Red Pill Edition: Is Yahoo's Carol Bartz the One?

Dear CEO Carol Bartz:

I'm going to give you the blue pill first. You've done a wonderful job fixing many of Yahoo's dysfunctions. Before you arrived, Yahoo users were bombarded with "new-old" ideas, like "Yahoo 360" (a second-tier version of Facebook); constant recycling of entertainment news; and technical glitches too numerous to recount here.

Lest anyone of us forget, you run a fine, trail-blazing company. As I remember, Yahoo was the first major company to offer free lifetime email accounts and to make it easier for laypeople to use internet resources. Yahoo's actions a decade ago helped expand the internet and set the stage for billions of people worldwide to communicate with each other.

And don't think I haven't noticed your take-charge business style. After I complained publicly about all the entertainment news on your home page, you fixed it within a few weeks. Yahoo's home page no longer seems to constantly feature stories involving the Kardashians and Paris Hilton. (From the bottom of my heart, thank you. And thank you for finally fixing many of the glitches in Yahoo's calendar.) Also, just when I thought Yahoo's fantasy sports couldn't get any better, you outdid yourself yet again (the new linear stat graphs are wonderful).

Yet, as you know, Yahoo still has problems. I want to make sure these problems are on your radar screen, so it's time to take the red pill.

Problem 1: Yahoo Tailors its Content to Maximize Eyeballs, another Way of Saying it Emphasizes the Lowest Common Denominator, i.e., Superficial Content over Substance

At this year's annual meeting, I told you Yahoo's front page had gotten so asinine, I had switched to your main competitor's home page. I'm still not back, because for the most part, your front page features stories I've seen before or items I don't care about. In the future, content will be king, and right now, you mostly recycle other people's content based on popularity. Well, it turns out the popular kids on the internet love asinine, superficial stories, and when you move with that crowd, you lose credibility with the nerds, geeks, jocks, goths, rebels, and recluses--i.e., everyone but the cheerleaders and their admiring followers. Is that really the direction you want to go? Headfirst into the land of the average and the Simpsons' Ralph Wiggum?

And do you really think advertisers want to display ads on a website that has no focus? Wouldn't it make more sense to break up Yahoo into multiple sites, where you could tailor content (and ads) to more specific groups of people? Google uses AdWords to tailor its advertising to specific users--what do you have that can compete with AdWords?

Problem 2: Hateful Comments

Your desire for mass appeal extends to the comments section of your articles, which you do not actively monitor. As a result, Yahoo's comments sections are filled with the backwards side of America. Few other reputable websites would allow the comments I saw on August 17, 2010 on Yahoo:

"DON'T BE GAY!!" on an article discussing a Mississippi school district's policy forbidding women from wearing tuxedos for senior yearbook portraits.

"Something needs to be done about the black problem. Why can,t [sic] the scientfic [sic] community get together and figure out a way to stop the pieces of scum from reproducing?" From Bill in Sacramento, on an article where an African-American mother killed her children ("SC mom killed kids, dumped car in river"). [Note: the person who wrote the comment should have looked up 1994's Susan Smith case before associating race with child murder.]

Re: article titled, "World Bank pledges $900 million in flood aid to Pakistan": "Helping any Muslim controlled country, is like a U.S. soldier who sees a wounded enemy soldier on the ground and (being compassionant) [sic] decides to reach down and lift him up for medical treatment. Then, as soon as the person is lifted, the booby trapped bomb underneath him goes off killing him and many fellow soldiers as a result of his (compassion)and stupidity. Only a fool will be compassionate to his enemy. Kill them where they stand, or lay for that matter. The Pakistanie's [sic] harbor the taliban, fellow muslims. Muslims supply money to the Taliban, fellow muslims. Do we owe them any donations? Yes. a quick bullet to the head." This comment received 5 "thumbs up" and 0 "thumbs down." At the same time, another more intelligent comment--"Taliban terrorists? It's innocent people who are dieing [sic] from this flood, such as farmers, women and children"--received 3 "thumbs down" and only 1 "thumbs up."

"He [President Obama] will never reform them [Fannie and Freddie Mac] as it disperses too much money to the black race." Comment in article titled, "Obama seeks new design for housing, Fannie/Freddie." 8 "thumbs up" and 5 "thumbs down."

"My son bought his 1st home last summer and still has yet to receive his $8,000.00 credit, in fact it was denied. So a 25 yr old man hurried to buy a house for this extension and government decided he didn't qualify, Maybe because he was white?" Same article, 6 "thumbs up" and 1 "thumbs down."

I will stop there, but I hope you see the problem. As you expand, you should be careful that your quality control doesn't deteriorate. I once saw a baiting, anti-Muslim post you featured prominently on your website. I've come to expect that kind of sensationalism from Rep. Rick Lazio, Rep. Peter T. King, and their ilk, but I expect Yahoo not to lend its imprimatur to such content. And I don't want to see overtly hate-filled messages of any kind when I go to your website. Is that so much to ask? How hard can it be to hire several hundred part-timers to monitor and screen the comments pages to ensure your website becomes a more civilized place? I know you won't get as many "page hits" and you'll be accused of being elitist, but several other media websites already monitor comments, and I bet their users actually spend time reading the comments.

And yes, I know you have a dilemma, because many people like reading the comments sections precisely because of all the idiots who post. Even so, for those of us who aren't as easily amused, there must be a way for us to read comments without being subjected to idiots. (See idea above, about breaking up Yahoo into different sections tailored to different sets of people.)

If you really want to think outside the box, try this: administer a worldwide, voluntary multiple-choice test to Yahoo users. Make it a big event, where you either have people take the test at physical sites, or you give users passwords and allow everyone to take the test at the exact same time online. Include content from many different disciplines, such as economics (What is a positive externality?);sports (Which team did Barry Sanders play for?); entertainment (Who is married to Jennifer Lopez?); and so on. Based on the number of correct answers, you can then offer users an option of joining exclusive pages tailored to their knowledge and interests. If you handle this right, someone's Yahoo test score could become part of America's rite of passage, just like someone's SAT score. Besides, wouldn't advertisers love gaining access to more specific groups of users?

Problem 3: Videos that manage to play the commercials perfectly fine, but when it comes to the actual content, the video freezes. Also, videos that lack captioning, which excludes millions of people worldwide.

Before dealing with the comments problem, you can fix an easier issue--namely, your video streaming (especially in the sports section). In order for advertisers to trust your site, they need to know that users will click on Yahoo videos and watch their commercials. When users click on Yahoo videos, they expect to see something fun, unique, and relevant.

Yahoo's responsibility isn't just to offer interesting videos and clips, but to ensure that both the ad and the content play properly. You're doing well when it comes to streaming the commercials, but not when it comes to the actual content. I can't tell you how many times I've sat through a commercial, hoping to see a fun sports moment, only to have the video freeze on me. If my computer can play your commercials perfectly, why does it have a problem playing the actual content? If you don't fix this problem, I won't click on any of your videos. After all, fool me once, shame on me. Fool me twice...

