Basel II-Much

The Basel Committee on Banking Supervision was supposed to suggest guidelines that would make international banks safer, more depositor trustworthy, etcetera, etcetera, etcetera. The fundamental objective of the Committee’s work was to revise the 1988 Accord (Basel I) and develop a framework that would further strengthen the soundness and stability of the international banking system while maintaining sufficient consistency that ‘capital adequacy regulation’ (read “state protection”) will not be a significant source of competitive inequality among international banks. In other words disallow one country from letting their banks accept more risk. In crafting Basel II, the Committee said that it believed that the revised framework (which adopted three ‘pillars’: minimum capital requirements, supervisory review, and market discipline) will promote the adoption of stronger risk management practices by the banking industry. The bankers themselves felt that Basel II would benefit those banks with better risk management metrics. Now, after years of work, there is some thought that Basel II prescribes exactly the wrong thing for a recession. Basel II requires higher and higher safety margins as portfolios are found to be more and more risky. The result is that banks are tightening credit at exactly the time when credit itself is seen as being too tight. As our government hands back 67 cents in the form of a stimulant (of course, after taking a dollar of your tax money) and begging you to spend it quickly, the banks are telling you that your loan will not be renewed. Maybe all that the government hand outs will go toward paying down debt. Not necessarily a bad thing for economy but certainly not what the wonks in the Wash. intended. We say that the law of unintended consequences trumps all, which is why a little humility from those who think they control anything, would be a good thing.
--Paul Marotta

See you and Raise you

A Harvard Law Professor is protesting a Massachusetts proposal to criminalize online poker, even when no money is being bet. Prof Charles Neeson, founder of the “Global Poker Strategic Thinking Society” at Harvard said, “I don’t think filling our expensive jail cells with poker players is what Massachusetts voters had in mind when they elected Deval Patrick.” Neeson founded the Society to tout poker’s educational benefits. We think the Gov would benefit from a bit of poker himself.

--Paul Marotta

No Chads Here Al

Whatever you think of him or his ideas, you have to admit that Al Gore has been entertaining since giving up the public sector. Now the VP turned VC is taking his TV cable company public. But he’s shown an undemocratic distrust of tyranny of the majority and taken shares with 10 times as many votes for himself. His company Current Media, LLC, will convert into a corporation, issue super-voting Series B Common to Gore and sell mundane Series A Common to investors. The IPO is being underwritten by JP Morgan. The Company owes Gore $2 million and pays him over $1 million a year, but his stock ownership is not finalized yet. We think maybe the Florida hanging-chad had something to do with Gore’s insistence on super-voting stock.
--Paul Marotta

Open Primary OK

The Supremes final score was 7 to 2 in a case involving Washington State’s open or blanket primary system. The two controlling political parties challenged a Washington state initiative that allowed those with the top two primary vote totals to enter the general election in November. The law would allow two persons from the same party to end up in the November election and also allowed anybody to run in any primary designating themselves as any political affiliation they wanted. No primary has yet been held under the new law because injunctions were granted early on. The law was challenged on grounds that it violated a political party’s members’ freedom of association. The District court granted the parties’ motion for summary judgment and the Ninth Circuit affirmed (in part,. we suspect, to move the case along to whence it belonged). But the Supremes reversed. Justice Thomas, noting the disfavor of facial versus actual challenges, and writing for the majority, said, “[i]f the ballot is designed in such a manner that no reasonable voter would believe that the candidates listed there are nominees or members of, or otherwise associated with, the parties that candidate claimed to ‘prefer,’ the ... primary system would likely pass constitutional muster.” Scalia and Kennedy dissented, opining that Washington’s system allowed the preempting of the political parties’ trademarks, so-to-speak, at the most crucial stage of the election. We say, “Go for it.” Anything that shakes up those who are entrenched in government and gives people a broader choice is only a bad thing, if they don’t choose you. Why should the dems and pubs assume they each get a candidate in the general election, when others might get more votes?

--Paul Marotta

Customers Rule!

