Who is to Blame? Bush or the Fed?

Let's face it. The economy is pretty scary. The real test will come this week (April 29/30, 2008) with the FOMC meeting. If they continue to drop the Fed Funds rate that will indicate that the credit crisis is still a major hazard on the horizon. If they keep them the same or raise them it will indicate that they are on to the major inflation problem that has emerged both in the US and around the world. That is the future. What about the past?

The dot.com crash of 2000 (ff @ 5.75%), 9/11/01, and the Enron/telecom crash of 2002 freaked out Chairman Greenspan and the Fed took the Fed Funds rate to 1% in 2003. 1%!! The housing market boomed with low interest rates and speculation hype as everybody and their mother began to feel they had to buy a house or lose out. Add a new credit chain that bypassed the traditional S&Ls and channeled mortgages into commercial bonds that were then sold internationally through unregulated OTC markets.

We can thank the repeal of Glass-Steagall, the benchmark regulation of the New Deal that separated brokerages from banks, for this new credit system as it allowed investment banks into the mortgage business. OK, that was done during the Clinton administration. Commercial lenders such as Citigroup began to underwrite and trade these mortgage-backed securities and collateralized debt obligations. Becoming ultimately a $45 trillion dollar business!

Dystopian Political Economies in Second Life

I gave a talk last night (April 17, 2008) about Second Life, the online virtual world popular on the World Wide Web. It gave me a moment to reminisce about my PhD dissertation, Symbolic Economies and the Politics of Global Cyberspaces (1993) as well as begin the wrapping up of a year-long project on Second Life in our NYU curriculum and particularly as it related to my class, the Political Economy of Digital Media.

The talk was held in downtown NYC at the Woolworth Building, known as the "Cathedral of Commerce" when it was built in 1913. I went back to my dissertation because it looked at money in fictional virtual worlds, particularly William Gibson's cyberspace trilogy, and his classic Neuromancer (1984) as well as the later Neal Stephanson's Snow Crash (1994). At the time I was looking for a progressive political stance in the wake of the fall of the USSR and I decided to compare these cyberspace subgenre (characterized by the 4 Cs: Corporations, Criminality, Corporeality, and of course Computers or Cyberspace) novels with the utopian genre. Sir Thomas More's Utopia (1516) was imagined primarily as a place WITHOUT MONEY. So I used the notion of symbolic thirds from Jean-Joseph Goux to analyze the political economy of utopias and the "dys"topias of these cyberpunk genre novels. Now, some 15 years later I decided to revisit my old work to examine Second Life.

I had a particularly useful bridge, work of Cory Ondrejka, a Second Life co-founder and until recently, the Chief Technical Officer for Linden Labs, the developer of Second Life. His "Escaping the Gilded Cage: User Created Content and Building the Metaverse" also used the cyberpunk genre as a point of departure. One of his inspirations was the Mystery of Capital by Hernando De Soto, a very popular economist throughout the "Third World", who focused on capitalism being a system of representations and rights. Connecting poor people to property via a system of legal representations was the most effective way to empower them to build wealth. You could say it was a more effective presentation of what President Bush would call the "ownership society". Keep in mind the issue here is more along the lines of what the Communist China leader Deng Xiaoping once referred to as "distributing wealth rather than distributing poverty". Remember my concern here is a progressive political economy rather than an apology for capitalism and its tendencies towards monopoly and excess. But lets get back to Second Life.

Ondrejka identified four problems with creating content in virtual worlds like Second Life and even in creating video games. They were the difficulties in: 1) creating first-class art; 2) the lengthy development cycles needed; 2) the hours of gameplay that had to be produced; 3) the many players that needed to be accommodated, and 4) the large teams that had to be hired and managed effectively to create digital content. Creating virtual worlds by the traditional model of a single group producing it is highly unlikely. User-created content is the key.

He suggested that online virtual worlds are really only possible if: 1) Its users are given the power to collaboratively create the content within it; 2) each of those users receive broad rights to their creations. These would be primarily property rights over virtual land, in-world games, avatar clothes, etc.; 3) they also need to convert those creations into real world capital and wealth. Online virtual worlds need a system of incentives and symbolic currencies to propel them.

