Archive for the ‘Regulation’ Category.

Thanks Vancouver For Banning Uber So I Could Wait In 30-Minute Taxi Lines

no-uber-in-vancouver

This picture was taken at my hotel in Vancouver, BC on Saturday.  This is only about a third of the mob trying to get a taxi, a process that took me over 30 minutes.  The whole thing was made doubly frustrating by another bit of government interference -- about half the taxis that showed up dropping folks off left the hotel empty despite the huge mass of people waiting.  Why?  Apparently certain airport taxis are not allowed to pick up people in certain areas.  So the taxis had to go all the way back to the airport empty, despite the fact that people there were waiting to go to the airport.  Absolute madness of crony government intervention.

Yes, I understand that Saturday is "cruise day" and there is a huge spike in demand as these boats load and unload.  But this is exactly why Uber would make so much sense.  Think about all the folks that have weekday jobs that would love to earn some extra money driving on a Saturday.  Uber allows for just this sort of flexibility.

Thanks Vancouver (BC) for a 40-minute Black Car Wait

Vancouver BC is one of those places that have banned Uber.  So lacking that alternative, I tried to book a black car (from the largest local car service) for the fairly long ride to our hotel.  In trying to complete the transaction, I was told that they were very busy and that my wait would be up to 40 minutes for them to show up.

This is the second time in a week (Vegas was the first) that I have had to spend some serious wait-time just because the local government has decided to artificially limit competition and capacity.  I am sure the politicians would tell me its for my own good, though.

Dodd-Frank a Disaster for the Poorest People in Africa

Yeah, that headline seems a bit odd -- Dodd-Frank is about banking, right?  Well, apparently buried within Dodd-Frank are conflict minerals rules which I suppose were spurred by the efforts of a few dim-bulb celebrities who have a knack for latching onto poorly thought out "solutions" for Africa that tend to have staggering unintended consequences.

In this case, the logic was that minerals sales to western companies were  propping up dangerous warlords and militias, particularly in the Congo.  The law imposed huge penalties on American companies that did not purge their supply chain eight, ten, twelve steps deep of any suspected bad actors in the mineral world.

The problem for US companies is that this imposes a ton of cost, and is very hard to do.  So hard that the US government has not been able to successfully differentiate conflict from non-conflict suppliers.   However, as we learned on issues like cybersecurity, the US Government is still more than willing to impose enormous penalties on private businesses for failing at tasks the government can't even do itself.  So companies play it safe and don't buy from any source anywhere near places like Congo, even avoiding neighboring countries that have no such conflict issues.

Because what Progressive supporters forgot in patting themselves on the back for their sensitivity in passing such laws is that minerals extraction and related labor is about the only source of income for citizens of these countries, which are among the poorest in the world.  We may cut have off some of the money flowing to warlords (though not much as they turn out to do pretty well in the new bootlegging environment), but we are cutting off all the money that went to the struggling population.   Further, by driving the trade underground, it becomes impossible to impose event he most basic rules on the trade.   Dodd-Frank turned the mineral trade in these countries into the cocaine trade.

Via Overlawyered, from the CEI

The 2010 Dodd-Frank Act increased violence in the Congo by 143 percent (and looting by 291 percent) through its “conflict minerals” rule, which has backfired on its intended beneficiaries. So concludes a new study by Dominic Parker of the University of Wisconsin and Bryan Vadheim of the London School of Economics.

As we noted earlier, Dodd-Frank conflict minerals regulations have also caused starvation in the Congo, harmed U.S. businesses, and resulted in increased smuggling—even as they punish peaceful neighboring countries in Africa just for being near the Congo, whose civil wars have killed millions over the last 20 years. They have inflicted great harm on a country that was just beginning to recover from years of mass killing and had the world’s lowest per capita income. The new study is consistent with a 2013 paper by St. Thomas University law professor Marcia Narine that criticized the conflict minerals rule for its dire consequences for the Congolese people.

To his credit, David Aronson was on this four years ago:

For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.

...

Meanwhile, the law is benefiting some of the very people it was meant to single out. The chief beneficiary is Gen. Bosco Ntaganda, who is nicknamed The Terminator and is sought by the International Criminal Court. Ostensibly a member of the Congolese Army, he is in fact a freelance killer with his own ethnic Tutsi militia, which provides “security” to traders smuggling minerals across the border to neighboring Rwanda.

...

The people of eastern Congo agree that it would be beneficial to bring greater clarity and transparency to the mineral trade. A variety of local and international initiatives to do so were under way when the embargo hit. Those efforts may now become a casualty of the Dodd-Frank law.

The Most Racist Housing Markets Are In... San Francisco

In advance of the Obama Administration trying to pursue cities and neighborhoods for not being sufficiently racially integrated, Cato has an interesting take on the question.

The real problem with housing affordability is not at the community level but at the regional level. In a region that has few land-use restrictions, a community that has attracted wealthy people is not going to have much of an effect on the affordability of the region as a whole because builders can always construct more affordable housing elsewhere. The problem is in regions with urban-growth boundaries and other restrictions that limit the construction of affordable housing over the entire region.

If HUD were to apply disparate-impact criteria to regions, it might look at the change in African-American populations between 2000 and 2010. Nationwide, the black population grew by 11 percent in that time period, which was about 1.3 percent faster than the population as a whole. Regions whose black populations grew less than 1.3 percent faster than their whole populations could be considered guilty of housing discrimination.

Based on this, the most racist major (more than a million people) urban area in America is San Francisco-Oakland. Though that region’s population grew by 285,000 people between 2000 and 2010, or 9.5 percent, the region’s black population actually shrank by nearly 49,000, or 14.2 percent, for a difference in growth rates of minus 23.7 percent.

That decline was entirely due to strict land-use policies that prevent development outside of the 17 percent of the region that has already been urbanized, making the Bay Area one of the least affordable housing markets in the nation. Moreover, a recent planto improve affordability by following HUD’s prescription of building more high-density housing was found to actually reduce affordability.

Other major urban areas that would be found racist include Austin (-21.5% difference between black and overall population growth), Riverside-San Bernardino (-17.5%), Honolulu (-15.4%), San Diego (-14.6%), Los Angeles (-14.5%), Bakersfield (-13.6%), and San Jose (-11.1%). All of these regions except Austin have some form of growth-management policy, while Austin has become the least affordable housing market in Texas due to local housing policies.

By comparison, the least racist major urban area is Salt Lake City, whose black population grew 57 percent faster than its total population. Other non-racist areas include Minneapolis-St. Paul (42%), Phoenix (34%), Providence (25%), Boston (19%), Las Vegas (17%), Columbus (14%), Orlando (14%), Atlanta (13%), Tampa (13%), and Miami (10%). Of these, only Providence and Boston are surprises since both have serious housing affordability problems.

