Coyote Blog

The Senate will take a vote today to repeal the hugely onerous 1099 provision from the Obamacare legislation.   Good news, though Obama is opposed to the repeal as he feels (probably correctly) that it will open the floodgates to further repeals and amendments.  Which is pretty disingenuous, as one of the soothing memes he handed out when the legislation was being rushed through Congress was that there was plenty of time to amend and fix its rough edges.  How he needs to decide if he was lying about that, as Congress addresses a rough edge that had nothing to do with health care but created a huge and largely useless burden on businesses.  I know that this provision would really kneecap my business.

Meanwhile, small businesses are staring in horror toward 2013, when the 1099 mandate will hit more than 30 million of them. Currently businesses only have to tell the IRS the value of services they purchase from vendors and the like. Under the new rules, they'll have to report the value of goods and merchandise they purchase as well, adding vast accounting and paperwork costs.

Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations' corporate parents.

Most Democrats now claim they were blindsided and didn't understand the implications of the 1099 provision"”which is typical of the slapdash, destructive way the bill was written and passed. As the critics claimed, most Members had no idea what they were voting on.

Democrats are trying to water down this repeal:

Yesterday the White House endorsed a competing proposal from Florida Democrat Bill Nelson that would increase the 1099 threshold to $5,000 and exempt businesses with fewer than 25 workers. Yet this is little more than a rearguard action in favor of the status quo; the Nelson amendment leaves the basic architecture unchanged while making the problem more complex.

Businesses would still have to track all purchases, not knowing in advance which contractors will exceed $5,000 at the end of the year. It also creates a marginal barrier to job creation"”for a smaller firm, hiring a 26th employee would be extremely costly. The Nelson amendment also includes new taxes on domestic oil production, as every Democratic bill now seems to do.

This analysis is dead on -- our company generally cannot predict exactly how much we will purchase from a specific vendor in a year, so we would still have to collect tax ID's from every single vendor, not knowing which would cross the hurdle.

Apparently, legislators in California can't get away with just passing a law that says something like "no damn foreigners can build trains for us."  So they repackage their protectionism by finding a way to disguise it, in this case with a truly screwball piece of fiddling-while-Rome-burns legislation:

A bill authored by Assemblymember Bob Blumenfield (D "“ San Fernando Valley) requiring companies seeking contracts to build California's High Speed Rail system to disclose their involvement in deportations to concentration camps during World War II gained final approval from the state legislature today. AB 619, the Holocaust Survivor Responsibility Act, passed the Assembly on a vote of 50 "“ 7 and was sent to the governor, who will have until September 30 to act on it.AB 619 would require companies seeking to be awarded high speed rail contracts to publicly disclose whether they had a direct role in transporting persons to concentration camps, and provide a description of any remedial action or restitution they have made to survivors, or families of victims. The bill requires the High Speed Rail Authority to include a company's disclosure as part of the contract award process.

Apparently they have in mind specifically the SNCF, the French national railroad.  Its loony enough to blame current corporate management and ownership for something the entity did three generations ago, but the supposed crimes of the SNCF occurred when France was occupied by the Nazis.   Its like criticizing the actions of a hostage.  And even if there were some willing collaborationists, they almost certainly were punished by the French after liberation, and besides the US Army Air Force did its level best to bomb the SNCF's infrastructure back into the stone age, so I am certainly willing to call it quits.

It appears that for a principled defense of property rights, the exercise of religion in America, and limited government we have to turn to ... liberal blogger Kevin Drum

We already know that a large majority of Americans are opposed to building it, but here are the results of an Economist poll on a slightly different question:

Whether or not you think the Islamic cultural centre and mosque should be built near the World Trade Center site, do you think that Muslims have a constitutional right to build a mosque there?

Technically, I think the wording of this question should have been turned around: not whether Muslims have the right to build a mosque on Park Place, but whether the government has the constitutional right to stop them from building a mosque on Park Place.

Still, I think everyone probably understands what this means, and it's just depressing as hell. It's one thing to oppose the mosque just because you don't like the idea, but to deny that Muslims even have a constitutional right to build it? That should be a no-brainer. Of course they do.

Seriously, this is from a man who probably does not think you have the Constitutional right to choose your own doctor. Why are Republicans ceding the high ground on this to Democrats? Well, it turns out that is the theme of my new column this week in Forbes.

...prospective mosque-banners would argue that I simply don't understand how utterly, deeply offensive the proposed location of this mosque is to them. But that is not the case. I am offended as well by what might be a laudatory memorial to a terrorist incident. But the question for me is, do we have a right not to be offended?

