Leave Steve Alone

Just a very short post here. In a story published yesterday I talk about why the Steve Jobs cancer watch and the calls for him to disclose more about his illness seem to me to be unseemly and misguided.  For now I feel like I've said all I need to about this (for online, it's a long piece) and I'll leave it at that.

Back To Plan A On The Bailout?

One of the reasons I've been reluctant to weigh in on the relative merits of each iteration of the bank bailout scheme is that I've felt like a lot of folks much more qualified than me have come up with good arguments for and against each plan. I noted this in an earlier post in which I touched on the pros and cons of buying up bank assets versus using the bailout money to provide funds to get banks to start lending. If you've been following the debate, you may remember that Hank Paulson's initial plan was to use the money to take bad assets off the banks' hands. This was widely criticized as a give-away to financial companies that would result in the government paying too much for bad assets and still failing to quickly jump start the credit markets. So the government went with an alternate plan of pumping capital into the banking system as quickly as possible with an emergency package of low rate loans.

It's become clear that approach has not worked yet, and will not work as fast as was hoped. Now the consensus is shifting again, and the current thinking is that the government will need to set up a "bad bank" similar to the Resolution Trust Corporation, which bought up bad assets of savings and loans in the crisis of the 1980s. It turns out, it seems, that if the government doesn't buy all those bad mortgages and other failing securities, the banks will simply keep taking whatever money is given to them to lend out and use it to shore up their balance sheets.

This leaves us back almost exactly where we were three months ago. The next debate among economists will be about how much the government will have to pay for all those bad assets. The answer, unfortunately, is going to be "a lot more than they are worth." At this point, however, the concern about how much the bailout will cost is looking a lot less important than finding a solution to the intractable and worsening credit crisis--it's turned from a question of "How much will this cost us?" into one of "Is there any stimulus plan that's likely to succeed?"

Pigs, Pokes and Bank of America

In a story a little while ago, I speculated that the only way to explain Bank of America chief Ken Lewis's obsession with buying companies--Countrywide and Merrill Lynch--with potentially near liabilities could only be explained by Lewis's certainty that if anything went wrong, the government would bail him out. Mea culpa. The truth is, nothing can explain it. Yes, the government is bailing out Bank of America. But that doesn't mean Lewis won't be out of a job.

This seems like a good time to review the old saw about buying pigs in pokes. The issue with those unseen pigs is what you can think of as a problem of asymmetric information. The problem is not only that buyer of the pig in a poke doesn't know what's in the bag. It's that the seller does know, so the trade gets executed in a way that's guaranteed to be advantageous to the seller and disadvantageous to the buyer. The buyer can't just take his chances and hope for the best, because the seller has all the information necessary to mislead him. It turns out that the basic rule about farm animals in sacks applies very well to investment banks with enormous liabilities. It's not just that Lewis didn't know just how big Merrill Lynch's liabilities could be--it's that Merrill's John Thain did. Now Thain is out of a job, but he never wanted to work for Lewis anyway. Whatever is left on Wall Street will have a place for him. For Lewis, however, the only open spot seems to be in the Megalomaniac Hall of Fame.

A Thief By Any Other Name Can Still Be Sued

Chumpchanger has rarely--well, never before--had a chance to venture into art criticism, an area I've touched in another blogs, Deadletter.net, but thought would never make it into a blog devoted to economics and finance. Fortunately, I was wrong. Last week, the worlds of intellectual property law and art theory had an unusual collision, when the photographer Patrick Cariou sued the much better known artist Richard Prince for appropriating his work.

If a finance blog can have a least favorite artist, Prince would be Chumpchanger's. Of major artists working today, there are some whose work is less pleasant to look at, but none who are as perniciously vacuous as Prince. The ostensible subject of his paintings is the problematization of authorship, an end to which Prince has routinely repurposed old Marlboro advertisements and stale jokes, which in his hands get turned into multi-million dollar oil paintings. Other, smarter artists--Damien Hirst's jewel encrusted skull comes to mind as a great example, but even Jeff Koons counts here--have executed plenty of preposterous works that are essentially colossal jokes at the expense of the art market. But they have a sense of humor. Prince's paintings on the other hand, are a rehash in visual form of debates in art theory that were already tired twenty years ago.

I won't make a judgement here on Cariou's photography; you can click the link and see it for yourself. I will say, though, that at the very least it's photo-journalism that took some meaningful thought. That sets Cariou apart from Prince, and that means that when it comes to intellectual property, Cariou's interests and those of Chumpchanger are quite closely aligned. Intellectual property law have at times been misused by those who seek to keep ideas out of the hands of the public. But if it might need fixes at the margin, the general thrust of it is to make sure that people whose work involves setting down ideas, whether in the form of writing, visual arts, or technological invention, get compensated for it and keep doing it. It boggles the mind that anyone would believe that any intellectual purpose is achieved when Prince steals the work of a less well know, far less highly paid artist, turns it into his own bricollage, and sells it for hundreds of thousands of dollars. The market value of ideas is already undergoing a significant erosion. The one thing to be optimistic about here is that while the absence of any real ideas may not be a big deal in the art market, it'll be a real liability when Prince's lawyers try to come up with some reason why a court should view what Prince does as anything better than naked theft.

