Fractals of Change

Yahoo 1, Google 0

Doesn't happen very often but Yahoo has bested Google in a battle over local advertising. There is also a little bit of good news for struggling newspapers in the story by Miguel Helft which is in today's New York Times:

Through the partnership, ad salespeople at newspapers pitch local businesses on advertising packages that let them reach visitors to the newspapers' Web sites and Yahoo users in the area. The newspapers also use Yahoo technology that lets them charge more for ads on their sites…

"In 2009, this partnership is not material," said Hilary Schneider, executive vice president for North America at Yahoo, who is one of the driving forces behind the alliance. "If you look at the long-term opportunity, it is material, and it continues to exceed our expectations."

Yahoo is mobilizing the local sales forces, which are one of the remaining assets of devastated local papers, to make online ads part of the package they sell to local customers. This is a good service to the businesses buying the ads, which are generally not sophisticated enough to buy targeted online advertising themselves and which also do need to coordinate their print and online buying. The newspapers get more revenue and get to use Yahoo technology for better targeting on their own web sites; Yahoo gets good local advertising for its sites.

Google took the opposite approach. It tried to use its self-help advertising engine to sell remainder space in newspapers; but abandoned this effort after two years in January. Google has been hugely successful, of course, by taking orders for do-it-yourself advertising on the web. But it turns out that there is still a market for ads which need to be sold by salespeople who understand the customers, their needs, and the local markets.

Google's approach was to compete with the existing local sales force at newspapers; Yahoo's approach is to use the experience and contacts of these salespeople. Preliminary indications are that Yahoo got this one right.

Kindle for Authors

Kindle ought to be the answer to an author's dream But, for now, it is an almost insurmountable marketing challenge. Read on to learn what I'm trying

No expensive software or hardware is needed to create a Kindle book. Assuming you can write to begin with, you can create a book with Microsoft Word or similar tools (HTML is best but .doc works) and easily upload it for Kindle publication; the details are here on Amazon. Two or three days later your book's in the Kindle store. Amazon pays you a 35% royalty on the suggested retail price (which you set).

You can get a book out fast. You can address topics as timely as last week's installment of TARP. And no publisher or agent is going to tell you "no" or "rewrite and I'll think about it".

What's not to like? Well, for starters, no one is going to know that your book is there.

Amazon does some marketing to Kindle owners and highlights new books on Kindle – but, understandably, these seem to be books which already are hits or are from hit authors. If you're already a hit author, your publisher is worrying about all of this and not you. So, as is almost always the case for unfamous authors, you've got to do your own marketing.

Unfortunately for authors, readers, and even Amazon, there doesn't seem to be a practical way to market Kindle titles which are not on the best-seller list. You can be found by a diligent searcher; your title can certainly be located by someone who is looking for it or for books by you; but you don't have any good way to snare new readers.

Physical books can be advertised and promoted in various ways; all of which are expensive for new authors but some at least verge on the practical. Display and clickthrough advertising can both work because anyone who can read is a prospect for a physical book. But so far there are only an estimated half million Kindles out in the world so, even if you do a very good job of reaching people who are interested specifically in the art of tulip growing as you've explained it in your book, most of your tulip growing readers aren't prospects for a book on Kindle and won't be for some time to come. So you can't sell Kindle-only books through vertical marketing.

What you really want to do is reach those people who own Kindles. After all, there only 230,000 titles available for Kindle; the categories are thin; Kindle fans have to be content starved. They can instantly download a free preview of your book and fall in love with your prose – if they only knew your book existed. That's where it would be good to have help from Amazon – even if you have to pay for it; but none seems to be available. So far I haven't gotten any responses from Amazon to questions on how to market a Kindle title even though my book hackoff.com: an historic murder mystery set in the Internet bubble and rubble was an early Kindle title and is also carried in hardcover by Amazon.

One opportunity, of course, is to promote your book on your own blog (see example in the paragraph above in case you missed it). Probably all your readers don't have Kindles but at least the ad is free. But you can do better than that. If you write interesting posts about Kindle, then Google will send Kindle owners to your blog to read your posts (and the promotion for your book).