The irony is that for the last decade or so, conservatives have fought the political correctness movement over exactly this issue. Conservative commentators, rightly I think, were up in arms over the "hate speech" trial of Mark Steyn in Canada, and more recently the cancellation of Ann Coulter's Canadian speaking tour. In both cases Canadian government and university officials argued that Steyn's and Coulter's criticisms of radical Islam were too divisive, too defamatory to Muslims, and in general too offensive to be allowed public voice....

This is what truly floors me about the Ground Zero controversy: Republicans all over the country are standing up and begging House Speaker Nancy Pelosi and President Barack Obama to void the property rights of a private entity, shut down the construction of a church, and do so to protect some mythical right not to be offended, a right that, until recently, conservatives argued did not exist. Do Republicans really want to encourage the federal government to tear up property rights and First Amendment protections, all in the name of hurt feelings? If conservatives set this precedent today, they are almost certainly not going to like how it is used tomorrow.

Postscript: I notice something in this poll that I have seen several times lately.  Traditionally, poll results for independents always fell somewhere between Republicans and Democrats.  In this poll, as in several others I have seen, Independent responses actually fell outside of these bounds.  Increasingly independents are shedding the "moderate" label and actually pacing the two political parties.  I find this encouraging, though it is probably too much to hope for that this is the leading indicator of some type of radical ideological restructuring of the Coke and Pepsi parties.

Read this story, and then imagine if the facts had been reversed:

"A sports conference that always scheduled weekday basketball doubleheaders in which women's teams played the first game -- letting the men play in the later time slot -- has altered the practice, after an anonymous sex discrimination complaint charged that this made the women's games appear to be a "warm-up" act for the men's games.

Now, hoping to avoid possible gender equity suits, other athletic conferences are considering similar scheduling changes.  Last month, the Great Lakes Intercollegiate Athletics Conference announced that it would alternate from season to season the order in which men's and women's teams would play in doubleheaders. The men will play first this season, and the women will play first next season.

Dell Robinson, the conference commissioner, said the decision was made after the league received an inquiry in March from the U.S. Department of Education's Office for Civil Rights. An anonymous complaint filed with the agency argued that the negative connotation conveyed by always having women's teams play first in these doubleheaders was detrimental to women's athletics."

So let's imagine a alternate world where women's basketball games had always traditionally been played in the second game of the double-header, after men's games.  Does anyone believe that the civil rights folks wouldn't have filed a complaint saying

Having women's games always played after men's games makes them appear to be an after-thought to the main contest, positioning the game later in the prime social hours where potential student fans will be more likely to leave early and head to the bar instead of staying to watch.  The negative connotation conveyed by always having women't teams play last in these doubleheaders is detrimental to women's athletics.

See, its easy to be a race/gender advocate.

OK, so after the monks and coffins, here is the future licensing act ripe for abuse by industry incumbents to protect their position.

New state licenses required for anyone handling a mortgage application could help prevent a repeat of the bad loans that contributed to Phoenix's housing crash....

The law, passed in 2008, creates state oversight for people who take loan applications, gives consumers an avenue for reporting misconduct and establishes a fund to help repay borrowers who lose money because of unethical or illegal acts by their loan officers.

The law faces hurdles, as cash-strapped Arizona struggles to process thousands of new applications.

Still, advocates call it a success. Many of the risky - and sometimes illegal - home loans that helped lead to record foreclosures in Arizona might not have been made if the more than 10,000 unlicensed loan officers working then had been subject to more oversight.

How?  If people were selling illegal home loans before, they were already breaking the law and the state obviously was unable to enforce the law.  How is adding a piece of paper that must be applied for each year going to help?  My company has all kinds of silly licenses - liquor licenses, guiding licenses, health licenses, tobacco sales licenses, over-the-counter drug sales licenses, even egg licenses - and in not a single case does the issuer of these licenses exercise any sort of oversight of our operations.  If they get their extensive paperwork (so workers have an excuse to retain their jobs - after all someone has to process the paperwork) and their check, that is generally the sum of interactions with these organizations.

Now, some of these licenses were hard to get in the first place, but not for any reason of my character or ethics or business model.  They were hard to get because their issuance has been co-opted by incumbent businesses in the state who use the process to limit competition.  Liquor licenses are a great example - in places like Shasta County CA and Lake Havasu City AZ, we had a real problem getting the liquor license over opposition from existing businesses.