Player created content is not entirely new to digital games. id Software, the small Texas-based company used the ego-centric perspective to create the first person shooter (FPS) game, Wolfenstein, in May of 1991. id followed with the extraordinarily successful DOOM in December 1994. DOOM combined a shareware business model with the nascent distribution capabilities of the Internet. Just two months after Netscape introduced its first browser as freeware over the Web, DOOM enthusiasts by the droves were downloading the game by FTP to their PCs, many of them with a 14.4 kb modem. In a prescient move, id decided to make DOOM’s source code available to its users. Making the code available allowed new modifications of the game called “mods”. This innovation allowed their fans to create their own 2.5D (not quite 3-D) levels and distribute them to other players. A popular one involved the using the characters from the Simpsons’ animated TV show running around the DOOM environment with Homer Simpson able to renew his health by finding and eating donuts. The US military created a version called Marine DOOM designed to desensitize soldiers to the idea of killing. Many of the company’s new employees were recruited because of the excellence of their mods and the extra help allowed them to create the next stage of their innovative online gameplay, QUAKE.

Second Life was born in June 2003. It offered users the ability create content using built-in tools. They could develop objects and their scripted behaviors (ie a tree and its leaves swaying in the wind). They could create their own avatar (representation of themselves or an entirely fictitious persona). They could buy and sell land and any of the other objects they created because they sought to protect intellectual property. Some 99% of the new world was user created and no permits, pre-approval processes, or separate submission were required. The key was the ability to perform transactions and maintain rights to property.


The dynamism of virtual worlds depends on the ability for players to sell items to each other for in-game virtual currency, or barter for such items. The purchase of in-game items for real-world currency is also crucial as is the exchange markets to convert virtual currencies for real-world currencies and vice-versa. It will be interesting to watch these dystopian virtual worlds emerge.

How the Rich Get Richer - BCS

The good news - The University of Hawaii received $4.4 million today for its participation in the BCS Sugar Bowl football game on January 1, 2008.

The bad news - damn, the big schools pull this type of money down every year, and Georgia (which beat Hawaii) got nearly $17 million dollars for itself and its SEC brethen.

Thus the BCS (Big Cash System) pumps money into a few select schools and conferences. Restraint of trade?

Hawaii - the exception that proves the rule.

Barach Obama's Full "Bitter" Quote

"So, it depends on where you are, but I think it's fair to say that the places where we are going to have to do the most work are the places where people feel most cynical about government. The people are mis-appre...I think they're misunderstanding why the demographics in our, in this contest have broken out as they are. Because everybody just ascribes it to 'white working-class don't wanna work -- don't wanna vote for the black guy.' That's...there were intimations of that in an article in the Sunday New York Times today - kind of implies that it's sort of a race thing.


Here's how it is: in a lot of these communities in big industrial states like Ohio and Pennsylvania, people have been beaten down so long, and they feel so betrayed by government, and when they hear a pitch that is premised on not being cynical about government, then a part of them just doesn't buy it. And when it's delivered by -- it's true that when it's delivered by a 46-year-old black man named Barack Obama (laugher), then that adds another layer of skepticism (laughter).

But -- so the questions you're most likely to get about me, 'Well, what is this guy going to do for me? What's the concrete thing?' What they wanna hear is -- so, we'll give you talking points about what we're proposing -- close tax loopholes, roll back, you know, the tax cuts for the top 1 percent. Obama's gonna give tax breaks to middle-class folks and we're gonna provide health care for every American. So we'll go down a series of talking points.

But the truth is, is that, our challenge is to get people persuaded that we can make progress when there's not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it's not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

Um, now these are in some communities, you know. I think what you'll find is, is that people of every background -- there are gonna be a mix of people, you can go in the toughest neighborhoods, you know working-class lunch-pail folks, you'll find Obama enthusiasts. And you can go into places where you think I'd be very strong and people will just be skeptical. The important thing is that you show up and you're doing what you're doing."

Blogged with the Flock Browser

Desperate Measures for Desperate Times?

That is the question as trading opens on March 17, 2008. Its been quite a weekend as JP Morgan bought Bear Sterns for $2 a share after getting a $30 billion loan from the USA to ensure the company's liquidity. I happened to see President Bush on Friday as he was in New York City to sign off on the bailout. I was taking my daughter to Japanese school when his limo buzzed by on 79th St. He smiled and waved cheerfully. Scary.

So the Fed lowered the discount rate this weekend as well. The move was just 25 basis points to 3.25%, slightly above the Fed Funds rate at 3%; but was no doubt meant to provide SOME good news for the markets on Monday. Give Bernake some credit for the diversity of his solutions, but does it mean the Fed Funds system is lacking market dynamics? Are banks not willing to borrow from each other?

Eliot Spitzer for Community Service

Prosecute him and make him do community service. That is my recommendation for the recently resigned New York State Governor. Eliot Spitzer is one smart cat and he knows NY crime and Wall Street shenanigans. But lets face it: Mann Act violations, money laundering, and "structuring", a type of money laundering; the guy is facing some serious penalties.

