The Contrarian Banker Who Avoided Bad Loans... And Is Now Buying Up The Scraps

from the no-gov't-money-needed dept

While we've wondered why those who made such bad bets on Wall Street are getting bailed out and even relied upon to save the economy, Forbes has found one of the guys who knew better: Andy Beal. A banker in Texas who basically stopped taking on any new loans for years as he thought things were going out of control. In fact, he barely worked at all -- stopping by just a few hours a day, playing board games with his staff, and even laying off about half of his employees. He did this while waiting for the market to collapse, knowing that things were way out of control. In return, he got investigated by regulators, who couldn't understand why he wasn't joining in the fun.

Of course, now that things have collapsed, he's buying up distressed assets for pennies on the dollar, and wants to buy more, planning to become a huge bank. Oh, and all that government money that's supposed to help those private companies who are buying up these assets? He doesn't qualify for most of it (no more than a token amount that's not even worth taking). Instead, it's really designed for the folks who screwed things up in the first place. This guy -- who actually saw what was going on, and prepared for it, now has to compete against those who screwed up and are being handed billions by the government.

Filed Under: andy beal, banks, contrarian, economy, loans

Is The Economy Taking A Bite Out Of Abusive Patent Lawsuits?

from the one-can-hope... dept

We've never been a fan of Ocean Tomo, the "patent auction" shop that was seen as something of a clearing house for lawyers and patent hoarders looking to buy up patents to squeeze money out of other companies. However, in February, we wrote about an article in the Chicago Tribune insisting that the tough economy was increasing patent sales as companies looked to squeeze more value out of their patent portfolios. We questioned the article, noting that it showed absolutely no proof whatsoever that sales were up -- other than a claim (with no data) from an Ocean Tomo exec, who had every incentive to make people believe that sales were up.

But, in reality, it turns out sales aren't up. They're way, way, way down.

Joe Mullin writes about the latest Ocean Tomo auction that can reasonably be termed a total disaster after sales didn't just fall, but fell off a cliff:

While some folks I spoke to before the auction said they expected sales this year to be down by as much as 50 percent from last year, the final results were much worse. Friday's auction took in just under $2.9 million--more than 80 percent less than the roughly $17 million in patent sales generated by the company's San Francisco auction last year.

Out of more than 80 lots of patents on the block, only six sold. (An Ocean Tomo auction "lot" can include a single patent, several patents, or a portfolio of patents in related technology.) Ocean Tomo tacks on a 10 percent fee paid by buyers, and also charges fees to sellers, meaning the company probably took in less than $1 million for itself....

Ocean Tomo CEO James Malackowski looked a bit shaken by the end of the day.

"Obviously the market has become more selective," he said in brief concluding remarks.

That, of course, is exactly the opposite of what Ocean Tomo was telling reporters just a few weeks ago (and those reporters repeated it without question).

In the meantime, Saul Hansell of the NY Times, notes that one of the very few buyers was RPX, a company we covered last year, which is still insisting that its business model is never to sue for infringement but to simply let tech companies "license" its portfolio as a way of having ammo against other patent infringement lawsuits. It's sort of "Intellectual Ventures-lite." This was the original business plan of IV, but no one really believes that IV won't eventually sue -- and I'd imagine the same is true of RPX. At some point, its A-list investors will demand a bigger return, and using the portfolio to sue will just be too tempting.

Filed Under: economy, patent auction, patents
Companies: ocean tomo, rpx

Populist Outrage Over AIG Bonuses Scaring Private Investors Away From Buying Toxic Assets

from the backlash... dept

Before anyone gets that upset, I'll say that I'm pretty much in exact agreement with Adam Davidson from NPR's Planet Money when it comes to how to feel about the AIG bonuses that were big in the news last week. It's definitely disgusting and troubling to see the money handed out that way, but it's really a tiny sum in the big scheme of things, and there are a lot bigger and more important things that the government should be focused on. Besides, the populist anger is really misplaced -- often directed at the current management or the recipients of those bonuses, rather than those who put in place the contracts that made those bonuses required. But, the very fact that Congress spent so much time on it highlights something we warned about earlier this year: as soon as the government steps in to help a business, it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued. That will certainly limit what many companies are willing to do.