Also, why doesn't Yahoo offer closed captioning for its videos? Hulu, Youtube, TED, and Google all manage to caption their online videos. Why can't you do the same thing?

Problem 4: Lack of Focus. Who are you?

Right now, you're the John Dewey of the Internet. You've dumbed it down so everyone can play. That was great ten years ago, but it's no longer sufficient to be a mere content aggregator. To be fair, one of the best sites on the internet today is Rivals.com, your college sports page. Unfortunately, Rivals.com seems to be your only example of consistently interesting Yahoo-generated content.

When you do have excellent content, we notice. A long time ago, you had an article following up with the players on George Mason's 2006 "Cinderella" basketball team. Josh Peter's article was one of the best articles I've ever read, and you owned the content. So what did you do with Mr. Peter? I have no idea. He's still listed as one of your reporters, but he hasn't written anything since November 2009. Instead of giving Mr. Peter (or Michael Silver) major publicity, someone decided to give Dan Wetzel valuable virtual estate on Yahoo Sports--even though the quality of his "reporting" and writing has been steadily declining (perhaps because he was busy writing a book or two).

Listen, when you find quality, you need to keep it. With a little more placement and internal advertising, you could have the next Bill Simmons. I mean, you're the 800 lb gorilla when it comes to online eyeballs. If you have a great writer, you can take him or her to the next level. And if you hire good journalists and writers, at some point, Rivals.com could be the next ESPN.com. You just need to dream big and aim high, and unfortunately, I don't see that visionary attitude right now at Yahoo.

I happen to be available part-time if you want someone to help you with quality control or editing, but journalism majors nationwide will work for peanuts and resume filler. Why aren't you cherry-picking the best ones and using them? Bring back journalism so Americans don't have to rely exclusively on Bloomberg, the BBC, the Christian Science Monitor, and Al-Jazeera for real news. And yes, I know you're ahead of me in this regard. You're already using articles from Seeking Alpha and the Christian Science Monitor to bolster your content, but you could be doing so much more. You don't even need to focus on journalism to expand your content. Why not have a site similar to The Onion? The writers from that website probably aren't making tons of money, so why can't Yahoo create unique content if The Onion can do it?

That's all I have for now, Ms. Bartz. I used to have a small crush on former President/CFO Susan Decker, but it turns out, she wasn't the One. If Yahoo is the Matrix, then shareholders are hoping you are Neo. Please don't fail us. The internet needs you, journalism needs you, and America's readers need you. I know it's in you. And I know that some people will be afraid of change, even though being a generalized content aggregator does not confer a competitive advantage in today's online marketplace.

I don't know the future. I'm not here to tell you how the internet revolution is going to end. I'm just hoping you're going to show me a world without the old Yahoo. A world without rules and controls, without borders or boundaries. A world where anything is possible. How we get there is a choice we leave to you.

Sincerely,

Matthew Rafat

Disclosure: at the time of publication, I had an insignificant number of Yahoo (YHOO) shares.

Judge Posner on Unions

Judge Posner on unions:

http://www.becker-posner-blog.com/2010/08/unionism-and-economic-recoveryposner.html

A principal goal of unions of course is to raise wages, though in doing so it causes employment to fall by raising the cost of labor relative to the cost of capital. Keynes emphasized (though the point was not original with him) that workers strongly resist cuts in their nominal wages, where “nominal” means the dollar amount of the wages and is contrasted with “real,” which means the purchasing power of the wage. In an economic downturn, an employer who thinks it infeasible to reduce the nominal wages of his employees will have to lay off workers so that his costs of production are not excessive in relation to the diminished demand for his product. Therefore the higher the nominal wages of employees, the more unemployment will be generated by an economic downturn.

Judge Posner has brilliantly summarized a very difficult issue. More on unions here.

Union Arbitration = No Transparency

Most of the time, when our politicians make decisions, the process is open and transparent. That openness allows voters and residents to oppose shady or unreasonable deals. In contrast to the normal principle of transparency, most of California's government unions negotiated compensation packages behind closed doors (via arbitration). About two years ago, the California Supreme Court issued a decision (mostly) rejecting the government unions' claims to privacy protection, finally forcing the unions to disclose their generous compensation packages. Since then, most Californians have been shocked to see union workers receiving benefits far above the norm in the private sector. Consider the following scenario:

Blackwater operatives come to San Jose, call for a private meeting, and tell the Council that they have information about a possible impending attack. Blackwater then demands, in private, $2,000/yr from each resident and his or her child for the next 60 years to help the city avoid the attack. The Council, behind closed doors, agrees. Later, someone becomes upset with his increasing taxes and sues the City to figure out what is going on with the budget. Two years later, after much litigation, the state Supreme Court forces the Council to reveal the Blackwater deal to the public.

Should voters be able to revoke or modify the private deal because they may have received some benefit from Blackwater and because Blackwater employees may have relied on expected future income? Keep in mind that the the deal affects the voters' children (i.e., like government pension promises, the private deal forces our children to pay higher taxes in the future).

The union arbitration system--under which the unions received their generous pay packages--is similar to the scenario above. The pay was privately negotiated and not subject to any real checks and balances. In fact, the hypothetical scenario above is generous to the unions and their enabling city council members, because the gun-to-your-head factor mitigates the government's acquiescence. Sadly, at this time, cities and counties cannot do much legally about the private promises they've made to unions except for declaring bankruptcy.

The union arbitration system is terrible for taxpayers. The only other political issue that boils my blood more is gerrymandering. Gerrymandering is where the two major political parties carve up voting districts to avoid competition. It's like Microsoft and Google got together one day and said, "You get these areas on the West Coast, and we'll get these areas on the East Coast, and we both agree not to sell our products in each other's areas." If that actually happened, we would be outraged. Why aren't we more outraged about gerrymandering?

I Have a Story

[This post first published in 2014]

East San Jose, CA -- Thanksgiving

I HAVE A STORY. I don't like Thanksgiving. I don't like turkey, and while I like pumpkin pie, eating an entire pie in one sitting isn't a great feeling. So I go out for pho in East San Jose, and afterwards, a nicely dressed 75 years old man (I'm guessing the age, b/c it's hard to tell the age of black adults) with a cane asks me, "Do you know where the Alum Rock station is?"

Me: "The VTA? No, but let me look it up on Google Maps. You're going to walk there? [He nods] Well, it's 35 minutes."

Him: That's fine.

Me: I'll take you there.

Him: Ok.

[Talking in car]

Me: What do you do?

Him: I'm ex-military.

Me: Which branch?

Him: Marine Corps.

Me: Were you stationed overseas?

Him: [chuckles] Yeah. Southeast Asia.

Me: I'm guessing Vietnam.

Him: Two tours.

