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Why Republicans (Finally) Opposed SOPA and PIPA

Originally House bill SOPA (Stop Online Piracy Act) and Senate bill PIPA (Protect IP Act) were bipartisan bad policy. The Senate version was reported unanimously from The Judiciary Committee and was supported not only by Chairman Patrick Leahy (D-VT) but also by the Senior Republican on the committee, Orrin Hatch (R-UT), These bills, written largely by Hollywood lobbyists, would have done great harm to Internet-enhanced freedom both in the United States and around the world. They were a massive over-reaction to the real (although not well quantified) problems of content piracy and counterfeit goods on the Internet. Oh yeah, they also helped protect Hollywood from "new media", legitimate or otherwise.

Internet denizens used the net and social media to fight back…and companies like Google and Facebook lobbied in more traditional ways as well. Wikipedia went dark for a day in protest exciting a rebuke from former Sen. Chris Dodd – yeah, the guy who received special treatment from the mortgage companies he defended in Congress, who is now the CEO of the Motion Picture Association of America:

"It is an irresponsible response and a disservice to people who rely on them for information and use their services.

"It is also an abuse of power given the freedoms these companies enjoy in the marketplace today, It's a dangerous and troubling development when the platforms that serve as gateways to information intentionally skew the facts to incite their users in order to further their corporate interests."

Wikipedia, of course, is a free service; it's supported by donations. But Dodd thinks it is inappropriate for it to withhold service for a day to make a point. Of course, we all know what happens if a content provider can't reach agreement with a cable service - blackout. But that's OK; it's just about the money. But I digress.

By and large the first politicians to desert SOPA and PIPA were Republicans. This surprised many of my more liberal friends since, at heart, this is a civil liberties issue and they think of Democrats as being more committed to civil liberties. Here's Dan Gillmor:

"Two more Republican senators have withdrawn support for Internet censorship today, adding to a growing unease in Congress over what lawmakers had been poised to do with SOPA/PIPA. But the Democrats, for the most part, are still firmly in support of this pernicious legislation.

"For example, both California senators, Dianne Feinstein and Barbara Boxer, are co-sponsors of PIPA. They've taken Hollywood's side against Silicon Valley and the great majority of their constituents -- choosing to help an industry that holds back progress over one that creates it…

"I lived in Vermont for many years, and was a huge fan of Patrick Leahy, the longtime Democratic senior senator from the Green Mountain State. His ardent desire to pass PIPA is a sad reminder of how a man who once believed in civil liberties -- freedom of speech in this case -- has become a bought-and-paid-for hack on some issues, such as this one.

"Yes, many powerful GOP members -- especially Texas Rep. Lamar Smith, chief sponsor and author of SOPA -- remain firmly on the copyright cartel's side. But it won't be long, if current trends, before we'll have to call the Republicans the party of progress on this issue."

Now I do hope Republicans can become known as "the party of progress" on many issues, but I'm afraid I know the true reasons why Republicans quickly switched sides on this debate. It wasn't even the campaign contributions.

It was the content.

In domestic movies, Republican types are often the villains - evil bankers, car company executives, nuclear power plant operators, defilers of the environment. Oh, they don't always wear GOP pins, but we know who they are.

On the other hand, how many movies have you seen about evil environmental activists, labor leaders (since On The Waterfront), alternative energy developers, or community activists. These are always the good guys. And obviously Democrats.

When push came to shove, the Democrats stuck with the people who have portrayed them so nicely… and the Republicans got their revenge.

Don't worry, though; there's sure to be a sequel.

Related posts:

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

Reader Comments on SOPA and PIPA Internet Blocking Bills

The Energy State of the Union Annotated

President Obama recognized the importance of natural gas and the new, disruptive technologies which have made at least 100 years of this fuel available to us; that's the good news from the State of the Union Address. The bad news is that the President appears to have learned a lot of wrong lessons about the proper role of government in innovation and appears poised to take a lot of wrong-headed actions. Here's that section of the speech as reported in The New York Times with annotations by them (NYT) and by me (TE).

POTUS: And nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we've opened millions of new acres for oil and gas exploration, and tonight, I'm directing my administration to open more than 75 percent of our potential offshore oil and gas resources. (Applause.)