And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess.

Filed Under: bonuses, economy, populism, private investors

Tech Companies Worried About Unions

from the recession-time... dept

It never fails. As the economy collapses, someone thinks that the answer is greater unionization. It happened back in 2000 when the tech bubble collapsed, and it's happening again today, in part due to recently proposed legislation that would make it easier to unionize. Apparently, the tech industry is especially worried about this -- and they should be. I'm very much a student of the economics of unions (I do have a degree in labor relations, after all, which included more classes than I'd care to remember on both labor history and labor economics) and while I recognize the tremendous value that collective bargaining provided a century ago to workers who were helpless to fight back against abusive management, that's not the situation we're in today. Unionizing the tech industry would be a disaster for the economy and innovation.

Collective bargaining is one thing, but unions tend to be more focused on protectionism, rather than just getting workers together to bargain a deal. And much of our innovative environment is encouraged by a dynamic workforce with increased job mobility, allowing for a cross-pollination of ideas, as opposed to a stagnant and limited workforce. Unionization takes away the necessary flexibility of both workers and employers, greatly slowing down the pace of innovation. It could make sense in a static, totally mature environment, but it's difficult to think of many of those. These days, almost every industry needs to be innovating, and you don't do that with a unionized structure. Just the very nature of building a structure that encourages an antagonistic relationship between "workers" and "management" misses the point, these days. A friend mentioned the other day that workers today are more likely to be shareholders than union members, so perhaps they'll recognize this and not go down a bad path that leads to fewer jobs, less innovation and more economic toil. Unions are the last thing that the tech industry needs right now.

Filed Under: economy, innovation, tech, unions

Scamming Looks Like A Growth Industry In These Economic Times

from the jobseeker-beware dept

Scammers look they're being stimulated by the government's stimulus plan, and it seems likely that they're finding plenty of marks in these gloomy economic times. For instance, fake job ads that are fronts for identity theft are up 345% over the last three years. It wouldn't be a stretch to think they'll become even more common, as more and more people start searching for jobs -- and their desperation leads them to lower their defenses in hopes of landing employment.

Filed Under: economy, scams

The Brain Drain: US Is Losing Immigrants Who Create The Jobs We Need

from the very-dangerous-situation dept

Discussing immigration policy around here is something of a "third rail" item. No matter how many times we explain the importance of bringing smart, educated immigrants into the US, we end up getting a long stream of ignorant comments from people who mistakenly claim that these foreign workers "steal jobs." This is not true. In fact, the opposite is true. Jobs are not a zero sum game. A smart, highly skilled worker helps create new jobs. And... if we hinder them from getting jobs in this country, they end up going to (or staying in) another country, where they compete with American companies, often causing a much greater job loss, as business moves to that foreign company rather than the American company. And yet too many people who can't see past the first move in the chain of events insist that bringing highly skilled foreigners into this country is bad.

Well, they should celebrate, because a growing number of those highly skilled foreigners are going back to their home countries from the US. Despite the fact that these are the folks most likely to create jobs by making companies more successful and starting their own companies, some seem to think it's a good thing that these folks are, instead, creating those jobs and those successful companies elsewhere. If they thought about it, they would realize that by keeping these highly skilled individuals out (or pushing them to leave when they're here) that we're actually destroying American jobs. We're encouraging job creation to happen elsewhere rather than in the US, just because some short-sighted individuals think only about a single job opening, rather than about how job creation and economic growth occurs.

