The most important decision on financial reform seems to have been made by the Administration: to reject Volcker's lead on financial reform to reinstall the wall between commercial and investment banks and repeal the implicit government guarantee to the investment bank lenders link here. Rather Obama chose to follow that of Summers-Geithner-Bernanke (christened the "Summersists", as opposed to the "Volckerists"), to leave the banks big but try to regulate their behavior. This might be the right choice, in order to get it through Congress, but the banks seem happy, apparently in the belief that they can get what they want. Why do I feel that they are right?

Felix Salmon raises questions about write downs in banks' valuation of mortgage servicing rights which give banks a steady income and which they have capitalized on their balance sheets link here. Presumeably, they bought these from mortgage lenders and mortgage derivative creators, but there is no current market price for them so holders can play games with the carrying value on their books. Their value will vary if mortgages are paid off early, ending the service income but also with interest rates on alternative investments. This is another aspect of the enigma that is investment banking. Why should the government guarantee lenders to banks which hold this kind of investment?

Another aspect of the financial crisis was the bailout of Chrysler and GM. Steven Rattner, the car czar or chairman of the President's Automobile Task Force is on the record with a report, an article in Fortune, and a persuasive interview on PBS link here. An aspect of this is that top executive salaries are being imposed by the salary czar on seven companies, two of which are the financings arms of the car companies--so the executive salaries of just three banks are being limited, though taxpayers have bailed out the whole industry. Big deal.

Felix Salmon has another heads up, this one on the hedge fund activities of John W Merriweather, a founder of bankrupted Long Term Capital Management and now of JWM Partners link here. Salmon notes that partner fees end when the fund no longer beats its previous high. Time to close the fund and start a new one with a lower payoff marker. Interesting incentives Wall Street sets for itself.

You can read another chapter of ANDREW ROSS SORKIN's book, Too Big to Fail, this time on The Race to Save Lehman Brothers link here. Bottom line: it was chaos and bankers and officials were talking to each other in terms that would normally have gotten them in trouble with the feds.

A useful fact on which to end: A study found that securitized mortgages were five times as likely to be delinquent as mortgages that were not resold to securitizers link here.

In Thin Liberalism and the Folly of Burning Bridges, Timothy Lee makes (at least implicitly) several interrelated claims. First, that libertarians tend to oppose net neutrality. Second, that "free software intellectuals like Richard Stallman and Eben Moglen" are anti-IP. Third, that this is compatible with libertarianism. Fourth, that Moglen and Stallman, despite some unfortunate rhetorical excesses, hold views that are not really inimical to the free market. Fifth, that some libertarians, who (properly?) oppose net neutrality, wrongly accuse the anti-IP/free software types as being unlibertarian. Finally, that the reason these libertarians get it wrong is that they have succumbed to thinness.

It seems to me that most of these claims are at least partly incorrect, or confused. Let's take them one at a time.

