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The $800 Billion Bank Shot

The Next Big, Big Crack

We have, it seems, evolved a political/media system that nearly guarantees no remedies until the damage has been done, the scoundrels have safely buried the loot, and there is a full blown crisis on hand. It's not just the politicians out there running reverses and repeating tired saws that negate even their own private thoughts; it is also the media pundit chorus, people purportedly paid to do some quality thinking who, it seems. all too often forget how little they really know.

We got back to the States two weeks ago, in time to hear the weekend bloviators indicate almost unanimously that Hillary Clinton had wrapped up the Democratic presidential nomination.  Only on the following Monday when an ABC Washington Post poll came out of Iowa were they stunned into realizing that all of their hot air and spin had to be revised.  Somehow, Iowans --the folks who actually will be making up their minds in 5 weeks-- had, like their credit cards, maxed out on Hillary's message of a return to the good old days. 

What Don't They Miss?

Pundits, of course, travel on other peoples' credit cards and sometimes even get to dine and rub shoulders with the Great Gatsby crowd that have had a great run these last few years. For them, the sound and smell of little people's mortgages going up in smoke is as far away as one of Jupiter's liquid moons. Nothing it seems can divert their eyes from the talking points coming across the transom, not even the unseemly multibillion dollar panhandling in Arabia of giant financial institutions --Bear Stearns, Merrill Lynch, Citibank, Bank of America, HSBC, to name a few- as stoppers to the hundreds of billions of dollars in write-downs they are taking for holding derivatives (many of their own making-- that were somehow supposed to have allowed them to sprinkle fairy dust on the toxic waste they'd bundled into tidy CDO's, CLO's, MBS's, etc.)  (For a lot more detail on this alphabet soup mess, please have a look at our July 27 piece The Big Crack )

That trillions of dollars have flowed out of the US and into the coffers of sheikdoms small and large, friend and foe, as well as to our East Asian allies and rivals is something best left to the money men to figure out, it seems.  Even when great banks teeter on the brink, and CEO's are forced packing, we hear nary a peep out of the political and media class.

Does anyone among the poobahs and sages wonder how it is that nearly all these so-called sophisticated money men, and their peanut counters in the back room bought so heavily into their own waste product?  Or in the more convoluted case of Goldman Sachs, shorted the lousy paper they were selling to their best customers (even while the present Secretary of the Treasury was still leading the firm)?

Hardy, though Paul Krugman, the Princeton economist and New York Times columnist, who does do his own thinking, had a simple way of nailing it; greed in the corner office in a political environment that has put the foxes in full control of the henhouse. Krugman has made the Enron-revisited point that none of the CEO's who've lost their jobs as the multibillion dollar losses of the subprime crisis have hit the fan, has had to give back his golden parachute going forward or the obscene, bonus-based, pay packages they collected during the years they were ginning up the phony mortgage market and creating the mountains of bad paper --they secretly called "toxic waste"-- their institutions and stockholders are now forced to swallow and that is shaking world financial markets.

The Farce Begins

The Friday November, 30th Wall Street Journal reports that the Bush Administration --the same guys who advocated that Social Security should be replaced by private investment accounts in the markets-- is in the process of negotiating with the banks with an end result that is sure to mean --even if its hidden in the deal-- that the taxpayers will soon be subsidizing the banks as well.

Here's a good pundit question to be asked: Will the Democratic Congress ratify a deal designed to help the banks and the holders of some of the many balloon mortgages that are scheduled to blow up as rate increases kick-in, without asking that at least some of those bank and hedge fund executives who have pulled in billions of dollars in bonuses for the last few years to give back any of their bonuses and commissions, in return for a rescue of their scams?

We, here in Dymaxia, are willing to bet that the question will hardly arise before it gets buried like a lead pipe in a toxic waste dump.  After all, this sitting Congress already has a record on hedge fund bonus money; i.e., they continue to allow it to be called "capital gains" by the hedge fund moguls, so it can be taxed at 15%, half the rate the folks who sweep their offices pay on their earnings!

