35 MPG?

Just before Christmas 2007, President Bush signed a new energy bill whose major claim was to set fuel mileage requirements to--35 miles per gallon--by 2020. Can you believe it? This is like President Kennedy saying the US will put a man in orbit by the end of the century! (He actually called for putting a man on the Moon by the end of the 1960s). Dah! With crude oil near $100 a barrel and with what former Fed Chair Greenspan called a war for oil going on in the Middle East, you would think the administration would act with a little more urgency. Instead the President was more keen on promoting the importance of nuclear energy.

The President is partially right--the key is electricity--not fuel. Fuel is limited-electricity is not. The President seems to want to ensure that the established powers - oil companies mainly find a way to adapt to the limitations of their industries and find new ways to enslave the American public to their profit structure. Wrong! Just as the President never got the "internets" he doesn't comprehend the Internet model for the transformation of America's energetic infrastructure.

Electricity is fleeting-it doesn't store well and it travels inefficiently. But it can be produced everywhere and through different means. Solar, wind, geothermal, hydroelectric are just some of various means of generating electricity. But lets stick with cars - our most ravenous from of petrochemical consumption. The move to the hybrid is obviously the transition we need to make. But most people don't realize that regenerative braking - the technology that turns a car's brakes into an electricity generator - is a very promising option that actually makes driving your car in a city more gas efficient! The more you brake, the more electricity you produce! Test cars are getting 50 mpg in the country and 70 mpg in the city.

So lets move to hybrids and the electric car. But let the gas produce most of the electricity for now until the nation's electrical grid makes the transition to a more diffused production system that will empower both America's urban and rural areas - instead of dictatorships abroad.

The 810-page energy bill does include nearly $100 million for battery research. Not exactly the Manhattan Project, but the government needs its money for its billion-dollar a day war for oil. Still battery technology is absolutely critical. Just look at my Sony Walkman (Yes, I don't have an iPod) I get about 30 hours of music for each charge! I took it to Hawaii for 10 days and didn't even have to recharge it once.

What seems to be most important to the administration is to replace our current addictions with new ones. Instead of transforming the electrical grid into an internet-like space for e-commerce (energy commerce,)the government seems to want to ensure that established powers are able resuscitate their profit pipelines but configuring the energy infrastructure to their own interests. To avoid this, the government must call for 100 mpg vehicles by 2015. This will shake up the system, introduce "creative destruction" and let the government more the energy markets out of their current state of market failure and help develop a nation-wide system of true energy markets.

Hawaii and the BCS (Big Cash System)

Hawaii is proving to be the exception that proves the rule in the current college football system -- and laughing all the way to the bank. The BCS, or what I call "The Big Cash System" has been under investigation for its monopolistic practices. Critics, including many in Congress, see the BCS as a way for the major football schools and conferences to maintain a competitive advantage. While some of the minor bowls barely reimburse schools for the expenses, the big bowls bring in millions for the participating schools and split up a big chunk among the conference as well. Ferd Lewis of the Honolulu Advertiser explains:

Most people believe, incorrectly, the BCS was designed to determine a national championship. It wasn't. It is supposed to assure that the lion's share of the postseason money — more than $100 million — stays in the pockets of the power conferences. For this the best BCS minds had put together a formula that was supposed to largely fence out the lower classes but leave just enough room to mollify Congress and monopoly-charging lawyers.

Well, the Hawaii Warriors got into the Sugar Bowl on Jan 1 by going undefeated at 12-0. They play a somewhat miffed University of Georgia who thought they should have been heading to the BCS Championship against Ohio State. Georgia is good, but they will have their hands full against the scrappiest team of the year. Colt Brennan, rejected in New York, with the Heisman trophy going to SEC sophomore darling Tim Tebow, is going to be ready to roll. And with three (3) All-American receivers, Jason Rivers, Devone Bess, and Ryan Grice-Mullin, they are ready to rock as well. All-American Hercules Satele anchors the O-line missing 3 starters now in the NFL.