Me: [not sure what to say] You know, most of what I know about that, b/c of my age, is from movies and documentaries.

Him: [silence]

Me: [changing subject] You like the restaurants around here?

Him: Yeah, but they can't cook as well as me.

Me: Oh yeah? What's your specialty?

Him: Everything!

[We somehow end up at a dead end. I decide I'll just take him to his destination.]

Me: You got kids?

Him: 7 kids. [He lists all their names and states they live in] One's a cook, youngest one's out here, she's not sure what she wants to do, and then [voice becomes exasperated] there's my other son. Every family gotta have an outlaw. He did 6 months in jail.

[We arrive at Veteran's Housing in East San Jose, near James Lick High School. I drop him off right at the door. We exchange goodbyes. Waiting outside and enjoying the night air is a man in a wheelchair with no legs.]

END SCENE.

Los Gatos, CA -- North Dakota

I HAVE A STORY. I visited a Medicare-funded physical rehab clinic. I saw an older lady with a walker outside on the sidewalk and asked directions to the entrance. She asked me about the room number and then said, "I'll walk with you if you like." I said, "Sure."

Her: I've been here for 17 years. Who are you visiting? I had a brain aneurysm, and I've been living here since.

Me: Are you originally from here? What caused the aneurysm?

Her: They don't know, but they think it's genetic. I came here from North Dakota. I guess you can tell by my accent. [giggles]

Me: Sounds like Minne-so-ta.

Her: They always exaggerate it in movies. We don't talk quite that bad! And we don't say, "Oooh" at the end of every sentence. [imitates exaggerated accent][Stops, checks walkie talkie, confirms something with the speaker]

Me: You ever miss North Dakota?

Her: My friends are here. I've gotten used to it. But when people get old, they get mental issues. I had someone say he was a terrorist and he threatened to kill me. But he was asking me a question! I was just responding to his question! [smiles]

[We walk inside, she reaches up and touches the top of a low hanging ceiling.]

Her: You've got to watch out for this. Some people have hit their heads. Oh, is that your friend's room? How do you pronounce the name?

END SCENE.

Sunnyvale, CA -- Wrestling

I HAVE A STORY. I have a Groupon for $25 for sushi. I go in after I have coffee nearby, and the owner tells me, you need to have 2 ppl. I tell him it's my first time, and whether I bring two ppl or just myself, I'm only going to order 2 rolls. He argues with me. I say 2 ppl isn't in the requirements section (though it's in the title "Sushi for 2"). And logically, doesn't he want me to try the sushi and let people know if it's any good? He says it has to be 2 ppl. Even though we're going to order 2 rolls either way? Apparently, yes. I tell him he's not being logical, and he tells me I'm not being logical. I write a slightly negative Yelp check-in comment.

I walk back to the coffeeshop and ask a random high school guy to come have sushi with me for free. He's with two girls, but he's done studying and comes with me. We sit down, and some idiot waitress comes by and asks how many we are. I say "Two." (The record is silent as to whether I add a large smirk.) The girls text the guy, telling him they think it's "sketchy." He says everything's cool...but it gets better. He's a wrestler! And a big fan, too. We talk about the top H.S. teams now (Gilroy, Fremont, Wilcox) and about Olympic contenders like Jordan Burroughs (apparently he actually lost to a Russian!). The owner stops by and is now polite. The high school guy is so nice, he only has two pieces of sushi and asks if we can bring some for his two friends. We bring back sushi for the two girls. He's a hero, I've had my sushi, and I've made a new friend I can talk wrestling with.

I'll say it again--wrestlers are a class apart.   

END SCENE.

Campbell, CA -- Military

HAVE A STORY. I meet with a long-time friend for coffee at Starbucks. We are outside and talk about dating, life, careers, and the usual. An older man, casually dressed, about 5'8" and in his 50s with a "beer belly" approaches us. He politely says, "I don't mean to interrupt your conversation with her, but I have a request."   

Him: "I have a Starbucks gift card. It has $18.58 on it. You can check it inside if you want. It's valid. My daughter has cancer, so my fiance and I came here from Arizona to see her. We need some gas money to get back. You pay me whatever you want for it."   

Me: [to friend] "You drink more Starbucks than me. I usually get my coffee at McDonald's and my espresso at indie coffee shops. Sounds like a good deal--$15 for $19?"   

Him: "You can go check it."   

Her: [takes card, goes inside to check it]    

Me: "Where in Arizona are you from?"   

Him: "Nearby Phoenix...place called Glendale. I'm ex-military."  

Me: "I know about Glendale. An acquaintance of mine owns some houses there."

Him: [takes out his driver's license, shows it to me--it's from Arizona] "I used to own houses there, too. I used to have a county job."

Me: "Where did you serve? What was your rank?"

Him: "I served in Iraq and Afghanistan, three tours. I was E-8(?). I killed people." [the last few words are said shakily, with a mixture of hesitation and resignation]

"I have this hernia..." [lifts shirt and shows it to me--though I've never seen a hernia, it is in the lower middle of his stomach and looks serious.]

Her: [comes back, puts gift card on bench] "It has $18.68 on it."

Him: [laughs] "See, I lied. It's got ten cents more than I thought!" [Note: in my experience, lower-level ex-military personnel are generally honest.]

Me: [to friend] "Do you want to buy it?"

Her: "Hmmm, not really." [I realize she was checking the balance for me, not herself.]

Me: "Thank you, but it looks like she doesn't want it."

Him: [takes gift card back, walks away, goes inside, comes out, makes same pitch to someone reading outside, but it doesn't work. Sits next to his fiance and says, with a tinge of frustration, "She [my friend] changed her mind about it." The fiance, a slender woman, calmly motions for him to sit next to her.]

[My friend and I say goodbye.]

Me: [I head inside to break a larger denomination bill, but the line is really long. I take out all the small bills I have, which is less than $10. Unfortunately, I forget that my friend had given me some smaller bills earlier. I come out and hand the bills to the man.] "Hey, sorry about this, but these are all the small bills I have." [I start to walk away after giving him the bills and wave goodbye.] 

Him: [immediately gets up, puts hand in his pocket to get gift card]

Me: "Oh, keep the card. It's cool. I don't want it."

Him: [surprised] "Hey, thank you." [Walks up to me, gives me a firm handshake and then a big hug. I realize immediately he may not be in the best shape, but his arms are still very, very strong.]  [We are still embracing, but are now face-to-face. At this point, I'm mentally not there anymore. I can't process why such a small gesture is causing this level of appreciation. I tell him it's not that much money. He continues speaking and lifts up his shirt sleeve to show me a tattoo on his arm.] 

"This is of my daughter...I have another one of the American flag on my back..." [I am smiling, but I no longer hear him because I don't understand his response to such a small gesture. And then this happens.]  "I love you, man." 

Me: "Hey, don't worry about it, man. It's all good. Take care of yourself." 