Filed Under: economy, immigration, jobs

Can We Push Some Of The Stimulus To Cover Economic Education?

from the that-would-be-grand dept

While I don't necessarily agree with everything that Steven Pearlstein says in his latest column, I do have to second the request that if we're going to dump so many hundreds of billions into a "stimulus" plan, could we also spend some money on educating our members of Congress on basic economics? Pearlstein's idea is to put another $53.5 million (or $100,000 per elected Congressional Representative or Senator) to allow them to hire an economics "personal trainer." I'd actually like to take that argument further, and see if there might be some way to educate the wider population on economics a bit more -- so that we'd avoid silly self-damaging proposals like adding "buy American" requirements.

Separately, I'd like to point to the open letter written to President Obama and Senate Majority Leader Harry Reid, which asks them to publish whatever stimulus bill is finally agreed to for five full days to allow for public comment. This matches up with Obama's earlier promise (which he has unfortunately failed to live up to) to let the public comment on any legislation for five days before passing it. So much of the action on the stimulus bill has been done behind closed doors, involving various horse trading deals that it seems only fair. We saw with the TARP "rescue" package that the more Congress talked, the more pork was included -- and the early results from that all-too-rapid taxpayer cash dump hasn't been good at all. If the new administration is really committed to transparency, it seems only reasonable to let the public read and provide feedback on the stimulus. Related to this, another excellent source to follow is StimulusWatch.org.

This doesn't mean that the gov't should change the stimulus plan based on exactly what the "most" people want (a recipe for a disaster), but let's let some smart ideas start to bubble up by trusting that when more people are allowed to push ideas forward, some good ideas will come out of the mix. Limiting the discussion to just those inside the Beltway has proven to be a huge disaster for quite some time. Let's get more people involved -- recognizing that there will be plenty of terrible ideas -- but as a way to let some good out-of-the-box thinking emerge.

Filed Under: economics, economy, politicians, stimulus

Some Thoughts On Saving The Economy

from the that-interest-isn't-special dept

The NY Times Magazine is running a well worth reading (if long) article on the question of what sort of efforts are needed by the government to help "save" the economy. While almost anyone (myself included) will find points worth quibbling about in the article, there's a lot of good points made that are worth reflecting on in more detail. The key point is understanding the difference between just creating more jobs in the short term and actually creating sustainable economic growth that will make it possible to pay off our debts in the future (and more).

As the article notes, if you just want to create jobs, you put people to work digging useless ditches. That creates jobs, but it does little else to stimulate the economy -- and, in fact, can do plenty to hinder future economic growth by inefficiently allocating resources. It's Bastiat's old Broken Window's Fallacy of inefficiently allocated resources. The problem, though, is that the folks who are most interested in making sure those resources are allocated inefficiently, are in the best position to make that happen. And that's incredibly dangerous. The article refers to Mancur Olson's theory of how stable and affluent nations decline and fall. The NY Time's summary is a good one:

Successful countries give rise to interest groups that accumulate more and more influence over time. Eventually, the groups become powerful enough to win government favors, in the form of new laws or friendly regulators. These favors allow the groups to benefit at the expense of everyone else; not only do they end up with a larger piece of the economy's pie, but they do so in a way that keeps the pie from growing as much as it otherwise would. Trade barriers and tariffs are the classic example. They help the domestic manufacturer of a product at the expense of millions of consumers, who must pay high prices and choose from a limited selection of goods.

While the article is right about trade barriers and tariffs, don't get hung up on just those. It applies in numerous other ways as well. The healthcare system (which the article discusses in great detail) is a disaster based on a series of rules and regulations that have inefficiently allocated healthcare resources. Our entire healthcare system is a ponzi scheme, of sorts, based on ignoring the very basic lessons of moral hazard -- where we've totally separated the actual costs from the actual payment for healthcare, and created a massively inefficient bubble that encourages bad spending on the wrong things, rather than work towards keeping people healthy. Pile on top of that a bad patent policy that diverts massive funds from actual healthcare into drugs without recognizing that the two are not the same thing, and you have a massive problem that doesn't get solved overnight. And, of course, we're not even discussing policies that work hard to actually artificially limit healthcare providers...