NYT: An administration official declined to explain exactly what this potentially huge expansion of offshore activity meant, except to say that the Interior Department would be announcing new lease sales in the coming weeks. Those sales will not include areas the administration has already ruled off-limits, including most areas off Florida and along the Atlantic Coast, the official said, so it is not clear how the president reaches his target.

— John M. Broder, reporter

POTUS: Right now -- right now -- American oil production is the highest that it's been in eight years. That's right -- eight years. Not only that -- last year, we relied less on foreign oil than in any of the past 16 years. (Applause.)

TE: That is good news but obviously most of the increase in domestic production comes from actions taken before the present administration was in charge. Also a recession-related decrease in demand cut into imports. But still good news.

POTUS: But with only 2 percent of the world's oil reserves, oil isn't enough. This country needs an all-out, all-of-the-above strategy that develops every available source of American energy. (Applause.)

A strategy that's cleaner, cheaper, and full of new jobs. We have a supply of natural gas that can last America nearly 100 years. (Applause.)

And my administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I'm requiring all companies that drill for gas on public lands to disclose the chemicals they use. (Applause.)

TE: Amazing how he managed not to say the f-word, fracking or even the proper names for the innovations which are unlocking vast stores of both oil and natural gas, hydraulic fracturing and horizontal drilling. He did make a nod to opponents of hydraulic fracturing with the line about disclosure of the content of the fluids used in the process when drilling is done on public lands, actually good policy from my POV.

POTUS: Because America will develop this resource without putting the health and safety of our citizens at risk. The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don't have to choose between our environment and our economy. (Applause.)

TE: Applause! (Interestingly Boehner was applauding during this section the speech but Biden wasn't.)

POTUS: And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock –- reminding us that government support is critical in helping businesses get new energy ideas off the ground. (Applause.)

TE: Ahem. In 1865 Col. Edward A. L. Roberts received the first of his many patents for an exploding torpedo; it was used not for war but increasing production from hydrocarbon formations. He died a wealthy man. The co-inventors of modern fracking combined with horizontal drilling were Joseph Clark and Riley Farris. By vastly increasing the supply of natural gas, they have arguably done more for energy independence, energy abundance, and lower carbon emissions than all the well-intended grant-funded green efforts in the last twenty years. That being said, surely some aspects of government and university basic research must have helped: perhaps studies of geology, sound wave propagation, GPS technology, and many other things. The President is right that government has a role in funding basic research.

POTUS: Now, what's true for natural gas is just as true for clean energy. In three years, our partnership with the private sector has already positioned America to be the world's leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled, and thousands of Americans have jobs because of it.

TE: Whoops. Wrong conclusion. There were no government incentives for fracking as opposed to other means of gas production, no special tax credits for this technology, no mandates that we use fracked natural gas rather than alternatives, no tariffs to prevent us from buying foreign natural gas when it was cheaper, no DOE-led grant programs tucked into the stimulus bill for hydraulic drilling. The wealth of natural gas didn't come about because of "federal investments"; it is a result of plain old-fashioned marketplace economics. Growth in "renewable use", on the other hand, is only because of government programs, just as the President says; that's why much of it unsustainable and, as the President points out later in his speech, why the "green jobs" created will die back without further subsidies while the direct jobs in drilling for natural gas and building pipelines are here for a long time to come and the indirect jobs in American manufacturing enabled by cheap domestic energy are "sustainable" – as long as the savings are not eaten up by subsidies for energy sources which aren't ready for prime time.

POTUS: When Bryan Ritterby was laid off from his job making furniture, he said he worried that at 55, no one would give him a second chance. But he found work at Energetx, a wind turbine manufacturer in Michigan. Before the recession, the factory only made luxury yachts. Today, it's hiring workers like Bryan, who said, "I'm proud to be working in the industry of the future."

Our experience with shale gas, our experience with natural gas, shows us that the payoffs on these public investments don't always come right away. Some technologies don't pan out; some companies fail. But I will not walk away from the promise of clean energy. I will not walk away from workers like Bryan. (Applause.)