But lest you think its the same pass-happy Hawaii of the Timmy Chang era, they rock on defense this year as well. Greg McMackin, the Defensive Coordinator of the Miami Hurricanes and Seattle Seahawks, returned to Hawaii to help the Warriors to another WAC title. He was there in the late 1990s for one season when Hawaii tied for the WAC top slot.

So tune into Fox on Jan 1 for a primetime worthy game. And watch the BCS system cringe as another team emerges from the margins of college football to challenge the dominant stranglehold on bowl money.

Gore Invented the Internet, Rubin Financed IT

“During my service in the United States Congress, I took the initiative in creating the Internet.”
- Vice-President Al Gore on CNN

They now have a term for it - "Swiftboating" a reference to extreme personal attacks and outright lying to gain political advantage that came into usage after the campaign to destroy Democratic candidate John Kerry in the 2004 Presidential election. But in the 2000 election Al Gore was also smeared and ridiculed for his "lies". The above quote was turned in a claim that Gore had said that he "invented the Internet". Here's my (brief) version of how the Internet came about and Gore's role in it.

The Internet's origins are usually traced to the development of the ARPANET, the first packet-switching network that went online for the first time a few weeks after the first Moon landing in 1969. But the Internet really became the Internet years later when new protocols were developed to connect the University of Hawaii via a satellite.

But the real transformation occurred in the 1980s when Gore took the initiative, as he said to help connect supercomputers, around the country. The Supercomputing Study Act of 1986 and other Gore-supported legislation got the National Science Foundation to support linkages between supercomputing facilities at universities and research centers around the country using the ARPANET technologies. Students at one of those supercomputing centers designed a visualization application called Mosiac that was the precursor to Netscape and thus all browser interfaces to the World Wide Web. From there the Internet took off and garnered the attention of the private sphere as well.

Enter the financial markets. By the early 1990s, the financial world had forgotten the implosion of October 1987 and was busting at the seams with institutional money. The telecom market had already been attracting money in the wake of the AT&T breakup and the growth of cable TV and wireless communications. But the Netscape IPO in August of 1995 was arguably the beginning of the "dot.com" frenzy, one of the most extraordinary speculative episodes in stock market history punctuated just a little over a year later with Fed Chairman Alan Greenspan's "irrational exuberance" speech.

Despite Greenspan's warning, stock markets such as the NYSE and the NASDAQ continued to boom and one of the main reasons was global instability in the currency markets and the flight to the "safe" markets of the US. The issue can be traced to the value of the Japanese yen which was reaching highs in 1995 of when it could buy a US dollar for less than 80 yen, roughly making the Japanese economy worth as much as that of the United States. The US attempt to devalue the yen, orchestrated by Robert Rubin would, ignited the financial shot that was heard around the world. The yen lost nearly half its value over the course of the next three years.

The problem was that many countries around the world had pegged their currencies to the US dollar which was suddenly appreciating - very rapidly. (The other side of the JPN/USD equation) The newly termed "Emerging Markets", heavily dependent on exports to the US saw the prices of their exports rise. These countries tried to maintain their currency pegs but were attacked by hedge funds speculating on the currency imbalance. The "Asian Financial Crisis" emerged and spread to Latin America and then Russia by 1998.

The international financial crisis made the US markets the safe haven for world's wealth. The US eased the transition by "bailing out" these countries, in effect, supporting the transfer of wealth back to the US markets and into the dot.coms and telecom industries. The NASDAQ climbed from under 1000 in 1995 to over 5,100 at its peak in early 2000 making Cisco and Microsoft the largest companies in the world (by capitalization). Incidentally, this was time the first accusations of Gore claiming to have "invented the Internet" emerged.

Media Ecology List

Here is a YouTube playlist on the topic of "media ecology" starting with former NYU professor Neil Postman, a classic figure in the analysis and criticism of media and information technologies.