But bank sub-prime paper mega-write-downs (see the E*Trade deal where $3 billion in CDOs was turned overnight into $800,000, for instance)   also strike at lots of folks who have pensions invested in the banking industry not to mention bank stocks in their mutual fund portfolios. In the case of Citigroup (CIT), alone, shareholders have, since the beginning of the year, lost approximately two thirds of the value of their holdings, or more than $80 billion dollars. In E*Trade's (ETFC) case, shareholders have lost more than three-quarters of their holdings.

CIT is, or was, of course the world's largest financial institution. In desperation, to stay above water it negotiated a deal in which it promised to pay its rescuer, the Abu Dhabi government, 11% interest on the $7.5 billion cash injection it received this week. In today's world where very big money accrues even to individuals if they're in the right place, $7.5 billion probably doesn't sound like a lot to a pundit's ear.  It was, it turns out, enough to buy nearly 5 percent of our biggest bank.  Importantly, for the gulf state oil sheikdoms, it represents probably only a few-day flow of petrodollars; here, it seems, the pundits and the petro-billionaires can agree!

Trillions of dollars, of course, is real money even in Washington where they print the stuff.  No one knows where it all goes except when big purchases become visible like the Chinese attempt to buy a large oil company with significant reserves or when the management of our major ports goes on the block. What the Citigroup deal points out is that these outside government and quasi-government players in the Gulf States (including Saudi Arabia, of course), China, and Russia are likely to continue to gain clout as the major tectonic shifts of the current crisis continue to shake the banking system.

Now, imagine for a minute that subprime mortgage based money creation was not an anomaly and that there are parallel but even larger fault lines still to come into play!  Impossible, you say?

Here's the way it works when the Fed and the regulators are betting on the private sector to regulate itself: banks and their proxies earn immediate money by lending time bombs that don't go off for several years; bigger banks and hedge funds earn money on these foolish loans by packaging them and turning them into respectable derivatives they sell without, in many cases having to pay a middle man or market fee directly to their customers; rating companies profit by this new business stream and give out their imprimatur of a high credit ratings to this paper now three steps removed from the original loan; other banks and insurers serve as counterparty guarantors, buying and selling the obligations as investment grade to their customers or hold as reserves, thereby "spreading the risk" eventually around the globe.

Are Junk Bonds the Next Junk Bombs?

When it became clear last summer that the entire world banking system had been gaming itself as the US home mortgage bubble reached gargantuan proportions, politicians and their sock puppets looked the other way, spouting the usual nonsense about the core economy being sound.  Neither party could see perils without an equal mix of good news in dealing with the crisis.

Now that the problem has spread beyond the growing rash of foreclosures (these only affect ordinary people and are thus ..........) and to the foundations of the major banks thereby threatening pension funds and even bank deposit holders, the problem still gets less notice by the commentators than the daily swings of the Dow Jones Index.  It's almost as if on the day the twin trade towers fell, the stock market stayed open and went on to gain a couple of hundred points so the headlines read: "Despite Early Fall, Markets up on Gains in Scrap Metal, National Security and Office Building Prospects".  The Dow Jones Index now seems to be the only gauge the media use to measure events on the ground.

Official Blindness

Pundits are an important component of the information flow, since they shape public opinion; so how they get spun matters much. Politicians, we know, who get out in front of public opinion face ridicule and sudden death, which is probably why there are mere nuances of differences in the platforms of all the Democratic candidates, minus say, Kucinich and for all the Republican's, Ron Paul. The pundits, as we noted, tend to read each other, hoping, one supposes, that one among them knows something. The rest of the time they rely upon being fed thought aids by the lobbyists and other operatives, the guys who earn the big bucks in Washington.

Unlimited Dollars All Around

Public money used to have meaning in Washington until Ronald Reagan intuited that debt, in our new economy, had become as American, say, as a wallet full of credit cards. Take the 5th year of the Iraq Occupation. The United States continues to spend off budget nearly 10 billion dollars a month on Iraq, or, in annual terms, nearly one percent of our entire annual gross national product.  To make this palatable, the Administration has raised no taxes but preferred to merely further run up our national debt, something it has been doing across the board without much pushback, anyway.

