So insane, it might work...

I love "out-of-the-box-" thinking, so I am going to quote wholesale from The Rational Capitalist Blog - it sort of reminds me of my grandpa, who used to say the federal government should restrict itself to making war and delivering mail...

How to Solve Economic Crisis in 5 minutes

from The Rational Capitalist by Doug Reich

• Recognize that the role of government is to protect individual rights including property rights by barring the initiation of physical force and repeal all laws and regulations in violation of this principle including any laws that abridge the freedom of production and trade
• In accordance with this principle, restrict the federal government to the following activities:
• The national defense
• Enforcement of domestic criminal law
• The court system to resolve disputes
• Specifically, this would entail cutting all federal government departments except the following:
• Department of State – foreign relations, treaties, etc.
• Department of Justice – settle interstate legal disputes and enforce interstate criminal law issues
• Department of Defense – maintenance of standing military
• Department of the Interior – administer the federal government’s land and buildings
• Department of the Treasury – administer finances of federal government
• Repeal the Federal Reserve Act to eliminate the Federal Reserve System
• Government’s gold stock made redeemable for US Dollars
• US Dollars priced in gold at whatever price necessary not to contract present money supply
• Federal government recognizes gold and silver as legal tender at prevailing market rates
• Allow private banks to replace the Federal Reserve as depository, loan and clearing institutions
• Law recognizes the difference between deposit contract and loan contract, i.e., irregular deposits made with banks do not constitute a de facto property transfer whereas a loan does constitute a transfer of property
• Eliminate all federal taxes and replace with system of voluntary contributions and user fees for government services including fees to uphold contracts, register deeds, etc.
• Auction off all federal lands (including waterways) and buildings except those needed for the above departments
• Everything else left to states

I predict that the Dow would triple if not more in one day if this program were announced on CNBC. As well, all foreign currencies would plummet relative to the dollar which would force other countries to follow America's lead and go back on a gold standard.

Note that this plan would lead to widespread prosperity and happiness and does not cost any money.

Eight Critical Bubbles

Eight Critical Bubbles

The Other White Meat...

Credit default swaps, which function primarily as a type of "insurance" are useful, under the right circumstances. The REAL problem is with the private or OTC derivative contracts.

Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is unregulated.

All derivative valuation depends on it's "underlying assets", not the instrument itself, or any kind of real ownership of the asset. A word about this stuff - it's not easy to understand... for example, in finance, a forward rate agreement (FRA) is a forward contract (agreement between 2 parties to sell an asset some time in the future) in which one party pays a fixed interest rate, and receives a floating interest rate equal to a reference rate (the underlying rate). The payments are calculated over a notional amount over a certain period, and netted, i.e. only the differential is paid. It is paid on the effective date. The reference rate is fixed one or two days before the effective date, dependent on the market convention for the particular currency. FRAs are over-the counter derivatives. A swap is a combination of FRAs. The payer of the fixed interest rate is also known as the borrower or the buyer, whilst the receiver of the fixed interest rate is the lender or the seller.

Thanks Wikipedia --- Got all that? Me neither, and I have a PhD in economic history. Here's the salient point - According to the Bank for International Settlements, the total outstanding notional amount for ALL these "investments" is $684 trillion (as of June 2008). What? And global GDP is only 53 trillion dollars? Are we getting the problem yet? That's bad enough, but guess what? Two parties can write an OTC derivative contract using ANYTHING as an underlying asset. Anything. Including the weather in Latin America during the agreed time period, or traffic rates on the 405 freeway between Garden Grove and LA, or whether the next batter will hit a single, a double or strike out (just kidding - I'm trying to make a point). This is beyond gambling, this is insanity.

Not only that (but wait, there's more), many different derivative OTC contracts can have many duplicate underlying assets - in other words, say you have 2 OTC's... these 2 discrete contracts can base their valuation on the exact same underlying assets (which let's be honest, are merely underlying conditions, not real assets) without the burden or encumbrance of actual ownership.

Are we tearing our hair out yet?

It should be obvious by now that these products, like any complex financial instrument, can present significant risks if misused or misunderstood. A number of large, well-publicized financial losses over the last few months have focused the attention of the financial services industry, its regulators, derivatives end-users and the general public on potential problems and abuses in the OTC derivatives market. Now, I am no communist, but folks, we need to bring these operations under regulation - that's right, remember I said this $684 Trillion market is unregulated. Let's start out with some simple regs, then ratchet down as necessary, including eligible transactions, eligible participants, clearing, transaction execution facilities, registration, capital, internal controls, sales practices, record keeping and reporting. The release also asks for the views of commenter's as to whether issues described in the release might be addressed through industry bodies or self-regulatory organizations.

Or we can ban them outright... too radical? Maybe. Probably. Needs more thought I guess. One thing is for sure, this unregulated (and practically invisible) $684 trillion market is either the best thing that happened to risk management or it's going to bring down the entire financial system.

Credit Default...WTF?

A lot of my young(er) friends have been pummeling me with questions about the current economic unpleasantness - which is gratifying, because at least they are ASKING about what's going on, instead of assuming their default position of their insane, homosexual, communist, atheistic human trash former professors. Good on ya' kids!

Back when Lehman Brothers started going under (September 2008), I thought "uh-oh, here we go". This was due to the fact that Lehman is holder of the most (in dollars) Derivative investments than any entity on the planet. Notice I used a capital "D" - a Derivative is a particular type of investment class that is beyond unique - in fact, I would call it "FM" - F*****g Magic. There are several sub-classes of Derivatives, and they are a fairly complex investment instrument, so this will take a few posts to get the message across - but it is important, nay, CRITICAL that you all understand what these things are and aren't, because when they start to collapse (and collapse they will) we are all (planet Earth) in worlds of sh*t.

A derivative, in very simple terms, is an investment whose valuation depends on it's "underlying assets", not the instrument itself. In fact, a derivative contract doesn't even have ANY ownership of the underlying asset. The current global valuation for all Derivatives is about 535 TRILLION dollars. OK, that;s a big number, but get this - if you add up the GDP (gross domestic product) of the entire planet, the number is 58 TRILLION dollars...get the picture? Many derivatives can have multiple, redundant underlying assets. Remember my concern about Lehman? If Lehman had gone into bankruptcy receivership, the discovery process (I suspect) would have revealed that ALL the derivative investments were actually worth only 2 - 5% of their face value. That's right, 2 - 5%. Can you say 'global economic implosion"? Can you say "food riots"? Can you say "cannibalism"? So it's critical that you understand.

The most common Derivative is the credit default swap - instead of my mind-crippling explanation, I am re-publishing, without permission (so sue me) a recent article that explains it far better than I.

Oberg: Credit Default Swaps 101

Eric Oberg

02/03/09 - 07:36 AM EST

This post appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

There has been a lot of talk about what to do with the credit default swap (CDS) market. Given that most people had not actively followed the somewhat arcane fixed-income markets until the recent credit crisis, it is surprising how much airplay CDS have received. Are these really the root of all evil? Or do they actually fulfill a valid function in market processes?

Most people have probably heard the analogy that credit default swaps are similar to an insurance policy -- and that may not be a bad way to think about them. If I own a car, I buy insurance, paying regular premiums for the right to "put" my car to the insurance company should I get into an accident. Similarly, a CDS contract is an agreement between two parties where one pays a premium for "protection" on corporate or sovereign debt; in the event that entity should default, the protection buyer is made whole on a par claim.

But simple explanations never fully capture the complexities, and these are derivatives after all. For instance, what constitutes a default? What is the basket of securities that are deliverable? Should it matter if I own or don't own the underlying securities, given that there is a defined set of deliverables?

Before we can have an active discussion, we need to establish a better understanding of the market and its evolution, and then we can pick apart how to handle the shortcomings while maintaining the positives. For what it is worth, I believe that the positives outweigh the negatives in the case of CDS, so this market is worth delving into so we can better understand how to address it.

To start, we need to better appreciate the fixed-income markets more broadly. For the purposes of this discussion, when I refer to the fixed-income markets, I am referring to the corporate debt markets, but a lot of the concepts apply across the fixed-income spectrum. Capital structure aside, the debt markets differ from the equities markets in one key point: how the markets themselves function.

Fixed-income markets do not have exchanges -- there is no order flow to route and match. They are principal-based businesses, meaning that a dealer is on the other side of each transaction acting as principal, either buying bonds from or selling bonds to an end-user.

So if Pimco or Fidelity calls up and asks for a bid on 50 million of XYZ bond, the dealer places a bid as to where it will take down that risk (I'm talking about what happens in "normal" markets...). There is no time to accumulate an order book; dealers use their judgment as to where they can take down the risk and trade (or hedge) their way out of it.

The reason why this is the case is that the debt markets themselves are very fragmented. When we trade equity, everyone knows where to go and find the price. Stocks trade on the NYSE or Nasdaq, and anyone knows where to seek price discovery. There may be slight differences for an odd-lot or a block trade, but they all hover around that observable price.

But if you think of the debt markets, companies issue various forms of debt -- fixed rate, floating rate, secured bank loans, unsecured bonds, subordinated bonds, first mortgage bonds, callable bonds, convertible bonds, maturities that range anywhere from overnight commercial paper to 30 years and any maturity in between (and beyond), issued in various currencies and formats -- euro bonds, DTC-eligible bonds, Samurai bonds, and so on and so on. One company can have dozens, even hundreds, of individual debt issues, yet they have typically only one stock ticker. If I ask, "Where is IBM(IBM Quote - Cramer on IBM - Stock Picks) equity trading?" you can log on to the Internet and tell me to the penny. If I ask, "Where is IBM debt trading?" you have to ask me several follow-up questions.

