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05.30.2007

Site Tracks Black Markets

This site tracks the value of some "black market" goods from pirated movies to body parts and human trafficking. Missing: Murder for Hire, though Kidnapping is represented.

One ought to distinguish at least two types of markets represented here; a) those in which the goods being sold do indeed "belong" to the seller who wishes them to "belong" to the buyer. Markets for illegal drugs for example. "Belong" is in quotes because from a legal standpoint there are no "property rights," rather, the rights are those that would exist at law just as with any other planted produce or chemical stew if it were not for regulatory bans. Then there is b) the rights in question have been wrested away unlawfully from a third person and appropriated by the seller, who then transfers them to the buyer. Human trafficking, for example, and piracy.

Continue reading Site Tracks Black Markets . . .

posted by Solveig Singleton @ 7:44 AM | Accounting , Counterfeit , Economics, Game Theory & Public Choice , International , Liberty and IP , Markets: Business, Investment & Innovation

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03.19.2007

Transaction Costs

Words of wisdom, apropos of enforcement of IP rights and numerous other topics:

[W]hile what would happen in a world of zero transaction costs can give us valuable insights, these insights are, in my view, without value except as steps on the way to the analysis of the real world of positive transaction costs. We do not do well to devote ourselves to a detailed study of the world of zero transaction costs, like augers divining the future by the minute inspection of the entrails of a goose.
-- Ronald Coase, "The Coase Theorem and the Empty Core: A Comment," 24 Journal of Law & Economics 183, 187 (1981)

posted by James DeLong @ 3:19 PM | Accounting

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12.22.2006

A General Theory of Things Regulatory (Hedge Fund Division)

Cafe Hayek examines proposed regulation of hedge funds, applying a mode of analysis that they won't teach you at the Kennedy School:

Suppose you want to figure out why a particular regulation passes and the way that it's written. Imagine the Legislature putting that regulation up for auction. Suppose people could bid on the terms of the regulation and the outcome went to the highest bidder.
Pretty crass, isn't it? But what a useful way to organize your thinking about the political process. There isn't a literal auction. But what the example does is focus your mind on two questions:

Who has the incentive to show up and be heard? Who is going to make the most noise?

The answer is mutual funds and bank asset managers, which charge a lot for little in the way of service (and much of that little, poor). Of course, the hedge funds themselves are split, since the big ones know well that high compliance costs will help keep out smaller competitors.

posted by James DeLong @ 8:15 AM | Accounting

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11.16.2006

Entrepreneurship

The Competitive Enterprise Institute has started the Center for Entrepreneurship, headed by former Investors' Business Daily writer John Berlau. It will:

look at the areas of public policy entrepreneurs face when starting or building their businesses. If unnecessary rules prevent businessmen and women from launching their innovations, no other regulations matter.
The Center starts out with one question: If entrepreneurs such as Bill Gates, Sam Walton, or eBay's Meg Whitman were starting out today, what would be the barriers to them raising capital to get their ideas off the ground and keep their businesses growing?

The center will look at the increasingly burdensome mandates in the area securities law, such as Sarbanes-Oxley and accounting rules. It will also study innovations in financial markets to capital formation for small businesses, and whether public policy is hindering those innovations.

This is a welcome addition to the think tank world. Too little attention is being paid to financial regulation and accounting issues, despite their tremendous impact on innovation and economic growth. It shows that if a topic, however important to the public weal, can be made sufficiently esoteric and incomprehensible, then its high priests will be able to run it free of interference from outsiders.

For a good example, see CEI's The Stock Options Controversy And The New Economy; an issue very important for innovation and industrial organization got treated as a minor accounting exercise.

posted by James DeLong @ 9:09 AM | Accounting

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11. 5.2006

A Simple "Yes" Would Do: Corporate Disclosure on the Internet

A month ago, Sun CEO Jonathan Schwartz argued in a letter to SEC Chairman Chris Cox that corporations should be able to meet their SEC-imposed disclosure requirements by posting information on company-run websites. Interested parties would know to check, or maintain RSS feeds, and the problem of selective dissemination of information that is addressed by Reg FD would be solved.

Last Friday, Cox sent his response. Fittingly, he posted it as a comment on Schwartz's blog. Not so fittingly, but typical of government work, he dodged the issue, and procrastinated. Money quote:

The Commission encourages the use of websites as a source of information to the market and investors, and we welcome your offer to further discuss with us your views in this area. Assuming that the Commission were to embrace your suggestion that the "widespread dissemination" requirement of Regulation FD can be satisfied through web disclosure, among the questions that would need to be addressed is whether there exist effective means to guarantee that a corporation uses its website in ways that assure broad non-exclusionary access, and the extent to which a determination that particular methods are effective in that regard depends on the particular facts.

Tell me, in exactly what way does posting something on a previously-established and publicly-open website not meet the requirements of Reg FD, whereas faxing a press release to a necessarily-selective group of interested reporters does? Drafting the conditions necessary to prevent sharp-shooting should be the work of an afternoon.