The folks at Cato argue that the HUD's preferred approach of promoting high-density housing actually makes the problem worse.  This should not be surprising, since Federal policy driven by New Deal Democrats is responsible for most of the worst segregation issues in major cities.

So How Can Anyone Be Opposed to Non-Discrimination Laws

First, let me establish a few background facts.  Several years ago I headed an attempt to put a Constitutional amendment legalizing gay marriage on the ballot here in Arizona.  As far back as 2004 I had a gay couple running a campground, and faced a customer petition demanding we remove them because they promoted moral degeneracy by being gay (it's for the children!).  I told those customers to camp somewhere else, as we were not changing our staffing.  Since then I have probably hired more gay couples to run campgrounds than anyone else in the business.

So how could I possibly be opposed to this:

After a period of foreshadowing and rumor, the Equal Employment Opportunity Commission has now gone ahead and ruled that employment discrimination on the basis of sexual orientation is forbidden under existing federal civil rights law, specifically the current ban on sex discrimination. Congress may have declined to pass the long-pending Employment Non-Discrimination Act (ENDA), but no matter; the commission can reach the same result on its own just by reinterpreting current law.

There are multiple problems with non-discrimination law as currently implemented and enforced in the US.  Larger companies, for example, struggle with disparate impact lawsuits from the EEOC, where statistical metrics that may have nothing to do with past discrimination are never-the-less used to justify discrimination penalties.

Smaller companies like mine tend to have a different problem.  It is an unfortunate fact of life that the employees who do the worst job and/or break the rules the most frequently tend to be the same ones with the least self-awareness.  As a result, no one wants to believe their termination is "fair", no matter how well documented or justified (I wrote yesterday that I have personally struggled with the same thing in my past employment).

Most folks grumble and walk away.  But what if one is in a "protected group" under discrimination law?  Now, not only is this person personally convinced that their firing was unfair, but there is a whole body of law geared to the assumption that their group may be treated unfairly.  There are also many lawyers and activists who will tell them that they were almost certainly treated unfairly.

So a fair percentage of people in protected groups whom we fire for cause will file complaints with the government or outright sue us for discrimination.  I will begin by saying that we have never lost a single one of these cases.   In one or two we paid someone a nominal amount just to save legal costs of pursuing the case to the bitter end, but none of these cases were even close.

This easy ability to sue, enabled by our current implementation of discrimination law, imposes a couple of costs on us.  First, each of these suits cost us about $20,000 to win (insurance companies are smart, they know exactly how this game works, and will not sell one an employment practices defense policy without at least a $25,000 deductible, particularly in California).  It takes a lot of effort for the government, even if neutral and not biased against employers as they are in California, to determine if the employee who was fired happened to be Eskimo or if the employee was fired because he was an Eskimo.  Unfortunately, the costs of this discovery are not symmetric.  It costs employees and their attorneys virtually nothing to take a shot at us with such discrimination cases, but costs us$20,000 each to defend and win (talk about Pyrrhic victories).  Which is why we sometimes will hand someone a few bucks even if their claim is absurd, just to avoid what turns out to be essentially legal blackmail.

Second, the threat of such suits and legal costs sometimes changes our behavior in ways that might be detrimental to our customers.  A natural response to this kind of threat is to be double careful in documenting issues with employees in protected groups, meaning their termination for cause is often delayed.  In a service business, almost anyone fired for cause has demonstrated characteristics that seriously hinder customer service, so drawing out the termination process also extends the negative impact on customers.

To make all this worse, many employees have discovered a legal dodge to enhance their post-employment lawsuits (I know that several advocacy groups in California recommend this tactic).  If the employee suspects he or she is about to be fired, they will, before getting fired, claim all sorts of past discrimination.  Now, when terminated, they can claim they where a whistle blower that that their termination was not for cause but really was retaliation against them for being a whistle-blower.

I remember one employee in California taking just this tactic, claiming discrimination just ahead of his termination, though he never presented any evidence beyond the vague claim.  We wasted weeks with an outside investigator checking into his claims, all while customer complaints about the employee continued to come in.  Eventually, we found nothing and fired him.  And got sued.  The case was so weak it was eventually dropped but it cost us -- you guessed it -- about $20,000 to defend.  Given that this was more than the entire amount this operation had made over five years, it was the straw that broke the camel's back and led to us walking about from that particular operation and over half of our other California business.

Trump is Actually Useful: Proves Once and For All That Business Licensing is Corrupted by Politics

Business licensing and awarding of government contracts is supposed to be entirely viewpoint neutral and related only to factors explicitly listed in the licensing legislation (e.g. training attained, cleanliness, whatever).  Of course, I believe that licensing is generally total BS and is basically a way for incumbent businesses to restrict potential competitors and throttle supply.

Of course, defenders of licensing laws piously intone that they are only there to protect consumers and are enforced in a totally neutral way that has nothing to do with viewpoints or political pull (lol).

Trump is a complete loss as a candidate but he is at least proving once and for all what total BS this is.  Both of the following are via the definitely indispensable Overlawyered.

Boston mayor says Trump will never get any city permits because of his political views.

If Donald Trump ever wants to build a hotel in Boston, he’ll need to apologize for his comments about Mexican immigrants first, the Hub’s mayor said.

“I just don’t agree with him at all,” Boston Mayor Martin J. Walsh told the Herald yesterday. “I think his comments are inappropriate. And if he wanted to build a hotel here, he’d have to make some apologies to people in this country.”

New York mayor says Trump will never get any city business because of his political views.

New York City Mayor Bill de Blasio said Monday that his city may not be able to break its business contracts with Donald Trump but will avoid future deals with the 2016 GOP contender.

"My impression is that unless there has been some breaking of a contract or something that gives us a legal opportunity to act, I'm not sure we have a specific course of action," the Democratic mayor told reporters Monday, according to CNN and Capital New York.

"But we're certainly not looking to do any business with him going forward," de Blasio added.

De Blasio indicated Monday that he has yet to receive a final analysis on whether the city could get out of several contracts with Trump, a celebrity real estate developer turned presidential candidate.

New York City officials began reviewing the contracts, including a Central Park carousel, two rinks and a Bronx golf course, several weeks ago in light of Trump's controversial remarks on immigrants.

From Up-and-Coming Manager to Do-The-Minimum Timecard Puncher

A couple of weeks ago I wrote about the negative effects of the Administrations new overtime rules for managers.

The only people who now have the right to work more than the minimum to demonstrate one's readiness for more responsibility are those paid over $48,000 a year.  McKinsey consultants and lawyers and investment bankers can choose to work extra hours in order to gain promotions.  McDonald's shift managers no longer have that same right.  This is a law written by salaried professionals telling younger and lower-paid workers that they have no right to be ... salaried professionals.