One other critical element is that each debt issue of a company is limited in size. Companies typically only borrow what they need at a time, so you will have debt issuance of $100 million, $200 million, maybe up to $500 million or $1 billion. Only on rare occasions do you get debt issues larger than $1 billion.

Furthermore, since the debt markets are dominated by institutions, many institutions do not lend out their portfolios. Both of these factors combine to connote that the "repo" market for corporate bonds is fragmented, meaning they are hard to borrow in order to deliver into a short sale (particularly in contrast to the equity market, where the float is the float -- it is all fungible, and much of it available to borrow).

What often happens is that if Pimco or Fidelity comes to look for a bond, it ends up in a game of "go fish." If I do not happen to be long the particular issue they are looking for, I have to pass, because I cannot guarantee I can even borrow that bond in order to short it to them. For a lot of issues, they have simply gone to "bond heaven" -- meaning no one will ever see them again, because they are locked up in an insurance company or pension fund portfolio to match a liability stream and will never trade again.

So while bonds may be quoted with a bid and an offer, the offered side generally is subject to having the bonds in inventory. Historically, only the "on-the-run" (usually larger bond deals that were recently issued) had actionable two-way activity. In short, the corporate bond market has historically been an inventory-driven business.

One must also understand that a corporate bond carries risk beyond just the company's ability to repay -- there are other embedded risks (duration and optionality, to name two). Just because I may like Company XYZ, that does not mean that I necessarily want to take on 30 years' worth of interest rate exposure.

This also raises the point that investment-grade bonds typically trade on a yield spread to Treasuries, the risk-free rate. So the parties typically agree to the spread, then agree to the risk-free rate, to give the bond's yield in order to calculate the price. You need to recalculate a price based on that yield at any given time. This has added complexity if the bond is callable or prepayable.

And although I may be comfortable with Company XYZ for the next few years, that doesn't necessarily mean I want to take on XYZ credit exposure for 20 or 30 years. Supply does not always meet demand -- there may be demand for three-year XYZ paper, but only 20-year paper exists.

These issues just scrape the surface. Many factors go into a bond's price and trading, so price discovery on fixed-income instruments can be difficult.

Because of the myriad issues a company may have outstanding in the debt markets, and because of the myriad factors that go into pricing each piece of debt, it is virtually impossible to expect a market construct other than that of a principal market to develop. You need a market maker to step in and provide temporary liquidity and then redistribute that risk. That redistribution process can take weeks. That is the principal's risk; they hopefully make some bid-ask spread to compensate for this.

Enter the credit default swap market. The CDS market helps fill in some of the gaps in the fragmented debt markets. As mentioned at the beginning, the CDS market is focused on a company's credit risk. The premium exchanged strips out other ancillary variables, such as interest rate risk (to be sure, there is some interest rate risk in the pricing model, but nothing to the extent that you see in a fixed-rate corporate bond). CDS can be for terms unrelated to a company's actual debt maturity schedule. CDS are not dependant on being able to borrow a bond, although an active repo market helps establish arbitrage boundaries.

For example, XYZ could have a 10-year bond outstanding that trades at 220 basis points more than Treasuries. To price that bond, I need to know where the 10-year Treasury is, add the spread and then price the bond. But I may not want to take 10 years of XYZ exposure, or 10 years of interest rate risk. And a dealer might not have the bonds, even if I wanted them.

With CDS, I may be able to take on XYZ credit exposure for five years and get paid 150 basis points. This distills my trade to just focus on the credit risk of XYZ for five years. I have not taken on the concomitant interest rate exposure, and I have set the term of my exposure to only five years rather than 10. I get paid 150 basis points a year, and if XYZ defaults over that time frame, I need to pay the buyer par in exchange for the defaulted bonds. If I wanted to then take on interest rate exposure, I could always go buy Treasuries with the maturity of my choice.

When the first formal credit derivatives standards were put forth in 1998, CDS won out over the total return swap (TRS) market in terms of single-name risk transfer, because CDS were viewed as a "unifier" in these fragmented markets. As opposed to the TRS market, which is based on the total return of one bond, the CDS contract allows for multiple deliverables (similar to bond futures), so liquidity extends beyond any singular debt issue. One could deliver any bond or loan, any maturity, any G7 currency, of a given company to fulfill a contract. This created bridges across all of these markets and players, from the convert arb to the bank loan portfolio manager -- they could all meet up in the CDS market. Thus we could reach price discovery that truly had input from all players in the credit markets.

I can use CDS to quickly shed or take on exposure. I can customize my exposure. Say a company only has a 10-year and 30-year bond outstanding, but I only wish to take five years of exposure. With CDS I can do so. As a market maker, I will be more willing to take down a larger block of bonds if I know I can hedge the "jump to default" exposure, thus liquidity can be increased. I can better control my "spread duration" (duration is essentially the price reaction to a change in interest rates or in this case, spread). Furthermore, the advent of the CDS market has raised the level of sophistication in pricing corporate debt into components. Generally speaking, CDS help facilitate more complete corporate debt markets.

That isn't to say that the CDS market is free of issues, but I believe the issues can be managed in a way that does not call for draconian measures such as complete abolition or require their use for hedging purposes only. In the next section, we'll take a look at some of the issues surrounding CDS -- some valid, some not so valid -- and explore possible mitigants to the concerns.

Netbook or cloud computer?

I gave myself a netbook for Christmas - more out of curiosity than anything else. So far I really like it. Yeah, I know - the keyboard is a bit too small, and the screen (I wear glasses) causes me to squint. The upside to that is that I can read it up close (because I have to be close to type!) without my glasses. Hmmmm. The model is the Acer Aspire One, with WinXP. I'll put the rest of the stats at the end of this post, but for now, I found an excellent article on GigaOm.com - Here 'tis:

The relative success and cult-like popularity of Asus’ Eee cloud computer has helped raise the level of interest in what’s being called a new class of computers. Some call the new machines ultra-mobile PCs (UMPCs), others have labeled them Netbooks, and many are safely referring to them as handhelds. It’s hardly a surprise that the PC powerhouses — Intel, Microsoft, Hewlett Packard, Dell and dozens of others — have gone running after this opportunity.

After using one of the so-called Netbooks, it has become obvious that they really need to go back to the drawing board and rethink how people are going to use these devices if they want to participate in the next big shift of computing.

So far, all they have done is cram traditional notebooks into smaller, maybe-lighter-to-carry bodies. They’re neither good for computing nor for communication. To me, the dozens of models being touted seem like a genetic experiment gone wrong, a fact that was brought home when I tested one of the most talked-about devices: Hewlett Packard’s HP 2133 miniNote.

The miniNote is being introduced into the educational market and will cost between $499 and $1,199, depending on the configuration. It looked like a promising device and I was quite eager to try it out. However, my excitement didn’t last very long. In fact, barely three hours after trying out the device, I decided to pack it in. Why? Not because it was underpowered, or the keyboard was too cramped, or the screen made you squint.

On the contrary, the Via C7-M processor makes the machine capable of easily handling all sorts of tasks and the keyboard was actually quite nice and sturdy to use, though it’s not advisable to use it for typing out long documents. The keyboard reminded me of the Powerbook 12, which had one of the best keyboards on a laptop. (For a more in-depth review and discussion of features, I recommend jkOnTheRun.)

So if those aren’t the issues, then what’s the problem? Many, if you ask me. It is a little too heavy — 2.7 lbs — for an ultraportable, especially if you factor in the fat extended battery you need to run this thing. It runs Windows XP and no surprise, takes too long to boot up. (There is a Linux version, but I didn’t try that.)

More importantly, in less than an hour it was generating more heat than my first Macbook Pro, aka the oven. It is not as if I had dozens of apps open. All I was using was a simple Internet Explorer. (I have not installed Firefox yet.) Maybe it’s a problem with the pre-production demo unit, but if it’s not, then the issue of heat is a dealbreaker for me, and it should be for other people as well. Any highly mobile device whose primary function is to surf the web should not become a kitchen appliance within an hour. It would be virtually impossible to use it on one’s lap.

So after playing around with the miniNote this weekend, I came up with a checklist of features that should be a must in a machine that has to qualify as a cloud computer (or whatever you want to call it.)

1. Instant On
2. Doesn’t generate too much heat.
3. Minimum 5 years hours of battery life.
4. Must feature at least four communications options: WiFi, Ethernet, Bluetooth & Wireless Wide Area Network connection to, say, an EVDO or HSPA Network.
5. Less than three pounds (batteries included).
6. Screen size of 3.5-8 inches (wide-screen proportioned)
7. The primary function of the computer should be cloud-based activities that can include everything from listening to live music, reading blogs and watching videos. Writing research reports or cranking out spreadsheets isn’t the primary purpose of these machines.
8. It should cost no more than $300. This isn’t a computer; it’s a communications device. It should really be an on-the-go device. It is a device for the moments when your cellphone isn’t enough, and laptop is too much. An iPhone should qualify.
9. Its innards, ports should be geared for Internet-based activities — from making calls on Skype to consuming RSS feeds — though it should be able to handle external peripherals.
10. In the future it should move away from the keyboard and have a touchscreen interface that allows one to sift through large amounts of data (or web pages) quickly, as cramped keyboards and touchpads can be hard to use.