This is almost mindless naivete:

"Loan-officer licensing is long overdue in Arizona," said Felecia Rotellini, who for five years served as superintendent of the Department of Financial Institutions, the state agency regulating the mortgage industry. She is running for Arizona attorney general.

"A lot of bad loans wouldn't have been made if we had it before," Rotellini said. "It gives me peace of mind for consumers to know we have licensing now."

The author of the article just throws the following statement out there without any source, as if it was an axiom with which we all would agree

In Arizona, the housing boom and crash were partly fueled by loan officers, how they operated and how they were paid.

In fact, the author's incredible confidence in licensing is undermined in this adjacent statement:

Mortgage brokers, who run firms that connect borrowers with the best loans, have long been regulated by the Department of Financial Institutions.

Brokers employ loan officers, who work directly with borrowers, collecting their Social Security numbers and financial information to determine whether they qualify for a loan. Loan officers usually recommend types of mortgages and lenders.

These officers, sometimes called originators, weren't subject to state scrutiny. They worked under the licenses of their brokers, much the way an apprentice would work for a licensed contractor. Previously, that oversight was considered sufficient.

So the firms these guys worked for were licensed, but the individual employees were not. But if that licensing of firms, which after all is the level where loan practices and compensation policy are set which supposedly are at fault, how does licensing individual employees help? This is a typical political step that a) gets some state organization more money and power, b) generates one sound bite in a news cycle for some politician to tell voters that they care and c) does zero for consumers.

At the end of the day, the real cause of the housing boom was easy credit, and yes loan officers participated in this given that their commission-based incentives caused them to want to make every loan possible.  But this incentive outcome would not have been some kind of insight to the people and system that employed the loan officers.  In fact, everyone from the loan officer to the Congress wanted easy credit, and to blame one link in the chain of delivering this credit to consumers is madness.  Going forward, there is absolutely no evidence that the government is going to reduce its history of promoting easy credit, as evidenced by any number of federal loan modification and lending programs over the last 2 years.  So the likelihood that a government regulatory agency could have somehow headed off the bubble and its bursting is just silly.  The government was a party to it.

In the long run this mechanism will almost certainly be co-opted by current loan issuers as a way to limit competition, much as real estate agents and lawyers and funeral home directors already do.  As a minimum, this is a way for mortgage brokers to outsource some of the cost of running background checks and such on their employment candidates onto taxpayers.  In fact, I wonder who was behind this law in the first place?

Backed by mortgage brokers and real-estate regulators, the law quietly went into affect on July 1

This week's episode -- Monk's making simple caskets to support themselves must desist because Louisiana has detailed licensing laws to protect current funeral homes from just this type of low-cost competition. This is what the monks would have to do to sell what is basically a nice wooden box

Louisiana law purports to require that anyone who is going to sell a casket has to jump through all same regulatory hoops as a full-fledged mortuary operation that embalms bodies. See, selling "funeral merchandise" (including caskets) means you are a "funeral director." And to be a "funeral director," you must be approved for "good moral character and temperate habits" by a funeral-related government entity [of course, that's in Louisiana, but still], complete 30 semester hours at college, apprentice with a funeral director for a year, pay an application fee, and pass an exam. But that's not all. If you want your facility to sell caskets, it's got to qualify as a facility for funeral directing, including a showroom and "embalming facilities for the sanitation, disinfection, and preparation of a human body."

The monks are being represented by the IJ (what the ACLU should have been if it weren't for its Stalinist founders) which hopes to get to the Supreme Court.  If I were one of the monks (wildly unlikely as that is) I might be tempted to sell them as "human-sized wood boxes" rather than coffins and see where that got me.

... the other auto-makers are not going to be treated very fairly.

Senior officials at the U.S. Department of Transportation have at least temporarily blocked the release of findings by auto-safety regulators that could favor Toyota Motor Corp. in some crashes related to unintended acceleration, according to a recently retired agency official.George Person, who retired July 3 after 27 years at the National Highway Traffic Safety Administration, said in an interview that the decision to not go public with the data for now was made over the objections of some officials at NHTSA.

"The information was compiled. The report was finished and submitted," Mr. Person said. "When I asked why it hadn't been published, I was told that the secretary's office didn't want to release it," he added, referring to Transportation Secretary Ray LaHood.

Welcome to the corporate state, Obama-style.   Not to mention some old-fashioned bureaucratic CYA:

Since March, the agency has examined 40 Toyota vehicles where unintended acceleration was cited as the cause of an accident, Mr. Person said. NHTSA determined 23 of the vehicles had accelerated suddenly, Mr. Person said.

