It is safe now to say that "Web 2.0" is dead. The evidence is irrefutable and it exposes the twin fallacies the concept of Web 2.0 has depended upon: 1) that people can build their worlds around - indeed, will want to build their worlds around - social networking; and 2) that social networking offers a viable, massively scalable business model.
Let's begin with Facebook, the most popular social networking website in the world. With more than 120 million members, and 60 billion monthly page views, the website is expanding at a white-hot rate. At any given time, students are facebooking each other around the world - in more than 30 languages (with user-created translated editions of the site) - thousands of time per second. While not yet profitable, Facebook has achieved in only four years the signifier of a premium brand - it is now a verb.
A recipient of almost $350 million in equity funding (and another $240 million in debt funding), Facebook charmed the technocracy in 2007 when Microsoft purchased a 1.6 percent stake for $246 million, valuing the company at more than $15 billion. Now, as we close the books on 2008, one might wonder if Facebook is actually worth anything.
The company has grown rapidly by any measure, with estimated 2008 revenues of nearly $300 million. From zero to $300 million in four years is nothing to sneeze at. But the company is burning through cash much more quickly than it can replenish its coffers. Its electricity, bandwidth, data storage, and personnel costs are immense. The company needs to buy 50,000 servers alone in 2008 and 2009 to manage its traffic and storage needs.
At the same time, the economy - and advertising rates for banner ads - have fallen off a cliff. Facebook has grown overly dependent on international growth - with 3 out of 4 users from outside the United States. Foreign use is expensive to support and generates little revenue. And so the rumor mill churns with stories of the company's financial quandary. Will Facebook run out of cash? Has it grown too large for US corporations, private equity funds, and venture funds to finance? Can it go public? Why is Facebook CFO Gideon Yu in Dubai? Is a sovereign wealth fund the only cash option for Facebook at this point? Is Facebook itself staring into the gun barrel of the largest financing down-round in history?
Facebook's problem is not simply that it cannot grow revenues rapidly enough. Facebook confronts the challenge that aggrieves any social network creating a virtual reality for building and sustaining human relationships. That challenge is Burnout, the acrid smell of neurons frying, and eventually a longing to return to the wholeness of the physical world.
Some examples. My 17-year old son uses Facebook 2-3 hours a day, switching back and forth between FB, ESPN, YouTube, Gmail, Google Docs, and iTunes with the smooth, liquid lightning of a boy who has manipulated game controllers for more than a decade. He loves Facebook. He depends on it for a vast amount of communication, self-expression, entertainment, and bonding with his peers. But I asked him if he would be willing to pay any amount of money for an annual subscription to Facebook. He paused, and then finally said, "I dunno. Maybe $50. Max."
Kids are turning off to Facebook. Two of my son's friends have deactivated their accounts. They realized that they had too many "friends" whom they did not actually know. They found themselves clicking aimlessly from page to page for too many hours at a time. They got bored. They missed books and movies and the peaceful white space in their lives that Facebook (not to mention MySpace) is so bent on filling in with user-generated "content".
They grew up.
And one day, my son will, too. As Facebook has percolated down to kids in high school (and now even to middle school) and bubbled up to parents who are now themselves "friends" with the friends of their children and spread to every corner of the globe, it has become less exclusive, less interesting, more overwhelming, and ultimately more annoying.
The problem with Facebook is that it feeds on trivia, and in the process has become trivial itself.
What, in the end, will people pay for trivia? Very little. At my behest, my son polled his friends and asked them what they would pay for an annual subscription to Facebook. He asked 9 boys and 6 girls. Remember, these are high school juniors and seniors, the sweet spot of the Facebook market. In this sample, 5 kids said they would not pay anything. Another 6 said they would not pay more than a dollar a month. The most anyone would say Facebook was worth to them was $50 annually. Wanting, as always, to fit in, my son reduced his own payment limit to $25 as he reported these results.
This creates a major problem for Facebook, and for other Web 2.0 social networks. The problem is commitment. Facebook has created loyalty without value, quanitity that drowns quality. Who can say that MySpace or adult versions of Facebook such as Linked In are any different?
During the election, the addictive and massively popular political site, Pollster.com, disabled its comments feature. Mark Blumenthal simply could no longer accept the assault of abusive, insulting, and profane comments of anonymous posters to the website. And this is the problem with Web 2.0. There is no filter for quality. Websites built around or dependent upon user-generated content all too often resemble online versions of talk radio.
Web 2.0 will die. The universal social networks that are its public face cannot survive because they cannot propagate a sustainable user base willing to pay for its services. Remember America Online? Netscape killed it (and so AOL killed Netscape). Facebook is nothing more than a new version of America Online, with lots of calories but not much nutrition.
If Web 2.0 dies, it will nonetheless leave a remarkable legacy. Social information and knowledge sharing technologies such as those one finds on Wikipedia, Amazon, Flickr, and even the New York Times website are incredibly efficient ways to harvest useful opinion and knowledge. Product reviews on Amazon pool valuable user experiences with specific products (although typically not with books, where Amazon book reviews can suffer from the same oversaturation as Facebook - consider this reflection on the mixed reception from Amazon readers of Jonthan Franzen's best-selling literary novel, The Corrections).
Flickr lets anyone travel the world while sitting in bed with a laptop computer (want to see 666,000 photos of Iceland?). And Manhola Dargis's November 21 review of the creepily chaste vampire movie, Twilight, elicited more than 1,000 reader responses when she solicited their opinions about the scariest movie of all time.
The lesson is clear. Social information and communication requires targeted aim, meaningful purpose, and self-correcting standards of quality. Universal social networks such as Facebook, almost by definition, cannot maintain this focus. For this reason, they cannot survive in their current form.
Monday, December 8, 2008
Mortgage Re-Default Rates. Be Scared. Be Very Scared.
Comptroller of the Currency John C. Dugan spoke before the 3rd Annual National Housing Forum of the Treasury's Office of Thrift Supervision today. He didn't waste any time getting to the point.
Dugan provided the bad news first. The third quarter OCC Mortgage Metrics report - on mortgages serviced by the largest banks and thrifts - reinforces the unnerving trends we already know about: declining credit quality, increasing delinquencies (especially for prime mortgages), increased foreclosures, and accelerating foreclosure sales.
And then he provided the badder news.
For the first time, the OCC tracked "re-default rates", the percentage of borrowers who re-defaulted on their mortgages following restructuring or other modifications designed to allow them to retain possession and ownership of their homes. The data is not pretty.
Consider the first quarter of 2008. After three months, 36 percent of borrowers with mortgages modified in this quarter had re-defaulted (with payments more than 30 days past due). At six months, this re-default rate had risen to 53 percent. And after eight months, it had reached 58 percent. The data is almost identical for mortgages modified in the second quarter of 2008. For those arguing that 60 days past due is a better predictor of ultimate default and foreclosure, the numbers are hardly better, with re-defaults in excess of 35 percent after six months.
Dugan asks the right questions about the cause of these high re-default rates, but admits the OCC - and probably no one else - yet has any answers. The deep structure to this problem may lie with the vicious cycle into which the housing credit meltdown has spun the nation - with rising unemployment, loss of health insurance, mounting credit claims, and an underlying psyche of despair - limiting the positive scope of simply restructuring mortgages to make them more "affordable".
Part of the problem, of course, is also that lame ducks can only quack. They cannot walk. We will need to await the launch of the Obama Administration and the policies of incoming Treasury Secretary Timothy Geithner to see what impact a more mobile, systematic, and full-bore attack on this complex set of economic problems can achieve. Reversing the rising rate of unemployment via stimulus may be the key. Until then, our response can only be one of shock and awe.
Dugan provided the bad news first. The third quarter OCC Mortgage Metrics report - on mortgages serviced by the largest banks and thrifts - reinforces the unnerving trends we already know about: declining credit quality, increasing delinquencies (especially for prime mortgages), increased foreclosures, and accelerating foreclosure sales.
And then he provided the badder news.
For the first time, the OCC tracked "re-default rates", the percentage of borrowers who re-defaulted on their mortgages following restructuring or other modifications designed to allow them to retain possession and ownership of their homes. The data is not pretty.
Consider the first quarter of 2008. After three months, 36 percent of borrowers with mortgages modified in this quarter had re-defaulted (with payments more than 30 days past due). At six months, this re-default rate had risen to 53 percent. And after eight months, it had reached 58 percent. The data is almost identical for mortgages modified in the second quarter of 2008. For those arguing that 60 days past due is a better predictor of ultimate default and foreclosure, the numbers are hardly better, with re-defaults in excess of 35 percent after six months.
Dugan asks the right questions about the cause of these high re-default rates, but admits the OCC - and probably no one else - yet has any answers. The deep structure to this problem may lie with the vicious cycle into which the housing credit meltdown has spun the nation - with rising unemployment, loss of health insurance, mounting credit claims, and an underlying psyche of despair - limiting the positive scope of simply restructuring mortgages to make them more "affordable".
Part of the problem, of course, is also that lame ducks can only quack. They cannot walk. We will need to await the launch of the Obama Administration and the policies of incoming Treasury Secretary Timothy Geithner to see what impact a more mobile, systematic, and full-bore attack on this complex set of economic problems can achieve. Reversing the rising rate of unemployment via stimulus may be the key. Until then, our response can only be one of shock and awe.
Friday, November 21, 2008
His Keyboard versus the Climate
Eric de Place published a fabulous post in Sightline on November 20 entitled "My Keyboard Versus the Climate". In the spirit of Think Globally, Act Locally, Eric points out that the handy little air blasters from Office Depot that we use to clean our keyboards and spray down the pants of our co-workers are miniature greenhouse gas bombs. Emptying one of the canisters onto a co-worker can release greenhouse gas equivalent to driving a smallish car across the country and halfway back again.
The fiendish chemical used in air blasters is tetrafluoroethane, a hydrofluorocarbon (HFC) developed to avoid the ozone-depleting effects of chlorofluorocarbons, the more traditional referigerant and propellant chemical compounds. So air blaster fans may notice that canisters advertise that they are "ozone safe", without equivalent disclosure that they are "greenhouse-gas castrophic". HFCs can be up to 20,000 times more powerful in their effects on global warming than a similar amount of carbon dioxide, with an atmospheric lifetime of 260 years, and have been targeted for elimination by the Kyoto Protocol.
Many economically developed nations - Australia and European nations, but not the United States or Japan - have initiated efforts to substitute use of compressed CO2 (believe it or not) for HFCs in refrigerant and propellant applications. Other Asian nations - notably Thailand - have also begun to use CO2 as refrigerant. However, China has long been gaming the carbon trading rules under the Kyoto Protocol, amassing billions of dollars of carbon credits by catching and destroying HFCs they have needlessly produced.
Greenpeace has been at the forefront of efforts to curb use of destructive refrigerant and propellant chemicals through its Greenfreeze effort. By 2004, this initiative had led some major multinational corporations, such as McDonalds, Coca-Cola, and Unilever, to incorporate more environmentally friendly refrigerants into their operations. However, the United States and Japan, along with China, have remained obstacles to reform. The U.S. Environmental Protection Agency, the Japanese Ministry of Economy, Trade, and Industry, and industry stalwarts such as Honeywell, DuPont, Ford, General Motors, Fujitsu, and Hitachi all oppose regulation.
The Alliance for Atmospheric Policy is the major trade group representing manufacturers and consumers of HFCs. Their focus is on gas containment and recovery based on voluntary industry efforts, rather than regulations limiting or banning manufacture altogether. Critics suggest that containment and recovery efforts are failing, with HFC leakage rates from automotive air conditioning approaching 30 percent.
So - throw out those cool little air blasters. In the Obama era, these will be as cool as a fist bump in Wasilla.
Since I publish for the Huffington Post, I also need to mention that huffing air blasters - which apparently some kids do - is a deadly game. Manufacturers now add a "bitterant" to discourage huffing, something Matt Drudge may consider doing to the Huffington Post.
The fiendish chemical used in air blasters is tetrafluoroethane, a hydrofluorocarbon (HFC) developed to avoid the ozone-depleting effects of chlorofluorocarbons, the more traditional referigerant and propellant chemical compounds. So air blaster fans may notice that canisters advertise that they are "ozone safe", without equivalent disclosure that they are "greenhouse-gas castrophic". HFCs can be up to 20,000 times more powerful in their effects on global warming than a similar amount of carbon dioxide, with an atmospheric lifetime of 260 years, and have been targeted for elimination by the Kyoto Protocol.
Many economically developed nations - Australia and European nations, but not the United States or Japan - have initiated efforts to substitute use of compressed CO2 (believe it or not) for HFCs in refrigerant and propellant applications. Other Asian nations - notably Thailand - have also begun to use CO2 as refrigerant. However, China has long been gaming the carbon trading rules under the Kyoto Protocol, amassing billions of dollars of carbon credits by catching and destroying HFCs they have needlessly produced.
Greenpeace has been at the forefront of efforts to curb use of destructive refrigerant and propellant chemicals through its Greenfreeze effort. By 2004, this initiative had led some major multinational corporations, such as McDonalds, Coca-Cola, and Unilever, to incorporate more environmentally friendly refrigerants into their operations. However, the United States and Japan, along with China, have remained obstacles to reform. The U.S. Environmental Protection Agency, the Japanese Ministry of Economy, Trade, and Industry, and industry stalwarts such as Honeywell, DuPont, Ford, General Motors, Fujitsu, and Hitachi all oppose regulation.
The Alliance for Atmospheric Policy is the major trade group representing manufacturers and consumers of HFCs. Their focus is on gas containment and recovery based on voluntary industry efforts, rather than regulations limiting or banning manufacture altogether. Critics suggest that containment and recovery efforts are failing, with HFC leakage rates from automotive air conditioning approaching 30 percent.
