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| http://www.gilder.com/ | Issue 372.0/February 13,
2009
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HEADLINES:
- The Week / Why Markets Dissed the Geither Plan
- Friday Feature / Silence Of The
Valley Obamacons
- Friday Blogger Bonus / Coder Proves iPhone
Gold Rush Still On
- Readings /
The Week / Why Markets Dissed the Geither Plan
Andy Kessler, The Wall Street Journal
(2/11/09): One of the cool things about being Treasury Secretary is that you get
your signature on dollar bills, giving them authority, defending their honor.
Timothy Geithner's plan to save the struggling banking system probably does the
opposite, throwing good money after bad to a banking system struggling under
the weight of its own mistakes. The markets don't like it. The Dow dropped 382
points while bonds rallied as a port in a continuing storm.
Mr. Geithner announced a
three-point plan yesterday to "clean up and strengthen the nation's
banks," and made a vague declaration to use "the full resources of
the government to help bring down mortgage payments and to help reduce mortgage
interest rates." Unfortunately, those are conflicting plans. Hence the
markets' skepticism.
The Treasury secretary seems
stuck on keeping the banks we have in place. But we don't need zombie banks
overstuffed with nonperforming loans -- ask the Japanese.
Mr. Geithner wants to
"stress test" banks to see which are worth saving. The market already
has. Despite over a trillion in assets, Citigroup is worth a meager $18
billion, Bank of America only $28 billion. The market has already figured out
that the banks and their accountants haven't fessed up to bad loans and that
their shareholders are toast.
Second, Mr. Geithner
wants to use up to $1 trillion to back new car loans, home loans and student
loans. That's noble, but incredibly market distorting. Who gets these loans?
Will banks be forced to loan to those with bad credit? Who sets loan rates?
Doesn't this just set up another credit squeeze when government guarantees are
lifted?
What we need are healthy
banks with clean balance sheets and enlightened risk assessment to provide
consumer and business loans that will generate returns to shareholders. And to
this end, Mr. Geithner wants to create a public-private partnership to buy
toxic securities off bank balance sheets. This is a truly worthy goal, but I
don't think his plan for doing so will work. Banks are more than able to sell
these toxic loans today. They just don't like the price.
The first iteration of the
Troubled Asset Relief Program (TARP) last year was to buy these bad loans and
derivatives. It didn't work. Nothing was bought when it became clear that
paying face value was a taxpayer giveaway to banks, but paying market prices
for this stuff would cause huge equity write-downs, wiping out banks which
would be left with negative equity and effective insolvency.
The next round of TARP
injected money onto bank balance sheets first, boosting their equity so they
could absorb the write-downs to come when the toxic junk was bought later. It
didn't work. The $45 billion to Citi and Bank of America wasn't nearly enough.
Instead, $306 billion and $118 billion loan guarantees were extended to cover
the bad debt, which unfortunately, the market believes still weighs down banks'
balance sheets.
Now with TARP 2.0, renamed a
friendly Financial Stability Plan, the idea is to entice private capital to buy
these bad loans and derivatives in an effort to set the "market
price." But Mr. Geithner hasn't solved the dilemma of banks not wanting to
sell and become insolvent. Moreover, no one is going to buy these securities
ahead of Mr. Geithner's action with the "full resources of the
government" to bring down mortgage payments and reduce mortgage interest
rates. Lower mortgage payments means mortgage-backed securities would be worth
even less. Six months to a year from now, big banks may still be weak and the
ugly "n" word of nationalization will be back.
Mr. Geithner should instead
use his "stress test" and nationalize the dead banks via the FDIC --
but only for a day or so.
First, strip out all the
toxic assets and put them into a holding tank inside the Treasury. Then inject
$300 billion in fresh equity for both Citi and Bank of America. Create 10
billion new shares of each of the companies to replace the old ones. The book
value of each share could be $30. Very quickly, a new board of directors should
be created and a new management team hired. Here's the tricky part….
Read on:
http://www.andykessler.com/
|
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Friday Feature / Silence Of The Valley
Obamacons
Rich Karlgaard, Forbes.com “Digital
Rules” (2/12/09): Libertarians
(the capital “L” variety) like to map their belief set by something called the
Nolan Chart, a quadrant. One axis on the quadrant divides traditional political
liberals and conservatives. The other axis divides those who desire freedom
from the state from those who want a bigger state.
Silicon Valley, where I live,
is home to both political liberals and conservatives–more liberals of late, but
not by a huge margin. The lopsidedness occurs on the freedom-statist divide. An
overwhelming majority of Valley residents would place themselves on the freedom
side and against the state. This should not surprise anyone. Silicon Valley is
a land of immigrants, both foreign and from other American states. What draws
people to Silicon Valley is the freedom to go out and commit industrial
revolution and make the future.
Thus it was always odd that
Silicon Valley voted for the most statist-inclined presidential candidate since
FDR. Silicon Valley fell in love with Barack Obama. His youth and multicultural
cool, along with the Web superiority of his presidential campaign, had Silicon
Valley going googly for Obama.
In the eyes of Silicon
Valley, Obama was like the Apple Macintosh. John McCain was like Windows.
Now comes the reckoning.
