John Steele Gordon identifies the guilty parties behind the Fannie Mae-Freddie Mac collapse.

At the heart of the problem is Congress and its deeply corrupt relationship with Fannie Mae and Freddie Mac. Congress was equally at the heart of the savings and loan disaster 20 years ago and, obviously, learned nothing from it. (For a history of what led to the savings and loan collapse, see here.)

Fannie and Freddie, two of the largest publicly traded financial institutions on earth, are headquartered in Washington, D.C., where the next-largest non-governmental financial institution is probably a local credit union. Big financial companies are headquartered in New York and other cities where capitalism is practiced. That should tell you a lot about Freddie and Fannie: they were political to their fingertips.

Being “government sponsored entities,” they were able to borrow at lower interest rates than other profit-seeking companies, had less regulation, had lower capital requirements, and had an “implied” guarantee on their huge debts. This was supposed to translate into more money available for mortgages, but was used instead to roll up big profits and, not so incidentally, big bonuses for their top management — which came not from the financial world but from the political one.

Franklin Raines, Fannie C.E.O. from 1999 to 2004, had been budget director in the Clinton White House. He cooked the books at Fannie to increase his compensation (more than $50 million). Jamie Gorelick, vice C.E.O., was number two at the Clinton Justice Department before going to Fannie Mae. She made $26 million. Jim Johnson, a perennial Washington big-foot, was chairman from 1991 to 1998. He too, according to an official government report, cooked the books to increase his compensation and failed to publicly reveal how much he received.

The Wall Street Journal editorial page has been giving chapter and verse for years on why this was a disaster waiting to happen (Pulitzer Prize judges, please note). The Bush administration tried way back in 2003 to change the system. It got nowhere. Alan Greenspan, then the chairman of the Federal Reserve, frequently noted the danger of Fannie and Freddie’s weak capitalization. He was ignored. Congressman Mike Oxley, then chairman of the House Financial Services Committee, introduced a bill in 2005 to correct the situation. Lobbyists from Fannie and Freddie succeeded in gutting it to the point that Rep. Oxley pulled the bill.

Why were Fannie and Freddie so successful at maintaining the status quo? Check it out.

Senator Chris Dodd — formerly ranking member and now chairman of the Senate Banking Committee, with oversight over Freddie and Fannie — recently said on Bloomberg Television: “I have a lot of questions about where was the administration over the last eight years.”

Excuse me? Just where the hell were you, Senator? Oh, right. You were standing in line at the bank in order to deposit the political contributions Fannie and Freddie were lavishing upon you. At least they got their money’s worth — until the party ended and the American people got the bill.

Members of Congress — aided and abetted by their many waterbearers in the media — wonder why their collective approval rating is about on par with colon cancer’s. The reason is simple enough: Congress is the sick man of Washington; a textbook example of the truism that institutions tend to evolve in ways that benefit their elites, at the expense of the people they were created to serve.

Investors Business Daily observes that, although the left is ready to blame the subprime fiasco on an insufficiency of regulation, as lenders eliminated credit standards, government was right there encouraging their actions.

Commercial banks threw lending standards out the window in their rush to get new business. Like S&Ls of the 1980s, they would have gone wild without Gramm-Leach-Bliley. Washington, if anything, egged them on, but not because of free-market dogma. Banks and mortgage brokers were pumping up the homeownership numbers in America, and politicians were eager to take credit for that.

Wall Street, meanwhile, became a victim of its own innovation. It created new classes of derivative investments that spread — and, through leverage, amplified — the risk from the subprime mortgages produced by the banks. A new multitrillion-dollar market emerged almost overnight, lacking in transparency and reliable price signals. With their asset values in doubt, investment banks lurched toward insolvency.

If regulators failed here, it wasn’t because of policies adopted years before. It was more of the same story that has played itself out over and over in modern finance: Innovation races ahead of the rules. Crises tend to take almost everyone by surprise — including the major players as well as the regulators.

Read the whole thing.

Virginia Shanahan, writing at MacsMind, has a longer memory than most of us, and cites a NY Times article from 2003 recalling that the Bush administration actually foresaw problems, and tried reforming Fannie Mae and Freddie Mac, but his efforts were blocked. By whom? The same democrats who now possess a Congressional majority. With current Chairman of the House Financial Services Committee, Massachusetts’ own Barney Frank playing a leading role.

I doubt many of the readers recall this article from the New York Times five years ago.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

We can see now that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it. Reluctantly Fannie Mae and Freddie Mac supported the plan. However, Democrats objected.

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Panopticon explains the tale of Asset-Backed Securities (ABS), tranches of risk, Collateralised Debt Obligations (low tranche ABS) repackaged and marketed at higher ratings, Adjustable-Rate Mortgages, and No Documentation Loans. Making mortgage loans was really profitable, the federal government wanted home ownership made more accessible, and real estate prices only go up, after all. What could possibly go wrong?
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Hat tip to Karen L. Myers.

Donald Luskin, in yesterday’s Washington Post, points out that politicians and reporters have a personal interest in exaggerating the scope and dimensions of current economic woes.

Do a Google News search for “since the Great Depression,” and you come up with more than 4,500 examples of the phrase’s use in just the past month.

But that doesn’t make any of it true. Things today just aren’t that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression—or exaggerated Depression comparisons.

Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since—yes—the Great Depression.

Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that “the entire world is either now locked in a global economic recession or soon will be.” Actually, that’s a major clue to what started this thought-contagion about everything being the worst it has been “since the Great Depression”: Politics.

Patient zero in this epidemic is the Democratic candidate for president. As it would be for any challenger, it’s in his interest to portray the incumbent party’s economic performance in the grimmest possible terms. Barack Obama has frequently used the Depression exaggeration, including during a campaign speech in June, when he said that the “percentage of homes in foreclosure and late mortgage payments is the highest since the Great Depression.” At best, this statement is a good guess. To be really true, it would have to be heavily qualified with words such as “maybe” or “probably.” According to economist David C. Wheelock of the Federal Reserve Bank of St. Louis, who has studied the history of mortgage markets for the Fed, “there are no consistent data on foreclosure or delinquency going all the way back to the Depression.”

The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today’s delinquency rate is only a little higher than the level seen in 1985. As to the foreclosure rate, it was setting records for the day—the highest since the Great Depression, one supposes—in 1999, at the peak of the Clinton-era prosperity that Obama celebrated in his acceptance speech at the Democratic National Convention late last month. I don’t recall hearing any Democratic politicians complaining back then.

Even if Obama is right that the foreclosure rate is the worst since the Great Depression, it’s spurious to evoke memories of that great national calamity when talking about today—it’s akin to equating a sore throat with stomach cancer. According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure. During the Great Depression, according to Wheelock’s research, more than 50 percent of home loans were in default.

Moreover, MBA data show that today’s foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures. This suggests that today’s mortgage difficulties are probably a side effect of the otherwise happy fact that, over the past several years, millions of Americans of modest means have come to own their own homes for the first time.

Read the whole thing.

Those loveable clowns Bill Gates and Jerry Seinfeld are back. This time intruding on a suburban family in order “to connect with real people.” Our heroes, as Seinfeld explains to Gates, have a problem with being “a little out of it. You’re living in some kind of moon house hovering over Seattle like the mother ship. I got so many cars I get stuck in my own traffic.”