So - throw out those cool little air blasters. In the Obama era, these will be as cool as a fist bump in Wasilla.
Since I publish for the Huffington Post, I also need to mention that huffing air blasters - which apparently some kids do - is a deadly game. Manufacturers now add a "bitterant" to discourage huffing, something Matt Drudge may consider doing to the Huffington Post.
Wednesday, November 19, 2008
Risking Our Best Talent? Send Them All to Double-A Birmingham!
Serial entrepreneur Penny Hersher worries about a talent-retention challenge if Wall Street eschews bonuses this year. In response to a Bloomberg article on public objections to mega-bonus payouts to Wall Street executives, Hersher says that "talent" follows money, and if the money goes, then the "talent" that financial institutions need to flourish will likewise disappear. OMG, she writes! "Our best deal-makers will go where the money is and that better be in the Untied States and at the institutions that make our financial systems work."
Excuse me? "Make our financial systems work?" The compensation structure on Wall Street is the major reason our financial systems don't work!
Hersher assumes that without proper compensation an active, dynamic, international labor market will lure away an impressive cadre of Wall Street talent that has for years juiced revenue and earnings precisely so it can inflate its year-end bonuses. But this market has collapsed. To what new suckling breast will the securitizers and traders and analysts flee as markets and banks crumble around the world? And in the new world of highly regulated bank holding companies that will emerge from this wreckage, who will want their skills, their rancid flesh aboiling with the mortal sins of gluttony, avarice, fraud, theft, and cheating.
But that labor market reality is a trifle. No one suffering in middle America - because they have lost their job, cannot afford health care for their children, cannot make payments on their homes, cannot send their children to college, or cannot pay taxes to fund public schools, pave roads, and pay for police protection - believes that our most urgent need at this moment in time (or any moment in time) is to dispense obscenely outsized bonuses to Wall Street plunderers and pirates.
For this reason, the deep and abiding issue is whether Hersher is correct in her belief that money alone motivates talented people. Let's push her vague definition of "talent" aside for the moment so we can be very clear. There is a huge amount at stake in the validity of Hersher's belief, because the entire Wall Street economy has for years rested upon its shaky, misbegotten foundations.
There are three problems with the "talent follows money" equation. The first is the assumption that organizations are simply collections of self-seeking individuals. The second is that idea that the most talented people will invariably follow the money (as opposed to merely the greediest people). The third problem is the belief, prima facie, that because someone has been paid a lot in the past, they deserve even more in the future.
Let's attack all three problems at once by looking at everyone's favorite behavioral laboratory - major league baseball! In 1989, Michael Lewis published Liar's Poker, in which he nailed the go-go years on Wall Street in their infancy. Fifteen years later, he published Moneyball, which cracked open the science of sabermetrics, but which even more profoundly laid bare the truth about the delicate relationship between talent and money. Moneyball is a filigreed, layered sequel to Liar's Poker, justly regarded not simply as one of the better baseball books of all time, but as one of the most interesting depictions of organizational and managerial behavior ever written.
What we know about major league baseball, from watching the Yankees implode year after year, is that compensation often rewards past performance, but does not predict future performance. In 2008, with a payroll of $43 million, the Tampa Bay Rays won 97 games while the Yankees, with a payroll of $207 million, won only 89 games. The best general managers in baseball, starting with Oakland's Billy Beane, know that success is about creating highly functioning, cohesive organizations out of 25 gifted, competitive, volatile, young athletes ever at risk of being led astray - as Honest John leads Pinnochio astray - by temptation (here, substitute Scott Boras for Honest John).
What young general managers around the league have grasped, partly with the guidance of sabermetrics, but just as surely with insights about human behavior, is that talent is not static. Talent is developed. Teams take advantage of developing individual talent tactically and situationally A player who performs well in a National League park favoring left-handed hitters may lose 50 points in his average in an American League park favoring right-handed hitters.
Moreover, talent ripens like a fruit. In an expensive labor market, one wants to pay while the fruit is still green and mysterious, take advantage of its ripening, and then discard it at the peak of of its freshness, preferably for new fruit that is newly awakening to its own promise. How often have we seen players such as hypo-performing slugger Richie Sexson take advantage of favorable circumstances to post outrageous numbers, sign an equally outrageous contract on the free agent market, and then implode? Sexson received nearly $16 million from the Mariners in 2008 to bat .218 and hit 11 home runs.
In reality, the "best" players are the ones that help a team win. They may not be, and in fact likely will not be, the most expensive players on the market. They are the ones with "upside", the ones with passion, the ones who want to grow and learn, the ones who understand that if the team wins, the individual rewards will follow. The money is not unimportant to these players, but they possess the capacity to absorb the financial incentives within a larger and more complex array of motivations that are primarily non-monetary. Who, with a straight face, can claim that Wall Street plays by these rules, and that the rules by which Wall Street instead does play have truly served well both its institutions and its far-flung web of dependents?
Excuse me? "Make our financial systems work?" The compensation structure on Wall Street is the major reason our financial systems don't work!
Hersher assumes that without proper compensation an active, dynamic, international labor market will lure away an impressive cadre of Wall Street talent that has for years juiced revenue and earnings precisely so it can inflate its year-end bonuses. But this market has collapsed. To what new suckling breast will the securitizers and traders and analysts flee as markets and banks crumble around the world? And in the new world of highly regulated bank holding companies that will emerge from this wreckage, who will want their skills, their rancid flesh aboiling with the mortal sins of gluttony, avarice, fraud, theft, and cheating.
But that labor market reality is a trifle. No one suffering in middle America - because they have lost their job, cannot afford health care for their children, cannot make payments on their homes, cannot send their children to college, or cannot pay taxes to fund public schools, pave roads, and pay for police protection - believes that our most urgent need at this moment in time (or any moment in time) is to dispense obscenely outsized bonuses to Wall Street plunderers and pirates.
For this reason, the deep and abiding issue is whether Hersher is correct in her belief that money alone motivates talented people. Let's push her vague definition of "talent" aside for the moment so we can be very clear. There is a huge amount at stake in the validity of Hersher's belief, because the entire Wall Street economy has for years rested upon its shaky, misbegotten foundations.
There are three problems with the "talent follows money" equation. The first is the assumption that organizations are simply collections of self-seeking individuals. The second is that idea that the most talented people will invariably follow the money (as opposed to merely the greediest people). The third problem is the belief, prima facie, that because someone has been paid a lot in the past, they deserve even more in the future.
Let's attack all three problems at once by looking at everyone's favorite behavioral laboratory - major league baseball! In 1989, Michael Lewis published Liar's Poker, in which he nailed the go-go years on Wall Street in their infancy. Fifteen years later, he published Moneyball, which cracked open the science of sabermetrics, but which even more profoundly laid bare the truth about the delicate relationship between talent and money. Moneyball is a filigreed, layered sequel to Liar's Poker, justly regarded not simply as one of the better baseball books of all time, but as one of the most interesting depictions of organizational and managerial behavior ever written.
What we know about major league baseball, from watching the Yankees implode year after year, is that compensation often rewards past performance, but does not predict future performance. In 2008, with a payroll of $43 million, the Tampa Bay Rays won 97 games while the Yankees, with a payroll of $207 million, won only 89 games. The best general managers in baseball, starting with Oakland's Billy Beane, know that success is about creating highly functioning, cohesive organizations out of 25 gifted, competitive, volatile, young athletes ever at risk of being led astray - as Honest John leads Pinnochio astray - by temptation (here, substitute Scott Boras for Honest John).
What young general managers around the league have grasped, partly with the guidance of sabermetrics, but just as surely with insights about human behavior, is that talent is not static. Talent is developed. Teams take advantage of developing individual talent tactically and situationally A player who performs well in a National League park favoring left-handed hitters may lose 50 points in his average in an American League park favoring right-handed hitters.
Moreover, talent ripens like a fruit. In an expensive labor market, one wants to pay while the fruit is still green and mysterious, take advantage of its ripening, and then discard it at the peak of of its freshness, preferably for new fruit that is newly awakening to its own promise. How often have we seen players such as hypo-performing slugger Richie Sexson take advantage of favorable circumstances to post outrageous numbers, sign an equally outrageous contract on the free agent market, and then implode? Sexson received nearly $16 million from the Mariners in 2008 to bat .218 and hit 11 home runs.
In reality, the "best" players are the ones that help a team win. They may not be, and in fact likely will not be, the most expensive players on the market. They are the ones with "upside", the ones with passion, the ones who want to grow and learn, the ones who understand that if the team wins, the individual rewards will follow. The money is not unimportant to these players, but they possess the capacity to absorb the financial incentives within a larger and more complex array of motivations that are primarily non-monetary. Who, with a straight face, can claim that Wall Street plays by these rules, and that the rules by which Wall Street instead does play have truly served well both its institutions and its far-flung web of dependents?
Tuesday, November 11, 2008
Why I Don't Like Economists
Actually, I do like economists. One of my long-time friends is Jeff Frankel, who teaches economics at the Kennedy School of Government at Harvard and who served on President Clinton's Council of Economic Advisers. I rented a room at Jeff's house in Berkeley 25 years ago, when he was a young professor and I was an even younger graduate student. There I was able to meet many famous economists, including future Treasury Secretary and Harvard President Larry Summers and future Nobel Prize winner George Akerlof.
At Knowledge Mosaic, one of my jobs is to publish the Securities Mosaic Blogwatch, which includes licensed content from more than 25 of the leading legal and financial bloggers in the country. Among them, I count a number of professors from the Law and Economics movement, lawyers with a background in economics (some, such as Josh Wright, a rising star at George Mason University, have both a law degree and a PhD in economics).
They're all great guys, smart and amusing and passionate about their work. So what's not to like about economists? In a word, hubris. Economists fly too close to the sun of science. Their wings melt.
Consider Greg Mankiw, the famed Harvard economist and CEA chair under President G.W. Bush, now author of a popular blog. On November 5, he printed a table ranking GRE scores by graduate field, with graduate students in physics, mathematics, and computer science alone ranking higher than economics. Political science, sociology, and psychology trailed far behind, in 17th, 23rd, and 24th place, respectively.
Mankiw titled this post, "Larry, Vindicated," a reference to a conversation in which then-Harvard president Larry Summers asked Peter Ellison, a professor of biological anthropology, whether he didn't "agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” In his subsequent recommendation that Summer resign, Ellison condemned the "intellectual arrogance" of Summers' question and emphasized the generally polarizing and demoralizing impact of his attitudes on the Harvard faculty.
For now, let's not even consider that Mankiw's post, with its sneer of "neener-neener", is remarkably juvenile and significantly beneath his professional station. The underlying logic of the post itself - that economists are "smarter" and therefore more "worthy" than other social scientists - is silly. Mankiw adopts a similarly patronizing (and silly) tone in his November 8 "Memo to the POTUS-Elect," which tosses out recommendations that Obama listen to his economists on various and sundry matters, like garnishes upon a wilted bed of lettuce.
The contempt of economists for other social science disciplines is legendary, associated with their view that economists practice "real" science while political scientists and sociologists and psychologists practice, at best, a kind of crude guessing game. As someone who holds a PhD in political science, far be it from me to defend that discipline, or to claim that it in any way resembles the natural science disciplines. I plead guilty to the crude guessing game charge.
The problem with economists is that they possess no similarly ironic distance from their own discipline. The mathematical orientation of modern economics is the foundation of the view within the discipline that they practice real science. In truth, this resemblance constitutes a false positive (reinforced by the false Nobel Prize the Bank of Sweden awards to an economist each year).
In the GRE table, economists rank 8th in quantitative skills and 4th in analytical reasoning. However, mathematical, logical, and reasoning aptitudes alone do not translate into wisdom, judgment, or intelligence. Financial engineering systems failed to successfully model risk, for example, because they did not accurately assess the behavioral dimension of risk, the "hierarchies of belief" that underpin human preference-ranking and decision-making.
In retrospect, of course, many economists have analyzed and criticized the failure of these models, and more specifically, the failure of the analysts who misused these models. Some have belatedly acquired the religion of regulation. Save James Galbraith, however (who believes the financial meltdown constitutes "an enormous blot on the reputation of the profession"), economists themselves, have not used this misapplication of mathematical modeling as a teaching opportunity for their own discipline.
By the way, if one looks more closely once more at the scores in the GRE table, economics ranks only 10th in the verbal component, behind philosophy, English language and literature, history, religion and theology, art history, anthropology and archeology, physics, political science, and earth sciences. Neener-neener, indeed.
At Knowledge Mosaic, one of my jobs is to publish the Securities Mosaic Blogwatch, which includes licensed content from more than 25 of the leading legal and financial bloggers in the country. Among them, I count a number of professors from the Law and Economics movement, lawyers with a background in economics (some, such as Josh Wright, a rising star at George Mason University, have both a law degree and a PhD in economics).
They're all great guys, smart and amusing and passionate about their work. So what's not to like about economists? In a word, hubris. Economists fly too close to the sun of science. Their wings melt.
Consider Greg Mankiw, the famed Harvard economist and CEA chair under President G.W. Bush, now author of a popular blog. On November 5, he printed a table ranking GRE scores by graduate field, with graduate students in physics, mathematics, and computer science alone ranking higher than economics. Political science, sociology, and psychology trailed far behind, in 17th, 23rd, and 24th place, respectively.
Mankiw titled this post, "Larry, Vindicated," a reference to a conversation in which then-Harvard president Larry Summers asked Peter Ellison, a professor of biological anthropology, whether he didn't "agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” In his subsequent recommendation that Summer resign, Ellison condemned the "intellectual arrogance" of Summers' question and emphasized the generally polarizing and demoralizing impact of his attitudes on the Harvard faculty.