As we've often pointed out here in BlowBack, since Bretton Woods, the US has had a built-in cushion that allowed it to spread its debt practically cost free around the world. The privilege, a massive type of seigneurage, was made the base of a system in which dollars printed here and spent to buy foreign goods and services often don't show up for payment but instead get held by other countries as a Reserve Currency  It's a great benefit that any country would be envious of; nonetheless, there can be too much of a good thing; the system has been allowed to perpetuate right into this massively financial global era, allowing trillions of dollars to build up outside the country in the last few years as China and petrodollar debts mounted geometrically.

Now that there are these trillions of dollars out there, it doesn't take a perfect storm scenario to imagine what kind of an avalanche a real crack here --say, a major bank or brokerage going under, might set off! China and oil producing nations, should more bad paper start to unwind, might be tempted to cut their losses and try to recycle those dollars into "real" investments, like shares, say, in hat in hand banks or teetering corporations or in the holders of natural resources..

It now looks like one indirect result of the Iraq adventure will be the future dismantling of Bretton Woods.  Since Bush took office the dollar has lost more than half of its value if gold, oil or other raw materials, including food grains) are used as a counter value. 

Our pundit class, of course, never mentions the actual financial cost of the occupation, even as many of them advocate stretching it out as far as the eye can see, once again imagining that the US can go on printing dollars indefinitely just like in the good old days.

But this level of obliviousness, unreality and folly is, of course, hardly limited to the falling dollar, the collapsing mortgage market, the strains showing in the banking system from Citibank to E-Trade or even the looming recession.

CDS, the Next Dominos, Junk Bonds and Counterparts

To get to the Perfect Storm scenario, another shoe might have to drop and it looks like junk bonds may very well be the next subprimes:

This week, we read a compelling piece on where the next big crack might occur, thanks to the research of Ted Seides, as republished by John Mauldin in his Nov 26th "Outside the Box" weekly e-letter.  Seides  entitled his essay The Next Dominos, Junk Bond and Counterpary Risk. In his article, Seides makes the point that the total amount of derivatives issued by the financial institution bundling mortgage debt, pales in comparison with the amount of deriivatives (CDS) that are in circulation, built not on mortgages but around corporate Junk Bonds, which, he points out, are by definition are high risk vehicles.

According to Seides, there are $45 trillion (yes, trillion with a T or more than three years of US GNP) of these derivatives sitting on the balance sheets of financial institutions around the world. He also makes the searing point that there are no reserves (or counterparts, as he calls them) to back these CDS's up. The issuing banks and hedge funds are the guarantors and they have not been required to set any countervailing funds aside to support the paper they've issued.

Here are a selection of attention-grabbing quotes from Seides piece that, unfortunately does not appear to be available on line, yet:

 

........

.....

.....

Does this all sound familiar?  It should if you've followed the sub-prime debacle!

 

The Black Swan in the Room

We take our lead from Nassim Nicholas Taleb, mathematician, empiricist and trader, who can be fairly ranked as one our worthiest contemporary anti-pundits. NNT, as he likes to refer to himself is, most recently, the author of The Black Swan, The Impact of the Highly Improbable.  In this book and others, Taleb argues that contrary to the thinking of the punditry, or all those who would predict the future based on the norms of the past, randomness plays a much greater role in the outcome of history than is even vaguely appreciated by those whose world is routinely described by the bell curve of probabilities. For Taleb, it's not just that backward looking statistics lie but when it comes to seeing what might lie ahead, they are as useless as an ice cube in hell.

The Black Swan is, of course, his metaphor, for something that is totally unexpected  (by all, but those close to it, and even they often don't realize the true extent --remember Watson, the founder of IBM predicted there might be a market for four of his machines!) until it is actually developed and injected into the system. In the world of mediocrity, the land of the pundits and politicians, there are no black swans but, as NNT points out, we do not live in "Mediocristan" but instead in "Extremistan". Taleb, of course, can easily point to a string of even recent developments that have appeared "unexpectedly" that have radically and irreversibly changed the way the world functions, from central processing computer chips to the Internet, to mobile phones, (to, yes, the subprime loan debacle that was on no MSM analyst's radar up to just a few months ago), etc.

Mediocristan or Extremistan?