Fed Drops Interest Rates - Again

Watching inflation or the stock market? That was the question after the FOMC decided to drop both the Fed Funds Rate and the Discount rate by a quarter basis point to 4.5% and 5% respectively.

The move was a little surprising after GDP reports showed a decent 3.9% growth on an annual basis. But credit concerns still predominated as the subprime mess still looms across the economic horizon and a growing economy will be dependent on readily access to cheap loans.

Of course, our export economy is also addicted to the cheap dollar, one of the reasons for the decent GDP figures. No surprise that the lower interest rates pushed a barrel of crude to nearly $100 as the dollar weakened on the news of the Fed decision.

FOX with a Ticker

In the aftermath of News Corp buying Dow-Jones and its Wall Street Journal, I was curious about the premiere of Fox Business News. I'm not the biggest fan of the WSJ but I do have respect for its tradition and the role of financial journalism in general. But after watching some of the first two days of FBN, I wonder if two people are rolling in their graves.

The company that Charles Henry Dow and Edward Davis Jones created in the post-Civil War era when the US corporation was emerging as a major economic power is almost synonymous with America's economic rise. Dow and Jones first started with the Customer's Afternoon Letter and in July of 1884 the created the first Dow Jones Industrial Average with 11 companies. The WSJ was created in July of 1889 with the explicit goal of offering news, not opinion.

Well, it seems its the same old Fox news. "We Report, You Decide" - give me a break. One indication is that they are rehashing David Asman, who seems to have his microphone so far up... well never mind on that. Asman is proficient in the language of cynicism, the chief currency of Fox News.

Of course we should have expected this, when Murdoch himself announced that the new network would be “more business friendly than CNBC”. I guess that is like Fox News being more administration friendly. CNBC, the financial news network owned by GE, is quick to “leap on every scandal,” said the NewsCorp chief according to according to BusinessWeek.com, whose parent, McGraw-Hill is no small corporation itself. Well, I don't know about you, but I'm sure glad CNBC jumped on that little scandal called WORLDCOM.

Well, perhaps the market is giving us a vote on the FBN. Down 248 points - from 14,160 Monday morning to 13,913 today - is one indication that Fox Business News is getting the thumbs down from Wall Street.

The Politics of Global Warming

Congratulations to Al Gore for sharing the Nobel Peace Prize! And relax, the Supreme Court did not award it to George Bush.

The issue of global warming is a curious one politically as it places science at the fulcrum of public policy. This places the Right on one side frightened over a possible change in the status quo and enhanced economic and social power going to government. The Progressive Left sees global warming as a vehicle to address a range of problems from dependence on oil, carbon-based pollution, and the possibilities of new industries emerging around alternative energy.

Big Oil and other entrenched powers such as American auto and electricity industry have a lot to lose if the public embraces the threat of global warming. Whereas the war on terrorism has been good for the oil industry, the war on warming will be its undoing--unless it can stall it until it can find ways to capitalize on it.

The "Charge it to My Kids" Republicans

Its no wonder that the Republicans are trying so hard to kill the inheritance tax (Otherwise known as the "death tax"), they know that their kids are going to need all the help they can get to pay the tab they have been running up. Thomas Friedman came up with the catchy but apt phrase after watching Dana Perino, the White House press secretary, fumble out this answer in response to a question about raising taxes to fund the war. “Does anyone seriously believe that the Democrats are going to end these new taxes that they’re asking the American people to pay at a time when it’s not necessary to pay them?” added Ms. Perino. “I just think it’s completely fiscally irresponsible.” In other words, why should I pay taxes now if I can just borrow the money for the war from China or Japan and have my kids pay the bill.

Read more:

http://www.nytimes.com/2007/10/07/opinion/07friedman.html?ref=opinion

The REAL Social Security

I have been sympathetic to President Bush's overtures about privatizing social security, but this week he made his opinions public about the real social security - taking care of our children. On Thursday he threatened to veto legislation to expand health care for children. One of the best things this country can do solve its expanding programs is to ensure a new generation of healthy, bright, and well-educated. When the baby-boomer generation is getting their third heart by-pass operation, they better make sure they have a cadre of competent, smart, and productive young people working to pay the bills. That starts with good medical care while they have developing their brains and their bodies.

