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…