TE: Unfortunately Mr. Ritterby's new job may not last past the expiration of tax credits for wind turbines at the end of this year. Our experience with shale gas (fracked natural gas) shows us that effective technologies can be developed by the private sector with no help from the government other than possible funding of basic research. The example of a government program the President should examine is corny ethanol: that set of incentives, mandates, and protective tariffs has led to less fuel efficiency, higher prices not only for fuel but for food as well, and probably environmental damage. The private sector goes down many blind allies as well; but it can't double down and insist that we use more expensive products – at least not unless it can hire lobbyists to convince congresspeople that such laws are needed. Anyway, it was ethanol the government was "investing" in while the natural gas answer to environmental and economic problems was developed outside the Washington Beltway.

POTUS: I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We've subsidized oil companies for a century. That's long enough. (Applause.)

It's time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs. (Applause.)

TE: By all means take the" taxpayer giveaways" away from oil (and gas and nuclear and coal) companies. But giving them to new politically-connected industries is exactly the wrong thing to do. Yes, the government should support research into many energy sources including renewable ones. Once these sources become competitively viable – and some of them will, the winning technologies will be good for America and good for the world and its environment – just as natural gas is. Government doubles down when it makes a mistake (see ethanol above); private investors move on to the next new avenue until they find something that works. That's the lesson I wish the President had learned from our recent energy past.

Nevertheless, the President is absolutely right that the abundance of American natural gas is a very, very good thing.

Full disclosure: I have invested in line with my beliefs and will benefit as an investor if inexpensive, clean natural gas displaces oil.

Related posts:

Natural Gas Disrupts the Energy Industry

The Pickens Plan Bill: The Wrong Way to Get the Right Result

Ending Tax Giveaways Isn't Raising Taxes

We Can End Energy Subsidies

Good News for the New Year

 

 

    

Could Romney Give Us Tax Reform Without Even Getting Nominated?

The President's own National Commission on Fiscal Responsibility and Reform recommended a much flatter tax structure and elimination of most tax deductions and credits in their draft report. The President – and almost everyone else – ignored their recommendation. Ex-candidate Herman Cain made a 9-9-9 flat tax almost famous before he sunk from view. Ron Paul advocates a very flat income tax – zero . The other Republican candidates have advocated flatter taxes without much fervor. But Mitt Romney's incredible political miscalculation in attempting to withhold the fact that he pays only 15% of his income in taxes may have actually given us a leg up on tax reform.

The fact is that we do have a somewhat progressive federal income tax. The 40% of families with the lowest incomes don't pay any income tax at all as a group. The rich AS A WHOLE pay a higher rate than the rest of us. But the statistics obscure huge individual variances in taxes paid because of a tax system riddled with loopholes and special exceptions – like the so-called carried interest deduction and concessionary rate for capital gains, which probably are the reasons why Romney paid such a low rate (see a great post by my friend Fred Wilson who benefits from these concessions but argues they should be eliminated).

These exceptions are not only unfair – they also corrupt government. Politicians get campaign contributions (at least) from those who benefit from the loopholes. Working to add loopholes or defending the ones that are already there attracts lobbyists with full purses like… chose your simile. Individual loopholes don't attract much opposition since the pain of giving a few people a break is spread over the rest of us taxpayers.

Often loopholes are justified as tipping the economic scales in favor of some perceived common good. Unless you're a renter or take the standard deduction, you probably like the deduction for your home mortgage – realtors certainly do. But how do you feel about the tax credit for corny ethanol production, which was just allowed to expire this year? It managed to simultaneously drive up the price of energy and food, while probably doing some environmental damage along the way. Besides leading to bad government by providing congresspeople with a bottomless pit of favors to give out or protect in return for campaign support, loopholes are bad economic policy.

Here are some numbers from the Congressional Budget Office for 2007 (latest available, unfortunately, since some of this must have changed in the recession):

 

quintiles

     
 

1st

2d

3d

4th

5th

all

 

top 10%

top 1%

Individual Income

(6.8)

(0.4)

3.3

6.2

14.4

9.3

 

16.2

19.0

Social Insurance

8.8

9.5

9.4

9.5

5.7

7.4

 

4.5

1.6

Excise

1.6

1.0

0.8

0.7

0.4

0.6

 

0.3

0.1

                   

total

3.6

10.1

13.5

16.4

20.5

17.3

 

21.0

20.7

Almost all income including interest on tax free bonds for the well-to-do and cash benefits for the not-well-to-do is counted. Note that, on the average, families in the lower two quintiles (low income 40% ) actually paid negative income tax – as groups they received more in earned income, child care, and other tax credits than they paid in income tax. However, people in these two quintiles DID pay a healthy share of their small incomes for social insurance including social security and Medicare (the table properly attributes the payments made by employers to the employees). The wealthy paid a somewhat higher share of their income in income tax; the top 20% paid more than twice the rate of INCOME tax that the 20% immediately below them paid; the top 1% pay 19%, more than the top 10% as a whole who pay only 16.2% (had enough percentages yet?). For those concerned with tax equality (not what this post is about), the top 1% had 19.4% of all pretax income in 2007, just as the occupiers suspect, but, on the other hand, paid 39.5% of all individual income tax.