So I asked my brother about this issue. He is a medical doctor and a bit more clued into health issues than myself. Dah, the reason for the veto is that the bill wants to pay for child health care with a tobacco tax.

Politics over people - little people this time - George havn't you learned anything?

Fed Drops Interest Rates

As I predicted, along with many others, the Fed decreased the interest rates for the nation's banking system yesterday in order to increase the amount of money circulating in the economy. Both the Fed Funds and Discount window saw their rates decreased by 50 basis points to 4.75% and 5.25%.

A rising tide lifts all ships and that is the thinking behind increasing the money supply. It doesn't directly address the credit problem but the rate cut should stabilize housing prices and help the ratings of those mortgage bonds that now underly the credit system for the derivatives markets.

Lower interest rates weaken the dollar and it was no surprise that crude hit record highs above $80 a barrel. All those Toyotas and Nintendo Wiis got a little more expensive as well.

The high energy prices means that the US will go screaming into a future of alternative energy sources.

Subprime Mess, Part II: XML to the Rescue?

In "Subprime Mess, Part I" (See Below) we found out that the entire world credit system had been placed on the foundation of the US housing market. Mortgages were bundled in bonds that were rated highly by the credit agencies and sold hedge funds and other speculators. Besides paying a good dividend, these packages were also used as collateral for getting loans from the banks for additional speculation in everything from currency markets to shares.

So why XML? XML (EXtensible Mark-up Language) has been embraced by the mortgage industry to standardize real estate finance transactions on the Internet. The use of XML has the potential of disaggregating the packaged loans and removing those in trouble and reorganizing them in other packages that can be appropriately rated by Moody's and Standard and Poors.

This hasn't solved the problem of the margin calls as these mortgage bond packages get rated down but it suggests a more flexible system for maintaining the quality of commercial paper.

The Beauty of Bush

Even those who voted against him have been largely surprised at how bad President Bush's performance has been since 2000. The successful attack on American citizens on 9/11, the rising energy prices, the return of government deficits, and most tragically, the failures in Iraqi and apparently Afghanistan, has probably doomed Bush to the dustbin of history. But there may be a silver lining to those clouds.

Instead of President Gore trying to drag a kicking and screaming America into responsible policies and energy management, the frightening spectacle of Bush's America is driving Americans to thoughtful reflection and purposeful action. American's are waking up to the problems of an oil-based economy and its dangers for the environment, the public's health, and of course, their pocketbooks and wallets. They are also wising up to the politics of fear (Sorry Rudy!) and other national soul-destroying policies such as torture and domestic spying. After seven years of spying on American citizens, continued oil dependence and Vietnam-like quagmire in the Middle East, Americans have moved out of the post-Cold War, good times slumber of the Clinton years.

President Bush has diseased America; weakened it, tarnished its reputation around the world.

But as they say, what doesn't kill you makes you stronger.

The Weak Dollar Economy

Why did the Fed choose to reduce rates at the discount window (50 basis pts to 5.75%) rather than target a new Fed Funds Rate? To avoid an appreciation of the US dollar. Higher interest rates would make the dollar more attractive and lead to a stronger dollar. This would be a disaster for the 14,000 Dow, well, 13,000 this week (see "Subrime Mess" below).

A weaker dollar means cheaper exports. Corporate earnings due to global sales have been driving this bull stock market run. Companies such as Cisco, Caterpillar, GE, benefit from the artificial reduction of their product's price. Higher interest rates would (economically speaking) increase demand for the dollar on the FX markets and drive up its price, and thus the price of US made goods and services.

Having said that, look for the Fed to reduce interest rates (Fed Funds rate target) a quarter point to 5% to signal more love to the financial sector and provide some relief for the housing market. Any official move to reduce the rates below 5% would signal a stimulative move and the threat of a recession.

