Wired Mosaic

Low-Down, Dirt-Poor, Hands-to-Heaven College Application Parental Blues

2009-01-17T09:32:00.001-08:00

I haven't posted in more than five weeks, having submitted myself to an alternative form of torture - the "wayward son college application ordeal".

I applied to colleges in the 1970s. And wow. I am not in Kansas any longer.

Talk about a meat grinder, a cellulose processor, a proctology exam, a test of faith, a deal with the devil, a flirtation with death. All rolled into one. Working with my son to submit applications to 10 schools (more shortly on why we applied to 10, and nearly considered to applying to 310) consumed every second of my spare time between November 1 and January 1.

And that does not include the remaining hours (days? weeks?) necessary to submit to his colleges the scores of financial aid forms (CSS, FAFSA, Business/Farm Supplement, copies of W-2's, 1040's, K-1's), and presumably the hours that will also be spent prostrating myself before brooding, punitive financial aid enforcers (hooded, shirtless, broadsword-wielding, teeth-blackened, breath-putrescent).

In the old days, applying to college was a low-key affair. Even the most competitive schools had yet to amp up their application process. We filled out a simple form, wrote a short (laughably bad) essay, sent in our SAT's and perhaps one or two pathetic scores from AP classes, asked our teachers to submit desultory letters of recommendation (I think desultory was the expectation), and all was well.

I grew up in Princeton, New Jersey, where, because of the influence of Princeton University, all of students at Princeton High School - except for me - were good-looking, brilliant, and sexually active. And even I had a positive, low-stress college application experience. I applied to five schools, visited them all (by myself) by train or plane, stayed overnight in the dorms with students, was introduced to the most "on" alcohol and drugs of choice at that school, possibly attended a class (but possibly didn't), and generally learned as little as I could about the school's academics during the time on campus.

Oberlin offered to admit me during my interview. Of course, that immediately destroyed any interest I might have had in going there. Yale and Swarthmore wait-listed me. For somewhat unclear reasons, I preferred Swarthmore (small, nerdy, a place where I was destined to feel lonely and isolated) from Yale (which even then was the coolest school in the world, made even cooler at the time by the omnipresent, titillating threat of being mugged or murdered whenever one stepped three feet beyond the 60-foot high, machine-gun-manned, razor wire walls of the campus).

Because I preferred Swarthmore, I wrote an insincere, ingratiating letter to the Dean of Admissions about how I had wanted to attend Swarthmore ever since I'd learned as a young lad that the college's former president had, heroically and melodramatically, dropped dead of a heart attack in his office during a days-long blockade by gun-wielding black militant students in the late 1960s (trust me, the idea of "black militant students" at Swarthmore would not be so different from casting David Spade as rapper Biggie Smalls in the newly released biopic). I also thought it was cool that the school straddled railroad tracks where depressed students routinely rested their heads just before the Media Local commuter train rattled around the bend, always on schedule with death.

So of course, Swarthmore admitted me. And I lived unhappily ever after. But the point is that college applications back then - for baby boomers - were simply not that big a deal. The parents were not involved. The cost was not outrageous (I think Swarthmore cost about $4,000 for tuition, room, and board my first year). It wasn't very hard to get into a good school. I had one friend with good grades and SAT's, but absolutely no extracurricular activities or awards. He applied (late, if I remember) to only Yale and Harvard. And he got into Yale.

Ahh, times have changed. Let's consider my son. Let's call him "Daniel". Let's consider my son's high school and friends. And let's also consider their infinitesimally small chances of getting into college. And then their even smaller chances of paying for college. And the ensuing acrobatics and pyrotechnics that ensue between November and January to provide our offspring with the slightest extra edge in the battle to bankrupt ourselves so we can plant a sticker on our car window that names some tiny college no one has ever heard of.

"Daniel" attends Garfield High School in Seattle, an urban, predominantly African-American high school of about 1,600 students with deep historic roots in the black community of Seattle. Students attending Garfield include Quincy Jones, Jimi Hendrix, Bruce Lee, and, most recently, NBA Rookie of the Year and All-Star, Brandon Roy.

Garfield is also a feeder school for students in the Seattle Public Schools Accelerated Progress Program, a separate (highly controversial) learning environment for academically gifted students, most of whom are white or Asian. Daniel has been in this program since 1st grade. He has always been very bright, with significant talents in music and writing, but never been the least bit ambitious, driven, or passionate about his schoolwork. He's only done the minimum amount of work necessary to get the grades he wanted, generally at the last minute, and sometimes even then falling short.

What I respect about Daniel is that he is not at all like his father. Daniel places a high value on being happy, and works hard at defining moments of happiness for himself. Everyone at Garfield knows "Danny". He is well-regarded for his kind and unpretentious manner, his generosity of spirit, his loyalty, his great sense of humor, and the delight he takes in just goofing around with friends. In short, he is just the sort of student who has almost no chance of getting into the schools where he would thrive, grow, and achieve the happiness toward which he strives.

So this was our predicament heading into the school year. Ironically, I knew (although no one else possibly could) that Daniel would be more at risk at the less competitive colleges than at the most competitive colleges because he would inevitably float in the middle - contributing in many small and significant ways to the well-being of the school, but only challenging himself to achieve in the classroom in ways that made sense to him. I knew he could handle the work at the top schools (even though his grades might not indicate it) and that he would grow enormously as a person and as a student at one of these schools. I also knew that he would be bored at the lesser colleges (where it might seem he would more easily outperform his peers).

But try laying this argument on the more elite colleges and universities in the country: If you admit me, you can expect me to provide the glue that all communities of young people need to thrive and flourish, but can also expect me to drift a bit academically, particularly at first, not because I cannot handle the work, but because more than anything, I care about the glowing moments of happiness that a life in balance will produce, poking holes in the umbra of campus existence, flooding it with warmth and illumination that transcends and makes palatable the often-dry, exhausting work of studying and learning from books.

So Daniel, surrounded by peers who achieve at superhuman levels (and mindful that he was, first and foremost competing against his superhero high school friends because they were all applying to the same schools), crafted a strategy that involved applying to lots of very good schools, knowing that his odds of getting in were relatively low, but realizing that nonetheless these truly were the schools where he belonged.

Enter his father. The same "in-the-moment" spontaneous approach to life that makes Daniel at once so charming and so infuriating meant that there was no way he would be able to manage the herculean organizational tasks involved with applying to 10 schools on his own At the age of 17, when happiness, spontaneity, and living in-the-moment mean, above all, not spending time with his parents, neither Daniel nor I relished the interactions my efforts to assist him in assembling, thinking about, writing, editing, and submitting the materials for each school's application would require. Would my relationship with Daniel - already a bit like hugging a cactus - survive?

We did one thing right. Daniel decided to apply to Yale Early Action. This was a delusional decision in the sense that he really had no chance. With Harvard and Princeton eliminating their Early Decision programs, every talented kid in the country was instead applying to Yale. Their Early Action numbers soared by 60 percent in two years. This year, the school admitted only 13 percent of these applicants. And after tracking the College Confidential message board like a stalker in the days before the November 15 announcement - where every student waved like flashing badges of glory their 2400 SAT's, 4.0 GPA's, and Perfect 5's on the 10 or 12 AP exams they had taken - I welcomed Daniel's rejection. I think he cared more about going to school where people were smart and happy, not perfect and plastic.

Daniel's rejection from Yale did provide some good news. Yale had removed from play a very large pool of perfectly plastic applicants, who would no longer trouble Daniel and and his friends at the other schools where he was applying. Another piece of good news was that by applying early to Yale, Daniel had gotten his ducks in a row for the Common Application, the allegedly "streamlined" approach to submitting applications to multiple schools. All ten of Daniel's schools relied upon the Common Application, so preparing it for Yale meant that Daniel could focus only on the "supplements" to the Common Application that all schools require.

In truth, these "supplements" were often as daunting as the Common Application. With the nearly ubiquitous January 1 deadline bearing down us during the holiday break, getting each of these applications in order generated enormous stress. The fault lines of our world had already been cracking. My company, which serves legal and financial professionals, faced an uncertain future as the country disintegrated financially. I also had made the mistake of taking on responsibility for my son's high school band jazz website (on the misguided assumption that, after a lifetime of avoiding any commitment to volunteering in any way at all, it was time for me to "give back" to the musical organization that had given so much to my son). Finally, we had no money but were doing our best to create a "festive" holiday mood for our children. Amidst this confusion and stress, I also had to apply pressure on Daniel every day, every hour, to make sure he was focused on his essays and his mind had not drifted off to Facebook or YouTube or The Wire or Madden or a game of Fugitive with his friends.

Daniel did not appreciate this pressure. He understood rationally the importance of these applications, but some, supremely healthy part of himself rebelled against the idea that they should take so much from him, that they should warp his life, distract him from his studies, his music, his own writing, his athletics and his friends (perhaps not so much from his family). And so we drew our hammer and our tongs and went to war for three weeks. Not pervasively and consistently, but intermittently and with savage intent. He swore. I yelled. He slammed doors. I stomped out of the house. We both glowered. As my wife likes to put it, we battled like dinosaurs, the most primal and survival-oriented parts of our brains activated and firing like Gatling Guns.

In the end, Daniel submitted his applications on time. The outcome is now out of his hands. He still needs to nail his grades for this semester, so he and I still posture and bellow from time to time. But the moment of surcease is at hand for him, that point in time when he can relax because his destiny is now with others to determine. Maye this the way someone feels when they walk to the gallows and they realize that all is now with God. Is it a sensation of peace? Or grace? Of fear? I do not know. But at least one can let go. And for a 17-year old who needs to get on with the great adventure of taking on life with both hands and riding it raw, letting go of the college decision-making process must feel pretty damned good.

As for me, I continue to fret and obsess. Beyond the financial aid hurdles, I have taken to crunching numbers and building models to predict various probabilities for admission. A certain, soothing fascination accompanies this mechanical absorption in abstraction because it offers illusions of rationality, understanding, and control in a decision-making universe that is very much not about those things.

I've learned a lot about the empirics of admission, too. For example, at many schools, girls have nearly a 50-percent smaller chance of gaining admission than boys (they apply in much greater numbers). On the other hand, it also helps immensely to apply as a racial minority or as an athlete or as the child of a parent who attended that school. The hot "hook" these days is to be the first person from one's family to attend college. Daniel falls short in all respects. His parents are embarrassingly over-educated. Daniel is so white he is almost translucent. And while he loves sports, his cross-over dribble might not gain him admission to the local middle school.

I have created admissions models that allow me to project the chances that any child will gain admission to a particular school from within a universe of schools to which they've applied (after all, only one school needs to step up and say "I choose you!"). They generally verify the obvious - make sure you have a safety or two. But they also indicate that applying to many fine schools is also not a bad approach.

Whether my models apply in the real world - whether they matter in Daniel's case - remains to be seen. We will know by April 1. Perhaps I will report what happens on that date ... if my mind and body can survive our efforts to figure out how to pay for whatever school does admit Daniel.

Facebook's Face Plant: The Poverty of Social Networks and the Death of Web 2.0

2008-12-08T22:09:00.000-08:00

It is safe now to say that "Web 2.0" is dead. The evidence is irrefutable and it exposes the twin fallacies the concept of Web 2.0 has depended upon: 1) that people can build their worlds around - indeed, will want to build their worlds around - social networking; and 2) that social networking offers a viable, massively scalable business model.

Let's begin with Facebook, the most popular social networking website in the world. With more than 120 million members, and 60 billion monthly page views, the website is expanding at a white-hot rate. At any given time, students are facebooking each other around the world - in more than 30 languages (with user-created translated editions of the site) - thousands of time per second. While not yet profitable, Facebook has achieved in only four years the signifier of a premium brand - it is now a verb.

A recipient of almost $350 million in equity funding (and another $240 million in debt funding), Facebook charmed the technocracy in 2007 when Microsoft purchased a 1.6 percent stake for $246 million, valuing the company at more than $15 billion. Now, as we close the books on 2008, one might wonder if Facebook is actually worth anything.

The company has grown rapidly by any measure, with estimated 2008 revenues of nearly $300 million. From zero to $300 million in four years is nothing to sneeze at. But the company is burning through cash much more quickly than it can replenish its coffers. Its electricity, bandwidth, data storage, and personnel costs are immense. The company needs to buy 50,000 servers alone in 2008 and 2009 to manage its traffic and storage needs.

At the same time, the economy - and advertising rates for banner ads - have fallen off a cliff. Facebook has grown overly dependent on international growth - with 3 out of 4 users from outside the United States. Foreign use is expensive to support and generates little revenue. And so the rumor mill churns with stories of the company's financial quandary. Will Facebook run out of cash? Has it grown too large for US corporations, private equity funds, and venture funds to finance? Can it go public? Why is Facebook CFO Gideon Yu in Dubai? Is a sovereign wealth fund the only cash option for Facebook at this point? Is Facebook itself staring into the gun barrel of the largest financing down-round in history?

Facebook's problem is not simply that it cannot grow revenues rapidly enough. Facebook confronts the challenge that aggrieves any social network creating a virtual reality for building and sustaining human relationships. That challenge is Burnout, the acrid smell of neurons frying, and eventually a longing to return to the wholeness of the physical world.

Some examples. My 17-year old son uses Facebook 2-3 hours a day, switching back and forth between FB, ESPN, YouTube, Gmail, Google Docs, and iTunes with the smooth, liquid lightning of a boy who has manipulated game controllers for more than a decade. He loves Facebook. He depends on it for a vast amount of communication, self-expression, entertainment, and bonding with his peers. But I asked him if he would be willing to pay any amount of money for an annual subscription to Facebook. He paused, and then finally said, "I dunno. Maybe $50. Max."

Kids are turning off to Facebook. Two of my son's friends have deactivated their accounts. They realized that they had too many "friends" whom they did not actually know. They found themselves clicking aimlessly from page to page for too many hours at a time. They got bored. They missed books and movies and the peaceful white space in their lives that Facebook (not to mention MySpace) is so bent on filling in with user-generated "content".

They grew up.

And one day, my son will, too. As Facebook has percolated down to kids in high school (and now even to middle school) and bubbled up to parents who are now themselves "friends" with the friends of their children and spread to every corner of the globe, it has become less exclusive, less interesting, more overwhelming, and ultimately more annoying.

The problem with Facebook is that it feeds on trivia, and in the process has become trivial itself.

What, in the end, will people pay for trivia? Very little. At my behest, my son polled his friends and asked them what they would pay for an annual subscription to Facebook. He asked 9 boys and 6 girls. Remember, these are high school juniors and seniors, the sweet spot of the Facebook market. In this sample, 5 kids said they would not pay anything. Another 6 said they would not pay more than a dollar a month. The most anyone would say Facebook was worth to them was $50 annually. Wanting, as always, to fit in, my son reduced his own payment limit to $25 as he reported these results.

This creates a major problem for Facebook, and for other Web 2.0 social networks. The problem is commitment. Facebook has created loyalty without value, quanitity that drowns quality. Who can say that MySpace or adult versions of Facebook such as Linked In are any different?

During the election, the addictive and massively popular political site, Pollster.com, disabled its comments feature. Mark Blumenthal simply could no longer accept the assault of abusive, insulting, and profane comments of anonymous posters to the website. And this is the problem with Web 2.0. There is no filter for quality. Websites built around or dependent upon user-generated content all too often resemble online versions of talk radio.

Web 2.0 will die. The universal social networks that are its public face cannot survive because they cannot propagate a sustainable user base willing to pay for its services. Remember America Online? Netscape killed it (and so AOL killed Netscape). Facebook is nothing more than a new version of America Online, with lots of calories but not much nutrition.

If Web 2.0 dies, it will nonetheless leave a remarkable legacy. Social information and knowledge sharing technologies such as those one finds on Wikipedia, Amazon, Flickr, and even the New York Times website are incredibly efficient ways to harvest useful opinion and knowledge. Product reviews on Amazon pool valuable user experiences with specific products (although typically not with books, where Amazon book reviews can suffer from the same oversaturation as Facebook - consider this reflection on the mixed reception from Amazon readers of Jonthan Franzen's best-selling literary novel, The Corrections).

Flickr lets anyone travel the world while sitting in bed with a laptop computer (want to see 666,000 photos of Iceland?). And Manhola Dargis's November 21 review of the creepily chaste vampire movie, Twilight, elicited more than 1,000 reader responses when she solicited their opinions about the scariest movie of all time.

The lesson is clear. Social information and communication requires targeted aim, meaningful purpose, and self-correcting standards of quality. Universal social networks such as Facebook, almost by definition, cannot maintain this focus. For this reason, they cannot survive in their current form.

Mortgage Re-Default Rates. Be Scared. Be Very Scared.

2008-12-08T13:49:00.000-08:00

Comptroller of the Currency John C. Dugan spoke before the 3rd Annual National Housing Forum of the Treasury's Office of Thrift Supervision today. He didn't waste any time getting to the point.

Dugan provided the bad news first. The third quarter OCC Mortgage Metrics report - on mortgages serviced by the largest banks and thrifts - reinforces the unnerving trends we already know about: declining credit quality, increasing delinquencies (especially for prime mortgages), increased foreclosures, and accelerating foreclosure sales.

And then he provided the badder news.

For the first time, the OCC tracked "re-default rates", the percentage of borrowers who re-defaulted on their mortgages following restructuring or other modifications designed to allow them to retain possession and ownership of their homes. The data is not pretty.

Consider the first quarter of 2008. After three months, 36 percent of borrowers with mortgages modified in this quarter had re-defaulted (with payments more than 30 days past due). At six months, this re-default rate had risen to 53 percent. And after eight months, it had reached 58 percent. The data is almost identical for mortgages modified in the second quarter of 2008. For those arguing that 60 days past due is a better predictor of ultimate default and foreclosure, the numbers are hardly better, with re-defaults in excess of 35 percent after six months.

Dugan asks the right questions about the cause of these high re-default rates, but admits the OCC - and probably no one else - yet has any answers. The deep structure to this problem may lie with the vicious cycle into which the housing credit meltdown has spun the nation - with rising unemployment, loss of health insurance, mounting credit claims, and an underlying psyche of despair - limiting the positive scope of simply restructuring mortgages to make them more "affordable".

