Lobbyists Forge Letters To Pretend There's A 'Grassroots' Interest In Derivatives Reform

from the that's-called-scamming dept

This story actually comes from back in November, but I just found out about it due to a recent Planet Money episode all about the regulatory scramble to rewrite our banking rules. The whole podcast is interesting, but there's a bit in the middle about one of the tactics used by lobbyists to influence the rules: they totally forged letters from individuals and small businesses to make it seem like there was "grassroots" support for a particular position on derivatives reform.

We've seen similar things before, where various DC lobbying groups make "deals" with various groups to put their name on letters. A few years ago there was a disturbing quote from someone who did this for a living who explained how it works:

"You go down the Latino people, the deaf people, the farmers, and choose them.... You say, 'I can't use this one--I already used them last time...' We had their letterhead. We'd just write the letter. We'd fax it to them and tell them, 'You're in favor of this.'"

Except, in this latest case, the subcontractor of the subcontractor of the lobbying firm didn't even do that last part. They just forged the letters entirely -- including from a small Burger King franchise and a circuit court judge who was not happy about her name being used this way. It appears the only way this was actually noticed was because a Bloomberg reporter was lazily scanning the letters to the CFTC (the Commodity Futures Trading Commission) and was surprised to see what looked like very out-of-place letters. Everything else was from big banks and big financial institutions. Letters from a Burger King franchise seemed odd. So the reporter called... and the franchise had no idea what the CFTC was, let alone why its name was on a letter pushing the CFTC in a particular direction about derivatives reform.

And yet, these kinds of letters do influence regulatory decisions -- which is a big part of the problem.

The Planet Money podcast discusses how these regulators need lobbyists to actually understand what they're regulating. And, it's absolutely true that the regulators don't really understand the issues at all, while those in the industry do understand what kind of impact regulatory changes will have. But, really, that's an argument for taking a rather light regulatory touch on these issues, since the regulations are going to be driven by lobbyists who understand the issue better than the regulators. Thus, the end result is almost always going to be in the favor of big players in the industry who can afford lobbyists (whether they do underhanded things like forge letters or just do more aboveboard lobbying). This is the concern that many folks have.

Yes, there are problems with a light regulatory touch. But the assumption that we need heavy regulations ignores how bad people are at regulating most industries, and how much regulatory capture there is in the rulemaking. The end results of aggressive regulation, driven by lobbyists, can often be worse than no regulation at all.

Filed Under: derivatives, forgery, lobbyists, regulations

Canadian Broadband Regulators Annoyed That People Are Pointing Out They Don't Understand What They're Regulating

from the job-hazard dept

If you were paying attention last week in Canada, there was a huge fight over an attempt by Canadian regulators, the CRTC, to implement new "usage based billing" pricing structures for independent ISPs who make use of Bell Canada's network. The effective result of this, of course, is to try to prop up old business models, while holding down new, more efficient, more economically valuable business models. However, due to public outcry, politicians asked the CRTC to justify itself, and the response was basic annoyance at having to defend the decision.

However, as some are noticing, perhaps a large part of that annoyance comes from the realization that the CRTC didn't even fully understand what it is regulating, focusing on the bogus consumer-focused claim that it's about "fairness" in broadband pricing, so that "broadband hogs pay their fair share." Of course, if that were truly the focus, then shouldn't it also mean that the broadband companies, like Bell Canada, should be refunding tons of money to the non-broadband hogs? Except, that's not happening. The whole "broadband hogs" claim has always been a red herring. As we've seen over and over again, "usage-based billing" is never about offering "fair plans" to those who don't use very much. Instead, it's almost always about setting very low bars to force normal users to pay much more while decreasing their incentive to use new, more innovative internet services.