College Football in a Digital Media Environment

College football is God's compensation for the end of summer. Some of the people I know may be surprised that I am a big fan - well of my alma mater anyway - the University of Hawaii. No, you are probably not hearing the echoes of brass bands, screaming stadiums or Keith Jackson's voice when I mention UH Football, but that is alright. The Warriors are up and coming and that is partly due to the new digital environment that college football has embraced.

I say UH is up because they went 11-3 last season and coming because they have a lot of players back and are in almost all the top 25 polls with the Associated Press putting it at #23 today. Despite losing at least 6 starters to the NFL, the Warriors are reloading around Colt Brennan who threw for a record 58 touchdowns last season with a NCAA record of 186 passing efficiency while throwing for 5549 yards. Three receivers with 1000 yard seasons - Davone Bess (96 rec, 1220 yds) Ryan Grice-Mullins (85, 1228), Jason Rivers (72, 1178) are back - and that may be a NCAA first, from an offense that averaged 47 points and 441 passing yards per game and racked up 7977 yards total for the season. Last season was the first time in my life when I prayed for bad field position, knowing that it would only give the QB, receivers, and running backs like Nate Ilaoa more yards to churn up.

So what does this have to do with digital media? The problem for UH is that they are based on the most geographically remote place on Earth. They travel more than any other team – college or pro. That also means that their home games start at 11 pm Saturday or 12 am Sunday morning on the East Coast, depending on daylight savings time. But digital media diversity is working in their favor. Last season I was able to watch every UH game, even though that took a utilizing a combination of Internet, audio and cable TV options. Radio from Hawaii comes espn142o through the Internet as does the less satisfactory video feed from KFVE via HawaiiTel. UH has always had the advantage of state coverage through its media, from newspapers to TV. But with ESPN multiplying the TV coverage of college games and emerging competitors like CSTV, the door has opened to the “mainland”. When newspapers went on the Internet, detailed coverage of the games could be accessed. Now blogs provide an even more interactive environment and even more detail about the players and strategies.

But why my love for college football? In a word, - tribalism. Having lived in Hawaii for 14 years and getting my MA and PhD from UH, it is my true alma mater or “mother of my learning”. But I realize it’s important only because its fun to make it important.

The UH football team used to be called the Rainbow Warriors, and although the name is gone, the feeling persists of a wide spectrum of people coming together to play and support this team. Of course, every team has their following. But I’m part of this one.

Oh, and the story of Hawaii this season – its not just Colt, but the defense.

The Subprime Mess

In reaction to the telecom/dot-com/9/11 bust, the Federal Reserve reduced the Fed Funds target (Interest rates) down to 1%. This boosted the real estate market as low mortgage costs combined with investment hype to create a new speculative bubble in housing. Competition increased between banks and other mortgage providers to get in on this market and down payment requirement decreased as well. Loans were given to people with little equity for a down payment and often with less than stellar credit histories, discounting credit reporting algorithms such as FICO. The questionable loans were then bundled, packaged and sold in secondary markets. This allowed mortgage originators to replenish their ability to legally make more loans. It also created new levels of risk and meant that lending was now financed by investors rather than depositors.

These financial instruments have become a crucial mechanism in the new global system of financial hedging. They have become the foundation of, the collateral for, highly leveraged trading strategies that have, for instance, pushed the Dow to 14,000. Now, as their collateral gets devalued, these traders face margin calls – they have to put up more money or default on their loans. Subprime loans make up only 10% of the mortgage market and only a small percentage of them are in trouble but the bundled loans have lost their attractiveness. The combination has created a credit crisis had has only been partially alleviated by the Federal Reserve’s recent infusion of capital into the banking system.

World Wide Wall St - Enter FOX

What do stock markets do? They collect capital geographically for corporations and startup (IPOs) companies while also providing a liquid market for investors who want to withdraw without a significant penalty.

