 2007, hot young artist Doug Aitken unveiled a massive public video-art project at MoMA. Sleepwalkers featured A-list celebrities, acres of publicity, and millions of dollars in production costs; its Flash site alone almost certainly cost many multiples of the total budget for Those About to Die Salute You, the utterly insane and hugely enjoyable public-art project put on by Duke Riley at the Queens Museum of Art last night in conjunction with the Brooklyn Museum, Bronx Museum of the Arts, and El Museo del Barrio.

Do check out the Flickr slideshow of the event, or you could try my own wobbly video, which at least gives a flavor of just how anarchic the whole thing was, and how much fun everybody was having.

The two events encapsulate a lot of the upside to the downturn in the art market. The expensive Manhattan-based project was somber and highbrow and quiet; the cheap chaos in Queens was raucous and bloody and quite probably illegal, especially when the fireworks started exploding at the end. (No wonder the museum director was looking a little stressed.) The MoMA project was organized to the finest detail, and projected onto Yoshio Taniguchi’s pristine walls; there was a vague plan behind the Riley event, but it started going awry at roughly the time that the toga-clad crowd started throwing tomatoes at each other before the boats had even appeared, and it all went magnificently downhill from there. (Perhaps the free beer for anybody in a toga played a part.)

Needless to say, this is not the kind of art that highbrow art collectors tend to spend millions of dollars on — while Duke Riley is doing admirably well as an artist, financially speaking he’s no Doug Aitken (yet). But then again, the art market, with its obsession with price as an indicator of quality, was the last thing on anybody’s mind last night. We were far too busy throwing tomatoes, getting wet, and enjoying the freedom that comes with near-zero budgets.

Update: The NYT has some great reporting; Gothamist has  fabulous photos.

Blackstone’s Steve Schwarzman made a ridiculous $702 million last year, according to The Corporate Library, and Scott Malone of Reuters phoned for a reaction:

“This is absurd,” said Blackstone spokesman Peter Rose.

Well, yes, Peter, it is. But maybe not in the sense that you mean.

Why is it so hard to find a foreign-bond ETF?

The Bernie Madoff Dining Index

“Thinking up the right regression to run can be worth millions.” (Irony alert: This appears on Steve Levitt’s blog.)

Not only does the iPhone blend, it also burns! And gets shot up with a 9mm pistol! To an Arcade Fire soundtrack!

What it’s like to eat at El Bulli, told in a photographic cartoon.

Gawker reads Sarah Palin’s new Facebook post and says “there’s just no way” Palin wrote it.

The New York Times needs all the revenue sources it can get right now, so it’s licensed its brand to the Global Wine Company and created the New York Times Wine Club. This is a good thing, and not only because it brings money into the NYT’s coffers: it’s also the first such wine club I’ve seen which works in a non-evil manner.

Yes, like other wine clubs, you can sign up to receive a shipment of wine every 1, 2, or 3 months. But unlike any other wine club I’ve seen, you can also simply order a single shipment of wine, without then having to opt out of getting future shipments automatically.

I have no idea whether these wines are any good, or worth the money. But I do know that any “club” which doesn’t try to lock you in to a subscription is breath of fresh air.

I’m getting quite fed up with the Independent Community Bankers of America. First they self-defeatingly came out in opposition to the Consumer Financial Protection Agency, now they’re refusing to grant government-guaranteed loans to small businesses just because it’s not particularly lucrative and they can’t be bothered to do the underwriting.

“There’s not a lot of profit motive in a $35,000 loan stretched over six years,” said Paul Merski, chief economist for the Independent Community Bankers of America, a trade association.

Bob Seiwert, of the Center for Commercial Lending and Business Banking at the American Bankers Association, says “stringent underwriting standards” will require as much work as larger loans, making these even less economical…

It would appear that banks like M & I are using that flexibility more to deny than to approve loans. For example, Wells Fargo, one of the largest Small Business Administration lenders, has received 700 to 800 completed applications, said Tom Burke, the senior vice president overseeing small-business loans at Wells Fargo, but has approved only “several dozen.”

I’m not sure that it’s fair to M & I Bank of Milwaukee to judge it by the actions of Wells Fargo. But maybe it is. It does seem clear that with only $36.8 million of loans extended since May, precious few lenders seem to be in any hurry to get their hands on these SBA guarantees.

I wish these loans could be disintermediated somehow: I’m sure there are lots of Americans — even Americans who know how to underwrite loans — who would love to get 2 percentage points over prime on $35,000, spread over six years. (Prime is currently 3.25%, and almost certainly won’t go any lower; that puts a floor of 5.25% on the interest that these loans throw off. Try getting that from a CD.)

Instead, the banks seemingly hate to do their job, which is simply underwrite loans — the only thing they’re worried about is that if the borrower defaults, the SBA will go back and check that they bothered to underwrite the loan in the first place. In 95% of cases the bank did do just that, and the guarantee is paid out. But obviously there needs to be some check by the SBA: you can’t have banks just giving away money, safe in the knowledge that they’re bound to get it back, with interest, from the government.