One of the things that I failed to mention was the reaction of my own managers, which has been universally negative.  No one wants to go back to filling out time sheets.  I know this will sound odd to Progressives, who seem to envision that all workers only want to do the minimum, but my managers fear (rightly) that I will have to set arbitrary maximum numbers of work hours for them.  They take incredible pride in the facilities I ask them to manage, and worry what will happen if something needs doing and they have run out of hours.

A reader of mine sent me another example from the Albuquerque paper that really sums up the change in relationship demanded by the new rules

Although the proposal aims to increase pay for an estimated 5 million workers, including many at restaurants and retailers, some employees are saying, “no thanks.” Bret Crowder, a general manager in one of Shriver’s cafes, doesn’t want to go back to being an hourly paid worker.

“All of a sudden, the government has just demoted me,” he says. “It would basically put me back down to being a teenager.”

My longer post on the effects of this law is here.  Some notes about the arbitrary nature of this decision, and how it was dressed up as science, are here.  And even the DOL admits it won't result in much extra pay.

Globalization and Start-Ups

In a comment on this article about declining startup activity and the growing average size of businesses, a commenter wrote:

The high foreign trade deficit is also a barrier to the formation of small new companies. The annual trade deficit of the US is greater than the rate of GDP growth, which explains a lot of things. Probably more companies are being destroyed than created in the US. Legislate and reverse the foreign trade deficit and there will be a massive surge in small companies.

I wrote in return

As for wolf-dogs comment on the trade deficit, I think this is totally wrong. Most of the trade imbalance is with stuff like cars and steel which are unlikely startup businesses. The easy availability of Asian manufacturing sources for nearly anything you want to make or can dream up facilitates startups and entrepreneurship. My gut feel, just seeing what entrepreneurs around me are doing but not from any hard data, is that globalization and easy international sourcing is a net positive for small business formation.

I have never seen any data on this though.  Thoughts?

I Would Make This the Top Page of Every Government Officials "New Employee" Package

Jay P. Greene's suggestions for potential petty little dictators in government:

  • Think about how others have plans for their own lives just as you have a plan for yours.  Just because you don’t understand their plan doesn’t mean that theirs is not legitimate or that you should impose your vision on them.
  • Recognize that just as others are subject to limited information and systematic deviations from rationality, so are you.  You shouldn’t imagine that you are the rational, well-informed one whose plan can fix the defects from which others suffer.
  • Remember that you and your friends are not the government.  Once the government takes responsibility for an issue, no one can completely control what the government will do and those with the strongest vested interests (and often not the best intentions) are likely to have more influence than you.
  • Be humble about the limits of your knowledge and expertise.  You may have gone to an elite school and have always been told how smart you are, but that doesn’t mean that you understand everything.  Understanding comes from real experience and/or rigorous examination of an issue.  Reading a bunch of articles or having spent a few years as the deputy assistant director of whatever does not count as experience or rigorous examination.

This is just a sample.  There is more at the link

Seriously, Is this Really The Government's Job to Micromanage This Stuff?

The FTC is looking into the Apple music service:

the FTC has begun looking into Cupertino's "treatment of rival streaming music apps" to make sure it's not violating any antitrust law. See, iTunes also offers those competitor apps for download, and Apple gets a 30 percent cut per subscription paid through the program. That forces the companies to choose between charging extra on top of their $9.99 per month service (making the total $12.99) and accepting the loss to match Apple Music's pricing.

In addition, the FTC's reportedly looking into the App Store's numerous restrictions, as well. These include prohibiting companies from mentioning that their apps are also available on other platforms and from pointing customers to their websites to purchase goods and services. That's the reason why Spotify recently decided to send an email blast to subscribers with instructions on how to sign up directly on its website instead of paying $3 more through iTunes.

Good lord.  What is next -- does Whole Foods have to post a notice next to the tomatoes that you can buy them cheaper at Kroger?  Clearly Spotify has found a workaround without any help from Big Brother at all.

The DOL is Admitting That New Overtime Rules Won't Lead to Much Extra Pay

Here are some numbers from the DOL draft rule.

They think there are 21.4 million salaried workers subject to the wage test.  Since the new number was set at the 40th percentile of these workers, presumably about 8.6 million will fall below the new number.  But of these, only 4.6 million would be have to be shifted to hourly/overtime rules (not sure why the difference, I guess other tests must still apply as well).

Those 4.6 million are expected to cost employers an additional $1.2 billion in wages, which seems like a lot but equates to an additional $261 per person per year extra.   In other words, a pittance for all this disruption.

The Left is already saying that companies won't adjust and all these folks will get raises.  But the DOL obviously thinks differently.  Either it thinks these folks are only working maybe an hour each of overtime per week, such that the overtime rules will only cost a few bucks a week, or the DOL thinks that a lot of work and wage rates are going to be pared back leaving folks about where they are today, except now as timeclock punchers rather than trusted salaried professionals.

I am still going through all the tables in the back where they generate this stuff, but there are a couple of admissions there you WILL NOT find on liberal blogs today

  1. The DOL expects that base wage rate for regular work hours to fall for the affected workers with this new law.  You heard that right.   See table 21.  The fall from $18.38 to $18.21 after this rule in DOL projections
  2. You will see folks (like Kevin Drum linked above) saying that this ends 60 hour work weeks.  In fact, in table 22 the DOL says the average work week of those affected by the rule is 41.6 hours, which will go down to 41.5 hours by this rule.  In fact, the 60 hour folks are a minority of go-getters who are trying to prove themselves out for upper management.  These are the folks hamstrung by this law, hammering precisely the upwardly mobile folks one would hope to encourage.

DOL's New Overtime Proposal A Great Example of Arbitrary Rule-Making Under the Guise of Science

I have only skimmed the new DOL overtime rules, but this bit really hit a nerve:

The Department has long recognized the salary level test as “the best single test” of exempt status. If left at the same amount over time, however, the effectiveness of the salary level test as a means of determining exempt status diminishes as the wages of employees entitled to overtime increase and the real value of the salary threshold falls. In order to maintain the effectiveness of the salary level test, the Department proposes to set the standard salary level equal to the 40th percentile of earnings for full-time salaried workers ($921 per week, or $47,892 annually for a full-year worker, in 2013).

This is exactly the kind of thing that will look scientific to you average journalism major.  See, $921 is not arbitrary, it is set at the 40th percentile of salary earnings.

WTF?  Where did the 40th percentile come from?  Out of someone's butt, that is where.  The Administration started with a number they wanted, between $47K and $50K and then obviously went looking for some round-number metric that landed in this zone to justify their number as somehow analytically based.