For now, let's not even consider that Mankiw's post, with its sneer of "neener-neener", is remarkably juvenile and significantly beneath his professional station. The underlying logic of the post itself - that economists are "smarter" and therefore more "worthy" than other social scientists - is silly. Mankiw adopts a similarly patronizing (and silly) tone in his November 8 "Memo to the POTUS-Elect," which tosses out recommendations that Obama listen to his economists on various and sundry matters, like garnishes upon a wilted bed of lettuce.
The contempt of economists for other social science disciplines is legendary, associated with their view that economists practice "real" science while political scientists and sociologists and psychologists practice, at best, a kind of crude guessing game. As someone who holds a PhD in political science, far be it from me to defend that discipline, or to claim that it in any way resembles the natural science disciplines. I plead guilty to the crude guessing game charge.
The problem with economists is that they possess no similarly ironic distance from their own discipline. The mathematical orientation of modern economics is the foundation of the view within the discipline that they practice real science. In truth, this resemblance constitutes a false positive (reinforced by the false Nobel Prize the Bank of Sweden awards to an economist each year).
In the GRE table, economists rank 8th in quantitative skills and 4th in analytical reasoning. However, mathematical, logical, and reasoning aptitudes alone do not translate into wisdom, judgment, or intelligence. Financial engineering systems failed to successfully model risk, for example, because they did not accurately assess the behavioral dimension of risk, the "hierarchies of belief" that underpin human preference-ranking and decision-making.
In retrospect, of course, many economists have analyzed and criticized the failure of these models, and more specifically, the failure of the analysts who misused these models. Some have belatedly acquired the religion of regulation. Save James Galbraith, however (who believes the financial meltdown constitutes "an enormous blot on the reputation of the profession"), economists themselves, have not used this misapplication of mathematical modeling as a teaching opportunity for their own discipline.
By the way, if one looks more closely once more at the scores in the GRE table, economics ranks only 10th in the verbal component, behind philosophy, English language and literature, history, religion and theology, art history, anthropology and archeology, physics, political science, and earth sciences. Neener-neener, indeed.
Monday, November 10, 2008
Obama's Biggest Challenge: Foreign Policy Revanchism
I run a small technology company in Seattle, and will normally focus my HuffPosts on business, culture, and technology. As we absorb the meaning of Barack Obama's election, however, I cannot help but launch my inaugural post with some thoughts on his biggest challenge as president: which will be facing down the coming assault from the revanchist, hard-right base of the Republican Party.
Swept from power and nursing deep wounds, loosened from the responsibility of governing and free to attack without any consideration for coalition-building or compromise, the surviving Republican members of Congress, in alliance with their media allies and their geographically insulated bases of support in the nether regions of the nation, will do their best to make Obama's life miserable. And let's not fool ourselves. The politics of falsely righteous Republican anger and contempt we witnessed throughout the presidential campaign will increase in intensity in 2009.
The Republican base is like a three-legged stool, drawing support from social (values-driven) conservatives; economic (free-market) libertarians; and militaristic (nationalistic) neoconservatives. Let's focus on the foreign policy neocons, those who led us down the bloody road to Iraq and who, like Sauron separated from his ring of power, will seek with great urgency to undermine and weaken those who stand between them and a return to the uniliteralism of a hegemonic power.
Obama's foreign policy will begin with the assumption of a multilateral global arena in which the United States plays a leadership role based on alliances and diplomacy. Hardened, cynical views of international relationships - in China, Russia, Iran, and Venezuela, to name four examples - will challenge Obama's commitment to multilateral diplomacy. Nonetheless, in dealing with foreign leaders, Obama will have two assets on which to draw: his personal charm - which is so important in cultivating trusted relationships among leaders - and a willingness to leverage the influence of other countries, in Asia, Europe and elsewhere, in achieving tangible policy victories with respect to nuclear proliferation, global warming, and Islamic radicalism.
Obama's major challenges therefore will not come from abroad, but from home, where a steady drumbeat of revanchist criticism from the right, and blasted through media organs such as Fox News and the Wall Street Journal editorial page, as well as from Congressional firebrands in the Republican Party, will make his path from a military-first doctrine to a diplomacy-first approach like dancing across a bed of hot coals.
For now, Obama can bask in the glow of admiration from right-wing pundits such as William Kristol, George Will and Charles Krauthammer who respect his intelligence and political skills. For a sample of the savaging he can expect to receive in the days following his inauguration, we might do better to sample Daniel Henninger in the editorial pages of the Wall Street Journal, Oliver North on Fox News, and John Bolton at the American Enterprise Institute.
Neoconservatives voice an ideology based on two self-reinforcing principles. The first is their belief in American exceptionalism, the idea that the United States is not "like" other nations, that we are superior by virtue of our history and our values. The second is that with the end of the Cold War, the world will plunge into chaos without strong, active directives from the United States. Let's be clear. Directives are not leadership. They are more like military orders, in this case supported by the global projection of American military power throughout the world.
As Chalmers Johnson observed presciently in Blowback, first published in 2000, the territorial projection of US military power - with more than 700 US military installations housing nearly one million troops, dependants, contractors, spies, in more than 130 other nations around the world - creates local resentments and reinforces the self-fulfilling prophecy of "enemies at our doorstep." The obvious costs of these deployments aside - both financial and political - we are dancing with the the Devil for more troubling reasons that Obama may only with difficulty be able to address.
The policy of force projection and maintenance of a global military infrastructure depends upon: 1) a web of payments and quid pro quos with non-elected leaders of other nations; 2) a commitment to secrecy and the absence of meaningful oversight and transparency; and 3) a reliance upon covert activity, spying, secret missions, and subterfuge (note revelations of the order permitting secret raids on Al-Qaeda around the globe, in nations such as Pakistan, Syria, and Somalia).
We need a foreign policy for the 21st century. Obama's success in transforming US foreign policy into a tool of constructive, meaningful engagement with other nations depends upon his ability to rebuild shattered relationships upon a new foundation of open communication, outreach, trust, and accountability. To build a foreign policy for the 21st century, Obama can draw upon the success and methods of his own political campaign, which used new technologies and means of communication already widespread around the world to reach and speak directly to individual Americans.
The problem Obama will face is in dismantling the structural outposts of our dated 20th century foreign policy driven by the strategy of force projection and a global military infrastructure. Our economy in great measure depend on this stimulus - let's call it "military welfare". Our concept of national security - both psychological and physical - also depends upon this policy, with its insinuating values of strength and of a proactive, global state of military readiness to address threats that by definition this policy frames as "us" against "them".
Let's be absolutely clear. Obama will need to draw upon all the reassuring calm he inspires to shift our sense of the world from one in which threat predominates to one in which opportunities for constructive relationships abound. He must adopt his superhero identity of Ocalma and resist what will surely be a strong impulse from White House advisers and Congressional allies to not appear "weak" when tested, not simply by foreign foes but by shrieking adversaries from the Republican right. Above all, he must work, slowly perhaps, but also steadily and with determination, to dismantle the global military web of bases and policies that have themselves been the source of anger and resentment contributing to our national insecurity.
Swept from power and nursing deep wounds, loosened from the responsibility of governing and free to attack without any consideration for coalition-building or compromise, the surviving Republican members of Congress, in alliance with their media allies and their geographically insulated bases of support in the nether regions of the nation, will do their best to make Obama's life miserable. And let's not fool ourselves. The politics of falsely righteous Republican anger and contempt we witnessed throughout the presidential campaign will increase in intensity in 2009.
The Republican base is like a three-legged stool, drawing support from social (values-driven) conservatives; economic (free-market) libertarians; and militaristic (nationalistic) neoconservatives. Let's focus on the foreign policy neocons, those who led us down the bloody road to Iraq and who, like Sauron separated from his ring of power, will seek with great urgency to undermine and weaken those who stand between them and a return to the uniliteralism of a hegemonic power.
Obama's foreign policy will begin with the assumption of a multilateral global arena in which the United States plays a leadership role based on alliances and diplomacy. Hardened, cynical views of international relationships - in China, Russia, Iran, and Venezuela, to name four examples - will challenge Obama's commitment to multilateral diplomacy. Nonetheless, in dealing with foreign leaders, Obama will have two assets on which to draw: his personal charm - which is so important in cultivating trusted relationships among leaders - and a willingness to leverage the influence of other countries, in Asia, Europe and elsewhere, in achieving tangible policy victories with respect to nuclear proliferation, global warming, and Islamic radicalism.
Obama's major challenges therefore will not come from abroad, but from home, where a steady drumbeat of revanchist criticism from the right, and blasted through media organs such as Fox News and the Wall Street Journal editorial page, as well as from Congressional firebrands in the Republican Party, will make his path from a military-first doctrine to a diplomacy-first approach like dancing across a bed of hot coals.
For now, Obama can bask in the glow of admiration from right-wing pundits such as William Kristol, George Will and Charles Krauthammer who respect his intelligence and political skills. For a sample of the savaging he can expect to receive in the days following his inauguration, we might do better to sample Daniel Henninger in the editorial pages of the Wall Street Journal, Oliver North on Fox News, and John Bolton at the American Enterprise Institute.
Neoconservatives voice an ideology based on two self-reinforcing principles. The first is their belief in American exceptionalism, the idea that the United States is not "like" other nations, that we are superior by virtue of our history and our values. The second is that with the end of the Cold War, the world will plunge into chaos without strong, active directives from the United States. Let's be clear. Directives are not leadership. They are more like military orders, in this case supported by the global projection of American military power throughout the world.
As Chalmers Johnson observed presciently in Blowback, first published in 2000, the territorial projection of US military power - with more than 700 US military installations housing nearly one million troops, dependants, contractors, spies, in more than 130 other nations around the world - creates local resentments and reinforces the self-fulfilling prophecy of "enemies at our doorstep." The obvious costs of these deployments aside - both financial and political - we are dancing with the the Devil for more troubling reasons that Obama may only with difficulty be able to address.
The policy of force projection and maintenance of a global military infrastructure depends upon: 1) a web of payments and quid pro quos with non-elected leaders of other nations; 2) a commitment to secrecy and the absence of meaningful oversight and transparency; and 3) a reliance upon covert activity, spying, secret missions, and subterfuge (note revelations of the order permitting secret raids on Al-Qaeda around the globe, in nations such as Pakistan, Syria, and Somalia).
We need a foreign policy for the 21st century. Obama's success in transforming US foreign policy into a tool of constructive, meaningful engagement with other nations depends upon his ability to rebuild shattered relationships upon a new foundation of open communication, outreach, trust, and accountability. To build a foreign policy for the 21st century, Obama can draw upon the success and methods of his own political campaign, which used new technologies and means of communication already widespread around the world to reach and speak directly to individual Americans.
The problem Obama will face is in dismantling the structural outposts of our dated 20th century foreign policy driven by the strategy of force projection and a global military infrastructure. Our economy in great measure depend on this stimulus - let's call it "military welfare". Our concept of national security - both psychological and physical - also depends upon this policy, with its insinuating values of strength and of a proactive, global state of military readiness to address threats that by definition this policy frames as "us" against "them".
Let's be absolutely clear. Obama will need to draw upon all the reassuring calm he inspires to shift our sense of the world from one in which threat predominates to one in which opportunities for constructive relationships abound. He must adopt his superhero identity of Ocalma and resist what will surely be a strong impulse from White House advisers and Congressional allies to not appear "weak" when tested, not simply by foreign foes but by shrieking adversaries from the Republican right. Above all, he must work, slowly perhaps, but also steadily and with determination, to dismantle the global military web of bases and policies that have themselves been the source of anger and resentment contributing to our national insecurity.
Wednesday, October 29, 2008
Welcoming Carl Icahn to the Securities Mosaic Blogwatch
We are honored to welcome Carl Icahn to the Securities Mosaic Blogwatch. As most of our readers will know, Mr. Icahn is one of the most prominent, influential, and outspoken investors in the world.
We will let Mr. Icahn's introduce himself below, in the wonderful autobiographical sketch written for the Icahn Report website. For myself, I am thrilled to add his trenchant intelligence, biting wit, and fearless voice to the Blogwatch. You can read his inaugural post - 100 Million Reasons Why We Need Governance Changes Now: Join USA - in today's issue.
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About Carl Icahn
We will let Mr. Icahn's introduce himself below, in the wonderful autobiographical sketch written for the Icahn Report website. For myself, I am thrilled to add his trenchant intelligence, biting wit, and fearless voice to the Blogwatch. You can read his inaugural post - 100 Million Reasons Why We Need Governance Changes Now: Join USA - in today's issue.
______________________
About Carl Icahn
I was born in Brooklyn and grew up in Far Rockaway, Queens. My father was a frustrated opera singer and settled on being a cantor in Cedarhurst, Long Island. The fact that he was a dogmatic atheist did not exactly help him to get ahead in this profession and after a number of years he became a substitute teacher. My mother also worked as a schoolteacher. I attended the local public school, Far Rockaway High, later heading to Princeton University. My mother wanted me to be a doctor, so after earning an A.B. in Philosophy in 1957, I went to medical school. I quickly realized the medical field was not for me. After two years, I joined the army and soon after eagerly returned to New York to start a career on Wall Street.
My career began in 1961, as a Registered Representative with Dreyfus & Company. I learned options and convertible arbitrage and built up a large business. By 1968 I bought a seat on the New York Stock Exchange and started Icahn & Co. Inc., a brokerage firm.