Stock markets around the world have recently been "demutualizing" (going public) to globalize and update their technology infrastructure. The merger between NYSE and Euronext was probably the most significant move towards a new "World Wide Wall Street".

But another factor is the infosphere - the media and financial information system that provides the data, gossip and news that run these markets. Rubert Murdoch and his NewsCorp behemoth recently bought Dow-Jones - one of the most significant financial news organizations in the world and owner of the Wall Street Journal for a staggering $5 billion dollars (Dan Gross wrote that Murdoch paid a "jerk premium" of "somewhere between $760 million and $1.22 billion"). Recently, Thomson, the Canadian media conglomerate began buying Reuters, the founder of the electronic trading environment with Money Monitor Rates back in the 1970s, and the reigning trading communications system. GE who owns CNBC, the dominant financial television news network, considered the purchase but declined.

Bottom Line: As markets continue to go global, Fox is going to be there competing in the financial infostructure of globalized electronic money. God help us all.

SarBox - Holding the Line

In the late 1990, corporate corruption inflated the telecom bubble, leading to its eventual crash in the summer of 2002. In economic terms this corruption became an externality (costs borne by 3rd parties) and resulted in an oversupply of the product. In this case, too much fiber (Enron, Tyco, Worldcom, etc.), too many ISPs, too many dot.coms. The eventual crash resulted in some $7 trillion in inflated values melting away and even the demise of one of the "Big Eight" accounting firms, Artur Andersen. In the wake of the ongoing crises, the SEC, Congress, and the Bush Administration came up with legislation that make CEOs accountable for financial statements. The Sarbanes-Oxley Act of 2002 took effect in July of that year and became a boom for the IT industry suffering from the market collapse and continuous outsourcing. Not to mention the accounting industry. But there has been a lot of complaints about the cost and that global firms are increasingly listing on non-US share markets.

I say the US has to hold the line and provide a oversight model for the rest of the world. There was a lot of opposition to the SEC when it was created but can you imagine not having the transparency that quarterly filings provide? As we move towards the end of pensions and the rise of the 401(k)s, do you want your retirement savings in companies where the CEOs would not verify the accounting? Most of the costs have already been registered and IT-financial controls are largely automated. Transparency is a good thing.

IPTV and E-Commerce

Earlier this year I attended the Pacific Telecommunications Conference and gave a paper on IPTV (Internet Protocol Television) and international policy, primarily looking at the WTO and WIPO. I started off talking about how the WTO discussions in 1996 and 1997 led to the globalization of the Internet. Then I argued that IPTV would face some problems under the current classifications schemes of the WTO General Agreement on Trade in Services (GATS). One particular problem is the resistance to including broadcasting issues in the WTO. I suggested that IPTV should be considered e-commerce in order to have the same level of success approaching that of the Internet.

Net Neutrality

One of the classes I taught last semester at NYU was E-Commerce Law and Regulation. A great coincidence is that my friend Tom Agoston from IBM was teaching Communications Technology and Law two doors down. So we combined the classes at times. The big topic was "net neutrality". This is going to be a very important topic the next few years that will probably not be on top of the political debate but I'm sure will be at the root of a lot of fund-raising for both parties. The big money will come from the telcos who want to roll out IPTV nationally to compete against the cable companies who have encroached on their traditional voice telephony service. I personally like that they are going to be going up against cable and am looking forward to upcoming revolution in digital television. However, the Internet is a national/world treasure and needs to be structured towards what it does best - provide a fantastic environment for economic markets and political democracy.

Markets Fail

This is something I'm thinking through. I teach a number of economic and political economy classes at NYU and have to seriously address issues dealing that abstraction "market".

Markets Fail

By Anthony J. Pennings

Markets fail

That is why we have Government

Governments fail

That is why we have Democracy

Democracy fails

That is why we have Journalism

Journalism fails

That is why we have Education

Education fails

That is why we have Intellectuals

Intellectuals fail

That is why we have Research

Research fails

That is why we have Markets…