There’s a subtext to this story, too, which is that banks still don’t seem to be worrying nearly enough about credit risk. The SBA is offering to bring credit risk down to zero on a large class of loans, and they’re basically saying “thanks, but no thanks”. My guess is that competent underwriting skills were left to wither away during the Great Moderation, and that they’re hard to rebuild. And that for all that they call themselves “community banks”, the smaller shops are in just the same place as the big boys. They’ve forgotten how to underwrite loans, and now they’re scared to lend to small businesses, lest the SBA find out that their underwriting was a chimera all along.

Jonathan Weil has a good column today leading with the fact that Regions Financial is insolvent, if you mark its assets to market; it’s not the only one. But stock-market investors don’t seem to mind — they’re valuing the equity in the company at more than $6 billion. The true market measure of how risky the bank is can be found in its credit default swaps: five-year protection written on RF’s tier-2 debt is currently trading at a spread of 722bp over swaps.

What that says to me is that bonds are the new stocks, and stocks are the new call options. Bonds give you a high return for high risk, while with stocks you’re really levering up, running the risk of being wiped out entirely in return for the possibility that your investment could multiply in value in a matter of months.

That’s not healthy. The stock market should be a way for investors to allocate their capital over the long term in fundamentally healthy companies. Right now, however, it’s a casino. And the slightly safer market, in corporate bonds, is exactly the market we want to discourage from coming back: systemically speaking, equity markets are much less dangerous than debt markets.

In any case, we’re certainly nowhere near the point at which you can judge the health of a bank by looking at its share price. Which means that we’re nowhere near the point at which requiring large shareholdings is the best way to give management a strong incentive to make their bank healthier. Maybe we should require that top executives start buying a lot of preferred stock instead.

Via Tyler Cowen, who reads very fast, comes a video and full instructions on how to do likewise; the trick is to stop subvocalizing.

I note that although Tyler often posts “the best sentence I read today”, it’s invariably interesting and/or provocative, as opposed to simply being a really good sentence. When you read fast and don’t subvocalize, do you start to miss the art of constructing or even just appreciating beautiful sentences? Would a speed reader, for instance, ever be able to write a book like U&I? These are genuine questions, by the way: while I read quite quickly, I don’t speed-read, and I do subvocalize.

Bill Wyman’s 9,000-word, two-part magnum opus laying out five reasons why newspapers are failing is a must-read — or at least the first three reasons are; the final two are a little weaker.

The first part, on how consumers have never paid for news, is the clearest exegesis I’ve yet seen of the truism that newspapers don’t sell news, they sell readers. The second part delivers some much-needed home truths about how most newspapers really aren’t that great to begin with. And the third part explains why the Gawker version of a Washington Post story is nearly always going to be much more fun to read than the original newspaper article.

Wyman doesn’t pretend to have solutions to these problems; most likely there aren’t any. He does provide a list of suggestions, at the end, for newspaper owners; they’re all good ideas, but they’re by no means sufficient to turn around the imploded economics of local newspaper publishing, and I think he implicitly overstates how effective they can be.

Wyman has provided a good analysis of why newspapers are doomed; the weakness in his article comes towards the end, when he hints that this state of affairs might have been avoided, or maybe even could still be avoided. The biggest newspapers in the land can and probably will pursue a successful last-man-standing strategy. But among the thousand-plus smaller newspapers, the number with a rosy long-term future is pretty much zero.

Contra Ryan, I’m perfectly happy to take Paul Krugman’s purchase of a new apartment at face value. Does it mean that Krugman thinks home prices aren’t going to fall? No, of course not. Is it a bullish indicator? Similarly, no. A home is not an investment. It’s a place to live.

Krugman wanted an extra bedroom and a washer-dryer. He had $1.4 million from his Nobel prize burning a hole in his pocket. Why not spend it on something which will make your life more pleasant? The alternative is to save/invest, which is essentially delayed gratification for no particularly good reason. So good for Paul, that he thinks of money as a means to an end — something you spend to get what you want — rather than always as something to be invested and grown.

Update: Ryan responds by saying that Krugman could just have rented. But for a busy professional like Krugman, the pain-and-suffering costs of moving house are huge, and so there’s real value to locking in the option never to have to move again if you don’t want to. Plus there’s inflation risk if you rent — the rent could rise quite a lot, even as your cash loses purchasing power. And where’s Krugman meant to park his $1.4 million in the meantime, while he’s renting? In many ways, it’s much easier to buy, if you have the money just lying around. After all, there’s no downside at all if you consider that you’ve just bought somewhere to live, as opposed to an investment.

The AP has a cunning plan to create “news guide landing pages” which it would force news organizations to link to. The idea is that all that linking will boost the pages’ Google ranking, and thereby bring them lots of traffic from people searching for events in the news. It’s not a bad idea, until you get to this bit:

Most of the AP’s landing pages would be automatically generated, although “editorial curation” would also be possible.