I stumbled into this by accident, not by thinking. Since Kindle 2 was released, there's been a surge of traffic to Fractals of Change from people doing searches for "Kindle web browsing" and "Kindle Internet". I posted on both of these topics over a year ago but the posts still appear near the top of the first page of search results for these terms. Clearly these readers are interested in Kindle and presumably its content. It took me a week to realize that I ought to put an ad for the Kindle edition of hackoff.com at the top of the right sidebar of this blog even though I was already thinking about how to promote the Kindle edition. Duh! Too soon to know how effective it is.

The second self-help marketing attempt I'm making is through an Amazon marketing program called BXGY (Buy X Get Y). You can attempt to buy placement for your title with some other presumably better-selling title so people who look at that one will also see yours and get a two-fer offer with some savings. This one isn't for the faint of heart. The minimum cost is $1000 for a month long promotion. So what I tried is pairing my book with best-selling Kindle titles that I think appeal to the same readers. It doesn't say anywhere I can find on the Amazon site whether you can actually do this pairing with Kindle titles and I'm only interested in a Kindle-pairing because I only want to pay to reach Kindle owners. Even if it works, you don't get back direct results from Amazon and have to guess how much the pairing affected sales during the month you paid for.

Will let you aspiring e-authors know if Amazon actually accepts the pairing request and, if so, how it seems to have done. Also would be glad for any hints from readers on how to promote a Kindle title.

When Angels Fear to Tread

It's the lack of exits that's a problem amid the deadly clamp of panic throughout the economy - a far cry from the irrational exuberance that drives entrepreneurs (and their investors) and which brings us trouble and fraud as well as greatness and "slumdog millionaires".

No matter how much we bailout the auto industry, there'll be less jobs making cars next year than there are this year – in fact cutting jobs is a condition of the bailout funds. There are going to be less bankers a year from now, too. New jobs will come from new industries, not from the ones on life support. So it is essential that there be some source of funds for entrepreneurs so that they can do what they do best (when they succeed) – create good jobs for future markets.

Tom Friedman suggested bailout money for VCs; Fred Wilson articulately pointed out that only the incompetent VC firms would take the money and that skilled VCS actually do have money and can raise more. Entrepreneurs pointed out in comments on Fred's post that there IS a shortage of money from entrepreneur's POV. In a comment on my post on the subject, Fred suggested tax breaks for angels.

Angels are motivated by fear and greed just like everyone else – angel investors, that is, who, in better times, are a source of funds for entrepreneurs launching the businesses of their dreams. Angels (I've occasionally been one) are just as perverse as all other investors; we're more likely to invest at market tops when everybody else is and less likely to invest in scary times like the present even though there's greater opportunity now.

There is a way to get angel money flowing again but it's not by subsidizing angels – even with tax breaks. Angels are claustrophobic; don't like going into investments without exits.

Angels generally step aside (but don't get cashed out) when a company gets its second round of financing. Often VCs step in with money, advice, and contacts for the next round of a company's growth. The angels and VCs (and entrepreneurs) generally get some reward when the company is either bought or goes public. But companies aren't getting bought or going public right now.

The result is a logjam. The VCs are concentrating their time and attention on companies which would have – in better times – been long out of their portfolios. It's true, as Fred said, that the good VCs can raise more money; but they can't clone themselves. Fred can only serve on so many boards at a time. That means that venture funds can't take responsibility from angel investors at the rate they used to – they have last years' hatchlings still in the nest.

An angel looking at a potential new investment not only confronts the risk of failure – that's always been there – but also the risk that he or she will be in an active role with the company – and perhaps its only source of capital –for a long time to come. We angels, like the VCS, still have the companies that we previously incubated in the nest. So we're not looking for new investments either. We're scared and there are no exits.

Only greed (the dream of an outsized return) can conquer fear. Tax breaks don't do it; you need to have some gain before you can use them.

An opinion piece in the Wall Street Journal today by Tom Hayes and Michael Malone entitled "Entrepreneurs Can Lead Us Out of the Crisis" suggests not only tax breaks for angels and entrepreneurs but also eliminating Sarbanes-Oxley to make it easier to be a public company. This has the virtue of appealing to greed (the IPO dream) and opening up exits; but even I'd agree that, in the dotcom generation, companies went public much too soon – eventually to the detriment of the companies as well as their investors.

We investors have to give up the dream of a QUICK outsized return. We can dream but we have to dream the patient dream. We probably even have to wait for companies to be profitable before we can make any money. That's OK; we can live with that as long as we can have the dream.