In all 23, he added, the vehicles' electronic data recorders or black boxes showed the car's throttle was wide open and the brake was not depressed at the moment of impact, suggesting the drivers mistakenly stepped on the gas pedal instead of the brake, Mr. Person said.

"The agency has for too long ignored what I believe is the root cause of these unintended acceleration cases," he said. "It's driver error. It's pedal misapplication and that's what this data shows."

Mr. Person said he believes Transportation Department officials are "sitting on" this data because it could revive criticism that NHTSA is too close to the auto maker and has not looked hard enough for electrical flaws in Toyota vehicles.

"It has become very political. There is a lot of anger towards Toyota," Mr. Person said. Transportation officials "are hoping against hope that they find something that points back to a flaw in Toyota vehicles."

The existence of this report is one reason, suggests Walter Olson, why the Democrats in Congress (abetted by the NY Times) seem in an enormous hurry to pass a new auto regulatory bill.  After all, automobiles have been sold in this country for only about 100 years, so every day counts in getting new regulatory infrastructure in place

The recall of millions of Toyota cars and trucks because of persistent problems of uncontrolled acceleration has exposed unacceptable weaknesses in the regulatory system. These weaknesses are allowing potentially fatal flaws to remain undetected. Democrats in Congress are pushing legislation to improve regulation and oversight of auto safety. It should be passed into law without delay.

As Olson points out, the NY Times has bent over backwards to ignore recent NHTSA findings in its reporting. This in particular is the enormously flawed logic of the regulator:

N.H.T.S.A. could fine Toyota only $16.4 million for delays in revealing problems with defective accelerator pedals that left the throttle open after being released. That's pocket change for a company of its size.

Pay no attention to that free market behind the curtain.  The billions of dollars this acceleration problem has cost Toyota in recalls, repairs, lost sales, and damage to reputation are irrelevant -- only fines imposed by the Administration (and torts by its allies in the litigation industry) matter.  And if the same problem beset government-owned GM, anyone want to bet what the penalty would be?  They would probably get a new bailout from Obama to pay for the recall costs.   In fact, even without the NHTSA findings, this Toyota problem is really no worse in terms of incidence rates or costs than any number of other recalls by US manufacturers.  The only difference is the media attention lavished on the problem.

My column this week in Forbes is up.  Been getting a lot of mail today as it was picked up at RealClearPolitics.  An excerpt:

Here is my first law of economic growth: When we encourage more investment, and ensure this investment is being channeled to the most productive uses, growth will follow.

For all the talk about fiscal stimulus and jobs creation at the federal and state level, almost no one in government is doing anything about reducing the roadblocks to investment.

Today's episode -- the shut down of the new debt market

Ford Motor Co.'s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation's dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody's Investors Service, Standard & Poor's and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.

The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.

The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

I have blogged before about the absolute disaster that is the requirement (included in the health care bill) for businesses to submit 1099's for all goods and services purchases over $600.  We have hundreds of vendors who meet this criteria, and the process of filling out forms, collection tax ID's, etc. is insanely onerous.  Megan McArdle has more today.

I thought this was an interesting irony of our growing corporate state:

In my post "Attention Gov't: This Is How Businesses Are Created" I brought up the point that government regulations keep the average American from investing in ground floor business opportunities with rules specifying how much money someone must have before they can invest in start-ups (unless the start-up is being done by a friend or family member).  Government regulations also prevent start-ups from advertising their investment opportunity.  If you need ground-floor investment (as opposed to loans) to bring your business to the proverbial next level, there is a wall of regulation that keeps you from asking for it from the general public and specifies what "sophisticated investors" (the already rich) you can approach and how.

Those rules are there to protect us middle class rubes from being taken in by crafty and ill-intentioned businessmen.

I contrasted this protection the government so thoughtfully provides us"“keeping us from making possible bad investments"“with it's promotion of lotteries and acceptance of casino gambling.

Now these people who will not allow an entrepreneur to advertise or promote his start-up in order to get voluntary investment money from people willing to take a risk on the business idea or invention are looking at legalization of online gambling in the USA.

This makes no sense to me.  The SEC is working to protect Dell shareholders by ... taking $100 million of their money.

Congress is cracking down on for-profit universities that market relatively fast degrees (< 2 years) in certain vocational programs like auto mechanics.  Apparently, Congress is concerned about "vocational programs in which a large share of students don't earn enough to pay back their loans."

So Congress is worried about students paying several thousand dollars and investing 18 months of their lives for a degree that may not repay their student debts.  No word yet on whether they are looking into students who spend four years and $160,000 for Ivy League gender studies degrees, which we all know have simply enormous income-generation potential.