PageRank isn’t a dumb algorithm; it’s a smart algorithm, which is pretty good at working out what pages are the authoritative sources which people really want to go to. And in my experience Google is very good at pointing to pages which have a real human intelligence behind them. Every so often, an SEO-optimized automatically-generated site will pop up in the first page of Google results, and when it does, that’s a failure of Google, which the engineers at Google then try to fix.

It’s conceivable, but unlikely, that automatically-generated landing pages really would be exactly what Google’s users want to see when they search for certain terms. In that case, the AP’s plan might work. More likely, however, is that people want to see real pages built by real people. And unless the AP intends to create just that, I fear its plan is not going to work very well.

There’s something rather odd about Thomas Crocker’s opposition to cap-and-trade and his support of a carbon tax instead: all of his arguments why a carbon tax is preferable to cap-and-trade are exactly the same as my arguments why cap-and-trade is better than a carbon tax!

Let’s take Crocker’s arguments one by one, with the proviso that they’re coming second-hand, via the WSJ, rather than directly from Crocker himself.

First, Crocker says that a carbon tax “would be easier to enforce” than a cap-and-trade system. But it’s hard to see why that should be the case: both of them involve measuring the same carbon emissions. It’s certainly easier to enforce when you measure upstream rather than downstream, but that applies equally to carbon taxes and to cap-and-trade.

Crocker then gets into the meat of his argument:

Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. “It is not clear to me how you would enforce a permit system internationally,” he says. “There are no institutions right now that have that power.”

Yes, cap-and-trade is better suited for local pollution problems than it is for global pollution problems. But that doesn’t mean that a carbon tax is better for global pollution problems than cap-and-trade is. Indeed, the opposite is true. In theory, once a number of jurisdictions implement a cap-and-trade system, carbon traders will start arbitraging the various different carbon permits, and we will end up with something approaching a global system. Carbon taxes, by contrast, are ever and always local. Crocker is right that a US cap-and-trade system wouldn’t necessarily slow global carbon emissions if China and India refuse to play ball. On the other hand, neither would a carbon tax. But at least a cap-and-trade system has the ability to scale into China and India.

But moving on:

The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change — from floods to failing crops — is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.

In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions.

Agreed, 100% — which is exactly why we need a flexible cap-and-trade system rather than an inflexible carbon tax. A cap-and-trade system can be tweaked much more easily than a carbon tax, both in terms of the level of the cap and in terms of the proportion of the permits which is auctioned off rather than given away. Crocker says it’s hard to adjust a cap once it’s in place — but he neglects to mention that it’s harder still to adjust a tax once it’s in place.

In the first instance, the important thing is to get something in place, which can then be improved over time. A cap-and-trade system fits the bill perfectly; a carbon tax, by contrast, doesn’t.

Oh yes: there’s now a documentary, featuring a lot of talking heads wearing bluetooth headsets, all about people who bought stock in Sirius XM because it was going up and then lost money because it went down. Of course, it wasn’t their fault. Blame instead the evil short sellers! And do be sure to give the filmmakers $15.99 for their DVD. If they sell enough of these things, they might be able to recoup their losses!

It’s good that the WSJ is taking a skeptical look at the excesses of PE-funded microfinance institutions, even if the newspaper still feels the need to put the word “microfinance” in scare quotes in its headlines.

I’m a fan of genuinely local, bottom-up microfinance. But what the WSJ is talking about — which is where the real growth is — is top-down microfinance, driven by external funds from the developed world. Ethical funds, in particular, love these investments, partly because they have very little correlation with any other asset class, and partly because everybody loves to think they’re investing in the next Grameen. The problem is that Grameen never took foreign money, for a very good reason.

At heart, a lot of these investments are a gussied-up carry trade. Developing-country financial institutions borrow dollars, and invest them in the local markets, with little if any currency hedging. A few organizations are beginning to offer hedging services to microfinance institutions, but such services are unlikely to prove particularly popular, because it’s that implicit FX risk which accounts for a huge proportion of these institutions’ profits. Much better that microfinance organizations grow a little more slowly, and much more organically, either by getting grants rather than loans, or by funding themselves locally.

It’s undoubtedly true that microfinance could be a lot bigger than it is now. But the way to get there from here isn’t to throw for-profit private-equity dollars at it. The real constraint is finding and training good local women who can underwrite well and who know their customers on a personal level. There’s a reason that these PE-backed microfinance dollars are concentrated in cities right now: it’s the only way to scale up quickly. But speed is the enemy of quality, as the WSJ’s Ketaki Gokhale demonstrates, and in Ramanagaram it has resulted in the local mosque successfully urging its congregation to default on all their loans, with stubborn uncooperativeness on both sides:

The mosque leaders are also demanding that lenders give them an accounting of their finances. The lenders say they’re not about to comply with that.

Any microfinance institution which so easily angers and refuses to cooperate with local religious institutions is walking on very dangerous ground. If western do-gooders want to support microfinance lenders, they should simply donate their money to grassroots organizations in the developing world. If they want to make a profit, they should stick to more conventional investments.