As we've said often in these pages, it sure doesn't look like Mediocristan out there as we watch the markets jerk up and down like vaporetto commuters in Venice, even as we watch the bailouts big and small at banks all over the globe and as we mull over all those unregulated hedge funds --the new counterparties-- going after "absolute profits" for themselves and their clients.

In Mediocristan it all shakes out, reason trumps greed and the beat goes on,,lati lati do!  

Hallelujah! Hands Off the Internet

One of the costliest, blunt-force lobbying attacks in DC relies on carpet bombing 30 and 60-second TV ads aimed around all three major local news slots and the Sunday morning interview shows.  These ads are unique in that they are targeted not at anything close to a meaningful sample of the hundreds of thousands of folks in the viewing audience but instead, exclusively at the undecided  among the 535 voting members of the US Congress.

The Hard Boiled Calculation

Since most votes are pretty much decided in party caucuses, these ads actually are placed to sway a very tiny percentage of the potential voting members, as a tactical component in a full-press lobbying campaign. And though the TV ad leg of these campaigns can run up costs into the multi-millions of dollars,  the actual number of folks they're aimed at can be as low as one or two undecided members of some committee or other.

Unfortunately, for the viewing audience's many collaterals, the ads are produced  by the same breed of hucksters that turn out hard-core election campaigns; in other words, people who bet heavily on a generous dose of up-front obfuscation, and the assumption that if something is said enough, it must have validity. As for us unconcerned viewers,  we're expected to just nod through these ads, in our customary state of undiagnosed TV apnea; after all, the jetsam of undigested ads just ends up in that copious subconscious recycling bin with all the SUV, beer and pharmaceutical pitches.

Nonetheless, targeted or not, when someone makes a pounding plea aimed at keeping somebody's hands off the Internet, we, the denizens of Dymaxia, do perk up.  After all, it's something we relate to in spades, especially when the plea is about a chokehold on the Internet.  We are, you can rest assured, ever vigilant on that front.

Having just suffered through all the recent lapses of the mainstream media, those guys who took three years to figure out that there was something rotten in Baghdad and who, it seems, never cease to get spun.... and spun again --we don't want anybody, government or private, deciding which information or media conveyed across the Internet gets a pass and which gets pushed into the slow or no lane.

So, who, we wondered,  was putting up all this cash to fight this seemingly good fight for Internet freedom?  After all, at first blush, the ads sounded pretty damn reasonable. Here was a dedicated organization warning us there was a menace to our net freedom, and that the enemy, was the government itself! These Hands-Off guys were letting us know that Congress was about to  impose new rules that would hog-tie our ISP's, or Internet service providers.

In Dymaxia, we pride ourselves on being equal opportunity skeptics. We know more than a thing or two about the Patriot Act and its attack on our liberties and we wince when we hear about the spy agency guys with the database tracking our telephone calls or browsing trackmarks, but we've also heard from no less an authority than the CEO of AT&T, himself, that the Telco ISP's are launching their own plan to turn the Internet into slow and fast lanes they get to control. And so, we wondered, who was it, the Hands Off guys were fingering and why? 

HandsOff.Org

So we got on line and googled "hands off the internet" which quickly got us to handsoff.org. A click on their "about us" page, turned up sponsors like AT&T, Alcatel and Bell South. Hmmm, we wondered, as our curiosity began to perk with the intensity of a Roman barista at rush hour. Maybe, this massive campaign --it ran daily in September and October-- had something to do with the makeup of Congress as it was and how it might become. After all, Nancy Pelosi happens to represent a district very much linked to Silicon Valley and she had already gone on record as being on the side of net neutrality.

What Hands-Off didn't want, it seems, was rules written by Congress that would once and for all put an end.... yes, to their plan to get their own hands in a stranglehold around the Internet! They were making an all out play for a green light to impose their own rules on Internet traffic. So much for Orwell! What they didn't like, it seems was net neutrality.

When it comes to telecommunications laws, obfuscation comes in multiple forms and layers. The legacy of a century of regulatory laws has made the situation as clear, say, as the IRS's guide to tax deductions. It's an environment that would get Machiavelli's writing juices going.