Filed Under: canada, metered broadband, regulations, usage based billing
Companies: bell canada

Why Have We Let State AGs Become De Facto Internet Regulators?

from the grandstanding-is-no-way-to-make-laws dept

For quite some time we've called attention to the fact that various state Attorneys General have taken it upon themselves to pressure internet companies to change their policies, often with little or no actual legal authority to do so. It usually takes the form of very public shaming and grandstanding suggesting something illegal has been done, even if that's not the case. Last year, we highlighted a must read piece by Topix CEO Chris Tolles, who had just been on the receiving end of such grandstanding by a bunch of state AGs. The story is disturbing, but enlightening. In the end, he realized it was impossible to fight this, and like most others, he caved. It was the only reasonable response. As Tolles pointed out, at no point in this process was Topix ever explicitly accused of breaking any laws:

Pissed off people, not illegality, is the issue to watch -- At no time during this process were we accused of breaking any laws. The Attorneys General have interpreted their mandate of consumer protections very broadly, and if a lot of people *think* you are doing something wrong, you are likely to be headed for a problem.

This is worrying for any number of reasons. Adam Thierer is pointing out how it appears that state AGs have effectively become the internet's new regulators, with little actual legal authority. He focuses on how many of these actions seem to also involve National Center for Missing and Exploited Children (NCMEC) -- a group that actually does plenty of really good work. I'd argue that it goes way beyond NCMEC, as we've seen this happen beyond just that group's complaints. Thierer's reasonably concerned about the questions this raises, even in cases where law enforcement should be stepping in and helping. The problem is that this isn't the role that AGs are really meant to play. It opens all sorts of questions about the actual enforceability and legality of the "settlement" agreements that come out of these attacks, and whether they represent any real precedent. More importantly, it would seem that many of these agreements could very well violate the Commerce Clause, as states are not supposed to be able to regulate interstate commerce. This is a worrying trend that I'm sure we'll be hearing plenty more about in the near future.

Filed Under: attorneys general, internet, regulations

Probably Not The Best Time To Introduce Legislation That Can Be Described As Having An 'Internet Kill Switch'

from the that's-not-going-to-fly dept

We've already discussed how, contrary to the claims of some, there really isn't an attempt to create "an internet kill switch" in the US. There is a (admittedly bad) proposal concerning how the US would respond in the event of some sort of "cyber attack." The proposal itself would allow the government to mandate how certain "critical infrastructure" pieces of the internet should respond in the event of such an attack. What isn't explained is why such a legal mandate is really needed. If you're running the Hoover Dam, say, (and stupidly have important infrastructure connected to the internet) and the feds point out a way to avoid or minimize an ongoing hack attack, are you really going to say no?

That said, since the bill has falsely been described as having an internet kill switch, it seems like particularly bad timing to re-introduce it now, just after Egypt actually did pull out its own version of an internet kill switch.

While it may be a good thing that this bill gets killed off no matter what (since it is a bad piece of legislation), I'm a bit worried by how quickly everyone has jumped on this "internet kill switch" claim to describe it. What happened in Egypt is important to pay attention to and to learn from, but it doesn't mean that we should immediately jump to the conclusion that that's what the US is trying to do. There are serious problems with the bill, and we should discuss those, rather than just calling it an internet kill switch, when that's not what's in the bill.

Filed Under: internet, kill switch, politics, regulations

Has The Fourth Amendment Been Dismantled By Technology And The Courts?

from the getting-there dept

Michael Scott points us to a fascinating book chapter by Christopher Slobogin, in which he discusses how the courts have effectively stripped away the Fourth Amendment in a technological era by effectively saying that "virtual" technology-based searches don't fall under the Fourth Amendment and, thus, do not need the same sort of oversight. This is, as he notes, a problem and he argues that it's time to bring those types of searches back under the umbrella of the Fourth Amendment:

Most virtual searches are not Fourth Amendment searches or, if they are, they can usually be carried out on little or no suspicion if they do not involve interception of communication content. Given the huge amount of information that virtual searches provide about everyone's activities and transactions, traditional physical searches--with their cumbersome warrant and probable cause requirements--are much less necessary than they used to be. American citizens may eventually live, and indeed may already be living, in a world where the Fourth Amendment as currently construed is irrelevant to most law enforcement investigations. Technological developments have exposed the fact that the courts' view of the Fourth Amendment threatens the entire edifice of search and seizure law.