But, while the article paints some positive pictures of some of what the new administration is doing (and saying) -- and I'm thrilled with what some of the administration folks are talking about, there are way too many examples of things going in the other direction. We've already covered the broadband stimulus plan -- which really does look like a huge gift to incumbent players. When pushed on that, Obama's transition guy, Blair Levin, defended it in exactly the way you'd worry about based on the above, saying that the short term focus was on creating jobs, not solving the wider broadband question. The problem is that in creating those jobs in the short-run, they're likely harming overall economic growth in the long run.

Then there are additional things that are troubling, such as the decision to include "buy American" clauses in the stimulus. This is the sort of thing that is often demanded by folks who have little understanding of economics, but plenty of understanding about how things appear politically. Buy American sounds good, but in this case it actually does plenty to harm the American economy -- as it did in the last Great Depression. When the American producers are a lot less efficient, the end result is that we end up spending more and getting a lot less for our taxpayer dollars. That hinders growth (significantly, in some cases) and actually does plenty to damage the American economy. It also falsely boosts the incumbent providers bottom line (see above, again, about those special interests) and doesn't get them to adjust and adapt to the changing market in a timely fashion. Even worse, it often pushes other countries to retaliate in ways that make our economy even worse off. It's a terrible policy and it does significant harm to our economy.

I still remain unconvinced that a massive government spending plan is necessary, but given that's the route we're clearly going down, all our focus should be on making sure that the choices made within that stimulus package are not focused on protecting any particular industry or company, but in creating platforms and infrastructure that allow anyone to compete and contribute to economic growth. To date, there's little evidence that this is actually happening, and that's scary.

Filed Under: economic growth, economics, economy, jobs, stimulus

Mobile Operators Want Anything That Might Force Them To Compete... Taken Out Of Stimulus Bill

from the hey,-your-policy-goal-chocolate-is-in-my-government-handout-peanut-butter dept

As debate over the massive economic stimulus bill continues, the trade group representing US mobile operators has weighed in, with its head, former-NFL-star-turned-congressman-turned-shill Steve Largent, saying that unless open-access rules are removed from the broadband section of the bill, carriers will be "hesitant to participate". News to Steve: the stimulus bill, and this section, aren't necessarily intended merely to further line the pockets of incumbent mobile operators. While he thinks open-access rules "will deter providers from taking advantage of the grant program," one would have to imagine that if incumbents sat on the sidelines, plenty of new entrants would be more than willing to open their businesses to the government support and use it to craft new mobile broadband networks that would provide some much-needed competition in the space. Furthermore, such open access requirements didn't stop Verizon from shelling out several billion dollars for spectrum licenses last year. It seems that the CTIA loves it some stimulus -- as long as it doesn't stimulate any potential competition for its members.

Filed Under: economy, steve largent, stimulus, wireless
Companies: ctia

Netbooks Damaging The Tech Economy? Say What?!?

from the a-little-tech-economic-history,-please dept

Well, here's an odd one. Apparently, an analyst at NPD Group, Stephen Baker, is worried that the rising popularity of netbooks is bad for the tech economy. He's claiming:

"History tells us that when we offer lower-priced products, it tends to drive down the average selling price across the board. The net result is to drive down revenue overall, even if there are more units out there."

I'm curious which tech history books he's reading, because that seems to go against pretty much every history of technology evolution I've ever seen. If you've watched the tech industry over the past few decades, things always get cheaper. It's the whole Moore's Law thing at work -- and every time things get cheaper, it allows for more to happen, making products more valuable to more people, and tends to expand, not contract, the wider overall market. Yes, the average selling price decreases, but that's a tautology. Of course if you decrease price, average selling price goes down. That's not analysis, that's saying 2 = 2. But to then say it means overall revenue goes down isn't necessarily true -- and in many tech sectors isn't true at all. In the end, providing a good product, at a reasonable price that many, many people want, is never "damaging" to the economy. It may shift things around, but it always opens up new opportunities.

Filed Under: economy, netbooks