[Me, trying to find my car, having a really hard time. Finally find my car, which is about 15 yards in front of the Starbucks. I sit down in my car. I think about going back and just giving him the larger denomination bill I have, but I'm discombobulated. I don't know whether he'll even accept my money. After a few minutes, I drive away. After a while, I realize I don't know where I'm driving. I go to McDonald's to get some coffee, thinking that reading a book will help clear my head. It does not. I head home.] 

END SCENE.

Follow-up: I am used to video-game tough guys berating me online for being anti-war. I am used to stories where people like Chris Kyle (aka American Sniper) are presented as idealistic heroes capable of doing no wrong and who have no regrets about whom they killed. Until today, however, I never met anyone who made me realize the victims of the United States Military are not just innocent civilians living abroad, but many of our soldiers themselves.

I don't know this man's full story. I wish I'd gotten his information. Some ex-service members are not necessarily proud of killing others, but they had a task to do and they did it. When we praise all soldiers or the military in general, we sometimes forget that the individuals who return home may not have themselves believed in the mission. In addition, when we attack those who criticize the military, we forget that all of us have the same objectives--security and long term peace, which cannot be achieved by an unlimited budget, a poorly defined long term plan, or perpetual war. Most of all, we forget that some Americans did what they were told to do, and they deserve more than mere words or unthinking veneration. Men and women who return from war deserve a public who, at the very least, will send them back only if necessary, and who despise war and what it does to everyone involved.

Update: Another friend thinks this might have been a scam. It appears like a perfect sob story--daughter with cancer, etc. But I think I finally understand his disproportionate response to my small gesture: I believed him. Most people thought he's trying to scam them. Now his desire to show me evidence--the AZ license, the tattoos...it all makes sense.

I felt terrible and uneasy after this situation.  The idea that only a few dollars would make a man--who has a seemingly nice woman and who once had a good job--so happy really unnerved me.  Only when I figured out the possible reason for his disproportionate reaction--that I believed him where so many others had not--was I able to settle down. 

S.F. -- on the way to a movie, Don't Think I've Forgotten

Me: [on busy SF bus, sees older man move through] "Would you like my seat?"

Him: "No thank you. One time, someone offered me his seat because he thought I was 72. Do I look 72?"

Me: "No. You look 64."

Woman: [taps my shoulder, smiles] "You're in dangerous territory with age."

Him: "I'm 62."

[Seats open up as people leave, he sits next to me.]

Him: "I'm a Marine. Served in Vietnam. Got out in 72."

Me: "I'm going to see a movie about Cambodia tonight."

Him: "The Cambodians were killing millions back then. You know, I just found out my ship (USS Paul Revere) was exposed to Agent Orange. [Shows me computer printout.]

I have PTSD. Can't even fill out a job application. But I got a disability pension of $2900 a month. Without it, I'd probably kill myself. My dad is a WWII vet. Doesn't want to give his son the credit he deserves.

Hey, she looks Cambodian. [Points to a young woman on bus.] I think she's looking at you. [Big laugh.] You single?"

Me: "Yes."

Him: "My wife is Indo-Chinese. Met her at a bus stop. She'll find you someone. Call me. [Gives me his number.] Semper Fi."

Me: "Semper Fi."

END SCENE.

Santa Clara, CA -- Coolest Professor Ever

Me, to my law school professor: Did you experience any discrimination in your life?

Him: I was the only Latino in my law school. I get asked that question often. I tell people, "My friend's grandmother was very racist. She told me all the time, 'Be careful of white Americans. They are unclean and lack manners.'" 

Later, when I was working with rural legal aid, the police picked me up along with some undocumented farmworkers. I was dressed in the official uniform of a legal aid lawyer: jeans and a shirt. I showed the officer my bar card. He looked at it, didn't know what it was, and told me he didn't care. I then remembered my friend's grandmother: "White Americans lack manners." 

END SCENE.  

Toronto, Canada -- Manners 

In Toronto's St. Lawrence Market. Looking for a place to sit. Hands full with food and a drink. Older man motions for me to sit across the table in an empty plastic chair.

Me: "Where are you from?"

Him: "I come from a country that no longer exists."

Me: "Yugoslavia?"

Him: "No. Let me tell you a story. When I was younger, I would help Madam [motions to his French wife] any way I could. One day, I assisted a woman who was famous, but I didn't know her. When I finished helping her, she asked me the same question, and I gave her the same response."

Me: "Why doesn't your country exist anymore?"

Him: "I'm Egyptian. I'm Christian. When I was growing up, people had manners."

Me: "But the old always say the same thing about the young, in every generation. Did anyone bother you growing up in Egypt?"

Him: "No one bothered me. They wouldn't dare. You see, in old Egypt, people would address each other by titles or by Mr. and Mrs. No one would take a tip. I would offer sometimes, but no one would accept in Egypt. I miss the common decency of the common man in the street."

Me: "You're right. You were the only person who motioned for me to sit down." [Gets up to leave.]

Him: "Good luck to you."

San Jose, CA -- Computer Problems

Me, day after after helping cousin with laptop: "I just remembered. Did you turn on your firewall?" Younger cousin: "Yes. I turn it off?" Me: "What? No! You are supposed to turn it on. What the hell? This is why you have viruses. You don't know what a firewall is?" Her: "Oh come on, of course I know." Me: "Then why did you say you were going to turn it off?" Mom, interjecting: "What is a fireball?" Me: [doubling over in laughter] END SCENE. 

Krakow Airport -- Immigration (2017) 

Me, with Polish guy in airport. He’s friendly and in his late 20’s. Me: “In America, we heard 60,000 people marched in Poland recently against refugees and also chanted, ‘Poland for white people.’” Him: “Not true. They [the majority] never said such things. The TV spreads something a few people said. We do not want economic migrants. They just want cash [welfare]. If you want to work, you are welcome here.” Me: “When the Germans invaded Poland, many Poles fled to America, especially Chicago. Even though they were poor, America accepted hundreds of thousands of them. Now, Poland is part of NATO, and NATO initiated a war in Syria, causing Syrians to flee. But you won’t accept them?” Him: “We like anyone who works. You work hard, we like you.” Me: “Ah, so the Poles who went to America worked hard, which is true. But do you remember 5, 10 years ago, the EU did not want Polish workers. The UK unions and people said the Poles work too hard, for less money, and they are lowering our wages.” Him: [Looks surprised] Me: [Damned if you do, damned if you don’t. People everywhere fear change.] END SCENE.

More Airport Stories (2017)

Me, to German man on my airline, after discussing his Indonesian wife: "What's love to you?"

Him: "Someone is [always] waiting for you."

Federal Budget Discussions (2010)

The link below has a summary of a recent electronic town hall meeting:

http://usabudgetdiscussion.org/national-town-meeting-results/

I attended the meeting. I was surprised to see that cutting 15% from the defense department and other agencies and raising SS taxes were not enough to balance the budget. A combination of spending cuts and tax raises were required to balance the federal budget. Many people at my table and nationwide supported a carbon tax, even after I argued that such a tax should not be passed until it was accompanied by a corporate tax credit to upgrade utility/energy facilities. (Without a credit, it is very likely that utilities will impose the costs of making their facilities environmentally-friendly on consumers.)