From San Francisco, of course.  Via Maggies Farm's great daily link roundup

If the commission approves the ordinance at its meeting tonight, San Francisco could soon have what is believed to be the country's first ban on the sale of all pets except fish.That includes dogs, cats, hamsters, mice, rats, chinchillas, guinea pigs, birds, snakes, lizards and nearly every other critter, or, as the commission calls them, companion animals.

"People buy small animals all the time as an impulse buy, don't know what they're getting into, and the animals end up at the shelter and often are euthanized," said commission Chairwoman Sally Stephens. "That's what we'd like to stop."

This is the same city that is replacing Cokes with Soy Milk in its vending machines.  Oddly, when you read the pet article, it turns out their main concern is with hamsters, that get euthanized a huge rates as people who initially think they are cute wake up one day and realize they are just irritating rodents.  One wonders then why they ban on all animals just to get at one kind.  And why are fish OK but dogs are not?

I think I blogged this the other day but I want to repeat the un-ironic comment made by a city official on the soda ban in vending machines:

"It's entirely appropriate and not at all intrusive for city government to take steps to discourage the sale of sugary sodas on city property."

One wonder if any limitation on individual choice (save perhaps on abortion) would be considered inappropriate or intrusive by these folks.

My new column is up this week at Forbes.  This week it discusses the regulatory burden on small businesses.  Here is an excerpt:

Typically taxation issues get a lot more attention than these regulatory issues in discussions of government drags on the economy. But these small regulations, licenses, and approvals consume management time, the most valuable commodity in small businesses that typically are driven by the energy and leadership of just one or two people. If getting a certain license is a tremendous hassle in California, large corporations have specialized staff they throw at the problem. When a company like ours gets that dreaded call that the County wants a soil sample from under the parking lot, odds are that the owner has to deal with it personally.

So the ultimate cost of many of these silly little regulations is that they each act as a friction that wears away a bit more available time from entrepreneurs and small business owners. The entrepreneur who has to spend two hundred hours of her personal time getting all the licenses in place for a new restaurant is unlikely to have the time to start a second location any time soon. Since small businesses typically drive most new employment growth in the United States, can it be a surprise that new hiring has slowed?

Incredibly, after the column was in the can, I experienced another perfect example of this phenomenon.

In the camping business, July 4 is the busiest day of the year.  This year, on July 3, I got a call from one of my managers saying that the County health department had tested 20 ground squirrels in the area and found one with the plague.  I know this sounds frighteningly medieval, but for those of you who live out west, you may know that some percentage of all the cute little western rodents, from prairie dogs to chipmunks, carry the plague.  Its why its a bad idea for your kids and dogs to play with them.

Anyway, in the past, we have usually been required to post warnings in the area giving safety tips to campers to avoid these animals, what to do if one is bitten, etc.  At the same time, we then begin a program of poisoning all the lairs we can find.  It's about the only time any government body anywhere lets us kill anything, because only the hardest core PETA types will swoon over rubbing out a rodent carrying the black death.

But apparently, in the past when these mitigation approaches applied, the county health department was not in a budget crunch and in need of high-profile PR stories that would reinforce with taxpayers the need to fund their organization.  This time the health department marched out and closed the campground on July 4 weekend, kicking out campers from all 70 sites.  We spent the day dealing with angry customers, refunding money, and trying to find them new lodging on a weekend where most everything was booked up.  Fortunately we have a large overflow area at a nearby campground and offered everyone a special rate over there.

It is hard to imagine that, given the whole year to test, they just suddenly happened to find a problem at one of the busiest sites in the LA area on the busiest weekend of the year, particularly since they simultaneously changed their mitigation approach from notification to closure.   I have tried hard to find the original time stamp on the press release they sent out.  I can't prove it, but it sure seemed like a lot of media had the story before we (operating the campground) had been informed of a thing.  Incredibly, the health department was directing the campers to a nearby campground that was easily close enough to our campground to share the same rodent populations.  But that campground had not had a positive plague test.  Why?  Because that campground has not been tested recently, at least according to the official who brought us the news.  We're in very good hands.

The Free Market Project wonders why the government wants to make it harder for entrepreneurs to attract investment capital.

This is the same government that has no problem with the poorest people in our society, or anyone else, playing the lottery every week, or heading to an Indian casino or Las Vegas.  For certain, they don't have an income limit on who can contribute to a political campaign, despite the fact that there is generally no pay-off for that unless you're able to contribute thousands or bundle tens or hundreds of thousands in campaign donations....