Think about it.  The 40% number is meaningless.  In fact it is worse than meaningless, it is astoundingly arrogant.  Basically they are saying arbitrarily that 40% of people earning a salary should not be earning a salary.  What do these people do?  What are their alternatives?  What are the other circumstances of the job that might affect them?  What is the value of their benefits?  None of this stuff is considered.  Some arrogant jerk just drew a line and said, below this line all those folks are paid wrong.

The Arrogance of Regulators: Department of Labor Edition

Well, they did it.  The Obama Administration has proposed a new rule that everyone has to punch a time clock unless they are paid at least $921 a week.  Here is the proposed rule.  Of course, everyone on the Left is patting themselves on the back for giving everyone under that number a raise.  In fact what has happened is that everyone under that number just got a demotion, from trusted junior manager to 40-hour-a-week timeclock puncher.

Here is another way to put it:  The only people who now have the right to work more than the minimum to demonstrate one's readiness for more responsibility are those paid over $48,000 a year.  McKinsey consultants and lawyers and investment bankers can choose to work extra hours in order to gain promotions.  McDonald's shift managers no longer have that same right.  This is a law written by salaried professionals telling younger and lower-paid workers that they have no right to be ... salaried professionals.    This is a law propounded by a President who pays many of the young professional interns in his campaign and non-profit $0.00 an hour.

More here.

Update:  By the DOL's own reckoning, 40% of salaried employees fall below this number and thus are affected.  Some will get a small raise over the bar, but an enormous part of the workforce will find themselves dumped into the ranks of work-just-the-minimum timecard punchers.  This has the potential to hit far more people than any minimum wage increase.

Dear Paul Krugman: Please Explain Labor Demand Elasticity in Puerto Rico

Paul Krugman and a surprisingly large portion of Leftish economists have staked out a position that labor does not act like any other commodity, such that higher minimum wages have no effect on demand.  I have had people on the Left tell me that this absurd, common-sense-offending position is actually "settled".  So explain Puerto Rico:

Another problem is that just 40 percent of the population [of Puerto Rico] has a job—or is even looking for one. That figure has plummeted in recent years. In the United States as a whole, it is 62.9 percent....

The report cites one surprising problem: the federal minimum wage, which is at the same level in Puerto Rico as in the rest of the country, even though the economy there is so much weaker. There are probably some people who would like to work, but because of the sickly economy, businesses can't afford to pay them the minimum wage.

Someone working full time for the minimum wage earns $15,080 a year, which isn't that much less than the median income in Puerto Rico of $19,624.

The report also cites regulations and restrictions that make it difficult to set up new businesses and hire workers, although it's difficult to know just how large an effect these rules might or might not have on the labor market.

By the way, the fact that the author thinks this is "surprising" just goes to show how far this anti-factual meme of a non-sloping labor demand curve has penetrated.

As pointed out in several places today, Puerto Rico has a surprising number of parallels to Greece.   It seems to have zero fiscal restraint, it has structural and regulatory issues in its economy that suppress growth, and has its currency pegged to that of a larger, much richer nation.  It is apparently facing a huge $70+ billion potential debt default.

Customers Love Uber, But It Can Be Great For Drivers as Well. Here is an Example.

I see a lot of folks wanting to poo-poo the notion that Uber's flexibility in terms of hours driven and such is good for drivers.  Folks on the Left have in their head that any job that does not punch in and punch out at fixed hours with a defined lunch break and actually rewards working more than the minimum is somehow exploitive.

This got be thinking about a Kickstarter update I received a while back (for a computer game project).  The entrepreneur wrote:

Looking back, most of the year was spent trying to recover from the 2013 Robotoki saga which delayed development by almost an entire year, left me financially devastated, and almost sunk this project beyond recovery. We’ve had our ups and downs and I’ve always found a way through, but man, these were not fun times. I was actually living out of my car when I signed the private investment contract a few months ago, so it’s been a little bit of a rough year.

This project and I are currently surviving on that private loan, my personal credit cards, and whatever I can make driving for Uber, but at least we’re getting close to launch now. I hope this doesn’t come off as a “whoa is me” kinda thing. I only mention all of this because I want to put the project into perspective and give some deserved answers about what has been going on. I know it sucks that the game is severely late and I hope you know that I’ve done everything in my power to not give up.

This entrepreneur is trying to fund his game development effort in part by working during the day on the game and driving for Uber in his spare hours.  There is no way he could work really anywhere else because he would have to be an official employee and keep a regular schedule -- you can't imagine someone just showing up at McDonald's to cook whenever they feel like it.  But that is what he can do for Uber.  And now California is trying to kill that flexibility.

 

France Arrests Entrepreneurs for Crime of Innovation. Is it Any Wonder the Economy Sucks?

CEO of Uber France has been arrested because, uh, his competitors have resorted to violence to defend their inferior product.  The fact that the victim rather than the perpetrators of violence is getting arrested speaks volumes to how far governments will go to block innovation that hurts politically-connected incumbents.

After days of violent protests and defiance on the part of Uber's French management, two of the company's employees were taken into custody for "illicit activity" today. Uber France CEO Thibaut Simphal and Uber European GM Pierre-Dimitri Gore-Coty were arrested for running the company's ride-sharing service illegally. TechCrunch reports the pair is also being held under suspicion of "concealing digital documents." Last week, French Interior Minister Bernard Cazeneuve took legal action to shut down UberPOP, the service that employs non-professional drivers to provide rides, in response to protests that blocked key transportation hubs.

... While UberPOP was banned in France earlier this year, an appeals court said it could continue to operate until the final decision was handed down in September.

Obama's New Wage and Hour Laws Worse For Our Company Than Rising Minimum Wages

Rising minimum wages are bad enough, but generally we can offset them with price increases (remember that, though, next time you get ticked off about your camping fees going up).  As an aside, not every business is in a competitive position that they can do this.

But the new Obama Administration rules greatly scaling back on our ability to have our managers be exempt employees is far, far worse.  Because its not just money, but it changes the entire relationship between me and my managers.  Most of my managers don't want to be hourly employees (you should see the complaint emails I am getting since I announced that this is likely coming) and have pride they have moved beyond timeclock punching.  Also, I think a lot understand they are not going to make more from this, and they may even make less.  To the extent they are working overtime today (and they all are) they will not be allowed to work overtime in the future.  So I will have to hire someone else to do those extra tasks, and that person's salary is likely to come in part from what the managers are making now.

These next few months I am having all of my salaried managers fill out time sheets just for analytical purposes.  I need to know how bad this is going to be.  If you run a business, you shouldn't be waiting for next year to do something, you need to be thinking and analyzing right now how you are going to handle these rules.