In 1978, I began taking control positions in individual companies. Over the years, I have taken positions in various corporations including: RJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, American Can, USX, Marvel, Imclone, Federal-Mogul, Kerr-McGee, Medimmune, BEA Systems and Time Warner. I became Chairman of Bayswater Realty & Capital Corp. in 1979; and Chairman of ACF Industries, Inc. in 1984 among others.
Today, I am Chairman of Icahn Enterprises, a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate, and consumer goods. I have been the Chairman of American Railcar Industries since 1994 and a Director of Blockbuster since May 2005. I became Chairman of ImClone Systems in 2006. In January 2008, I became the Chairman of Federal-Mogul.
My wife Gail and I serve on the boards of my foundations. They include Icahn Charitable Foundation, Foundation for a Greater Opportunity, and Children’s Rescue Fund. Working with the Foundation for a Greater Opportunity, I founded three charter schools located in the South Bronx. The 2007 New York State English Language and Arts Exams show 80% of the kids at the Carl C. Icahn charter school passing the exam testing 36.7% higher than the neighborhood average and 97% passing the exam 37.5% higher in Math. In addition, we sponsor the Icahn Scholars Program at Choate Rosemary Hall. The Children’s Rescue Fund started the Icahn House in The Bronx, a 65-unit complex for homeless families housing single pregnant women and single women with children, and operates Icahn House East, a homeless shelter located in New York City.
Thursday, October 23, 2008
Hey Old White Guy, Get out of the Way
Hegel famously remarked that the owl of Minerva flies at dusk. As the presidential campaign nears its end, we finally see clearly what it is about. Not race. Not gender. But youth.
We be one tired country. And what the debates brought home was that a tired old man cannot revitalize us.
In his youth, John McCain was special. Watch the footage from his hospital in Vietnam in 1967, and visualize the torment that awaited him, knowing what he endured. Visualize also, the many passes he has subsequently received for "erratic behavior" (for infidelity, emotional coldness, a sharp temper), from his first wife and others, as a result of what he endured.
It is October 2008, though, and McCain is now old and what we have learned is that the only thing for which there may be no pass is age.
Earlier this summer, Jesse Jackson (67 years old) told the world that he wanted to cut off Barack Obama's nuts for "talking down to black people" about personal responsibility
Rapper Nas (35 years old) replied as follows: "I think Jesse Jackson, he's the biggest player hater. His time is up. All you old n---as, time is up. We heard your voice, we saw your marching, we heard your sermons. We don't wanna hear that sh-- no more. It's a new day. It's a new voice. I'm here now. We don't need Jesse; I'm here. I got this. We got Barack, we got David Banners and Young Jeezys. We're the voice now. It's no more Jesse. Sorry. Goodbye. You ain't helping nobody in the 'hood. That's the bottom line. Goodbye, Jesse. Bye!"
And that says it all. Young people are the voice now. As Colin Powell forcefully stated last weekend, generational change inexorably sweeps away all in its path. Sixteen years ago, we had a president - George H.W. Bush - who fought in World War II. We shortly may elect a president who can barely remember the Vietnam War.
And thank God for that, because Barack Obama is paired against a candidate whose defining experience was the five years he spent in a POW camp in Vietnam. Do you think someone can walk away from that prison? It's like the freaking Hotel California. John McCain carries that prison with him everywhere, and he will carry it into the White House.
What the past six weeks have made clear is that the United States - and the entire world - is sweeping Barack Obama up in their arms because they yearn - desperately - for a fresh start. The generation in power - the Baby Boomers - is not the Greatest Generation that fought World War II. It is a small-minded, unreflective, selfish generation - epitomized by our Commander in Chief - that has failed this nation.
The Neoconservative fixation on Vietnam, on the projection of American power overseas (try counting our bases in other countries - there are too many), on a paranoid grasp for military influence - all of this reflects nothing so much as the reality of true power slipping away in a multilateral world.
This worldview means nothing to younger Americans. Vietnam holds no lessons for them. What they know is 9/11. What they have seen in its aftermath is a nation that almost immediately used lies and subterfuge, torture and terror, to squander the good will and aching love of people around the world for Americans who had suffered grievously at the hands of Al-Qaeda. We had the world in the palm of our hands. Imagine the good that might have come from that influence.
We might have chosen love. Instead, we chose hate. We might have chosen principled action on behalf of reconstructed, unified alliances of nations. Instead we chose scandalous, scurrilous, cynical unilateralism. Within six months, we had turned most of the world against us.
Young Americans witnessed this. The Iraq war is the foundation of their political awakening. They still trust. They just don't trust the old white guys. The Bushes and Cheneys and Rumsfelds and McCains.
The enthusiasm of young people for Obama is beyond calculation. Estimates indicate that three-quarters of first time voters may cast their ballot for Barack. Race doesn't matter here. Young Americans have grown up in a post-racial world. They know that there is no black or white. Barack is half-black and half-white. Tiger Woods, Tony Gonzalez, Derek Jeter, Alicia Keys, and countless other well-known American defy racial categorization.
Nas doesn't just speak for young blacks in the hood. He speaks for all young Americans.
So race does not drive this election. Barack is our first 21st-century candidate. In a post-racial world, other barriers that are cognitive rather than real will also tumble down, including the barriers between nations. McCain will be a soldier-president. Obama will be a diplomat-president. McCain will falsely take us into wars on behalf of fabricated national interests and use fear and terror to justify military action. Obama will build alliances that will sustain us and marginalize those who truly wish to harm us.
Will the election of Barack Obama infuriate the ignorant rabble on the right, the "good people growing in small towns" who listen to Rush Limbaugh? Perhaps. But as the recent reports from Wasilla from the Daily Show show us, there is nothing special about small-town life. It can be tawdry, impoverished, and depressing. Relatively few people will live in small towns in America in the future. They are not relevant to the realities of America in the 21st century America. Young people, who flee small towns at their first opportunity, understand this.
For these reasons, John McCain cannot win. It is a law of nature. His tide is going out. He has nothing new to offer the United States but flotsam and jetsam. There is some evidence from the way he has managed his campaign that he understands this, that he truly does not want to be president, and that by some divine irony, his contribution is actually to usher in a new generation of leaders with a perspective on the world radically different from his own.
To reprise Nas, " We don't wanna hear that sh-- no more. It's a new day. It's a new voice."
We be one tired country. And what the debates brought home was that a tired old man cannot revitalize us.
In his youth, John McCain was special. Watch the footage from his hospital in Vietnam in 1967, and visualize the torment that awaited him, knowing what he endured. Visualize also, the many passes he has subsequently received for "erratic behavior" (for infidelity, emotional coldness, a sharp temper), from his first wife and others, as a result of what he endured.
It is October 2008, though, and McCain is now old and what we have learned is that the only thing for which there may be no pass is age.
Earlier this summer, Jesse Jackson (67 years old) told the world that he wanted to cut off Barack Obama's nuts for "talking down to black people" about personal responsibility
Rapper Nas (35 years old) replied as follows: "I think Jesse Jackson, he's the biggest player hater. His time is up. All you old n---as, time is up. We heard your voice, we saw your marching, we heard your sermons. We don't wanna hear that sh-- no more. It's a new day. It's a new voice. I'm here now. We don't need Jesse; I'm here. I got this. We got Barack, we got David Banners and Young Jeezys. We're the voice now. It's no more Jesse. Sorry. Goodbye. You ain't helping nobody in the 'hood. That's the bottom line. Goodbye, Jesse. Bye!"
And that says it all. Young people are the voice now. As Colin Powell forcefully stated last weekend, generational change inexorably sweeps away all in its path. Sixteen years ago, we had a president - George H.W. Bush - who fought in World War II. We shortly may elect a president who can barely remember the Vietnam War.
And thank God for that, because Barack Obama is paired against a candidate whose defining experience was the five years he spent in a POW camp in Vietnam. Do you think someone can walk away from that prison? It's like the freaking Hotel California. John McCain carries that prison with him everywhere, and he will carry it into the White House.
What the past six weeks have made clear is that the United States - and the entire world - is sweeping Barack Obama up in their arms because they yearn - desperately - for a fresh start. The generation in power - the Baby Boomers - is not the Greatest Generation that fought World War II. It is a small-minded, unreflective, selfish generation - epitomized by our Commander in Chief - that has failed this nation.
The Neoconservative fixation on Vietnam, on the projection of American power overseas (try counting our bases in other countries - there are too many), on a paranoid grasp for military influence - all of this reflects nothing so much as the reality of true power slipping away in a multilateral world.
This worldview means nothing to younger Americans. Vietnam holds no lessons for them. What they know is 9/11. What they have seen in its aftermath is a nation that almost immediately used lies and subterfuge, torture and terror, to squander the good will and aching love of people around the world for Americans who had suffered grievously at the hands of Al-Qaeda. We had the world in the palm of our hands. Imagine the good that might have come from that influence.
We might have chosen love. Instead, we chose hate. We might have chosen principled action on behalf of reconstructed, unified alliances of nations. Instead we chose scandalous, scurrilous, cynical unilateralism. Within six months, we had turned most of the world against us.
Young Americans witnessed this. The Iraq war is the foundation of their political awakening. They still trust. They just don't trust the old white guys. The Bushes and Cheneys and Rumsfelds and McCains.
The enthusiasm of young people for Obama is beyond calculation. Estimates indicate that three-quarters of first time voters may cast their ballot for Barack. Race doesn't matter here. Young Americans have grown up in a post-racial world. They know that there is no black or white. Barack is half-black and half-white. Tiger Woods, Tony Gonzalez, Derek Jeter, Alicia Keys, and countless other well-known American defy racial categorization.
Nas doesn't just speak for young blacks in the hood. He speaks for all young Americans.
So race does not drive this election. Barack is our first 21st-century candidate. In a post-racial world, other barriers that are cognitive rather than real will also tumble down, including the barriers between nations. McCain will be a soldier-president. Obama will be a diplomat-president. McCain will falsely take us into wars on behalf of fabricated national interests and use fear and terror to justify military action. Obama will build alliances that will sustain us and marginalize those who truly wish to harm us.
Will the election of Barack Obama infuriate the ignorant rabble on the right, the "good people growing in small towns" who listen to Rush Limbaugh? Perhaps. But as the recent reports from Wasilla from the Daily Show show us, there is nothing special about small-town life. It can be tawdry, impoverished, and depressing. Relatively few people will live in small towns in America in the future. They are not relevant to the realities of America in the 21st century America. Young people, who flee small towns at their first opportunity, understand this.
For these reasons, John McCain cannot win. It is a law of nature. His tide is going out. He has nothing new to offer the United States but flotsam and jetsam. There is some evidence from the way he has managed his campaign that he understands this, that he truly does not want to be president, and that by some divine irony, his contribution is actually to usher in a new generation of leaders with a perspective on the world radically different from his own.
To reprise Nas, " We don't wanna hear that sh-- no more. It's a new day. It's a new voice."
Friday, October 17, 2008
Andrew Lahde's Farewell Letter
Andrew Lahde, the (briefly) storied hedge fund manager who returned 870 percent to investors last year by betting against the credit markets, has retired. His farewell letter below communicates no fondness for his trading brethren, the markets that enriched him, and the government that enabled the craziness from which he profited. The missive ends with a plea for George Soros to convene a convention of Wise Men and Women, for an Open-Source Government, and, finally, for the legalization of hemp as a low-tech, low-cost alternative source of raw material for products that are petroleum-dependent.
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Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would been entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say good-bye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG,Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile,their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eigh tyears, which would have reigned in the predatory lending practices of now mostly defunct institutions.These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher.My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So,why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde
Wednesday, October 15, 2008
The Path Forward: Changes to Securities Mosaic are a Harbinger of Changes for the Financial Industry
Today, we launched a major new release of Securities Mosaic, which now includes all of the databases formerly constituting the Securities Mosaic Litigator website. So the site has a new Enforcement and Litigation tab that folds in search pages with breathtakingly detailed (if I do say so myself) data culled from a variety of sources: SEC and CFTC Enforcement Releases, SEC Investigation Disclosures, SEC Investors Claims Funds, and PCAOB Inspection Reports. We also now include a complete archive of securities-related Appellate Court decisions since the beginning of 2007 and have added several thousand new law firm memos focusing on securities enforcement and litigation to the Law Firms search page.
It is very slick data, and not available anywhere else because it is mostly hand-tagged to optimize targeted searching. For example, users can filter their search within enforcement actions to include a particular type of violation, or the dollar range of an imposed penalty.
Want to know how many CEOs have received financial penalties in excess of $10 million in actions involving the SEC since 2000? We can tell you that in about 10 seconds. The answer is 19 CEOs, and the largest penalty was imposed on Patrick C. Quinlan in 2005, in the amount of $256 million. He also went to prison for ten years.
Against how many attorneys has the SEC taken action for violating conspiracy laws? The answer is 4, and one of them - Stephen Ziegler - was ordered to pay restitution of more than $800 million! Along with five years in a federal penitentiary. His offense was his participation, as "regulatory counsel" in a scheme that resulted in the fleecing of more than $1 billion from 30,000 investors.
What does the addition of this kind of enforcement and litigation information to Securities Mosaic mean? Two things.
First, I am struck by how these data sets fill out the Securities Mosaic website, and how much more robust it seems. Our goal is to create a seamless environment for conducting any kind of securities-related research, and this addition of the litigation and enforcement information takes a long step in that direction. With this data, one can quickly perform due diligence on individuals, track enforcement trends, and model enforcement scenarios for clients in ways that are simply not possible right now.
With the integration of this data on Securities Mosaic, one can also now more easily map enforcement and litigation trends to disclosure requirements, regulatory rulemaking, and guidance conventions. The view of the securities regulation landscape simply becomes richer and more nuanced.