Part of the problem, of course, is also that lame ducks can only quack. They cannot walk. We will need to await the launch of the Obama Administration and the policies of incoming Treasury Secretary Timothy Geithner to see what impact a more mobile, systematic, and full-bore attack on this complex set of economic problems can achieve. Reversing the rising rate of unemployment via stimulus may be the key. Until then, our response can only be one of shock and awe.

His Keyboard versus the Climate

2008-11-21T12:58:00.000-08:00

Eric de Place published a fabulous post in Sightline on November 20 entitled "My Keyboard Versus the Climate". In the spirit of Think Globally, Act Locally, Eric points out that the handy little air blasters from Office Depot that we use to clean our keyboards and spray down the pants of our co-workers are miniature greenhouse gas bombs. Emptying one of the canisters onto a co-worker can release greenhouse gas equivalent to driving a smallish car across the country and halfway back again.

The fiendish chemical used in air blasters is tetrafluoroethane, a hydrofluorocarbon (HFC) developed to avoid the ozone-depleting effects of chlorofluorocarbons, the more traditional referigerant and propellant chemical compounds. So air blaster fans may notice that canisters advertise that they are "ozone safe", without equivalent disclosure that they are "greenhouse-gas castrophic". HFCs can be up to 20,000 times more powerful in their effects on global warming than a similar amount of carbon dioxide, with an atmospheric lifetime of 260 years, and have been targeted for elimination by the Kyoto Protocol.

Many economically developed nations - Australia and European nations, but not the United States or Japan - have initiated efforts to substitute use of compressed CO2 (believe it or not) for HFCs in refrigerant and propellant applications. Other Asian nations - notably Thailand - have also begun to use CO2 as refrigerant. However, China has long been gaming the carbon trading rules under the Kyoto Protocol, amassing billions of dollars of carbon credits by catching and destroying HFCs they have needlessly produced.

Greenpeace has been at the forefront of efforts to curb use of destructive refrigerant and propellant chemicals through its Greenfreeze effort. By 2004, this initiative had led some major multinational corporations, such as McDonalds, Coca-Cola, and Unilever, to incorporate more environmentally friendly refrigerants into their operations. However, the United States and Japan, along with China, have remained obstacles to reform. The U.S. Environmental Protection Agency, the Japanese Ministry of Economy, Trade, and Industry, and industry stalwarts such as Honeywell, DuPont, Ford, General Motors, Fujitsu, and Hitachi all oppose regulation.

The Alliance for Atmospheric Policy is the major trade group representing manufacturers and consumers of HFCs. Their focus is on gas containment and recovery based on voluntary industry efforts, rather than regulations limiting or banning manufacture altogether. Critics suggest that containment and recovery efforts are failing, with HFC leakage rates from automotive air conditioning approaching 30 percent.

So - throw out those cool little air blasters. In the Obama era, these will be as cool as a fist bump in Wasilla.

Since I publish for the Huffington Post, I also need to mention that huffing air blasters - which apparently some kids do - is a deadly game. Manufacturers now add a "bitterant" to discourage huffing, something Matt Drudge may consider doing to the Huffington Post.

Risking Our Best Talent? Send Them All to Double-A Birmingham!

2008-11-19T11:02:00.001-08:00

Serial entrepreneur Penny Hersher worries about a talent-retention challenge if Wall Street eschews bonuses this year. In response to a Bloomberg article on public objections to mega-bonus payouts to Wall Street executives, Hersher says that "talent" follows money, and if the money goes, then the "talent" that financial institutions need to flourish will likewise disappear. OMG, she writes! "Our best deal-makers will go where the money is and that better be in the Untied States and at the institutions that make our financial systems work."

Excuse me? "Make our financial systems work?" The compensation structure on Wall Street is the major reason our financial systems don't work!

Hersher assumes that without proper compensation an active, dynamic, international labor market will lure away an impressive cadre of Wall Street talent that has for years juiced revenue and earnings precisely so it can inflate its year-end bonuses. But this market has collapsed. To what new suckling breast will the securitizers and traders and analysts flee as markets and banks crumble around the world? And in the new world of highly regulated bank holding companies that will emerge from this wreckage, who will want their skills, their rancid flesh aboiling with the mortal sins of gluttony, avarice, fraud, theft, and cheating.

But that labor market reality is a trifle. No one suffering in middle America - because they have lost their job, cannot afford health care for their children, cannot make payments on their homes, cannot send their children to college, or cannot pay taxes to fund public schools, pave roads, and pay for police protection - believes that our most urgent need at this moment in time (or any moment in time) is to dispense obscenely outsized bonuses to Wall Street plunderers and pirates.

For this reason, the deep and abiding issue is whether Hersher is correct in her belief that money alone motivates talented people. Let's push her vague definition of "talent" aside for the moment so we can be very clear. There is a huge amount at stake in the validity of Hersher's belief, because the entire Wall Street economy has for years rested upon its shaky, misbegotten foundations.

There are three problems with the "talent follows money" equation. The first is the assumption that organizations are simply collections of self-seeking individuals. The second is that idea that the most talented people will invariably follow the money (as opposed to merely the greediest people). The third problem is the belief, prima facie, that because someone has been paid a lot in the past, they deserve even more in the future.

Let's attack all three problems at once by looking at everyone's favorite behavioral laboratory - major league baseball! In 1989, Michael Lewis published Liar's Poker, in which he nailed the go-go years on Wall Street in their infancy. Fifteen years later, he published Moneyball, which cracked open the science of sabermetrics, but which even more profoundly laid bare the truth about the delicate relationship between talent and money. Moneyball is a filigreed, layered sequel to Liar's Poker, justly regarded not simply as one of the better baseball books of all time, but as one of the most interesting depictions of organizational and managerial behavior ever written.

What we know about major league baseball, from watching the Yankees implode year after year, is that compensation often rewards past performance, but does not predict future performance. In 2008, with a payroll of $43 million, the Tampa Bay Rays won 97 games while the Yankees, with a payroll of $207 million, won only 89 games. The best general managers in baseball, starting with Oakland's Billy Beane, know that success is about creating highly functioning, cohesive organizations out of 25 gifted, competitive, volatile, young athletes ever at risk of being led astray - as Honest John leads Pinnochio astray - by temptation (here, substitute Scott Boras for Honest John).

What young general managers around the league have grasped, partly with the guidance of sabermetrics, but just as surely with insights about human behavior, is that talent is not static. Talent is developed. Teams take advantage of developing individual talent tactically and situationally A player who performs well in a National League park favoring left-handed hitters may lose 50 points in his average in an American League park favoring right-handed hitters.

Moreover, talent ripens like a fruit. In an expensive labor market, one wants to pay while the fruit is still green and mysterious, take advantage of its ripening, and then discard it at the peak of of its freshness, preferably for new fruit that is newly awakening to its own promise. How often have we seen players such as hypo-performing slugger Richie Sexson take advantage of favorable circumstances to post outrageous numbers, sign an equally outrageous contract on the free agent market, and then implode? Sexson received nearly $16 million from the Mariners in 2008 to bat .218 and hit 11 home runs.

In reality, the "best" players are the ones that help a team win. They may not be, and in fact likely will not be, the most expensive players on the market. They are the ones with "upside", the ones with passion, the ones who want to grow and learn, the ones who understand that if the team wins, the individual rewards will follow. The money is not unimportant to these players, but they possess the capacity to absorb the financial incentives within a larger and more complex array of motivations that are primarily non-monetary. Who, with a straight face, can claim that Wall Street plays by these rules, and that the rules by which Wall Street instead does play have truly served well both its institutions and its far-flung web of dependents?

Why I Don't Like Economists

2008-11-11T13:33:00.000-08:00

Actually, I do like economists. One of my long-time friends is Jeff Frankel, who teaches economics at the Kennedy School of Government at Harvard and who served on President Clinton's Council of Economic Advisers. I rented a room at Jeff's house in Berkeley 25 years ago, when he was a young professor and I was an even younger graduate student. There I was able to meet many famous economists, including future Treasury Secretary and Harvard President Larry Summers and future Nobel Prize winner George Akerlof.

At Knowledge Mosaic, one of my jobs is to publish the Securities Mosaic Blogwatch, which includes licensed content from more than 25 of the leading legal and financial bloggers in the country. Among them, I count a number of professors from the Law and Economics movement, lawyers with a background in economics (some, such as Josh Wright, a rising star at George Mason University, have both a law degree and a PhD in economics).

They're all great guys, smart and amusing and passionate about their work. So what's not to like about economists? In a word, hubris. Economists fly too close to the sun of science. Their wings melt.

Consider Greg Mankiw, the famed Harvard economist and CEA chair under President G.W. Bush, now author of a popular blog. On November 5, he printed a table ranking GRE scores by graduate field, with graduate students in physics, mathematics, and computer science alone ranking higher than economics. Political science, sociology, and psychology trailed far behind, in 17th, 23rd, and 24th place, respectively.

Mankiw titled this post, "Larry, Vindicated," a reference to a conversation in which then-Harvard president Larry Summers asked Peter Ellison, a professor of biological anthropology, whether he didn't "agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” In his subsequent recommendation that Summer resign, Ellison condemned the "intellectual arrogance" of Summers' question and emphasized the generally polarizing and demoralizing impact of his attitudes on the Harvard faculty.

For now, let's not even consider that Mankiw's post, with its sneer of "neener-neener", is remarkably juvenile and significantly beneath his professional station. The underlying logic of the post itself - that economists are "smarter" and therefore more "worthy" than other social scientists - is silly. Mankiw adopts a similarly patronizing (and silly) tone in his November 8 "Memo to the POTUS-Elect," which tosses out recommendations that Obama listen to his economists on various and sundry matters, like garnishes upon a wilted bed of lettuce.

The contempt of economists for other social science disciplines is legendary, associated with their view that economists practice "real" science while political scientists and sociologists and psychologists practice, at best, a kind of crude guessing game. As someone who holds a PhD in political science, far be it from me to defend that discipline, or to claim that it in any way resembles the natural science disciplines. I plead guilty to the crude guessing game charge.

The problem with economists is that they possess no similarly ironic distance from their own discipline. The mathematical orientation of modern economics is the foundation of the view within the discipline that they practice real science. In truth, this resemblance constitutes a false positive (reinforced by the false Nobel Prize the Bank of Sweden awards to an economist each year).

In the GRE table, economists rank 8th in quantitative skills and 4th in analytical reasoning. However, mathematical, logical, and reasoning aptitudes alone do not translate into wisdom, judgment, or intelligence. Financial engineering systems failed to successfully model risk, for example, because they did not accurately assess the behavioral dimension of risk, the "hierarchies of belief" that underpin human preference-ranking and decision-making.

In retrospect, of course, many economists have analyzed and criticized the failure of these models, and more specifically, the failure of the analysts who misused these models. Some have belatedly acquired the religion of regulation. Save James Galbraith, however (who believes the financial meltdown constitutes "an enormous blot on the reputation of the profession"), economists themselves, have not used this misapplication of mathematical modeling as a teaching opportunity for their own discipline.

By the way, if one looks more closely once more at the scores in the GRE table, economics ranks only 10th in the verbal component, behind philosophy, English language and literature, history, religion and theology, art history, anthropology and archeology, physics, political science, and earth sciences. Neener-neener, indeed.

Obama's Biggest Challenge: Foreign Policy Revanchism

2008-11-10T06:32:00.000-08:00

I run a small technology company in Seattle, and will normally focus my HuffPosts on business, culture, and technology. As we absorb the meaning of Barack Obama's election, however, I cannot help but launch my inaugural post with some thoughts on his biggest challenge as president: which will be facing down the coming assault from the revanchist, hard-right base of the Republican Party.

Swept from power and nursing deep wounds, loosened from the responsibility of governing and free to attack without any consideration for coalition-building or compromise, the surviving Republican members of Congress, in alliance with their media allies and their geographically insulated bases of support in the nether regions of the nation, will do their best to make Obama's life miserable. And let's not fool ourselves. The politics of falsely righteous Republican anger and contempt we witnessed throughout the presidential campaign will increase in intensity in 2009.

The Republican base is like a three-legged stool, drawing support from social (values-driven) conservatives; economic (free-market) libertarians; and militaristic (nationalistic) neoconservatives. Let's focus on the foreign policy neocons, those who led us down the bloody road to Iraq and who, like Sauron separated from his ring of power, will seek with great urgency to undermine and weaken those who stand between them and a return to the uniliteralism of a hegemonic power.

Obama's foreign policy will begin with the assumption of a multilateral global arena in which the United States plays a leadership role based on alliances and diplomacy. Hardened, cynical views of international relationships - in China, Russia, Iran, and Venezuela, to name four examples - will challenge Obama's commitment to multilateral diplomacy. Nonetheless, in dealing with foreign leaders, Obama will have two assets on which to draw: his personal charm - which is so important in cultivating trusted relationships among leaders - and a willingness to leverage the influence of other countries, in Asia, Europe and elsewhere, in achieving tangible policy victories with respect to nuclear proliferation, global warming, and Islamic radicalism.

Obama's major challenges therefore will not come from abroad, but from home, where a steady drumbeat of revanchist criticism from the right, and blasted through media organs such as Fox News and the Wall Street Journal editorial page, as well as from Congressional firebrands in the Republican Party, will make his path from a military-first doctrine to a diplomacy-first approach like dancing across a bed of hot coals.

For now, Obama can bask in the glow of admiration from right-wing pundits such as William Kristol, George Will and Charles Krauthammer who respect his intelligence and political skills. For a sample of the savaging he can expect to receive in the days following his inauguration, we might do better to sample Daniel Henninger in the editorial pages of the Wall Street Journal, Oliver North on Fox News, and John Bolton at the American Enterprise Institute.

Neoconservatives voice an ideology based on two self-reinforcing principles. The first is their belief in American exceptionalism, the idea that the United States is not "like" other nations, that we are superior by virtue of our history and our values. The second is that with the end of the Cold War, the world will plunge into chaos without strong, active directives from the United States. Let's be clear. Directives are not leadership. They are more like military orders, in this case supported by the global projection of American military power throughout the world.

As Chalmers Johnson observed presciently in Blowback, first published in 2000, the territorial projection of US military power - with more than 700 US military installations housing nearly one million troops, dependants, contractors, spies, in more than 130 other nations around the world - creates local resentments and reinforces the self-fulfilling prophecy of "enemies at our doorstep." The obvious costs of these deployments aside - both financial and political - we are dancing with the the Devil for more troubling reasons that Obama may only with difficulty be able to address.

The policy of force projection and maintenance of a global military infrastructure depends upon: 1) a web of payments and quid pro quos with non-elected leaders of other nations; 2) a commitment to secrecy and the absence of meaningful oversight and transparency; and 3) a reliance upon covert activity, spying, secret missions, and subterfuge (note revelations of the order permitting secret raids on Al-Qaeda around the globe, in nations such as Pakistan, Syria, and Somalia).

We need a foreign policy for the 21st century. Obama's success in transforming US foreign policy into a tool of constructive, meaningful engagement with other nations depends upon his ability to rebuild shattered relationships upon a new foundation of open communication, outreach, trust, and accountability. To build a foreign policy for the 21st century, Obama can draw upon the success and methods of his own political campaign, which used new technologies and means of communication already widespread around the world to reach and speak directly to individual Americans.

The problem Obama will face is in dismantling the structural outposts of our dated 20th century foreign policy driven by the strategy of force projection and a global military infrastructure. Our economy in great measure depend on this stimulus - let's call it "military welfare". Our concept of national security - both psychological and physical - also depends upon this policy, with its insinuating values of strength and of a proactive, global state of military readiness to address threats that by definition this policy frames as "us" against "them".

Let's be absolutely clear. Obama will need to draw upon all the reassuring calm he inspires to shift our sense of the world from one in which threat predominates to one in which opportunities for constructive relationships abound. He must adopt his superhero identity of Ocalma and resist what will surely be a strong impulse from White House advisers and Congressional allies to not appear "weak" when tested, not simply by foreign foes but by shrieking adversaries from the Republican right. Above all, he must work, slowly perhaps, but also steadily and with determination, to dismantle the global military web of bases and policies that have themselves been the source of anger and resentment contributing to our national insecurity.

Welcoming Carl Icahn to the Securities Mosaic Blogwatch

2008-10-29T12:05:00.000-07:00

We are honored to welcome Carl Icahn to the Securities Mosaic Blogwatch. As most of our readers will know, Mr. Icahn is one of the most prominent, influential, and outspoken investors in the world.

We will let Mr. Icahn's introduce himself below, in the wonderful autobiographical sketch written for the Icahn Report website. For myself, I am thrilled to add his trenchant intelligence, biting wit, and fearless voice to the Blogwatch. You can read his inaugural post - 100 Million Reasons Why We Need Governance Changes Now: Join USA - in today's issue.

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About Carl Icahn

I was born in Brooklyn and grew up in Far Rockaway, Queens. My father was a frustrated opera singer and settled on being a cantor in Cedarhurst, Long Island. The fact that he was a dogmatic atheist did not exactly help him to get ahead in this profession and after a number of years he became a substitute teacher. My mother also worked as a schoolteacher. I attended the local public school, Far Rockaway High, later heading to Princeton University. My mother wanted me to be a doctor, so after earning an A.B. in Philosophy in 1957, I went to medical school. I quickly realized the medical field was not for me. After two years, I joined the army and soon after eagerly returned to New York to start a career on Wall Street.

My career began in 1961, as a Registered Representative with Dreyfus & Company. I learned options and convertible arbitrage and built up a large business. By 1968 I bought a seat on the New York Stock Exchange and started Icahn & Co. Inc., a brokerage firm.

In 1978, I began taking control positions in individual companies. Over the years, I have taken positions in various corporations including: RJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, American Can, USX, Marvel, Imclone, Federal-Mogul, Kerr-McGee, Medimmune, BEA Systems and Time Warner. I became Chairman of Bayswater Realty & Capital Corp. in 1979; and Chairman of ACF Industries, Inc. in 1984 among others.

Today, I am Chairman of Icahn Enterprises, a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate, and consumer goods. I have been the Chairman of American Railcar Industries since 1994 and a Director of Blockbuster since May 2005. I became Chairman of ImClone Systems in 2006. In January 2008, I became the Chairman of Federal-Mogul.

