Notes of Note from John F. Ince

Archive for July, 2010

Man Claims 84 Percent Ownership of Facebook – PCWorld

A New York man has filed suit against Facebook claiming he owns 84 percent of the world’s largest social network. Paul D. Ceglia, the man behind the lawsuit filed in the Supreme Court of the State of New York, claims Facebook owes him damages relating to a 2003 contract between Ceglia and Facebook founder and CEO Mark Zuckerberg. The purported contract asked Ceglia to develop and design a Website “similar to a live functioning yearbook with the working title of ‘The Face Book,'” according to the Wall Street Journal.

The contract reportedly states that Zuckerberg would pay Ceglia $1000 plus 50 percent ownership in the company. Ceglia would also get an extra percentage point every month after January 1, 2004 until the work was completed.

One problem with Ceglia’s claim that his contract dates back to 2003 is that Zuckerberg hadn’t even registered Facebook’s original domain, thefacebook.com, until January 11, 2004, according to journalist David Kirkpatrick’s well-researched book, The Facebook Effect. However, Kirkpatrick’s book does say that Zuckerberg started developing Facebook at some point between late 2003 and early 2004.

Although it’s unclear how convincing Ceglia’s purported evidence is, he has managed to have the judge hearing the case issue a temporary restraining order against the transfer of Facebook’s assets.

via Man Claims 84 Percent Ownership of Facebook – PCWorld.

Trade deficit jumps: Surprise jump in U.S. trade deficit stokes fears – latimes.com

The U.S. trade deficit jumped unexpectedly in May to the highest level since November 2008, prompting some analysts to cut their second-quarter economic growth forecasts sharply and economists to warn of rising risks of a double-dip recession.

The Commerce Department said Tuesday that the trade gap rose to $42.3 billion in May, up nearly 5% from April’s $40.3 billion. Economists had expected the May deficit to dip slightly to about $39 billion as oil prices were lower and retail sales fell that month.

But American purchases of foreign-made computers, machinery and particularly household goods, notably from China, increased significantly in May. Analyst Diane Swonk attributed much of the surprising import gains to stockpiling by retailers and producers who are fearful of a potential trade war with China.

via Trade deficit jumps: Surprise jump in U.S. trade deficit stokes fears – latimes.com.

The United States bubble economy and lessons from Japan | Harvard Magazine Jul-Aug 2010

saving more. consuming less. Paying down debts. Making sacrifices. Most Americans have not experienced austerity in a long time, so the decade ahead may come as a shock. Expect continued high unemployment, slow wage growth, the possibility of social and political unrest, higher taxes, cuts in government services. Hope for moderate inflation to help reduce public and private debt loads. And be happy if all that is the only price this country must pay as part of the financial hangover from the party that began in 2001.

Photograph by Stu Rosner

Kenneth Rogoff

As the United States recovers from the “Great Recession,” economic stimulus has so far masked the austerity ahead. The U.S. government, like others around the world, has solved the post-housing-bubble banking crisis by issuing debt—in effect trading one set of problems for another to create what Cabot professor of public policy Kenneth Rogoff calls “an illusion of normalcy.”

via The United States bubble economy and lessons from Japan | Harvard Magazine Jul-Aug 2010.

Robert Reich: Slouching Towards a Double-Dip or a Lousy Recovery at Best

The economy is still in the gravitational pull of the Great Recession and all the booster rockets for getting us beyond it are failing. The odds of a double-dip are increasing.

In June the nation added fewer jobs than necessary merely to keep up with population growth (private hiring rose by 83,000 after adding only 33,000 jobs in May). The typical workweek declined. Average earnings dropped. Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year.

So what are we doing about it? Less than nothing. The states are running an anti-stimulus program (raising taxes, cutting services, laying off teachers, firefighters, police and other employees) that’s now bigger than the federal stimulus program. That federal stimulus is 75 percent gone anyway. And the House and Senate refuse to pass another one. (The Senate left Washington for the July 4th weekend without even extending unemployment benefits for millions of jobless Americans now running out.)

The second booster rocket – the Fed’s rock-bottom short-term interest rates – are having almost no effect. That’s because jobs and wages are so lousy that consumers don’t have enough money to buy much of anything, making small businesses bad credit risks and causing big ones to sit on the huge pile of cash they’ve accumulated.

Wall Street and the other biggest global banks, meanwhile, are making piles of money betting against government debt all over the world. These were the same banks and financiers, remember, that were bailed out by government not long ago. But now they’re demanding fiscal austerity, and politicians are once again doing their bidding – cutting deficits in every rich economy that should now be doing the reverse.