4:30 video

Mildly amusing, at least in parts, but still completely and utterly irrelevant to competition from Mac and Linux, or the merits of Vista as an operating system (or the lack thereof). The complacent condescension of the great men’s self-referential exercise is beginning to wear thin.

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Hat tip to Karen L. Myers.

OK, you’ve seen those amusing Apple commercials in which the cool and complacent Mac patronizes the hapless and stuffy PC. Well, here’s the first salvo of Microsoft’s counterattack, for which they paid Jerry Seinfeld $10 million. It even features Bill Gates himself.

I’m not sure Apple shouldn’t offer to pay to run it themselves, demonstrating as it does that Microsoft’s clueless obliviousness runs all the way to the top.

1:30 video

link

I wonder if this program is as obtrusive and controlling as Vista.

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Hat tip to Karen L. Myers.

Nancy Pelosi’s new book, Know Your Power, has been less than well-received.

It’s ranking 1576 this morning on the Amazon best-seller list, and 23 of 34 reviews give it one star (Amazon’s most negative rating).

Lone Pony reports that Nancy Pelosi has leaned on Amazon, forcing the on-line bookseller to remove more than 200 negative reviews. How lame is that?

Via Pam Geller.

Ed Bott likes Microsoft’s initial ad attempting to defend Vista, but observes that it’s going to take more than trying to ridicule the messenger.

That’s a pretty good start. The real hard work begins with the messages that immediately follow this one. Microsoft has to identify the real benefits in Windows Vista and communicate them clearly and crisply. That’s not going to be any easy task.

Not easy at all, IMHO.
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Adrian Kingsley-Hughes points out that MSFT’s ad isn’t going to get it done, because although the earth was not flat, Vista really does suck.

Even the overall message that the ad is trying to convey is uninspiring. For example:

Meanwhile, a series of independent speed tests found that Windows Vista with SP1 performed comparably to Windows XP SP2.

Why doesn’t it win? Simple. Behind the scenes, Windows Vista is doing a lot more on your behalf than Windows XP does. It’s indexing your files so you can find them fast, keeping your hard drive organized, saving your work so nothing gets lost, and defending your computer against hackers and phishers.

So, when your favorite first person shooter starts to stutter, or that photo is taking a little too long to open in Photoshop, you can take comfort in the fact that Vista is doing a lot more on your behalf than Windows XP ever did.

I tried Vista recently, and I thought it was doing a lot too much for me. Every mouse click produced a close relative of MS Office’s infamous dancing paperclip freezing the action and popping up to warn me that opening a browser or clicking on an application could expose my system to viruses or possibly initiate a fatal sequence of events leading to the heat death of the universe.

I gathered a distinct impression that Vista’s designers really believed one should take that PC and admire the nice Microsoft wallpaper through the lucite block you had cast around it.

Everyone assured me that one could reduce the level of pestering by tweaking security settings, so I reduced them alright. I just installed XP right over it.
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Hat tip to Karen L. Myers.

ArabianBusiness.com boasts that Dubai is in the process of replacing London and New York as world capital of the financial industry.

Dubai is picking up the mantle of the financial capital of the world, as global banking sectors London and New York continue to fade on the back of the global credit crises.

The new mantra in New York and London is “Dubai, Mumbai, Shanghai or goodbye”, as job losses mount in both cities while opportunities in the east continue to rise.

Lehman Brothers on Tuesday became the latest investment bank moving one of its most senior positions to the UAE. Philip Lynch, the bank’s co-head of equities for Europe and the Middle East, will be relocating to Dubai after serving more than two decades in London.

The US investment bank, which has axed over 6,000 staff in the last nine months, said the move was aimed at serving the growing needs of clients in the Gulf region and the wider Middle East.

Lynch will find himself in good company. Barclays last month dispatched Roger Jenkins, one of London’s highest-paid bankers, to the emirate as chairman of investment banking and investment management.

Earlier in May Citigroup, which has so far cut 1,500 jobs because of the global credit crisis, announced it would send Alberto Verme, co-head of global investment banking from London to Dubai. ...

The relocation of roles from London and New York to Dubai, and to a lesser extent Mumbai and Shanghai, reflects the reshaping of global opportunities for investment banks.

With a surge in oil revenue, rapidly rising infrastructure needs, and the emergence of sovereign wealth funds at the head of M&A activity, the Middle East and Asia have become crucial for global investment banks looking to remain profitable.

Slate reviews current cognacs, and discloses a pretty outrageous gambit by Hennessy to fleece the excessively affluent and vainglorious consumer. Flaunt your taste, Hennessy advises.

In 2007, a record 158 million bottles were sold worldwide, and the cognac houses are naturally rushing to cash in on the flush times, particularly at the high end. Hennessy recently introduced a new cognac, called Beauté du Siècle, whose specs are as over-the-top as its name: Only 100 bottles are being produced, the bottles are all made of Baccarat crystal, each one comes in an ornate mirrored chest apparently fashioned by a team of 10 artists, and the cognac is hand-delivered to buyers by members of the Hennessy board. The cost? $235,000 per bottle.

France24 The Observers:

Yahoo! China pasted a “most wanted” poster across its homepage today in aid of the police’s witch-hunt for 24 Tibetans accused of taking part in the recent riots. MSN China made the same move, although it didn’t go as far as publishing the list on its homepage.

Yahoo indignantly wrote France24 saying: “Yahoo! isn’t doing this. It’s Yahoo! China*.”

*Yahoo had to accept a Chinese partner, and Chinese control, to gain access to China’s market.

Hat tip to Matt Brown Hamlin

Ronald Reagan said: “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Democrat Barack Obama promises to do all that:

In a major economic address at Cooper Union today, Senator Barack Obama called for immediate relief for homeowners hit by the housing crisis, modernization of our regulatory framework, and an additional $30 billion stimulus package to jumpstart the economy and help protect families from the economic slowdown. ...

In his speech today, Obama made the case that while markets are the engine of American progress, the government’s role as umpire and steward is critical to the function of the free market. For too long, he said, special interests have been able to bend the rules to maximize their profits on the backs of hardworking Americans.

Obama pledged to restore confidence in the markets, tackle the housing crisis and protect families from the economic slowdown by:

Ø Creating 21st century standards for transparency and oversight of the financial system in order to prevent future abuses and crises.

Ø Providing immediate relief to homeowners hit by the housing crisis.

Ø Enacting a second stimulus package to stabilize and strengthen the economy, provide aid to homeowners and states hardest-hit by the housing crisis, and extend and expand unemployment insurance.

But who needs Obama? Even if the democrats don’t win, Republicans like George W. Bush, and certainly John McCain, will do nearly every bit of very much the same.

Bloomberg:

Treasury Secretary Henry Paulson is likely to call for the creation of new regulatory agencies with broad powers over lending, the securities industry and business conduct, according to the draft of a study he commissioned.

The report, which recommends more power for the Federal Reserve, also proposes combining the Office of Comptroller of the Currency—which dates back to the Civil War—and the Office of Thrift Supervision into a single banking overseer. In addition, the draft, which was circulated to government agencies this week and obtained by Bloomberg News, calls for the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

New York Times:

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades. ...