My wife Gail and I serve on the boards of my foundations. They include Icahn Charitable Foundation, Foundation for a Greater Opportunity, and Children’s Rescue Fund. Working with the Foundation for a Greater Opportunity, I founded three charter schools located in the South Bronx. The 2007 New York State English Language and Arts Exams show 80% of the kids at the Carl C. Icahn charter school passing the exam testing 36.7% higher than the neighborhood average and 97% passing the exam 37.5% higher in Math. In addition, we sponsor the Icahn Scholars Program at Choate Rosemary Hall. The Children’s Rescue Fund started the Icahn House in The Bronx, a 65-unit complex for homeless families housing single pregnant women and single women with children, and operates Icahn House East, a homeless shelter located in New York City.

Hey Old White Guy, Get out of the Way

2008-10-23T20:06:00.001-07:00

Hegel famously remarked that the owl of Minerva flies at dusk. As the presidential campaign nears its end, we finally see clearly what it is about. Not race. Not gender. But youth.

We be one tired country. And what the debates brought home was that a tired old man cannot revitalize us.

In his youth, John McCain was special. Watch the footage from his hospital in Vietnam in 1967, and visualize the torment that awaited him, knowing what he endured. Visualize also, the many passes he has subsequently received for "erratic behavior" (for infidelity, emotional coldness, a sharp temper), from his first wife and others, as a result of what he endured.

It is October 2008, though, and McCain is now old and what we have learned is that the only thing for which there may be no pass is age.

Earlier this summer, Jesse Jackson (67 years old) told the world that he wanted to cut off Barack Obama's nuts for "talking down to black people" about personal responsibility

Rapper Nas (35 years old) replied as follows: "I think Jesse Jackson, he's the biggest player hater. His time is up. All you old n---as, time is up. We heard your voice, we saw your marching, we heard your sermons. We don't wanna hear that sh-- no more. It's a new day. It's a new voice. I'm here now. We don't need Jesse; I'm here. I got this. We got Barack, we got David Banners and Young Jeezys. We're the voice now. It's no more Jesse. Sorry. Goodbye. You ain't helping nobody in the 'hood. That's the bottom line. Goodbye, Jesse. Bye!"

And that says it all. Young people are the voice now. As Colin Powell forcefully stated last weekend, generational change inexorably sweeps away all in its path. Sixteen years ago, we had a president - George H.W. Bush - who fought in World War II. We shortly may elect a president who can barely remember the Vietnam War.

And thank God for that, because Barack Obama is paired against a candidate whose defining experience was the five years he spent in a POW camp in Vietnam. Do you think someone can walk away from that prison? It's like the freaking Hotel California. John McCain carries that prison with him everywhere, and he will carry it into the White House.

What the past six weeks have made clear is that the United States - and the entire world - is sweeping Barack Obama up in their arms because they yearn - desperately - for a fresh start. The generation in power - the Baby Boomers - is not the Greatest Generation that fought World War II. It is a small-minded, unreflective, selfish generation - epitomized by our Commander in Chief - that has failed this nation.

The Neoconservative fixation on Vietnam, on the projection of American power overseas (try counting our bases in other countries - there are too many), on a paranoid grasp for military influence - all of this reflects nothing so much as the reality of true power slipping away in a multilateral world.

This worldview means nothing to younger Americans. Vietnam holds no lessons for them. What they know is 9/11. What they have seen in its aftermath is a nation that almost immediately used lies and subterfuge, torture and terror, to squander the good will and aching love of people around the world for Americans who had suffered grievously at the hands of Al-Qaeda. We had the world in the palm of our hands. Imagine the good that might have come from that influence.

We might have chosen love. Instead, we chose hate. We might have chosen principled action on behalf of reconstructed, unified alliances of nations. Instead we chose scandalous, scurrilous, cynical unilateralism. Within six months, we had turned most of the world against us.

Young Americans witnessed this. The Iraq war is the foundation of their political awakening. They still trust. They just don't trust the old white guys. The Bushes and Cheneys and Rumsfelds and McCains.

The enthusiasm of young people for Obama is beyond calculation. Estimates indicate that three-quarters of first time voters may cast their ballot for Barack. Race doesn't matter here. Young Americans have grown up in a post-racial world. They know that there is no black or white. Barack is half-black and half-white. Tiger Woods, Tony Gonzalez, Derek Jeter, Alicia Keys, and countless other well-known American defy racial categorization.

Nas doesn't just speak for young blacks in the hood. He speaks for all young Americans.

So race does not drive this election. Barack is our first 21st-century candidate. In a post-racial world, other barriers that are cognitive rather than real will also tumble down, including the barriers between nations. McCain will be a soldier-president. Obama will be a diplomat-president. McCain will falsely take us into wars on behalf of fabricated national interests and use fear and terror to justify military action. Obama will build alliances that will sustain us and marginalize those who truly wish to harm us.

Will the election of Barack Obama infuriate the ignorant rabble on the right, the "good people growing in small towns" who listen to Rush Limbaugh? Perhaps. But as the recent reports from Wasilla from the Daily Show show us, there is nothing special about small-town life. It can be tawdry, impoverished, and depressing. Relatively few people will live in small towns in America in the future. They are not relevant to the realities of America in the 21st century America. Young people, who flee small towns at their first opportunity, understand this.

For these reasons, John McCain cannot win. It is a law of nature. His tide is going out. He has nothing new to offer the United States but flotsam and jetsam. There is some evidence from the way he has managed his campaign that he understands this, that he truly does not want to be president, and that by some divine irony, his contribution is actually to usher in a new generation of leaders with a perspective on the world radically different from his own.

To reprise Nas, " We don't wanna hear that sh-- no more. It's a new day. It's a new voice."

Andrew Lahde's Farewell Letter

2008-10-17T13:28:00.000-07:00

Andrew Lahde, the (briefly) storied hedge fund manager who returned 870 percent to investors last year by betting against the credit markets, has retired. His farewell letter below communicates no fondness for his trading brethren, the markets that enriched him, and the government that enabled the craziness from which he profited. The missive ends with a plea for George Soros to convene a convention of Wise Men and Women, for an Open-Source Government, and, finally, for the legalization of hemp as a low-tech, low-cost alternative source of raw material for products that are petroleum-dependent.
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Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would been entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say good-bye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG,Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile,their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eigh tyears, which would have reigned in the predatory lending practices of now mostly defunct institutions.These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher.My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So,why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,
Andrew Lahde

The Path Forward: Changes to Securities Mosaic are a Harbinger of Changes for the Financial Industry

2008-10-15T13:47:00.000-07:00

Today, we launched a major new release of Securities Mosaic, which now includes all of the databases formerly constituting the Securities Mosaic Litigator website. So the site has a new Enforcement and Litigation tab that folds in search pages with breathtakingly detailed (if I do say so myself) data culled from a variety of sources: SEC and CFTC Enforcement Releases, SEC Investigation Disclosures, SEC Investors Claims Funds, and PCAOB Inspection Reports. We also now include a complete archive of securities-related Appellate Court decisions since the beginning of 2007 and have added several thousand new law firm memos focusing on securities enforcement and litigation to the Law Firms search page.

It is very slick data, and not available anywhere else because it is mostly hand-tagged to optimize targeted searching. For example, users can filter their search within enforcement actions to include a particular type of violation, or the dollar range of an imposed penalty.

Want to know how many CEOs have received financial penalties in excess of $10 million in actions involving the SEC since 2000? We can tell you that in about 10 seconds. The answer is 19 CEOs, and the largest penalty was imposed on Patrick C. Quinlan in 2005, in the amount of $256 million. He also went to prison for ten years.

Against how many attorneys has the SEC taken action for violating conspiracy laws? The answer is 4, and one of them - Stephen Ziegler - was ordered to pay restitution of more than $800 million! Along with five years in a federal penitentiary. His offense was his participation, as "regulatory counsel" in a scheme that resulted in the fleecing of more than $1 billion from 30,000 investors.

What does the addition of this kind of enforcement and litigation information to Securities Mosaic mean? Two things.

First, I am struck by how these data sets fill out the Securities Mosaic website, and how much more robust it seems. Our goal is to create a seamless environment for conducting any kind of securities-related research, and this addition of the litigation and enforcement information takes a long step in that direction. With this data, one can quickly perform due diligence on individuals, track enforcement trends, and model enforcement scenarios for clients in ways that are simply not possible right now.

With the integration of this data on Securities Mosaic, one can also now more easily map enforcement and litigation trends to disclosure requirements, regulatory rulemaking, and guidance conventions. The view of the securities regulation landscape simply becomes richer and more nuanced.

The second point is that this is the most ambitious new release of Securities Mosaic we've ever undertaken, at least from a customer standpoint, and it bears pointing out that it is occurring in the face of the hurricane-force winds reshaping the business and financial industry landscapes.

The timing is not an accident. Recent events on Wall Street have underscored the need for, and urgency, of an accelerated effort to server industry professionals' ongoing need to know.

Change is afoot, and it will almost certainly include massive reorganization of federal regulatory oversight and control. We understand that. What we at Knowledge Mosaic are betting is that legal and financial industry professionals will need an information portal that reflects a regulation universe that is broader, more integrated, and more demanding.

Our latest upgrade to Securities Mosaic is therefore only the first part of a two-part plan to offer a vastly more broad and complete set of financial and business regulatory materials. We will be covering the full spectrum of federal agency (and deputized SRO) regulations (and legislation) covering both listed companies and financial institutions.

Moreover, we will be topping this broad data platform with a thick layer of current awareness and reporting materials, with the goal of giving our customers an "always on" view of the most recent developments and trends in financial and business law and regulation.

So it is exciting stuff for perilous times. Please check out the new Enforcement and Litigation section of Securities Mosaic and feel free to send on any ideas you have for financial and business data and tools that would most benefit you.

Water

2008-10-03T10:28:00.000-07:00

Evidence mounts that Wall Street's troubles are rapidly filtering down to Main Street and to College Avenue. We are not immune at Knowledge Mosaic. We have lost major accounts to companies that have gone out of business or been acquired. Budgets are everywhere tight. However, I am optimistic about our future. Even as Death and Mayhem stalk the land, I think we will be okay. And this is why.

In this new century, business success will require that companies flow like water around obstacles that stand in their way. Water finds its own path and gradually erodes obstacles and creates new channels that represent its "will".

Business that flow like water are flexible and nimble. They are incredibly attuned to what is going on it their environment - with their customers, their competitors, their vendors, their employees, their finances. They respond in real time.

Watery businesses know their ultimate destination, but are not locked into specific paths to arrive at this destination. They will consider any and all options for solving problems or advancing goals, but will not waste time on belabored decision-making. Few decisions are so critical or risky that they require endless deliberation or certainty. Rather than make a few big decisions, make many little decisions. Respond in real time. Adjust in real time.

Finally, a business that flows like water has no ego. Its being derives from its essence and its journey, not its roles or attributes.

This is abstract. Let me give a concrete example of what I mean. The premise for gargantuan executive pay packages is that a business cannot survive without its leaders. This perspective promotes an egocentric view of leadership, in which the leader provides a center of gravity for the organization that justifies the material attributes of his (or her) role - the large salary and bonus, the stock grants, the private aircraft, etc. The energy of the employees and the board members of these companies flows inward, toward the leader.

This is a failed model of leadership for the 21st century. Successful leaders in watery enterprises exist to serve others. They wash the feet of their employees, their investors, and their customers. Their identity has nothing to do with compensation and status, and is instead bound up directly with the mission of the business, with its essence and its journey, with nurturing and supporting and honoring those whose commitment and growth and energy sustain the business. In watery businesses, energy flows from the center to the periphery, to where the business is moving next.

What makes this leadership model work in troubled times is that watery businesses can operate without fear. Existentially, all of us fear loss and, ultimately, physical death, which is loss multiplied by Google. In a business, fear addresses the loss of privilege, status, and position - either within an organization or in relation to competition or in absolute financial terms. When Lehman went under, for example, it experienced absolute financial death, loss multiplied by Google.

But water does not have fear. It exists only in relation to its motion, which by definition is incessant, and so has nothing to lose. A rock slamming into another rock might shatter. That is loss, or death. That is what egos experience. Water encountering a rock will divide and flow around it and rejoin itself. Water, lacking an ego, cannot be split, and so it has nothing to fear.

In practical terms, this means that a watery business and watery leadership will adapt to whatever environment it faces, no matter how outwardly troubled. Without an ego, the business will simply enfold itself within the circumstances of the moment and locate opportunity. With opportunity, there is a destination, and with a destination, there is motion, and with motion there is life and hope. For a remarkable example of this kind opportunism, read this fascinating history of the Torrington Company, now a $1.2 billion subsidiary of Ingersoll-Rand that reinvented itself during the Depression.

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Fair warning. Next week, I will publish a longish (multi-day) essay on law firm cost recovery, a practice that shows us the beating heart of the legal research industry in the past 30 years. It is a practice whose days are numbered.

How I Learned to Love Wal-Mart. Sort of.

2008-10-01T15:52:00.000-07:00

I am not a Wal-Mart Dad.

In fact, I hate Wal-Mart. With some modest qualifications.

I admire their selection of "over-under shotguns" and their environmentally sound support of low-energy light bulbs. I respect the recent success of their PR machine in neutralizing the flood of negative publicity they received for locking their workers in their stores at night. I also cannot deny it - there is no moment quite so heart-warming as the sight of a Wal-Mart Greeter. Be that as it may, we all know that Wal-Mart epitomizes the evisceration of the American soul.

However, Wal-Mart and my company do have one thing in common besides the incredible vastness of our revenues. We both retain law firms that meet our "diversity standards", and we both have moved "millions of dollars" away from law firms that do not meet those standards.

While our global headquarters is in Seattle, we have retained Folger Levin & Kahn, a California law firm, as our outside counsel. In a recent issue, Working Mother Magazine named FLK one of the top-50 law firms for female attorneys, based on "workforce profile, family-friendly benefits and policies, flexibility, leadership, compensation, advancement of women and retention of women." (Fact Sheet here)

The selection process occurs by application, so of course it is possible that only 52 law firms applied. Nonetheless. We are proud that FLK represents us because they have committed themselves as a firm to values of respect, equality, and fairness that also are important to Knowledge Mosaic.

Much smaller than the average firm on this "female-friendly" list, FLK employs about 60 attorneys, half of whom are women (the average firm size on this list is closer to 600). And while only 16 percent of the partners in firms nationwide are female - only 19 percent even on this female-friendly list - at FLK, nearly 50 percent of the partners are women! I do believe this is far and away the highest percentage of any of the law firms on the Working Woman list.

Here are some other fun facts. More than 85 percent of attorneys promoted to equity partner in the past five years at FLK were women. Two of the four practice heads are women. So is the managing partner. FLK also offers an astounding 24 weeks of maternity leave, no minimum floor for billable hours, and the option to work reduced hours. Pretty good stuff.

Folger Levin & Kahn offers proof that the traditional law firm mantra of "Bill, Baby, Bill" may properly belong to a different century. Perhaps now, we just might hear law firms chanting, "Jill, Baby, Jill!"

And what of Wal-Mart? Dare we don a blue vest to mark our solidarity with them in this commitment to gender equality in the legal community? Perhaps we should. Wal-Mart's commitment appears to be real. Of the 52 Wal-Mart attorneys listed on Martindale.com, 25 are women. Soulless and eviscerated though it may be, one cannot deny the equality.

The Best of Times: When There's Too Much to Write About

2008-09-30T07:37:00.000-07:00

For anyone who writes, the best of times are when events surge at a pace and scale that dwarfs what our brains and our lives can assimilate. We are obviously at one of those times, when truth is stranger, more outrageous, more entertaining, and more frightening than fiction. The military surge in Iraq cannot match the financial, political, and cultural "surge" at home in the United States.

I have taken notes on topics about which I might appropriately comment without running too far afield of the scope of my business. And the list is too long to recount. So I have organized these topics into categories. There is Finance, Law, Politics, and Regulation, of course. There is also Business (my business, your business, everyone's business), Technology, and Culture. There is Main Street and Wall Street, single-home mortgages and global credit markets, investment banking and hedge funds, small-town banks and massive bank holding companies. And then there is the practice of law and the research of law, both of which are intertwined and neither of which will emerge from this plunge into chaos without forever being transformed.

All deserve comment.

Let me start with a simple narrative that captures the wholeness of our present dilemma - that no facet of our current troubles can easily be separated from the central problem we face as a nation: that we are grappling with how to manage our parochial affairs in a world of integrated and impersonal markets, technologies, and environmental forces that now constantly threaten to chew us up like Chaplin's Little Tramp in Modern Times. The lessons of the Bush Administration and the McCain campaign are that, ostrich-like, we continue to bury our heads in the sand and pretend that we still reside within the American Century. Denial is a powerful drug.

On Friday, the venerable San Francisco law firm Heller Ehrman announced its formal dissolution, ending a history that commenced in 1890, spanning 3 centuries and 128 years. While the Heller website remains strangely and blithely mute on this act of self-immolation - indeed, the firm keeps churning out law firm memos as if it had nary a care in the world - the sudden collapse of this major law firm has much to teach us about the times in which we live.

The short version of the story is that Heller dispersed all of its profits at the end of each year to avoid double taxation of its income. As a result, the firm depended heavily on the credit markets to fund its growing global operations (with offices in Beijing, Shanghai, Hong Kong, Singapore, and London) throughout much of each year, until cash flow surpassed costs toward the end of that year. In 2007, the firm settled major litigation cases and lost other cases to competing firms. With the subsequent sharp decline in revenue, partners began heading for the exits. The banks tightened up on credit lines at a time when Heller most needed to rely on debt financing to cover its costs. With a partner base too slender to support its fixed costs, the firm quickly collapsed.

Knowledge Mosaic worked closely with Heller Ehrman. The firm initially spurned our efforts to sell our products to them - we were young, with no established brand and immature products. But we persisted in developing good relationships with the Heller librarians, all of whom we very much liked and respected. In the past year, we finally succeeded in displacing a major competitor in the Heller library. It was a grand moment for us - a testament to our progress as a business and to the changing dynamics of the market for legal information. As a lower-cost provider, however, our success in selling to Heller may also have intimated at the downturn in the firm's financial fortunes.

The sudden demise of Heller may partly be a product of internal business and financial choices that raised the firm's risk profile. It could not survive a revenue downturn at the same time that credit markets tightened. The fecklessness of partners may also have played a role in the firm's collapse. A storied, traditional firm trying to reinvent as a high-powered global firm, it hired partners motivated more by money than loyalty, and when they left Heller essentially found itself hoisted on its own petard.

