Posts about finance

What $700 billion could buy

We’re spending $700 billion to bail out the idiots who got us into this mess and we end up with nothing to show for it but the bag we’re left holding and maybe a disaster averted (we hope).

We could be spending a lot less to get a lot more. A national wi-max buildout would cost between $5 billion and $14.5 billion. That would enable every American to get high-speed access to the internet and to its education, commerce, connectivity, innovation, jobs, and value. With a lot left over.

Or take the $700 billion and divide it by America’s 114.5 million TV households. Minus the 40-percent-plus margin that cable companies make on internet access (that’s the number I heard from them), we could provide broadband access to every one of those homes for about $300 a year. That means we could give every American free broadband access for 20 years.

We could buy 3.5 billion One Laptop Per Child machines. Want world peace and understanding? Give one to every Muslim on earth and every citizen of China (or since China can afford them, make that everyone in India or everyone in Africa and South America combined) and you’d still have more than 500 million machines left over.

Or we could give 4.4 million Americans free college educations at private institutions. We could give 23 million Americans free college educations at public institutions like mine. That alone would improve our competitive position and transform dying industries.

Or we could more than triple total annual R&D spending in the U.S. I can’t find total R&D on alternative energy but with this money we could multiply what Google.org is spending by a factor of 35,000.

Of course, these comparisons are specious. We’ll see a lot of op-ed charts that make such apples-and-kumquats correlations. The point will always be the same: Where are our priorities? Where are we investing our money?

And what are we getting out of spending this $700 billion. We, the people, damned well better make demands on our representatives to get something for our money.

Tom Evslin has a good list of suggestions that would in some ways treat the bailout like a bankruptcy reorganization. Robert Reich has a similar suggestion for a “giant workout of Wall Street.” Here’s Don Tapscott calling for unprecedented transparency. These are about extracting a pound of flesh for our ton of gold.

But I also want something about investing in our future and the economy: broadband access, technology, education, R&D, something that will build the future rather than mortgage it.

: LATER: Says Umair Haque:

The time is now.

Now is the time for revolutionaries to step up and build something better, something more real, and something greater.

There will probably never – at least in our lifetimes – be an opportunity for total economic reinvention this tremendous.

The moral imbalance of bailouts

When Hurricane Ike hit Texas, the government, acting on our behalf, offered bailouts to the thousands whose homes — built in risk-prone areas — were damaged or destroyed: payment for hotel rooms, aid in rebuilding. But when your neighbor’s house burns down, she gets nothing from us. She gets help only if she has paid for insurance. If that same neighbor gets cancer, she’ll also get no help from us unless she or her employer could afford insurance.

But the government is — we are — bailing out banks that risked too much on bad investments. By buying time, the bailout could also give a lifeline to people who borrowed too much on their homes. If the neighbor lady overmortgaged herself with a now-toxic loan, she might get a break. But if that neighbor lady defaults because she has cancer and has to pay her medical bills before her responsible 30-year, flat-rate, well-documented mortgage, well, she’s out of luck.

Perhaps every sick person without insurance should march on Washington to show that they’re a big disaster, too. Perhaps they should add up the impact of their illnesses on the economy to prove their financial weight. To expose the moral relativism of our collective national view of tragedy and obligation, maybe they should put up signs on their homes and wear badges that say, “Bail me out.”

In today’s NY Times, Floyd Norris argues that it’s worse than that, for the government is bailing out the most irresponsible offenders who put themselves and the economy at the worst risk. Lehmann wasn’t so bad, so it got nothing. Fannie Mae, Freddie Mac, AIG, and those teetering now will get saved in some form because of the greater impact of their greed and irresponsibility.

Lehman did not measure up because its chief executive, Richard S. Fuld Jr., simply was not reckless enough as he ran Lehman into the ground.

Had he had the foresight to make a lot more bad bets in the derivatives market, the government would have feared financial chaos and might have nationalized Lehman, just as it nationalized A.I.G., Fannie Mae and Freddie Mac. Or it would have subsidized a takeover, as it did for Bear Stearns.