According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

Google is a prestigious company, pays well, has terrific benefits, pampers employees with perqs, and (back when the market was moving in the right direction) had highly attractive stock options to pass out. Information Technology professionals are consequently very eager to apply for openings at Google, but Google insiders are notoriously egomanaical and capricious, and even fewer job interviews than usual seem to end favorably when Google is the prospective employer.

So notorious is the “rejected by Google” experience, that it seems a new literary genre (kind of in the spirit of the satires of Martial) describing “How I Blew my Google Interview” has been identified by Henry Blodget.

Hat tip to Karen Myers.

John Mangum argues that the US Government’s failure to strengthen the dollar is a clever and deliberate (and unannounced) gambit in the economic contest between the US and China.

we must ask, why is this happening? Why have the prices of commodities like oil and gold risen so dramatically in the last year? Why has the dollar fallen so much? Normal business cycle? Bad management from the world’s financial institutions? And why hasn’t the world’s largest and strongest economy, backed by the most powerful government, been able to change the course of the situation?

Perhaps the larger picture is that the United States is waging an economic war against China.

The United States could strengthen the value of the dollar. It has not. China is hurt because now Chinese products are very expensive in the United States, and this will reduce the US trade deficit with China. China must import huge amounts of oil and strategic metals which are very much more expensive now. China holds hundreds of millions of physical dollars, the value of which is now much less.

China has refused to revalue its currency to a realistic level to improve its trade position with the United States. China has used its huge dollar reserves as a sword against the United States by threatening to sell those dollars, and thereby causing the dollar to drop in value. In effect, the United States is using China’s strength against China.

In order for China to maintain the levels of its trade with the United States, it will be forced to lower the value of its currency. However, if it does that, it faces two major problems. Foreign direct investment (FDI) into China would become less expensive, and China is worried that more and cheaper FDI would spur China’s inflation. Further, a devalued currency would reduce the profit to China for its exported goods.

If China keeps it currency at its present levels, the United States will buy less. The United States wanted a stronger yuan to reduce trade, which China was unwilling to do. That objective is now achieved by a weaker dollar.

China’s dollar holdings are worth much less when buying goods like oil and metals that China depends on for its development and growth. Further, China has been talking and trying for some time to diversify its foreign-reserve holdings form dollars to other currencies and gold. Now, their dollars are worth much less when buying gold, yen and euros. ...

the “crisis” is being used to further the US economic position, long-term position, particularly with regard to China. From Sun Tzu: “All warfare is based on deception.”

Steve Forbes identifies two steps for the administration to take to end the panic in the equities and real estate markets.

The Bush administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend “marking to market” those new financial instruments, such as packages of subprime mortgages.

The weak dollar is pummeling equities, disrupting the economy, distorting global trade and giving hundreds of billions of dollars in windfall revenues—through skyrocketing commodity prices—to our adversaries such as Iran and Venezuela. Not since Jimmy Carter has the U.S. had a President so oblivious to the damage done by an increasingly feeble greenback.

The Federal Reserve can rally the markets for a day or two by finding some new mechanism through which to lend more money to banks and other financial institutions. But this is the proverbial Band-Aid for a patient who is beginning to hemorrhage.

The Administration acts as if the dollar were like the sun, its rising and falling beyond any control. Countless times experience has shown that notion to be false. The U.S. Treasury Department could buy dollars in the currency exchange markets. Our allies would gladly cooperate with such an operation; their exports are being hurt more and more. The Fed could mop up some of the excess liquidity it has created since 2004, even as it makes targeted loans to beleaguered banks and financial houses.

The other measure: The Treasury Department and the Fed should get together with the SEC, the Comptroller of the Currency and other bank regulators and announce that financial institutions for the next 12 months will no longer write down the value of exotic financial instruments (primarily packages of subprime mortgages). Instead, writedowns will occur only when there have been actual losses on those assets. If a mortgage defaults, a bank will then—and only then—recognize the loss.

It’s preposterous to try to guess what these new instruments are worth in a time of panic. Such assets are being marked down to increasingly arbitrary low levels. But when a bank books such a loss, it must replenish depleted capital, even though cash flows for most financial firms are still positive. Worse, when forced by panicky regulators and lawsuit-fearing accountants to write down the value of these securities, institutions will dump assets in a market where there are temporarily few or no buyers. The result is a spiraling disaster. So let’s have a time-out on markdowns until we actually have real experience in what kind of losses are actually going to occur.

These two steps would quickly end the panic.

He basically right, but one more step (beyond the power of the current administration) is needed. The democrats need to lose in November.

It’s not only the weak dollar and the credit crisis resulting from write-downs inducing fear and depression. There is the belief that a democrat is inevitably going to win in November, and next year Congress, encouraged by the White House, will start raising taxes.

Yesterday’s New York Times discusses Microsoft’s Vista debacle, which is now producing lawsuits from frustrated consumers.

One year after the birth of Windows Vista, why do so many Windows XP users still decline to “upgrade”?

Microsoft says high prices have been the deterrent. Last month, the company trimmed prices on retail packages of Vista, trying to entice consumers to overcome their reluctance. In the United States, an XP user can now buy Vista Home Premium for $129.95, instead of $159.95.

An alternative theory, however, is that Vista’s reputation precedes it. XP users have heard too many chilling stories from relatives and friends about Vista upgrades that have gone badly. The graphics chip that couldn’t handle Vista’s whizzy special effects. The long delays as it loaded. The applications that ran at slower speeds. The printers, scanners and other hardware peripherals, which work dandily with XP, that lacked the necessary software, the drivers, to work well with Vista.

Can someone tell me again, why is switching XP for Vista an “upgrade”?

I am finally getting around to linking a witty and highly perceptive article by Michael S. Malone, author of ABC News’ Silicon Insider column, writing in Monday’s Wall Street Journal, which I’ve been wanting to recommend to friends.

If you look at Microsoft with an objective eye, it becomes apparent that it is a giant company past its prime. It is big and rich, but increasingly toothless. It is able to use its money to put on a great show at the Consumer Electronics Show, underwrite an interesting market initiative—or buy another big company—but it no longer has the fire of ambition or the addiction to risk to ruthlessly execute on those desires any more. As has been noted before, once you look past all of the high profile moves (such as MSN, MSNBC, Zune and XBox), Microsoft has only really been as successful as it reputation would suggest in just two businesses: Windows and Office. Most everything else is flash.

Even Microsoft’s full-out assault on Netscape (which, ironically, will officially die on March 1) for control of the Internet browser industry—justly earning it the sobriquet “Evil Empire”—in retrospect was less a brilliant maneuver by Gates & Co. to capture a hot new industry and more a desperate (and questionable) scramble by a market leader caught napping.

That corporate somnolence, rather than its more-remembered ruthlessness, has far better characterized Microsoft over the past decade. Even the Vista operating system, the most recent upgrade of Microsoft’s core product line, managed to be so late that it almost crippled the personal computer industry. It finally arrived to a chorus of boos, most of them undeserved (it’s a pretty good operating system), but some dead-on (it’s a technological hop when it should have been a leap). Microsoft lost its killer instinct a long time ago. On the rare occasions when the mood resurfaces, the company doesn’t have the chops anymore to execute on its desires.