What do you guys think?
-----------------------------------------------------
The ten recommendations the author makes are ALL incorporated into the Acer Aspire (except instant on, and the price). I've used Skype with the webcam, RSS feeds, Google Docs (I uninstalled MS Works), Thunderbird for emaill & calendaring. In fact, I'm writing this post on it. The wireless works flawlesly too. All told, it was worth the $500.00 ( 1 gig RAM upgrade and 160 gig hard drive). All my movies and my complete iTunes library is on board. Run it through the stereo, and it's like a CD jukebox. Throw in a link to HULU.com, and what else do you need?
---------- My Acer Aspire One Specs-------

Model AOA150-1570, combines Windows XP with 1GB of memory and 160GB hard disk.It has an Intel Atom processor, clocks at 1.6 GHz

For $359, the Aspire One AOA110-1722 stays closer to the first Eee recipe but can come with the WinXP operating system. Three is some "crapware", MS Works, etc, but these can be uninstalled easily, just like a desktop PC. The Aspires come with a three-cell battery pack that fits flush with the back of the case. Acer has assigned the $399 ($359 if oyu look around)price point to a new Win XP configuration (AOA150-1447) with a 160GB hard drive and six-cell battery.

Again, what do you guys think? Leave a comment.

russell

More on globalization, or "WTF?"

Before I begin this week's (and the year last, thank God) sermon, let me share this very interesting list I found on yahoo (who knew?) news today -

Being both an economist and an historian, it seems to me that this recession will be something unprecedented. Keep in mind my raving about how physical "things" are being replaced by virtual "stuff".... (BTW, all bolds, italics are mine)

One reason is that that there was no Internet or mobile technology in the 1930s. That means individual people and companies have very low-cost, high-efficiency alternatives for doing a wide range of activities. That will accelerate the demise of those things fated to be replaced anyway.

Here are 10 things that I believe won't survive the recession.

1. Free tech support
The practice still employed by some companies of paying humans to answer phones and solve technical problems with hardware or software purchased for consumers will become a thing of the past. PCs, laptops, and hardware peripherals, as well as application software -- these categories will be purchased like airline tickets, with price becoming the sole criteria for many buyers. In order to compete on price, companies who now offer real tech support will replace it with message boards (users helping users), wikis, wizards, software-based troubleshooting tools, and other unsatisfying alternatives.

2. Wi-Fi you have to pay for
Everyone is going to share the cost of public Wi-Fi because the penny-pinching public will gravitate to places that offer "free" Wi-Fi. Companies that charge extra for Wi-Fi will see their iPhone, BlackBerry, and netbook-toting customers -- i.e., everybody -- taking business elsewhere. The only place you'll pay for Wi-Fi will be on an airplane.

3. Landline phones
Digital phone bundles for homes (where TV, home networking, and landline phone service are offered in a total package) will keep the landline idea alive for a while, but as millions of households drop their cable TV services and as consumers look to cut all needless costs, the trend toward dropping landline service in favor of cell phone service only will accelerate until it's totally mainstream, and only grandma still has a landline phone.

4. Movie rental stores
The idea of retail stores where you drive there, pick a movie, stand in line, and drive home with it will become a quaint relic of the new fin de siecle (look it up!). The new old way to get movies will be discs by mail, and the new, new way will be downloading.

5. Web 2.0 companies without a business plan
The era when Web-based companies could emerge and grow on venture capital, collecting eyeballs and members at a rapid clip and deferring the business plan until later are dead and gone. Yeah, I'm talking to you, Twitter. Sand Hill Road-style venture capital is shrinking toward nothing, and investors in general will be hard to come by. Those few remaining investors will want to see real, solid business plans before the first dollar is wired to any startup's bank.

6. Most companies in Silicon Valley
Tech company failures and mergers will leave the industry with a low two-digit percentage (maybe 25 percent) of the total number of companies now in existence. Like the automobile industry, which had more than 200 car makers in the 1920s and emerged from the Depression with just a few, Silicon Valley is in for some serious contraction. The difference is that the auto industry ended up with the Big Three, whereas the number of tech companies will grow dramatically again during the next boom.

7. Palm Inc.
Elevation Partners, which has among its principals U2 lead singer Bono, pumped a whopping $100 million into the failing Palm Inc. this week.

The idea is to give the company time to release its forthcoming Nova operating system, which will take the cell phone world by storm and give Apple a run for its money. It would have been far more efficient, however, to just flush that money down the toilet. With the iPhone setting the handset interface agenda, BlackBerry maker RIM kicking butt in the businesses market, and Google stirring up trouble with its Android platform, this is no time for a clueless company like Palm to be introducing a new operating system. By this time next year, Palm will be gone. And so might Elevation Partners.

8. Yahoo
Yahoo is another company that can't seem to do anything right. Or, at least, can't compete with Google. Yahoo will be acquired by someone, and its brand will become an empty shell -- used for some inane set of services but appreciated only by armchair historians (joining the ranks of Netscape, Napster, and Commodore).

9. Half of all retail stores
Many retail stores are obsolete and will be replaced by online competitors. Entire malls will become ghost towns. By this time next year, most video game stores, book stores and toy stores -- as well as many other categories -- will simply vanish. Amazon.com will grow and grow.

10. Satellite radio
I'm sorry, Howard Stern. It's over. The newly merged Sirius XM Radio simply cannot sustain its losses. The company is already deeply in debt and would need to dramatically increase subscribers over the next six months in order to meet its debt obligations. Unfortunately, new car sales, where a huge percentage of satellite radios are sold, are in the gutter and stand-alone subscriptions are way down.

Change is hard. But efficiency is good. While boom years gives us radical innovation and improve consumer choice, recessions help us focus on what's really important and accelerate the demise of technologies and companies that are already obsolete.

So say good-bye to these 10 things, and say hello (eventually) to a new economy, a new boom and a new way of doing things.

NOW! Back to our previously schedules program, already in progress...

There has been a lot of bloviating about "globalization" and it's various pros and cons, but we have been here before. Oh yeah reader, we sure have. From about 1880 to 1914, we had a global economy - it was called British (and to some extent Dutch) mercantilism. Between 1600 and 1800 most of the states of western Europe were heavily influenced by a policy usually known as mercantilism. This was essentially an effort to achieve economic unity and political control. No general definition of mercantilism is entirely satisfactory, but it may be thought of as a collection of policies designed to keep the state prosperous by economic regulation. These policies may or may not have been applied simultaneously at any given time or place.

We had a global, stable, political system too - it was called colonial imperialism. 19th century globalism with its irenic vision of free trade as the solvent for war and imperialism. In an 1846 speech given in Manchester, then the center of the British trans-Atlantic textile industry, the British liberal Richard Cobden laid out his vision: "I see in the principle of free trade" a force that draws "men together, thrusting aside the antagonism of race, and creed and language, and uniting us in the bonds of eternal peace." For the next half-century it looked as though Cobden's vision would prevail. By the late 19th century, globalization seemed irreversible. Investment, information, industrial goods, and food supplies moved freely between nations and across seas. Immigrants moved freely across borders without the need for passports. In 1913, writes Lindsey, "Merchandise trade as a percentage of gross output was about 12 percent for the industrialized countries. They did not match that level of export performance again until the 1980s." The British liberal Norman Angell, writing in a celebrated 1911 book, The Great Illusion, which was translated into 18 languages, argued to widespread applause that "internationalism had made states so dependent on the bond market" that they couldn't afford to even consider war. Three years later, World War I began initiating a period of war and totalitarianism, known as the short 20th century, that lasted until 1989, when the las t Soviet (read that Russian) troops left East Germany.

Today the world financial system is still near a dangerous tipping point of uncertainty and chaos. The mortgage crisis was only the beginning. Yet our politicians, from both political parties, fixate on the trivial. Our financial house is on fire, yet our leaders are squabbling over arranging the furniture in the front parlor. Instead, they desperately need to develop a “big think” doctrine that defines America’s economic and financial future in the world. Financial innovations, including those that new electronic technology makes possible, enable both firms and individuals to carry out their ordinary business more effectively and to protect themselves better from the risks to which they are inevitably exposed. But these innovations also make it possible for both firms and individuals to take on new risks to which they never would have been exposed in the first place. What are meant to be improvements therefore sometimes make people worse off, and when the risks involved are sufficiently intertwined those supposed improvements can make people worse off who never even sought to take advantage of them. Globalization, the great paradox of our time, has been an impressive wealth-creating, poverty-reducing machine. In the last quarter-century of globalized markets, the Dow jumped from 800 to well over 12,000. To match that success the next twenty-five years, the Dow would have to exceed 170,000. Yet the fruits of globalization are distributed unequally. Globalization itself produces huge pangs of anxiety for average working Americans. Oil and food prices have skyrocketed. There is no denying the globalized financial system both enables and threatens our national well-being.

But if you kill capital flows and you’ll kill the global economy. The problem is that the world today lacks a financial doctrine, or even much in the way of a set of informal understandings, for establishing order in a crisis. Instead, we grope and manage incrementally, like trying to perform delicate brain surgery with one hand tied behind our back and the other wearing an ill-fitting boxing glove. Today is very similar to an earlier period of globalization and prosperity, from 1880–1914, which ended with World War I. Soon the seeds were planted for an economic depression.