Life is not a morality play. Heller's rise and fall is not a parable. But the legal profession is also not sitting out the dance with the Devil our policymakers and financial institutions are currently engaging in. There will be many more stories of collapse that resemble Heller Ehrman's before the rubble finally clears and the reconstruction can begin.

War Paint

2008-09-30T03:38:00.000-07:00

It is 3:00 am and I am on putting on my war paint. I like to write and have done so only sporadically in recent years - mostly because the duties of my job usually trump blogging efforts that are generally a luxury for someone who runs a business.

But these are not ordinary times.

And as a legal and financial information provider, my business is in many ways at the center of the maelstrom. We have relevant and important things to say.

So my war paint is on, my cigar is in my mouth, and I have a long list of things to write about.

Financial ruin and resurrection.
Financial rapacity and regulation.
Wall Street and Main Street.
Political theater, sexual farce, and the most important election of our lives.
The coming global irrelevance of the United States.
Law firms in the midst of the meltdown.
Legal research at the crossroads.
Running a small business and staying calm when Armageddon looms.

Stay tuned.

The Race to the Bottom - St. Paul and the Road to Damascus

2008-09-04T09:12:00.000-07:00

Many years ago, Richard Hofstadter, one of the great American historians of the 20th century, wrote a book about the strong current of anti-intellectualism in American politics and culture. For Hofstadter, anti-intellectualism emerged from egalitarian, populist, and anti-elitist responses to both European cosmopolitanism and our frontier habitation. Waves of emotional appeals crested at predictable intervals in our nation's history as a result of evangelical fervor, populist political oratory, and the emergence of a consumer-driven economy. The consequence has been a prevalent suspicion of education; intellectual "elites" and abstract ideas; and a rough-hewn, trust in the "common man", "gut" instinct, and "common sense".

The current carnival at the Republican Convention reflects this "race to the bottom". Down the rabbit hole we have plunged. In an Alice in Wonderland alternate universe, we learned from Sarah Palin last night how being unqualified is evidence of being qualified; how education and an interest in ideas and literacy and eloquence are prima facie disqualifications for leadership; how right-wing traditionalists have seized the feminist label and made teenage pregnancy a virtue. It is truly bizarre.

Numerous ironies accompany this latest twist to what has already been one of the most dramatic and significant political campaigns in our nation's history.

First, race remains a subtext to the campaign. The delegate population in St. Paul is lily-white. We can be sure that if one of Barack Obama's daughters were pregnant, barbed remarks about the promiscuity of black folks would replace the disingenuous bromides about how "life happens" that have greeted the news about the pregnancy of Sarah Palin's daughter.

Nonetheless, it is striking - and quite remarkable - how race has disappeared so quickly as an election theme. This may be partly because Barack Obama's mixed-race heritage positions him perfectly to transcend the thorns and brambles of our racial past, which one can hardly avoid regarding as our nation's heaviest burden and original sin. Some of the humor and jibes about Obama's messianic stature may result - almost literally - from the grace with which his candidacy has allowed America an opportunity to rise above and finally move beyond the darkest stains of its past.

Second, what has replaced race at the center of electoral discourse is gender. Charges of sexism are now leveled like howitzer blasts at anyone who criticizes Sarah Palin for a lack of experience, a checkered record, a provincial outlook, and a frightening, Gothic worldview. Hillary Clinton's legacy may, ironically, be the opening she provided the Christian right to claim the mantle of feminism that has historically belonged to the Democratic party and to the political left in the United States. Members of the Christian Republican Party base who until recently derided "feminists" as a motley collection of lesbians and aggressive, family-hating careerists now proudly carry the feminist flag on behalf of "working mothers" across the nation.

Whether this holds water remains to be seen. I am struck by the studied grace and restraint of the Democratic leadership in their response to the invective hurling their way from St. Paul (pun intended, regarding righteous Christians hurling thunderbolts from their own feminist road to Damascus).

I also am truly impressed by Obama's unflappability. He has refused to take the bait and lash out at those attacking him because he attended Harvard, possesses the basic literary skills required to write two books, and truly cares about ideas.

Perhaps we should call him "Ocalma." Since the Republican leadership has explicitly indicated that personality and not issues will govern the outcome of the election, I might point out that Obama's apparent serenity and self-control are personal qualities that we would want any president to possess.

The 2008 election may be the most important presidential election in the nation since 1860. In his determined focus on unification and transcendence, Obama reminds me more of Lincoln than any presidential candidate since 1860. The irony is that while Obama may have viewed unification and transcendence in terms of race - and his mixed-race heritage uniquely positions him to breach this divide - healing between men and women may prove to be his toughest domestic challenge.

In the Long Run, You Only Hit What You Aim At - Thoreau

2008-09-02T11:01:00.001-07:00

Let our new Securities Mosaic Risk Factors search page help you aim at the risk disclosure language you want to hit. This unrivalled search platform is part of our ongoing effort to transform the focus in legal publishing from documents to data. It allows you to easily locate risk disclosure data through a powerful combination of search fields, without having to wade through unwieldy SEC filings. Risk Factors takes you straight to the relevant information you need to locate model disclosure language, profile industry and business segment risk, analyze deficiencies, and identify potential liability.

Since early in 2006, larger public companies have been required to include a Risk Factors section in their 10-K Business Description item. These annual report risk disclosure statements provide a more comprehensive survey of company risk than the disclosure statements associated with new offerings. We have extracted more than 160,000 risk factor statements from annual reports and now cover more than 90 percent of the public companies listed on major US exchanges.

Risk Factors offers:

Instant access to more than 500,000 unique company risk factorstatements
Extracted disclosure language from SEC filings of nearly 10,000 public companies
Search fields in more than 30 major risk categories and 1,000 specific risk terms
Ability to text search within risk factor sections only

With Risk Factors, you can instantly model risk and evaluate client exposure by industry or by business unit. Do you need precedence language for risk in the area of operations, the board, internal controls, competition, environmental hazards, or any other category? The Risk Factors search page places this precedence language at your fingertips.

Try Risk Factors now!

Search Exhibits with Added Precision

2008-09-02T10:54:00.000-07:00

Since its launch over a year ago, the Exhibits Search page on Securities Mosaic has been an invaluable resource for users who need to troll through the roughly 6 million documents that are tacked on to filings as Exhibits. If you need an Employment Agreement, or a Press Release, or a company’s Articles of Incorporation and Bylaws, then look no further than Exhibits Search, the surest and easiest way to find it. This unique search page allows you to peruse and search exhibits without even bothering with bulky filings.

And now, the Exhibits Search page is better than ever. Our newest innovation is the introduction of bi-level text search functionality, which allows you to perform text searching on both the document level and exhibit label level at the same time. This is the most precise and efficient way to search for particular content within a particular type of Exhibit. For example, if you are interested in how the possibility of a reverse merger is accounted for in a Stock Purchase Agreement, you can enter “Stock Purchase Agreement” in the Exhibit Label Search box, and “reverse merger” in the Full Text Search box. This pinpoint search functionality virtually ensures that all your results will be relevant.

The enhanced Exhibits Search is merely the latest in a series of upgrades we have been making to Securities Mosaic. Continue to check the Press Box for updates on further improvements and additions. And, as always, keep those suggestions coming. Contact Us.

Are You Watching?

2008-09-02T08:16:00.001-07:00

Are there certain public companies you have your eye on? If so, how soon will you know when they’ve filed with the SEC? If you’re a Securities Mosaic subscriber, there’s no reason to even wonder. Our SEC Watchlist Alerts feature is one of our coolest tools, and it’s included (as with every one of our services) in your license at no extra charge. What’s more, we’ve just launched a new, user-friendlier version of the Watchlist which makes setting up and editing your alerts quicker and easier. This new version incorporates many helpful suggestions from you, our users.

If you access Securities Mosaic as part of an organization-wide, IP-authenticated license (meaning you see no login screen when you use the site), you will need to sign up for a personal account in order to set up your customized SEC Watchlist. However, personal accounts are available free of charge for those who are part of an organization-wide license. And there are other advantages to having a personal account, including the ability to use nifty tools such as the Document Cart and Stored Searches. Click here to sign up for a personal account.

Did You Know . . .

● If you have a Watchlist Alert set up, you’ll be notified by email of a filing shortly after its initial entry into the EDGAR system.

● You can set up alerts with all sorts of parameters, not just a given company’s name. For example, if you want to know every time a company in the tobacco industry mentions the word “cancer” in its filings, then you can set up a Watchlist Alert to notify you of exactly that.

● You can elect to have SEC Comment Letters and Responses included in your Watchlist.

● You can temporarily de-activate particular alerts and re-activate them later.

● There is no limit to the number of Watchlist Alerts you can have.

The SEC Watchlist is accessible from the “Quickfind” dropdown on any page in Securities Mosaic. There is also a link on the All SEC Filings search page.

As always, contact us any time for assistance using the Watchlist feature or help setting up a personal account. Customer Support.

Feedback on Blogwatch Comments

2008-08-17T23:02:00.001-07:00

Two weeks ago, I asked if people might like us to add a Comments feature to the KM Blogwatch. The lack of enthusiasm was palpable, and I have to say I am sympathetic. Blogs are a social medium, but their popularity results from the voice of the blogger, not those who post comments.

I am almost always dismayed when I read comments on blog posts, much in the same way that I cannot bear to hear the people who call in with remarks on talk radio. They typically represent the lowest common denominator of thought - inarticulate, ignorant, laced with vitriol. Here's an example.

So all I guess all I have to say is ... "No Comment."

Adding Reader Comments to the Blogwatch

2008-08-05T11:57:00.000-07:00

We are considering adding a Comments feature to the Blogwatch emails (and web page).

Here's how it would work. A Comments link would accompany each blog post in the Blogwatch email. If you wanted to publish a comment on that post, you could click on the link and go to a form that would allow you to add your comments. All comments from the prior day would appear at the bottom of the next day's Blogwatch email, with links to the original post.

So here are a few questions.

Do you like the idea of a Comments feature?
Would you post comments on blog posts yourself?
Would you read comments on blog posts yourself?

Please let me know in an email. Write to me at pschwartz@knowledgemosaic.com. Answering "yes" or "no" to Questions 1/2/3/ will suffice.

Thanks very much! I'll let you know what the teeming masses dictate.

Welcoming Dick Cassin and the FCPA Blog

2008-07-17T08:25:00.000-07:00

We are delighted today to welcome Dick Cassin of CassinLaw LLC and the FCPA Blog to the Knowledge Mosaic Blogwatch. With offices in Washington, DC and Singapore, CassinLaw is uniquely positioned to assist clients with all matters involving international commerce.

From its base in Singapore, the FCPA Blog can offer a fascinating voice and unique perspectives on the Foreign Corrupt Practices Act, an important cornerstone of US government efforts to root out corruption in the dealings of US companies with foreign governments and businesses.

With Knowledge Mosaic rapidly expanding its focus to cover topics of vital interest to financial and business institutions operating in global markets, we are excited to publish the FCPA Blog as part of the Knowledge Mosaic Blogwatch. We expect to add commentary on AML and other Patriot Act issues to the mix in short order.

Also, our roster of blog contributors has grown to the extent that our daily Blogwatch emails are sometimes quite long. To keep the content sufficiently bite-sized, we are planning to split the SM Blogwatch email into two separate daily emails, once delivered in the morning and one later in the afternoon. If anyone has strong feelings about this - pro or con- please write to me (pschwartz@knowledgemosaic.com) and let me know.

Nought-60 in 3 Seconds: Legal Research in a Ferrari

2008-07-10T10:10:00.000-07:00

I thought I was done with my speculations on Bloomberg Law, but recently ran across articles about the Bloomberg legal platform that were so interesting that I could not pass up the opportunity to offer additional commentary.

The first essay is a laudatory, high-fiving blog post about the wonders of Bloomberg Law published early in 2006 in Adam Smith, Esq. "Adam" (Bruce MacEwen) is agog at Bloomberg's lavish new headquarters and positively enraptured by Bloomberg Law. The brazenness of the pricing for this service - $1,500 per month per terminal per attorney - only fuels his admiration for the Oz-like wizards at Bloomberg.

And why not? How can one not find lovable Bloomberg Law's irrepressible and charming British-born leader, Constantin Cotzias, who besides being an indefatigable runner and triathlete, can with disarming insouciance compare his service to Westlaw and Lexis in the following manner. "Well, if you want an Audi, you should buy an Audi, but if you want to go nought-60 in 3 seconds, you really need a Ferrari, don't you?"

And there we have it - Bloomberg Law lets you drive nought-60 in 3 seconds. In a million years, would anyone at Westlaw or Lexis use this language to characterize their products? Of course not. Bloomberg is not like any other financial or legal publisher. Privately owned. Fabulously wealthy. Blindingly brilliant and innovative. If Westlaw and Lexis are Microsoft, Bloomberg is Apple. If Westlaw and Lexis are Ringling Brothers, Bloomberg is Cirque du Soleil. If Westlaw and Lexis are Atlantic City, Bloomberg is Las Vegas.

But here's the deal. In my previous post, I offered the theoretical possibility that Bloomberg Law might dethrone Westlaw and Lexis. I have now reconsidered this possibility, largely because Constantin's Ferrari metaphor crystallized for me the otherworldliness of the Bloomberg Law vision.

Visiting the Bloomberg headquarters is not unlike what Charlie experiences when he passes through the gates of the Chocolate Factory in Tim Burton's film interpretation of Charlie and the Chocolate Factory. While one might be loath to cast Johnny Depp as Michael Bloomberg, there is more than a passing resemblance between interiors of the two buildings - in the bright and bold colors; the geometric and glass architectural conceits; the pervasiveness of electronic media; the futuristic transportation devices; the sanitized and omnipresent security; and the profusion of free, delicious comestibles. If one allows for the substitution of beautiful women for Oompa-Loompas, you pretty much cannot distinguish the two environments.

While it would be pointless to dismiss the immensity of Bloomberg's product achievements in the past 20 years, there is an undeniable sense in which much of what the company provides - on its terminals and in its headquarters - is eye candy. Even the Bloomberg news - which fills an important niche in the market for real-time information - can hardly be called hard-hitting journalism. It is easily consumed, and more easily forgotten.

The Ferrari metaphor for Bloomberg Law inspires what I am sure is an unintended, yet meaningful, corollary image - that Bloomberg Law may not be much more than a toy for rich legal professionals - research bling, as it were. In an era of gas prices that are swallowing the budgets of ordinary folks, and a looming economic recession that has fossilized law firm research spending, only Bloomberg continues to have the audacity to introduce its legal platform as the equivalent to a high-performance, high-octane driving experience for the rich and famous.

The problem with the Ferrari image is that Ferraris are barely street-legal and hardly a practical transportation option for satisfying the needs that cars meet for most people. They are dream machines for people with immense amounts of disposable income, not vehicles for shopping or shuttling the kids or driving from Seattle to San Francisco. If one must use the car metaphor to talk about other products and the market niches they occupy, the "Audi" image Constantin used to characterize Westlaw and Lexis (accompanied, one presumes, by a barely concealed sneer) is actually far more apt as the solution most law firms would choose to purchase for their daily legal research activities.

In this instance, it so happens that the "Audi" costs about the same as the "Ferrari", but for the purposes of this post, the pricing equivalence of the Westlaw, Lexis, and Bloomberg platforms is less important than the the possibility that law firms might actually choose a Ferrari over an Audi to meet for the daily research needs of their attorneys.

Bloomberg Legal may well end up disposing of the competition the way Willie Wonka rid himself of Veruca Salt in Charlie and the Chocolate Factory. But what now seems more likely is that it simply does not matter much, either way, to Bloomberg the company whether Bloomberg the legal product ever takes off and acquires significant market share. The product focus for Bloomberg Law seems to be tactical, not strategic, and hence not materially relevant or pivotal to the success of Bloomberg's core business.

The primary purpose of Bloomberg Law - to the degree one is discernible - seems to be to broaden the Bloomberg ecosystem of Wall Street users to include the attorneys at firms that serve Wall Street banking institutions. But this is a niche strategy that holds out little possibility of gaining much market penetration for Bloomberg Law beyond the universe its terminals currently serve. The fact that Bloomberg does not appear to be willing to sacrifice its terminal requirements to gain market share outside of Wall Street law firms provides further confirmation that Bloomberg Law exists to shore up existing markets, not carve out new markets in competition with Westlaw and Lexis.

As another review article mentioned (and a friend of mine confirmed yesterday), Bloomberg Law remains primarily a financial and securities law platform. In this article, Constantin himself correctly emphasized that Bloomberg provides superior securities and financial information to what can be found on Westlaw and Lexis. "Anything that's coming out of regulators, the SEC or the NYSE, we'll track that in real time and we'll allow you to monitor regulatory developments that will impact any market sector."

Constantin's right. But there's an equally complete, exceedingly nimble, and far far less expensive securities and financial information solution alternative to Bloomberg Law. It's called Securities Mosaic. It, too, goes nought-60 in 3 seconds. But it's easier to use. And it doesn't require its own terminal.

From Documents to Data: More Change on Securities Mosaic

2008-07-09T05:40:00.000-07:00

Okay, let's get the good stuff out of the way first. Yesterday, I mentioned that we had added our vast, classified repository of Risk Factors data to Securities Mosaic. In the same spirit of excitement and abundance, I can report this morning that we have also made a number of other significant new changes to the Securities Mosaic website in the past few days. Here is the rundown.

1) Enhanced Exhibits Search – Now, dual text searching (for exhibit labels and full text) give legal professionals incredibly granular and precise access to language from hundreds of different kinds of contracts and agreements

2) New Section Searching on the All SEC Filings page – New Section Search categories for Financial and Accounting Information and for Prospectus Information make available 16 new filing sections for internal text searches. We will be adding these sections to Item Extractor later this summer.

3) Expanded News Archive on Securities Mosaic – Expands archives of all of our Securities Mosaic News and Current Awareness alerts to include the last six months (rather than the previous 10 alerts).

As with Risk Factors Search, the enhanced Exhibits Search and the New Section Search are of special interest. Both are like the sliders on a Google Map - they give you the power to quickly zoom in on data landscapes and isolate detail in the data that would otherwise be inaccessible or, at a minimum, take hours to locate.