Obama may be the coolest guy ever to hold the office of U.S. president. He may
be the personification of an Apple Mac, iPod and iPhone. But this week Obama
proved he is a big-state liberal, through and through.
My Silicon Valley friends who
supported Obama are weirdly silent about this. I suspect they are in denial,
still hoping for the closet libertarian Obama to emerge. Throughout the 2008
campaign, Silicon Valley Obama voters would tell me that Obama was really an
economic centrist. Forget his liberal Senate record and Saul
Alinsky-conditioned career as a community organizer. Forget the Chicago-style
thug politics. That was in the past. Obama did what he had to do to rise. Once
in the Oval Office, Obama will really govern more like John F. Kennedy, Bill
Clinton or Tony Blair.
Say it enough
times, and you can almost believe it. Well, sorry about that, you Obamacons.
You just got thrown under the bus.
The $790 billion stimulus
headed for Obama’s desk is statist. It is also backward looking. Sure, there
are some forward-looking initiatives, such as a few billion for broadband. But
the bill is overwhelmed by “shovel-ready” projects aimed at school building
improvement, road repair and so forth, and by bailouts to profligate state
governments.
Very
disturbingly, the bill has the stench of protectionism in it. This is
antithetical to the interests of trade-happy Silicon Valley.
It’s time for
Silicon Valley Obama supporters to step up and make themselves heard. John
Doerr, Eric Schmidt, Marc Andreessen–you did not get the candidate you voted
for! He is off to a catastrophic start on economic issues. Obama will not
listen to the likes of me. But he will listen to you. So start talking.
The question of
whether Obama is a big-state liberal or economic centrist seems to be resolved;
it’s the former. Is there any chance Obama will change? Why were so many
pro-business, pro-technology Obama voters fooled during the campaign? Why have
Obama’s biggest Silicon Valley supporters been silent on the statist,
backward-looking stimulus package?
Post Your Comments on
this Story:
http://blogs.forbes.com/digitalrules/2009/02/silence-of-the-valley-obamacons.html
__________________________________________
Friday Blogger Bonus / Coder Proves iPhone
Gold Rush Still On
Brian Chen, Wired
(2/12/09): Apple's iPhone application store is as crowded as a Beyonce
concert, with more than 20,000 apps available. But one independent developer
still managed to rake in $600,000 in a single month with a single iPhone game.
Ethan Nicholas,
developer of a tank artillery game called iShoot, told Wired.com he quit
his job the day his app rose to No. 1 in the App Store, earning him $37,000 in
a single day.
"I'm not
going to be a millionaire in the next month, but I'd be shocked if it didn't
happen at the end of the year," he said in a phone interview. "If it
weren't for taxes I would be a millionaire right now."
Until recently,
there has been no realistic way for individual programmers to make serious
money on their own. Most of the software market is dominated by big companies,
and the traditional distribution method for independent developers -- shareware
-- isn't conducive to striking it rich. By contrast, Apple's iTunes App Store
provides a platform for marketing, selling and distributing software; all a
developer needs to provide is a good idea and some working code.
Nicholas' success
story proves that there's still plenty of potential to strike it rich in
Apple's seven-month-old App Store. In September, iPhone developer Steve Demeter
said he made $250,000 in just two months with his puzzle game Trism.
But as the App Store expanded rapidly, many developers thought the store would
get too crowded with apps and business would inevitably slow down.
It wasn't easy
for Nicholas, either. After getting off his shift as an engineer at Sun
Microsystems, he worked on iShoot eight hours a day, cradling his
1-year-old son in one hand and coding with the other. He didn't have the money
to buy books to learn how to write an iPhone app, so he taught himself by
reading websites.
When iShoot
launched in October, business was slow for a while. And then Nicholas found
some spare time to code a free version of the app — iShoot Lite, which
he released January. Here's how that helped: Inside iShoot Lite he
advertised the $3, full version of iShoot. Users downloaded the free
version 2.4 million times. And that led 320,000 satisfied iShoot Lite
players to pay for iShoot.
The game soared
to the No. 1 spot — and it stayed there for 26 days. It's only February, so
Nicholas is still awaiting payment from Apple, and he couldn't provide documentation
to substantiate his earnings. However, Media Bistro reporter Bryan Barletta
confirmed that iShoot Lite was No. 1 for about three weeks. As of this
writing, iShoot sits at No. 6 in the App Store's top 25 paid apps.
Rana Sobhany,
vice president of iPhone app analytics company Medialets, said the math made
sense and Nicholas' success is very believable.
Nicholas' story
shows how a clever marketing strategy can pay off ….
Read on:
http://blog.wired.com/gadgets/2009/02/shoot-is-iphone.html
__________________________________________
Readings /
Electricity Over Glass?
http://www.spectrum.ieee.org/oct05/1863
US Tweaks Internet Privacy Guidelines
http://www.reuters.com/article/technologyNews/idUSTRE51B5AK20090213
Highest Capacity Flash Memory Yet
http://www.technologyreview.com/computing/22108/?a=f
Easier Than eBay
http://www.forbes.com/forbes/2009/0302/040_be_green.html
HP Talks Cloud
http://www.byteandswitch.com/document.asp?doc_id=172004
Sirius Dilemma
http://www.forbes.com/2009/02/12/sirius-xm-radio-markets-equity-0212_satellite_40.html
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