I learned that I wanted to limit the mortgage tax deduction/credit. As is, the mortgage tax deduction benefits rich people or people who spend more for houses. In short, it is a tax cut for the rich and upper-middle class that leads to inflated housing prices. Overall, I had a good time at the meeting.

General Links

On political contributors.

On the middle class.

The Daily Show on religious freedom.

Michael Jackson's Glove

At the Hard Rock Hotel in Vegas, I saw Michael Jackson's glove (see picture above).

The HRH also had a letter from Michael Jackson to a friend. MJ mis-spelled the word, "immortal." The immortal King of Pop can't spell "immortal." God has a sense of humor.

A Riddle for My Readers

Question: A bat and a ball, together, cost a total of $1.10. The bat costs $1 more than the ball. How much is the ball?

The answer is not 10 cents.

Niall Ferguson on George W. Bush

From Niall Ferguson's The Ascent of Money, paperback, Penguin Books, 2008-09, page 119:

During [George W.] Bush's time in the White House, his administration ran a budget deficit in seven out of eight years. The federal debt increased from $5 trillion to more than $9 trillion. In 2008 the Congressional Budget Office forecast a continued rise [in the federal debt] to more than $12 trillion in 2017.

Where was the anti-spending Tea Party then?

Bonus: It is no coincidence that in English the root of "credit" is credo, the Latin for "I believe." (page 31).

Page 36: "For Christians, lending money at interest was a sin. Usurers, people who lent money at interest, had been excommunicated by the Third Lateran Council in 1179. Even arguing that usury was not a sin had been condemned as heresy by the Council of Vienna in 1311-12...

See Deuteronomy: 'Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury.' In other words, a Jew might legitimately lend to a Christian, though not to another Jew. The price of doing so was social exclusion." (pages 36-37)

Money is worth only what someone else is willing to give you for it. An increase in its supply will not make a society richer, though it may enrich the government that monopolizes the production of money. Other things being equal, monetary expansion will merely make prices higher. (page 27, on inflation)

"The Weimar tax system [which led to massive inflation, making the German mark basically worthless] was feeble, not least because the new regime lacked legitimacy among higher income groups who declined to pay the taxes imposed on them. At the same time, public money was spent recklessly, particularly on generous wage settlements for public sector unions." (See page 104. My reaction? The more things change, the more they stay the same.)

Once there had been meaningful social ties between mortgage lenders and borrowers. Jimmy Stewart [in It's a Wonderful Life] knew both the depositors and the debtors. By contrast, in a securitized market (just like in space) no one can hear you scream--because the interest you pay on your mortgage is ultimately going to someone who has no idea you exist. (page 262)

"Roughly two fifths [40%] of the world's population is effectively outside the financial system, without access to bank accounts, much less credit." (page 282)

On LTCM: At the end of August 1997 [prior to the its collapse in August 1998] the fund's capital was $6.7 billion, but the debt-financed assets on its balance sheet amounted to $126.4 billion, a ratio of assets to capital of 19 to 1...On Friday 21 August 1998, it lost 550 million--15 per cent of its entire capital, driving its leverage up to 42:1. (pages 324, 327)

"In 2007, the United States needed to borrow around $800 billion from the rest of the world; more than $4 billion every working day. China, by contrast, ran a current account surplus of $262 billion, equivalent to more than a quarter of the U.S. deficit." (page 355)

Note: Italy invented banking; the Dutch founded the first joint-stock company (i.e., stocks); France founded the first central bank; and the Scots founded the first insurance company.

HAL and Wall Street

From Timothy Lavin (The Atlantic, August 2010):

By some estimates, algorithms now trigger 70 percent of all trades in U.S. equities. The speed and volume of everyday trading have propelled the market into a new and esoteric dimension, and rendered traders in the pits largely obsolete. Average daily share volume on the New York Stock Exchange increased by 181 percent between 2005 and 2009, while the time required to execute a trade on its electronic systems dropped to 650 microseconds.

Over 2/3 of all trades are made by computers? Who is looking out for the buy-and-hold investor? Seems like all the benefits go to the speculators these days. More here.

To the Anonymous Commenter

To the anonymous person who left a detailed comment regarding a Bay Area judge:

Thank you for reading my blog and taking the time to post your comment. Unfortunately, I cannot publish your comment. I am an attorney, and my license to practice law is a privilege given to me by the state bar. Being a member of the bar requires me to adhere to certain rules, including ethics rules. Some of these rules prevent attorneys from publicly criticizing judges.

You may wonder how someone like me--who favors free speech and disfavors content-based speech restrictions--can reconcile his personal beliefs with his refusal to publish your comment.

First, I am a pragmatic man. As long as I am a lawyer, I exist to serve my clients. If local judges think I will publish negative commentary about them, some of them may do whatever they can to harm my cases. The law gives judges much discretion, so it is unwise to give a judge any incentive to go against you.

Second, in theory, the judicial branch exists as a check on the passions of the people. This special role requires judges to be independent. Judicial independence is difficult to achieve if lawyers are openly criticizing judges to a public that lacks the training to understand difficult legal concepts. As it stands, American judges have, for the most part, remained above the political fray and are viewed as neutral by most Americans. This favorable perception is due in part to maintaining a closed system of criticism, which gives the public fewer opportunities to sensationalize court hearings and rulings. In short, cases are unique, rights are precious, and unsubstantiated public criticism about specific judges makes it more difficult to execute judgments and have faith in the legal process.

I hope you understand my position, and I hope you will continue to read my blog.

Update on March 2017: I've become extremely critical of lawyers as well as judges; however, I no longer have an active caseload, so my primary duties are to the public and to the truth, not to my clients.  

Linkfest: Articles

I've included a link to some wonderful articles HERE. I really enjoyed the one about the classical musician playing in a New York metro station.

Rant: We Live in Amazing Times

I hate the way some people chide developments in technology, as if progress were something to be feared. Multi-player video games? “What about exercise?,” they scold. Email? “Makes things too impersonal,” they say. Facebook? “What about the quality of the relationships?” they shrill. iPhone? “But we’ll be glued to our phones at the expense of real life,” they argue. Each and every one of the naysayers reminds me of Victorian England–a place where people yearned for fixed rules and regulations designed to ostracize newcomers and entrepreneurs.

Every time a new communications invention occurs, we should be ecstatic. Google is apparently working on a phone that will automatically translate languages. Do you realize that within five to ten years, we might be able to call anyone on the planet and have a conversation?