Turns out there is something government can do, however, to get investor juices flowing again: invest in infrastructure that creates opportunity rather than subsidizing zombie companies which are blocking the way. When the Erie Canal was built (funded by private investors buying government bonds), private money flowed to boat people and businesses all along the canal. Same kind of thing when the railroads with built with healthy doses of land grants and other subsidies – fortunately government DIDN'T elect to subsidize the canal boats which the railroads put out of business. DARPA (government) had a lot to do with inventing and funding the Internet; the Internet enabled and encouraged a wave of privately funded innovation.

I wish more of the bailout were focused on infrastructure – especially new enabling infrastructure. If transmission lines actually do get built, "alternative" power'll flourish with much less government intervention than is planned. The government does have a role in building those power lines. If the United States can become an e-nation with every citizen having access to a highspeed persistent connection whether at home or on the road, that infrastructure of connectivity will light the exuberance lights for a new generation of connected services. Government's role there is to create telecommunications competition we don't have today and to subsidize the last five or ten percent of connections as we did with rural electrification and telefonication because the network as a whole gains value when it is universal.

We investors and entrepreneurs have to relearn patience. Fair enough. We'll come back into the game once we can't stand to be on the sidelines any longer and when we see a future – almost no matter how distant – in which there is an exit.

A VC Says No to VC bailout

"Thanks but no thanks" is Fred Wilson's prompt response to Tom Friedman's column suggesting that $20 billion in bailout funds be made available to the top 20 VC funds so that they can invest in the future rather than the past of failed banks and auto manufacturers. Fred says:

"…the top 20 firms in the venture capital business are the least in need of a bailout of any group I've ever thought about. These firms, the Sequoias and Benchmarks and Accels and Kleiner Perkins [Fred modestly didn't add his own Union Square Ventures but could have] etc etc can raise a fund anytime they want. Accel raised a ton of money last fall in the midst of the worst global financial meltdown in my lifetime…

"The worst firms, on the other hand, will gladly accept government money. And that is what is going to happen with all of these government efforts to pour more money into the "innovation sector". That money will go to bad investors and weak entrepreneurs and management teams for the most part. It's a problem of adverse selection."

If anything, Fred is understating the danger in flooding the venture market with government money. It's a corollary of Gresham's law that bad investment drives out good. Suppose you're thinking about investing in software or green tech or something else…. and suppose you know the government's about to dump a lot of dumb money in the field, well then you don't invest because someone who's good at grants but probably not good at software or green tech or whatever is likely to wipe out the market for whatever you were going to invest in. If you're going to invest at all, you try to figure out who's going to get the government money and you put your money there. In other words, the smart money ends up front running the dumb money. Not good.

Of course the damage from government "investment" isn't limited to venture funding. Governments around the world have carefully been "investing in" the very banks which should get out of business and out of the way of better run and smaller (and less dangerous) banks. The better and smaller banks can't get investor money in this climate because the investor money would be competing with government money. Same, of course, in the manufacturing sector.

There is one part of Fred's post where he and I do have a slightly different POV: "… the venture capital business, thankfully, does not need any more capital. It's got too much money in it, not too little. Just ask the limited partners who have been overfunding the venture capital business for the past 15-20 years what they think." From an entrepreneur's POV, we like the VCs to be what they consider over-funded – more chance for entrepreneurs to get funded themselves on better terms than otherwise even though we then run the risk that our competitors will get funded as well. But neither as an entrepreneur nor as a limited partner in VC firms would I want to see government money poured or even dribbled in at the top. "Thanks, Tom Friedman, but no thanks."

 

    

A Free Press Frightened

"Gruesome killing poses another test for US Muslims" is the headline in an AP story about the praiseworthy reaction of many American Muslims to the recent beheading of a woman by her husband in Buffalo. Domestic violence is all too wide spread among all ethnicities and religions but this post is about shoddy and perhaps fearful reporting, not about either violence or Islam.

Here's a quote from the story. But there's something missing:

Asra Nomani, a Muslim journalist, author and activist from Morgantown, W.Va., challenged Muslims who say the murder has no link to Islamic teachings. While Islam does not sanction domestic violence or murder, a literal reading of a controversial verse in the Quran taught in some mosques can lead to honor killings and murder, she said.

"It's sort of like the typical reaction to terrorism in the community, where people want to say, 'This had nothing to do with Islam,'" Nomani said. "Well, it doesn't have anything to do with your interpretation of Islam that teaches you can't kill innocent people. But terrorism, violence, honor killing — they are all part of ideological problems we have in the community we need to eradicate."