These enhancements to Securities Mosaic all extend and deepen the trend toward research organized around data extracted from documents. The documents themselves have become almost irrelevant, not because they are not appropriate vehicles for some kinds of data presentation, but because they are a variable now, not a given. In many legal research and legal practice contexts, the information in documents is best delivered to the practitioner via a data-rich search environment in which the document itself is irrelevant. Expect this trend to continue and, indeed, to accelerate.

Next: Legal Research in a Ferrari

Knowledge Mosaic Rising

2008-07-04T10:18:00.001-07:00

Here are some things I plan to write about in the next week or two:

More on Bloomberg Legal and the "interesting" idea that the appropriate metaphor for a legal research platform would be a Ferrari.
The rise and fall of the curious practice of charging back legal research costs to clients.
What the legal profession can learn from the NBA.
The ascendance of the Facebook generation and the arrival of visual learning.
Who the heck is Max Boot?

And ...

The end of "race" - as in the remarkable and rapid disappearance of race as the axis of identity in American culture and politics.

Before I turn to those matters, however, I want to write a bit about my company, and the dramatic changes you will see in our vision and in our products over the next twelve months. The first of these changes occurred today, with the incorporation into Securities Mosaic of our massive Risk Factors database. Risk Factors search includes more than one million risk factors parsed from the SEC filings, categorized into more than 30 major categories and nearly 1,000 minor categories. Risk Factors Search is a remarkable tool for analyzing and mapping risk, exposing liability, and instantly locating relevant precedent language for risk disclosure.

What Risk Factors search presages is a broad, comprehensive, and sweeping renovation of our research platforms. By the end of the year, we will have integrated all of our individual web and news products - Securities Mosaic, SM Litigator, Communications Mosaic, and Energy Mosaic - into a single platform called, simply, Knowledge Mosaic, which will span the full breadth of business and financial regulation.

In addition to the integration of our current set of products into a single, unified news and research environment, we will add a wealth of currently unreleased data, of which the Risk Factors Search represents only one example. We also possess the full set of parsed Investment Adviser registration data from the SEC, as well as a broad range of items, sections, and data extracted from the SEC filings. Finally, we are incorporating a vast array of financial and business data - from the CFTC, FTC, OCC, FDIC, FINSA, and every other alphabet agency one can imagine, including deputized regulators such as FINRA, NYSE, and Nasdaq.

Layer this extraordinary range of business and financial regulation resources with state-of the-art productivity and collaboration tools, and combine both with our renowned commitment to reasonable pricing and unparalleled responsiveness to the needs of our customers - and Knowledge Mosaic will quite simply stand alone. I cannot communicate to you the excitement we experience as we work on this incarnation of a research platform designed from the ground up to meet the needs of legal practitioners in the 21st century.

More tomorrow on the vision behind the product.

Bloomberg and the Law

2008-06-22T21:48:00.000-07:00

Synchronicity abounds. On Friday, there was a random email exchange at my company about George Carlin's 7 words you cannot say on television. So far as I know, George Carlin has never before been the subject of a conversation at my company. On Monday, we learned he had died.

Similarly, I've been posting recently about Westlaw and Lexis and their future role in legal research as the constellations shift and the planets realign. In one disruptive scenario, I suggested that Bloomberg might be the most likely publisher to challenge the dominance of Westlaw and Lexis. On Monday, a headline article in The New York Times, entitled "The New Fight for Financial News", ironically cast Thomson Reuters (which owns Westlaw) as the feisty underdog nipping at the heels of Bloomberg in the market for financial information.

The reality is that both companies are finding that growth and new opportunities in traditional domestic markets are slowing dramatically. With the economy likely heading into a recession (and tell anyone on Wall Street that we are not already in a depression), these twin pillars of the market for financial data are increasingly looking abroad for new growth opportunities. With saturated markets and the growing availability of low-cost information services, ranging down to free financial data portals at Google, Yahoo, and MSN, neither company will benefit from street fighting and brutal price wars in the United States.

Is the market for legal information any different?

This may come as a surprise to some people, but Bloomberg actually has a legal publishing product that is in many ways already superior to much of Westlaw and Lexis offer. I saw it several years ago and, frankly, my jaw went slack. The product was so deep in data - court cases, regulatory materials, dislsoure materials, and of course news. It had a clean interface. It integrated perfectly with the rest of the Bloomberg platform. The company had clearly spent a small fortune to build this product and my first thought was, "Whoa Nelly!" If I had been Westlaw or Lexis, I would have been shaking in my boots.

But as I thought more about the idea that Bloomberg might enter the market for legal information, I began to scratch my head. Why in the world would Bloomberg want to get into the law firms? What did they know that I did not know? Or what were they missing that I did know?

For several years, I did not hear much more about the Bloomberg legal product. No law firms mentioned it to us on us sales calls. We did not see their reps at conferences. But in the last six months, Bloomberg terminals have started showing up in law firm libraries. And the librarians like them. The terminals don't get used extensively, but their breadth of data impresses the librarians. Bloomberg representatives, including the most senior members of their legal team, are now also fixtures at the major conferences and training venues.

Here's the problem Bloomberg faces, however. Law firms are not like financial institutions. With some firms pulling in more than $1 million a partner, they can be incredibly lucrative. However, as partnerships, expenses come directly out of the pockets of the partners. And while a large firm may spend 1-2 percent of its budget on research, which can involve sums approaching $10 million annually - much of which goes to Westlaw and Lexis - the firms have also grown used to passing the bulk of these costs on to customers.

In a forthcoming post, I will discuss the history and the future of this onerous practice of client billback for research costs. But for the purposes of this post, the point is that law firms spend an average of several thousand dollars a year per attorney on research costs. The idea that they will shell out $12,000 to $18,000 a year to put a Bloomberg terminal on attorney desks - when they already have a Windows terminal on their desk - is not credible. Some law firms have Bloomberg terminals in common research areas close to attorney offices (which apparently are rarely used). Some might give an attorney a particularly powerful attorney a terminal on an ad hoc basis.

But I would be amazed if Bloomberg is generating more than a small fraction of its revenues from legal research at law firms. And until they provide more open web access to their data - which would undermine their business model - it is difficult to see how they can significantly grow their footprint in law firms unless the firms decide to drop either Westlaw or Lexis (or both).

So it is difficult to see clearly the strategic goal of Bloomberg's investment in legal research materials. As good as their product may be, they face the same thorny issues of high prices, market saturation, and sharp, nimble niche competitors that bedevil Westlaw and Lexis. And Bloomberg, unlike Westlaw and Lexis, prefers to build, not to buy. So unless they change their approach across multiple dimensions of their business, they are not likely to gain significant traction in this market unless they can figure out a way to take significant business away from Westlaw and Lexis. To date, they have not done so, and it is not even clear at this point, that a direct attack on Westlaw and Lexis is their goal.

While one should never underestimate Bloomberg, for now the only conclusion I can draw is that the legal research piece of the Bloomberg platform is a bit like the spiral escalator in the center of their new headquarters - flashy and impressive, but also expensive and frivolous and duplicative.

Next: Passing the Buck - the End of Client Billback.

Welcoming Larry Ribstein to the KM Blogwatch

2008-06-13T04:19:00.001-07:00

We are delighted today to welcome Professor Larry Ribstein to the Knowledge Mosaic Blogwatch. Professor Ribstein occupies the Mildred van Voorhis Jones Chair at the University of Illinois College of Law, and is currently Visiting Professor of Law at the New York University School of Law.

Professor Ribstein is widely regarded as the leading authority on partnership law, and is the author of treatises on limited liability companies, partnership law, limited liability partnerships, and business associations. He also is the co-author of The Sarbanes-Oxley Debacle and The Constitution and the Corporation, and more than 100 published articles on corporate, securities, partnership, constitutional, and bankruptcy law.

Professor Ribstein's popular Ideoblog displays his wide-ranging and protean mind, mordant wit, trenchant analysis, and unvarnished commitment to economic analysis as the appropriate underpinning for the theory and practice of the law.

Professor Ribstein is an iconoclastic, no-holds-barred thinker and essayist. We welcome both the punch and playfulness he will bring to the KM Blogwatch and look forward to the intellectual energy his posts will engender.

With KM PolicyWatch, Help is on the Way for Banks and Broker-Dealers

2008-06-06T03:29:00.000-07:00

In our travels to New York in the past year, we have learned much about the daunting challenges faced by regulatory compliance managers at banks and broker-dealers. Each month, these managers must: 1) keep track of scores of new rule proposals from dozens of agencies and SROs; 2) make sure their internal policies and procedures manuals properly reflect these changes; and 3) identify the appropriate people to take appropriate actions that these rule changes mandate.

Compliance managers also face additional hurdles, including: 1) agency and SRO audits; 2) internal workflow and communications inefficiencies; and 3) undercurrents of resistance based on the perception within their businesses that their role is to play "Dr. No" to more free-wheeling, danger-embracing "Bonds" in the trading and brokerage units.

The best kind of business start-up in the technology world is one that can ride in on its horse (hopefully not Big Brown) and offer meaningful solutions to significant problems at a reasonable cost. And that is exactly what we have done with our release today of KM PolicyWatch to the banking and broker-dealer communities (press release).

In the process of imagining and then building KM PolicyWatch, we met with dozens of Wall Street compliance mangers and harvested scores of suggestions about the kind of tool that could ease their burden and elevate their confidence in the compliance regime they are responsible for supporting. The stakes are high. We have learned that many banks and broker-dealers are barely able to keep their heads above water when it comes to their regulatory compliance burden. They are underfunded, undersupported, and underloved within their own institutions, and they need help. Thanks to their feedback and interest in KM PolicyWatch, we have build a compliance management platform that we believe can bridge each of those "gaps" for compliance and legal teams at banks and broker-dealers across the nation.

KM PolicyWatch is a platform known as "Software as a Service" (SaaS). The most famous and successful example of a SaaS platform is Software.com. SaaS can provide all of the benefits - and more - of traditional enterprise software, but at a small fraction of the price and with few of the implementation and consulting headaches associated with enterprise software.

KM PolicyWatch is a SaaS platform because we host a thin slice of internal compliance data for each for our customers. This thin slice allows each bank or broker-dealer to create a "map" that associates each rule change from more than 20 SROs and agencies with a particular section of any of their policy manuals. We update the rule changes on a daily basis. Based on the regulatory map for each organization, these rule changes flow through to the appropriate policy section and instantly alert the person responsible for managing that policy section.

Unlike competing compliance management tools, we do not require banks or broker-dealers to actually host each of their manuals on our servers. For this reason, KM PolicyWatch poses almost no security risks. KM PolicyWatch also provides comprehensive audit, reporting, and workflow features - all at a fraction of the cost of more traditional banking and broker-dealer compliance management solutions.

So from our perspective, the dawn has broken for a new day in compliance management. We are enormously excited to announce the launch of KM PolicyWatch because of the satisfaction that comes from building a product that we know can provide immediate and significant benefit to our customers. For more information, please feel free to write me (pschwartz@knowledgemosaic.com) or call us toll-free at 1.866.650.3600.

Knowledge Mosaic Announces KM PolicyWatch: Relief from Manual Labor

2008-05-30T11:11:00.000-07:00

We'll be launching a major new product called KM PolicyWatch on Monday, June 9. KM PolicyWatch will benefit any banking or broker-dealer department managing Policies and Procedures Manuals to conform to their industry's constantly shifting regulatory landscape.

KM PolicyWatch provides relief from "manual labor". It automates and consolidates what has often been a tedious, error-prone, and complicated exercise for compliance professionals in the financial services industries. The platform synchronizes an institution’s own data — especially its policies and procedures manuals — with Agency and SRO rules and regulations. KM PolicyWatch removes the need to search the Internet for rule changes; it brings those changes to you and tracks them in relation to specific sections of your manuals, while alerting those responsible for sections of your manuals when changes occur and what follow-ups may be required. KM PolicyWatch also features on-demand reporting and search functions, and future versions will deliver robust workflow and audit trail capabilities.

We developed KM PolicyWatch using feedback from some of the world’s leading investment and banking firms, which have in recent years been forced to devote increasingly large amounts of resources to their compliance departments. Numerous factors have contributed to this need, including the growing complexity of the regulatory infrastructure and recent legislation aimed at making the financial industry more accountable for its practices. In such a climate, traditional methods of compliance are being exposed as inadequate, and the industry seems eager to explore alternatives can offer superior accuracy and efficiency.

The release of KM PolicyWatch represents only one aspect of our commitment to developing an integrated suite of alerting services, research platforms, and task management environments for business and financial regulation professionals. By the end of 2008, we will be integrating our existing products and a variety of new data sets and tools into a broadly based business and financial regulation research platform called KM Law. We will keep you posted on the progress of both KM Law and subsequent versions of KM PolicyWatch.

Please send me an email (pschwartz@knowledgemosaic.com) if you would like more information about KM PolicyWatch. As always you can also post comments directly to my blog.

More on "Whither Westlaw and Lexis"

2008-05-29T07:05:00.000-07:00

I received feedback on my post, "Whither Westlaw and Lexis," all of it from law librarians who largely agreed with my assessment of the situation.

The crux of the matter in their minds is the asymmetry of the relationship between law firms and the large publishing vendors. A 2006 article by Michael Ginsborg - which draws on the wisdom of Yogi Berra ("A nickel isn't worth a dime today") to analyze soaring legal publishing costs - emphasizes the bargaining inequities that arise when three foreign publishing conglomerates (Thomson Reuters, Reid Elsevier, and Wolters Kluwer) control 84 percent of the legal publishing market (as of 2003).

In a nutshell, prices go through the roof.

Librarian response to my post mirrored this frustration. At a time when budgets are on the chopping block, the prices for publications that attorneys deem essential continue to rise steeply. From the perspective of librarians caught in the middle of this squeeze, a tragicomedy reminiscent of Groundhog Day plays itself out on a routine basis. The large publishers buy up smaller companies that are doing fine on their own. Key employees - those in possession of the most intimate knowledge of the product - often leave. Prices increase dramatically.

On a larger scale, these acquisitions occur within what sometimes seem like endless rounds of reorganizations and restructurings and bloodlettings. This flux leaves librarians and attorneys bewildered about what products belong in what product groups and makes rational pricing and budget calculations that much more difficult.

Westlaw and Lexis might argue that this is a biased and misleading perspective on both the acquisition cycle and the dynamics of product pricing. They also might argue that the market in its current state is highly competitive and that they are pricing purely in relation to what the market will bear. The fact that they negotiate confidential licensing agreements with customers would seem to support the idea that there is flex in the market and that some (presumably larger) customers possess significant bargaining power.

It is also true that the market remains open to younger, more agile companies that want to exploit the opportunities for both creating smarter, better, and less expensive research products and for building stronger, more symmetric relationships with customers. These small companies can also take advantage of the fact that Westlaw and Lexis cannot really compete with them, constrained as they are by the innovator's dilemma. The only option remaining to these large publishers is to acquire the small companies. They cannot compete on price or customer responsiveness or, in many cases, in product innovation and product quality. Speaking for myself, I respect and like our compatriots from Westlaw and Lexis, but I have never been terribly concerned that they could put my company out of business.

Are there any third parties looming on the horizon that could enter the legal publishing market and displace Westlaw and Lexis? There are two scenarios. A collection of young companies could arise in different segments of the industry (case law, corporate law, etc.) and peck away at Westlaw and Lexis until they suffered death from a thousand cuts. Alternatively, a large financial publisher might enter the fray and disturb the legal publishing universe.

Has anyone heard of Bloomberg? More to come.

Once again, anyone who would like to post their thoughts on the competitive dynamics of the legal publishing market can write me (pschwartz@knowledgemosaic.com). You also can post comments directly at my blog.

Whither Westlaw and Lexis?

2008-05-21T07:29:00.000-07:00

I spoke last week at a LLAGNY (Law Librarians of Greater New York) event on "Current Awareness Tools for the Law Librarian". Joining me were representatives of Portfolio Media (Law 360) and LawyerLinks Advantage.

NOT joining me were representatives of Westlaw and Lexis. I thought this was of profound interest, and offered some thoughts on their absence at the event as a preface to my remarks.

Westlaw and Lexis are multi-billion dollar companies that dominate the legal publishing landscape. Both companies employ thousands of people, and are known for their comprehensive legal publishing offerings, high prices, and aggressive service - which includes free access for law students, the awarding of points redeemable for awards for frequent searching, and a prowling omnipresence within the libraries and corridors of major law firms.

The day before, I attended an open house for lawyers at a major New York firm where my company and Portfolio Media sat alone amongst the big trees in the forest. Westlaw Business was there, alongside brethren from the real Westlaw, and RIA (another Thomson company). Lexis was also there (with three sales people!). So was Bloomberg - that's a story for another day - and Wolters Kluwer (CCH and Aspen).

Not many attorneys actually attended the event, and those who did were there with specific questions. I did not notice that the big guys received any more attention than we did. In fact, they may have received slightly less notice.

At the LLAGNY meeting, I noted the absence of Westlaw and Lexis and suggested that it was meaningful that they were not invited to address "current awareness tools for the law librarian". There are several issues at stake here. Thomson just bought Reuters and it would make sense for them to use Reuters news to build-out a world-class news and current awareness product for legal professionals. Lexis has made good use of Ozmosys to deliver and channel its sophisticated array of news and current awareness materials. So why weren't they invited to speak?

I think there are two forces at work here, neither of which bodes well for the future growth of these two companies. One is political. Despite their omnipresence, and the generally high quality of their products and services, for many users, Westlaw and Lexis seem to be tolerated, not loved. As large and powerful organizations - easier to respect than to cuddle - the reasons are not difficult to identify, and they probably parallel ambivalence about a powerful software company that inspires mixed emotions with which we are intimately familiar out here in Seattle.

I can certainly imagine how, in the minds of many librarians, who have to manage budgets and deal with vendors, Westlaw and Lexis would be viewed as necessary evils. Borg-like in their capacity to absorb and assimilate all other legal publishing "life forms", their market power has survived numerous antitrust challenges. Their prices - in many instances for information that largely exists elsewhere and possesses commodity status - are very high. And the two companies can be difficult and complicated to deal with. So librarians, knowledge managers, and attorneys may suffer from a lack of influence and control in vendor relationships that are largely asymmetric.