The Bernie Bailout

At the end of last week I wrote a piece about why Madoff should stay out on bail. Over the last two decades pre-trial detention in the federal court system has gone from its age old purpose of preventing flight to a routine tool used by prosecutors to increase the pressure on defendants and in essence a way of getting to the punishment before the conviction. Up to a few hours ago, amid the anti-Madoff braying, my view was seen as an eccentric outlier. But it has turned out to be the view of the judge as well--a very good thing indeed for the rights of the accused, most of them less wealthy and well-lawyered than Bernie.

Department of Odd Headlines

From today's WSJ.com:

Exxon Fuels Speculation Deal Is on Tap: Exxon is poised to acquire a rival energy firm or join up with an oil rich nation, industry experts believe.

Wait,  what the hell does "join up with an oil rich nation" mean? Merge with, say, Dubai or Brunei? That feels like it's going a little too far, especially seeing as we've already let Citigroup merge with Washington, DC.

On the subject of oil and gas, for anyone who's interested I'll note my story last week about Putin's Ukrainian adventure. After decades of worrying about how oil will be used as a weapon to shut down the West, it is as clear now as it ever was that the greatest political advantage that can accrue to the world's energy exporting (and generally kleptocratic) powers comes from selling it at the highest price the market will bear.

With the political corruption stories sprouting mushroom-like all over the place, it's worth going to the Chumpchanger backlist for a well considered and still startlingly relevant take from someone in a position to know a lot about the temptations of public office. From Francis Bacon's essay Of Great Office:

Men in great place are thrice servants: servants of the sovereign or state; servants of fame; and servants of business. So as they have no freedom; neither in their persons, nor in their actions, nor in their times. It is a strange desire, to seek power and to lose liberty: or to seek power over others, and to lose power over a man's self. The rising unto place is laborious; and by pains, men come to greater pains; and it is sometimes base; and by indignities, men come to dignities. The standing is slippery, and the regress is either a downfall, or at least an eclipse, which is a melancholy thing. ... Certainly great persons had need to borrow other men's opinions, to think themselves happy; for if they judge by their own feeling, they cannot find it.

Bacon served as attorney general and later Lord Chancellor of Great Britain under James I--a post he lost in an embezzlement scandal.

Now Meg, About Those IPO Shares...

The LA Times reports that EBay's Meg Whitman is considering a run for governor of California ... so, is it impolite to bring up the old IPO shares scandal. I sat through Frank Quattrone's first trial, and looked through the list of folks Quattrone funneled cheap IPO stock to. I think I reported it at the time in Fortune, but no one seemed interested, and I can't really understand why.

The trial was a travesty, and the government's obstruction of justice case against Quattrone (after two mistrials, the government gave up and settled for a slap on the wrist) was miserable. But whether doling out IPO shares--really, at the time, free cash--to the people you hope will give you business may or may not be illegal, but it was unquestionably a sleazy business. What I could never understand, though, is why giving out the shares was worse than taking them. Why is offering a bribe worse than accepting one? I still can't, and if indeed Whitman runs I hope someone gets around to asking about it.

Update: After I published this post, I wrote in more detail about Meg Whitman's IPO shares, and everything else wrong with her plan to run for governor of California in this story for The Big Money.

Polaroid And The Ponzi Scheme

You probably missed it with all the Madoff stuff out there, but there's another alleged Ponzi scheme that's blown up in the last weeks, and seems to have taken Polaroid with it. Polaroid--which just declared bankruptcy for a second time--was part of the empire of Minneapolis takeover mogul (I know, those words don't seem together) Tom Petters who's now accused of running a $3 billion investment racket. In any other week, this would be front page news, but Madoff is the clear market leader among investment scam stories.

Polaroid's limp march to liquidation or wherever its story ends feels quite sad to me, because Polaroid's Edwin Land was a giant among American inventors. Not only did he personally come up with the instant photo process (and defend it against Kodak, getting what's still one of the biggest patent infringement judgements in history), but his company was for years a truly innovative enterprise. The SX-70 remains a design triumph: it folded flat, looked beautifulm and the autofocus version not only took instant pictures, but was only the second autofocus camera in production (with a sonar-like focusing system that works surprisingly well). Land took a real interest in what was done with his cameras: Walker Evans was one of the first SX-70 users, and Chuck Close--and probably other major photographers, but Close comes to mind--did some extraordinary things with giant-format Polaroids that the company kept on hand and invited artists to use.

From a business perspective, however, Land's story is a cautionary tale. It was a company built around one vision, and never managed to evolve. First the cameras it made became cheap and ugly, then they became obsolete. And now Polaroid is out of the instant photography business entirely, though what other business they have that could possibly be worthwhile, God only knows.

PS: This is probably the place to plug my Slate story about the great brand myth. Polaroid of course was one of the great brand names of all time. But that doesn't do them any good. Once the business is shot, the brand--whether it's Polaroid or Pan Am or Cadillac--is shot too.