The passage — Chapter 4, Verse 34 — has been widely translated to sanction physical discipline against disobedient wives. There is disagreement about to what degree and whether it's punitive or symbolic.

The verse is cited "all the time" to justify domestic violence, just as people of other faiths cite scriptures to support oppression of women, said Salma Abugideri of the Peaceful Families Project, which offers training and workshops to combat domestic violence in Muslim communities.

What's missing is Chapter 4, Verse 34 of the Quran itself. How could that possibly not be relevant as part of the third paragraph above? Here it is:

"Men are the maintainers of women because Allah has made some of them to excel others and because they spend out of their property; the good women are therefore obedient, guarding the unseen as Allah has guarded; and (as to) those on whose part you fear desertion, admonish them, and leave them alone in the sleeping-places and beat them; then if they obey you, do not seek a way against them; surely Allah is High, Great."

I have no idea whether it should be taken literally or symbolically. It is less blood-thirsty than much of the old testament sacred to Jews, Christians, and Muslims alike. It certainly doesn't say anything about beheading. But the point is that it belonged in the AP story and was either left out by a reporter (who already knew the chapter and verse) or deleted by an editor. This is similar to the stories about the Danish cartoons of the prophet which somehow never managed to show the cartoons themselves.

We can't afford not to have a free press. We won't bridge the gaps between religions, ideologies, and ethnicities unless we can talk about them. Self-censorship is condescension, not consideration.

 

 

 

Bailing out Investors Threatens Savers

Dow at five-and-a-half year low! That's the 4PM headline which inspired this post. Actually, of course, that's no reason for general panic in itself. No one ever said the Dow was supposed to go straight up. However, if you put a substantial part of your "savings" into stocks directly or indirectly, you may have a very good reason for individual panic.

If the government continues to insist on baling out investors, however, savers will be exposed to a risk they don't deserve.

Saving means protecting your principal while earning a very low return (zero in some cases). Investing means risking at least some of your principal in the hope that you'll make a better return than you will by saving. Once of the great innovations since the Great Depression is FDIC insurance. You can SAVE a reasonable amount of money without risk to the principal assuming that inflation isn't greater than your interest after taxes (hold onto that thought). If we don't have a rerun of the 1930s (and I don't think we will), we will be spared to a large degree because we had no reason to panic and take our savings out of banks (assuming that we didn't have more than $250,000 in any one account name in any one insured institution).

Unless you're a rock star, an athlete, or a vastly over-paid executive, it's hard to get rich just based on savings. Most of us don't earn enough to be able to put aside enough to build what we would consider wealth even with the miracle of compound interest. So we're tempted to invest some of what we were saving so that we can get a better return and live or retire in a grander style then we would have been able to based on savings alone. Nothing wrong with that so long as we remember that investing means taking a chance on losing the principal AND we're prepared to deal with that loss. Of course it's easy to forget the risk when you invest in a stock market that seems headed for the sky or when you "invest" in real estate by buying a house that costs more than you can justify paying EXCEPT for the fact that it is "sure to" appreciate. But it really hurts when you realize that your retirement will be much more Spartan than you planned because luck went against you, especially you're near the end of your working life and/or have no opportunity to restore the savings you lost. If we weren't out-an-out swindled, we make these choice and we live with the consequences – MAYBE.

But if a large constituency (recent home-buyers and refinancers) or politically powerful constituencies (bankers, automakers, for example) are feeling the pain of bad investments, then a democratic (small "d" deliberate) government is tempted to offer a bailout even though the investors were never promised nor did they pay for any insurance against failure. If there happens to be a recession going on at the same there's lots of clamor for bailout (and that's likely, of course), then tax revenues are also down. The only way a sympathetic government can bailout the unfortunate investors is by borrowing or printing money.

But borrowing or printing money eventually leads to inflation which erodes the value of what the savers saved. That's NOT FAIR. The savers made the choice to forgo large possible gains in return for safety. It's simply wrong as well as very bad policy to use inflation as a way to tax away their savings to provide a bailout to investors who decided to take a risk.