Given their different business histories, there are certain legacy legal differences between the Telcos and the cable providers, their new major competitors. The Telco's, for instance, as monopolies and common carriers, have always operated under a regime that requires them to provide a level playing field for their customers. The concept, in fact, goes way back into English Common Law governing the operation of canals and highways. Regarding electric communication lines in the US, the roots appear even before the Civil War, when a Federal law subsidizing a coast-to-coast telegraph line stated :

messages received from any individual, company, or corporation, or from any telegraph lines connecting with this line at either of its termini, shall be impartially transmitted in the order of their reception, excepting that the dispatches of the government shall have priority.

—An act to facilitate communication between the Atlantic and Pacific states by electric telegraph. June 16, 1860

Playing under different rules, the cable companies-- purveyors of TV signals who trace their roots nearly a century later to somebody putting up a big antenna and sharing it with their neighbors for a cost--  have generally grown up as monopolies under local and state jurisdictions in which they were granted the rights of way they needed. And since, from the start, their one-way architecture couldn't accommodate unlimited channel capacity, they grew up negotiating contracts with both their content providers and their customers over various levels of service. Consequently, when it comes to the cable business model,  the content providers (CNN, TBS, Disney, etc.) who gain revenues through their advertisers routinely pay the cable companies for access to their customers' eyeballs while play-for-pay providers like HBO negotiate revenue splits. This non common-carrier heritage in Cable flares to the surface every once in a while as it did in New York a few years ago when Time Warner cable kept one of the major local channels off its system for months as contract negotiations stalled. Last year DC residents were told they would have to pay extra to Comcast to see their new home team, the Nationals' games on days when the Orioles were playing.

Lo, the Convergence Cometh

But over the last decade, the cable operators, the only other guys with a physical pipe into the house, have been successfully muscling into the Telcos' ISP space, thus putting themselves into the bidirectional communications space. That has the Telcos calling foul!  What's further shaking up the Telcos, is their diminishing future as monopoly voice carriers. What you see with VOIP (voice-over-IP companies) like Vonage and Skype today, is only the beginning.  Eventually there will be no money in traditional voice for the Telcos. That nightmare is already a reality:  if you've already got cable as your ISP, you no longer need their landline for anything. And even counting their big new cash cow, mobile, they have to deal with a level of real competition that's  bound to erode margins over time. Little wonder, then, that they are actively looking round for somebody else to squeeze.

The Double Pickle

And so, most ironically --and this is something you've got to appreciate if you take any perspective on these happenings-- the very same telephone companies that are lobbying against Congressional intervention in this Hands off the Internet campaign are also simultaneously waging a TV campaign that portrays the present state of mobile phone operations as a tangled mess that only the federal government, yes, Congress, through regulation,  can sort out.  These Tangled Mobile ads where they call for new regulation even sometimes run back to back with their Hands-Off ads! Of course, the audience has no way of knowing who's paying for the ads.

Once again, hiding behind a another shadow group made to look like something grassrooty and consumerish, the tangled-mobile-phone campaign portrays everyday folks complaining about the various webs of local and state rules that the mobile phone operators have to work under, as if any individual would give a hoot. In their own very messy world, they, the Telcos, are, we do not exaggerate, simultaneously and sometimes in back-to-back ads, urging Congress, perhaps the same members, to pass Federal regulations governing mobile phone operations while a minute later they decry government regulations that forbid them to defy net neutrality.  Go figure! As the man used to say, only in Washington do the lobbyist cajones even outsize their disrespect! Jack Abramoff may be gone but his spirit goes marching on.

The Nimble Dinosaur

In the meantime, with their new investments in high speed optic fiber to home, the Telcos are also aiming to get into the cable TV game, themselves. As can only be savored, the Telcos didn't like the regulatory regime that, in this case, they rightly perceive as favoring the cable companies.  And quite naturally they began gearing up a lobbying campaign that aimed at putting the two utilities under what they like to call a single stovepipe of regulations. However, along the way, something quite different happened which brings us back to the Hands-Off campaign.