My question is this: With the transparency possible using the Internet, why aren't average citizens able to spend small amounts of money (like, lottery ticket money) on seed-money investments?  With proper transparency and protections in place, why aren't entrepreneurs allowed to put their idea online so that the average Joe (or anyone) can look at what they're doing and invest in it if they like the idea?

I have written a lot about state licensing typically being more about protecting incumbents from competition than consumer protection.  This is a story in a similar vein, where plumbers worked to stop the approval of waterless urinals because they required, well, fewer plumbers to install.  In the end, there was a compromise -- the plumbers would support waterless urinals in the code, BUT the code would also say that water still had to be piped to the urinals that don't need water.  I kid you not.

This reminds me of when railroads were switching from steam locomotives to diesel.  The switch basically obsoleted the job of the fireman, who shoveled coal and kept the fire optimized in the boiler.  Faced with extinction, the fireman's union followed a gutsy strategy -- they demanded that diesel locomotives have two firemen instead of one!  You see where this is going.  Eventually, they compromised at one, so for years, decades even, useless firemen were paid to ride around on locomotives.

Via Alex Tabarrok:

New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.

Local farming advocates says it's ridiculous to regulate a liquid with a small percentage of butter fat the same way as the now-infamous BP oil spill.

"It's just another, unnecessary over-regulation by the government just lacking any common sense," said Bill Robb, dairy educator for Michigan State University Extension...

The EPA regulations state that "milk typically contains a percentage of animal fat, which is a non-petroleum oil. Thus, containers storing milk are subject to the Oil Spill Prevention, Control and Countermeasure Program rule when they meet the applicability criteria..."

Because I take cash deposits at a number of campgrounds around the country, we have accounts with 30+ different banks.  Every few weeks one of them asks for some outrageously intrusive piece of information or paperwork.  And I ask them, what is this for, and get told that it is "a new requirement of the federal government."  I appreciate the feds have put in all kinds of new bank account controls in a misguided attempt to do something about terrorism (side bet:  most of these have more to do with the drug war than terrorism).  But in most of these cases, either my 29 other banks are breaking the law, or my bank is misguided.  Or worse, BS'ing me by falsely blaming their own information acquisitiveness on the feds.

Today I had a tiny, tiny telephone company in southern New Mexico call me to say they needed my drivers license and a utility bill from a New Mexico resident to add a phone line.  This new phone line is 1) for my corporation and 2) about the 8th account with this same phone company.  Given the area they operate, I may be their largest customer in town.  I told her I thought the requirement that a corporate officer give up his drivers license to get an extra corporate phone line was absurd, and further if they wanted a personal utility bill in New Mexico they would be waiting forever.  After being kicked up to their supervisor, I was told that they would settle for proof of my corporations federal tax ID # and a copy of my lease for the campground in question proving I was the legal occupant.  When asked why -- I mean, do they really have a problem with people paying the phone bill for locations that are not theirs -- they said it was now required by the federal government.

Really?  this sounds like BS.  Again, my 30 other phone companies would probably like to know they are breaking the law.  But who knows, maybe the feds really care.  If I had to bet, this would again be chalked up to the war on terror, but if I really could get to the bottom of it, I would find its about the drug war -- one time somewhere a drug dealer set up a phone line in an assumed name in an abandoned building and now I have to get fingerprinted and have an FBI check to get a phone line (don't laugh at the latter, one still has to get fingerprinted for every liquor license as a holdover from 80 years ago when gangs ran speakeasy's).

I already wrote on the egregious FTC proposals to begin the government takeover of journalism.  But I missed this part, via South Bend Seven, which caught my eye in their post:

Tax on broadcast spectrum. They argue "commercial radio and television broadcasters are given monopoly rights to extremely lucrative spectrum at no charge," and this is a massive public subsidy. They therefore suggest the revenues generated by that spectrum be taxed at a rate of 7 percent, which should result in a fund of between $3 and $6 billion. In exchange, commercial broadcasters would be relieved of any obligations to engage in "public-interest programming," which the broadcasters claim costs them $10 billion annually.

Much of the TV and radio spectrum was indeed "given away," in exactly the same process that the Homestead Act (and I believe the Northwest Ordinance before that) "gave away" land to Americans who were willing to develop it.  These acts gave land away to pioneers who were willing to take the risk and effort to develop what was essentially value-less land into a productive asset  (the land had potential value, but until someone tilled it and put up structures and built rail and road to it, it was worthless).  When TV and Radio broadcasters first started using the spectrum, it was worthless -- and we were even less confident in its potential value than we were of the land in the Homestead Act.  The spectrum did not have value until private broadcasters demonstrated it had value through their investment, development, and experimentation.