Note that a "stimulus" bill is not necessarily a bailout and can be very good policy. If the government spends money now on infrastructure or anything else which it would eventually pay for anyway but is cheaper now, then the spending helps flatten out the economic cycle and can naturally decelerate when many needs have been met for the next few years. The government can recoup this spending by not competing as much with the private sector for scarce resources doing boom periods.

The TARPs, aid to AIG, the "loans" to the automakers, and many plans which have been floated to help homeowners with mortgage payments are bailouts. They protect investors against losses. Since they don't create demand, they don't create jobs – just shuffle them around from one sector to another. These are the bailouts which rob savers to pay investors. They are a bad idea.

Internet Services Worth Paying For

Can you charge for your new Internet service? You're always up against the expectation that Internet services are free. Moreover, you won't grow as fast if you charge as you will if you give something away. On the other hand, a service has to be very large and have lots and lots of hits (or be dominant in certain niches) before advertising'll pay the freight. Capital is currently at least tough to get and much, much harder without a revenue plan (but not impossible, see twitter).

If you're going to be able to charge for your service, you have to make the case that your service is worth paying for.

An easy case is online backup. I happily pay Mozy for this service because I wouldn't want my backup vendor to be monetizing our relationship in any other way than payment from me. If Google offered me free backup, I'd respectfully decline; I don't want the contents of my hard disk to be part of anyone's index. Generalizing, you can charge for a service if there's a very high expectation for privacy. I pay for Paytrust, an online bill management service, for the same reason. (However, I wouldn't recommend them because it seems like owner Intuit is letting them languish and service is deteriorating).

Although it seems counterintuitive, some directories are worth paying to get into even if you're not selling anything. In the old world, you have to pay to stay OUT of 411 and the white pages because your landline provider is making money by selling your access information. I'd pay to be in a directory if I can have control over who has access to my information. The SIP directory maintained by FreeWorldDialup (in which I'm an investor) requires paid registration for maintaining a listing after a 30 day grace period. This was a tough transition for FWD which was launched in the days when everything was free and only eyeballs mattered.

Some services can charge simply because they're demonstrably better than their free competitors. TypePad, on which this blog is hosted, is an example; it charges a minimum of $4.95/month to host a blog. Competitor blogger, owner by Google, is free. But TypePad hosted blogs look more professional (IMHO) so bloggers pay to be hosted here – those to whom it's worth paying for the difference. Six Apart, the company which owns TypePad, has apparently decided it's better to have fewer blogs and get paid for all of them. That's probably why they're still in business and still independent.

FeedBlitz (in which I'm also an investor) used to offer a free service (as well as a paid upgrade) for sending blog posts or other RSS feeds to email, IM, and twitter. As of the beginning of this year, the minimum monthly fee charged to new publishers using the service is $1.49 after an initial free month. The service is still free to those who subscribe to publications. Founder Phil Hollows explains the change:

"FeedBlitz has grown from serving zero to nearly 7 million active subscriptions. From zero to nearly 73,000 publishers. From zero to over 216,000 lists. FeedBlitz has grown into the leading independent automated email marketing service, routinely and reliably delivering over 60 million automated messages a month directly to subscriber inboxes…

"FeedBlitz needs, then, to keep up and ahead - indeed, you expect us to keep up and ahead - as we scale up to handle hundreds of thousands of publishers, to continue to add features and capabilities, and to be there for you in the future. To fulfill your expectations, FeedBlitz needs to generate commensurate revenues to fund both current services and future plans.

"The FeedBlitz business model has ensured our survival and funded our growth so far. Still, to build for the future, starting on January 1st, 2009, we're updating it.."

FeedBlitz competitors have sprung up from time to time. They usually fold. There is a free much less rich service available from FeedBurner, now owned by Google (and currently somewhat neglected by them). FeedBlitz' future, much like that of TypePad, is to serve those publishers who need a service worth paying for. The publisher count'll grow slower than it did when FeedBlitz was free; but new volumes'll bring new revenue. Important to its publisher-customers, FeedBlitz isn't at the mercy of a new round of funding to keep adding both capabilities and capacity.

So can you charge for your new Internet service? Well, it has to be a service demonstrably worth paying for. And you still can't create a twitter-like hit based on a paid model. If you have a free competitor, than you have to be much, much better and you have to explain why you're better. Services sold to support other services and content – as TypePad and FeedBlitz are – have an easier time selling a paid model; but services sold to individuals can succeed on a paid model as well.