The second point is that this is the most ambitious new release of Securities Mosaic we've ever undertaken, at least from a customer standpoint, and it bears pointing out that it is occurring in the face of the hurricane-force winds reshaping the business and financial industry landscapes.
The timing is not an accident. Recent events on Wall Street have underscored the need for, and urgency, of an accelerated effort to server industry professionals' ongoing need to know.
Change is afoot, and it will almost certainly include massive reorganization of federal regulatory oversight and control. We understand that. What we at Knowledge Mosaic are betting is that legal and financial industry professionals will need an information portal that reflects a regulation universe that is broader, more integrated, and more demanding.
Our latest upgrade to Securities Mosaic is therefore only the first part of a two-part plan to offer a vastly more broad and complete set of financial and business regulatory materials. We will be covering the full spectrum of federal agency (and deputized SRO) regulations (and legislation) covering both listed companies and financial institutions.
Moreover, we will be topping this broad data platform with a thick layer of current awareness and reporting materials, with the goal of giving our customers an "always on" view of the most recent developments and trends in financial and business law and regulation.
So it is exciting stuff for perilous times. Please check out the new Enforcement and Litigation section of Securities Mosaic and feel free to send on any ideas you have for financial and business data and tools that would most benefit you.
It is very slick data, and not available anywhere else because it is mostly hand-tagged to optimize targeted searching. For example, users can filter their search within enforcement actions to include a particular type of violation, or the dollar range of an imposed penalty.
Want to know how many CEOs have received financial penalties in excess of $10 million in actions involving the SEC since 2000? We can tell you that in about 10 seconds. The answer is 19 CEOs, and the largest penalty was imposed on Patrick C. Quinlan in 2005, in the amount of $256 million. He also went to prison for ten years.
Against how many attorneys has the SEC taken action for violating conspiracy laws? The answer is 4, and one of them - Stephen Ziegler - was ordered to pay restitution of more than $800 million! Along with five years in a federal penitentiary. His offense was his participation, as "regulatory counsel" in a scheme that resulted in the fleecing of more than $1 billion from 30,000 investors.
What does the addition of this kind of enforcement and litigation information to Securities Mosaic mean? Two things.
First, I am struck by how these data sets fill out the Securities Mosaic website, and how much more robust it seems. Our goal is to create a seamless environment for conducting any kind of securities-related research, and this addition of the litigation and enforcement information takes a long step in that direction. With this data, one can quickly perform due diligence on individuals, track enforcement trends, and model enforcement scenarios for clients in ways that are simply not possible right now.
With the integration of this data on Securities Mosaic, one can also now more easily map enforcement and litigation trends to disclosure requirements, regulatory rulemaking, and guidance conventions. The view of the securities regulation landscape simply becomes richer and more nuanced.
The second point is that this is the most ambitious new release of Securities Mosaic we've ever undertaken, at least from a customer standpoint, and it bears pointing out that it is occurring in the face of the hurricane-force winds reshaping the business and financial industry landscapes.
The timing is not an accident. Recent events on Wall Street have underscored the need for, and urgency, of an accelerated effort to server industry professionals' ongoing need to know.
Change is afoot, and it will almost certainly include massive reorganization of federal regulatory oversight and control. We understand that. What we at Knowledge Mosaic are betting is that legal and financial industry professionals will need an information portal that reflects a regulation universe that is broader, more integrated, and more demanding.
Our latest upgrade to Securities Mosaic is therefore only the first part of a two-part plan to offer a vastly more broad and complete set of financial and business regulatory materials. We will be covering the full spectrum of federal agency (and deputized SRO) regulations (and legislation) covering both listed companies and financial institutions.
Moreover, we will be topping this broad data platform with a thick layer of current awareness and reporting materials, with the goal of giving our customers an "always on" view of the most recent developments and trends in financial and business law and regulation.
So it is exciting stuff for perilous times. Please check out the new Enforcement and Litigation section of Securities Mosaic and feel free to send on any ideas you have for financial and business data and tools that would most benefit you.
Friday, October 3, 2008
Water
Evidence mounts that Wall Street's troubles are rapidly filtering down to Main Street and to College Avenue. We are not immune at Knowledge Mosaic. We have lost major accounts to companies that have gone out of business or been acquired. Budgets are everywhere tight. However, I am optimistic about our future. Even as Death and Mayhem stalk the land, I think we will be okay. And this is why.
In this new century, business success will require that companies flow like water around obstacles that stand in their way. Water finds its own path and gradually erodes obstacles and creates new channels that represent its "will".
Business that flow like water are flexible and nimble. They are incredibly attuned to what is going on it their environment - with their customers, their competitors, their vendors, their employees, their finances. They respond in real time.
Watery businesses know their ultimate destination, but are not locked into specific paths to arrive at this destination. They will consider any and all options for solving problems or advancing goals, but will not waste time on belabored decision-making. Few decisions are so critical or risky that they require endless deliberation or certainty. Rather than make a few big decisions, make many little decisions. Respond in real time. Adjust in real time.
Finally, a business that flows like water has no ego. Its being derives from its essence and its journey, not its roles or attributes.
This is abstract. Let me give a concrete example of what I mean. The premise for gargantuan executive pay packages is that a business cannot survive without its leaders. This perspective promotes an egocentric view of leadership, in which the leader provides a center of gravity for the organization that justifies the material attributes of his (or her) role - the large salary and bonus, the stock grants, the private aircraft, etc. The energy of the employees and the board members of these companies flows inward, toward the leader.
This is a failed model of leadership for the 21st century. Successful leaders in watery enterprises exist to serve others. They wash the feet of their employees, their investors, and their customers. Their identity has nothing to do with compensation and status, and is instead bound up directly with the mission of the business, with its essence and its journey, with nurturing and supporting and honoring those whose commitment and growth and energy sustain the business. In watery businesses, energy flows from the center to the periphery, to where the business is moving next.
What makes this leadership model work in troubled times is that watery businesses can operate without fear. Existentially, all of us fear loss and, ultimately, physical death, which is loss multiplied by Google. In a business, fear addresses the loss of privilege, status, and position - either within an organization or in relation to competition or in absolute financial terms. When Lehman went under, for example, it experienced absolute financial death, loss multiplied by Google.
But water does not have fear. It exists only in relation to its motion, which by definition is incessant, and so has nothing to lose. A rock slamming into another rock might shatter. That is loss, or death. That is what egos experience. Water encountering a rock will divide and flow around it and rejoin itself. Water, lacking an ego, cannot be split, and so it has nothing to fear.
In practical terms, this means that a watery business and watery leadership will adapt to whatever environment it faces, no matter how outwardly troubled. Without an ego, the business will simply enfold itself within the circumstances of the moment and locate opportunity. With opportunity, there is a destination, and with a destination, there is motion, and with motion there is life and hope. For a remarkable example of this kind opportunism, read this fascinating history of the Torrington Company, now a $1.2 billion subsidiary of Ingersoll-Rand that reinvented itself during the Depression.
---------------
Fair warning. Next week, I will publish a longish (multi-day) essay on law firm cost recovery, a practice that shows us the beating heart of the legal research industry in the past 30 years. It is a practice whose days are numbered.
In this new century, business success will require that companies flow like water around obstacles that stand in their way. Water finds its own path and gradually erodes obstacles and creates new channels that represent its "will".
Business that flow like water are flexible and nimble. They are incredibly attuned to what is going on it their environment - with their customers, their competitors, their vendors, their employees, their finances. They respond in real time.
Watery businesses know their ultimate destination, but are not locked into specific paths to arrive at this destination. They will consider any and all options for solving problems or advancing goals, but will not waste time on belabored decision-making. Few decisions are so critical or risky that they require endless deliberation or certainty. Rather than make a few big decisions, make many little decisions. Respond in real time. Adjust in real time.
Finally, a business that flows like water has no ego. Its being derives from its essence and its journey, not its roles or attributes.
This is abstract. Let me give a concrete example of what I mean. The premise for gargantuan executive pay packages is that a business cannot survive without its leaders. This perspective promotes an egocentric view of leadership, in which the leader provides a center of gravity for the organization that justifies the material attributes of his (or her) role - the large salary and bonus, the stock grants, the private aircraft, etc. The energy of the employees and the board members of these companies flows inward, toward the leader.
This is a failed model of leadership for the 21st century. Successful leaders in watery enterprises exist to serve others. They wash the feet of their employees, their investors, and their customers. Their identity has nothing to do with compensation and status, and is instead bound up directly with the mission of the business, with its essence and its journey, with nurturing and supporting and honoring those whose commitment and growth and energy sustain the business. In watery businesses, energy flows from the center to the periphery, to where the business is moving next.
What makes this leadership model work in troubled times is that watery businesses can operate without fear. Existentially, all of us fear loss and, ultimately, physical death, which is loss multiplied by Google. In a business, fear addresses the loss of privilege, status, and position - either within an organization or in relation to competition or in absolute financial terms. When Lehman went under, for example, it experienced absolute financial death, loss multiplied by Google.
But water does not have fear. It exists only in relation to its motion, which by definition is incessant, and so has nothing to lose. A rock slamming into another rock might shatter. That is loss, or death. That is what egos experience. Water encountering a rock will divide and flow around it and rejoin itself. Water, lacking an ego, cannot be split, and so it has nothing to fear.
In practical terms, this means that a watery business and watery leadership will adapt to whatever environment it faces, no matter how outwardly troubled. Without an ego, the business will simply enfold itself within the circumstances of the moment and locate opportunity. With opportunity, there is a destination, and with a destination, there is motion, and with motion there is life and hope. For a remarkable example of this kind opportunism, read this fascinating history of the Torrington Company, now a $1.2 billion subsidiary of Ingersoll-Rand that reinvented itself during the Depression.
---------------
Fair warning. Next week, I will publish a longish (multi-day) essay on law firm cost recovery, a practice that shows us the beating heart of the legal research industry in the past 30 years. It is a practice whose days are numbered.
Wednesday, October 1, 2008
How I Learned to Love Wal-Mart. Sort of.
I am not a Wal-Mart Dad.
In fact, I hate Wal-Mart. With some modest qualifications.
I admire their selection of "over-under shotguns" and their environmentally sound support of low-energy light bulbs. I respect the recent success of their PR machine in neutralizing the flood of negative publicity they received for locking their workers in their stores at night. I also cannot deny it - there is no moment quite so heart-warming as the sight of a Wal-Mart Greeter. Be that as it may, we all know that Wal-Mart epitomizes the evisceration of the American soul.
However, Wal-Mart and my company do have one thing in common besides the incredible vastness of our revenues. We both retain law firms that meet our "diversity standards", and we both have moved "millions of dollars" away from law firms that do not meet those standards.
While our global headquarters is in Seattle, we have retained Folger Levin & Kahn, a California law firm, as our outside counsel. In a recent issue, Working Mother Magazine named FLK one of the top-50 law firms for female attorneys, based on "workforce profile, family-friendly benefits and policies, flexibility, leadership, compensation, advancement of women and retention of women." (Fact Sheet here)
The selection process occurs by application, so of course it is possible that only 52 law firms applied. Nonetheless. We are proud that FLK represents us because they have committed themselves as a firm to values of respect, equality, and fairness that also are important to Knowledge Mosaic.
Much smaller than the average firm on this "female-friendly" list, FLK employs about 60 attorneys, half of whom are women (the average firm size on this list is closer to 600). And while only 16 percent of the partners in firms nationwide are female - only 19 percent even on this female-friendly list - at FLK, nearly 50 percent of the partners are women! I do believe this is far and away the highest percentage of any of the law firms on the Working Woman list.
Here are some other fun facts. More than 85 percent of attorneys promoted to equity partner in the past five years at FLK were women. Two of the four practice heads are women. So is the managing partner. FLK also offers an astounding 24 weeks of maternity leave, no minimum floor for billable hours, and the option to work reduced hours. Pretty good stuff.
Folger Levin & Kahn offers proof that the traditional law firm mantra of "Bill, Baby, Bill" may properly belong to a different century. Perhaps now, we just might hear law firms chanting, "Jill, Baby, Jill!"
And what of Wal-Mart? Dare we don a blue vest to mark our solidarity with them in this commitment to gender equality in the legal community? Perhaps we should. Wal-Mart's commitment appears to be real. Of the 52 Wal-Mart attorneys listed on Martindale.com, 25 are women. Soulless and eviscerated though it may be, one cannot deny the equality.
In fact, I hate Wal-Mart. With some modest qualifications.
I admire their selection of "over-under shotguns" and their environmentally sound support of low-energy light bulbs. I respect the recent success of their PR machine in neutralizing the flood of negative publicity they received for locking their workers in their stores at night. I also cannot deny it - there is no moment quite so heart-warming as the sight of a Wal-Mart Greeter. Be that as it may, we all know that Wal-Mart epitomizes the evisceration of the American soul.
However, Wal-Mart and my company do have one thing in common besides the incredible vastness of our revenues. We both retain law firms that meet our "diversity standards", and we both have moved "millions of dollars" away from law firms that do not meet those standards.
While our global headquarters is in Seattle, we have retained Folger Levin & Kahn, a California law firm, as our outside counsel. In a recent issue, Working Mother Magazine named FLK one of the top-50 law firms for female attorneys, based on "workforce profile, family-friendly benefits and policies, flexibility, leadership, compensation, advancement of women and retention of women." (Fact Sheet here)
The selection process occurs by application, so of course it is possible that only 52 law firms applied. Nonetheless. We are proud that FLK represents us because they have committed themselves as a firm to values of respect, equality, and fairness that also are important to Knowledge Mosaic.