The paper suggests some principles for bringing such searches back under the purview of the 4th Amendment -- something that law enforcement and the government would almost certainly fight. However, it does make a really strong case for why such searches do deserve 4th Amendment protections. Between mistakes and abuse, there's a reason why the founding fathers wanted to make sure that there was probable cause before the government invaded your privacy. Why should that change when things are digital?

Filed Under: courts, fourth amendment, privacy, regulations

Facebook, Goldman Sachs & How Money Seeks Regulatory Free Zones

from the this-is-not-efficient dept

After the dot com bubble burst, quickly followed by major accounting scandals such as Enron, Congress, in the way that it normally does, overreacted with a kneejerk response. The most obvious part of this was the Sarbanes-Oxley rules, which didn't do much (if anything) to actually prevent future frauds, but did make the cost of being a public company much, much, much higher -- effectively creating a serious tax on startups looking to go public. It also built up an entire industry around SOX compliance, that almost guarantees the law can never be repealed. In response, an already weak IPO market went almost entirely dormant, an even as things picked up with startups, fewer and fewer actually wanted to go public. It was just too costly, and the potential liability for execs was way too high. Google resisted going public for as long as it possibly could, before it finally tripped an old SEC rule, that required companies with more than 500 shareholders and over $10 million in assets to effectively act as a public company -- at which point, it figured it might as well just go public.

That was in 2004. In the six years since then, a number of other companies have worked on a number of loopholes and ways to avoid going public even longer. Witness Goldman Sach's recent deal to invest a ton of its investors' money into Facebook shares -- which normally would have tripped this rule -- except that Goldman is playing a little game, and setting it up so that it pretends there's only one shareholder, keeping Facebook away from the magic 500 number. The SEC is apparently already looking into this.

But even before the Goldman/Facebook deal became public, the SEC had apparently begun probing the rise of these new efforts to let hot startups sell shares on a market, without actually going public. Hot startups including Facebook, Twitter, Zynga and LinkedIn have all been heavily involved in such markets, which basically let employees of those companies get many of the benefits of being a public company, without the massive costs and regulatory oversight.

This is, in many ways, the exact opposite of what was intended with things like SOX -- which was designed to increase oversight. But, instead, it's done the opposite. The end result is that wealthy clients of Goldman Sachs and other Wall Street firms can invest in these companies, but others cannot. Now, some might claim that this is a "good" thing, in that the general public shouldn't be investing in highly risky stocks that could easily collapse. But, it's also creating a tiered system where these companies are able to avoid going public for much longer, but the wealthy and well-connected can get in at about the same point that the public used to be able to get in. And, they are buying. Goldman has already announced that it's already oversubscribed.

While some are cheering on the SEC investigation of these practices, it seems to be missing the real lesson here: which is that money always seeks out the unregulated loopholes, and the more you regulate, the more hurdles you put up to efficient markets, the more money will pour into whatever side pools that are left unregulated. And that's dangerous. The economic collapse of 2008 was a result of this, as tons of money went into unregulated areas of the market and was sliced and diced in increasingly misleading ways. The classic response is to just regulate those areas -- but that ignores the fact that there will always be new loopholes and new unregulated areas that money will rush into. We're seeing it all the time.

What's happening with Goldman, Facebook and those other startups can be traced back to SOX in the first place. If we didn't make it ridiculously burdensom to be public, then firms wouldn't seek out these hidden alternatives. But our government refuses to let the market ever learn lessons. The lessons from the dot com bubble and Enron and such should have been that people learned to be more careful in their investments. But the government rushes in and sets up a pretend safety net -- so we never get to learn.

Filed Under: ipos, private markets, regulations, sarbanes-oxley
Companies: facebook, goldman sachs, sec

Civil Liberties Groups Worried About Hungarian Media Censorship Just As Hungary Takes Over EU Presidency

from the timing-is-everything dept

We had already discussed how Hungary's new media censorship laws seemed particularly draconian -- requiring all reporting to be sufficiently "balanced" or the media may receive a fine and all media must reveal their sources. It appears the new law is getting a lot more attention, as its coincides with Hungary taking over the Presidency of the EU. Civil liberties groups are protesting the new law and calling for a media blackout. I'd be surprised if any such blackout is effective but having more people speak out in general about such laws hopefully will lead the Hungarian government to reconsider its policies.