The collapse of the Wall Street firm Bear Stearns, as the devastation rippled throughout the financial system, would have savaged the pocketbooks and pensions of every working American. Still, policy moves have unintended consequences. The Fed appears to have placed a government guarantee under the entire U.S. financial system, not just the banks. Sounds great, but some new, all-encompassing regulatory structure is therefore needed to protect the public interest at a time of financial deleveraging. That means the profitability of the U.S. financial services industry will decline.

In addition to this. people picture central banks as having magical powers to step in and save the day. Dream on. All (Paul Volcker, Alan Greenspan, and Ben Bernanke) would admit the power of the central bank is rapidly diminishing. Worse, in the case of the United States, interest rates have increasingly become a captive of global financial forces. To a certain extent, therefore, Americans are no longer in complete control of their own monetary policy. That is why central banks, led by the Fed, have become a kind of grand global theater. Because the world’s ocean of capital is so huge and powerful, the central bankers have had no choice but to become the lead actors. They use their dramatic skills to try to tease, persuade, charm, and bluff the markets. And of course the Lawrence Olivier of this process was Alan Greenspan. It’s not quite like The Wizard of Oz with the little man behind the curtain pulling the levers, but the analysis is not completely off the mark. The job of central banking, because of the need to bolster confidence, has become an elaborate form of ‘theater,’ with the financial markets acting as the audience. But during the subprime mortgage crisis, we are forced to travel down an endless, dangerously twisting and turning road of volatility with steep valleys and risky mountainous climbs. We can’t see financial risk ahead. A small village in Arctic Norway can see its entire financial future destroyed because its financial managers invested heavily in a Citigroup product called a collateralized debt obligation.

Greed-driven bankers and investment bankers deserve the most blame. They set up dubious, off-balance-sheet vehicles to hide risk. The lack of transparency created a global crisis of confidence that nearly tanked the world economy and now threatens the future of liberalized capital markets. The world still faces a trillion-dollar credit problem. When the credit crisis hit in August 2007, the world’s central banks flooded the global economy with liquidity to avoid immediate disaster. Luckily, today’s policymakers have learned from the mistakes made in the 1930s. The Federal Reserve also placed all U.S. financial institutions under the government “safety net.” Sounds reassuring, but the credit contraction is still likely to linger for years, and could become worse if policymakers aren’t careful. In the face of today’s powerful ocean of capital, there are limits to the effectiveness of government solutions.

The financial world is still a dangerous place. That’s because the world is flirting with moving away from the last quarter-century’s model of globalization and free-flowing capital markets toward something more reminiscent of the nineteenth-century mercantilist economic model. What I’m describing is an era of backroom rivalries, deal making, and tensions based on ambitious national political agendas with capital flows, and commodities led by oil, increasingly controlled by governments. One does not have to be a rocket scientist to see the picture emerging: financial wealth and power are moving away from the United States, Europe, and Japan.

The global financial system is near a tipping point of uncertainty and could come crashing down to the detriment of all of us. Protectionist and class warfare policies, and other policy prescriptions to curb reckless volatility, may be well-intended efforts to deal with the anxieties of global trade and financial markets. But the danger is that they produce unintended consequences that could send us over the edge.

Next time ----> "a credit swap what?"

More on monetizing (or DE-monetizing) virtual worlds

"Pirating music? Oh man, that's so 1995..."

Yeah. I quote voraciously from The New Statesman online rag:

"The relationship between context and content in music has always been problematic. The rise of the anonymous public in the course of the 18th century certainly liberated musicians from the patronage of prince or prelate. Never again would a composer of Mozart's stature be booted out of the service of the Archbishop of Salzburg ("with a kick to my arse", as Wolfgang put it in a letter to his father). The development of a prosperous public sphere in London allowed Haydn, in a matter of months, to make six times the annual salary paid to him in Austria by Prince Esterházy. Yet public patronage came at a cost. Haydn chose not to settle in London, but to remain in the service of the Esterházys until the day he died in 1809. He may well have had an inkling that the public could be a much harder taskmaster than the relatively undemanding aristocrats he served at home."

"In the course of the 19th century, ever- growing markets, bigger spaces for music and better communications allowed many more performers to make much more money. Sopranos, especially, became rich beyond the dreams of avarice of even the most famous singers of the past. Between September 1850 and June 1851 Jenny Lind, "the Swedish Nightingale", gave 95 concerts in the United States, earning $176,675 net of all expenses. Moreover, all along the way she was feted as a queen. Had she lived long enough to take advantage of the invention of recording, her colossal fortune might well have been multiplied many times over. In 1914, Enrico Caruso was earning £20,000 a year from world sales of his records, which may even have increased ten fold after 1918."

"

In the course of the past century, a rush of technological changes has made music more accessible and ubiquitous than ever before. Cinema, the gramophone, radio, the jukebox, television, the electric guitar, transistors, LPs, stereo, the Walkman, discotheques, CDs, the internet, DVDs, the MP3, the iPod and all the rest have drenched the modern world in music. Moreover, the eruption of youth culture after 1945 simultaneously propelled musicians to pole position in both status and material reward. As the annual Sunday Times Rich List shows, no other branch of the creative or performing arts can boast such a concentration of wealth. When Bono or Bob Geldof (both honorary Knights of the British Empire) lecture politicians on what to do about the problems of the third world, those politicians have to appear to be listening.

Here's a point: As I said in a previous post, physical stuff (records, tapes, CD's, software boxes, etc) is being replaced by non-physical stuff (FTP's of mp3 files. .avi movie files. .dmg or .img, or .iso files to install software).

For years the music industry made its money primarily through the creation of a physical product -- first the record and then the CD. But with the evolution of the digital age, the physical nature of music is fast becoming obsolete. Just at vinyl records hold nostalgic value, soon CDs will be a novel relic of a bygone era. I remember telling several of my buddies at Computer Sciences Corporation that the CD was transitional technology - they challenged me to name the replacement. In 1995, I didn't have a clue... but I knew it would happen. Remember the scene in the movie "Men In Black", where Tommy Lee Jones is giving Will Smith a tour of the secret facility? Row upon row of advanced alien tech, wonderous and breath-taking, is displayed - the they come to a mounted...well, it looks like a bottle cap to me. Tommy Lee intones "See this? They say some day this will replace te CD.". HA!

So is this the death of the music industry? Of course not. Music has been written, performed, and enjoyed for centuries. Music is part of culture. In many ways music as a business is thriving more than ever before. It is a period of fundamental change for this industry.

But, for every Bono and his countless millions, there is a host of modestly paid session players, 90 per cent of whom earn less than $35,000 a year, according to one of their leaders. It will come as no consolation to them to know, if they do not know it already, that it was ever so. Ever since musicians emerged from the servile but cosy world of aristocratic patronage into the harsh daylight of the public sphere, the musical profession has been a pyramid with a broad base and a sharp top. The new opportunities brought by every major technological shift have also left many casualties among musicians unable or unwilling to adapt. A good example was the advent of the gramophone, which sent an army of pianists, piano teachers and piano manufacturers to the scrapheap.

More recently, a combination of digitization and the Internet has torn a great fissure in the recording industry, which has not died (as Norman Lebrecht claimed in a characteristically strident book last year), but which has certainly been forced into fundamental change. Nor, one imagines, will the musicians plugging their way through yet another Muzak recording session be cheered by the reminder that Jimmy Page (worth $175m, according to the Sunday Times) started out as one of their number."

One of my LinkedIn buddies published an online poll asking about how to implement DRM effectively to protect intellectual property rights, especially for producers of music and to "protect" the buyers of same - the overwhelming response was "who the hell buys music anymore?!?!".

Well... what's on YOUR iPod?

The REAL Economic Tsunami - Conclusion or what's the GD point?

Let's review the topics of my current sermon/rant -

1. Root economic change
2. What is a job?
3. The death of US manufacturing
4. The death of traditional media (newspapers, etc.)
5. Monetizing manufacturing/media's replacement (in the US at least) - Web 2.0 and higher.

The point is simply (or not), that things are not disappearing, so much as they are changing. Now, people don't like ONE change at a time, but we have several (there are many more than the five I have screeched about), and that is what is imputing the sense of "dis-ease" we all feel today. It's like related rate problems in calculus - it's not the rate of change that's accelerating... it's the rate of the rate of change that is accelerating. Maybe even the rate of the rate of the rate!!!

You've heard your friends talk about it - they have a sense of doom. It’s like the 1930’s. Everyone knows there’s going to be a war with Germany. Some, like Chamberlain, deny it. They don’t want to believe it. Others, like Churchill, are clear that we must not appease the Nazis.

I'm not talking about the spectre of the disaster of the week - climate change, ecological implosion, terrorists with nukes, Bush/Cheney/Haliburton (wasn't Bush supposed to declare martial law a few years ago?), Religious zealots oppressing the atheists, Militant atheists calling on burning churches and killing priests (1789 anyone?), children being exploited by radical gays and lesbians, radical gays and lesbians being exploited by everybody, Bush/Cheney/Haliburton being exploited by children - AAARRRRGGGHHH!

EVERYBODY JUST SHUT UP!

It's not just the spectre of CHANGE, and the execution of change, but the sheer number of things changing and we are having a real hard time dealing with it all.