So is Congress next going to tell everyone who lives on homesteaded land that they received a massive public subsidy and that their land is now going to be taxed?  The current landowner would likely argue that they didn't get the land for free - they bought it for a substantial price from the previous owners, who bought if from someone else, who bought it from the original homesteader.  But the situation is no different in the broadcast spectrum.  Clear Channel did not get the spectrum for free -- it did not even exist for decades after the spectrum was homesteaded -- it paid a full market price for the spectrum it controls.

Postscript: However, I am happy to see even the leftish Obama Administration admit that public-interest programming is a questionable requirement.  Because broadcasters only make money if they broadcast things people want to see or hear, everything they do is "public-interest."  What is meant in practice by the term "public-interest" should actually be called "political-interest" programming, because this programming tends to be uninteresting to the great majority of the public (have you ever listened to the garbage at 5am on Sunday morning on radio?) but is supported by small niche groups that have disproportionate political influence.  Let's remove these requirements as stupid without holding up broadcasters for more taxes in exchange.

It is a beautiful day here, so I really don't have the time or desire right now to summarize the absolute mess that is the FTC discussion draft for the "reinvention of journalism," reinvention being a synonym apparently for government takeover.  Almost every proposal is fraught with unintended (or perhaps intended but hidden) consequences, faulty economics, and unprecedented attacks of the first amendment.  If you don't have the time to read it, I will try to summarize it next week, but just open it and scroll the bold headers with the proposals.  Its really outrageous.  Here are just some quick highlights:

• Substantial narrowing of fair use, with particular focus on how search engines and other online sites (e.g. blogs) use and/or have to pay for access to news sites
• Expansion of news copyrights on breaking news - ie certain papers will own the copyrights to certain news events if they are the first mover on it
• Increased government funding of news organizations along multiple vectors, from subsidies to guaranteed loans to income tax checkoffs to lower postal rates to Americorps programs for for journalists.
• Simultaneously reduce private funding of journalism through taxes, including a tax on advertisers
• Shift the organizational model of journalism from profit corporations (which rely on satisfying individuals to get their revenue) to non-profit organizations dependent on the government for funding
• New taxes on and licensing of the Internet.   New taxes on broadcast spectrum to subsidize print media (shifting money from media that are more hostile to the administration to print media and non-profits that are more sympathetic to the administration).

Here is the intro that was missing from the report:  "The New York Times and Newsweek can't figure out a profitable business model in the Internet age.  We propose the government step in with all means at its disposal to limit competition to these print media companies and create new government subsidies for their business.  Once their companies' profitability is absolutely dependent on these government mandates and subsidies, the Federal government will have a powerful source of leverage to protect itself from criticism in these outlets.  Once we have this situation in place, we will have a strong inventive to quash more independent outlets and maximize the market share of media companies beholden to the government.  In a large sense, our recommendations build off the success of the tobacco settlement experiment, where a few large companies agreed to pay the government large percentages of their future profits, and then the government worked diligently to quash new tobacco competitors to maximize the market share of those companies paying it settlement money."

Update: South Bend Seven makes an interesting comparison to campus newspapers.

It is pretty much a law of nature that issuers of securities hate short-selling.  They have tried for years to paint it as somehow unethical or at least unseemly, though it has always befuddled me as to why short-selling is any different than taking a long position on a security.  In both cases one is making a bet on future prices of the underlying asset, the only difference is in the direction.

But issuers of securities, whether they be corporate equities or government bonds, generally have strong personal incentives to see asset prices go up, or at least remain flat.  No CEO thinks short-selling is justified, but in fact the ability to sell short is critical to having quality pricing signals (see below for a discussion of how short-selling helps limit bubbles).

Of course, Corporate CEO's may gripe about short sellers, but they basically have to just live with them.  But governments are different.  They can actually ban what they don't like and have done so now in Germany.  What's next, a law saying that once you have bought a government security you are never allowed to sell it?

Postscript: Here is an example of how short selling reduces volatility.  First, some background

Chester Spatt, who was chief economist at the U.S. Securities and Exchange Commission from 2004 to 2007, said that Germany's short-selling ban would probably end up causing more market turbulence and not less.

"Like many types of well-intentioned regulation, this is likely to misfire," he said in an interview. "During our financial crisis in 2008, there was a ban on short-sales for about three weeks .... That ban was very counterproductive. It didn't help stabilize asset prices at all."