Also, the internet is a godsend for people who are better at writing and reading than speaking and small talk. What’s wrong with a medium that gives an advantage to people who excel at spelling, writing, and grammar? What's wrong with being able to instantly broadcast your ideas to the world for free? Yes, there are some downsides to giving everyone a microphone, but why not focus on the gems we wouldn't have discovered if Big Media (GE, Disney, News Corp, Viacom, CBS) were still in total control of mainstream media?

Overall, the pace of innovation over the last fifteen years has been amazing. We can watch movies and television shows online (Hulu); sell anything directly to millions of people (eBay); talk to people worldwide for free (thank you, Skype); text message anyone (VZ, T); and keep in touch with friends and acquaintances with minimal effort. I realize we're in a recession, and the unemployment picture isn't pretty. But if you ask me, what we've accomplished over the last fifteen years is much more useful to the average person than going to the moon. Yet, almost all Americans loved the idea of space travel and were rightly proud of the Apollo missions. It is sad today to see most Americans not as openly appreciative of our more recent inventions. As far as I'm concerned, what we've done over the last fifteen years is just as good, if not better, than going to the moon. I'm just sayin'.

Sample Letter to Congressperson re: Hearing Aid Tax Credit

If you saw my review of Plantronics recent shareholder meeting, you noticed that Congress is considering a hearing aid tax credit. Unfortunately, the House bill doesn't cover most hearing-impaired working adults. In contrast, Senator Harkin's version of the bill--S. 1019--covers all hearing-impaired persons. If you would like to write your Congressperson and support Senator Harkin's bill, I have included a sample letter below. Just fill in the name of your House Representative, your own name at the bottom, and paste it in an email to your Rep. Your House Representative can be located here.

Dear Honorable NAME OF REPRESENTATIVE:

I am a long-time resident of your congressional district. I am writing you regarding HR 1646 (The Hearing Aid Tax Credit bill.)

I understand you are a co-sponsor of this bill. Unfortunately, this bill limits the tax credit to hearing impaired people who are 55 and older and dependents. The bill completely ignores working people who are under the age of 55.

Without well-functioning hearing aids, hearing-impaired workers will not have full access to the workplace. Thus, they will be unable to compete with other workers.

Expanding the tax credit to all ages will ensure that hearing-impaired workers will be able to compete in the workplace. Accordingly, I ask you to support an amendment to this bill which was ensure that credit would be extended to all regarding of age.

This amendment would be similar to the S. 1019, which covers all ages.

In closing, thank you for your time and consideration.

Sincerely,

YOUR NAME

Plantronics Annual Shareholder Meeting (2010)

Plantronics (PLT) held its 2010 annual shareholder meeting on July 27, 2010. About ten shareholders were treated to tea, Peet's coffee, and bottled water. When entering Plantronics' headquarters, you will see a small (about 50 yards) museum on your right-hand side. This museum chronicles Plantronics' accomplishments since 1960, including its work with NASA and the Apollo shuttle launches. One of the most interesting museum pieces is an autographed picture from Buzz Aldrin to Plantronics' salesperson Steve Spragens. This space-age theme seems to heavily influence Plantronics ambiance--its building sections have names like Apollo, Cosmos, and Quasar.

The first thing I noticed when I walked into Plantronics, other than the mini-museum, was the pleasant vibe. The employees seemed happy and productive, and Investor Relations personnel made me feel very welcome. I was surprised, because the previous day, when the company reported what seemed like good earnings, Wall Street still punished the stock by 10%. (Note: over the past two years, PLT stock has soundly beat the S&P 500.)

Plantronics' CEO Kenneth Kannappan delivered most of the formal and informal presentation using a slideshow. Plantronics seeks to deliver unified communications ("UC") to corporations, positioning itself as the primary communications integrator for a company. The goal of UC is to integrate a company's voice, data, and video-based communications systems. Although Plantronics creates the majority of its software internally, Plantronics works with Cisco (CSCO), Microsoft (MSFT), and IBM (IBM) to implement UC programs (10K, page 3).

CEO Kannappan said he wanted to make communicating "simple and enticing" so that the return on investing in Plantronics' products would be justified. He also discussed Plantronics' focus on improving the "fidelity of the conversation."

Speaking of improving conversations, Plantronics owns Clarity, which makes phones and devices for the hearing impaired. I happen to be hearing impaired, and I use a Plantronics' Ameriphone XL-50 telephone. It is a big, clunky device, but it has served me well for the past decade. Without it, I'm not sure I'd be able to run my own business as a solo practitioner. The Clarity division doesn't significantly add to Plantronics' bottom line, but it still helps--in the first quarter of fiscal 2010, Clarity contributed $4.1 million to Plantronics' overall $141.2 million. More recently, in 1Q fiscal 2011, Clarity revenue was $5.1 million out of a total corporate revenue of $170.7 million.

Perhaps Clarity isn't doing as well as it should. As Americans get older, more and more them are losing their hearing, so it's surprising not to see a larger demand for Clarity products. I believe the low sales comes from a lack of attention and marketing of the Clarity brand. For example, when I was writing this post, I tried to log on to Clarity's website to view more products. The website was down. Earlier, when I had a chance to view an ad for the Clarity amplified C4220 telephone on Clarity's own website, the word "intelligent"--a word most elementary schoolchildren can write--was mis-spelled. (Note: I bought the C4200 and hope to use it soon. It is apparently a significant upgrade over the much older XL-50.)

Also, how many people would be happier with a higher maximum volume of their cell phones? I own a Palm Pre Plus (HPQ), and although I am happy with it overall, I rarely use it to talk, because its amplification isn't very high. When I was shopping for cell phones, I assumed I had no options for a good conversation and focused on comparing text messaging features. It turns out that Plantronics offers a cell phone--the ClarityLife C900--for senior citizens (a code word generally used in corporate-speak to refer to people who are hearing and/or visually impaired). It would have been nice to be able to walk into a store and try the C900 before buying a smartphone.

Anyway, I'm not surprised at the lack of attention given to hearing impaired professionals--society is used to children and senior citizens being hearing impaired, but not anyone in between. How else can we explain why the recent House bill (HR 1646) on a hearing aid tax credit only covers children and senior citizens? Boo to Reps. Carolyn McCarthy (D-NY) and Vern Ehlers (R-MI). My family had to spend thousands of dollars for hearing aids when I was growing up with no government support. Now that a bill might be passed to help ease the burden of spending 3,500 to 10,000 dollars on hearing aids, the House wants to exclude hearing impaired adult professionals like me?

(Kudos to Sen. Thomas Harkin (D-IA) for sponsoring S. 1019, which covers all age groups. It's hard not to love Iowans--the state has a low unemployment rate, moderate politics, and basketball star Ali Farokhmanesh.)

Anyway, back to the meeting. The Q&A session was brief. Another shareholder asked, "Are you hiring?" CEO Kannappan said the company was hiring in UC, firmware/software, software support, tech support, and field sales agents, and the increase in hiring would be "gradual."