1. Libertarians tend to oppose net neutrality. (I'm inferring this position from Lee's post.) Libertarians seem to me to be confused about this area, but the principled ones I am familiar with of course oppose net neutrality. I oppose it. On the other hand, the various forms of state support received by the telecom and other Internet infrastructure corporations should of course be abolished, which might alleviate most of the concerns of (left?) libertarians sympathetic to the aims of the net neutrality crowd. But libertarian position is clearly to oppose any state interference with the market to impose "net neutrality." Service providers should be able to charge whatever they want, in whatever manner or tiers they wish, if the market supports it; at the same time, any state favors, monopolies, protectionist regulations, etc., should of course also be abolished.
2. Free software intellectuals like Richard Stallman and Eben Moglen are anti-IP. (I'm inferring this position from Lee's post.) Not really. The problem, from the libertarian perspective is not that Moglen and Stallman are anti-IP; it's that they are not anti-IP enough. If I am not mistaken, Moglen, for example, is not completely opposed to copyright and patent. (See my Eben Moglen and Leftist Opposition to Intellectual Property.)
3. The ideas of open source/free software/anti-IP are compatible with libertarianism. Yes, this is true, as I have argued extensively. But this is a strange argument coming from Lee, who himself is not opposed to IP in any principled way (and neither are the leftist free software types, as noted above). For example, as I noted in $30 Billion Taxfunded Innovation Contracts: The "Progressive-Libertarian" Solution, Lee has written: "I can't agree with Baker that all copyright and patent monopolies are illegitimate. Copyright and patent protections have existed since the beginning of the republic, and if properly calibrated they can (as the founders put it) promote the progress of science and the useful arts. Like any government intervention in the economy, they need to be carefully constrained. But if they are so limited, they can be a positive force in the American economy." Unlike the views espoused by confused, quasi-economically illiterate leftists and utilitarian, minarchist libertarians, the proper, principled, libertarian position is that patent and copyright are completely and utterly unlibertarian and unjustified.
4. Moglen and Stallman, despite some unfortunate rhetorical excesses, hold views that are not really inimical to the free market. I tend to agree with Lee that various comments about "a bottom-up, participatory structure to society and culture, rather than a top-down, closed, proprietary structure" and "the democratizing power of digital technology and the Internet," etc., are not anti-libertarian. However, as noted in Eben Moglen and Leftist Opposition to Intellectual Property, Moglen holds clearly unlibertarian views, such as his view that free bandwidth is everyone's "birthright" (as socialist Finland believes, too-it recently enacted legislation making broadband access a legal right); and his opposition to regulating the EM spectrum as a property right (and his confused view that it already is, despite the state's nationalization of the EM spectrum).
5. Some libertarians, who (properly?) oppose net neutrality, wrongly accuse the anti-IP/free software types as being unlibertarian. This appears to be correct. Some libertarians are pro-IP and thus, mistakenly believing the free software socialists to be opposed to IP, confusingly criticize them on these grounds. In this respect, the confusion on both sides is similar to confusion about IP held by leftists and traditional libertarians: both the left and traditional pro-IP libertarians accept the false assumption that intellectual property is a legitimate type of property right. Libertarians who accept this premise thus favor IP, because they are pro-property; and leftists oppose IP because they are hostile to private property rights and mistakenly believe IP is a type of private property right.
6. The reason these libertarians get it wrong is that they have succumbed to thinness. So here we have Lee, who is pro-IP, criticizing libertarians for being pro-IP. Leaving this bizarre critique aside, is Lee right that "thinness" is what makes some libertarians too pro-IP? Lee maintains that "A libertarian whose conception of liberty is confined to limited government is going to be left rudderless when confronted with a pro-liberty movement whose concerns are orthogonal to the size of government." I think this is just confused. Thickness is actually problematic since it just muddies the waters, conflating issues pertaining to the permissibility of interpersonal violence with other interpersonal norms and institutions. The thickness theorizers add nothing of substance to our understanding of libertarian principle; instead, they pointlessly link the libertarian opposition to aggression to non-rigorous, malleable leftist gremlins like "hierarchy" and "bossism" and "pushing people around." I am, in some sense, a "thin" libertarian yet oppose IP root and branch, on principled, pro-property, pro-rights, pro-individualist, non-leftist grounds. Thinness is not the cause of confusion about IP. Rather, it is the lack of principle. It is the lack of principle and the adoption of flawed, bankrupt utilitarian ideas which leads libertarians to try to be "moderate", to support some IP, but not too much; and to be minarchist--that is, statist--rather than anarchist.

[Mises blog cross-post; StephanKinsella.com cross-post]

Monster energy drink backs down from a frivolous trademark claim.

Details here.

See Nokia: Apple iPhone Violates Our Patents: A few choice excerpts:

In a statement, "Nokia said Apple has refused to pay for use of intellectual property developed by Nokia that lets handsets connect to third-generation, or 3G, wireless networks, as well as to wireless local area networks. "Apple is attempting to get a free ride on the back of Nokia's innovation," Ilkka Rahnasto, Nokia vice-president for legal and intellectual property, said in the statement.

This implies apple copied their patented inventions. but copying need not be shown for infringement, and you can bet they will not rely on this in pressing their case. They are trying to have it both ways: to darkly hint Apple copied them, while being happy to persecute Apple for non-copying acts that still infringe their patents.

The Finnish handset giant said Oct. 22 it has filed suit against Apple ... in U.S. District Court in Delaware, accusing its California-based rival of infringing patents for core technology that allows the iPhone to make calls and connect to the mobile Internet. Although Nokia ... has sued rivals such as Qualcomm ... over patents in the past, the latest lawsuit came as a surprise and represents an escalation of increasingly contentious competition with Apple.

So ... the filing of the lawsuit is how they are engaging in "increasingly contentious competition." How much more clear could it be that these patents are nothing but anti-competitive devices used for protectionism?! It's obvious to everyone.

