Dana Blankenhorn

Broken Windows on Wall Street and Main Street

The purpose of regulation is to crime prevention.

Businesses have spent the last generation either ignoring or pretending to ignore this.

Businesses must, by their very nature, skate close to the edge of the law. Those who skate closest without crossing over have a big advantage.

So regulation exists to prevent this competition from sending ordinary businessmen to jail. It is filled with civil penalties which say, "whoa," and whose effect is to level the playing field between those who are skating close to the edge and those trying to stay well away from it.

It's an important lesson we need to become clear about as we enter a new era. How do we best teach the lesson?

It's a two step process. Part of it is putting those who erased the line and broke the law in jail for life. What is left of Bernard Madoff's (above) life is likely to be brief. But the lesson of his crime and punishment is all we have to guarantee that some young punk doesn't decide, "just don't get caught." We need to "send a message" about suite crime.

Of course, that's only step one. Step two is creating new regulations and structures to enforce this law. You can't just trust a company with the word "trust" in its name. This must be verified, through reports and audits, through giving government the right to come down hard on things that seem trifling.

Regulators are cops on the market beat. We can argue about how they're doing their job, about whether they are doing it efficiently, about whether they can do it more efficiently. But we should never, ever again, argue about the need for cops on the corporate streets, any more than we argue about the need for real cops on real streets.

It's ironic. The need for proper business regulation was actually made two decades ago. By Rudy Giuliani. He called it the "broken windows" theory.

Spend

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Think of this as Volume 11, Number 51 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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It's an iron law of economics. When everyone is doing the same thing, that is the wrong thing to do. (Picture from Entrepreneur Philippines, a really great online magazine.)

When everyone wants to buy something the market has topped-out. When everyone is selling that's the time to buy. Everyone knows this. Hardly anyone does this.

The rule goes beyond what may seem obvious. Any investment strategy, no matter how sophisticated it is, runs out of steam once it becomes popular.

There is a corollary to this, equally important. Never do what the TV tells you. Once a piece of investment advice is on TV everyone has heard it, lots of people are going to do it, and it's going to stop working.

This is true for even the hoariest of TV truths. Dollar cost averaging, for instance. If you did that over the last year you got hammered along with everyone else. Same with doing what Cramer tells you. This is not because Cramer is a bad guy -- when he kept his mouth shut and used the advice he is now giving, back in the day, he made money for his clients. But once it is out in the air, it's too late. Too many people are doing it, it's not going to work.

So what should you be doing? Now is probably a very good time to spend, and to invest. There are going to be bargains everywhere in the economy over the next several months. It would be very hard to go wrong picking strong stocks right now, although you will have to be patient.

That advice sounds scary, doesn't it? It may even sound crazy. And it's also likely that, like me, you're not in a position to step up and buy right now. Just do what you can. All I ask is that you not put it all in a mattress or (worse) buy treasury bills for zero percent interest. Because that's what everyone else is doing. So it won't work. Inflation means that money socked away in "safety" is going to be worth less when it comes back than it is now.

Really Big Chu

Sorry for the pun, but the appointment of Dr. Stephen Chu as Secretary of Energy will be big news in the War Against Oil.

No agency in government is so controlled by the industry it supposedly regulates as the Energy Department. The place is just crawling with oil company executives.  Many will be blown out in the transition, but that still leaves the "protected" employees, civil servants who are right now "burrowing" into the bureaucracy specifically to thwart change.

Thus it's important to have people alongside Dr. Chu who know how the game is played. And this is the beautiful thing. The Lawrence Berkeley Lab Dr. Chu now runs is a Department of Energy agency. Chu, unlike anyone else Obama could have chosen, is already an insider.

Best of all is the gravitas thing. I can't remember ever seeing a Nobel Laureate in the Cabinet. (Can you?) Having won the 1997 Nobel Prize in Physics, Dr. Chu brings credibility to his task no other possible appointment could match.

There is much to do.

Reforming Georgia technology

Yesterday's post on Georgia Tech registered a record number of comments for this blog. It's gratifying. I thought y'all had forgotten me. (Picture of Lance Weatherby from Startuplounge.)

It also got me to thinking. How would I change things if I were in charge (not that I am asking for the job).

It seems to me there are two forces at work here -- research and entrepreneurship. The two do not always go hand-in-hand. It's much like my writing about technology. Were I to join a business or organization outside writing, even as its head, I would no longer be writing, I'd be in business. I long ago made the choice to remain a writer.