And that brings us to the Microsoft-Yahoo deal. For all of the excitement, this is just big, rich, but slow-moving giant looking to buy another slow-moving giant, the latter having stuck to an obsolete business plan too long and lost its way. The scheme is less predation than it is desperation: In the world of search, Google owns these two lumbering monsters.

Microsoft understandably covets the sheer size of Yahoo’s subscriber rolls, believing it can accomplish what Yahoo has failed to do: convert more of those 130 million monthly visitors into real, paying customers. But Microsoft has hardly shown it can do that at MSN. So, can it really find a solution to Yahoo’s structural problems?

That remains to be seen—and Microsoft’s one genius is as a late adopter. The real problem Yahoo—and perhaps soon Microsoft—faces is that those legions of Yahoo users don’t want to be stuck inside a small corner of the Web, not getting all of the experiences and services (like live TV and first-run movies) they were promised. Especially not when they can run around and find all of those things, in abundance, elsewhere on the Web. Microsoft is even less prepared to solve that problem than Yahoo.

That leaves search, which is probably the real reason Microsoft wants Yahoo. Combining the two search engines would, in terms of sheer numbers, represent the biggest challenge to Google to date. But the sum of two also-rans is almost never a winner—unless the newly merged is very, very lucky in its competitors. That’s what happened with HP and Compaq: Who’d have guessed that Dell would suddenly fall on its face?

Incredibly, the same may happen with a Microsoft-Yahoo deal if it happens. If you look at the stock market, peruse the industry gossip blogs, follow the departure of key employees, or read about the various new initiatives (energy?) the company is pursuing, it becomes increasingly apparent that Google is a company about to have an early midlife crisis. Microsoft-Yahoo may turn out to be a pedestrian idea with absolutely brilliant timing.

If that is the case, and the merger proves successful, it will have more to do with Google than Microsoft and Yahoo. Which is why the feds should stay out of it.

So, Yahoo: Take the deal (unless a better one comes along). Microsoft: Let this be the first of many high-risk moves. Treat Yahoo as a heart transplant, not a skin graft. And Google: This new competition should be a warning to stop fooling around and get back to business.

John Murrell at Good Morning Silicon Valley reports on Microsoft’s $31 a share offer for Yahoo.

You could watch it playing out like one of those “nature, red in tooth and claw” documentaries. There was the wildebeest (played by Yahoo), slowed by a nagging groin injury, gradually starting to fall behind the herd. The vultures and hyenas (played by analysts and pundits) were starting to circle and salivate, respectively. Then, off in the tall grass there’s a stirring, then an explosion of dust as the lion (played with scenery-chewing enthusiasm by Microsoft) springs at its quarry and sinks its teeth into the back of its neck. Sensitive viewers may want to turn away.

As Computerworld observes, those geniuses up in Redmond have taken another giant step toward persuading their customers not to trust them.

Microsoft Corp. deliberately broke access to older files, including many generated by its own products, to step up security with the newest Office 2003 service pack, a company evangelist said yesterday.

The months-old Service Pack 3 (SP3) for Office 2003, said Viral Tarpara, a U.K.-based IT evangelist for Microsoft, blocks old file formats for security purposes. “Some older file formats, including some from Microsoft, are insecure and do not satisfy new attack vectors that hackers can use to execute malicious code,” maintained Tarpara. “The decision to block the formats is strictly to protect your machine from being compromised.”

Office 2003 SP3 was released in September, and questions about file access error messages began appearing almost immediately on Microsoft’s support forums.

Those questions continued into December. A user identified as “dberwanger” complained that he called Microsoft’s support desk, but was told it would cost $250 to “fix a problem with SP3 that they created. Finally completely uninstalled Word 2003 and reinstalled (because you cannot just uninstall SP3) and the problem is fixed.”

Microsoft has posted a document to its support database that includes a Windows registry hack that returns full file format access to Office 2003. Like Tarpara, the document claimed that the file blocking was done for security reasons. “These file formats are blocked because they are less secure. They may pose a risk to you,” according to the document.

Among the blocked files are older Microsoft Word, Excel and PowerPoint formats, as well as older formats used by Lotus 1-2-3 and Corel Corp.’s Quattro Pro—a pair of ancient and aging spreadsheets—and Corel Draw, an illustration program. Word 2003 with SP3, in fact, blocks a staggering 24 former formats, according to Microsoft, including the default word processing file format for Office 2004 for Mac, the currently available edition of Microsoft’s application suite for Mac OS X.

Coding Sanity, like many, is improving his new PC’s performance by “upgrading” in the direction of the past.

One really has to marvel at what an organization with the financial resources and human talent at Microsoft’s disposal is able to accomplish.

there appears to be no contest. Windows XP is both faster and far more responsive. I no longer have the obligatory 1-minute system lock that happens whenever I log onto Vista, instead I can run applications as soon as I can click their icons. Not only that, but the applications start snappily too, rather than all waiting in some “I’m still starting up the OS” queue for 30 seconds or so before all starting at once. In addition, I have noticed that when performing complex tasks such as viewing large images, or updating large spreadsheets, instead of the whole operating system locking down for several seconds, it now just locks down the application I am working on, allowing me to Alt-Tab to another application and work on that. I am thrilled that Microsoft decided to add preemptive multitasking to their operating system, and for this reason alone I would strongly urge you to upgrade to XP. With the amount of multi-core processors around today using a multitasking operating system like XP makes a world of difference.

In addition, numerous tasks that take a long time on Vista have been greatly speeded up. File copies are snappy and responsive, and pressing the Cancel button halfway through actually cancels the copy almost immediately, as opposed to having it lock up, and sometimes lock up the PC. In addition, a lot of work has gone into making deletes far more efficient, it appears that no more does the operating system scan every file to be deleted prior to wiping it, and instead just wipes out the NTFS trees involved, a far quicker operation. On my Vista machine I would often see a dialog box from some of my video codec’s pop up when deleting, moving or copying videos. No more, now all that is involved is a byte transfer or NTFS operation.

Automatic Updates has also gone through a performance facelift in that it no longer hogs your bandwidth when you’re surfing, a nice touch. ...

To be honest there is only one conclusion to be made; Microsoft has really outdone themselves in delivering a brand new operating system that really excels in all the areas where Vista was sub-optimal. From my testing, discussions with friends and colleagues, and a review of the material out there on the web there seems to be no doubt whatsoever that that upgrade to XP is well worth the money. Microsoft can really pat themselves on the back for a job well done, delivering an operating system which is much faster and far more reliable than its predecessor. Anyone who thinks there are problems in the Microsoft Windows team need only point to this fantastic release and scoff loudly.

Well done Microsoft!

Hat tip to Karen Myers.

The Richter Scales celebrate capitalism Silicon Valley-style in this 2:45 music video

Hat tip to Dominique Poirier.

The Telegraph:

Few hotels can offer their guests a view that boasts a sunrise 18 times in a day, but a new space tourism company is promising just that by building the first hotel in space.

Galactic Suite, a private space tourism company, is planning to build a three-bedroom hotel using pods joined together in orbit. They hope to be open for business by 2012.

But tickets for a trip aboard the Galactic Suite will not be cheap, with a three-day stay costing about £2 million.