Filed Under: civil liberties, hungary, journalism, regulations

Time For Google To Leave Italy? Italy Announces That YouTube Responsible For All Content

from the it's-not-tv dept

Not this again. The Italian government has long had trouble comprehending how YouTube is simply a platform for users. Of course, some might say this is willful ignorance. Italy's Prime Minister Silvio Berlusconi owns Italy's largest private broadcaster, Mediaset, and doesn't much like the competition. In fact, back in 2008, Mediaset sued Google over its content appearing on YouTube, and a year ago, an Italian court (surprise, surprise) sided with Berlusconi and ordered YouTube to remove all Mediaset content, though it doesn't explain how YouTube is to know what is and what is not infringing. Of course, this is also the same country where a politician wanted to sue thousands of YouTube commenters for making fun of him under a video on YouTube. And, most famously, Italy is the country that bizarrely and inconceivably found Google execs criminally liable for a video posted to Google Video.

The latest in the Italian government's war against YouTube is that it's declared that YouTube qualifies as a TV station and is subject to television regulations (Google translation of the original Italian, found via Slashdot). What this means is that not only will YouTube/Google have to pay a tax as a TV broadcaster, but it now has other regulatory controls, including an obligation to publish "corrections" within 48 hours to anyone who claims they were slandered, and an obligation to not broadcast "inappropriate" content during times when children might watch.

But, of course, the biggest issue is that it says that if there's any editiorial control, even automated (so I assume the "favorites" or "recommended" lists count), suddenly, YouTube becomes liable for all of the content. In other words, in order to help Berlusconi win his lawsuit against YouTube, Italian politicians have effectively changed the law to make sure that YouTube is now liable for the content of third party users. This effectively means that the risk of running such a platform in Italy becomes ridiculously high. I imagine Google will fight this in the courts, but at some point, it makes you wonder if Google wouldn't just be better off leaving Italy altogether, and seeing how folks there feel about its government's decisions.

Filed Under: italy, regulations, third party liability, youtube
Companies: google, mediaset, youtube

Venezuelan Politicians Seem To Think The Web Is Like TV: Adult Content Only Allowed At Night

from the that's-not-how-it-works dept

With all the jokes we've had about how badly it seems the US government doesn't understand the internet, and often seems to want to censor the internet, it appears that politicians in Venezuela want to go even further. A lawmaker from the ruling party has put forth a bill that would regulate the internet -- in part by saying that adult content can only be available after midnight.

Yes, you read that right. Supporters point out that this is the same requirement for TV and radio, so why shouldn't it work that way for the internet? Detractors point out that... um... that's not how the internet works. Of course, the bill also lets the government directly censor websites that say things the ruling party doesn't like, which does seem like standard practice for media entities in Venezuela these days.

Filed Under: internet, regulations, venezuela

Canadian Telco Claims Netflix & Google TV Should Be Regulated As Broadcasters

from the ah,-protectionism dept

A few years back, you may recall, we covered how some content creators in Canada were looking to expand broadcast regulations to the internet. If you're not aware, Canadian law requires that broadcasters fund and promote a certain amount of Canadian-based content. The reason for it on television is so that Canadian television isn't dominated by American programming -- and the idea here was that there was a similar "threat" online. Of course, unlike television, there is no limit to how much content is available, and artificially trying to force ISPs to fund and promote Canadian content just doesn't make any sense.

However, now, it appears that at least one company, Shaw -- who is both a broadcaster and an internet provider in Canada -- is trying to bring this issue back in a way, claiming that Netflix and Google TV should be subject to similar regulations. Of course, both of these aren't really broadcasters. They're service providers. But that issue seems lost on Shaw. It's especially bizarre in the case of Google, which isn't offering up its own content at all, but merely an interface to access other content online. If anything, this shows the rather obvious and hamfisted manner by which Shaw seeks to burden new technologies that might compete with it for attention.

Filed Under: broadcasting, canada, regulations
Companies: google, netflix, shaw