The Paulson-Bernanke Doctrine is not “too big to fail.” It is “too reckless to fail.” If you get your company into enough trouble to threaten the financial system, Ben Bernanke, the Federal Reserve chairman, and Henry Paulson, the Treasury secretary, won’t let you collapse.

The problem for those left holding the bag — us — is that we have no leverage ourselves to demand conditions in return for our involuntarily generous rescue. Before any bailout is agreed to, shouldn’t our representatives demand responsible regulation in the future and repercussions for irresponsible management in the past — or, for that matter, demand a new look at our national priorities (helping out that neighbor with her cancer and her foreclosure)? No, it’s an emergency. We need decisive action to avoid disaster. No time for that. Of course, we could have avoided this disaster with responsible regulation and management in the past.

I believe in the market but I also believe that government must decide when to regulate just enough. (That is the essence of why I am a Democrat.) Our government has failed us and will continue to, I fear. What we need is a new moral scale. If you put yourself at risk, it is your responsibility to protect against that risk. If you put the rest of us at risk, then you will suffer the consequences but we will have sufficient oversight, demanding sufficient transparency to try to stop you from doing harm. If fate deals you a bad blow, then we need a structure to help protect you (that is, health insurance is just as great a national obligation as after-the-storm and after-the-fall bailouts).

Stewardship v. ownership of our news, money, and society

In this week’s news from Wall Street and in last week’s news convention we are seeing the problems that arise when people who are granted stewardship over our assets — charged with the care of our news or our money — instead think they have ownership of them.

The most appalling moment at last week’s Online News Association meeting in Washington came when a representative of the World Association of Newspapers showed off a would-be “standard” for publishers to tell search engines what they may not do. He demonstrated how a news site marked up its content and then showed how a search engine — French, no surprise — followed the instructions. Et voilà: The news site’s content didn’t show up at all. And they were proud of this. I was frightened. They have created a system to hide news. (Our news.)

Here was WAN’s protectionist view of how to preserve news — or rather, its control of news. Luckily, search engines are ignoring it, pointing out that most of these controls exist already and that WAN’s reputed standard could become a boon to spammers. The standard is meaningless, useless, and dangerous. But according to a representative of the Newspaper Association of America, that hasn’t stopped them from signing on. What are they thinking? We need to find more ways to get our journalism into more hands and more conversations and to involve more people in that process, sharing more information. Not our august associations of newspapers. They want to protect their ownership of news.

I heard more than one news executive I respect say at this year’s meeting that the ONA feared becoming the online organization of a dying medium. Wonder why. The hall was filled with employees of old-media organizations that happened to have added new-media arms. The awards they give each other are almost all to their own kind. And they say the blogosphere is an echo chamber.

If I were the ONA, I would cancel whatever schmanzy digs it has reserved for next year’s fest in San Francisco and hire an abandoned factory floor or put up tents in an empty field and I’d open the thing up, begging all the new practitioners of news to come and share. The organization acts as if online news is their domain because theirs was the news business. They owned news.

No more. Now — thank goodness — the press-sphere is made up of an endless variety of players: professionals, former professionals, bloggers, witnesses, technologists, aggregators, analysts, networks, platforms, business people, foundations, NGOs, search engines….

News organizations didn’t own the news as they thought. They were stewards of it. Their stewardship is proving to have been inadequate. Their definition of protecting the news has been to protect their control of it — see: WAN, NAA.

The same can be said of our financial institutions. Their stewardship of our own assets is proving to be disastrous. They thought they owned the industry. Instead, they had the privilege of handling our money so long as they had our trust. They have failed horribly.

The same is said — but too often not meant — when we talk of government. Politicians’ stewardship is clearly lacking.

The original definition of stewardship made it clear that the people who took care of a household and managed its assets — its stewards — acted as servants, not owners. Their control was granted based on trust.

We need new systems and new stewards. I’m not suggesting that the mob take over news, finance, and government. We’re too busy for that. We need stewards but we need stewards we can trust. The key to trust today, in any of these arenas, is openness and transparency. Hiding from the world is no way to get there.