For that price, the company claims it will train customers for their space flight on a tropical island before flying them to the hotel. Once there, they will be able to enjoy spectacular views of the Earth and experience life in zero gravity. The hotel is expected to make a complete orbit of the Earth every 80 minutes, so in 24 hours the sun will rise and set behind our planet 18 times.

Xavier Claramunt, a director with the Barcelona-based company, says they have already achieved substantial financial backing for the £3 billion project from a wealthy space enthusiast and a series of other companies.

A statue of the Mapinguari in Rio Branco, Brazil.

Sunday New York Times:

Perhaps it is nothing more than a legend, as skeptics say. Or maybe it is real, as those who claim to have seen it avow. But the mere mention of the mapinguary, the giant slothlike monster of the Amazon, is enough to send shivers down the spines of almost all who dwell in the world’s largest rain forest.

The folklore here is full of tales of encounters with the creature, and nearly every Indian tribe in the Amazon, including those that have had no contact with one another, have a word for the mapinguary (pronounced ma-ping-wahr-EE). The name is usually translated as “the roaring animal” or “the fetid beast.”

So widespread and so consistent are such accounts that in recent years a few scientists have organized expeditions to try to find the creature. They have not succeeded, but at least one says he can explain the beast and its origins.

“It is quite clear to me that the legend of the mapinguary is based on human contact with the last of the ground sloths,” thousands of years ago, said David Oren, a former director of research at the Goeldi Institute in Belém, at the mouth of the Amazon River. “We know that extinct species can survive as legends for hundreds of years. But whether such an animal still exists or not is another question, one we can’t answer yet.”

Dr. Oren said he had talked to “a couple of hundred people” who had said they had seen the mapinguary in the most remote parts of the Amazon and a handful who had said they had had direct contact.

In some areas, the creature is said to have two eyes, while in other accounts it has only one, like the Cyclops of Greek mythology. Some tell of a gaping, stinking mouth in the monster’s belly through which it consumes humans unfortunate enough to cross its path.

But all accounts agree that the creature is tall, seven feet or more when it stands on two legs, that it emits a strong, extremely disagreeable odor, and that it has thick, matted fur, which covers a carapace that makes it all but impervious to bullets and arrows.

“The only way you can kill a mapinguary is by shooting at its head,” said Domingos Parintintin, a tribal leader in Amazonas State. “But that is hard to do because it has the power to make you dizzy and turn day into night. So the best thing to do if you see one is climb a tree and hide.”

David Oren and his sloth theory also made Discover magazine in 1999.

YouTube, which is owned by Google, relies on user screening of inappropriate content. The left, of course, has the larger numerical presence on the Internet, and leftists generally have few inhibitions about abusing any powers of censorship available to them.

Inevitably there have been some incidents of leftist viewers (supported by Google managers) applying political correctness tests, tagging, and then banning, videos they don’t like for “innappropriate content.” In the best known incident of the kind, Michelle Malkin had a video banned by YouTube last September.

Charles Gerow, a former Reagan White House aide and current adman, has responded to anticipated YouTube censorship of conservative point-of-view 2008 campaign videos in advance by founding QubeTV, a rightwing alternative video venue.

ABC News story

Google is protesting that there is no need for such a thing. YouTube provides perfect equality of access for every point of view. But it is quite clear that Gerow is being astute in forseeing an inevitable increase in incidents like the Malkin video ban as the campaign season heats up. The existence of a well-known alternative venue is likely to have the salutary effect of persuading YouTube management, when temptation inevitably strikes, that abusing their powers in favor of their own political biases is a futile exercise.

Jim Dunnigan’s Strategy Page notes that Al Qaeda isn’t doing particularly well in Iraq, and is on the run in Saudi Arabia, Afghanistan, North Africa, Somalia, and Europe. Its only victories are to be found in media coverage.

Qaeda is having a bad year so far. While many media pundits like to paint the Islamic terrorists as on a winning streak, it doesn’t look that way from the other side. In Iraq, al Qaeda continues to bomb Shia “heretics” and Sunni “apostates”. Most of the victims are unarmed Moslem civilians, and this is regularly condemned throughout the Islamic world. Al Qaeda believes that all this carnage will somehow arouse the Sunni Arab world to make war on the Iraqi government, and get the Iraqi Sunni Arabs back in power. As absurd as that sounds, remember that al Qaedas ultimate goal is to establish a religious dictatorship in Iraq, and throughout the Islamic world. World conquest and all that.

The Al Qaeda leadership knows that they are dealing from a position of weakness. So the emphasis is on playing the media, and the impact the media has on the political and military situation. In that respect, al Qaeda takes heart from efforts in the American Congress to force U.S. troops to withdraw from Iraq. Again, we have a perception problem here. While al Qaeda would count that as a major victory, the outcome would be disastrous for them. Without U.S. troops to restrain them, Shia militias would be able to go after the remaining Sunni Arab community in Iraq and destroy it. ...

Al Qaeda is still enormously popular among some segments of the Islamic population. Young, unemployed men remain eager al Qaeda supporters, as do educated men frustrated at the sorry state of their government and economy. Saudi Arabia turns out far more college grads with degrees in Islamic Studies, than in things like math, finance or engineering. There aren’t enough jobs for all those religion majors, and foreigners have to be imported to do the math, finance and engineering jobs. It’s a self inflicted wound that Saudi Arabia, and many other Moslem nations, are trying to address. It’s hard, though, as old habits are hard to change in a hurry.

So al Qaeda, lacking any concrete achievements, tries to at least gather more mentions in the media. Google is keeping score for the terrorists, and that may be good for the soul, but it won’t take you anywhere else.

Hershey, Nestle and some other big companies are up to no good.

Would chocolate containing trans fats and sugar substitutes taste as sweet as the real thing? Hershey Co. and other candy-makers say yes.

The Chocolate Manufacturers Association, whose members include Hershey, Nestle SA and Archer Daniels Midland Co., has a petition before the U.S. Food and Drug Administration to redefine what constitutes chocolate.

They want to make it without the required ingredients of cocoa butter and cocoa solids, using instead artificial sweeteners, milk substitutes, and vegetable fats such as hydrogenated and trans fats.

“They are trying to pull one over on us,” said Cybele May, 40, publisher of CandyBlog, on which she has encouraged more than 200 people to write the FDA to protest what she calls “mockolate.” “What they are asking for is permission to confuse the consumer for what we readily accept as chocolate,” she said. ...

A pound of chocolate contains roughly 25 percent cocoa butter at a cost of $2.30, while vegetable oils are as little as 70 cents a pound.

Michael S. Malone explains in the Wall Street Journal.

Napster, founded in 1999, was a pioneer in what would be called peer-to-peer file sharing. What made the company so popular with users was that it specialized in the new MP3 music files, it had an appealing user interface, and best of all, the music was free.

It was the last that drove established music artists and record companies nearly insane. It began with the lawsuit by Metallica, followed soon after by Dr. Dre, then Madonna, and culminated in 2001 when A&M Records was granted a preliminary injunction stopping Napster from allowing downloads of any of its artists.

By then, Napster officially had more than 26 million users, but may in fact have had twice that many. Just as important, Napster—and those imitators that tried to copy its success by working the corners of the law—had set off a social revolution. By the time the music industry began to contain the damage, tens of millions of songs had already been downloaded, and a generation of college and high-school kids had come to expect the free exchange of free music.