The people who are suffering the most from the failure of public officials and the greed of large bankers are the least able to endure it.

via Robert Reich: Slouching Towards a Double-Dip or a Lousy Recovery at Best.

Andy Grove: How America Can Create Jobs – BusinessWeek

An Excellent read: “Recently an acquaintance at the next table in a Palo Alto (Calif.) restaurant introduced me to his companions, three young venture capitalists from China. They explained, with visible excitement, that they were touring promising companies in Silicon Valley. I’ve lived in the Valley a long time, and usually when I see how the region has become such a draw for global investments, I feel a little proud.

Not this time. I left the restaurant unsettled. Something did not add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late—unless you’re counting Asia, where American tech companies have been adding jobs like mad for years.

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Friedman is wrong.

via Andy Grove: How America Can Create Jobs – BusinessWeek.

America’s first debt crisis – chicagotribune.com

In 1791, the national debt equaled about 40 percent of the gross domestic product. With its interdict on paper money and its stable dollar guarantee, the Constitution combined with the financial instruments Hamilton created to fund the debt provided an incredibly powerful stimulus to economic growth. National and foreign trade reopened. Federal revenues grew rapidly from sales of western lands and the tariff. Old taxes were cut, and the Jefferson and Madison administrations imposed new limits on federal spending. By 1836, 45 years after Hamilton initiated his audacious debt plan, the U.S. government paid off the entire debt.

From this history, we see that a debt crisis dissolves social bonds, weakening economic, personal, social, moral and political relationships. As government monetizes the debt to meet rising interest rates, inflation is unleashed and the currency devalued. Money whose future value is unpredictable cannot serve its most important purpose, to provide a common rule to equate goods, services and work effort. When social transactions are undermined, people lose trust in one another.

A society without trust cannot long remain free. A paralyzed democratic government, unwilling to act against a predictable threat, such as a growing debt crisis, invites popular contempt and resistance. Frightened citizens whose representatives will not protect their private property or the public treasury may not only give up on their representatives but dismiss constitutional self-government as weak, inadequate, servile and ignorant.

Recent polls show a near majority believe their government has now become the chief danger to their rights.

via America’s first debt crisis – chicagotribune.com.

Hedge-Fund Lending Draws Scrutiny – WSJ.com

Very very interesting …. Companies that borrow money from hedge funds often see a sharp rise in bets against their shares before the loans or loan amendments are announced, new research shows, suggesting that fund managers or others privy to these deals may be illegally trading ahead of the announcements.

The sharp spike contrasts with little change in the short selling of companies that borrow money from banks, according to the research.

“Hedge fund lenders, like banks, are ‘quasi-insiders’ and thus privy to private information about the performance of borrowing firms,” the authors write. “However, hedge funds are not subject to the same degree of oversight and regulation as banks.”

The paper, by four academics and accepted for coming publication in the Journal of Financial Economics, tracks the trading of 105 U.S. companies that borrowed money from hedge funds between January 2005 and July 2007—a period when regulators began demanding more information about short selling.

The academics found that the average company receiving a new loan from hedge funds saw a 74.8% spike in the volume of short sales during the five days preceding announcement of the new loan, as compared with the volume of short selling 60 days before the deal.

By contrast, 255 similar companies turning to banks for loans saw little change in the volume of short selling during the five days prior to the announcement of new loans.

Short selling also jumped 28.4% before the announcements of amendments to existing loans from hedge funds, compared with a drop of 17.4% in short selling before the announcements of amendments for bank loans.

Short selling after a loan is announced might be expected, as investors and lenders hedge their exposure or bet against a company taking on debt at a high rate. But when it jumps before the announcement of a loan, the activity raises questions about whether the very firms lending money are using nonpublic information to trade against their borrowers, or whether information is leaking out to others.

via Hedge-Fund Lending Draws Scrutiny – WSJ.com.

Greenspan: Recent Decline ‘Typical’ of Recovery – CNBC

I will grant you that this is not a normal economic recovery. We’ve just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen,” he said.

“This recent decline is more international than it is a domestic affair,” he said, adding that “there is an inherent instability in the euro system.”

“I don’t know where the end game is. Something has got give here. One possibility is there are fewer members of the European Monetary Unit,” said Greenspan, who was Federal Reserve chairman for 19 years before retiring in 2006.

via Greenspan: Recent Decline ‘Typical’ of Recovery – CNBC.