From my experience at the LLAGNY event, however, the other major force in play, however, is cognitive, and it may cut against the grain of the political, "resistance is futile" Borg analogy. If LLAGNY invites three tiny companies, but not Westlaw and Lexis, to present at a session on "current awareness", it may only be a gesture of politesse, in which smaller entities are singled out for consideration out of a commendable generosity of spirit on behalf of "the little guy".

On the other hand, it may also represent some recognition that the future of legal research and current awareness products (which will increasingly be merged) may not belong to the large players, and that the Internet presents new options for flexible, lightweight, reasonably priced products that obviate the need or requirement to use Westlaw or Lexis. In other words, a cognitive shift may be taking place in which Westlaw and Lexis increasingly are not the default options when it comes to legal research.

Here is the situation in a nutshell. Westlaw and Lexis currently face the classic “innovator’s dilemma” associated with established market leaders that find themselves pinned down by commitments to overdeveloped, overpriced products in rapidly changing markets. When faced with the emergence of vibrant new companies in this legal publishing and tools markets, both companies historically have employed an aggressive acquisitions strategy that (Borg-like) has allowed them to both incorporate the latest publishing and technology advances and fend off new competition, leaving a strangely barren and misshapen ecosystem in which two towering redwoods absorb the roots system of any sapling that threatens to surpass knee-high stature.

Will this change in the future? My guess is a qualified "yes." Westlaw and Lexis are both very profitable enterprises, and they can obviously afford to throw enough money at any company whose business they want to essentially "make resistance futile". And yet, there is a point at which the complexity of their businesses, and the pressure of the "innovator's dilemma" may present more nimble competitors with growth opportunities to which Westlaw and Lexis are simply unable to respond. Their position is not unlike that of Microsoft around 2004, just before Google went public. People knew change was in the air and that it would deeply impact Microsoft, probably in a negative way. The form it would take remained unclear, however.

While still very profitable, Westlaw and Lexis revenue growth rates now hover in the range of only 8 percent to 10 percent annually. Both companies face serious competition across many business fronts. I predict that in the next 3-5 years, new companies and business models will arise in the world of legal publishing and legal practice that will directly challenge the central position of Westlaw and Lexis in the online publishing ecosystem.

What to you think? Please send your thoughts and responses to me at pschwartz@knowledgemosaic.com, and I will be sure to publish them on the Blogwatch in the next few days.

By the way, I was very taken with the idea of mellifluously titling this post Whither Wexis, but given that Reed Elsevier (parent company of Lexis) slapped a court case and a permanent injunction against TheLaw.net for referring to "Wexis" in its marketing literature, I decided that would not be advisable. This is another fascinating story. For the sordid details.

Jazz and Law and Love

2008-05-19T08:31:00.000-07:00

I was privileged this past weekend to be in New York for the Essentially Ellington Festival at Lincoln Center. This remarkable annual event caps the tireless jazz education efforts of the irrepressible Wynton Marsalis. Selected jazz bands from 15 US and Canadian high schools train under mentors and clinicians and then assemble for a two-day competition judged by Marsalis and three other jazz luminaries.

I am not so devoid of local pride to avoid boasting that 3 of the top 4 finishers hailed from Seattle, nor that my son played guitar for the Garfield High School jazz band, which finished second in the competition, nor that the award for outstanding piano performance went to the prodigiously gifted son of one of my co-workers at Knowledge Mosaic. However, one cannot avoid experiencing an event this rich on many different levels, and the level that concerns me in this post concerns analogies between jazz and law.

Wynton Marsalis is the self-appointed guardian of the "classical" jazz legacy associated with Swing, Big Bands, Louis Armstrong, and Duke Ellington. A highly accomplished classical musician, Marsalis applies similar principles of formal artistry and adherence to a traditional "canon" in the world of jazz. And this is where things get interesting.

I am no student of jazz, but I do know a thing or two about the "canon" wars in the academic world (as in what's up with all of these books by dead white men). I also have given more than passing thought to the place of canonical thinking in the legal world. Theorists of Originalism cross swords with both Common Law conservatism (shading into Living Constitution advocacy), and Legal Realism (particularly as it has shaded in recent years into the Critical Legal Studies movement). In the background lurk adherents of the influential, yet self-marginalized, Law and Economics movement. While these intellectual battles are largely confined to the academy - particularly in quarrels between the University of Chicago and Harvard - and hence retain a certain parochial quaintness, there is also no doubt that these positions on the meaning and interpretation of the law spill into the court system and the nation's regulatory bodies and hence demand more than idle or theoretical attention from us.

The parallels between the canon wars in jazz and arguments about precedent, tradition, and the law are striking. While one can hardly label Wynton a political conservative or a racially blind or racially neutered musician (at the Ellington Festival, he teased one of the small number of African-American students in attendance about his "Halfro"), his efforts to preserve the jazz forms and traditions in a somewhat unmodified "classical" mode have earned him the reputation in some influential music circles of being a reactionary and even a betrayer of his race not unlike Clarence Thomas (or, in jazz/cultural criticism circles, Stanley Crouch).

Here, for example, is the brilliant pianist Keith Jarrett: "Wynton imitates other people's styles too well. You can't learn to imitate everyone else without a real deficit. I've never heard anything Wynton played sound like it meant anything at all. Wynton has no voice and no presence. His music sounds like a talented high-school trumpet player to me. He plays things really, really, really badly that you cannot screw up unless you are a bad player. I've felt embarrassed listening to him, and I'm white. Behind his humble speech, there is an incredible arrogance. And for a great black player who talks about the blues - I've never heard Wynton play the blues convincingly, and I'd challenge him to a blues standoff any time. He's jazzy the same way someone who drives a BMW is sporty."

Keith Jarrett can have it both ways, of course, given his talent, and a range that carries him from the free-form moaning of The Koln Concert to, more recently, the unspeakably beautiful (and formal) melodics of Shenandoah. But no matter what authority his chops confer upon him, Jarret's bile - and his playing of the race card - is jarring.

But this is how the world works in any artistic medium. Standards and tastes evolve. Artistic expression is an enunciation of freedom. Confinement within forms and traditions and technical routines stifles. The debates about "truth" and "beauty" in art grip the soul, and often lead to battles and hatreds that are decidedly "unlovely" and "unartistic."

And so let us consider the Law as Art, pulled between various poles of thought. The Originalist fundamentalists apply a literal standard of interpretation to the meaning of the Constitution, no matter how anachronistic the original texts may be in the 21st century. They appeal to the Constitution as an original standard of authority, as the foundation of our being as a nation, as the starting point and a framework for any debate of significant judicial import.

I am loathe personally to associate Antonin Scalia and Clarence Thomas with Wynton Marsalis, and there is the clear distinction in their approaches between rigid, ideological fundamentalism, on the one hand, and an artistic certitude that is primarily formal and aesthetic, on the other. In other words, I am loathe to attribute artistic meaning to the Constitutional opinions and interpretations of Scalia and Thomas, whose politics I despise and whose intellectual honesty I question.

And yet, there is clearly a sense in which - if one generously takes them at their word - the Originalists seek meaning from foundation texts because these texts contain a spiritual, sanctified significance for the political and philosophical "specialness" of the United States. In other words, the Constitution, the Federalist Papers, the letters of the founders to each other, as well as the early opinions of the Marshall Court - all of these embody authority, as in authorship. They give us identity. They give us voice. Without them, we would lose our way. And so we must always keep them in our mind's eye. They are our touchstone, our compass, our destination and our destiny. Without these documents, and the meanings they contain, there is literally no United States of America.

In a similar way, Wynton Marsalis cannot see American jazz without its crystallization in the works, techniques, and styles of Louis Armstrong, Duke Ellington, and Benny Carter. Jazz is a tradition with deep roots in African-American musical rhythms. However, it would obviously be a mistake to ignore the influence upon it of classical forms and styles inherited from European Baroque and Romantic traditions, as well. And this is what Marsalis appreciates. Even with its nod to soloists and its reliance upon a rhythmic backbone, the Big Band sound clearly embraces a structured, neo-symphonic musical architecture that extends across the Atlantic to European classical music traditions. And this mirrors in many ways the debt to European constitutional theorists such as Locke and Montesquieu that Originalists in law will freely acknowledge.

From one perspective, these traditionalist approaches are clearly reactionary in their suspicion to change that in any way threatens to break the thread of continuity to the past. And artistic innovation, in both law and music, cannot exist without pulling at that thread. Creativity demands thread-pulling! Building a future often demands the sacrifice of the past. Reading the early works of Roberto Unger - with interpretations of legal textual "standards" and a new legal "fusion" that would be largely unrecognizable to any traditionalist - makes it clear that legal experimentation (judicial activism!) can be a witch's brew.

In the same way, jazz faces challenges from new forms - rap comes to mind - that speak to a younger generation without seeming to offer coherence via any solidarity with or debt of gratitude to the musical past. Upon the shoulders of what giants do rap musicians stand? And yet, like Roberto Unger, rap is clearly incredibly synthetic and creative, with a rhythmic commitment that fully acknowledges African origins while extending its reach to create a pastiche of sounds drawn from across the full spectrum of classical, blues, jazz, and popular American music. So I would argue that even "new" or radical forms - even as they flay the fathers - are indebted to the fathers.

From one perspective, the jazz classicism of Wynton Marsalis is in trouble. Applications to the Ellington competition have fallen by more than half from recent high points. The musical traditionalists in jazz are aging - Marsalis's own Jazz at Lincoln Center Orchestra is, for the most part, not populated by young men (and it has no women). While the tendencies of the Supreme Court and the political appointments to the bench and to the regulatory agencies of Republican presidents may suggest otherwise, Constitutional Originalism may also be in trouble. Conservatives often now favor a Law and Economics approach that is technical and empirical and pays no debt to tradition. In fact, viewing itself as (or at least aspring to be) a science, the Law and Economics movement falls entirely outside any artistic and historic perspective on American constitutional law.

For Wynton and the legal Originalists, the jazz and legal "traditions" possess an almost fugue-like status. The Music and the Law are harmonic and dependent upon a succession of imitative derivative variations on a foundation theme. For this reason, Wynton may not fully view as insulting the claim that his music is imitative and not original.

At Ellington, Wynton spoke - Lion-King like - about the circle of life, the circle of love. The commitment to a foundation event, and founding heroes - in jazz and in constitutional law - animates our world with sounds and poetry and rhythms that carry us through life and connect us to others. The connection is love that transcends personal ties and is essentially cultural. It is a bond of togetherness that comes from what is unspoken yet sacred in our identity.

In the end, Wynton would say, classical jazz is the container for our musical identity as a nation, just as, for the legal Originalists, the Constitution is the container for our legal identity as a nation. The connections these containers create between us - the love that spills forth from that recognition - confer sacred meaning upon both American Jazz and American Law.

The Origin of Brands: Darwin, Advertising, and Google

2008-05-12T06:48:00.001-07:00

I just read The Origin of Brands, by the enthusiastic father-daugher duo, Al and Laura Ries. The Origin of Brands takes Darwin's other important idea - regarding the link between special prosperity and species diversity - and applies it to product development and brand proliferation.

I won't go into the flaws of the book. They will be obvious to anyone who reads it. But the central message pierces the bulls-eye for those interested in what separates successful companies from mediocre (or crummy) companies. This is the gist:

1) Go where no man or woman has gone before.
2) Don't compete within existing product categories.
3) Create new categories.
4) Don't worry about market size.
5) The most successful companies created markets (categories) where the market size was zero!

That's it. End of story.

And it's a true story. And as an extension of my bloviations last week about Google and Microsoft, the story carries extra-special resonance. Here is Google, which has created an entirely new - and a phenomenally successful - business by inventing and then populating a new category of online advertising. With its pay-per-click text ads, Google offered a substitute for the appallingly intrusive, annoying, expensive graphical banner ads. It created this advertising category and now it owns this category.

Microsoft (and Yahoo!, for that matter) will never displace Google in the online advertising category. By golly, Google is a now a verb! Is Microsoft a verb? Is Yahoo! a verb? No. Microsoft is an adjective these days, and normally a pejorative one. And Yahoo! is an exclamation point. Or, from a different perspective, a spear to the vitals of the business.

So read The Origin of Brands (which, ironically, given Google's success, spurns advertising itself as a fool's paradise). In many ways, The Origins of Brands is a conventional "new marketing" book, similar to Blue Ocean Strategy and The Purple Cow. Hit the edges of the market, define your market so you have no competitors, don't worry about market size. None of these approaches are for the faint of heart. They embrace risk. They require leaps of faith. It is far more comfortable to do what everyone else is doing, as in "no one ever got fired for buying IBM."

But even for large and successful companies like Yahoo! and Microsoft, you can hear the death rattle of the business when it becomes too obsessed with its competitors. These are not companies that will go away. But AOL has not gone away either. And does anyone care about it anymore. Does anyone think it is remotely relevant as a business?

At Knowledge Mosaic, which is a very tiny company, we also think about these questions on a daily basis. We face the dilemma of being stuck in a market with entrenched competitors, a market that, truth be told, is no longer growing very rapidly (although at our size there is still significant room for us to grow). But we are tired of this little pond. And while we respect and love our competitors, we are tired of them, too.

So we are embarking on our own adventure in the coming weeks and months. An adventure involving taking everything we have learned in the past five years about legal research and legal practice and reconceptualizing both in the creation of a new product platform that will be different from anything ever before seen in the market for legal, regulatory, and compliance news, research, and tools.

More to come.

Advertising - Phooey!

2008-05-09T09:13:00.001-07:00

Five or ten years from now, we will remember Microsoft's failed bid for Yahoo as the last, creaking gasp of a company out of ideas, running on fumes. How do we know this? Two words: online advertising.

Online advertising has become the last refuge, not of scoundrels, but of nitwits. If you don't have an idea for a product that offers something tangible for which people will pay real money, you create a website that generates revenue from advertising, from eyeballs. Why does this sound so familiar?

Generally speaking, the online advertising business model amounts to a fool's paradise, in which companies and investors assume they can continue to throw good money after bad to build products that will generate revenue without actually offering significant value.

That Microsoft is so desperate to build an advertising-driven revenue model, and that the company sees this business model as the future, might rightly be viewed as a sign of the apocalypse, if not for all of us, then for Microsoft itself.

Of course, the newspaper, magazine, network television, and radio businesses have all been built on advertising revenue. Google certainly makes ungodly piles of money from its text ads - and truth be told, they are so successful that the "nitwit" accolade can only be provisionally applied to them - although Google's success reinforces the aptness of this designation for those who think they can compete with them. The collapse of advertising-supported print businesses is, of course, also largely the result of Google's success (and Craig's List).

In its 2007 10-K, Google reported online advertising revenues of $16.41 billion, accounting for 99 percent of of its total revenue of $16.59 billion. Between 2005 and 2007, Google advertising revenue grew 171 percent. Interestingly, its much-touted Google Search Appliance did not generate material revenue of any sort.

And here is Microsoft. In its 2007 10-K, Microsoft reported online advertising revenues of $1.84 billion, representing growth since 2005 of only 43 percent. Online advertising represents only 3.5 percent of its total revenue in 2007 of $51 billion. Perhaps reflecting the lack of focus and coherence in its advertising strategy, the Microsoft 10-K makes it significantly more difficult to pull out and analyze advertising revenue numbers.

So we have a situation in which Google generates nearly 9 times more revenue from advertising and this revenue supports its entire business, where Microsoft online advertising supports only 3.5 percent of its business. Even though it is starting from a significantly larger base, Google's advertising revenue is growing more than 4 times faster than Microsoft's.

There is something weird going on here. At this point, Google is nothing more than an advertising company, arguably the most successful in history. The advertising revenue model drives all of its technology efforts.

By contrast, Microsoft is an operating system and software applications company that has never understood well the Internet, is late to the game of online advertising, and is outrageously deluded in its belief that it can ever compete with Google in the advertising market. Its desperation to enter this game is a bit odd, and only reinforces both its insecurity about the future of its core businesses and its incoherent grasp of the meaning of the Internet.

The reality, however, is that online advertising may not forever be the golden-egg-laying goose that Google's success might indicate. The market for online advertising is slowing, its promise in social networking sites seems overstated (to judge by current success), and economic cycles will influence the return on advertising investment and the willingness of businesses to spend more money on advertising (certainly enough to sustain Google's current rate of growth).

So here is a suggestion. We may be in the midst of an advertising "mania", rooted in the success of the brilliant birth of Google's text ads (which, frankly, I often prefer to normal, unpaid search results with which they are paired), but also fueled by the the takeoff of video on the Internet and the alleged promise of local advertising. These opportunities are real, but they are driven by the assumption that growth of Internet use will only continue to accelerate, that people will spend more of their time each day on the Web and that they will want to spend more of their money on purchases stimulated by Web (or phone) advertising.

As my son might say, "Dude, I don't see it happening."

Introducing the BD Law Blog

2008-05-06T11:04:00.000-07:00

I am happy to introduce our readers to the latest member of the Knowledge Mosaic Blogwatch family: the BD Law Blog, authored by Joel Beck of The Beck Law Firm. The BD Law Blog publishes regular news and opinion on broker-dealer law, regulation, and enforcement, and is a great addition to the Blogwatch as we begin to expand our coverage into financial services regulation.

The Beck Law Firm was founded by Joel Beck, after a ten year career with NASD, including six years as an Enforcement attorney. Working in the Enforcement Department, Joel handled cases involving violations of NASD Rules, MSRB Rules, and federal securities laws. His cases included penny stock fraud, unsuitable recommendations, unauthorized trading, improper supervision, anti-money laundering, misrepresentations and omissions, research analyst issues, and others.

Joel has been designated a Certified Regulatory and Compliance Professional by the NASD Institute at the Wharton School of the University of Pennsylvania. Joel earned his law degree, magna cum laude, from John Marshall Law School, Atlanta, Georgia, where he was also a recipient of the West Publishing Award for Academic Excellence. Joel earned his Bachelor of Business Administration degree at Georgia Southern University. He is a member of the State Bar of Georgia, the American Bar Association, and the Compliance and Legal Division of the Securities Industry and Financial Markets Association.

Joel and his family live in Lawrenceville, Georgia, a suburb of Atlanta. Joel serves on the Board of Directors for Family Promise of Gwinnett County, an inter-faith organization providing support, care and training for homeless families, moving them towards permanent housing. Joel is also active in his church.