I wrote a long article on this here.  Stephen Miller has more in the same vein (via Overlawyered great wage and hour news roundup).  Here is a taste:

In McCutchen's view, the administration fails to understand that "it's still the same pot of money that's available to compensate the employee," whether a worker is classified as exempt or nonexempt. So if overtime pay is required, a likely result will be to strictly limit overtime hours worked, despite the adverse effect on productivity, rather than—as the administration expects—to increase the employee's annual compensation.

While many non-executive employees view themselves as professionals and react negatively when shifted to hourly compensation, "the DOL wants nearly everyone to be nonexempt, and to sign in and clock out as do unionized workers," McCutchen contended. "They don't believe that some employees prefer to be salaried, with guaranteed pay and the flexibility to adjust when they do their work."

Postscript:  I guess I just don't understand the vision that is in the head of Progressives.  How does it help their stated goal of empowering the average Joe to convert him from a valued, up-and-coming junior manager to a 40 hour a week timeclock puncher?  How will people ever be able to migrate from lower end jobs to management positions if there are not junior manager positions in which they can demonstrate their energy and dedication?  I suppose they must believe that junior managers will still be doing the same things and working the same hours, but just earning lots of extra overtime with these new rules.  If that is really what they think, they are completely divorced from reality.

Megan McArdle on California Declaring Uber Drivers to be Employees

Megan McArdle is one of my favorite writers on the web.  So it was fun to see my recent post on California and Uber drivers get a mention from her.  I just focused on the implications for Uber and its customers, but she goes further to say that the likely results for its drivers will be negative as well, comparing their likely plight to that of freelance writers.

On the face of it, this ruling seems ludicrous. Raise your hand if you've ever had an employer who said: "Hey, as long as you don't actively alienate the customers, you can just show up and work whenever you feel like. No need to let me know when you're coming, just show up and I'll pay you for any work you do. Just put in a couple of hours every six months, m'kay?" Yeah, I never had that job either, and neither did anyone else who wasn't blackmailing the boss or working for a family member.

Not even freelance writers or contract columnists have this job......

Uber has to worry about not just the expense of complying with all these mandates, but also the expense of documenting that it has complied with these mandates -- which will mean more paperwork and hassle for Uber's HR staff and for the drivers themselves. The effect would be to introduce a substantial wedge between what Uber spends to keep a driver on the road and what drivers actually get in their checks. How many people will still be driving when their work starts to be micromanaged and their checks are docked to pay for all the new requirements?

In other words, the possibilities for Uber drivers are probably not "status quo" or "status quo plus paid sick leave"; the possibilities are probably "status quo" or "figure out what to do next because Uber just went out of business." Since economists generally assume that whatever that is, it's a less attractive option than driving for Uber, that's not a happy answer for the driver.

And in fact, these are exactly the complaints we are hearing from freelance writers as more places rely more heavily on staff, because with the economics of the Internet, it makes more sense to manage a small number of staffers than a large number of freelancers. The staffers are happy, because they're working. The freelancers are miserable, however, because here the new version of our old "gig economy" does not support that many people

CA Labor Commission Has Just Killed Uber, Though It May Take Years to Bleed Out

A while back I wrote a long article about all the ways the government is making it nearly impossible to employ low-skilled labor.  I worried that because it is getting harder and harder to profitably employ low-skill labor, the country would soon sort itself into those with skills and jobs and those on government assistance, with little or no opportunity for people in the second category to move to the first.

As part of that article, I observed that much of the capital in this country is flowing to new business models that use minimal numbers of employees.  I wrote:

Is it any surprise that most entrepreneurs are pursuing business models where they leverage revenues via technology and a relatively small, high-skill workforce?  Uber and Lyft at first seem to buck this trend, with their thousands of drivers.  But in fact they prove the rule.  Uber and Lyft are very very careful to define themselves and their service in a way that all those drivers don't work for them.  I would go so far to say that if Uber were forced to actually put all of those drivers on their payroll, and deal with they myriad of labor compliance issues, their model would fall apart.

Well, we are going to find out if my last statement is true.

The California labor commission has ruled that an Uber driver qualifies as an employee, not a contractor, of the company.  As a result Uber will have to reimburse a driver for expenses accumulated in the line of duty. That includes $256 in tolls and the IRS rate of $0.56 per mile for use of a personal vehicle for business purposes.

The actual issue in this case of reimbursement of expenses is pretty narrow, and actually kind of stupid.  Uber is already paying drivers effectively by the mile by giving them a percentage of the mileage-based fee customers pay.  All this will do is cause Uber to reduce the share of revenues drivers get by something like 56 cents a mile and then hand the $0.56 to them in a separate check.  Its an extra accounting and paperwork hassle, but business people deal with mitigating such government-imposed stupidity 10 times a day.

No, the real danger of this ruling lies far beyond expense reimbursement.  A few top of head thoughts

  • This would obviously make Uber drivers subject to minimum wage.  How does one even figure that out?  Now that there are local minimum wages (e.g. LA soon to be $15 an hour) how do you compute minimum wage for a trip that begins outside of LA but ends inside the city?  Or vice versa?
  • Uber drivers currently only get paid for transporting passengers, but what about their time driving around waiting for a passenger?  Will that be classified as standby time for which the employer must pay for?  You can expect the standby time class action in California in 3..2..1..
  • This changes the whole relationship between Uber and its drivers.  Currently, Uber does not have to worry about driver productivity or work ethic, as long as they get good customer ratings when they do drive. Why?  Because Uber is not paying them except when they haul a passenger.  Now, if they have to pay them by the hour, Uber suddenly must police them for productivity and set minimum revenue generation targets for drivers.  The flexibility that drivers love will be gone.
  • And then there is Obamacare.  If drivers drive more than 29 hours a week, Uber would have to provide health care or pay really expensive penalties.  Will Uber find it necessary, as my company has and many other service businesses have, to cap driver hours at 29 hours a week max?
  • What about California break law?  Employers have an affirmative duty to make sure employees take a 30 minute unpaid meal break after X hours.  And just allowing for it (ie allowing drivers to put themselves in unavailable status) is not enough - employers have to have processes and documentation in place to make sure the employee takes their break (I kid you not).
  • What about CalOSHA?  Is Uber suddenly responsible for working conditions and safety in the vehicle?  And how does it do that if it does not own the vehicle?
  • Every employee is essentially his or her own manager.  Does that now make Uber subject to ensuring every driver has all state-mandated manager training, such as sexual harassment training?
  • Employers are typically liable for actions by their employees, even if those employees are breaking the rules and ignoring the employer's wishes.  Is Uber now liable for a driver who, say, verbally harasses a passenger?  In the past, that gets sorted out pretty fast by the rating system, but does Uber have to take a more direct hand now do avoid a deluge of lawsuits?
  • As of July 1, California employers must provide paid sick leave to employees.  They must provide unpaid leave under the family and medical leave acts.  In fact, California requires employers provide and track literally dozens of forms of mandatory paid and unpaid leave (including leave for victims of stalkers, just as one example of the scope of these requirements)
  • The taxes and required fees owed by employers for each employee are myriad.  State and Federal income tax must be withheld, Social Security and Medicare taxes paid, California state disability tax paid, unemployment tax paid, and workers compensation premiums paid.
  • Unemployment could be real nightmare.  Can drivers choose to drive for a while, then take unemployment for a while, maybe while tourist season in San Francisco is slow, then go back to driving?  You think that can't happen?  A number of my seasonal employees work in the summer, then take unemployment all winter despite having no intention of trying to find work in the winter.  I pay 7% of wages in California as unemployment taxes and would pay more except that scale is capped and I can't get in a worse category than my current F-.
  • Then there are a myriad of smaller issues that probably can be solved but consume bandwidth of a company's management that would otherwise be innovating.  As one small example, one has to post about 20 different state and Federal labor posters in CA where all employees can see them.  Where would that be for Uber drivers?