Mortgage Cramdown Key to Banking Crisis Unwinding

Democrats want Federal bankruptcy judges to have the authority to reduce the balances outstanding and/or rates on residential first mortgages in the same way that these judges can already reduce outstanding payments and balances on almost all other forms of debt; Republicans are opposing the legislation required to make this change. In my humble (and usually Republican) opinion, the Democrats are right and actually aren't going far enough. This strange treatment of these mortgages, first legislated in 1979 as one of many often misguided attempts to making housing more affordable even for those who couldn't afford a house, is a key cause of the logjam which is preventing the home mortgage toxic security mess from working itself out.

Banks already can negotiate reduction in principal with home owners and sometime do. Chances of repayment go up when the equity isn't underwater. An owner can make a rational decision to sell if he or she doesn't owe more on the mortgage than the house'll bring on the market. But financial experts say that many current mortgages can't be renegotiated because the creditors are split into mind-bewildering tranches of differently securitized investors who have no way or desire to reach agreement. Bankruptcy can cut this Gordian knot and let the mortgages be "marked to market" not only on the books of the banks but also on the books of the homeowners.

It may be that some banks are reluctant to mark mortgages to market because they haven't yet reflected the full loss of value of the underlying assets on their books. If this is the case, the sooner the true value is known, the sooner we know, for better or worse, which banks need to be liquidated.

As with other debts, the debtors and creditors are more likely to reach agreement if they know that a judge will eventually resolve any disagreements in a way neither of them may like. Many more voluntary agreements between mortgagors and mortgagees will be reached if the bankruptcy court is a known option – this is how almost all other situations where a debtor can't pay are resolved. With bankruptcy as a possibility, I'll bet the same Wall Street rocket scientists who figured out the maze of securitizations will get to work and figure a path out of the maze for many of their clients.

The Wall Street Journal, which was very right about the dangerous doings of Fannie Mae and Freddie Mac, is adamantly AGAINST the proposed amendment to the bankruptcy law. Below from an op-ed by George Mason University law professor Todd J. Zywicki:

"Mortgage modification would indeed provide a windfall for some troubled homeowners -- but its costs will be borne by aspiring future homeowners…

"In the first place, mortgage costs will rise. If bankruptcy judges can rewrite mortgage loans after they are made, it will increase the risk of mortgage lending at the time they are made. Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and point…"

Let's dispense with the rhetoric first. Bankruptcy always results in a "windfall" to a distressed debtor. When credit card and car loans are written down in bankruptcy, when the principal of a second home loan is written down, all of these writedowns result in "windfalls". More accurately, the pain is distributed between the creditor and the debtors. The idea is that this court-enforced sharing of pain results in better recovery for everyone overall than simple collapse. One reason the court has to get involved is to enforce requirements for future payments, make the appropriate garnishments, etc. Another reason is that it's often impossible to get 100% agreement from creditors so the final Solomonic decision on pain-sharing needs to be made by a judge.

We have commercial bankruptcies all the time (which the WSJ doesn't rail against) . Here's a description from the NY Times of the bankruptcy of Charter Communications: "Charter, one of the nation's largest cable television operations, said on Thursday that it would file for bankruptcy by April 1 as part of an effort to handle $21 billion in debt. Under the plan it has worked out with some of its creditors, Charter will be able to shave about $8 billion from that amount." $8 billion is quite a "windfall"; note that only "some" of the creditors agree. The purpose of bankruptcy in this case is to reach a settlement which determines the status of all debt and all creditors.

The second assertion in Zywicki's op-ed is that the cost of mortgage credit will go up in the future if banks have to take the risk that a bankruptcy judge will reduce the mortgage at some time in the future. Even if that's true, all that it means is that mortgages rates will fairly price in the ability of the debtor to repay just as other loans do already. That's good and not bad. If it forces the banks to think more about the credit-worthiness of the applicant and not just rely on the value of real estate (which we now know can down as well as up), that's a good thing. This mess was partly caused by giving loans to people who shouldn't have gotten them, remember.

Many of the proposals for making first mortgages on residences subject to bankruptcy deliberately only do this for EXISTING mortgages. This is a misguided attempt to make future mortgages cheaper by eliminating the threat of bankruptcy. We got into the mortgage part of the current mess by deliberately mispricing mortgages compared to other debt. It would be really dumb to sow the same seeds and not expect the same disastrous crop. There shouldn't be an exemption for mortgages or any other kind of private debt in the bankruptcy law.