There Will Be Blood

2008-05-05T05:59:00.001-07:00

I watched There Will Be Blood twice over the weekend, and found it to be an astoundingly, devastatingly accomplished movie. The film defied conventional cinematic conventions and presented itself less as a story and more as a series of character-driven events. The movie worked because of the beautiful writing, the haunting and jarring music, and, above all, the extraordinary performance delivered by Daniel Day-Lewis in the role of Daniel Plainview.

There Will Be Blood transcends its individual moments - each finely wrought and beautiful in its own terms, but otherwise isolated from any conventional narrative arc. The cumulative weight and momentum of these discrete moments is less about storytelling and more about an accretive weight of Biblical judgment that befalls characters, innocent and guilty alike. The power of There Will Be Blood derives from its assumptions regarding the absence of grace and the weight of human sin in a world empty of any divine blessing. If grace and redemption is about truth, in There Will Be Blood, all is false.

At a midpoint of the movie, consider the parallel constructions of two cathedrals - the aspiring reach of the framing for Eli Sunday's new church and the cut to the barely indistinguishable perspective on the soaring wooden derrick, the temple for worship of a different false idol - black gold. In There Will Be Blood, all objects of worship are false idols. Faith is empty.

One of the the climactic moments of the movie occurs in the revelatory instant in which a gusher of oil ignites, depriving Daniel's son H.W., of his hearing while also confirming the wealth that sits below the surface of the ground. The fiery inferno that topples the derrick represents an eruption of hellfire and damnation tightly yoked to Daniel's own self-exaltation fueled by his moment of triumph.

There Will Be Blood is, similarly, both pointed and duplicitous in its association of blood with family - the ties of family provide crucial credibility for Daniel Plainview in his efforts to seduce and swindle poor landowners in Little Boston (the Puritan City upon a Hill) whose crusty, alkaline land sits atop an ocean of black gold. And yet, of course, Daniel's own family is a fabrication. His son is not his son. His brother is not his brother.

A final thought. Females, and meaningful relationships with females are almost entirely absent from There Will Be Blood. In a subversion of the tradition of all-male frontier "romance" that underpins the American epic of territorial discovery and appropriation, the absence of women stands in for the absence of grace. Consider the ultimate fate of H.W., whose loss of hearing - on the surface a tragic deprivation - ultimately frees him from the soul-destroying drumbeat of his father's words. H.W. is the only male character who develops a meaningful relationship with a woman, and his separation from the father who denies him at the end of the movie counts as a liberation. In There Will Be Blood, almost all speech is false. Deafness becomes the only path to truth.

Kentucky Derby Picks

2008-05-02T10:19:00.001-07:00

Even though I no longer bet, I did glance at the past performances for the Kentucky Derby tomorrow. For what it is is worth, these are the horses I believe have a chance to win, with program number/post position and morning line odds. I see one of the following three horses winning:

6 (15/1) - Z Fortune

19 (15/1) - Gayego

20 (3/1) -Big Brown

Here are some facts. In the 133-year history of the Derby, only 1 horse has won from a post position of 19 or higher (of course, many Derbies have had fewer than 19 horses running - nonetheless). It also has been 93 years since a horse has won with only 3 starts (Big Brown). So I think we can throw out Big Brown as the winner particularly as he will be going off at pretty short odds. He is a remarkable horse, and he could win, he just is too risky at the price he will return.

If I had to pick one horse, I would pick Z Fortune, who has a favorable post position. He can drop in on the rail and close, which typically favors Derby horses. There is a lot of early speed in this field, and they tend to wear each other down, opening up opportunities for a closer down the long stretch at Churchill Downs. Z Fortune will go off at a nice price and is peaking at the right time.

If you want to play an exacta or trifecta, I would put Z Fortune 1st and 2nd with the 19 and 20 horses, and then put 2,5,9,10,12, and 18 for 3rd place.

So if someone had a mythical $100 to bet, I would do it this way:

$40 Win - 6

$5 Exacta - 6 with 19,20 ($10)

$5 Exacta - 19,20 with 6 ($10)

$2 Exacta - 6 with 2,5,9,10,12,18 ($12)

$1 Trifecta - 6 with 19,20 with 2,5,9,10,12,18,19,20 ($14)

$1 Trifecta - 19,20 with 6 with 2,5,9,10,12,18,19,20 ($14)

Of course, this does not represent any recommendation that anyone else bet on this race. Horse racing is not for the faint of heart. I am mostly just opening myself for ridicule when Z Fortune finishes last.

Commissioner Paul Atkins: Law and Economics at the SEC

2008-04-29T10:21:00.001-07:00

SEC Commissioner Paul Atkins' term is up this summer. With the SEC down to only three commissioners, it remains uncertain if he will depart the SEC or stay on until new commissioners come on board. Either way, he will leave a powerful legacy, albeit one shadowed by an undertone of disdain for the institution he was appointed to represent.

Atkins is the commissioner who has probably argued most forcefully (and often with considerable literary panache) that economic analysis should drive regulatory decisions. In repeatedly driving home this argument, and in not concealing his low opinion of the staff lawyers at the SEC who do not employ economic analysis, he will likely also be remembered as one of the most divisive commissioners in recent memory.

Atkins has famously remarked that the SEC is "of, by, and for lawyers." While a lawyer himself, he has lamented the failure of the SEC to hire more economists and MBAs and to hew sufficiently to statutory mandates to conduct economic and cost-benefit analysis of rule proposals. He has declared that "a lack of appreciation for economic principles has hampered the efforts of well-intentioned attorneys in many practice areas." Remarks about the PCAOB and accountants suggest he lumps them together with SEC lawyers as equivalently misguided.

In a speech delivered to the National Association for Business Economists in 2007, where Atkins faced a friendly audience, his remarks about the role of lawyers at the SEC were particularly pointed. In this speech, Atkins did little to harbor his view that the SEC, and other governmental bodies, would be entirely better off if they were essentially run by economists who could provide direction to inept lawyers, not merely in regulatory decision-making, but in enforcement decisions involving analysis of harm, settlement costs, and financial penalties.

What are we to make of this? If we look beyond Atkins' often impolitic bluntness about the institution he represents (but apparently does not love), he is probably correct that an economist's perspective can sometimes usefully frame analysis of specific regulatory and enforcement choices. If we set aside his clearly and consistently anti-regulatory bias, he is probably correct that the SEC continues to need to work from a principles-based, not prescriptive regulatory philosophy, and that it should continue to partner with the industries it regulates to the degree possible. If we set aside his instinct to minimize enforcement of any sort against corporations (as opposed to individuals), it is true that he raises good questions about the impact of large financial penalties on shareholders who have probably already suffered from plunging stock prices.

But if we don't look beyond these personal and ideological biases - Atkins loves markets and dislikes laws, hence "loves" economists and "dislikes" lawyers - we are left with someone who does not have the conceptual tools to manage the kind of financial and regulatory crisis we face today. In 2004, Atkins spoke out forcefully against hedge fund adviser registration, but has entirely missed the boat on matters regarding hedge fund valuation and more general issues about how we are to value complex financial instruments for which the markets themselves appear to have no solution. For these reasons, even as Atkins waves the bloody flag of overregulation, the hedge fund and pension fund industries are themselves calling out for help and will almost surely accept greater regulation if it assists them in managing market turbulence and uncertainty that threatens to overwhelm them.

Atkins believes the markets can restore the needed balance without undue regulatory involvement, even as its key players say otherwise. The problem is that - as even Treasury Secretary Paulson has emphasized - the markets have outpaced the regulators. There is now consensus that we need time for government bodies to deliberate on how best to frame market structures to avoid the breach in the dykes that has characterized the subprime lending debacle. If by "lawyers", we mean policymakers and regulators with deep domain knowledge of the industries involved in this crisis, and by "economists" we mean formal modelers and empirical testers beholden to their own, market-driven "prescriptive" solutions, I am not sure the present situation might not call for more lawyers!

Post 9/11 - Military, Food, and Energy Crises Spiral Together

2008-04-25T07:17:00.001-07:00

Since September 11, 2001, President Bush has squandered - perhaps the better word is butchered - an opportunity to remake our world. In the immediate aftermath of that fateful day, the President held the peoples and nations in the palm of his hand. With bold and well-timed initiatives focused on global poverty and disease, as well as global security, his legacy could have been a testament to how the transforming power of Love might make meaningful the lives and deaths of all who perished that morning at the hands of Hate. Today, it is not an exaggeration to say that Hate rules the day. The world will bear the costs for decades, if not centuries, of the President's decision - as an Old Testament Destroyer, not a New Testament Healer - to make endless War in Iraq.

We do not need to look far to see the global impact of this war - in the mutually reinforcing spiraling curves of energy and food prices - a double helix of devastation that threatens to shred and mock the progress of the past decades in fighting hunger and disease, and bringing economic development to the populations of the world. For the moment, let us put aside the demand-driven impact on energy and food supply and shortages of economic growth in China and India. Let us focus, instead, on the direct energy costs of food production, and the indirect costs of energy on food production resulting from diversion of agricultural land to product corn for ethanol.

The war in Iraq has created enormous instability in energy markets. At the outset of the war in 2003, one Navy think tank study argued that the war would have little impact on energy prices. By 2006, a report from Nobel Prize prize-winning economist Joseph Stiglitz suggested that "the impact of Iraq on oil prices is a large proportion of the $45-a-barrel increase since the war began." Of course, the price of oil is now nearly $40-a-barrel higher than it was in 2006.

Agriculture is petroleum-dependent, in the use of petroleum-derived chemical fertilizers, the cost of oil for powering agricultural machinery, and the dependence of global food markets on transportation networks fueled by oil. In conjunction with widespread periods of drought in key agricultural regions of the world, rice and wheat production have dropped precipitously in Australia, Canada, the European Union and Turkey. Prices of these staples have soared, and nations, such as India, that previously exported their agricultural surplus, are reserving it for domestic consumption. Shortages have led to food riots in Bangladesh, Egypt, Senegal, Ethiopia, and Haiti.

President Bush's lost presidency can count no significant policy achievements. His grand bio-fuels initiative represented the President's one attempt to address dependence on foreign oil. However, massive corn-fed federal subsidies to support biofuel production - which more legitimately might be called a sublimating tactic designed to mute opposition to the war in Iraq - has done nothing to lessen our dependence on fossil fuels. Its failure as an energy policy aside, biofuel subsidies in the United States have distorted markets and diverted a vast amount of corn acreage away from food production, thereby contributing significantly to rising food prices.

The War in Iraq has become, by default, the President's energy policy and food policy. The War justifies and twists rationales for all other domestic and global policy initiatives of this Administration. One can calculate its engulfing, soul-destroying impact - not simply in the incalculable loss of life and wealth and happiness in Iraq and in the United States - but in the silence that befalls our leaders when the needs of the world require them to speak clearly and constructively about solutions to the transcendent issue of the day: the need for an energy policy that addresses global military and political insecurity, global warming, and global hunger.

KM Releases New Version of Securities Mosaic on Monday

2008-04-17T06:35:00.001-07:00

In the past nine months, Knowledge Mosaic engineers have rewritten the entire code base of Securities Mosaic. You can reap the rewards of their prodigious efforts on Monday, when we release the newest version of Securities Mosaic. Change abounds.

Our goal was to dramatically improve the experience of our users by streamlining the website, enhancing text search, and adding new tools and capabilities to existing search pages. Here are the major changes you can expect to see when go to Securities Mosaic on Monday.

A new login page. Away with the sallow, grey box that has been with us for every login since 2001!
A new home page. We have reordered the tabs on the home page and in the website navigation bar to reflect a more natural and intuitive organization of our content. We have removed the Enforcement tab and created a new tab for SRO regulation. We have consolidated the Compliance Centers into a new section called In Focus and created a new section called Paper Trail that links to a recent document of interest.
A new navigation bar. We have added a new universal SEC Release search box - available on every page - that lets you search for both regulatory and enforcement releases by release number. We have replaced Watchlist access with a link to our new Document Cart. However, you can still access your Watchlist via the Quickfind dropdown.
More flexible text search. You can now do Boolean searches without using brackets (<>) around your operator. For example: dog and cat, dog or cat, dog near cat. However, you can still use brackets if you have grown to love them! For proximity searches on the All SEC Filings and SM Item Extractor pages, you can use "near/5", "w/5" or "/5" to define the word proximity range.
Batch it with Document Cart. The Document Cart allows you to select up to 25 documents from throughout Securities Mosaic and add them to your "cart". Batch print or email at any time. The Document Cart requires a personal account. We can create one for you upon request.
Streamlined statutory and regulatory materials. Simple collapsible "tree" pages now encapsulate SEC laws and regulations and PCAOB rules and standards. And where there once were 16 FINRA and NYSE search pages, now you will find only one, allowing you to search across the full range of these SRO materials.

So Monday launches a new chapter in the development of the Securities Mosaic website. As with any new release, we will surely need to address issues that arise only after we expose the site to the light of day. We will find out that there are unresolved bugs and learn that some of the changes we have made do not sit quite right with some of our users. Let us know. We will do our best to respond, repair, and adjust where necessary. Enjoy.

From Documents to Data: The New World of Risk Disclosure

2008-04-16T12:20:00.000-07:00

Online research used to be about navigating massive, discursive document landscapes. At some level, this kind of research served merely to extend traditional analog methods for research and analysis of printed materials. However, documents are only containers. They are not themselves information.

More recently, sophisticated use of databases and the transition to XML has begun to liberate data within documents, creating new possibilities for how we imagine, encounter, manage, and manipulate information. At Knowledge Mosaic, our general business strategy has been to develop data parsing methods that allow us to build deep reservoirs of data mined from documents and then transport and deliver this data dynamically and in multiple formats to multiple platforms. All nearly in real-time.

In the past year, as part of this effort, Knowledge Mosaic has plunged into the dark and uncertain world of risk disclosure. Companies historically have been required to list risk factors associated with their business when they issue new securities. More recently (since early 2006), the SEC has mandated that public companies include risk factor disclosures in their 10-K annual report.

Now, many people assume that risk factor disclosures are like fresh, shiny paint on rotten wood - or perhaps old, crappy paint on fresh wood - but that in either case lawyers recycle and slap together risk disclosure language to dissemble, not to enlighten. And there may be some truth to that view.

But here's the deal. Risk is not generic. It varies by industry and it varies by business segment. Risk for software companies is not the same thing as risk for companies that manufacture chemicals or drill for oil or sell groceries or manage investments. Risk pre-Sarbanes-Oxley is not the same as risk post-Sarbanes-Oxley and it will be different yet again post-Bear Stearns. Directors and officers face different kinds of risk, as do engineers and salespeople.

Our SM Risk website currently contains 1,074,598 risk factor statements parsed from 57,213 filings filed since May 26, 2000. We have classified these risk factor statements using a taxonomy that includes more than 30 master categories (such as competition risk, environmental risk, experience risk, governance risk, and legal risk) and more than 1,000 minor categories (such as accounting charges, hazardous waste, patent infringement, product liability, and senior indebtedness).

What we have learned in developing this risk disclosure research platform is that it is definitely a terrific environment for instantly finding useful precedent language when preparing risk disclosure statements. However, SM Risk also reveals the nuance and texture in risk disclosure, with rich implications for how we understand the meaning of risk in different industries, business segments, regions, and time periods. One of our exciting opportunities in the coming months will be to start analyzing and mapping that nuance and texture.

But for now, here are two interesting illustrations of risk disclosure, one concerning experience and one involving earthquakes.

No Experience. It turns out many companies admit they have no experience in the activity for which they are trying to raise money. Just two days ago, Accential Pharmaceuticals Inc. - which is trying to raise nearly $9 million to commercialize BiovaxID, a non-Hodgkins lymphoma vaccine - conceded in a risk factor statement that "we have no experience manufacturing BiovaxID or any other immunotherapies for the number of patients and at a cost that would enable widespread commercial use."

Back in February, Refinery Science Corporation, a company with virtually no revenue, tried to raise $10 million, while conceding that "We are a development stage, independent petroleum processing technology company, with no experience in the market, and failure to successfully compensate for this inexperience may adversely impact our operations and financial position." Wouldn't this be useful information to have at your fingertips before investing?

Earthquake Faults. Many companies operate facilities that sit on or near earthquake faults. Of the 1,949 risk factor disclosures that mention earthquake risk, 920 (or 47 percent) are from companies headquartered in California. If you want to know which of these California companies faces risk to manufacturing facilities from an earthquake, a simple text query (earthquake manufacturing) returns 239 risk factors from 165 companies.

Wouldn't it to be good to begin benchmarking California companies with manufacturing facilities in similar industries that do not address this potential for disaster in their risk factor disclosures? For example, 57 of these risk factors are reported by 34 companies in the semiconductor industry (SIC 3674). Intel is not one of them. Why not? Indeed, Intel only mentions the word "earthquake" in two of its 1,516 filings - one a 1999 8-K referring to the major earthquake in Taiwan and one an S-4 from 1999 that does refer to risk to Intel's critical business operations from earthquakes in California. Doesn't this disclosure gap seem odd? Does it matter? In the event of a major earthquake that destroyed major parts of Intel's facilities, some investors (and their attorneys) might think it did.

We are not currently licensing SM Risk, except as a data feed. Later this year, when we release our new business law platform, we will incorporate SM Risk into this platform. For now, if you are interested in exploring this risk landscape in more fine-grained detail, you can use the SM Risk website free of charge. Please feel free to contact me for more information on signing up. My email address is pschwartz@knowledgemosaic.com.

Valuation is the Heart of the Matter

2008-04-15T08:00:00.000-07:00

Business and financial regulation in the United States builds upon two worthy traditions - self-regulation and self-disclosure. By design, these traditions preempt and represent lightweight alternatives to more heavy-handed and prescriptive direct regulation by government agencies. When the SEC deputizes private organizations such as the NYSE to police its members, it is adhering to the time-honored tradition of deputizing private citizens to maintain public order. When the SEC requires electronic disclosure, it respects the dependence upon, and responsiveness of, financial markets to the flow of information - to the idea that, indeed, markets are little more than the flow of information.

However, when industries themselves call for more self-regulation and more self-disclosure, it is always an act of desperation, not merely because they want to avoid direct government oversight, but because they are acknowledging that they can no longer survive without some measure of public accountability and public trust. They are acknowledging that the open markets to which they pay fealty now threaten to consume them.