Root Economic Change - As I said "My contention is that these eight conditions are contributing to the real economic tsunami that is about to hit us. And like the Industrial Revolution before (the so-called "information revolution" is just a preliminary ripple), it will affect everyone on the planet, with the attendant "law of unforeseen consequences" vaporizing our current world view of the nature of work." (see Part I for detail on the 8 points)

What Is A Job? - " today's organizations are trying to use outmoded and underpowered organizational forms to do tomorrow's work. They insert an empowerment program here and a new profit-sharing plan there and then announce that those things aren't so great after all because profits are still falling. Such organizations won't have better results until they do two things. First, get rid of jobs. Second, redesign the organization to get the best out of a de- jobbed worker. A big task, sure. But like any evolutionary challenge, it will separate the survivors from the extinct." (see Part II for details)

The Death Of US Manufacturing - " the coming transformation will be painful, but we will get through it. We will have a money economy of highly intelligent machines (robots, if you will) manufacturing goods for sale here and abroad, designed built and maintained by American workers and a huge non-money economy of DYI types using the technology the money economy provides, to provide for themselves. - IF and only if, we have the guts to be flexible, agile and swallow our stupid pride and re-tool out skills to meet the paradigm shift. Or wallow in your "I'm a victim" status and become a ward of the state." (see... well you know what to do).

The Death Of Traditional Media (newspapers, etc) - " The simple historical fact is that mass communication technologies are never replaced by newer technologies. They co-exist, while continuing to evolve. We still have the newspaper, the telephone, the radio, and the movies, despite the fact that each of these was at the time of introduction viewed as the beginning of the end for the other. The only mass communication medium in history to have been replaced by another is the telegraph, a service which began in 1851 with the founding of the New York and Mississippi Valley Printing Telegraph Company and spanned 150 years, ending finally on January 27, 2006".

Monetizing manufacturing/media's replacement (in the US at least) - Web 2.0 and higher. - " How is all this supposed to make me any money!"

The unifying factor of all this crap, is that this transformation requires the evolution of information into knowledge, and it's capture, storage, use and re-purposing - this is a continuum process. All of you computer science and IT majors my remember the progression you learned in those interminable classes on " the profession" - facts are processed into data, data is processed into information, information is processed into... what? Knowledge, that's what! And as the late, great Peter Drucker said in "Managing in a Time of Great Change", when you apply knowledge to knowledge, you should get wisdom...

Remember that, besides its great flexibility, knowledge has other important characteristics that make it fundamentally different from lesser sources of power in tomorrow’s world. Thus force, for all practical concerns, is finite. There is a limit to how much force can be employed before we destroy that we wish to capture or defend. The same is true for wealth. Money can't buy everything, and at some point even the fattest wallet empties out. By contrast, knowledge does not. We can always generate more.

The Greek philosopher Zeno of Elea pointed out that if a traveler goes halfway to his destination each day, he can never reach his final destination, since there is always another halfway to go. In the same manner, we may never reach ultimate knowledge about anything, but we can always take one step closer to a rounded understanding of any phenomenon. Knowledge, in principle at least, is infinitely expandable. Knowledge is also inherently different from both muscle and money, because, as a rule, if I use a gun, you cannot simultaneously use the same gun. If you use a dollar, I can’t use the same dollar at the same time. By contrast, both of us can use the same knowledge either for or against each other—and in that very process we may even produce still more knowledge. Unlike bullets or budgets, knowledge itself doesn’t get used up. This alone tells us that the rules of the knowledge-power game are sharply different from the precepts relied on by those who use force or money to accomplish their will.

But a last, even more crucial difference sets violence and wealth apart from knowledge as we race into what has been called an information age: By definition, both force and wealth are the property of the strong and the rich. It is the truly revolutionary characteristic of knowledge that it can be grasped by the weak and the poor as well. Knowledge is the most democratic source of power, which makes it a continuing threat to the powerful, even as they use it to enhance their own power. It also explains why every power-holder—from the patriarch of a family to the president of a company or the Prime Minister of a nation—wants to control the quantity, quality, and distribution of knowledge within his or her domain.

The control of knowledge is the crux of tomorrow’s worldwide struggle for power in every human institution.

That's all for now --- now I have to take my medication and relax through Christmas.

Merry Christmas everybody!

The REAL Economic Tsunami - Part V

Took a while to get this out due to social obligations and fast-shifting events concerning Part 4! Check this out -
"As the combination of NBC's decision to replace its 10 p.m. scripted dramas with a talk-show format and a threatened actors' strike throw a chill over tinseltown, Marley-like voices from the writers' walkout that shut down Hollywood last Christmas are telling cautionary tales.
The industry has already been battered by the estimated $2.1 billion impact of the 100-day writers' strike that ended in February. Now, everyone from top showrunners (usually writer/creators who've become top producers) to the daytime scribes, say times in the television industry, long considered the writer's medium, are getting tougher.
"It is a particularly difficult time," says veteran showrunner J.J. Abrams, noting that as networks turn to shows from overseas as well as remakes of old shows to save costs, he feels "lucky" to have an original show on the fall schedule ("Fringe" on Fox).
"It's always hard, but it's getting harder," says Bryan Fuller, creator and showrunner of ABC's "Pushing Daisies." When the show returned after the strike-imposed hiatus, he says, the network made budget cuts as well as numerous requests to make the story less "weird."
Whether you are a prime-time, A-list writer such as Steven Bochco, who has migrated from broadcast networks to cable in pursuit of creative freedom, or a daytime soap opera scribe such as Karen Harris, who grinds out an 80-to-90-page "General Hospital" script every week, the challenges facing the nation's small-screen storytellers are the same: dwindling clout, an industry in historic transition and a larger economy in tatters.
Individual network heads such as Angela Bromstad, the new programming chief for NBC, often voice their respect for writers.
"I've always been very protective of showrunners' vision and passion," she says. "If it's not led by their passion, then we don't have a show."
But business trumps passion, more often than not these days, says Patric Verrone, president of the Writers' Guild of America, West (WGAW).
"In an era of motion picture and TV production controlled by seven multinational conglomerates, it's difficult for any individual to have clout or personal creative freedom," he says. "When it's in the hands of the conglomerates there is a lack of appreciation not just of writers but of the entire talent community and what they bring to the table in terms of development of content."
WOW! No wonder I watch most of my content on HULU.com, And none of it is scripted shows. In a rare show of sanity, MSNBC's Courtney Hazelett declare scripted television dead at the 10 pm mark... the rest to follow. WOW!

Pulling into the station now, so hang in there!

So we have covered:

1. Root economic change.
2. What is a job?
3. The death of US manufacturing
4. The death of traditional media (newspapers, etc.)

We need to cover:
5. Monetizing manufacturing/media's replacement (in the US at least) - Web 2.0 and higher.

How is all this supposed to make me any money!

Web 2.0 provides potent business models for making web applications which apply them successful, or least, ever popular with their users. These techniques typically have to do with connecting supply with demand cheaply and effectively (The Long Tail theory) or by providing a unique source of information that is difficult to recreate elsewhere. Unfortunately for the creators of many of these web applications, they sometimes confuse popularity with financial success, or more often, they optimistically believe the former can turn into the latter. The truth is, monetization of Web 2.0 services is a genuine issue for those that are planning to use Web 2.0 ideas for non-strategic purposes. Yet many Web 2.0 services seem to be intent on tactical financial capitalization of the attention and user base which Web 2.0 applications can build almost overnight. ZDNet's Phil Wainwright thinks this issue, namely lack of revenue, is a big piece that's missing from the Web 2.0 business model. He posits that the next iteration of Web 2.0 will solve this and other problems, which he dubs Web 3.0. Phil's analysis is pretty sharp and he has identified at least three revenue models that will form the basis of commercial succesful Web 2.0 services:

• Advertising: Phil doesn't think much of this model, no matter how well Google is doing with it and despite the fact the Microsoft is increasingly interested in the entire online ad space.
• Subscriptions: Divided up into fixed rate, variable rate, and fixed+plus variable models, subscriptions are very popular with leading Web 2.0 companies like 37Signals and I'm with Phil that this will continue to be popular for large footprint services, but not for mash-ups and aggregation services that provide bite-size functionality.
• Transaction Commissions: Best exemplified by companies like eBay that charge for a given successful transaction, Phil believes this will ultimately become the biggest player.

My issue with this trinity of revenue models is that it doesn't explicitly leave room for a fourth or possibly fifth needed model. I truly believe there is an active need for one or two as-yet-uninvented revenue models to fund Web 2.0 services that face the general public. Web 2.0 monetization, for now, is heavily reliant on advertising. UsingGoogle’s AdSense contextual advertising program is one of the fastest and most popular ways of monetizing a new Internet business. For more information see Deitel’s Google AdSense and Website Monetization.

When is the last time you clicked on a banner ad/google adwords ad? I don’t really believe that there is going to be a silver bullet that can monetize all sites, but there are interesting ways to rein in the brand that most successful have built. (And no, I am not talking about “Mashable” Brand Potatoes.) Maybe the best way to make money as a content producer is to do direct sales, according to folks who’ve been there (I concur).” I believe what is missing is the adaptation of successful advertising models from outside the net to online.

Or maybe the key is not to sell the content, but sell the process. Content alone doesn’t get the job done. The dominant web 2.0 business model is the FREE business model. It comes in many different variants, but the most widely used are the freemium business model (I always thought Fred Wilson came up with that term, but he says it was Jarid Lukin) and the free with ads based business model. With freemium you get a service for free, but for the real cool features you need to upgrade and pay a subscription. Flickr, YouTube and others use that business model. The free with ads based business model lets you use a service for free, but in return you get advertisement. Facebook is the most obvious example, but many other services use that model as well. So the subscription model looks good for certain types of transaction, but it NOT a panacea, as we shall see.