Barack Obama Poised to Convert Millions of Junior Managers into Timeclock Punchers

The title of this post is my alternative to Politico's headline which reads, "Barack Obama poised to hike wages for millions." What is actually happening is that Obama is proposing to raise the threshold for how much money an employee can make before he or she can be considered exempt from overtime rules (and thus exempt from filling in a time sheet).

As early as this week, the Labor Department could propose a rule that would raise the current overtime threshold — $23,660 – to as much as $52,000, extending time and a half overtime pay to millions of American workers.

The Obama Administration and its supporters (and apparently Politico, by how they wrote the headline) are smoking something if they think employers are going to react by raising salaries of current exempt employees being paid 23,660 or 30,000 or 40,000 to $52,000.  Absolutely no way.  There may be a few just under the $52,000 threshold that get a bump, but that will be a minor effect.

Everyone else is going to suddenly find themselves converted from a junior manager back to a wage earner.   Companies are not going to allow these newly minted wage earners to earn overtime, and so I suppose one good outcome is that we may see a new boost in productivity as companies find ways to automate or eliminate junior management tasks to get all these folks down to 40 hours a week.

Five years ago, I might have really been in a panic over this in my company, but fortunately our experience with Obamacare has given me confidence we'll figure it out.  With Obamacare we were facing enormous costs which we (like many service and retail companies) managed to eliminate by converting almost all of our full-time employees to part-time.   Compared to that effort, figuring out how to get all of our managers down to 40 hours seems like child's play.

As usual, most of the costs of this regulation will be born by workers.  As with other minimum wage-type laws, some will be better off, actually getting the "raise" promised by Politico, while some will be worse off, dropped to straight 40-hour work which does not pay as well, or out of work entirely.

However, this law has an even bigger impact-- it changes the relationship between the worker and their employer.  There are important differences between hourly and salaried work in the relationship with employers.  Some are psychological -- for better or worse, management things of salaried workers differently than hourly workers.  And some are real -- salaried workers can try to demonstrate that they are worthy of promotion by working extra hours and taking on extra tasks, things that hourly workers really can't do.

As a final note, I have to give the Coyote Academic Arrogance Award to Daniel Hamermesh of UT Austin who is quoted as follows:

“It’s hard to believe that somebody making $30,000 is a supervisor,”

He knows this, how?  We have supervisors who do a fabulous job for $2500 a month and are happy to be making that.

But that is actually not the Hamermesh statement that I would rank most ignorant of reality.  This is:

But Hamermesh said that to whatever extent employers reduced hours to avoid overtime the result would be more job creation, not less, since someone else must [be] hired to perform that work. Jared Bernstein, an economic adviser to Vice President Joe Biden during President Barack Obama’s first term, added that for many workers reduced hours would be a plus: “Their salary is the same but they have more time with their families.”

Are these guys for real?  Employers are not going to give employees the same salary for fewer hours.  They are going to try pay them less if they are getting fewer hours of work (of course their ability to do so depends on the labor supply).  But the change is worse than this.  They are not only getting fewer hours, but they are getting a different person and a different relationship.  Before, say for a junior manager job, employers could get go-getters who worked 60 hours a week to impress management with their diligence and dedication, signaling they were ready for promotion.  Now, employers will get time-clock punchers.

The Next Time the Media Complains About High CEO Pay.... It May be Projection

Six of the ten highest paid CEO's run media companies.

Six of the 10 highest-paid CEOs last year worked in the media industry, according to a study carried out by executive compensation data firm Equilar and The Associated Press.

The best-paid chief executive of a large American company was David Zaslav, head of Discovery Communications, the pay-TV channel operator that is home to "Shark Week." His total compensation more than quadrupled to $156.1 million in 2014 after he extended his contract.

Les Moonves, of CBS, held on to second place in the rankings, despite a drop in pay from a year earlier. His pay package totaled $54.4 million.

The remaining four CEOs, from entertainment giants Viacom, Walt Disney, Comcast and Time Warner, have ranked among the nation's highest-paid executives for at least four years, according to the Equilar/AP pay study.

More power to 'em, as long as their shareholders are happy.  But I am tired of these self-same individuals attempting to bring regulatory pressure on the rest of us in the name of high CEO pay.

Rental Market in San Francisco

One of the problems with making predictions about bad public policy is that sometimes you have to wait 20-30 years until after the policy was passed to see all the negative consequences play out, by which time people have forgotten about the initial policy changes that caused all the disruption.

But I got to skip those 30 years in San Francisco.  I never really paid that much attention to the city until I read a book called "Season of the Witch" written by a progressive about life in San Francisco in the 60's and 70's.  As I wrote previously:

What struck me most were the policies these folks on the Progressive Left had on housing.  They had three simultaneous policy goals:

  1. Limit San Francisco from building upward (taller).  San Francisco is a bit like Manhattan in that the really desirable part where everyone wants to live is pretty small.  There was (and I suppose still is) a desire by landowners to build taller buildings, to house more people on the same bit of  valuable land.  Progressives (along with many others across the political spectrum) were fighting to have the city prevent this increased density as a threat to San Francisco's "character".
  2. Reduce population density in existing buildings.  Progressive reformers were seeking to get rid of crazy-crowded rooming houses like those in Chinatown
  3. Control and cap rents.  This was the "next thing" that Harvey Milk, for example, was working on just before he was shot -- bringing rent controls to San Francisco.