In that spirit of desperation, today we are privileged to experience the much-anticipated release to the President's Working Group on Financial Markets of two private sector reports on hedge fund best practices - one from the hedge fund industry and one from institutional hedge fund investors (primarily pension funds, endowments, and foundations). These reports represent responses to the meltdown in the financial services industry that has led to the evaporation of more than $245 billion in asset write-downs and credit losses since the beginning of 2007, and to market instability that the hedge fund industry no longer trusts it can manage.

What strikes me in reading these reports, and observing the conversation about the recent financial crisis from a distance, is the centrality of the problem of valuation. Both reports combine reference to valuation with other key aspects of hedge fund management and investment - disclosure, risk management, taxation, accounting, liquidity, trading, and compliance. But there is a palpable sense that the other practices and conditions are secondary - that all would be well if we only knew how to value structured securities and derivatives.

The bottom line is that we don't. The credit rating agencies don't. The banks don't. The hedge funds don't. Institutional investors don't. And in the absence of robust valuation data, methods, and models, there is no floor to the risk that financial institutions face when they toy with structured securities and derivatives.

Both reports carve out special sections for the discussion of valuation challenges. The institutional hedge fund investors' report - which starts by affirming that "valuation is ultimately at the core of any investment" - is more discursive on this subject than the hedge fund industry report. This may be indicative of general differences in stylistic approaches to the subject matter. Or it may suggest an entirely different perspective on the depth of the issue, with anxiety about valuation reflecting investor concerns more than the concerns of asset managers.

While both reports focus on the need for better valuation methods, valuation policies, valuation committees, and valuation governance, neither really grapples with the core reality - which is that huge dollar volumes of assets simply cannot be valued. There is insufficient liquidity and inadequate data, and in their absence, values depend upon someone simply assigning a value that has no relation to anything except the interest in making a market out of vapor. Until the hedge fund industry, and government regulators and policymakers, acknowledge this deep emptiness at the heart of the financial industry, all the reports in the world will amount to nothing more than a rearrangement of the deck chairs on the Titanic.

The Plan

2008-04-14T11:08:00.001-07:00

In a small business that has grand aspirations, the two most important qualities for growth are mindfulness and structure. Mindfulness makes for attunement - creation of harmony - with the two most vital partners of any business - customers and employees. Structure creates a detailed template for operational effectiveness. It amounts to a plan for success to which all relevant parties can commit.

Structure and scheduling go hand-in-hand. I'd like to help make my Wired Mosaic blog be a success by introducing a predictable weekly schedule, with each day devoted to a particular topic or theme. Here is what I am envisioning.

Monday - General News and Observations (on anything compelling)

Tuesday - Regulation (stories worthy of comment from the SEC and from elsewhere in the world for business law and regulation)

Wednesday - Disclosure (tales and trends mined from corporate disclosure filings)

Thursday - Knowledge Mosaic (stories about triumphs and challenges of running an online business)

Friday - KM Book Club (weekly review and comment about a book of interest to myself and to readers)

I may reserve time to post separately on a more ad hoc basis (for example, when we have a new product announcement or other event or news report worthy of instantaneous reporting), but as busy as I am, I imagine this schedule will be more than sufficient to keep me tied frantically to my post on the blogging assembly line. Imagine Charlie Chaplin in Modern Times or Lucille Ball in I Love Lucy. Only more crazed.

You Blog, You Die

2008-04-10T09:11:00.001-07:00

The recent NY Times article about obsessive blogging and the health risks to those who struggle in their post-modern sweatshop - to churn out the posts, to harvest the clicks, to gain their measure of fame - resonated with many bloggers, but left me underwhelmed.

Beyond the obvious point - if you don't take care of your body and nurture your spirit, as well, you place yourself at risk - I am not sure how anyone can say that blogging is dangerous. It may not pay very well, but this is the result of the advertising model that underpins the new media business models of companies like Gawker Media that employ bloggers.

In another post, I'd love to extemporize on advertising business models - with their spurious "no pain/all gain" premise. For now, the main point I'd like to make is that blogging is, at the end of the day, about some combination of good writing, good storytelling, and good reporting. My favorite bloggers on the KM Blogwatch invest significant amounts of research, thought, and time in their posts, and deserve to be honored for the quality of the writing that results. Whether this requires an unhealthy lifestyle is another question, that may shade into a conversation about creativity and art.

But the NY Times article is really focusing on the kind of mania that compels technology bloggers to post obsessively and stress themselves to the breaking point because milliseconds in posting times can drive audience and revenue. It is almost a zero-sum game of the sort David Mamet depicts in Glengarry Glen Ross, where Alec Baldwin tells the Jack Lemmon, Al Pacino, and Kevin Spacey that first prize in their sales contest is a Cadillac Eldorado, second prize is steak knives, and third prize is "you're fired."

The NY Times article is also about compulsion and addiction. But I don't see how it is really about blogging itself. Blogging is a powerful and creative new medium of expression with different subcultures, some of which intersect the business world and require a cash nexus, but many of which don't. Blog as business. Blog as art or as craft. The two endeavors may overlap, but remain, nonetheless, two very different activities.

Ready? Set? Go!

2008-04-09T07:25:00.000-07:00

I've been thinking and talking about doing this for months. Writing a "real" CEO blog. Not that I'm a "CEO". I'm officially a "President", and my company is tiny - with only 20 employees - so truly, it is a bit embarrassing to even say I am writing a "President blog".

But one has to start somewhere. And an entertaining, thoughtful "leadership" blog from a small-potatoes business beats the stuffing out of the marketing drivel that emanates from so many large corporation blogs.

What would it mean to write a real CEO blog, as opposed to a fake CEO blog? Well, for starters, it needs some background music for inspiration. A little Springsteen, perhaps. And so I am delighted to have just discovered that when I close the door to my office and turn up my music, no one else can hear me.

A good CEO blog also needs a bit of literary flair. Some honesty. Humor. A taste for the story. The instinct to peer beyond corners and see things happening before anyone else.

There is a reason people love reading Pmarca (Mark Andreesen) and Blogmaverick (Mark Cuban), and there is a reason that Sun CEO Jonathan Schwartz's blog leaves people a little bit cold (or bored). Pmarca and Blogmaverick - each in different ways - engage the world at the level of ideas and opinions.

The two Marks could not be more different in their styles - Andreesen is simply a massive brain jonesed on caffeine. Nothing escapes his interest and his voice is polymathically perverse. Always a fun, engaging, enlightening read (his latest post is about the history of newspapers).

Where Andreesen is the sunny lad you might want your daughter to marry, Cuban is his dark, brooding twin - a businessman's Marky Mark. More self-absorbed, opinionated, angrier, more the pot-stirrer (his latest post is about his feud with Bill O'Reilly), Cuban is the shadowed, slightly dangerous angel about whom your daughter would fantasize.

By contrast, the problem with Jonathan Schwartz and his sunless Sun blog is that it casts zero light and zero shadow. He posts fairly irregularly - always about Sun technology and Sun customers and Sun finances - and despite the fact that he sports a ponytail (perhaps twinning himself with me, the lesser Schwartz, who is both bald and grey), there is nothing remotely hip or edgy or interesting about any of these posts, which because of their irregular timing, also come across as being somewhat random.

Frankly, although I have no idea what the traffic figures are for any of these blogs, my hunch is that Pmarca and Blogmaverick relentlessly pound Jonathan's Blog when it comes to readers and visits. Honesty and humor will always trump PR

Anyway, I do want Knowledge Mosaic to have a voice, and I do see the Wired Mosaic blog as a way to offer this voice. There is no doubt that an authentic, powerful, vivid voice for a business can give it identity and presence, and thereby yield a significant marketing and sales benefit. There is no reason to apologize for pursuing these goals, of course.

That said, I truly believe the best service I can offer Knowledge Mosaic, even from a marketing standpoint, is to speak from my heart about the events and ideas that excite me - not just as they pertain to Knowledge Mosaic, or even to the world of legal, regulatory, and compliance matters - but as they pertain to and resonate with the most significant trends and groundswells of our time.

So here is my commitment as a "CEO blogger". To post regularly, fearlessly, fairly, and on topics that will resonate. I know myself. I will never be a blogger like Broc Romanek, who knows the ins and outs of SEC regulation and compliance as well as he knows the guitar solo from Stairway to Heaven. Nor will I ever forge the lovely, arcing synthesis of literature and liability that characterizes the posts of everyone's favorite D&O attorney, Kevin LaCroix. But I can commit to writing honestly and openly about a broad range of topics that include, but are not limited to, the work we are doing at Knowledge Mosaic; the challenges and satisfactions of operating a small business such as ours; the trends and developments in the world of business law, regulation, and compliance; and the implications and meaning of technology transformations. Along with those topics, I also expect to interweave conversations about - among other things - history, politics, sports, culture, brain science, cosmology, religion, consciousness, and good as it stands in relation to evil.

All the things, in short, that are calculated to inspire the ire of Bill O'Reilly.

I also understand that in undertaking a project of this sort, that I am representing my company and so will do everything in my power to honor that role and responsibility.

In the coming months, we will be revamping the KM Blogwatch to allow comments on all of our posts. In the meantime, I want to invite anyone with feedback on my posts to write me directly at pschwartz@knowledgemosaic.com. I will be sure to publish any and all thoughtful replies to my posts, and those of others in our KM Blogwatch blogging community. You also can go to the full Wired Mosaic blog at any time (and there find a photo that confirms that I am not the hirsute member of the Schwartz tribe). On that site, you can of course publish comments. If things go well, we may migrate it to the Knowledge Mosaic website at some point in the future.

Welcome to Jeff Frankel's Weblog

2008-02-24T14:25:00.000-08:00

I am delighted to welcome Jeff Frankel and his Weblog to the KM Blogwatch. Jeff is the James W. Harpel Professor of Capital Formation and Growth at the Kennedy School of Government at Harvard. He is also the Director of the Program in International Finance and Macroeconomics for the National Bureau of Economic Research. In his new blog, he writes about economic policy and other policy matters at the intersection of business, economics, and politics.

Jeff has taught at Harvard since 1999, and taught for two decades prior to that at the University of California at Berkeley. He served as a member of President Clinton's Council of Economic Advisers from 1997 to 1999.

I have known Jeff for 30 years, and even rented a room in his house in the Berkeley hills in the early 1980s when I was a young graduate student in political science and he was an assistant professor in the economics department. Jeff is a brilliant and prolific scholar, an engaging teacher, and a graceful and witty writer.

Oh. Since it is Academy Awards Eve, it is fitting to mention that Jeff also can recite the entire dialogue from Casablanca from memory.

XBRL Executive Compensation Data

2008-01-10T06:04:00.000-08:00

This morning, Securities Mosaic sent out a spotlight with top ten lists for executive compensation in 2006 based on the XBRL compensation for 500 major public companies recently published by the SEC in its new Executive Pay Finder demonstration platform, designed to showcase the value of the XBRL framework for publishing financial reporting data.

We can debate the merits of XBRL separately. The top ten list itself is revealing - while the data is old, the numbers themselves are probably even more shocking for 2007. Martin Lipton aside, it is difficult to argue that this compensation benefits anyone but the recipients, and once again it reveals all too clearly the interwoven, incestuous board-officer networks that perpetuate the bubble of unreality pervading executive compensation decision-making.

Put another way, these decisions do not reflect a "foot-washing mentality" with respect to the philosophy of leadership an company service at these major business institutions.

The SEC XBRL is actually fairly graceless and difficult to work with. For spreadsheets containing this data that provide much easier to access to sorting and filtering capabilities, please write directly to me at pschwartz@knowledgemosaic.com , and we will send you these data files immediately.

infoUSA in the News Again

2007-11-20T20:12:00.000-08:00

The SEC has recently concluded stock option backdating investigations with a number of companies, notably technology companies such as Zoran and NVIDIA, leading to speculation that enforcement momentum in the stock option backdating scandal may be waning.

Not to worry. As the SEC Investigation Disclosure section of SM Litigator reports, there are still misdeeds aplenty (or allegations thereof) for the SEC to investigate. Consider direct mailing mega mogul, infoUSA, which reported yesterday that the SEC had launched a preliminary investigation concerning related party transactions, the reimbursement of expenses, other corporate expenditures and specific trading in the Company’s securities.

infoUSA is a company that cannot stay out of the limelight. In the past six months, reports of abusive sales practices involving elderly Americans culled from its mailing lists, jobs outsourced to India, and campaign finance ties of CEO Vinod Gupta to the Clintons, have led the company to reserve a significant slice of its home page for defenses of its practices, including praise from Bill Clinton in his new book, Giving.

SM Litigator Wells Notices Search now Includes a Full Range of SEC Investigation Disclosures

2007-11-04T18:59:00.000-08:00

We have culled Wells Notice disclosures from 8-K filings since the inception of SM Litigator. On Friday, we added an exciting, and significantly larger, new set of Investigations disclosures, including both Preliminary and Formal Investigation disclosures appearing in 8-K filings.

Our SEC Investigation Disclosure database now includes 789 company disclosures, broken out by recipient name and position (for Wells Notices), and allowing text search and search by CIK and Exchange. For example, using this database, you can learn about 19 CEOs who received Wells Notices, including CEOs at Berkshire Hathaway's General Reinsurance Corporation and Richard McGinn, CEO of Lucent Technologies.

Using the Exchange field, you can also learn view 132 notices of Preliminary Investigation from NYSE companies, including a recent (10/12/2007) disclosure from Zimmer Holdings regarding an SEC investigation into potential violations of the Foreign Corrupt Practices Act and an 8-K from Caremark RX reporting the completion of an SEC investigation into stock option grants, and a decision by the Commission not to recommend any enforcement action.

As we harvest these notices, we will also publish the most recent ones in our SM Litigator Daily News email.

CFTC Enforcement on SM Litigator

2007-11-01T03:20:00.001-07:00

We released a great new tool on SM Litigator yesterday, that allows you to search a trove of enforcement actions data from the CFTC. This new search page resembles similar work we have done with SEC enforcement actions and PCAOB inspection reports and disciplinary proceedings.

The CFTC tool is unique because it lets you access hand-tagged data that is otherwise unavailable. For example, you can search enforcement actions by Defendant Name, Defendant Place of Employment, Position, Violation, Penalty type, Penalty Amount, and Other Sanctions. The data currently goes back to 2004, with plans to extend it back to 2000 in the next few months.

Access to this data lets you quickly analyze, evaluate, and understand details and trends in commodities and futures enforcement. With CFTC Enforcement Action Search, you can perform enforcement action trend analysis and quickly model and profile the range of any possible actions and penalties against a client or employee.

For example, using the CFTC enforcement tool, you can learn instantly that the CFTC has brought actions against 21 CEOs since 2004, for alleged violations ranging from Disclosure Violation and False Reporting to Missappropriation to Misrepresentation to Commodity Pool Fraud, and Commingling. By contrast, the CFTC has brought actions against only two Chief Financial Officers and one General Counsel.

The vast preponderance of the actions brought by the CFTC concern various kinds of fraud. However, the CFTC also brings significant numbers of actions against individuals and companies for false reporting, misrepresentation, and misappropriation. Recent actions include a very large settlement with BP Products for manipulation in the propane market and action against a variety of individuals involved in a multi-million dollar foreign currency options scam.

It's good stuff.

We welcome the LawProf Blogs to the KM Blogwatch

2007-10-28T21:30:00.000-07:00

When it rains, it pours. We are delighted to announce a twofer, with the addition of two LawProf blogs to the Knowledge Mosaic Blogwatch. We welcome Professor Barbara Black, who brings us the Securities Law Prof Blog, and Professor Steven Davidoff, who brings us the M&A Law Prof Blog.

If you are not familiar with the Law Professors Blogs Network, it is definitely worth checking out. Published by University of Cincinnati College of Law Professor (and Associate Dean of Faculty) Paul Caron and managed by Cincinnati College of Law Associate Library Director Joseph Hodnicki, the Law Professors Blogs Network now includes more than 50 blogs covering every conceivable legal practice interest, ranging from Antitrust Law and Aviation Law to White Collar Crime and Wills, Trusts, and Estates.

Barbara Black is the Charles Hartsock Professor of Law and Director of the Corporate Law Center at the University of Cincinnati College of School. A prolific scholar, Professor's Black most recent SSRN publication is Stoneridge Investment Partners v. Scientific-Atlanta (8th Cir. 2006) What Makes it the Most Important Securities Case in a Decade? In the Securities Law Prof Blog, Professor Black offers immediate and comprehensive coverage of the leading events and scholarship in the securities law community.

Steven Davidoff is Assistant Professor at the Wayne State University School of Law. His most recent SSRN paper is Black Market Capital, which explores the fascinating phenomenon of "shadow" hedge fund and private equity fund instruments, which are the result of the lack of direct access of public investors to hedge fund and private equity funds because of regulatory prohibitions.

Dangerous Times for General Counsel? Maybe Not.

2007-10-26T08:08:00.000-07:00

The Harvard Law School Corporate Governance Blog publishes a post addressing new concerns about stepped-up Justice Department enforcement against General Counsel and other legal officers at public companies.

Data from SM Litigator's SEC Enforcement Actions database suggests the trend may not be that dire for GCs. Our data indicates that the SEC has brought actions against 11 GCs in 2007, compared to 7 in 2006, and 13 in 2005. So there is not much of a discernible trend.

The only difference we can spot is that the nature of the violations has changed. In 2005 and 2006, there were a number of violations for Sale of Securities and Late Trading/Market Timing. In 2007, the violations have tended more toward Accounting/Auditing, along with options backdating.

So what is the source of the fuss? Probably that options backdating scandals have pulled more prominent public companies into the spotlight and put their GCs more at risk.

Insider Trading Enforcement

2007-10-24T05:58:00.001-07:00

In today's SM Litigator Blogwatch, Tom Gorman discusses the SEC's renewed campaign against inside trading. On SM Litigator's SEC Enforcement Actions data analysis page, you can actually review the trends. In the past 12 months, the SEC has instituted proceedings against 106 defendants. In the 12 months previous, the Commission launched actions against 72 defendants. In the 12 months previous to that period (October 2004 through October 2005), the SEC brought actions against 96 defendants. So there is clearly an upward enforcement trend, although perhaps not dramatically in excess of previous years. Institutions associated with individual defendants include Dell, Goldman Sachs, Banc of America Securities, Morgan Stanley, Credit Suisse, Bear Stearns, UBS Securities, the law firm Katten Muchin Rosenman, and Fredericks of Hollywood!