The same is true for many researchers. The impulse to research, to seek truth and hold little pieces of it in your hand, is not the entrepreneurial impulse. Entrepreneurs are special people, dedicated to building companies that work and make money.

How to marry them?

What Stanford did, in creating what we now call Silicon Valley, was unique, a product of its time. As books like Bill & Dave attest, it came out of a Depression, a War, and a generation that could turn science into engineering, and engineering into products, growing into the really big money while staying true to a public trust.

Maybe we're about to have that Depression. I don't know. I do know our young people are doing great things, that the forces which built Silicon Valley still live.

Just not all in silicon.

Instead it's in using the products of the Silicon Valley revolution -- the chips and networks we're using now -- to solve even deeper problems that the future will be driven. Instead of Germans and Japanese, we face direct threats to the survival of our species, and a genetic revolution that will transform us in this century. (God I wish I were 17 again.)

Georgia's tech effort, sadly, is based mostly in the north-south arc of Peachtree Road and Georgia 400. It is old tech, shaped mainly by old geezers my own age, whose great stories have mostly been written.

That needs to change. How?

Georgia Tech Scandal

I got a shock yesterday.

An interview with a "local" tech company turned out to be one with a company 3,000 miles away. Appcelerator CEO Jeff Hainey, a veteran Atlanta entrepreneur, told me straight-out he found himself getting more done in a single Mountain View afternoon than he could do in a month from Buckhead.

For me this was the last straw. I have spent nearly my entire journalism career covering Atlanta technology. The state has long claimed the most active tech-development operation in the nation, with an incubator called the ATDC, an active software trade group, and a host of VCs and angel investors, not to mention the "economic development engine" of Georgia Tech.

When I moved here Atlanta did indeed have a thriving high-tech sector. I launched the tech beat at the Atlanta Business Chronicle in 1982 and remember them well. We had hardware outfits like Hayes and Quadram, software outfits like MSA and Crosstalk, we had satellite companies like Scientific-Atlanta. All gone. PR legend Pam Alexander got her start in Atlanta, operating out of a house a few miles away from me.

There were some successes in the 1990s as well, outfits like Internet Security Systems and Mindspring (later Earthlink), which began life at Georgia Tech. For the most part momentum moved from the lab to the marketing desk, with companies like iXL and Macquarium. Doubleclick started here. I should have screamed louder when they moved less than six months later. Instead I joked that Atlanta was "where the engineer met the salesman at the Airport."

But in this decade, nothing. Silence. The best start-up of the open source era, JBOSS, was actually denied space at the incubator, Hainey told me. They sold out to RedHat in 2005 for $350 million, a great deal and a smart one. Then the operation moved to North Carolina.

What Hainey was telling me, in essence, is that you're a fool now to think that Atlanta is any place at all to launch a tech company. He tried it, he succeeded for a time, but he had to give it up, because he was too far from the action. And the action isn't here.

It has been years since I attended a major tech event in Atlanta. One by one all the major shows -- E3, Comdex, CTIA, SuperComm -- have moved on, closed, disappeared.

A Center-Center Nation

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Think of this as Volume 11, Number 50 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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Ever since the 2008 election we've had a running fight between mainstream "analysts" (like Karl Rove) arguing that this is a "center-right" nation and progressives  (like David Corn) worrying that Barack Obama's personnel decisions are meant to validate that.

Nonsense. On both counts.

America is not a center-right nation. Nor is it a center-left nation. Americans are naturally centrist, although the center shifts with the times.

The purpose of politics is to define that center. The aim of Barack Obama is to define that center broadly, to build a consensus for a program of institutional transformation, based on the concepts he described during the campaign.

So far he has made a great start on it. We now have a consensus that massive intervention at a time of financial disaster is a good thing, and that the price of such intervention must be a continuing government role in setting and enforcing  rules aimed at market stability. We now have a consensus on getting out of Iraq, on focusing against Al Qaeda, on using diplomacy rather than force of arms, and on re-connecting our policy with our values.

Not bad for a month, for a President who has yet to take the oath, and who won only 52% of the popular vote. Both these enormous policy victories have given the President-elect credibility with which to pursue other elements of his agenda -- environmentalism, a War Against Oil, and public works on a massive scale.