The loss of smartphone share is doubly frustrating to Nokia because it sold phones with computer-like features years before Apple. During the last two years Nokia has launched a series of handsets with iPhone-like touchscreen interfaces, but none has generated quite the same buzz as Apple's devices....

So they are losing out in competition, so using legal weapons instead.

Apple, like all mobile-phone makers, relies on such standards to make its devices compatible with carrier networks. Nokia says it has contributed its intellectual property to global standards bodies, but demands to be compensated for the use of its patents in commercial products. "Apple is expected to follow this principle," Nokia's Rahnasto said in the company's statement.

So, Nokia contributed to a standard with the very goal of making a standard that everyone would start using. Apple starts using it--bam, they sue them. Nokia is leveraging the monopoly the state granted them. Horrible.

[Mises blog cross-post; StephanKinsella.com cross-post]

Economic Logic points out a paper that shows that shorter copyrights stimulate artistic creation. Indeed, copyrights mainly benefit the big stars among artists, and the monopoly power they gain is diverted toward promoting a select few. This discourages others to become artists and there are fewer and less diverse artists. Shorten copyrights, and you get more artistic creation.

the idea that "too big to fail" is just too big is gaining traction, with recent comments from Alan Greenspan, Paul Volker, and Mervyn King. Simon Johnson over at The Baseline Scenario has a good summary.

This week is Open Access Week, a week to broaden awareness and understanding of open access to research. The idea is that as much of research is being funded by public money, it should be made available freely to everyone. With the advent of the Internet as a very inexpensive publication medium, it thus becomes possible to disseminate new research at near zero cost.

However, commercial publishers are to lose an important profit center if they were to grant free access to all their publications. They have been resisting any opening of their archive to non-subscribers. Some are experimenting with models where authors pay a flat fee for their article to be available in open access. The fees, however, are exorbitant and discourage authors. They do not need be so high.

The answer of some funding agencies, some academics and many librarians has been to push for open access mandates. A particularly prominent example is the NIH mandate. The idea is to mandate authors to deposit in institutional repositories whatever they publish. In most sciences, this is the only way to provide open access independently from publishers. In Economics and Physics, for example, there are decade-old initiatives collecting and disseminating pre- and post-prints.

Nevertheless, there are also a good number of open access journals, which face an uphill battle in getting a reputation similar to existing commercial ones, simply because OA journals are typically young. One of the goals of the Open Access week is to increase awareness about such publishing options, trigger interest in more open access mandates, and thus break the vicious cycle wherein researchers have to pay to access their own research. Talk to your colleagues about it.

The media are really covering the financial crisis as each day brings more revelations. Start today with Louis Uchitelle on Obama advisor Paul Volcker who wants to redivide commercial and investment banking with the latter no longer enjoying a government guarantee but who has been kept out of the decision making link here. Then go link here to watch how the Commodity Futures Trading Commission [CFTC] was on to the "dark" market in derivatives as a bomb waiting to blow but was blocked in its attempts to gather information on what was happening.

Finally, Felix Salmon directs us link here to Andrew Ross Sorkin's new book, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves, which breaks some pretty stunning news, dating from the end of June, 2008. At that point, it was still months before the now-famous but then-secret waiver, issued in mid-September, which allowed Treasury Secretary Hank Paulson to talk to Goldman Sachs; he'd promised not to do that when he moved from Goldman to Treasury but he did it anyway.

A major feature of all these is the cast of characters, starting with Alan Greenspan, hired by Reagan and kept on by Bush 1, Clinton, and Bush 2, and self-described as a "strong" libertarian and free market ideologue of the Ayn Rand school. Then there is Robert Rubin as Treasury secretary, and his minions, Tim Geithner and Larry Summers, most recently joined by FED chairman Bernanke. They and Wall Street are still running things.

Most people are libertarian in some aspects of their political beliefs, but the belief that government is always bad and that markets will take care of, for example, our foreign policy challenges is stretching and has brought us to where we are now.

There hasn't been much on the rating agencies role in the financial disaster last year, but there is now link here. Details on the failures of Moody's, S&P, and with a little about Fitch are now available via Kevin G. Hall from McClatchy Newspapers.

I won't repeat it all because the article is long and full of persuasive detail. Despite protestations that all has been corrected, anyone who trusts their ratings would be a fool in the absence of a showing of major reform.

Several commentators have said the raters were culpable, but did not have major responsibility for the massive financial fraud that took place. That conclusion is very hard to accept. Without their active collaboration, the bubble could not have occurred.

Have we seen anything yet to suggest that this will now change?