We read with interest a recent Business Week item about Vigilante Consumers. Some conventional wisdom holds that certain small customers are not worth any customer service. That school of thought focuses on a few large customers and let’s the vagaries of the companies product sort out the rest. In this possibly misguided application of the 80-20 rule, if the product or service works then great, if not, let the customer go elsewhere. Who cares? But an interesting combination of blogs, specialty websites and youtube is changing all that. One site http://www.comcastmustdie.com/ is actually turning into a useful Comcast customer service vehicle. Posters are encouraged to keep their posts civil and to include their account numbers. Comcast apparently trolls the site regularly and fixes the problems raised by the posters. We can see this evolving into both (i) customers using the site as a method of first instance in reaching Comcast and (ii) Comcast shutting down whatever customer service department is failing them so badly and possibly hiring the blog as its customer service contact point. Another story has a man posting a youtube video of him sledge hammering his Apple mac notebook since Apple won’t fix it. Other websites are offering executive contact information so that you can send executive suite carpet bombs that might get someone’s attention. We say, “Party on Wayne.” We were told a long time ago that if you do something right, maybe the person would tell their spouse but if you do something wrong or treat someone badly, they will tell the next 100 people they meet. Consumers deserve more and we’re glad to see them using guerilla tactics to get it. We are strong market believers and defenders. Part of what we love about the market is that you are not forced to do business with anyone with whom you do not want to do business. Markets work best when efficient and the more information the market has the more efficient it will be. We trust the market participants and leave it up to them to determine which criteria are most important. If companies are going to provide shoddy customer service experiences, we say let them go under and companies that care about their customers fill the breach. So which companies did Business Week rate best? A sampling includes L.L. Bean, Starbucks, Trader Joe’s, Chick-Fil-A, Ritz-Carlton, and Jetblue.

-- Paul Marotta

What Recession?

The National Bureau of Economic Research is meticulous about accuracy in calling a recession. Consequently their anointment has no real predictive benefits because by the time they decide it was a recession it’s usually over. Harry S. Truman once famously quipped that a recession is when your neighbor loses his job, a depression if when you lose yours. The pundits are now claiming a recession is likely. A supposed horror in an election year, the politicians are falling over themselves to write checks to everyone to keep us spending. That’s a great plan; take the money away from productive uses in the first place and then mail back 40% of it to us after you’re done making Washington’s payroll. And some are linking the coming recession to the housing slump. Supposedly, when prices were high we all mortgaged our houses so we could buy a flat screen TV and a beemer. Now that house prices are not rising, we have nothing to spend. But the Buzz has always thought the Valley recession–resistant if not downright recession-proof. One of the miracles that is Silicon Valley is the incredible number of very intelligent people who have been recruited here. Sure many get out when their IPO hits, but there are a lot of very smart people still here. Yes, we mean you gentle reader. And we know that the smart people who make up our community are always working on the next thing. On top of this, venture capital does not fund what is now; it is generally looking for what is next. Just because housing prices have stalled or, God forbid, declined, does not mean that there aren’t a million new ideas being hatched every day. Of course we’re lawyers so none are coming from us, but we know that you have the next great idea. So, what are you waiting for? When the depression hits and YOU lose YOUR job, get cracking, give us a call, and start that business you’ve always wanted to start.

-- Paul Marotta

Who’s the Man?

Our federal government is collecting millions of dollars for social security numbers that do not match any known record and supposedly keeping this money in a suspense account. We figure that account is right next to the social security trust fund account. Right. In any case the SSA sends out thousands of letters every week, commonly referred to as “No-Match Letters,” telling employers that that social security number they were given by their prospective employee does not match any known record. Many times, clerical errors, misspellings, slipped digits and the like are to blame. Eventually many are fixed. Employers were admonished in the past that no-match letters did not mean anything as far as the employee’s immigration status. But sometimes the social security number provided by that bright eyed new employee is one they made up or got from a friend. Now these no-match letters have become an enforcement tool in the battle against businesses employing the 12 million or so people the feds couldn't be bothered to find after their visas expired. Homeland Security now uses no-match letters as proof of a business’ knowing employment of illegal aliens. The state has always used businesses as their enforcement arm; what do you think payroll tax withholding is. So we guess the strategy our government is now using is that they can starve out the 12 million people they let slip in. Good plan; let’s ensure they are unemployable so that they can become wards of the state.

-- Paul Marotta