What the music industry did next was a case study in bad strategy, bad marketing and bad public relations. Not only did the industry crush Napster and any other company that followed in its path, but it also criminalized its own customers. We all got to watch as federal agents arrested college kids, music lovers and even a poor little girl living in the ghetto.

Needless to say, this program of applied troglodytics only managed to drive music downloading further underground, turn America’s children into small-time crooks, and make popular musicians and their record companies—those famous celebrants of maverick and transgressive behavior—look like the worst kind of freedom-crushing rich plutocrats. ...

For the next two years, until 2003, the music industry pursued the single dumbest strategy possible in the digital age: It tried to stop the progress of technology and deny users access to a new and more powerful industry standard. Instead, the major record labels dithered, unable to settle upon a single download standard, distribution system or pricing scheme. Instead, they devoted their energy to attempting to undermine each other. ...

Then in rode Steve Jobs to the rescue.

When Apple Computer first introduced the iPod in 2001 it had given tacit approval to illegal downloading with its notorious “Rip, Mix, Burn” advertising campaign. But as the iPod quickly became one of the most successful consumer electronics products in history—100 million units sold as of Sunday—it became obvious that the company couldn’t depend on content either from the underground or from a fractious, delusional music industry.

Thus, the Apple iTunes Music Store, which opened online four years ago this month. Only a technologist with the Hollywood cachet of Steve Jobs could have ever gotten the major players of the music industry together and, better yet, convinced them to agree to a single download and pricing standard. In doing so, Mr. Jobs very likely saved the music industry, which was on the brink of seeing its entire revenue model destroyed by the black market. Instead, at 99 cents per song, iTunes gave music lovers a means to escape illegality at a reasonable price.

Needless to say, it has worked brilliantly. With more than 2.5 billion songs sold by iTunes, Apple, with 80% of all music download revenues as well as nearly 75% of the devices sold to play those tunes, has deservedly been a huge beneficiary of this agreement. But the music industry, by being forced to actually accept a new industry standard and an attendant pricing structure, has arguably benefited even more.

But to get the music moguls around the table Steve Jobs had to make a Faustian bargain. The paranoid record execs, fearful of illegal copies, demanded that every iTune sold had to be freighted with Digital Rights Management (DRM) anti-piracy software. In practice, this meant that iTunes music could only be played on Apple iPods.

The need for absolute proprietary control over both hardware and software has always been Mr. Jobs’s Achilles heel. Twenty years ago that philosophy cost Apple Computer a similar dominance in personal computers against an army of competitors working under a common, “open” system. So one can imagine Apple’s CEO readily accepting the music industry’s demand for DRM, knowing that it would give Apple instant ownership of the online music business. ...

By all appearances, the Big Four, which control 70% of the world’s music, were unmoved by Mr. Jobs’s appeal. And then, last week, a breakthrough: Apple announced that it had reached agreement with Britain’s EMI to sell the latter’s music archives (which includes the Beatles) without DRM. Thirty cents more, but twice the sound quality—the first mass-market improvement in music fidelity since the death of the LP. A fair exchange. Good for EMI.

Is this a turning point in the story of digital music? Will the other Big Three follow suit? One can only hope so. The music moguls trusted Steve Jobs once and he saved them. It’s time for them to trust him again.

The Obama campaign says they didn’t really produce this delightful anti-Hillary ad.

1:14 video

———————————-

The original Superbowl Apple ad.

Michael Geist, in the Toronto Star, points out some things about Microsoft’s new Vista operating system, which are enough to make me think twice about my future OS plans.

For the past few months the legal and technical communities have dug into Vista’s “fine print.” Those communities have raised red flags about Vista’s legal terms and conditions as well as the technical limitations that have been incorporated into the software at the insistence of the motion picture industry.

The net effect of these concerns may constitute the real Vista revolution as they point to an unprecedented loss of consumer control over their own personal computers. In the name of shielding consumers from computer viruses and protecting copyright owners from potential infringement, Vista seemingly wrestles control of the “user experience” from the user.

Vista’s legal fine print includes extensive provisions granting Microsoft the right to regularly check the legitimacy of the software and holds the prospect of deleting certain programs without the user’s knowledge. During the installation process, users “activate” Vista by associating it with a particular computer or device and transmitting certain hardware information directly to Microsoft.

Even after installation, the legal agreement grants Microsoft the right to revalidate the software or to require users to reactivate it should they make changes to their computer components. In addition, it sets significant limits on the ability to copy or transfer the software, prohibiting anything more than a single backup copy and setting strict limits on transferring the software to different devices or users.

Vista also incorporates Windows Defender, an anti-virus program that actively scans computers for “spyware, adware, and other potentially unwanted software.” The agreement does not define any of these terms, leaving it to Microsoft to determine what constitutes unwanted software.

Once operational, the agreement warns that Windows Defender will, by default, automatically remove software rated “high” or “severe,” even though that may result in other software ceasing to work or mistakenly result in the removal of software that is not unwanted.

For greater certainty, the terms and conditions remove any doubt about who is in control by providing that “this agreement only gives you some rights to use the software. Microsoft reserves all other rights.” For those users frustrated by the software’s limitations, Microsoft cautions that “you may not work around any technical limitations in the software.”

Those technical limitations have proven to be even more controversial than the legal ones.

Last December, Peter Gutmann, a computer scientist at the University of Auckland in New Zealand released a paper called “A Cost Analysis of Windows Vista Content Protection.” The paper pieced together the technical fine print behind Vista, unraveling numerous limitations in the new software seemingly installed at the direct request of Hollywood interests.

Guttman focused primarily on the restrictions associated with the ability to play back high-definition content from the next-generation DVDs such as Blu-Ray and HD-DVD (referred to as “premium content”).

He noted that Vista intentionally degrades the picture quality of premium content when played on most computer monitors.

Guttman’s research suggests that consumers will pay more for less with poorer picture quality yet higher costs since Microsoft needed to obtain licenses from third parties in order to access the technology that protects premium content (those license fees were presumably incorporated into Vista’s price).

Moreover, he calculated that the technological controls would require considerable consumption of computing power with the system conducting 30 checks each second to ensure that there are no attacks on the security of the premium content.

Good grief! I can just imagine how many programs will get removed by Defender.

MSNBC remembers.

Includes the great Apple 1984 commercial, which was shown only once.

Microsoft announces the release of new versions of its flagship products.

Preston Galla of PC Word has 15 reasons to switch to Vista.

But Mike Elgan of Computerworld has some compelling arguments as to why you should wait to get Vista already installed on your next PC, or just switch to a MAC.

Those jolly little elves at Microsoft and AMD handed out to a number of bloggers (but not this one, alas!) as Xmas presents for review purposes brand new Acer Ferrari notebook computers, retailing for $2,299.

But, predictably enough, jealous grinches (who obviously didn’t get theirs) started accusing the elves of Redmond of bribing bloggers, forsooth.

APC

Slashdot

So, inevitably, the elves got nervous and upset, decided it was safer to turn Indian-giver, and send the fortunate bloggers the following request:

Just to make sure there is no misunderstanding of our intentions I’m going to ask that you either give the pc away or send it back when you no longer need it for product reviews.