As the lobbyists began dreaming up new telephone and cable (and mobile) regulatory acts for Congress, they expanded their thinking to enlarge the pie. After all, competition, even with their fellow but now rival monopolists, the cable companies, was going to lead to decreased revenues. So, they dreamed, if we could only get rid of those pesky common carrier regulations protecting Internet applications, we could start squeezing the Internet application providers like Google, eBay and Yahoo, not to mention the next generations of video and interactive game players and providers and whatever other innovations a true high-speed web (Web2) will spawn even further down the road.

With a compliant 109th Congress already feeding out of their hands, the most favorable FCC in years and some ideologically motivated antiregulatory think tanks at their side, and flush with ISP and mobile profits, the Telco's decided to make their big moves.

Every Good Campaign Needs a Boogey Man

Meanwhile back at the K-Street ad agencies the thinking was that any political campaign has to have a gob of mud. This is politics-ville, after all, and these adsters know that when pinch comes to shove, negative trumps.  And so, In one of their strangest twists, the handlers of Hands-Off decided to make everybody's favorite search engine, Google, the boogey man!  Google, they impugned, was taking advantage of the level playing field on their lines and profiting richly (at the expense of their Yellow Page franchise).  It was as if Google wasn't paying them for their huge connections and as if we, the consumers of Internet services like Google, weren't already paying them for our DSL connections!

In one of their grainy negative ads they showed Vint Cerf, one of the true inventors of the Internet but now on the payroll of Google, testifying before a Congressional committee, that if Google were faced with toll booths put up by the Telcos, that Google would of course bend to paying the tolls.  Cerf's quite frank point in this piece of testimony was that the already established players, like Google, Yahoo and eBay, could now afford to pay extra, if Congress failed to protect the status quo. Not shown in the ad, was his follow on that it would be the next generations of innovators, whatever they might be, that would become the real victims, if Congress allowed these toll booths

Ironies Galore.

In their usual retrovative way, the Telcos are now spending billions to enter into the traditional one-way cable business even as the walled in television model it was built on, begins to crumble under the weight of real bandwidth. The connected viewing public, particularly the one the advertisers like to aim at, wearing their mobile phones and iPods etc., has already left  not just the Ozzie and Harriet living room of their grannies but the Seinfeld flats where their older sisters and brothers hung out!

In this case, the Telcos, and you have to suppose, their cable rivals as well, have also subconsciously grocked, at least in their nightmares, that the real bandwidth that will flow out of this fiber-optic conversion, the kind that can come right into the home, will change the Internet video and game picture in ways that neither the cable, satellite, or Telco guys (should they take the multibillion dollar plunge) won't really like. TiVo's, podcasts, content sharing sites like YouTube and whatever comes next, all have one thing in common:  The customers --now become moving targets-- consume the content how and when it suits them, not how and when anybody chooses to position it. The Great Unwired, having shaken off the physical barriers, want to make their own tracks using their own choices.  And, oh, by the way, they may also want to filter out the ads or share the experience with their friends in ways that challenge present copyright laws, not to mention the creative guys who produce the content. The line between cable, upload and download, game and drama, could quickly blur leaving in its place an environment that looks a lot more like an electronic, zero-delay, Netflix mash for friends and families.

A Modern Day Golden Goose Tale?

Once again, it will be the very guys the Telcos are trying to squeeze out of the market that will create the applications that work in this environment and without their innovations the ISP business that Hands-Off is trying to mess with to get an unfair upper hand, might lose its potential to lead the way. Like the auto business that clung to its gas guzzlers and fought seat belts for years, we might see the center of electronic gravity move to places like Korea, Japan or Europe that are, after all, already leading the way in real broadband acceptance.

 

Technorati Tags: Net neutrality, Telcos, Congress, Lobbying, Media

Nightline goes out with a Whimper

When Ted Koppel hosted the final broadcast of Nightline I last week, he chose to revisit a series he had first broadcast a decade ago called "Conversations with Morrie". That series, as Koppel reminded viewers, comprised the most popular and replayed segments in Nightline's storied 26 year history. Koppel clearly enjoyed reminding viewers that it was a series that had to be done over the strong objections of his bosses at ABC News that no one would be interested in an interview with somebody who was dying from a relentlessly, progressively painful and debilitating terminal illness.