Takeaway, statistically, we have a somewhat progressive tax system. But loopholes make it unfair.

Let's assume, for this post, that the current actual progressivity is fair. We should then collect these rates from various income groups with a straightforward tax on all income WITHOUT LOOPHOLES. The nominal tax rates would be lower, of course, but the money collected from each group would be the same.

The benefits to the country of a tax system without loopholes would be huge.

  1. Fairness, fair, fairness. People with the same incomes would pay the same taxes.
  2. Actual visibility into how much people are paying according to level of income.
  3. A huge decrease in the cost of complexity – (not great for some accountants and lawyers).
  4. A huge increase in efficiency when investments are made because of anticipated profit rather than anticipated tax benefit.
  5. Eliminating the opportunity for congresspeople to sell tax breaks in return for contributions.
  6. Lower rates make the special treatments unnecessary. If the top rate is 20%, it's hard to argue that capital gains or dividends need a special 15% rate. That argument is more compelling (although I still don't believe it) when marginal rates are north of 30%.

Maybe Romney's embarrassment will force him to advocate closing all loopholes for everyone. Maybe Gingrich will demonstrate his economic independence by doing the same. Maybe President Obama will listen to his own advisory commission and introduce a bill for tax simplification. Won't it be a great campaign if candidates are outdoing each other in closing loopholes and lowering the nominal tax rates? Unlike most government programs – certainly unlike tax breaks – tax simplification really will create jobs by making work more rewarding (less taxed because "unearned" income is taxed more than it is now) and making economic decisions more rational.

Related posts:

The Deficit Reduction Draft Proposal is the Stimulus Program We Need!

Good News for the New Year

The End of the Age of Incentives

What is DirecTV Selling?

Ostensibly this is a warning to set our parental controls – grandparental in our case. Looks to my jaundiced eye like a pitch for the pay-per-view porn channels in case we didn't realize "changes have been made."

Borrow a Book with Your Kindle

If you're an Amazon Prime member and if you own a Kindle, you can borrow books "free" – one book per month, anyway. You do this through the Kindle Owners' Lending Library. You can go to the Library from your Kindle Fire directly from the Fire bookstore; if you have an older Kindle, you go to the Kindle Store and click on "See all categories…"If you're on your computer and you find a book on the Amazon website, it'll tell you whether or not it can be borrowed from the library.

It's up to authors whether or not to make their books available for borrowing. Only book with US rights (currently) and whose eBook editions are exclusively available on Kindle are eligible. So why would you want to do this if you're an author? I bet you weren't even going to ask.

But here are the reasons:

  1. Authors like to be read.
  2. Authors actually get paid when their books are borrowed even though the customers aren't paying (except by buying a Kindle and signing up for Prime).

Amazon has an ingenious system for paying authors. Each month they put $500,000 into a pool (this month they've added $200,000 more). The pool is divided between authors in proportion to the number of times each author's titles are downloaded from Amazon. So authors have an incentive not only to make their books available to the library but also to promote the fact that their books can be borrowed there.

And guess what. Two books by me are available in the Kindle Owners' Lending Library. One is hackoff.com: an historic murder mystery set in the Internet bubble and rubble, a real murder mystery featuring an entrepreneur, a hacker, VCs, bankers and diverse other suspicious characters and informed by my stint as a CEO of a company which went public during the bubble – all fiction, of course. The other is my very much shorter The Interpreter's Tale set in Barcelona, wandering in and out of Gaudi architecture, and peopled with pickpockets, terrorists, separatists, and, of course, a hacker. This story used to be an Amazon Short before that category became part of Kindle.