He could do a lot to help clean up Wall Street in a supporting role for the District Attorney or the SEC, well maybe the latter in a Federal administration that would actually want to do some reform. He doesn't have to worry about money so he is free to donate his time to the community that had placed so much trust in him. Besides, he probably wants some revenge for being set up.

Media Hatchet Job

I'm a great fan of Barack Obama. I am from Hawaii after all and like his parents, I met my wife at the University of Hawaii.

But it is so clear that the media has it out for Hillary Clinton. MSNBC in particular, CNN too, are so biased against the Senator and former First Lady. Chris Matthews, who normally likes anything in a skirt, has even turned against her.

They decide. We Vote.

Fed Panics

Markets were closed in the US to celebrate Martin Luther King's birthday, but they were busy around the world. In Asia and India in particular, the electronic stock markets were crashing. The futures trading on the Dow Jones Industrial Index indicated that the "Dow" could be trading as much as 650 points lower when the US markets resumed trading on Monday. Tipped off by the worsening economic indicators and a US7.2 billion fraud case in France, the voting members of the FOMC (Federal Open Market Committee) held an emergency teleconference on Monday night. In the morning, before the markets opened, they released a statement that the Federal Reserve would cut its overnight lending rate by 75 basis points to 3.50%, citing continuing credit problems and GLOBAL PANIC (not). When 9:30AM came about, the traders at the New York Fed went to work buying up bonds, thus injecting money into the banking system and thereby adjusting the Fed Funds interest rate down to the target of 3.5%.

Spend and Borrow: The Reagan Legacy and the Republican Addiction

"You know, Paul, Reagan proved deficits didn't matter," argued Vice-President Dick Cheney in a discussion about raising taxes. As reported in Treasury Secretary Paul O'Neil's book, The Price of Loyalty , the VP wanted to reduce taxes further after winning reelection in 2004 to reward their supporters and diminish the US government. The Reagan political solution: to borrow from Paul (investor class and technocracy) to pay Peter (entitlement voters and the military industrial complex) became the Republican addiction taken up by Bush I and later the Bush-Cheney administration. "Borrow and spend" haunts the Republican Party to this day.

READ MY LIPS, NO NEW TEXANS! The popular bumper sticker during the 2000 election made light of Bush I's pledge of "No New Taxes" during the 1988 Republican convention where the Sr. received the Presidential nomination. Not only did he break his pledge and raise taxes (Well, Reagan did it 13 times) but the deficits ballooned to their highest levels in history. Reagan's "no pain policy" was effective politics but problematic economics and led to the rise of EDS founder Ross Perot, who campaigned for the Presidency on the promise of restoring fiscal responsibility and effectively ensured the election of Arkansas Governor Bill Clinton.

When the Clinton Administration took to their offices in early 1993, the new administration was looking at budget deficits approaching a half a trillion dollars a year by 2000. The massive government spending and tax cuts of the 1980s had resulted in unprecedented government debt and yearly budget interest payments that exceeded US$185 billion in 1990, up substantially from the $52.5 billion a year when Ronald Reagan took office in 1981. By the time Clinton could produce the first budget surplus since before the Vietnam War, interest payments would roughly equal the budget for national defense.

Bush II has had the advantage of a larger GDP based on the 1990s boom but quickly squandered the debt-busting opportunity. In fact, the surpluses of the Clinton years began to make the bond markets nervous. Bush tax cuts combined with the dotcom and telecom crashes quickly resolved this "problem" and the 9/11 induced wars restored the "borrow and spend" model. One lucky recipient was Cheney's former company Halliburton, which was nearly destroyed by Cheney's inept management, marked most significant by the purchase of a company with major asbestos liabilities. Contracts for the Middle East wars restored the company to profitability despite its huge payouts.

Some of the sad implications of this policy are the huge debts, the lack of respect for civic service, and the poor performance of government officials. No one really knows how big the government debt has grown. A reasonable estimate is about $9 trillion dollars and for the last 2 years the amount has been growing at about $1.5 billion a day. The discourse on taxes has also denigrated civic responsibilities. While no one wants to pay exorbitant taxes, many people recognize that government provides services that are worthwhile and are willing to pay their fair share. But the "spend and borrow" philosophy belittles all taxes, preferring to pass on the burden to the unborn. Finally, while government grows, belief in the value of government action diminishes. You have to wonder how much of President Bush's incompetence is really the result of a negative attitude about the positive value of government action. From 9/11 to the FDA's poor record on food inspections to the pitiful war planning, the record of this administration has been atrocious. The Reagan legacy left behind a new civic malaise that has eaten at the core of American society and especially its government.

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.