My first thought was to wonder how a person could hold these three goals in mind without recognizing the inevitable consequences, but I guess it's that cognitive dissonance that keeps socialism alive.   But it should not be hard to figure out what the outcome should be of combining: a) some of the most desirable real estate in the country with b) an effective cap on density and thus capacity and c) caps on rents.  Rental housing is going to be shifted to privately owned units (coops and condos) and prices of those are going to skyrocket.  You are going to end up with real estate only the rich can afford to purchases and a shortage of rental properties at any price.  Those people with grandfathered controlled rents will be stuck there, without any mobility.

Since reading the book, I have paid attention to stories on the rental market in San Francisco.  In short, it is just as screwed up as would have expected 40 years ago when both density and rent caps were put in place.

As San Francisco's housing crisis continues to pit long-term residents against the recent influx of affluent tech employees, Airbnb and other short-term rentals have become a source of tension. Today San Francisco Mayor Ed Lee and Supervisor Mark Farrell hoped to ease some of that tension by introducing reforms to the city's short-term rental laws that put a 120 day yearly cap on all short-term rentals. The package of amendments also introduced the creation of a new Office of Short-Term Rental Administration and Enforcement for the city staff to "coordinate in the administration and aggressive enforcement of the law."

Airbnb and other short-term rental services have come under fire in San Francisco because they take rental units off an already limited housing market. The current law caps short-term rentals at 90 days when the host is not present. If the host is present -- for example a room rental in an occupied home -- there is no yearly cap. Today's amendment package sets caps for both types of rentals. Mayor Lee said in a statement, "this legislation will help keep our City more affordable for homesharers, preserve rental housing for San Franciscans, protect neighborhood character and streamline permitting and enforcement under a fair set of regulations."

This is from a tech site that has developed a reputation, at least with me, for being astoundingly ignorant of even basic economics, so one has to make some guesses at what is going on here.  For example, it seems odd to say that renting a space on a short term lease rather than long-term somehow takes rental units off the market.  They are still being rented, are they not?  How could one describe them as being taken off the market?

My guess at what is going on here is that short-term rentals are likely exempt from some of the most onerous portions of San Francisco tenant law.   Likely, renting short-term allows one to bypass rent controls and charge more.  It also likely gives one some relief from the city and the state's horrendous tenant protections that make it virtually impossible to evict a tenant.  You lease to someone in SF, and you are stuck with them for life like a shark with a remora on his back, even if that tenant refuses to pay rent for years or constantly trashes the apartment.

San Francisco has created a system where they are absolutely guaranteed to have a shortage of rental properties.  Rather than address those laws that create the problem, politicians put their whole effort -- creating brand new agencies, no less -- to stop entrepreneurs from circumventing the madness and trying to provide housing.

Postscript:  The war against wealthy tech workers in SF is in full swing.  What SF would really like to do, I think, is close its borders and institute immigration controls to keep these folks out.  I know there are many parts of the world, including unfortunately our country, that work to keep poor uneducated immigrants seeking opportunity out.  But has there ever been a time or place in history where a particular place worked so hard to keep out rich educated immigrants seeking only to spend their money?

Why Prostitution Should Be Legal

Folks often use the abuses in the prostitution industry as evidence of why it should be illegal.  But these abuses are actually a result of the illegality.  Sex workers in illicit industries cannot use the police and legal system to address abuses without risking arrest.  Essentially, they are cut off from access to the legal system and its protections that we take for granted.

People act like the abuses are inherent to the fact that prostitution is a sex work industry, but here is an example of (legal) sex workers protecting themselves and addressing abuses through the legal system, just like all the rest of us do.  If prostitution were legal, then prostitutes could do the same.

Three Valley strip clubs are being sued by exotic dancers with the help of a Texas law firm over alleged unpaid tips and wages....

Hodges' firm and the strippers are suing to make the strippers official employees. Their new system would be similar to that of restaurant wait staff, who typically earn a sub-minimum salary (Arizona allows as low as $3 an hour for tipped employees) while pooling tips among their fellow workers. If no customers come in, the staff is still guaranteed to make at least minimum wage, plus time-and-a-half for any overtime worked.

I'm not a big fan of the premise of the lawsuit (trying to force businesses to change their employment model from dancers as independent contractors to dancers as employees) but it is their free access to the legal system that is the point here.  One could never imagine such a lawsuit with a group of prostitutes arguing that the people they worked for were not paying them fairly.

Q: What's The Difference Between GE and Enron? A: GE Got Bailed Out

I am going to oversimplify, but the essence of bank risk is that they borrow short-term and invest/lend long-term.   This is a money-making strategy in that one can often borrow short-term much cheaper than one can borrow long term.  This spread between long and short term rates is due to people valuing liquidity.  You probably have experienced it yourself when buying a certificate of deposit (CD).  The rates for 5 or 10 year CD's are higher, but do you really want to tie your money up for so long?  What if rates improve and you find yourself locked into a CD with lower rates?  What if you need the money for an emergency?  Your concern for having your money locked up is what a preference for liquidity means.

So banks live off this spread.   But there are risks, just like you understood there are risks to locking your money in a long-term CD.  Imagine the bank is lending for mortgages and AAA corporate customers at 6%.  To fund that, they have some shareholder money, which is a long-term investment.  But they make the rest up with things like deposits and commercial paper (essentially 90-day or shorter notes).  We will leave the Fed out for this.  There are two main risks

  1. Short term interest rates rise, such that the spread between their short term borrowing and long-term investments narrows, or even reverses to negative
  2. Worse, the short term money can just disappear.  In panics, as we saw in the last financial crisis, the commercial paper market essentially dries up and depositors withdraw their money at the first sign of trouble (this is mitigated for small depositors by deposit insurance but not for large depositors who are not 100% covered).

These risks are made worse when banks or bank-like institutions try to improve the spread they are earning by making riskier investments, thus increasing the spread between their borrowing and investing, but also increasing risk.  This is particularly so because these risky investments tend to go south at the same time that short-term credit markets dry up.  In fact, the two are closely related.

This is exactly what happened to GE.  Via MarketWatch:

GE’s news release announcing its latest and greatest reduction of GE Capital summed up the move beautifully, saying “the business model for large wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.”

“Wholesale-funded” refers to GE Capital’s traditional reliance on the commercial paper market for liquidity. The problem with this short-term funding model for a balance sheet with long-term assets is that during a financial crisis, overnight liquidity tends to dry up as it did for GE late in 2008. When the company had difficulty finding buyers for its paper, the Federal Deposit Insurance Corp. stepped in and through its Temporary Liquidity Guarantee Program (TLGP) was covering $21.8 billion of GE commercial paper. GE Capital registered for up to $126 billion in commercial-paper guarantees under the TLGP.