Related posts:

The Interpreter's Tale

New Excerpt from The Interpreter's Tale

hackoff.com is a Finalist for the Lulu Blooker Award (didn't win, though)

The World Economic Forum at Davos Continued (contains an extract set in Davos, of course)

 


 

Decline in Banking and Government Sectors Good for the Economy

We need government and we need banks; but we don't need government to be as big as it's grown and we don't need banks which are too big to fail. When sectors like government or banking grow out of proportion to the benefits they bring, the economy as a whole suffers from a misallocation of resources.

So headlines like these from The Wall Street Journal this morning are good news:

BofA Ponders Retreat

Bank of America has told U.S. regulators that it is willing to retreat from some parts of the country if its financial problems deepen.

Banks Overhaul for Leaner Era

The investment-banking industry, notoriously prone to cyclical hiring and firing during booms and busts, is in the midst of a retrenchment that may be more far-reaching.

RBS Bids to Shrink to Glory

The needed contraction in the financial industry would have happened sooner if there hadn't been the bipartisan bailout known as TARP; it would also have been more abrupt. IMHO the economy would've recovered quicker if we hadn't cushioned the way down for investment bankers; others argue that that an abrupt banking contraction would have tanked the economy worse. We'll never know who is right.

The fight now is to make sure that banks don't get further bailouts and that too-big-to-fail banks get smaller. The prognosis is not great. The European Central Bank is continuing to print money to "lend" to its member banks at concessionary rates (1%) in hopes that these banks will turn around and lend some of it to their feckless governments, thereby keeping the governments afloat and earning high profits for the banks so that they can repair their damaged balanced sheets. Note that this is a scheme which protects employment in BOTH the banking and the government sectors.

Here in the US the government sector shrinks slowly from one employment report to the next. Meanwhile the private sector creates more jobs than are lost in government although not enough to bring the unemployment rate down as fast as we'd all like to see. Particularly good news is that manufacturing employment here is growing.

Government employment also would have contracted much more abruptly without the local government bailout contained in the Stimulus Bill. One can make a better argument, again IMHO, for cushioning the downsizing of government during a time when the need for government services increased than for bailing out banks. But the states and local governments by and large didn't take advantage of the reprieve to make the structural changes that were needed or even to get control over the cost of public sector retirement benefits.

Those who benefit from megagovernment – including those in the private sector serving government or exploiting grants, preferences and mandates – will fight to regrow government. As tax revenues recover along with the economy, the temptation to let government grow again will grow. That'd be a mistake. Just like bailing out banks.

Related posts:

Jon Hunstman: Wall Street's Big Banks Are the Real Threat to Our Economy

The Inconvenient Recovery

Another Day, Another Bank Bailout

Confessions of a Stimulator

 

Reader Comments on SOPA and PIPA Internet Blocking Bills

If either House bill SOPA (Stop Online Piracy Act) or Senate bill PIPA (Protect IP Act) or something in between passes both houses of Congress and is signed by the President, Internet censorship, unreachable websites, and forbidden searches will be the law of this land – just as in China. I blogged last week about the dangers these bills pose in return for helping Hollywood assure that none of its content is pirated. Readers have weighed in with some more data, questions, and amplifications. In addition, there is more useful information from twitter which I'll pass on below.

Vermont Tiger reader Will Workman commented:

"Okay, so I'll protest this law as soon as someone shows me a better way to protect intellectual property on the internet. By some estimates, 15% of all internet commerce involves stolen IP, either media available online, or offers to sell knockoff goods…

"So I repeat, are you just going to condemn a "Hollywood lobby" or are you going to propose a better way to stop the rampant IP theft on the internet?"

As he says, piracy is a real problem. Turns out that the "Internet Industry" has presented an alternative to address these real problems of piracy. According to ReadWriteWeb:

"The OPEN act sponsored by Rep. Darrell Issa, R-Calif., and Sen. Ron Wyden, D-Ore., would allow the International Trade Commission to order online ad networks and payment processors to sever ties withe foreign websites that are targeted by patent infringement claims…

""[The OPEN Act's] approach targets foreign rogue sites without inflicting collateral damage on legitimate, law-abiding U.S. Internet companies by bringing well-established international trade remedies to bear on this problem," AOL, eBay, Facebook, Google, LinkedIn, Mozilla, Twitter, Yahoo and Zynga wrote in a letter to Issa and Wyden in December."