Hat tip to Techmeme.

Milbrook, UK

Auto Express has been playing with Google Earth and has found ten of the most covert manufacturers’ test tracks.

Your office could use one of these.

3:42 video

With Google and Yahoo playing ball with the Communist regime in China, Microsoft (of all companies) is talking about possible non-cooperation.

A senior executive for Microsoft has said the firm could pull out of non-democratic countries such as China.

Fred Tipson, senior policy counsel for the computer giant, said concerns over the repressive regime might force it to reconsider its business in China.

“Things are getting bad… and perhaps we have to look again at our presence there,” he told a conference in Athens.

“We have to decide if the persecuting of bloggers reaches a point that it’s unacceptable to do business there.”

“We try to define those levels and the trends are not good there at the moment. It’s a moving target.”

BBC

Egads!, no more cute screaming Japanese girls and lizards. YouTube, having been bought by Google, is going corporate, and surrendering to a collection of Japanese copyright-enforcement groups. They will be deleting 29,549 videos.

Smart move, Japanese broadcasters, you wouldn’t want any free international publicity and recognition adulterating your brands’ prestige, would you?

As a much-predicted democrat electoral victory looms, Glenn Reynolds discovers a response by businesses and the media to new priorities is already underway.

Caution: foul language.

video

Failed demos are really embarassing, aren’t they?

Ambient noise? what ambient noise??

Playing with Google Earth is pretty popular in tech circles. One can snoop into all sorts of earthly matters from heaven’s perspective. Lester Haines at the Register reports on one of Google Earth-ers’ most al-time intriguing finds: a Chinese military installation at Huangyangtan features an astonshingly detailed 900×700m scale model of a very mountainous landscape.

The army of Googlers applied ther obsessive analytic skills and identified the model’s subject location: a disputed region of the China-India border.

The extraordinarily elaborate model was obviously painstakingly produced for some sort of military training. The Google General Staff College theorizes that the purpose may be to familiarize Chinese pilots with the landscape in preparation for some future conflict. Considering just how much trouble and expense the Chinese have gone to with this one, India had better be prepared for a renewal of Chinese pressure for concessions, backed up by military force.

——————————————————Hat tip to PJM.

Those new Intel-powered MacBooks apparently run rather hot. One owner demonstrates just how hot by cooking his egg on it.

Lawrence Kudlow points out that Bush’s tax cuts have worked as promised.

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

This is an extraordinary fact, although you may be reading it here first. Most in the mainstream media would rather tout the faults of American capitalism than sing its praises. And of course, the media will almost always discuss supply-side tax cuts in negative terms, such as big budget deficits and static revenue losses. But here’s another suppressed fact: Since the 2003 tax cuts, tax-revenue collections from the expanding economy have been surging at double-digit rates while the deficit is constantly being revised downward.

For those who bother to look, the economic power of lower-tax-rate incentives is once again working its magic. While most reporters obsess about a mild slowdown in housing, the big-bang story is a high-sizzle pick-up in private business investment, which is directly traceable to Bush’s tax reform.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.—Adam Smith

Brian Carney interviews Craigslist CEO Jim Buckmaster in the Weekend Wall Street Journal, and finds a man operating a sensationally successful business operation based on an atypical, casting one’s bread upon the waters, model of customer service.

I put the question to Mr. Buckmaster: Google has turned unobtrusive text ads into a multibillion-dollar revenue stream. And posting a Google-type ad or two next to its search results wouldn’t cost Craigslist users one thin dime. So why not cash in?

“In the big Internet boom, thousands of companies were set up,” explains Mr. Buckmaster, who also counts himself as CFO and COO of the company. “With the exception of us, pretty much all of them were set up with the primary objective being to make a lot of money.” And yet, he continues, “Almost all of those businesses went under and never made any money. Even businesses like Amazon still haven’t made any money. They are still, over their entire lifetime, net negative. Here we are, we’ve been in the black since 1999—six or seven years.”...

Mr. Buckmaster figures that Craigslist employs 21 people, and starts to count them on his fingers. It never brought in venture capitalists with their grand designs and exit strategies. “We didn’t want to have those voices at the table,” he says. So Craigslist has remained beholden to no one—except, as Mr. Buckmaster constantly intones, its “users,” who pay nothing for the privilege of posting or searching the millions of pages of apartment listings, moving sales and personal ads that make up the Craigslist ecosystem. “If it’s not something that users are asking for,” he says, “we don’t consider it.” The money that does come in comes from businesses posting in just two categories of classifieds in three cities—job listings in San Francisco, New York and Los Angeles and, this week for the first time, brokered apartment rentals in New York…

We’re much more comfortable charging companies than charging individuals,” Mr. Buckmaster says. “Businesses are better equipped to afford a small fee and businesses can pay for fees out of pre-tax dollars where on average users are less able to pay a fee and they have to pay in post-tax dollars.” Giving users something free and denying money to the government at the same time? This man is no commie. What’s more, he runs a lean outfit. “There are big advantages to focusing exclusively on user wants and needs as we do, and blocking out everything else. That’s one of the ways we keep our staff small and our operations simple.”

As for the banner ads, “It’s not something our users have asked us for,” Mr. Buckmaster deadpans, his 6-foot-8-inch frame slumped in a leather chair in his living room and his eyes fixed on some distant point out the window. It turns out this is something of a mantra for Mr. Buckmaster; what Craigslist’s users want, they tend to get. No more and no less…

When asked whether there’s a Craigslist model that other companies could emulate, the unflappable Mr. Buckmaster, his eyes once more fixed firmly on the horizon out the window, waxes lyrical for a moment: “It’s unrealistic to say, but—imagine our entire U.S. workforce deployed in units of 20. Each unit of 20 is running a business that tens of millions of people are getting enormous amounts of value out of each month. What kind of world would that be?”

Before I have time to object, Mr. Buckmaster comes back to our world. “Now, there’s something wrong in the reasoning there,” he admits. “You can’t run a steel company in the same way that you run an Internet company”—more points for understatement. “But still, it’s a nice kind of fantasy that there are more and more businesses where huge amounts of value can flow to the user for free. I like the idea, just as an end-user, of there being as many businesses like that as possible.” As an end-user, I suppose I do, too.

Buckmaster’s approach to capitalism as an exercise in serendipity clearly works for Craigslist. It could be argued that this sort of business model in which adversarial friction is minimized, and the delivery of value is maximixed, is closer to the original free market ideal than today’s more commonly encountered vastly regimented and hierarchical bean-counting organizations.

Byron York on NR’s The Corner posts an ECONOMICS QUIZ:

Q: Was U.S. economic growth higher during the time John Snow was Treasury Secretary, or during the time Robert Rubin was Treasury Secretary?

A: It was the same, 3.8 percent.

Vinnie makes videos, and decided he needed an Apple G5. He couldn’t afford the $5000 price tag for the machine plus bells and whistles, but reasoned that perhaps he could persuade 20,000 strangers to part with $.25 each, in return for a promise that if the goal was achieved he’d blow up his old Mac.

He fulfills his promise in this 4:48 minute video.