Much smaller than the average firm on this "female-friendly" list, FLK employs about 60 attorneys, half of whom are women (the average firm size on this list is closer to 600). And while only 16 percent of the partners in firms nationwide are female - only 19 percent even on this female-friendly list - at FLK, nearly 50 percent of the partners are women! I do believe this is far and away the highest percentage of any of the law firms on the Working Woman list.
Here are some other fun facts. More than 85 percent of attorneys promoted to equity partner in the past five years at FLK were women. Two of the four practice heads are women. So is the managing partner. FLK also offers an astounding 24 weeks of maternity leave, no minimum floor for billable hours, and the option to work reduced hours. Pretty good stuff.
Folger Levin & Kahn offers proof that the traditional law firm mantra of "Bill, Baby, Bill" may properly belong to a different century. Perhaps now, we just might hear law firms chanting, "Jill, Baby, Jill!"
And what of Wal-Mart? Dare we don a blue vest to mark our solidarity with them in this commitment to gender equality in the legal community? Perhaps we should. Wal-Mart's commitment appears to be real. Of the 52 Wal-Mart attorneys listed on Martindale.com, 25 are women. Soulless and eviscerated though it may be, one cannot deny the equality.
Tuesday, September 30, 2008
The Best of Times: When There's Too Much to Write About
For anyone who writes, the best of times are when events surge at a pace and scale that dwarfs what our brains and our lives can assimilate. We are obviously at one of those times, when truth is stranger, more outrageous, more entertaining, and more frightening than fiction. The military surge in Iraq cannot match the financial, political, and cultural "surge" at home in the United States.
I have taken notes on topics about which I might appropriately comment without running too far afield of the scope of my business. And the list is too long to recount. So I have organized these topics into categories. There is Finance, Law, Politics, and Regulation, of course. There is also Business (my business, your business, everyone's business), Technology, and Culture. There is Main Street and Wall Street, single-home mortgages and global credit markets, investment banking and hedge funds, small-town banks and massive bank holding companies. And then there is the practice of law and the research of law, both of which are intertwined and neither of which will emerge from this plunge into chaos without forever being transformed.
All deserve comment.
Let me start with a simple narrative that captures the wholeness of our present dilemma - that no facet of our current troubles can easily be separated from the central problem we face as a nation: that we are grappling with how to manage our parochial affairs in a world of integrated and impersonal markets, technologies, and environmental forces that now constantly threaten to chew us up like Chaplin's Little Tramp in Modern Times. The lessons of the Bush Administration and the McCain campaign are that, ostrich-like, we continue to bury our heads in the sand and pretend that we still reside within the American Century. Denial is a powerful drug.
On Friday, the venerable San Francisco law firm Heller Ehrman announced its formal dissolution, ending a history that commenced in 1890, spanning 3 centuries and 128 years. While the Heller website remains strangely and blithely mute on this act of self-immolation - indeed, the firm keeps churning out law firm memos as if it had nary a care in the world - the sudden collapse of this major law firm has much to teach us about the times in which we live.
The short version of the story is that Heller dispersed all of its profits at the end of each year to avoid double taxation of its income. As a result, the firm depended heavily on the credit markets to fund its growing global operations (with offices in Beijing, Shanghai, Hong Kong, Singapore, and London) throughout much of each year, until cash flow surpassed costs toward the end of that year. In 2007, the firm settled major litigation cases and lost other cases to competing firms. With the subsequent sharp decline in revenue, partners began heading for the exits. The banks tightened up on credit lines at a time when Heller most needed to rely on debt financing to cover its costs. With a partner base too slender to support its fixed costs, the firm quickly collapsed.
Knowledge Mosaic worked closely with Heller Ehrman. The firm initially spurned our efforts to sell our products to them - we were young, with no established brand and immature products. But we persisted in developing good relationships with the Heller librarians, all of whom we very much liked and respected. In the past year, we finally succeeded in displacing a major competitor in the Heller library. It was a grand moment for us - a testament to our progress as a business and to the changing dynamics of the market for legal information. As a lower-cost provider, however, our success in selling to Heller may also have intimated at the downturn in the firm's financial fortunes.
The sudden demise of Heller may partly be a product of internal business and financial choices that raised the firm's risk profile. It could not survive a revenue downturn at the same time that credit markets tightened. The fecklessness of partners may also have played a role in the firm's collapse. A storied, traditional firm trying to reinvent as a high-powered global firm, it hired partners motivated more by money than loyalty, and when they left Heller essentially found itself hoisted on its own petard.
Life is not a morality play. Heller's rise and fall is not a parable. But the legal profession is also not sitting out the dance with the Devil our policymakers and financial institutions are currently engaging in. There will be many more stories of collapse that resemble Heller Ehrman's before the rubble finally clears and the reconstruction can begin.
I have taken notes on topics about which I might appropriately comment without running too far afield of the scope of my business. And the list is too long to recount. So I have organized these topics into categories. There is Finance, Law, Politics, and Regulation, of course. There is also Business (my business, your business, everyone's business), Technology, and Culture. There is Main Street and Wall Street, single-home mortgages and global credit markets, investment banking and hedge funds, small-town banks and massive bank holding companies. And then there is the practice of law and the research of law, both of which are intertwined and neither of which will emerge from this plunge into chaos without forever being transformed.
All deserve comment.
Let me start with a simple narrative that captures the wholeness of our present dilemma - that no facet of our current troubles can easily be separated from the central problem we face as a nation: that we are grappling with how to manage our parochial affairs in a world of integrated and impersonal markets, technologies, and environmental forces that now constantly threaten to chew us up like Chaplin's Little Tramp in Modern Times. The lessons of the Bush Administration and the McCain campaign are that, ostrich-like, we continue to bury our heads in the sand and pretend that we still reside within the American Century. Denial is a powerful drug.
On Friday, the venerable San Francisco law firm Heller Ehrman announced its formal dissolution, ending a history that commenced in 1890, spanning 3 centuries and 128 years. While the Heller website remains strangely and blithely mute on this act of self-immolation - indeed, the firm keeps churning out law firm memos as if it had nary a care in the world - the sudden collapse of this major law firm has much to teach us about the times in which we live.
The short version of the story is that Heller dispersed all of its profits at the end of each year to avoid double taxation of its income. As a result, the firm depended heavily on the credit markets to fund its growing global operations (with offices in Beijing, Shanghai, Hong Kong, Singapore, and London) throughout much of each year, until cash flow surpassed costs toward the end of that year. In 2007, the firm settled major litigation cases and lost other cases to competing firms. With the subsequent sharp decline in revenue, partners began heading for the exits. The banks tightened up on credit lines at a time when Heller most needed to rely on debt financing to cover its costs. With a partner base too slender to support its fixed costs, the firm quickly collapsed.
Knowledge Mosaic worked closely with Heller Ehrman. The firm initially spurned our efforts to sell our products to them - we were young, with no established brand and immature products. But we persisted in developing good relationships with the Heller librarians, all of whom we very much liked and respected. In the past year, we finally succeeded in displacing a major competitor in the Heller library. It was a grand moment for us - a testament to our progress as a business and to the changing dynamics of the market for legal information. As a lower-cost provider, however, our success in selling to Heller may also have intimated at the downturn in the firm's financial fortunes.
The sudden demise of Heller may partly be a product of internal business and financial choices that raised the firm's risk profile. It could not survive a revenue downturn at the same time that credit markets tightened. The fecklessness of partners may also have played a role in the firm's collapse. A storied, traditional firm trying to reinvent as a high-powered global firm, it hired partners motivated more by money than loyalty, and when they left Heller essentially found itself hoisted on its own petard.
Life is not a morality play. Heller's rise and fall is not a parable. But the legal profession is also not sitting out the dance with the Devil our policymakers and financial institutions are currently engaging in. There will be many more stories of collapse that resemble Heller Ehrman's before the rubble finally clears and the reconstruction can begin.
War Paint
It is 3:00 am and I am on putting on my war paint. I like to write and have done so only sporadically in recent years - mostly because the duties of my job usually trump blogging efforts that are generally a luxury for someone who runs a business.
But these are not ordinary times.
And as a legal and financial information provider, my business is in many ways at the center of the maelstrom. We have relevant and important things to say.
So my war paint is on, my cigar is in my mouth, and I have a long list of things to write about.
Financial ruin and resurrection.
Financial rapacity and regulation.
Wall Street and Main Street.
Political theater, sexual farce, and the most important election of our lives.
The coming global irrelevance of the United States.
Law firms in the midst of the meltdown.
Legal research at the crossroads.
Running a small business and staying calm when Armageddon looms.
Stay tuned.
But these are not ordinary times.
And as a legal and financial information provider, my business is in many ways at the center of the maelstrom. We have relevant and important things to say.
So my war paint is on, my cigar is in my mouth, and I have a long list of things to write about.
Financial ruin and resurrection.
Financial rapacity and regulation.
Wall Street and Main Street.
Political theater, sexual farce, and the most important election of our lives.
The coming global irrelevance of the United States.
Law firms in the midst of the meltdown.
Legal research at the crossroads.
Running a small business and staying calm when Armageddon looms.
Stay tuned.
Thursday, September 4, 2008
The Race to the Bottom - St. Paul and the Road to Damascus
Many years ago, Richard Hofstadter, one of the great American historians of the 20th century, wrote a book about the strong current of anti-intellectualism in American politics and culture. For Hofstadter, anti-intellectualism emerged from egalitarian, populist, and anti-elitist responses to both European cosmopolitanism and our frontier habitation. Waves of emotional appeals crested at predictable intervals in our nation's history as a result of evangelical fervor, populist political oratory, and the emergence of a consumer-driven economy. The consequence has been a prevalent suspicion of education; intellectual "elites" and abstract ideas; and a rough-hewn, trust in the "common man", "gut" instinct, and "common sense".
The current carnival at the Republican Convention reflects this "race to the bottom". Down the rabbit hole we have plunged. In an Alice in Wonderland alternate universe, we learned from Sarah Palin last night how being unqualified is evidence of being qualified; how education and an interest in ideas and literacy and eloquence are prima facie disqualifications for leadership; how right-wing traditionalists have seized the feminist label and made teenage pregnancy a virtue. It is truly bizarre.
Numerous ironies accompany this latest twist to what has already been one of the most dramatic and significant political campaigns in our nation's history.
First, race remains a subtext to the campaign. The delegate population in St. Paul is lily-white. We can be sure that if one of Barack Obama's daughters were pregnant, barbed remarks about the promiscuity of black folks would replace the disingenuous bromides about how "life happens" that have greeted the news about the pregnancy of Sarah Palin's daughter.
Nonetheless, it is striking - and quite remarkable - how race has disappeared so quickly as an election theme. This may be partly because Barack Obama's mixed-race heritage positions him perfectly to transcend the thorns and brambles of our racial past, which one can hardly avoid regarding as our nation's heaviest burden and original sin. Some of the humor and jibes about Obama's messianic stature may result - almost literally - from the grace with which his candidacy has allowed America an opportunity to rise above and finally move beyond the darkest stains of its past.
Second, what has replaced race at the center of electoral discourse is gender. Charges of sexism are now leveled like howitzer blasts at anyone who criticizes Sarah Palin for a lack of experience, a checkered record, a provincial outlook, and a frightening, Gothic worldview. Hillary Clinton's legacy may, ironically, be the opening she provided the Christian right to claim the mantle of feminism that has historically belonged to the Democratic party and to the political left in the United States. Members of the Christian Republican Party base who until recently derided "feminists" as a motley collection of lesbians and aggressive, family-hating careerists now proudly carry the feminist flag on behalf of "working mothers" across the nation.
Whether this holds water remains to be seen. I am struck by the studied grace and restraint of the Democratic leadership in their response to the invective hurling their way from St. Paul (pun intended, regarding righteous Christians hurling thunderbolts from their own feminist road to Damascus).
I also am truly impressed by Obama's unflappability. He has refused to take the bait and lash out at those attacking him because he attended Harvard, possesses the basic literary skills required to write two books, and truly cares about ideas.
Perhaps we should call him "Ocalma." Since the Republican leadership has explicitly indicated that personality and not issues will govern the outcome of the election, I might point out that Obama's apparent serenity and self-control are personal qualities that we would want any president to possess.
The 2008 election may be the most important presidential election in the nation since 1860. In his determined focus on unification and transcendence, Obama reminds me more of Lincoln than any presidential candidate since 1860. The irony is that while Obama may have viewed unification and transcendence in terms of race - and his mixed-race heritage uniquely positions him to breach this divide - healing between men and women may prove to be his toughest domestic challenge.
The current carnival at the Republican Convention reflects this "race to the bottom". Down the rabbit hole we have plunged. In an Alice in Wonderland alternate universe, we learned from Sarah Palin last night how being unqualified is evidence of being qualified; how education and an interest in ideas and literacy and eloquence are prima facie disqualifications for leadership; how right-wing traditionalists have seized the feminist label and made teenage pregnancy a virtue. It is truly bizarre.
Numerous ironies accompany this latest twist to what has already been one of the most dramatic and significant political campaigns in our nation's history.
First, race remains a subtext to the campaign. The delegate population in St. Paul is lily-white. We can be sure that if one of Barack Obama's daughters were pregnant, barbed remarks about the promiscuity of black folks would replace the disingenuous bromides about how "life happens" that have greeted the news about the pregnancy of Sarah Palin's daughter.
Nonetheless, it is striking - and quite remarkable - how race has disappeared so quickly as an election theme. This may be partly because Barack Obama's mixed-race heritage positions him perfectly to transcend the thorns and brambles of our racial past, which one can hardly avoid regarding as our nation's heaviest burden and original sin. Some of the humor and jibes about Obama's messianic stature may result - almost literally - from the grace with which his candidacy has allowed America an opportunity to rise above and finally move beyond the darkest stains of its past.