In other words, OPEN seeks to sever the money links to pirate sites and stop otherwise legit sites from profiting by supporting them but does NOT include blocking our access to parts of the web.

Tiger reader Aaron S. Hawley wrote:

"Yes, it is bad policy. Fortunately it died last year with COICA but has been resurrected. What are the dots connecting Leahy to the lobbyists that cause him to peddle this kind of legislation in the first place? Last I checked, Hollywood is in Los Angeles, not Vermont. Does he owe favors for being in the Batman movie?"

Tiger reader Robin of Stowe responded to Aaron:

"According to the F.E.C., our Senator Leahy has been paid over $1,000,000 since 2000 by the entertainment industry. Here is the legislation they paid for.

"BTW, our Senior Senator was not in any way mis-led. He went in with eyes wide open, knowing the job he had to do. His record of Hollywood protecting legislation goes back over several sessions of Congress."

I emailed Robin and asked for a source for this allegation. Robin gave me a link to a page on Leahy on opensecrets.org. It says that his top two contributors since 1989 have been Time Warner and Walt Disney Company and that his top three contributor categories are Lawyers/Law Firms, TV/Movies/Music, and Lobbyists. There is a disclaimer which is important: "The organizations themselves did not donate, rather the money came from the organizations' PACs, their individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates." The top metro areas in contributions to the Senator are Washington, DC and Los Angeles-Long Beach (which includes Hollywood).

To be fair, it does make sense for organizations to contribute to congresspeople who agree with and support their positions. These are the people they want to see re-elected.

A tweet pointed me to sopaopra.org. This is a cool site which lets you sort SOPA and PIPA opponents and proponents by how much they have received from the Movie/Music/TV industry, the Computers/Net industry, or the difference between the two amounts. Not surprisingly there is a high correlation between positions and contributions. Senator Bernie Sanders (I-VT) and Rep. Peter Welch (D-VT) are not listed as either opponents or proponents so contacting them may be a very good idea for Vermonters. Non-Vermonters can reach their congresspeople through http://www.usa.gov/Contact/Elected.shtml.

You can also sign a petition at whitehouse.org asking the President to veto these bills or anything like them if they ever reach his desk. You have to sign up with whitehouse.org to do this, but you can ask that President Obama not send you any messages.

Related post:

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

Jon Hunstman: Wall Street’s Big Banks Are the Real Threat to Our Economy

Coddling big banks has been a bipartisan effort. TARP passed in the Bush administration, and President Obama appointed TARP architect Tim Geithner as his Treasury Secretary and reappointed Fed Chairman Ben "bailout" Bernanke. Mitt Romney's background is in the financial industry and he thinks the bailout was necessary; look for more bank bailing should he become President.

Jon Huntsman has taken a strong and intelligent stance against bank bailouts and proposed a concrete plan for eliminating too-big-to-fail banks and allowing community banks to flourish – they can be allowed to fold if they fail. If he can manage a third place or better showing in New Hampshire Tuesday, Americans may have a strong and experienced alternative on the ballot in November.

This is Huntsman's statement on too-big-to-fail banks:

Rebuilding our economy and restoring trust in our government will require a leader with the independence to implement bold reforms that take on the establishment, from Washington to Wall Street.

Thus far, however, we are the only campaign willing to confront honestly and directly one of the greatest threats to our long-term economic prosperity: Too-Big-To-Fail Wall Street banks.

In 2008, with the nation's economy in crisis, Washington and Wall Street offered American taxpayers a Sophie's Choice: spend hundreds of billions of dollars to save big banks from failure, or witness the collapse of our financial system and irreparable economic harm.

This was not only a betrayal of the public's trust; it was also a betrayal of our free market system, which only works when every business plays by the same rules.

Taxpayers were promised those bailouts would be a one-time, emergency measure. Yet today, we can already see the outlines of the next financial crisis and bailouts.

The six largest financial institutions are significantly bigger than they were in 2008, having been encouraged to snap up Bear Stearns and other competitors at bargain prices.

These banks now have assets worth over 66% of gross domestic product – at least $9.4 trillion – up from 20% of GDP in the 1990s.

Dodd-Frank, which purportedly designed to fix Too-Big-To-Fail, has only made things worse. Not only has it left us with larger banks, but it imposes massive new regulations and unreasonable compliance costs on smaller banks, which hurts small business lending.