The SF Chronicle profiles an intriguing new Google feature:

Elmhurst, Ill., Loves Gay Porn. Which U.S. city seeks the most sex? Who wants to impeach Bush the most? Ask Google Trends…

the fact is, for all of last year, Elmhurst, Ill., population about 43,000, home of the Sunshine Biscuit Co. and former home of the largest Chevy dealer in the United States and pretty much quaint upscale yuppie Anytown, U.S.A., was the American city that looked up the term “sex” most frequently on Google.

Isn’t that cute? Isn’t that interesting? Sort of? I know this because Google just unveiled this nifty and somewhat baffling tool called Google Trends, wherein you simply enter your search term and choose a couple of parameters and hit Return and boom, you can see which regions (or countries or cities) in the world are looking up that term most actively for a given year (the data also shifts day to day), using Google’s massive search database, and it’s random, semipractical stuff like this that makes it difficult to hate Google for whoring out to China and for becoming the new Microsoft and for their billionaire geek teenager CEOs. But that’s another column.

Google Trends. It is utterly fascinating, at least for a while. It is cool and useful and at the same time enormously frustrating due to its obvious limitations, though I imagine it will spawn enormous amounts of titillating filler for countless PR firms and marketers and research papers and news reports that cite all sorts of vague data that seems to tell you something really important but when you stop and think about it doesn’t really tell you all that much at all. You know, just like religion.

Elmhurst, Illinois, is apparently way into sex. Or at least the idea of sex (googling that hugely broad term returns a decidedly unsexy array of sites, including those for “Sex and the City,” the Sex Pistols, Playboy.com, the National Sex Offender Registry and Sex Addicts Anonymous—not exactly a steaming cup o’ hot titillation).

But that’s not all. Elmhurst has darker, juicier secrets. Turns out Elmhurst is also, at least for 2006, the town most actively looking up “anal sex” (followed closely by Norfolk, Va., and, of course, San Antonio, Texas). And also “porn.” And also “gay porn” (just ahead of Las Vegas). And also “vibrator.” Do you sense a trend? I sense a trend. And also someplace I might need to get a summer home.

What does this say about Elmhurst? What does this say about small towns across the United States? What do you think it says? Because that’s pretty much what it says.

Google, thoughtfully, also includes any relevant news articles it can dig up to go alongside your search results to perhaps explain some of the interest. Does this help explain why Rockville, Md., looks up “Vishnu” more than any other city? Verily, I have no idea.

But still, it can get interesting. Who’s looking up “impeach Bush” most actively? Portland, Oregon. (San Francisco is third). “American Idol”? Honolulu, Hawaii—by a strangely huge margin. “Gas prices”? Minneapolis. “Dildo”? That would be Oslo, Norway. “Dildo,” among U.S. cities? Tampa, Fla. “Tom Cruise”? Cambridge, Mass. “Tom Cruise gay”? Irvine and New York. “Da Vinci Code”? Salt Lake City. “Gun control”? Cincinnati. And “Viagra,” for 2006? That’s Fort Worth, Texas. Go figure.

In fact, Google Trends is pretty much the biggest “go figure” tool you’re likely to see all year. You can speculate to your heart’s content about why the hell Phoenix would be looking up “Jenna Jameson” more than Las Vegas, or why Nashville is so heavily into Christ, or why they really love Ashlee Simpson in Newark, N.J., or why Philadelphia, for some unknowable reason, loves the fact that Britney Spears is pregnant whereas Santiago, Chile, really, really loves Pearl Jam, but you could only guess. One bit of historical news: Jesus has resurged and is once again more popular than the Beatles. Just FYI.

Yesterday was the natal anniversary of renowned Spanish (and Catalan) artist Joan Miró, born April 20, 1893 in Barcelona, and Google (in what I would consider a gracious tribute) modified its logo into an homage to Miró.

Google had, in the past, similiarly saluted Salvador Dali, Wolfgang Amadeus Mozart, and such occasions as Valentine’s Day.

Google’s gesture might possibly have some very modest economic impact, enhancing the value of that artist’s work through such a widely-viewed public acknowledgement of his fame and artistic stature, but it obviously did not make Google one plug nickel. Rather than accepting this one-day tribute, however, in the spirit in which it was offered, some grasping Miró heir, who had stumbled upon the Miró-ified logo, notified the Artists Rights Society, a group representing some 40,000 artists (and their estates). The pettyfoggers and beancounters at the ARS leapt into action, demanding that Google remove the logo, which incorporated some elements from the artist’s (copyrighted) images:

It’s a distortion of the original works and in that respect it violates the moral rights of the artist,’’ said Theodore Feder, president of Artists Rights Society. “There are underlying copyrights to the works of Miró, and they are putting it up without having the rights.’‘

So, if an Internet company, like Google, wishes to pay homage (for one day) to an historic figure in the world of Art, it is not enough that Google donates its time, creative work, and publishing space, it should also donate the time of its executives and attorneys to enter into correspondence, negotiations, the drafting of legal agreements, and possibly pay a fee for the privilege of saying: “Happy Birthday, Joan Miró?”

Preposterous. This kind of dog-in-the-manger punctilio over non-economic use of cultural references is crass, absurd, and culturally impoverishing.

John Paczkowski is a brilliant reporter on Technology, but I think he is completely wrong on this one.

I bought a share of Berkshire Hathaway’s B stock back in 2000, and allowed it to sit around in my portfolio as a mascot until very recently. It did increase in value almost 70% over more than five years, but Nucor (one of Karen’s picks) has done about as well in one year, and Nucor pays a dividend. True, Berkshire treated me better than JDSU, Pacific Century Cyberworks, or Global Crossing did back in the tech wreck. But my investing philosophy has developed since then, and Berkshire Hathaway neither performed well, nor met my investment criteria. After five years, I had also gotten tired of Warren Buffett’s hype. So I sold that share.

John Markham, in his column in MSN Money today, IMHO, hit the Buffet nail right on the head.

Oh, lords of the market, let this be the last straw. The last paean from the pious. The last time we must see simpering reporters, Rotarians and retirees blow kisses to a man once celebrated as the Oracle of Omaha but now best described as the Natterer of Nebraska.Surely there was a time when Warren Buffett was a chief executive worth studying, and even investing alongside. But it sure seems like that time is long past, particularly in contrast to a couple of similar, but much better, conglomerateurs that I’ll introduce you to in a moment…

..Buffett released the fiscal 2005 earnings report of his holding company, Berkshire Hathaway (BRK.A), on Saturday, as well as an annual report and 22-page chairman’s letter.

And when you get past all the juvenile humor, unseemly criticism of rivals, self-promotion and homilies, you are left with one impression: This is one heck of a way to disguise the fact that—outside of an accounting gain—earnings were down 29% in 2005. And that shares turned in a fifth-straight year of underwhelming performance in the only metric that investors truly care about: the advance of the price.

Did I say the stock price is all that matters? Gosh, that seems so craven. I am so sorry to bring it up. But that is what investors are paying him for, isn’t it? To boost earnings in a way that encourages new buyers to be more aggressive than sellers, making the price go up?

That is why we buy most stocks. But Berkshire Hathaway is more a cult than a security.

Just read the 2005 report, and you will see that it is largely filled with boasts that the chairman has goosed book value by slapping together an insurance, retail, media and construction conglomerate that looks more like something the cat dragged in than a streamlined earnings machine.