Is this center-left? Is it center-right? Neither. It's center-center. It's the political center as defined by Barack Obama, who is my President. And who should be yours. Especially if you're a Democrat.

No Excuse for High Price of College

College costs too much and its costs must be forced down as part of any economic recovery plan.

For most undergraduate degrees the course program is set and standardized. There is no reason for full professors to be teaching basic courses at most schools, and in fact few do. The edifice complex of state universities can and should end. And it's time to bring the Internet into the picture in a serious way.

I recently did a piece at ZDNet on college textbooks and this is just one area of incredible froth in the delivery of the service. Kids are being charged hundreds of dollars per course for printed textbooks, in addition to the cost of classes, and it doesn't have to be that way.

The key to change is giving professors at better deal, and that's where Flat World Knowledge is aiming its pitch. Kids get access to free texts, but professors get 20% of all ancillary rights -- printed textbooks, Kindle textbooks, online coursework based on the textbook. All these can be offered at prices much lower than students now pay. And at the end of the day the authors wind up with texts they can update on demand, along with just as much money in their pockets as they had before.

This is just one example. The shortage of distance learning options from top-rated schools is a scandal. Phoenix University and its competitors offer a quality product, but they can't gain traction because the "big schools" have the prestige and continue to charge a monopoly price.

When I say a monopoly price I'm serious. Even with its recent endowment haircut Harvard still has enough income to give away its basic product, an undergraduate education, thanks to the gains of the past and the money it brings in research. Instead it continues to charge $40,000 per year and limit enrollment. That's the kind of behavior I expect from AT&T, not an organization dedicated to the public good.

I-35 Supertrain

The President-elect has suggested that building green infrastructure should be a component of his plan to boost the economy.

I agree. And I've said here before that it should be 30-year property, things that continue to pay for themselves many times over in the course of their useful lives.

So here is a modest proposal. Train tracks. Trains save energy over other forms of transportation. Train tracks are cheaper to build than highways.

We should start with one in particular, a line that will roughly parallel I-35 from Mexico to Canada that bypasses major urban centers. This has many benefits:

1. It dramatically increases our trade-handling capacity, especially with our largest partners, Canada and Mexico.
2. It takes an enormous load off already overburdened Interstate highways.
3. It's incredibly efficient. Railroads can save 50-75% on fuel over trucks, and switching to other fuels is as simple as building new locomotives.
4. This will really piss off Republican politicians in Texas.

Wouldn't it be better to talk with folks who are already making money about where the government should invest your tax dollars at a profit? As opposed to those with broken business models?

The Nap

In order to make aging a bit more tolerable I've branded it.

It's even got a tag line.

The Aging Process -- You Should Live So Long.

Makes you feel all yummy inside, doesn't it?

But it's not. It's a bitch. Those of us in our 50s have a choice to either fight or to give in. I choose to fight, my way. With exercise, and good habits. And following my doctor's advice. And staying married. And writing. And staying in touch with people. Like you.

So let me offer something up in the form of a habit I have gained in recent years, and the questions it has asked me.

The nap.

Shame of the South: Alabamistan

No American state is so much like the dictatorships of central Asia than Alabama. (Cartoons by J.D. Crowe for the Mobile Register.)

Under Boss Bob Riley, Alabama Republicans have so corrupted the law that it's physically hazardous to be an ambitious Democrat. And if you're a Republican, even the old rule "don't get found in bed with a dead girl or a live boy" is apparently no longer operative.

It has been this way since Riley's first election, in 2002, when Baldwin County officials (all Republicans) staged a recount after all the Democrats had gone home and "found" the 6,000 votes necessary for him to beat incumbent Democrat Don Siegelman.

This was just the start of things for Siegelman, who soon found himself on a Solzhenitsyn-like journey through the world of partisan justice, eventually spending nearly two years in a federal jail. It was, as the blog Firedoglake later wrote, a total frame-up, made possible only by the complete corruption of the federal government -- from Birmingham all the way to the White House.

Allegedly, Siegelman was taking money illegally from Robert Scrushy, CEO of HealthSouth, a sports medicine outfit convicted of fraud the year before he stood trial with Siegelman. But as Scott Horton of Harpers Magazine later learned, Republican operatives were tampering with both the jury and the evidence, having secret meetings with the Judge, and convicting Siegelman through a U.S. Attorney married to a Riley strategist who was (despite her supposed recusal from the case) handling strategy behind the scenes.