President Obama has offered no real solutions other than to demonize capitalism, which may score political points but does nothing to solve the problem.

My opponents have also failed to take on Wall Street with substantive reforms. This includes – unsurprisingly – the establishment's preferred front-runner, Mitt Romney.

Governor Romney, who has accepted more Wall Street money than any other candidate, has offered no concrete solutions to protect taxpayers in the event of a future financial crisis.

The Obama and Romney plan simply appears to be to cross our fingers and hope no Too-Big-To-Fail banks fail on their watch – a stunning lack of leadership on such a critical economic issue.

As president, I will break up the big banks, end future taxpayer bailouts, and restore capitalist principles – competition and creative destruction – to our financial sector.

We will accomplish this by imposing a fee on banks whose size exceeds a certain percentage of GDP, proving them an incentive to slim down and localize.

Many of us can recall an earlier time when we had community banks that were actually a part of the community, instead of a faceless Wall Street entity. They sponsored our kids' baseball teams. You knew the president on a first name basis. Your small business or farm's credit was based as much on your reputation and character as your FICO score.

We need banks that are closer to our communities that, if mismanaged, are small and simple enough to fail – not financial public utilities.

The federal government cannot afford to wait until the next financial crisis is upon us to act, which will be too late and cost taxpayers too much.

Whether it is ending Too-Big-To-Fail, reforming the corrupted culture of Congress, or eliminating special interest preferences in our tax code, we need a president who is not indebted to the power brokers in Washington or on Wall Street.

We need a president who will take on the establishment from the outside, and deliver the bold reforms our country desperately needs. That is what I will continue to offer the American people.

Related posts:

Another Day, Another Bank Bailout

"Too Big to Fail" Assures Bigness – and Failure

Preparing for the Next Banking Crisis

When Regulation Is Justified

The Occupiers and Tea Partiers Are Both Right

 

Huh?

Posted a comment on CNN.com. See hilited contradiction below.

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

In China you can't get to some Internet sites: no Facebook, no YouTube, no Twitter. Search engines can't find the "Falun Gong" or "Tiananmen Square massacre". We would never do that kind of blocking here in the US, you say. Well, not so fast. If either House bill SOPA (Stop Online Piracy Act) or Senate bill PIPA (Protect IP Act) or something in between passes both houses of Congress and is signed by the President, Internet censorship, unreachable websites, and forbidden searches will be the law of this land.

The Arab Spring has been enabled by the inability of some governments to block Internet communication. SOPA and SIPA both require that Internet blocking tools be developed and deployed here. Maybe we trust our own government not to misuse these (I don't!); but do we really want to be responsible for the proliferation of censorship and blocked communication?

Why, you ask, would our Congresspeople want to impose censorship anywhere? Why would they want to slow down the most vigorous parts of the US economy?

The answer, at least, is simple. These are bills that Hollywood wants to protect its movies from online piracy, and Hollywood makes mega-campaign contributions and even gives Congresspeople bit parts in its movies. There is nothing partisan about campaign contributions.

To be fair, online piracy is a problem as are websites which sell counterfeit goods – especially counterfeit drugs. Owners of intellectual property including movies, books, songs, and trademarks are entitled to protection under the law. US Internet sites should not intentionally aid or abet domestic or foreign sites which are breaking the law. In fact we already do have laws on the books to protect intellectual property and prevent fraud.

Under the existing Digital Millennium Copyright Act (DMCA), websites like YouTube have an obligation to remove material subject to copyright from their sites – if they are notified by the copyright holder that the material is an infringement. Companies like Google have been punished by fines for KNOWINGLY facilitating the sale of counterfeit products. The key issue is that YouTube is NOT responsible for checking every video that you upload to make sure you have not violated someone's copyright. If there were such an obligation – similar to requiring the Post Office to open every piece of mail to check for fraud or contraband, there would clearly be no services like YouTube. Similarly your Internet Service Provider (ISP) is not liable if you use your connection to download pirated stuff. If the ISP has to be a censor, then the ISP would have to examine everything you do (read your email, for example).