Second, what has replaced race at the center of electoral discourse is gender. Charges of sexism are now leveled like howitzer blasts at anyone who criticizes Sarah Palin for a lack of experience, a checkered record, a provincial outlook, and a frightening, Gothic worldview. Hillary Clinton's legacy may, ironically, be the opening she provided the Christian right to claim the mantle of feminism that has historically belonged to the Democratic party and to the political left in the United States. Members of the Christian Republican Party base who until recently derided "feminists" as a motley collection of lesbians and aggressive, family-hating careerists now proudly carry the feminist flag on behalf of "working mothers" across the nation.
Whether this holds water remains to be seen. I am struck by the studied grace and restraint of the Democratic leadership in their response to the invective hurling their way from St. Paul (pun intended, regarding righteous Christians hurling thunderbolts from their own feminist road to Damascus).
I also am truly impressed by Obama's unflappability. He has refused to take the bait and lash out at those attacking him because he attended Harvard, possesses the basic literary skills required to write two books, and truly cares about ideas.
Perhaps we should call him "Ocalma." Since the Republican leadership has explicitly indicated that personality and not issues will govern the outcome of the election, I might point out that Obama's apparent serenity and self-control are personal qualities that we would want any president to possess.
The 2008 election may be the most important presidential election in the nation since 1860. In his determined focus on unification and transcendence, Obama reminds me more of Lincoln than any presidential candidate since 1860. The irony is that while Obama may have viewed unification and transcendence in terms of race - and his mixed-race heritage uniquely positions him to breach this divide - healing between men and women may prove to be his toughest domestic challenge.
Tuesday, September 2, 2008
In the Long Run, You Only Hit What You Aim At - Thoreau
Let our new Securities Mosaic Risk Factors search page help you aim at the risk disclosure language you want to hit. This unrivalled search platform is part of our ongoing effort to transform the focus in legal publishing from documents to data. It allows you to easily locate risk disclosure data through a powerful combination of search fields, without having to wade through unwieldy SEC filings. Risk Factors takes you straight to the relevant information you need to locate model disclosure language, profile industry and business segment risk, analyze deficiencies, and identify potential liability.
Since early in 2006, larger public companies have been required to include a Risk Factors section in their 10-K Business Description item. These annual report risk disclosure statements provide a more comprehensive survey of company risk than the disclosure statements associated with new offerings. We have extracted more than 160,000 risk factor statements from annual reports and now cover more than 90 percent of the public companies listed on major US exchanges.
Risk Factors offers:
Try Risk Factors now!
Since early in 2006, larger public companies have been required to include a Risk Factors section in their 10-K Business Description item. These annual report risk disclosure statements provide a more comprehensive survey of company risk than the disclosure statements associated with new offerings. We have extracted more than 160,000 risk factor statements from annual reports and now cover more than 90 percent of the public companies listed on major US exchanges.
Risk Factors offers:
- Instant access to more than 500,000 unique company risk factorstatements
- Extracted disclosure language from SEC filings of nearly 10,000 public companies
- Search fields in more than 30 major risk categories and 1,000 specific risk terms
- Ability to text search within risk factor sections only
Try Risk Factors now!
Search Exhibits with Added Precision
Since its launch over a year ago, the Exhibits Search page on Securities Mosaic has been an invaluable resource for users who need to troll through the roughly 6 million documents that are tacked on to filings as Exhibits. If you need an Employment Agreement, or a Press Release, or a company’s Articles of Incorporation and Bylaws, then look no further than Exhibits Search, the surest and easiest way to find it. This unique search page allows you to peruse and search exhibits without even bothering with bulky filings.
And now, the Exhibits Search page is better than ever. Our newest innovation is the introduction of bi-level text search functionality, which allows you to perform text searching on both the document level and exhibit label level at the same time. This is the most precise and efficient way to search for particular content within a particular type of Exhibit. For example, if you are interested in how the possibility of a reverse merger is accounted for in a Stock Purchase Agreement, you can enter “Stock Purchase Agreement” in the Exhibit Label Search box, and “reverse merger” in the Full Text Search box. This pinpoint search functionality virtually ensures that all your results will be relevant.
The enhanced Exhibits Search is merely the latest in a series of upgrades we have been making to Securities Mosaic. Continue to check the Press Box for updates on further improvements and additions. And, as always, keep those suggestions coming. Contact Us.
And now, the Exhibits Search page is better than ever. Our newest innovation is the introduction of bi-level text search functionality, which allows you to perform text searching on both the document level and exhibit label level at the same time. This is the most precise and efficient way to search for particular content within a particular type of Exhibit. For example, if you are interested in how the possibility of a reverse merger is accounted for in a Stock Purchase Agreement, you can enter “Stock Purchase Agreement” in the Exhibit Label Search box, and “reverse merger” in the Full Text Search box. This pinpoint search functionality virtually ensures that all your results will be relevant.
The enhanced Exhibits Search is merely the latest in a series of upgrades we have been making to Securities Mosaic. Continue to check the Press Box for updates on further improvements and additions. And, as always, keep those suggestions coming. Contact Us.
Are You Watching?
Are there certain public companies you have your eye on? If so, how soon will you know when they’ve filed with the SEC? If you’re a Securities Mosaic subscriber, there’s no reason to even wonder. Our SEC Watchlist Alerts feature is one of our coolest tools, and it’s included (as with every one of our services) in your license at no extra charge. What’s more, we’ve just launched a new, user-friendlier version of the Watchlist which makes setting up and editing your alerts quicker and easier. This new version incorporates many helpful suggestions from you, our users.
If you access Securities Mosaic as part of an organization-wide, IP-authenticated license (meaning you see no login screen when you use the site), you will need to sign up for a personal account in order to set up your customized SEC Watchlist. However, personal accounts are available free of charge for those who are part of an organization-wide license. And there are other advantages to having a personal account, including the ability to use nifty tools such as the Document Cart and Stored Searches. Click here to sign up for a personal account.
Did You Know . . .
● If you have a Watchlist Alert set up, you’ll be notified by email of a filing shortly after its initial entry into the EDGAR system.
● You can set up alerts with all sorts of parameters, not just a given company’s name. For example, if you want to know every time a company in the tobacco industry mentions the word “cancer” in its filings, then you can set up a Watchlist Alert to notify you of exactly that.
● You can elect to have SEC Comment Letters and Responses included in your Watchlist.
● You can temporarily de-activate particular alerts and re-activate them later.
● There is no limit to the number of Watchlist Alerts you can have.
The SEC Watchlist is accessible from the “Quickfind” dropdown on any page in Securities Mosaic. There is also a link on the All SEC Filings search page.
As always, contact us any time for assistance using the Watchlist feature or help setting up a personal account. Customer Support.
Sunday, August 17, 2008
Feedback on Blogwatch Comments
Two weeks ago, I asked if people might like us to add a Comments feature to the KM Blogwatch. The lack of enthusiasm was palpable, and I have to say I am sympathetic. Blogs are a social medium, but their popularity results from the voice of the blogger, not those who post comments.
I am almost always dismayed when I read comments on blog posts, much in the same way that I cannot bear to hear the people who call in with remarks on talk radio. They typically represent the lowest common denominator of thought - inarticulate, ignorant, laced with vitriol. Here's an example.
So all I guess all I have to say is ... "No Comment."
I am almost always dismayed when I read comments on blog posts, much in the same way that I cannot bear to hear the people who call in with remarks on talk radio. They typically represent the lowest common denominator of thought - inarticulate, ignorant, laced with vitriol. Here's an example.
So all I guess all I have to say is ... "No Comment."
Tuesday, August 5, 2008
Adding Reader Comments to the Blogwatch
We are considering adding a Comments feature to the Blogwatch emails (and web page).
Here's how it would work. A Comments link would accompany each blog post in the Blogwatch email. If you wanted to publish a comment on that post, you could click on the link and go to a form that would allow you to add your comments. All comments from the prior day would appear at the bottom of the next day's Blogwatch email, with links to the original post.
So here are a few questions.
Thanks very much! I'll let you know what the teeming masses dictate.
Here's how it would work. A Comments link would accompany each blog post in the Blogwatch email. If you wanted to publish a comment on that post, you could click on the link and go to a form that would allow you to add your comments. All comments from the prior day would appear at the bottom of the next day's Blogwatch email, with links to the original post.
So here are a few questions.
- Do you like the idea of a Comments feature?
- Would you post comments on blog posts yourself?
- Would you read comments on blog posts yourself?
Thanks very much! I'll let you know what the teeming masses dictate.
Thursday, July 17, 2008
Welcoming Dick Cassin and the FCPA Blog
We are delighted today to welcome Dick Cassin of CassinLaw LLC and the FCPA Blog to the Knowledge Mosaic Blogwatch. With offices in Washington, DC and Singapore, CassinLaw is uniquely positioned to assist clients with all matters involving international commerce.
From its base in Singapore, the FCPA Blog can offer a fascinating voice and unique perspectives on the Foreign Corrupt Practices Act, an important cornerstone of US government efforts to root out corruption in the dealings of US companies with foreign governments and businesses.
With Knowledge Mosaic rapidly expanding its focus to cover topics of vital interest to financial and business institutions operating in global markets, we are excited to publish the FCPA Blog as part of the Knowledge Mosaic Blogwatch. We expect to add commentary on AML and other Patriot Act issues to the mix in short order.
Also, our roster of blog contributors has grown to the extent that our daily Blogwatch emails are sometimes quite long. To keep the content sufficiently bite-sized, we are planning to split the SM Blogwatch email into two separate daily emails, once delivered in the morning and one later in the afternoon. If anyone has strong feelings about this - pro or con- please write to me (pschwartz@knowledgemosaic.com) and let me know.
From its base in Singapore, the FCPA Blog can offer a fascinating voice and unique perspectives on the Foreign Corrupt Practices Act, an important cornerstone of US government efforts to root out corruption in the dealings of US companies with foreign governments and businesses.
With Knowledge Mosaic rapidly expanding its focus to cover topics of vital interest to financial and business institutions operating in global markets, we are excited to publish the FCPA Blog as part of the Knowledge Mosaic Blogwatch. We expect to add commentary on AML and other Patriot Act issues to the mix in short order.
Also, our roster of blog contributors has grown to the extent that our daily Blogwatch emails are sometimes quite long. To keep the content sufficiently bite-sized, we are planning to split the SM Blogwatch email into two separate daily emails, once delivered in the morning and one later in the afternoon. If anyone has strong feelings about this - pro or con- please write to me (pschwartz@knowledgemosaic.com) and let me know.
Thursday, July 10, 2008
Nought-60 in 3 Seconds: Legal Research in a Ferrari
I thought I was done with my speculations on Bloomberg Law, but recently ran across articles about the Bloomberg legal platform that were so interesting that I could not pass up the opportunity to offer additional commentary.
The first essay is a laudatory, high-fiving blog post about the wonders of Bloomberg Law published early in 2006 in Adam Smith, Esq. "Adam" (Bruce MacEwen) is agog at Bloomberg's lavish new headquarters and positively enraptured by Bloomberg Law. The brazenness of the pricing for this service - $1,500 per month per terminal per attorney - only fuels his admiration for the Oz-like wizards at Bloomberg.
And why not? How can one not find lovable Bloomberg Law's irrepressible and charming British-born leader, Constantin Cotzias, who besides being an indefatigable runner and triathlete, can with disarming insouciance compare his service to Westlaw and Lexis in the following manner. "Well, if you want an Audi, you should buy an Audi, but if you want to go nought-60 in 3 seconds, you really need a Ferrari, don't you?"
And there we have it - Bloomberg Law lets you drive nought-60 in 3 seconds. In a million years, would anyone at Westlaw or Lexis use this language to characterize their products? Of course not. Bloomberg is not like any other financial or legal publisher. Privately owned. Fabulously wealthy. Blindingly brilliant and innovative. If Westlaw and Lexis are Microsoft, Bloomberg is Apple. If Westlaw and Lexis are Ringling Brothers, Bloomberg is Cirque du Soleil. If Westlaw and Lexis are Atlantic City, Bloomberg is Las Vegas.
But here's the deal. In my previous post, I offered the theoretical possibility that Bloomberg Law might dethrone Westlaw and Lexis. I have now reconsidered this possibility, largely because Constantin's Ferrari metaphor crystallized for me the otherworldliness of the Bloomberg Law vision.
Visiting the Bloomberg headquarters is not unlike what Charlie experiences when he passes through the gates of the Chocolate Factory in Tim Burton's film interpretation of Charlie and the Chocolate Factory. While one might be loath to cast Johnny Depp as Michael Bloomberg, there is more than a passing resemblance between interiors of the two buildings - in the bright and bold colors; the geometric and glass architectural conceits; the pervasiveness of electronic media; the futuristic transportation devices; the sanitized and omnipresent security; and the profusion of free, delicious comestibles. If one allows for the substitution of beautiful women for Oompa-Loompas, you pretty much cannot distinguish the two environments.
While it would be pointless to dismiss the immensity of Bloomberg's product achievements in the past 20 years, there is an undeniable sense in which much of what the company provides - on its terminals and in its headquarters - is eye candy. Even the Bloomberg news - which fills an important niche in the market for real-time information - can hardly be called hard-hitting journalism. It is easily consumed, and more easily forgotten.