Koppel and Nightline deservedly won a number of prizes for the Morrie series. It was a rather unique moment for TV News that allowed viewers to ponder questions of their own humanity: mortality, personal courage, candor, nobility, humility, humor, fear, etc.; all demonstrated in the waning days of an extraordinary person, who, if the TV show had not appeared, would have died of  Lou Gehrig's disease or ALS in near complete anonymity. Morrie Schwartz, teacher, son of immigrants, hardly known outside his family and college community, after all, was the opposite of the kinds of leading players who Koppel and his colleagues had interviewed over the show's long history, often with a deftness rare in broadcast journalism.

Ironically, Nightline, born of one Middle Eastern crisis, the Iran Hostage Crisis, was probably pushed off the ledge by another, the present Iraq War. Not that Nightline was somehow very much off the reservation when it came to the War. You could even argue, quite the opposite, at least in the opening days, when Koppel himself got imbedded with the invading Army and rode along with the shock and awe forces at the "Tip of the Sword" on their way to Baghdad while managing to look nearly as ridiculous as Michael Dukakis in tank gear. But Nightline was coming from a firm tradition, and even if had turned a bit gray around the whiskers, its crew of reporters, Dave Marish, Chris Bury, John Donovan, Michelle Martin, among others, had been schooled in an era of professional journalism. They could, once the initial blowout of enthusiasm had peaked, start following the real story as it unfolded on the ground. They reported on the looting that followed the fall of the regime, the logistical problems, including the proper armor for the Humvees, the waste and corruption as the military contracts were passed out, the rather undignified departure of Proconsul Paul Bremer and, in a unique turn of events that may have sealed their fate, the deaths of American military as the insurgency grew in force. It was Nightline that called attention to the energy the Pentagon was putting into hiding the transport of military remains back to the country and on the occurrence of the thousandth US military death, Nightline dedicated an entire program on Memorial Day to a remembrance of the dead military, in silence, showing their photos, ranks, names and hometowns.

Of course, it wasn't just their war coverage that did in the show; the ratings weren't all that good. Still  the new Nightline started precisely the week the Administration was rolling out a newly invigorated defense of the War's progress as a reaction to Congressman Jack Murtha's call for an immediate withdrawal and a more muted but significantly lopsided vote in the Senate that seemed to press the Administration, at a minimum, to state its goals to the American public. There was also inside the White House, of course, an understanding based on the polls that the American public was losing patience with a policy that seemed more based on promises and the currency of terms like "insurgent" than a dreary replay of facts on the ground.

First the Vice President came out swinging, all but calling any opposition to Administration policy, aid and comfort to the enemy. Then it was the President's turn, in what was called a major speech at the Naval Academy, to describe a scenario in which progress was being made in standing up an Iraqi Army and police force ready to substitute for American forces who could, once the Iraqis were ready to carry the burden, begin a troop pull down that would allow them to come home in what he newly defined as full victory.

Coincidentally, the new Nightline headed by Cynthia McFadden led off the week with stories by ABC's former chief White House reporter, Terry Moran on a quick tour in and out of Baghdad. Just a day or two before the President's speech laying out the standing up the Iraqi army criterion for withdrawal, Moran is able to show footage of an Iraqi patrol going out on its own with only the backing of US troops. Just as coincidentally, An IED goes off and the ABC camera crew is there to record wounded and dying Iraqi forces. The coincidence is made even more questionable in the light of what had been a near ban of any footage showing American's forces in action being wounded or killed on TV. The Pentagon, having learned the lesson of Vietnam, knowing that a constant flow of pictures of American's being killed or maimed helped turn public opinion back in the 1960's, has made sure those images have stayed off the little screen. Apparently, showing Iraqi forces dying is deemed to have the opposite effect.

The following night, Moran still in Baghdad, is shown on Nightline II standing in the surrealistic war memorial site that Saddam Hussein dedicated to his "victory" in the Iran/Iraq War, a war in which US aid to Saddam played a major role. The memorial, the one with the row of gigantic sabers that cross over the roadway, was completely empty indicating its location in a protected area of the city. The point of Moran's blithe report is that there is a major swing in mood in the country and that progress on the ground is palpable. In one of his more ingenuous sentences, he talks in a first hand way about the mood of conversation in the cafes and markets, as if he, or any other foreign reporter for that matter, would dare go out into the crowd and sample the mood. We are perhaps supposed to suspend all reality and believe that he speaks fluent Arabic. Moran then rolls his report on Ahmed Chalabi, the Administration's on again, off again, choice to straighten out the Herculean mess that is Iraq today.