SOPA and PIPA are nominally aimed at foreign sites since US sites which break the law can (properly) already be shut down. However, foreign sites are beyond the reach of US law; so, the SOPA and PIPA logic goes, we must block access to these sites from the US. Blocking sites means that US search engines can't point to them (just like China); US domain name servers (DNS), which convert links like www.thisandthat.com to IP addresses reachable on the Internet, must "forget" how to convert the forbidden links; and our ISPs can be required to block our access to forbidden websites – meaning, of course, that our ISPs must examine which websites we do access and will probably have to keep a log to prove they blocked us when they should. Social media sites will have to examine all user-submitted content to assure that it does not contain forbidden links.

Under SOPA and PIPA you won't be able to access the same Internet that you see in countries which value Internet freedom; we'll be more like China and less like what we used to be. Here in the US we operate Internet proxy servers, which are used by many Chinese to evade their government's censorship of the Internet. These proxy servers might well be illegal under SOPA and PIPA because they would also provide a way to reach websites which would otherwise be banned in the US.

Google and Facebook will hire a legion of lawyers and survive even SOPA and PIPA, which they oppose; startup social media sites will have a hard time getting funding when they can easily be bankrupt by possibly frivolous lawsuits over postings by their users. There might not be a next Twitter. You may or may not be a user of social media, but you are a beneficiary of the fact that social media innovation creates jobs here in the US where most of that innovation happens – unless we choose to shut it off.

On his website, Senator Patrick Leahy (D-VT), chair of the Senate Judiciary Committee and prime sponsor of PIPA, says:

"The PROTECT IP Act is supported by businesses and organizations across the political spectrum from labor unions to the Chamber of Commerce and the National Association of Manufacturers, from the National Association of Broadcasters to the cable industry.  "

He goes on to point out, correctly, that it was approved unanimously by all the Republicans and Democrats on the Judiciary Committee. The first part of the press release makes the statement that the bill contains:

"..authorization for both the Attorney General and rights holders to bring actions against online infringers operating an internet site or domain where the site is 'dedicated to infringing activities,' but with remedies limited to eliminating the financial viability of the site, not blocking access [nb. emphasis mine]."

However, the description of the bill further down in the same press release makes very clear that this is all about blocking access:

"The court is authorized to issue a cease and desist order against a rogue website.  If the court issues that order, the Attorney General is authorized to serve that order, with permission of the court, on specified U.S. based third-parties, including Internet service providers, payment processors, online advertising network providers, and search engines.  These third parties would then be required to take appropriate action to either prevent access to the Internet site [nb. emphasis again mine] (in the case of an Internet service provider or search engine), or cease doing business with the Internet site (in the case of a payment processor or advertising network)."

Senator Leahy is usually a defender of civil liberties. It seems in this case he may have been misled by his friends in Hollywood about the draconian nature of the protections they are seeking.

According to Wikipedia:

"Opponents of SOPA include Google, Yahoo!, Facebook, Twitter, DynDNS, AOL, LinkedIn, eBay, Mozilla Corporation, the Wikimedia Foundation, and human rights organizations such as Reporters Without Borders, the Electronic Frontier Foundation, the ACLU, and Human Rights Watch

"On December 13, Julian Sanchez of the Libertarian think tank Cato Institute came out in strong opposition to the bill saying that while the amended version "trims or softens a few of the most egregious provisions of the original proposal... the fundamental problem with SOPA has never been these details; it's the core idea. The core idea is still to create an Internet blacklist..."

"Computer scientist Vint Cerf, one of the founders of the Internet and Google vice president, wrote House committee chairman Lamar Smith, saying "Requiring search engines to delete a domain name begins a worldwide arms race of unprecedented 'censorship' of the Web," in a letter published on CNet…

"An editorial in Fortune wrote, "This is just another case of Congress doing the bidding of powerful lobbyists—in this case, Hollywood and the music industry, among others. It would be downright mundane if the legislation weren't so draconian and the rhetoric surrounding it weren't so transparently pandering.""

If this were just a commercial argument between old line entertainment businesses like the movie makers and new media companies like Google and Facebook, the issue would not be nearly as important as it actually is. These bills are the equivalent of banning all guns because some guns are used in felonies; they are the equivalent of allowing the government to exercise "prior restraint" of newspapers because sometimes libel gets published. These bills would move the US in the direction of some of the worst practices of China and give comfort to the world's remaining tyrannies who are trying desperately to cut off free communication. These are bills which must not pass.

If you agree, please email your Congresspeople.

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