The Ferrari metaphor for Bloomberg Law inspires what I am sure is an unintended, yet meaningful, corollary image - that Bloomberg Law may not be much more than a toy for rich legal professionals - research bling, as it were. In an era of gas prices that are swallowing the budgets of ordinary folks, and a looming economic recession that has fossilized law firm research spending, only Bloomberg continues to have the audacity to introduce its legal platform as the equivalent to a high-performance, high-octane driving experience for the rich and famous.
The problem with the Ferrari image is that Ferraris are barely street-legal and hardly a practical transportation option for satisfying the needs that cars meet for most people. They are dream machines for people with immense amounts of disposable income, not vehicles for shopping or shuttling the kids or driving from Seattle to San Francisco. If one must use the car metaphor to talk about other products and the market niches they occupy, the "Audi" image Constantin used to characterize Westlaw and Lexis (accompanied, one presumes, by a barely concealed sneer) is actually far more apt as the solution most law firms would choose to purchase for their daily legal research activities.
In this instance, it so happens that the "Audi" costs about the same as the "Ferrari", but for the purposes of this post, the pricing equivalence of the Westlaw, Lexis, and Bloomberg platforms is less important than the the possibility that law firms might actually choose a Ferrari over an Audi to meet for the daily research needs of their attorneys.
Bloomberg Legal may well end up disposing of the competition the way Willie Wonka rid himself of Veruca Salt in Charlie and the Chocolate Factory. But what now seems more likely is that it simply does not matter much, either way, to Bloomberg the company whether Bloomberg the legal product ever takes off and acquires significant market share. The product focus for Bloomberg Law seems to be tactical, not strategic, and hence not materially relevant or pivotal to the success of Bloomberg's core business.
The primary purpose of Bloomberg Law - to the degree one is discernible - seems to be to broaden the Bloomberg ecosystem of Wall Street users to include the attorneys at firms that serve Wall Street banking institutions. But this is a niche strategy that holds out little possibility of gaining much market penetration for Bloomberg Law beyond the universe its terminals currently serve. The fact that Bloomberg does not appear to be willing to sacrifice its terminal requirements to gain market share outside of Wall Street law firms provides further confirmation that Bloomberg Law exists to shore up existing markets, not carve out new markets in competition with Westlaw and Lexis.
As another review article mentioned (and a friend of mine confirmed yesterday), Bloomberg Law remains primarily a financial and securities law platform. In this article, Constantin himself correctly emphasized that Bloomberg provides superior securities and financial information to what can be found on Westlaw and Lexis. "Anything that's coming out of regulators, the SEC or the NYSE, we'll track that in real time and we'll allow you to monitor regulatory developments that will impact any market sector."
Constantin's right. But there's an equally complete, exceedingly nimble, and far far less expensive securities and financial information solution alternative to Bloomberg Law. It's called Securities Mosaic. It, too, goes nought-60 in 3 seconds. But it's easier to use. And it doesn't require its own terminal.
The first essay is a laudatory, high-fiving blog post about the wonders of Bloomberg Law published early in 2006 in Adam Smith, Esq. "Adam" (Bruce MacEwen) is agog at Bloomberg's lavish new headquarters and positively enraptured by Bloomberg Law. The brazenness of the pricing for this service - $1,500 per month per terminal per attorney - only fuels his admiration for the Oz-like wizards at Bloomberg.
And why not? How can one not find lovable Bloomberg Law's irrepressible and charming British-born leader, Constantin Cotzias, who besides being an indefatigable runner and triathlete, can with disarming insouciance compare his service to Westlaw and Lexis in the following manner. "Well, if you want an Audi, you should buy an Audi, but if you want to go nought-60 in 3 seconds, you really need a Ferrari, don't you?"
And there we have it - Bloomberg Law lets you drive nought-60 in 3 seconds. In a million years, would anyone at Westlaw or Lexis use this language to characterize their products? Of course not. Bloomberg is not like any other financial or legal publisher. Privately owned. Fabulously wealthy. Blindingly brilliant and innovative. If Westlaw and Lexis are Microsoft, Bloomberg is Apple. If Westlaw and Lexis are Ringling Brothers, Bloomberg is Cirque du Soleil. If Westlaw and Lexis are Atlantic City, Bloomberg is Las Vegas.
But here's the deal. In my previous post, I offered the theoretical possibility that Bloomberg Law might dethrone Westlaw and Lexis. I have now reconsidered this possibility, largely because Constantin's Ferrari metaphor crystallized for me the otherworldliness of the Bloomberg Law vision.
Visiting the Bloomberg headquarters is not unlike what Charlie experiences when he passes through the gates of the Chocolate Factory in Tim Burton's film interpretation of Charlie and the Chocolate Factory. While one might be loath to cast Johnny Depp as Michael Bloomberg, there is more than a passing resemblance between interiors of the two buildings - in the bright and bold colors; the geometric and glass architectural conceits; the pervasiveness of electronic media; the futuristic transportation devices; the sanitized and omnipresent security; and the profusion of free, delicious comestibles. If one allows for the substitution of beautiful women for Oompa-Loompas, you pretty much cannot distinguish the two environments.
While it would be pointless to dismiss the immensity of Bloomberg's product achievements in the past 20 years, there is an undeniable sense in which much of what the company provides - on its terminals and in its headquarters - is eye candy. Even the Bloomberg news - which fills an important niche in the market for real-time information - can hardly be called hard-hitting journalism. It is easily consumed, and more easily forgotten.
The Ferrari metaphor for Bloomberg Law inspires what I am sure is an unintended, yet meaningful, corollary image - that Bloomberg Law may not be much more than a toy for rich legal professionals - research bling, as it were. In an era of gas prices that are swallowing the budgets of ordinary folks, and a looming economic recession that has fossilized law firm research spending, only Bloomberg continues to have the audacity to introduce its legal platform as the equivalent to a high-performance, high-octane driving experience for the rich and famous.
The problem with the Ferrari image is that Ferraris are barely street-legal and hardly a practical transportation option for satisfying the needs that cars meet for most people. They are dream machines for people with immense amounts of disposable income, not vehicles for shopping or shuttling the kids or driving from Seattle to San Francisco. If one must use the car metaphor to talk about other products and the market niches they occupy, the "Audi" image Constantin used to characterize Westlaw and Lexis (accompanied, one presumes, by a barely concealed sneer) is actually far more apt as the solution most law firms would choose to purchase for their daily legal research activities.
In this instance, it so happens that the "Audi" costs about the same as the "Ferrari", but for the purposes of this post, the pricing equivalence of the Westlaw, Lexis, and Bloomberg platforms is less important than the the possibility that law firms might actually choose a Ferrari over an Audi to meet for the daily research needs of their attorneys.
Bloomberg Legal may well end up disposing of the competition the way Willie Wonka rid himself of Veruca Salt in Charlie and the Chocolate Factory. But what now seems more likely is that it simply does not matter much, either way, to Bloomberg the company whether Bloomberg the legal product ever takes off and acquires significant market share. The product focus for Bloomberg Law seems to be tactical, not strategic, and hence not materially relevant or pivotal to the success of Bloomberg's core business.
The primary purpose of Bloomberg Law - to the degree one is discernible - seems to be to broaden the Bloomberg ecosystem of Wall Street users to include the attorneys at firms that serve Wall Street banking institutions. But this is a niche strategy that holds out little possibility of gaining much market penetration for Bloomberg Law beyond the universe its terminals currently serve. The fact that Bloomberg does not appear to be willing to sacrifice its terminal requirements to gain market share outside of Wall Street law firms provides further confirmation that Bloomberg Law exists to shore up existing markets, not carve out new markets in competition with Westlaw and Lexis.
As another review article mentioned (and a friend of mine confirmed yesterday), Bloomberg Law remains primarily a financial and securities law platform. In this article, Constantin himself correctly emphasized that Bloomberg provides superior securities and financial information to what can be found on Westlaw and Lexis. "Anything that's coming out of regulators, the SEC or the NYSE, we'll track that in real time and we'll allow you to monitor regulatory developments that will impact any market sector."
Constantin's right. But there's an equally complete, exceedingly nimble, and far far less expensive securities and financial information solution alternative to Bloomberg Law. It's called Securities Mosaic. It, too, goes nought-60 in 3 seconds. But it's easier to use. And it doesn't require its own terminal.
Wednesday, July 9, 2008
From Documents to Data: More Change on Securities Mosaic
Okay, let's get the good stuff out of the way first. Yesterday, I mentioned that we had added our vast, classified repository of Risk Factors data to Securities Mosaic. In the same spirit of excitement and abundance, I can report this morning that we have also made a number of other significant new changes to the Securities Mosaic website in the past few days. Here is the rundown.
2) New Section Searching on the All SEC Filings page – New Section Search categories for Financial and Accounting Information and for Prospectus Information make available 16 new filing sections for internal text searches. We will be adding these sections to Item Extractor later this summer.
3) Expanded News Archive on Securities Mosaic – Expands archives of all of our Securities Mosaic News and Current Awareness alerts to include the last six months (rather than the previous 10 alerts).
As with Risk Factors Search, the enhanced Exhibits Search and the New Section Search are of special interest. Both are like the sliders on a Google Map - they give you the power to quickly zoom in on data landscapes and isolate detail in the data that would otherwise be inaccessible or, at a minimum, take hours to locate.
These enhancements to Securities Mosaic all extend and deepen the trend toward research organized around data extracted from documents. The documents themselves have become almost irrelevant, not because they are not appropriate vehicles for some kinds of data presentation, but because they are a variable now, not a given. In many legal research and legal practice contexts, the information in documents is best delivered to the practitioner via a data-rich search environment in which the document itself is irrelevant. Expect this trend to continue and, indeed, to accelerate.
Next: Legal Research in a Ferrari
2) New Section Searching on the All SEC Filings page – New Section Search categories for Financial and Accounting Information and for Prospectus Information make available 16 new filing sections for internal text searches. We will be adding these sections to Item Extractor later this summer.
3) Expanded News Archive on Securities Mosaic – Expands archives of all of our Securities Mosaic News and Current Awareness alerts to include the last six months (rather than the previous 10 alerts).
As with Risk Factors Search, the enhanced Exhibits Search and the New Section Search are of special interest. Both are like the sliders on a Google Map - they give you the power to quickly zoom in on data landscapes and isolate detail in the data that would otherwise be inaccessible or, at a minimum, take hours to locate.
These enhancements to Securities Mosaic all extend and deepen the trend toward research organized around data extracted from documents. The documents themselves have become almost irrelevant, not because they are not appropriate vehicles for some kinds of data presentation, but because they are a variable now, not a given. In many legal research and legal practice contexts, the information in documents is best delivered to the practitioner via a data-rich search environment in which the document itself is irrelevant. Expect this trend to continue and, indeed, to accelerate.
Next: Legal Research in a Ferrari
Friday, July 4, 2008
Knowledge Mosaic Rising
Here are some things I plan to write about in the next week or two:
What Risk Factors search presages is a broad, comprehensive, and sweeping renovation of our research platforms. By the end of the year, we will have integrated all of our individual web and news products - Securities Mosaic, SM Litigator, Communications Mosaic, and Energy Mosaic - into a single platform called, simply, Knowledge Mosaic, which will span the full breadth of business and financial regulation.
In addition to the integration of our current set of products into a single, unified news and research environment, we will add a wealth of currently unreleased data, of which the Risk Factors Search represents only one example. We also possess the full set of parsed Investment Adviser registration data from the SEC, as well as a broad range of items, sections, and data extracted from the SEC filings. Finally, we are incorporating a vast array of financial and business data - from the CFTC, FTC, OCC, FDIC, FINSA, and every other alphabet agency one can imagine, including deputized regulators such as FINRA, NYSE, and Nasdaq.
Layer this extraordinary range of business and financial regulation resources with state-of the-art productivity and collaboration tools, and combine both with our renowned commitment to reasonable pricing and unparalleled responsiveness to the needs of our customers - and Knowledge Mosaic will quite simply stand alone. I cannot communicate to you the excitement we experience as we work on this incarnation of a research platform designed from the ground up to meet the needs of legal practitioners in the 21st century.
More tomorrow on the vision behind the product.
- More on Bloomberg Legal and the "interesting" idea that the appropriate metaphor for a legal research platform would be a Ferrari.
- The rise and fall of the curious practice of charging back legal research costs to clients.
- What the legal profession can learn from the NBA.
- The ascendance of the Facebook generation and the arrival of visual learning.
- Who the heck is Max Boot?
- The end of "race" - as in the remarkable and rapid disappearance of race as the axis of identity in American culture and politics.
What Risk Factors search presages is a broad, comprehensive, and sweeping renovation of our research platforms. By the end of the year, we will have integrated all of our individual web and news products - Securities Mosaic, SM Litigator, Communications Mosaic, and Energy Mosaic - into a single platform called, simply, Knowledge Mosaic, which will span the full breadth of business and financial regulation.
In addition to the integration of our current set of products into a single, unified news and research environment, we will add a wealth of currently unreleased data, of which the Risk Factors Search represents only one example. We also possess the full set of parsed Investment Adviser registration data from the SEC, as well as a broad range of items, sections, and data extracted from the SEC filings. Finally, we are incorporating a vast array of financial and business data - from the CFTC, FTC, OCC, FDIC, FINSA, and every other alphabet agency one can imagine, including deputized regulators such as FINRA, NYSE, and Nasdaq.
Layer this extraordinary range of business and financial regulation resources with state-of the-art productivity and collaboration tools, and combine both with our renowned commitment to reasonable pricing and unparalleled responsiveness to the needs of our customers - and Knowledge Mosaic will quite simply stand alone. I cannot communicate to you the excitement we experience as we work on this incarnation of a research platform designed from the ground up to meet the needs of legal practitioners in the 21st century.
More tomorrow on the vision behind the product.
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