If you have a AAA credit rating, you can always, always make money in the good times borrowing short and investing long.  You can make even more money borrowing short and investing long and risky.  GE made their money in the good times, and then when the model absolutely inevitably fell on its face in the bad times, we taxpayers bailed them out.

Which leads me to think back to Enron.  Enron is associated in most people's minds with fraud, and Enron played a lot of funky accounting games to disguise its true financial position from its owners.  But at the end of the day, that fraud was not why it failed.  Enron failed because it was essentially a bank that was borrowing short and investing long.  When the liquidity crisis arrived and they couldn't borrow short any more, they went bankrupt.   Jeff Skilling didn't actually go to jail for accounting fraud, he went to jail for making potentially inaccurate positive statements to shareholders to try to head off the crisis of confidence (and the resulting liquidity crisis).  Something every CEO in history has done in a liquidity crisis (back in 2008 I wrote an article comparing Bear Stearns crash and the actions of its CEO to Enron's; two days later the Economist went into great depth on the same topic).

So the difference between GE and Enron?  The government bailed out GE by guaranteeing its commercial paper (thus solving its problem of access to short term funding) and did nothing for Enron.  Obviously the time and place and government officials involved differed, but I would also offer up two differences:

  • Few really understood what mad genius Jeff Skilling was doing at Enron (I can call him that because I actually worked with him briefly at McKinsey, which you can also take as a disclosure).  With Enron so opaque to outsiders, for which a lot of the blame has to be put on Enron managers for making it that way, it was far easier to ascribe its problems to fraud rather than the liquidity crisis that was well-understood at Bear or Lehman or GE.
  • Enron failed to convince the world it posed systematic risk, which in hindsight it did not.  GE and other big banks survived 2008 and got bailed out because they convinced the government they would take everyone down with them.  They followed the strategy of the Joker in The Dark Knight, who revealed to a hostile room a coat full of grenades with this finger ready to pull the pins if they didn't let him out alive.

TDK-joker-grenades

 

 

Artist's rendering of 2008 business strategy of GE Capital, Citicorp, Bank of America, Goldman Sachs, GMAC, etc.

 

 

 

 

 

 

 

 

Postscript:  For those not clicking through, I though this bit from the 2008 Economist article was pretty thought-provoking:

For many people, the mere fact of Enron's collapse is evidence that Mr Skilling and his old mentor and boss, Ken Lay, who died between hisconviction and sentencing, presided over a fraudulent house of cards. Yet Mr Skilling has always argued that Enron's collapse largely resulted from a loss of trust in the firm by its financial-market counterparties, who engaged in the equivalent of a bank run. Certainly, the amounts of money involved in the specific frauds identified at Enron were small compared to the amount of shareholder value that was ultimately destroyed when it plunged into bankruptcy.

Yet recent events in the financial markets add some weight to Mr Skilling's story"”though nobody is (yet) alleging the sort of fraudulentbehaviour on Wall Street that apparently took place at Enron. The hastily arranged purchase of Bear Stearns by JP Morgan Chase is the result of exactly such a bank run on the bank, as Bear's counterparties lost faith in it. This has seen the destruction of most of its roughly $20-billion market capitalisation since January 2007. By comparison, $65 billion was wiped out at Enron, and $190 billion at Citigroup since May 2007, as the credit crunch turned into a crisis in capitalism.

Mr Skilling's defence team unearthed another apparent inconsistency in Mr Fastow's testimony that resonates with today's events. As Enronentered its death spiral, Mr Lay held a meeting to reassure employees that the firm was still in good shape, and that its "liquidity was strong". The composite suggested that Mr Fastow "felt [Mr Lay's comment] was an overstatement" stemming from Mr Lay's need to "increase public confidence" in the firm.

The original FBI notes say that Mr Fastow thought the comment "fair". The jury found Mr Lay guilty of fraud at least partly because it believed the government's allegations that Mr Lay knew such bullish statements were false when he made them.

As recently as March 12th, Alan Schwartz, the chief executive of Bear Stearns, issued a statement responding to rumours that it was introuble, saying that "we don't see any pressure on our liquidity, let alone a liquidity crisis." Two days later, only an emergency credit line arranged by the Federal Reserve was keeping the investment bank alive. (Meanwhile, as its share price tumbled on rumours of trouble onMarch 17th, Lehman Brothers issued a statement confirming that its "liquidity is very strong.")

Although it can do nothing for Mr Lay, the fate of Bear Stearns illustrates how fast quickly a firm's prospects can go from promising to non-existent when counterparties lose confidence in it. The rapid loss of market value so soon after a bullish comment from a chief executive may, judging by one reading of Enron's experience, get prosecutorial juices going, should the financial crisis get so bad that the public demands locking up some prominent Wall Streeters.

Our securities laws are written to protect shareholders and rightly take a dim view of CEO's make false statements about the condition of a company.  But if you owned stock in a company facing such a crisis, what would you want your CEO saying?  "Everything is fine, nothing to see here" or "We're toast, call Blackstone to pick up the carcass"?

Net Neutering: Isn't It Great That This Old Lady Is Going To Take Us To Her House And Give Us Candy?

I read a number of tech sites like Engadget every day, and am just shocked at the continued happy puppy reactions to the FCC's takeover of the web.  The articles can all be summarized as "Hey, isn't it awesome this old lady is taking us to her house in the woods and giving us free candy?"

Daniel Henninger shares my reaction:

Washington’s seizure of the Internet is one of the great case studies in the annals of political naïveté.

Over several years, leading lights of the Web—among them Netflix,Google and Tumblr—importuned the Obama White House to align itself with the cause of net neutrality.

“Net neutrality,” like so many progressivist-y causes—climate change, health care for all—is a phrase designed to be embraced rather than understood.

But net neutrality had real meaning. Its core idea was that the U.S. Federal Communications Commission, a Washington agency whose employees have been regulating communications since 1934, should design and enforce a price mechanism for the Internet. Up to now, nobody did that.

In February the FCC did, and on that day the Little Red Riding Hoods of net neutrality found out what big teeth grandma has. The FCC said its plans to regulate the Web were in a 332-page document, which no one can see until the agency is ready....

Mr. Karp and the rest of the 20-something and 30-something Peter Pans in the app development world should find their way to the 80-something communications lawyers and lobbyists retired in Florida for a tutorial on what it’s like trying to get Washington off your back once it has climbed on. Here’s the tweet-length version: You are going to pay and pay and pay. To save you, Washington will bleed you....

No one can do business until they first run it through the Beltway bosses. For the K Street corridor, it’s the golden age all over again.

As I wrote before, isn't anyone in tech worried that the government used a semi-imaginary problem that perhaps required a flyswatter to address to justify acquiring 16-inch naval guns?