Buy Local, Sell Global

It doesn't scale. We can't all buy locally and sell globally. The less politically correct sounding version is "beggar thy neighbor".

Last week when we were vacationing in very friendly Apalachicola, I was mildly offended by a banner one block off the tourist street advising everyone to buy local. "What, no Vermont maple syrup? No ski vacations?"

This Thursday the front page of the "what's happening"" supplement of the usually excellent Stowe Reporter , the section tourists presumably read to see what to do with the rest of their money when the ski day is over, is all about taking a "Stay-CATION" – that's a vacation taken from the convenience of your own home. I doubt if people'll just pack up and go home because the skiing's still pretty good. But Stowe'd be in a pretty pickle if all our visitors had decided to take stay-cations instead.

In Vermont neither our university nor our state colleges would be economically or educationally viable if they took only in-state students. We would be a very insular place if all our own kids were educated here in the State (and stayed). But there's constant pressure to limit State financial assistance to Vermonters who attend college in Vermont.

On a larger scale, undeterred by the example of the Smoot-Hawley tariff (a Republican idea) which some economists believe greatly deepened the great depression, pandering legislators are trying to sneak protectionists measures into almost every piece of bailout legislation.

Labor leaders are pushing to restrict immigrant visas. "We don't have enough jobs for our own people." If an immigrant does a job, she spends most of the money she earns here. If a job is outsourced, the money is really gone. Someone in India suggested, only partly tongue in cheek, that the US should expand the number of visas for foreign workers because the Indians who come here to work will buy houses and stabilize the housing market. They may also know how to spend without massive consumer credit.

But, people argue, if US taxpayer money is going to a company, should it then be used to pay foreign workers? Good question. The answer is in the premise of the question, however. US taxpayer money shouldn't be going to corporations as aid unless it's meant to help in the orderly dismembering of a corporation that's too big to fail on its own.

We are spending fortunes in US taxpayer dollars to bail out US corporations. Other countries are doing the same for their corporations. The bailouts preserve capacity but don't increase demand. To a large extent the bailouts by different countries to their own industries cancel each other out leaving taxpayers poorer and erasing current or future demand. Failure to recognize that the economy is global was catastrophic in 1930. It would be really dumb to double down on that mistake.

"Buy Local, Sell Global" makes no sense at all. In the context of a recession which could easily be deepened by a panic, it's a dangerous idea.

Save The Economy – Legalize Drugs

Torrents of cash gush destructively through the underground economy. Liquidity is never a problem there, just violence. Piles of money are diverted from the real economy to fight the failed war on drugs. Our neighbors to the south are getting tired of paying a bloody price for our drug efforts. Our efforts in Afghanistan are undermined by the money in opium.

It's time that we end prohibition and legalize drug sales to adults. We can and should have draconian penalties for selling drugs to children but it's easier to protect minors against a legal substance than an illegal one since the legal distribution chain is out in the open and has something to lose if caught acting illegally.

It's hard to quantify the economic stimulus that would come from surfacing the drug trade; at the very least it would be a major new source of tax revenue to struggling states and greatly reduce the cost of keeping drug users – including those who commit other crimes to feed their expensive habits - and small time dealers in jail. Huge amounts of police manpower go to attempting to solve drug related crimes.

A story in today's Wall Street Journal by Jose De Cordoba reports that a commission led by three conservative Latin American former presidents - Fernando Henrique Cardoso of Brazil, Ernesto Zedillo of Mexico, and César Gaviria of Colombia "blasted the U.S.-led drug war as a failure that is pushing Latin American societies to the breaking point."

"The report warned that the U.S.-style antidrug strategy was putting the region's fragile democratic institutions at risk and corrupting "judicial systems, governments, the political system and especially the police forces.""

It's surprising that Latin American societies have put up with the cost to them of our war on drugs for as long as they have.

So legalizing drugs is a stimulus package (pun intended) that comes at a negative cost to the taxpayer, punishes the bad guys by ruining their business, creates new business opportunities for good guys and lets us treat drug problems as we do alcohol and other addictions. The only problem is that it's political dynamite and will cause a huge anti-Obama surge from the right (but not from real conservatives like me).

Probably more change than it's realistic to believe in but much better economic policy than bailing out banks or shoveling pork. And good social and foreign policy as well.