I just saw an ad on TV (yeah, I still watch TV!) for the singer Rhianna - the tag line was not, so and so many albums sold or records sold... it was "100 million SONGS sold"! Now that's a subtle, but powerful and important message. Not physical units of anything, but MP3 files off of iTunes Store, or Amazon or Rhapsody. Like the software we used to buy in a box (it's all downloaded off the Net now), these things are not physical (or, as Alvin Toffler would say "symbolic") but electronic files (again, the Tofflerism is "super-symbolic"). And that is one of the most fundamental changes in our goods and services world - the physical things we are used to that represent value (symbolic) are no longer all that physical, and have become "super-symbolic". It's like the difference between a "classicist" painter/sculptor and an "impressionist" When a classicist paints a house, or a tree or the sky, that's just what he paints - but an impressionist looks at these things, then paints the IDEA of a house, a tree or the sky - do you see? When you buy music or movies (or just watch movies and TV, like on HULU) you are purchasing a super-symbolic thing. And HULU and other video media sites sell you LOOKS at the media -what would we call that? Hyper-symbolic?

So what's the point here? Simply, that the massive changes in socio-economics, what work is, what is manufacturing, what is media and how do we get it, how all this is monetized (you always have buyers and sellers, but now that term much more universal, and a just plain different PROCESS) are all happening simultaneously. Because of this, we as a culture are undergoing a similar confusion that out great-great grandparents underwent during the Industrial Revolution.

Look for me to pull all this rubbish together by Wednesday ---->>>>

The REAL Economic Tsunami - Part IIII

So far we have covered:

1. Root economic change.
2. What is a job?
3. The death of US manufacturing

We need to cover:
4. The death of traditional media (newspapers, etc.)
5. Monetizing manufacturing/media's replacement (in the US at least) - Web 2.0 and higher.

The Tribune Corp filed a Chapter 11 bankruptcy on December 8th in Delaware. It reportedly has 13 billion in debt. The Chicago Cubs franchise and Wrigley Field are not included in the filing. Tribune has fallen below the cash flow required under its agreement with its bondholders, but it is not clear how seriously Tribune is thinking about seeking bankruptcy protection. Analysts and bankruptcy experts say that the hiring of advisers, including Lazard and Sidley Austin, one of the company’s longtime law firms, could be a just-in-case move, or a bargaining tactic. Like most newspapers, Tribune’s have suffered double-digit percentage declines in advertising this year, as ads and readers continue to shift to the Internet, and the recession has prompted retailers and other businesses to curtail their ad spending. What makes Tribune’s problems more serious is the heavy debt load it carries as a result of last year’s buyout.

The weak state of newspapers has made some lenders more loath than usual to force bankruptcy, fearing that it could worsen their chance of significant recovery, or at least delay it
Maureen Dowd writes about a newspaper that’s offshoring editorial content and learning to make it work. James McPherson is the editor and publisher of Pasadena Now, a small weekly. A year ago, he fired his entire editorial staff and farmed out coverage to a staff of Indian writers he recruited on Craigslist. He pays them about $7.50 per 1,000 words, compared to the $30,000 to $40,000 he was paying each reporter annually. The Indian writers “report” via telephones, web harvesting and webcams, with support and guidance from McPherson and his wife work for.

Reaction to the idea was brutal at first, but the concept of editorial offshoring is gaining traction. Dowd counts MediaNews Group chairman Dean Singleton among the ranks of executives who have recently talked about massive offshoring to save costs. Singleton says most preproduction MediaNews’s California papers is already outsourced to India, which has cut costs by 65 percent.

If the idea sounds preposterous, think about it. How many people in a standard newsroom never leave the building? Any job that primarily involves computer and phone work is a candidate for offshoring. Between cell phones, webcams, virtual meetings and instant messaging, the need for face-to-face contact is diminishing to the point of irrelevance in many cases. On-site reporters will always have value, but in the future they could become a small corps of feet on the street feeding copy to a virtualized production force that is largely invisible. The compelling cost efficiencies give publishers a lot of incentive to be creative.

Former Los Angeles Times editor James O’Shea comments at some length on recent statements by Tribune Co. CEO Sam Zell about the failure of newspapers to listen to their customers. O’Shea has a problem with that philosophy. “If all we had to do was ask readers what they wanted in a newspaper and then give it to them, wouldn’t someone have done that years ago?” he asks? In fact, they did. “I’ve seen dozens of papers march down that road to no success.”

O’Shea agrees that journalists have done a poor job of demonstrating their value as stewards of the public trust, but he thinks that failure is actually due to their efforts to listen too closely to their customers. The conventional marketing wisdom is that readers want soft, lifestyle stories and the more we give them that pabulum, the more we undermine our value as serious journalists. “To the extent we blur the differences between these once-distinct voices with pandering coverage that resembles advertorial and not editorial we play right into this trap,” he writes.

And if the newspaper industry is dying, apparently no one told Saharra White. The California State University, Northridge journalism major pooled her savings and donations from friends last year to launch Say It Loud!, a newspaper for African-Americans of the San Fernando Valley. “I wanted to start the newspaper because there are black people in the Valley doing some positive things,” she says. Say It Loud! is one of about 200 black community newspapers across the US, according to the Black Newspaper Publishers Association. White says she felt the stunning election of an African-American as President demanded new media to cover the impact of the Obama administration on America’s future. She distributed the paper in print for a year, but now has gone online-only as a matter of economic necessity.

Folks, this train has been a-comin' for about 18 years now...since the early 1990's. I remember the first time i saw the World Wide Web - remember: the Internet is not the WWW - The WWW is part of the Internet. The Internet includes file transfer capability email and chat and other mechanisms for communication. What I saw was simplistic, even crude graphics, and loopy text formatting - but you could click your mouse cursor on some of the words, and BAM! You instantly transported to another document explaining the meaning of that word, and attendant subjects. And you could click and click and click. I was flabbergasted, stupefied (some say that's a permanent condition with me)... How was such a thing possible? And what would it lead to?
Well, we have response times, when it comes to news, measured in seconds - not days or even days. Ad revenue has been declining for a decade now- ask the newspaper guys and they mutter "aw, it's that damned innertubes, or whatever.". Did they "get it" then, and do they "get it" now?
Frankly, I think there are many reasons for the decline and eventual fall of traditional media (newspapers, magazines, radio & TV) - the culture wars, "happy talk" replacing hard news and vice-versa (the public is a harsh mistress), plus the "homogenization" of news to reflect the MacPaper framework of USA Today. However while this may be the case there are certainly other issues we should consider.

Firstly, a similar thing happened around the last so called “dot.com bubble”. Businesses flocked online, spending millions advertising etc... Then the “dot.com bubble” burst leaving many people in serious debt. It could be considered that this current increase in online advertising is just another “dot.com bubble”, only time will tell whether this is the case or not.

Secondly, this increase could be a temporary “blip” so to speak. Many of the traditional media companies have been slow to act on digital media, meaning that some of the newer so called “new media” companies have been able to take up a large market share quickly in the absence of any real competition. It could be argued that once the traditional media companies embrace digital media that we may see this shift in advertising revenue re-balance itself as the traditional media companies will be able to integrate digital media into their traditional medias easier than a digital media company can integrate itself into the tightly controlled and extremely competitive traditional media market. We have already seen some of the traditional media companies trying to buy their way into the successful new media companies for example, News International buying the company that owns the hugely successful MySpace.com website. Again it may be a number of years before we can see whether this theory is correct.

Also, with all the reports describing this decline of traditional media compared to digital media, there have been reports of digital media companies such as Myspace and Google using traditional media methods. “MySpace weighs up spin-off magazine” (The Guardian, 2006). This reports how Myspace is considering a “spin-off print magazine” for the users and fans of Myspace. Although this is less surprising since the takeover of Myspace by News International and the want to integrate it into some of News International print output. Google has also used traditional media recently “Google Ads share the love with newspapers” (NYT, 2008), “Google's radio ads” (NYT, 2006) both of these report on a trial being conducted by Google on it’s advertising output, both of the trials for the different mediums work along similar lines to Google’s “Adwords” technology used on it’s search engine. Long established Internet and search engine company Yahoo is also conducting a similar trial with US local newspapers “Yahoo! to share classified ads with US local newspapers” Yahoo has signed a deal with 150 local US newspapers to provide them with classified advertising and content.

It can also be argued that another one of the reasons why these digital media companies are making deals with local newspapers (like Yahoo) relates back to one of characteristics of digital media described in the chapter “What is digital media?” One of digital media characteristics is that while it can be a mass media, it can also be personalized unlike traditional forms of mass media. While this is true, one of the most popular forms of digital media, the World Wide Web has struggled until recently to be personalized or “local”, yes it is possible and rather clever that you can speak to someone on the other side of the world. A lot of the time though, users of the World Wide Web want local content, hey want to be able to see when the bus is coming, or when the film they want to see at the cinema is on, or what is happening in their town. Digital media’s characteristics that it is in a “constant state of flux” (Lister, 2006) rather than fixed lends itself perfectly to this. Where digital media has failed mainly is actually being able to deliver that local content, this is why they are making deals with the local newspapers etc to enable to finally make the idea a reality. Traditional media companies are also trying to use digital media for the very same thing. “ITV broadband television in the starting blocks” (NYT 2008) reports ITV is “gearing up for the launch of its local broadband TV service, ITV Local” The same report also describes how ITV has also acquired Enable Media, which owns directory service Scoot, another part of ITV local strategy. As we can see there is a clear trend by both traditional and digital media companies towards providing this local content and this can be seen in advertising campaigns such as yell.com made by the company AKQA (AKQA 2005).