I asked about Plantronics' decision to shut down and sell a 200,000+ square foot building in Suzhou, China. Plantronics had decided to move its Bluetooth headset manufacturing operations from Suzhou to Weifang, China. (See 10K, page 14.) CEO Kannappan said the new supplier in Weifang, China is in a better position to offer Plantronics "cost-savings."

Disclosure: I own an insignificant number of Plantronics (PLT) shares.

Criminals, by the Numbers

The American justice system, by the numbers:

1.7 million criminals behind bars.
4.3 million people on probation.
700,000 people on parole.

From Wilson Quarterly, Summer 2010, page 74, citing, American Interest, March/April 2010.

Bonus: "California's prison guards have become the state's largest personnel expense, creating a situation in which the government's cost to house each prisoner is an astounding $45,000 per year." More HERE and HERE.

Goldman Sachs' Report on Immigration

In 2008, Goldman Sachs issued an excellent report on immigration and the American economy. You can read the report HERE. The paragraph below is probably one of the most interesting parts of the report:

Immigration is probably a small net positive for the federal budget, because incremental tax revenues outweigh the limited services allowed to immigrants. States and localities often pick up the slack in providing social services to immigrants, and therefore incur considerable costs, particularly in states with a large share of unauthorized migrants.

The costs immigrants pose to the federal budget are probably relatively low. The welfare reform passed in 1996 stipulated that states could not use federal grants to finance benefits such as Temporary Assistance to Needy Families, Medicaid, etc. to non-citizens, though they could still offer such assistance with their own funds. However, the American-born children of immigrants (whether authorized or not) are citizens and thus entitled to benefits.

At the same time, immigrants do provide tax revenues to the Treasury. Even illegal immigrants pay federal taxes: in order to demonstrate eligibility for employment, undocumented workers often use fake Social Security cards with numbers “borrowed” from others or simply made up. When federal payroll taxes and income taxes are withheld from their paychecks, funds accumulate in the Social Security trust funds with no parallel entitlement. Since the Immigration Reform & Control Act went into effect during the late 1980s, inflows into the ‘Earnings Suspense File’ have increased dramatically (Exhibit 8). The cumulative taxes held in this account are $463 billion...

The situation at the state and local levels is very different. According to a ruling of the Supreme Court, these jurisdictions cannot withhold public education and emergency medical services from either legal or illegal immigrants residing in the United States (Hanson, p. 13). As states generally foot the bill for these services, outlays for immigrants likely outweigh the corresponding tax revenues.

Like I said, very interesting stuff. Overall, it sounds like Goldman Sachs is saying that the federal government receives benefits from illegal immigration while states and local governments do not.

Political Polarization

From Chris Hedges’ book The Empire of Illusion: The End of Literacy and the Triumph of Spectacle:

What counts today isn’t engaging the other side with reasoned arguments; it’s building a rabid fan base by demonizing the other side and stoking the audience’s collective sense of outrage and victimization. And that’s a job best performed not by serious thinkers but by hacks and hucksters. Rush Limbaugh, Glenn Beck, Sean Hannity, Mark Levin, Joseph Farah, Ann Coulter, Michelle Malkin: they adorn the cathedral of conservatism like so many gargoyles.

Hat tip to Not a Potted Plant.

Bonus, from same author and book:

We are a culture that has been denied, or has passively given up, the linguistic and intellectual tools to cope with complexity, to separate illusion from reality. We have traded the printed word for the gleaming image. Public rhetoric is designed to be comprehensible to a ten-year-old child or an adult with a sixth-grade reading level. Most of us speak at this level, are entertained and think at this level. We have transformed our culture into a vast replica of Pinocchio's Pleasure Island, where boys were lured with the promise of no school and endless fun. They were all, however, turned into donkeys -- a symbol, in Italian culture, of ignorance and stupidity.

I find myself both awed and saddened by Hedges' summary of American public discussion.

On Family

I had a conversation recently with a friend who discussed the difficulties of child-rearing. Then I read this:

The truth is that, with the birth of the first child, marvelous changes take place. From that moment on, mama is no longer the center of attention; the baby is. Mama and papa will give—-and willingly-—and the baby will take. They will assume responsibility, earn money, employ their energy, change their lives, if necessary—-all for the baby. This is no light undertaking, but the business of life is starting now, and every day of mama's life proves it to be so. And here her struggle starts. She wants to give everything to the baby; she wants equally to hold on to herself, her intelligence and uniqueness, while the baby constantly tries her patience, her strength, her nerves, and roots out of her the deepest emotions she has ever known in her life. This is a whole new process, and not one that provides built-in security.

The more things change, the more they stay the same. Fascinating Atlantic article from 1961 HERE.

The More Things Change, The More They Stay the Same

In 2010, the immigration debate seems to be reaching a fever pitch. It's important to note that the same racially-charged arguments against immigration have been made before. In short, the more things change, the more they stay the same. Guess the year Economist W. Jett Lauck made the following statement:

"our industrial system has become saturated with an alien unskilled labor force of low standards, which so far has been impossible to assimilate industrially, socially, or politically, and which has broken down American standards of work and compensation."

From Wilson Quarterly, Summer 2010, page 20; originally from "The Lesson from Lawrence," published in 1912. Mr. Lauck was apparently referring to Italians, Slovaks, Magyars, and Croatians. I wonder what Justices Scalia and Alito think about the Arizona anti-illegal-immigration law.

EMC and Brocade

Update on 9/2/10: this was posted on July 23, 2010, when BRCD was around 5.03. BRCD declined even further over the next few weeks, dropping to around 4.70. On September 2, 2010, BRCD went as high as 5.64. I get concerned when a stock pops over 20% in less than a month, and with my "two in the hand is better than one in the bush" mentality, I reduced my positions substantially. BRCD is no longer my largest holding, and I no longer have an opinion about the direction of its stock price. However, I continue to think a "horizontal acquisition" (when a competitor buys out its competition) would be ideal for EMC and BRCD. Original post is below.

Update on 9/7/10: today, I sold all but one of my BRCD shares. Will I regret my decision? Perhaps. But as I said earlier, I am risk-averse, especially after seeing a stock move higher so quickly.

More here, in case anyone is interested. Check out the comments section within the link.

____________

I've got a superstitious side. I sometimes get gut feelings based on no evidence or new information, and yet, my logical side fails to ignore these feelings. I know this: I am no prognosticator. You should not rely on my subjective opinions. For some strange reason, I just got a gut feeling that EMC may be buying out Brocade (BRCD). I used to think IBM would buy out Brocade, but now EMC seems a more viable suitor. No logic is involved, just a sudden gut feeling. As of today, Brocade is trading around 5.03/share.