For decades, the SEC has had a much better press than it deserves; this looks like it is still concerned with ensuring that the playing field between Wall Street pros and investors doesn't get too level. I once asked an ex-NYC securities lawyer where the SEC had been during a period of particularly egregious frauds -- he answered "They were too busy making my life a living hell over every misplaced comma in a prospectus."

And don't even get me started on FASB and accounting rules.

posted by James DeLong @ 11:01 AM | Accounting , Internet: P2P, Search Engines... , Markets: Business, Investment & Innovation

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06.20.2006

"Securitizing Intellectual Property" from The Economist

The June 15th 2006 edition of The Economist has an article on how intangibles such as copyrights, patents, and trademarks are being securitised--that is, companies are issuing bonds based on the value of their IP assets. The trick is valuing the assets:

They are, after all, highly complex and riskier than standard securitisations. The most obvious risk is that the investors cannot be sure that the assets will yield what borrowers promise: technology moves on, fashions change and the demand for sugary snacks may collapse. Valuing intellectual property—an exercise based on forecasting the timing and amount of future cashflows—is more art than science.

Continue reading "Securitizing Intellectual Property" from The Economist . . .

posted by Solveig Singleton @ 3:39 PM | Accounting , Markets: Business, Investment & Innovation , Patents

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06. 5.2006

Dirty SOX

This site recently jeered and sneered at the endorsement of Sarbanes-Oxley by the CEO of a major accounting firm that appeared in the WSJ.

Today's WSJ has a series of letters to the editor which easily outdo our meager efforts at vituperation, including:

Continue reading Dirty SOX . . .

posted by James DeLong @ 11:22 AM | Accounting

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05.25.2006

SOX/GAAP (cont.)

Professor Paul G. Mahoney, whose thoughts on corporate topics are far more authoritative than mine, emailed some comments:

Many thoughtful observers have concluded that U.S. disclosure rules (for both accounting and narrative disclosures) have become excessively rule-bound and we should replace them with a set of general principles that instruct companies to tell investors all material information in a format that makes sense given the company's business.
There is a delightful irony here--that system is precisely what we had before 1933. The stock exchanges required their listed companies to disclose financial results and other material information but the exchanges did not micromanage those disclosures. The subsequent history is an ongoing application of the "there oughta be a law!" phenomenon--every time something goes wrong, Congress or the SEC writes a set of detailed rules designed to prevent the same thing from happening again.

The other irony is that, when it is out of the political spotlight, the SEC is capable of thoughtful deliberation about these issues. Its recent reforms of the public offering process--although several decades overdue--remove many of the mindless restrictions on pre-offering publicity highlighted in my article. In fact, the SEC had proposed a different version of the reforms before the Enron storm hit. But the post-Enron political climate delayed a set of sensible and mostly uncontroversial changes for 5 years. Whenever Congress turns its attention to the financial markets, bad things happen.

A central premise of the New Deal was that the common law method of providing general guidance ex ante and determining whether specific conduct meets that guidance only if a dispute arises ex post -- was hopelessly inadequate to the task of "managing" a complex modern economy. That task required a bureaucracy staffed with experts who could channel behavior into desired channels before the fact rather than relying on courts to apply incentive-altering sanctions after the fact.

The New Dealers were certainly wrong in their premise--a modern economy does not require central planning any more than does a primitive one. There is also a decent argument to be made that they were wrong about how best to set the rules of the game. Once a bureaucracy is in place, it is hard to convince it to stop writing more rules even if we have reached a point where the marginal value of the next rule is negative.

posted by James DeLong @ 10:35 AM | Accounting

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More SOX

Today's WSJ (subscription required) carries an oped Please Be Patient by the head of a big accounting firm. it says that steps are underway to alleviate SOX concerns, and that wise and benevolent regulatory authorities have things well in hand. The clinching analogy is to the 1933 Securities Act, which was criticized at the time, but is now "part of the fabric of our capital markets."

Interesting analogy, that. First, the 1933 Act started us down the road to current GAAP, which is a horror show even without SOX. Second, the good press given the 1933 Act is due in part to its effect of establishing a lucrative toll booth for NYC investment firms on the flow of national capital; of course they like it.

Securities expert Prof. Paul Mahoney has examined that law with some care in The Political Economy of the Securities Act of 1933 (2000):

Continue reading More SOX . . .

posted by James DeLong @ 8:57 AM | Accounting

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SOX Holes & GAAP Gaps

No sector of the economy has a greater stake in the flow of transparent financial and business information than does tech, which depends on rapid innovation with low transaction costs, fluid investment capital, and the ability of companies to enter into complicated multiparty joint enterprises.

TCS Daily today writes on Undoing SOX’s [Sarbanes Oxley] Unintended Consequences, which have "caused a tremendously expensive amount of paperwork and bureaucracy. And the smaller the company, the greater the proportional burden that has been imposed."

Furthermore, the quality of information is actually declining.

Continue reading SOX Holes & GAAP Gaps . . .

posted by James DeLong @ 8:11 AM | Accounting

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05.23.2006

Innovation & Over-Criminalization

posted by James DeLong @ 12:02 PM | Accounting

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03. 2.2006

Smelly SOX

posted by James DeLong @ 10:10 AM | Accounting

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