This customization feature is the "killer app" of the new media - I think the entire concept of the "newspaper" and the "magazine" is disintegrating. They were the products of physical formats that are increasingly irrelevant. I have found much smarter people on the net than I ever encountered in newspapers and most magazines. (Journals are another issue.) I use Google Reader to set up sophisticated filters to handle information noise and overload. I felt much more information overload in ye olden days of print, which I miss not in the least Yet, there is, of course, another point of view here...

PriceWaterhouseCoopers C-levels say traditional media are not dead yet… because their consumers are not dead yet. Analyst Marcel Fenez (via Press Gazette): “One of the things we need to get into context here is that traditional media isn’t dead yet and won’t be for the next five years. It’s very important to think why. The over-50s are helping to sustain traditional media, and also in many of the emerging markets there is still plenty of room for traditional media. The death of traditional media is exaggerated, at least in a five-year context.”

So media forecasting becomes mortality prediction. On that basis, assuming advances in healthcare continue to extend human lifespans, “traditional” media may even be around for more than five years. Although digital ad spend will grow 11 times faster than print up to 2012, it will still only be 10 percent that in newspapers, Fenez said.

In a way I agree: I used to love reading my Sunday newspaper in bed, munching on donuts, giving the kids the comics and my wife the fashion and social sections, This was a ritual in my life - but nowadays, no wife, kids are grown - no ritual, because it no longer serves any purpose. But consider the following - (there is no cohesion to these thoughts, but here it goes):

1. Internet advertising is not the end all be all. A lot of local businesses, where you live, are picking up on the new media/ social media craze, by hiring new media savvy marketing and IT staff. Its amazing how marketing firms continue to blindly exploit internet advertising to sustain their businesses. This is unsurprising looking at the recession in the advertising industry general, as marketing firms are looking for ways to sustain and increase business.

2. How can we predict the usage and adoption of digital and social media? Think about what they call the “Internet generation- a 20 year old in 1995 (when the Internet became prevalent) would now be 33 years old. Think forward another 10 years. Not only are we looking at an increase in education, maturity, and access around the Internet- but also an influx of Internet savvy youth, who will grow into their jobs, taking an “Internet aware” approach to their work.

3. Print Will Never Die: The Internet in harmony with print. Arianna Huffington, with the HUFFINGTON POST uses this great analogy: “The shifting dynamic between the forces of print and online reminds me of Sarah Connor and the T-101 in The Terminator. At first, the visitor from the future (digital) seemed intent on killing Sarah (print). But as the relationship progressed, the Terminator became Sarah and her son’s one hope for salvation. Today, you can almost hear digital media (which for some reason has a thick Austrian accent) saying o print: “Come vit me if you vant to live!”
In a way, the trad media and new media sort of feed off each other, the way I decribed the relationship between the nonmoney economy and the money economy. Not the death of the trad media (my friend Laura calls it the "drive-by media"), but a transformation into something else - the point of this whole rant.

The Great Television Switch Off

The television switch off is real. In the United States, 2.5 million viewers switched off in the spring on 2008 compared to the same time in 2006. Statistically this is only a small percentage of the overall viewing audience, but among those still watching television, the amount of television they watch each day is declining.

The decline in television viewing is stronger among younger statistical groups. In Europe, a 2005 study from the European Interactive Advertising Association found almost half of 15- to 24-year-olds are watching less TV in favor of browsing the web. A study reported in The Guardian in 2007 headlined with “Young networkers turn off TV and log on to the web.” The television switch off in the United States among younger people has seen the average age of a TV viewer increase to 50. Why? What does it mean?

We can think about whether television is going to die in two ways. First, by looking backwards, at the history of the mass media, and second, by looking forward, and trying to understand some of the impulses behind what is going on, behind media proliferation.

The simple historical fact is that mass communication technologies are never replaced by newer technologies. They co-exist, while continuing to evolve. We still have the newspaper, the telephone, the radio, and the movies, despite the fact that each of these was at the time of introduction viewed as the beginning of the end for the other. The only mass communication medium in history to have been replaced by another is the telegraph, a service which began in 1851 with the founding of the New York and Mississippi Valley Printing Telegraph Company and spanned 150 years, ending finally on January 27, 2006, when Western Union discontinued the service. Western Union report that telegrams sent had fallen to 20,000 per year, due to competition from other communication technologies, including -- and probably mainly -- email. Arguably, of course, the telegram was not a mass communication technology." Thus, the Five Year plan of Marcel Fenez.

I have some sadness for the putative death of television. Anyone in Generation X or older would have grown up with the medium, and spent countless hours on the couch watching it, and yet today, people worldwide are switching off. As younger viewers happily switch to their computers, forgoing the experience of a television set altogether, newer, more consumer friendly devices will deliver Internet content to the broader population, often via the television screen, and the switch off of television networks will accelerate. By the time my (by now 17 year old) daughter has children of her own, broadcast television will be a thing of the past, replaced instead by an always on society with the Internet as a nearly unlimited smorgasbord of choice.

Just to clarify one point in this post that some seem to be confusing, and perhaps I wasn’t clear enough. I am not suggesting that the experience of sitting around a large screen TV watching sport or other content is going to fall. It never will, but content delivery via broadcast television (ie television networks, or collectively the television media) will fall. There will always be a place for a television set in many lounge rooms, but that set in the future will be a conduit for digitally delivered, on-demand or custom mixed content, delivered over the Internet, from many different providers.

The "sine que non" here is-

a) New media technologies have altered the flow and increase the volume of social communication by decreasing costs and distance sensitivity of moving information; increasing the speed and volume of communication. The exchange of information have become instantaneous and global.
b) New media technologies have changed the way journalists 9and everybody else) work through the abundance of easily accessible information over the net as well as giving portability for journalist to produce news, e.g., notebook, PDAs, etc. Together with advances in long-distance traveling have make it possible to down-size and de-skill newsroom by increasing reliance on pooled information fed into eth information net by PR firms and news agencies.
c) The transformation of ‘broadcasting’ to ‘narrowcasting’ to audience. The customization of the flow of news, etc is the important change and control factor here.

And one final point - no communication technology is easier to use, or more portable, than a book. Paper is the most successful communications innovation of the last 2000 years, the one that has lasted the longest and had the most profound effect on civilization. One can easily make the case that without the technology that is paper, there would be no civilization. Yet most of the time, we don’t even think of paper as a technology. And so we don’t ask the questions we routinely ask about other technologies: How does it work? What are its strengths and weaknesses? Is it easy and enjoyable to use?

Confused yet? GOOD - that's the point! All this stuff is onter-related, as i hope to wind up in my conclusion this weekend. Now, let's see how this all relates to generating capital, and how that capital is used ------------->

The REAL Economic Tsunami - Part III

Before I get going on the "death" of US Manufacturing, allow me to quote from The Rational Capitalist on this latest guvmint stag part--er, bailout -

It is immoral for the government to expropriate the money from the earnings of others and shower it upon bankrupt firms such as the automakers. If individuals believe it is truly in their self-interest to invest or provide alms for bankrupt firms they may do so – by purchasing their stock, bonds or by simply sending them money. The idea that the “need” of the automakers and their employees somehow justifies theft is the height of evil and is an argument that could be used to justify virtually anything. Since when does the “need” of anyone justify theft? If this argument is not valid in a criminal court, then why does it become valid when applied to firms?

Every business, whether big or small, must stand on its own merits. If it does not provide a product that individuals are willing to voluntarily purchase then it must restructure or fail and the faster the better. It is absolutely unconscionable that these CEO’s would plead for their Godfather’s in Washington to shake down taxpayers rather than focus on how to make their failing firms more profitable.

Plus some "housekeeping" - some folks can't seem to get Blogger to save comments, so I will post them. This one from my old pal Carl Sarrazolla, International Superstar:

"For some reason the blogger won't let me post my comments on the site, so here's my feedback.
I like where you're going with this. In additions to companies needing to change, we need to get some laws changed, especially the ones that define a job as 8 hour day, 40 hour week, etc. In addition, the laws that govern contractor/employer relationships also need to change as many are designed to force people into classic job roles once certain conditions are met."

Well put, buddy!

Now, let's get going- so far we have covered:

1. Root economic change
2. What is a job?

We need to cover:

3. The death of US manufacturing
4. The death of traditional media (newspapers, etc.)
5. Monetizing manufacturing/media's replacement (in the US at least) - Web 2.0 and higher.

The "death" of US manufacturing - like Mark Twain's death - is a little premature. It's not dead or dying, just changing. But since people don't recognize change while it's happening, let me help you all out.

Massive amounts of manufacturing have moved overseas in recent years, specifically to China, Malaysia and India . The pressure to turn a profit in manufacturing has prompted many companies to seek refuge in low-cost labor areas, putting onshore factories at a competitive disadvantage.

The problem with this logic is as follows: in many industries, labor accounts for less than 10 percent of total manufacturing costs. Factory automation, robotic inspection and process efficiencies have made labor less of a factor in the overall competitive picture. Savvy companies have learned to take advantage of these and other innovations to make their Americas-based business a success.