Mind you, I have no idea if or when Brocade will be bought out, but it seems clear that BRCD is too small to compete against IBM, HP, or Cisco. Yet, despite all odds, Brocade continues to offer excellent technology and human capital. As such, once Brocade's earnings get back on track, it will be an attractive takeover target. It seems to me that a smart suitor will buy a beaten-down company right before it starts doing well, not after. Once Brocade performs well, its stock price will increase significantly, making a buyout more expensive. Right now, though, if EMC were to offer Brocade $7.00/sh, I would be very pleased.

Disclosures: I own Brocade (BRCD) shares. As of July 23, 2010, Brocade is my largest individual stock holding. However, my holdings may change in the future.

Update: conventional wisdom indicates a buy-out won't happen any time soon. Oracle's Ellison has indicated he isn't interested in Brocade, and HPQ/Dell seem to be moving towards more software-based companies. Also, EMC has publicly stated it is looking at sub-billion dollar purchases, so perhaps BRCD is too expensive for EMC. Even so, I continue to believe that Brocade will be bought out at some point.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result. Unless specifically stated otherwise, no portion of this blog is commercial in nature in any fashion, nor operated for profit. All copyrighted material reproduced herein appears under a claim of fair use. Nothing herein constitutes legal advice, in any state; those seeking legal advice should consult with an attorney licensed to practice law in the appropriate jurisdiction. No guarantee made of updates at any rate of frequency or periodicity. All statements of fact in this blog are derived from sources reasonably and in good faith believed to be true and accurate. Author not responsible for any harm arising from following anything construed as advice herein.

Movie Recommendation

I highly recommend the 1963 film, Lilies of the Field. Very funny and appropriate for all ages. It is perhaps Sidney Poitier's best film.

Being Self-Employed

Carrie Belt explains what it's like to be self-employed and trying to save for retirement:

http://www.associatedcontent.com/article/5582958/at_28_investor_bitten_by_a_bad_market.html?cat=3

We can't file for unemployment income when work is scarce. There's no severance plan when clients zip shut their pocket-books. While I continue to contribute to my retirement savings when I can, my financial focus is simply staying out of debt. For retirement, I'm on my own. I've never had a plan through another employer. I'm OK with that independence, but I'd love for someone else to pay for my coffee breaks, sick days and health care expenses.

Amen, sister.

Civil Liberties? What Do You Have to Hide?

Warning: article at the link below uses snarky language:

http://www.cracked.com/article_18620_6-completely-legal-ways-cops-can-screw-you.html

Oh, the busy populace.

Derivatives Trading: a Dangerous Game

[Note: this post has been updated since its original publication.]

HERE is one of the best-written articles on the 2008-2009 financial crisis [Washington Lawyer, June 2010]. The numbers in Anna Persky's article are breathtaking, and not in a good way. I've added some other numbers, including two interesting numbers from a recent Economist issue.

300 trillion. The CFTC's Chairman "[Gary] Gensler has estimated that the [2010] OTC derivatives market is worth $300 trillion." If you think that's a large number, brace yourself: according to The Summer 2010 edition of The Hedgehog Review, The Bank for International Settlements in Basel, Switzerland estimated that at the end of 2007, the market for unregulated derivatives was $1 quadrillion.

54.5 trillion. The net worth of U.S. households on or around August 2010 was approximately $54.5 trillion, according to "The Globalist Quiz" (re-published by the San Jose Mercury News on August 8, 2010).

47 trillion. According to a July issue of The Economist, the total value of stock trades executed on the American stock market in 2009 was $47 trillion. American stock markets were "the world’s most active, with shares worth nearly $47 trillion, thrice the market capitalisation, changing hands during the year."

45 trillion. "The market size for credit default swaps increased rapidly—-by 2007 the market had a notional value of $45 trillion, about twice the size of the U.S. stock market."

15.1 trillion. According to a July issue of The Economist, the total market capitalization of the American stock market at the end of 2009 was $15.1 trillion. Also, people traded American-listed stocks so many times in 2009, by the end of the year, the value of their stock trades totaled three times the value of the entire stock market. (See 47 trillion number, above.) And yes, in 2007, just the market for credit default swaps was three times the value of the entire stock market at the close of 2009. Shadow banking, indeed.]

14.2 trillion. According to "The Globalist Quiz," re-published by the San Jose Mercury News on August 8, 2010, the U.S. GDP--the amount of the goods and services produced by all Americans in a given year--stands at around $14.2 trillion.

13.2 trillion. According to the U.S. National Debt Clock, as of July 2010, our national debt was approximately $13.2 trillion.

9 trillion. According to Niall Ferguson's book, The Ascent of Money, "Between 1997 and 2006, US consumers withdrew an estimated $9 trillion in cash from the equity in their homes. By the first quarter of 2006 home equity extraction accounted for nearly 10 per cent of disposable personal income." (page 267, paperback)

1 trillion. At the end of fiscal 2008, states had a $1 trillion funding shortfall in public sector retirement benefits. From the Pew Center: "There was a $1 trillion gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises."

992 billion. From ABA Journal, page 59, March 2010: "[R]evolving credit grew from $48 billion in 1978 to $131 billion in 1985 and reach[ed] a high of $992 billion at the end of 2008."

434 billion. "Between 2004 and 2006, Freddie Mac and Fannie Mae, government-chartered mortgage finance firms, purchased $434 billion in securities backed by subprime loans."

On Complexity: “The beauty and the danger of derivatives is that you can create almost anything, and the degree of complexity that is available is almost limitless,” says Robert A. Wittie, a partner specializing in securities finance and investment management at K&L Gates. “Used properly, that can be terrific. But it can become very opaque. It can be hard for investors to understand the assets they are buying.”

Passing the Buck: “When you tell someone that they can sell a hand grenade with the pin out, but they don’t need to worry about it because someone else will own it when it goes off,” [Attorney Philip] Johnson says, “you get a lot more hand grenades with the pin out being sold.” [I've talked about this attenuation problem in detail HERE.]

Canaries in the Coal Mine?: Orange County went bankrupt in 1994 after its treasurer "invested the funds in a leveraged portfolio of mostly interest-sensitive derivatives contracts." Then came Barings Bank in 1995 and LTCM in 1998. The LTCM disaster required a 3.6 billion dollars bailout, which now looks like a paltry sum. In 2001, Enron declared bankruptcy in part due to its derivative trading.

The Fed Asleep at the Wheel?: In 2008, Alan Greenspan emphasized that, excluding credit default swaps, the “derivatives markets are working well.” [Earlier, in 2003, Warren Buffett called financial derivatives “weapons of financial mass destruction.”]

Will the recently passed financial regulation help prevent future problems? On July 15, 2010, CFTC Chairman Gensler said: “The Wall Street reform bill passed today is historic and comprehensive. Over-the-counter derivatives dealers will – for the first time – be subject to robust oversight for their derivatives activities. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. This will greatly improve transparency and lower risk in the marketplace. I look forward to the President signing this crucial legislation. The CFTC stands ready to implement the Dodd-Frank [Wall Street Reform and Consumer Protection] Act to best protect the American public.”

What took Congress so long?