Here is an example of why this happens, as I discussed in an earlier post during that temporary US ban:

At the start of the bubble, a particular asset (be it an equity or a commodity like oil) is owned by a mix of people who have different expectations about future price movements.  For whatever reasons, in a bubble, a subset of the market develops rapidly rising expectations about the value of the asset.  They start buying the asset, and the price starts rising.  As the price rises, and these bulls buy in, folks who owned the asset previously and are less bullish about the future will sell to the new buyers.  The very fact of the rising price of the asset from this buying reinforces the bulls' feeling that the sky is the limit for prices, and bulls buy in even more.

Let's fast forward to a point where the price has risen to some stratospheric levels vs. the previous pricing as well as historical norms or ratios.  The ownership base for the asset is now disproportionately made up of those sky-is-the-limit bulls, while everyone who thought these guys were overly optimistic and a bit wonky have sold out. 99.9% of the world now thinks the asset is grossly overvalued.  But how does it come to earth?  After all, the only way the price can drop is if some owners sell [remember, we are discussing a world where naked shorting is banned], and all the owners are super-bulls who are unlikely to do so.  As a result, the bubble might continue and grow long after most of the world has seen the insanity of it.

Thus, we have short-selling.  Short-selling allows the other 99.9% who are not owners to sell part of the asset anyway, casting their financial vote for the value of the company.  Short-selling shortens bubbles, hastens the reckoning, and in the process generally reduces the wreckage on the back end.

Without short-selling, the only folks involved in the price-discovery process are those who have self-selected as being more bullish than average.  Short-selling vastly broadens the number of people, and thus the perspectives and information, involved in the pricing process.

I think "cargo cult" is a great moniker for this kind of regulation.  The price of European bonds are declining as lots of people sell?  Then lets ban selling, that will take care of the problem.   Just ignore that large government deficit behind the curtain.

John Stossel has this chart to clearly define the power that is OSHA regulation:

Wow, that sure makes a big difference.  Which confirms my experience as a business owner.  Financial incentives like workers comp rates are a FAR more powerful force, at least in my business, to root our safety issues than the arcane and bureaucratic mandates that flow out of OSHA.

This is one of the better simple explanations of both the appeal and hidden risk of CDO's. The example, which is short and is worth working through, ends this way:

Suppose that we misspecified the underlying probability of mortgage default and we later discover the true probability is not .05 but .06.  In terms of our original mortgages the true default rate is 20 percent higher than we thought--not good but not deadly either.  However, with this small error, the probability of default in the 10 tranche jumps from p=.0282 to p=.0775, a 175% increase.  Moreover, the probability of default of the CDO jumps from p=.0005 to p=.247, a 45,000% increase!

The dark magic of structured finance conjured many low-risk securities out of many risky securities.  Like all dark magic, however, the conjuring came at a price because if you didn't get the spell exactly correct it was easy to create something much more risky and dangerous than you were likely to have ever imagined.

As an ex-engineer who used to do a lot of operations analysis as well as post-disaster failure analysis, this shares a central theme that I have found in many such failures -- people tend to overestimate their own knowledge.

Coming in to a class at HBS, the professor had us all do a 20 question survey.  It asked us questions like "what is the population of Argentina" and then asked us to give the lowest and highest number we thought it would be such that the answer had a 95% chance of being in that range.  Based on this, only one of our 20 answers should have been out of my limits.  About eight of the answers were out of my ranges.  It was a really good lesson in overestimating one's knowledge.

Which leaves me with a thought -- if we define a large part of the problem as overestimating our understanding of a certain phenomenon, from your observation of the Obama administration and its personalities, what gives you any confidence that a new lager of government regulators will solve this problem?

Via the WSJ

A federal appeals court ruled last month that the Federal Communications Commission lacks the authority to regulate the Internet. No worries, mate. This week the Obama Administration chose to "reclassify" the Internet so it can regulate the Web anyway. This crowd is nothing if not legally creative.

For the past decade, broadband has been classified as an "information service" and thus more lightly regulated than traditional telephone services. This has led to an explosion of new investment and Web innovation, but it hasn't sat well with Democrats who want more control over the telecom business, as well as with some Web companies (Google) that want more leverage over Internet service providers like Time Warner or Verizon.

FCC Chairman Julius Genachowski did their dirty work this week by announcing that he plans to reclassify broadband lines so his agency can regulate them under rules that were written for Ma Bell in the 1930s. This means subjecting the Internet to new political supervision"”from the federal government and 50 state public utility commissions. The goal is to put one more industry under Washington's political thumb.