And now I will quote massively from the Washington Post's Gilbert B. Kaplan - He said it better than I:

No wonder this is an issue in the presidential campaign, especially in big manufacturing states. To get to the bottom of the problem, though, we have to cut through the many myths that have been fabricated about the industry over the years.

1. It's all about cheap wages. American workers are just paid too much.

For most manufacturing sectors, that's just wrong. Labor costs are already less than 10 percent of the cost of making many products (emphasis mine), including steel and semiconductors. Many of the real cost disadvantages the United States confronts are self-imposed. Our government doesn't rebate taxes to corporations when they export manufactured products, the way other countries do: A Brazilian steel company, for example, can get a 17 percent tax credit for every ton of steel it sends abroad. In addition, many foreign countries keep their currencies valued extremely low against the dollar. Most economists believe that China undervalues its currency by as much as 40 percent. That makes Chinese goods very cheap here and U.S. exports very expensive in China. This is a key driver of the $260 billion trade deficit with Beijing. We should deal with these issues in our international trade negotiations, but we haven't.

2. U.S. manufacturers can save themselves by investing in innovation.

Okay, but how much are you going to invest? U.S. private-sector companies can't put as much money into technology and research and development as foreign governments do to build up their sectors. As the chief executive of a technology firm with whom I've worked for many years says, "We're the best company in the world, but we can't compete with foreign governments." Consider Airbus. The European Union has put more than $15 billion into building this aircraft company from the ground up. Whatever you may think about the recent U.S. Air Force decision to buy tankers from Airbus rather than Boeing, one thing is clear: Through its subsidies, the E.U. has managed to build a highly competitive aircraft industry. South Korea has put more than $12 billion into its semiconductor industry to similar effect, severely harming the U.S. semiconductor manufacturing base. Business' are leveraging Guvmint resources for strategic advantage - this a sort of "reverse State Capitalism" (SC is MY deal BTW)

3. Trade laws and trade agreements level the playing field for U.S. manufacturers.

If only this were so. This should be the main goal of our trade negotiations. The manufacturing sector is hurting more than any other, but we're using our political capital -- in the Doha round, for example, the latest World Trade Organization negotiating round -- to help the service and agricultural sectors. Little is being done for basic manufacturing. There are international trade laws under which U.S. companies can file cases to offset unfair practices in China, Japan and other countries, but they're difficult to use, expensive and haven't solved the problem. In 2006, despite a manufacturing trade deficit of more than $600 billion, U.S. manufacturers filed only eight new trade cases. If these statutes were really working, we would see hundreds of new cases each year, instead of watching U.S. companies decide that it's better to give up and just move manufacturing plants abroad -- something I've recently heard executives in both the textile and electronics sectors say they're thinking about doing.

4. Good management can make U.S. manufacturers lean enough to fight in the international economy.

I wish it were that easy. Even the best management can't overcome some of the structural disadvantages we face. Take health-care costs. In Europe, these costs are absorbed by the government. In the United States, manufacturers have to pay for them. General Motors, for example, has estimated that the cost of health care adds about $1,600 to the price of each of its vehicles. How can you compete when you have to add that cost to all the other challenges a U.S. manufacturer faces? Then there are environmental-compliance costs. One recent study shows that these costs are about $77 billion a year for U.S. manufacturers. China, Taiwan and many other foreign jurisdictions have no environmental costs of any significance, because they either have no environmental laws or don't comply with them. The United States also has laws and regulations to keep our products and workplaces safe that we don't require our trading partners to comply with.

5. We make high-tech goods here, so we're okay. It's only schlock items that come from abroad.

Really? The truth is, very few high-tech companies are building new plants in the United States. The name on the box of the computer you just ordered may be Dell or HP, but the computer itself was probably made in Asia. The fancy light-up screens on your cellphone and iPod -- liquid crystal display screens, or LCDs -- are all made in China, South Korea, Singapore and Japan. Even our greatest semiconductor companies, such as Intel, are building new state-of-the-art facilities in China. And what about the most sophisticated high-tech product in the world -- microlithography machines used to make semiconductors? These machines are a true enabling technology -- a technology from which everything else follows. It's too bad that not a single one is made in the United States. We depend on Europe and Japan for them.

All true. But the real transformation may not be where things are made, but HOW and WHY. Now you may ask yourself "Russell, what in the name of God's holy creation are you jibber-jabbering about NOW". Well, just... think about it. It's actually some good news - remember, PROCESS is more important that MECHANICS.

There are powerful, unrecognized interactions between the nonmoney, or “prosumer,” (producing what you consume - eating your own dog food) economy and the money economy of our world. Rather than ignoring these interactions, we need to understand that these two economies are, in fact, parts of a unified “wealth system” in which the two parts pass value back and forth. If you really think about it, I mean REALLY think about it many of the linkages through which prosumer activities, from creating blogs and open source software to volunteering in a hospital, or Habitat For Humanity, or performing do-it-yourself projects, frequently add significant value to the money economy. There just isn't a "mechanism" to account for it! But, I assure you, it is very real.

Think about this - Many of us still think of the money economy as a closed system. But the growing importance of knowledge and prosuming in the wealth system makes the closed model obsolete.

There are all these channels between what people do without money and what goes on inside the money economy. I think these channels are going to multiply as the money economy creates more and more technologies that people can use to do things for themselves. For example, if you’re of a certain age, you probably remember that when you wanted to get photos developed and printed, you took them to a drugstore, they sent them to Kodak in Rochester, N.Y., Kodak sent them back, and then you paid the drugstore, and took your prints home. Now you do all that in the palm of your hand, because you have the digital camera technology that makes that possible. As a result, the market for printing and developing film is disappearing. It is moving from the money economy into the nonmoney economy.
This i s in the same tradition as the "seLf-sufficient" American, but on an immensely larger scale. What’s new these days is the cyberstructure that allows prosumers to create value and rapidly disseminate it across the globe, where others find ways to commercialize (monetize) it.

This transformation that we think of as the “new” economy actually started in the 1950s (the rise of consumerism - based on a RAND Corporation study) and is far deeper and more complex than most people suspect (as I have been saying ad nauseum). The underlying pattern is the breakdown of Industrial Age civilization, fed by the replacement of Industrial Age technologies and sweeping cultural changes, as well. The nature of the emergent wealth system is changing our civilization. But the reverse is also true, and to understand how these affect each other, you have to synthesize observations across all traditional academic borders, the boundaries that separate economics from sociology, from history, and so on. How do you lump finance, manufacturing, services, and countless other activities under the term economy? The link is that they are all monetized. The term prosumer (again, thanks to Alvin Toffler for that word!) deals with activities that are not monetized.

Although they are very different activities, they have a powerful aggregate impact on the money economy. In fact, their very disparity points to how widespread prosumerism is, and how important it is. Measuring things does not necessarily make them important, and unmeasured things are not necessarily unimportant. On the other hand, although I’m not a mathematician, I am an engineer, so I believe everything can, in principle, be measured, at least to some degree, by measuring a “surrogate” that is presumed to be analogous to the phenomenon at hand.

I'll leave it to you math geniuses, to figure out how....

So, I see the bifurcation of the manufacturing economy in the US - and it will be painful, but so was the Industrial Revolution. Split between highly mechanized production and the "prosumers". Here's an apocryphal story (and it has the added virtue of being true):

The Jacquard Loom is a mechanical loom, invented by Joseph Marie Jacquard in 1801, that simplifies the process of manufacturing textiles with complex patterns such as brocade and damask. The loom is controlled by pasteboard cards with punched holes, each row of which corresponds to one row of the design. Multiple rows of holes are punched on each card and the many cards that compose the design of the textile are strung together in order. It is based on earlier inventions by the Frenchmen Basile Bouchon (1725), Jean Falcon (1728) and Jacques Vaucanson (1740). This was part of my Econ History doctorate, so I know this story very well.

Each hole in the card corresponds to a "Bolus" hook, which can either be up or down. The hook raises or lowers the harness, which carries and guides the warp thread so that the weft will either lie above or below it. The sequence of raised and lowered threads is what creates the pattern. Each hook can be connected via the harness to a number of threads, allowing more than one repeat of a pattern. A loom with a 400 hook head might have four threads connected to each hook, resulting in a fabric that is 1600 warp ends wide with four repeats of the weave going across.

The Jacquard loom was the first machine to use punch cards to control a sequence of operations. Although it did no computation based on them, it is considered an important step in the history of computing hardware. The ability to change the pattern of the loom's weave by simply changing cards was an important conceptual precursor to the development of computer programming.

Now, this device, invented at the dawn of the Industrial Revolution, could be hooked up to dozens of looms, and produce beautiful, sophisticated textiles by the thousands of yards, very cheaply. Which, of course, put thousands of French weavers out of work. With no French Guvmint bailout to rescue them, the weavers treated like any good socialistic Luddite - they rioted. They took their wooden shoes (SABOT) and threw them into the infernal machines, thereby committing the act of sabot - age : sabotage.

The point is, the coming transformation will be painful, but we will get through it. We will have a money economy of highly intelligent machines (robots, if you will) manufacturing goods for sale here and abroad, designed built and maintained by American workers and a huge non-money economy of DYI types using the technology the money economy provides, to provide for themselves. - IF and only if, we have the guts to be flexible, agile and swallow our stupid pride and re-tool out skills to meet the paradigm shift. Or wallow in your "I'm a victim" status and become a ward of the state.

I'll leave the choice to you, because you own it ---->