There is undisputedly an enormous problem with Iraq. Hundreds of thousands of lives have been destroyed or heavily impacted by the war so far and the US prestige around the world is even lower than Bush's poll numbers at home. We have also spent over 300 billion dollars there so far and no matter what the final outcome will be, we'll be spending like sums for years to come. What Koppel's Nightline had been offering in relatively small doses was something that is badly needed today, some untainted reporting on a situation that looks like it is turning into the greatest US foreign policy debacle in history. The President's, and all of us',  problem is not finding words of encouragement or resolve or even selectively parsing the situation to put it in the best light. The problem in Iraq for the President and the country is facts on the ground.

In an insurgency, it doesn't matter if 80% of the territory is calm at any given moment, it's that insurgents somehow circulate freely within the various warring populations and that they are able to stay organized and have access to lethal arms and the money it takes to conduct and coordinate a successful gorilla war. Two and half years after declaring victory on the ground, it seems rather ironic to hear the President talking about securing Haifa St or the road out to the airport in the very capital of this large country. It is even worse when it turns out that what is considered secure, is only secure because militia's like the Mahdi army of  Muqtada El Sadr, not the Iraqi Army, are in control of those areas and many others across the country. American's don't want to leave a mess in Iraq, they know the consequences. What they need to know is what the US military can and cannot achieve and whether perhaps as Murtha suggests, the presence of US troops is in itself a provocative factor at this point.

We need facts, as best they can be revealed in such a roiled situation and good reporting is necessary. Koppel's Nightline, for all its lapses and signs of fatigue, was a source for some reliable information. We need all we can get, not less certainly and even more certainly, not the kind of cheerleading we got from Terry Moran last week.

Meanwhile, facts on the ground, the ultimate determinant, will continue to come out of Iraq no matter what the politicians say. As we write this, two days after the President's victory speech, the major news media report the detonation of an IED that killed 10 US marines and wounded another 11 in Fallujah, a city that cost the lives of so many others to "secure" just a short time ago.

IPTV, Netflix, Hollywood, the Short and Long Tales

Once upon a time there was Wonder Bread. Wonder Bread and its competitors were the ultimate short tail product. Americans liked the idea of getting a packaged good that was fresh and didn't go stale in a day; they also liked the colorful and hygienic packaging and the convenience that came with a pre-sliced and uniform format. Judging from common parlance, it might be safe to say that they found sliced white bread to be a great thing. 
To make things even better, everybody went out and bought electric toasters. And thus toasted white bread became for many the second greatest advance of the Twentieth Century.

What happened in bread was matched in other daily pursuits. Where once there were Hudson, Packard, Studebaker, Kaiser, Jeep etc., there remained Ford, Chrysler and GM  And for a while these giants manufactured a wide range of brands and models but, alas, over time, and consistent with a new bean-counter logic, they'd reduced that choice to a few simple bodies and chassis differentiated by a little chrome, and
a lot of hype boosted by tailfins and leaning girls in shorts, one hand on the hood ornament.

But  lowest common denominator marketing didn't stop with molecules. The spectrum was also consolidated as thousands of local stations were marshaled into the columns of  three major networks. Likewise for print, so whereas a city might have had 5 daily papers, the count dwindled down to one or two.

Market-share dominators, it seems, like first and foremost the idea of managed, predictable choice for their customers. From this perspective it's good that at the multiplex this week you were choosing, say, among Wedding Crashers and the Island or going back to see War of the Worlds for the third time. Quite simply, the supply side dominates this equation.

But this long, hot summer, after a string of good money years, there's a cold shadow hanging over Hollywood and once again we hear talk of a crisis in the industry. Could it be that Hollywood, long shielded from real competition, has become the last of the "white bread" or
short tail  industries?  Like white bread, with Hollywood you always are supposed to know what you are getting-- sometimes they throw in raisins and cinnamon, sometimes a dose of  poppy seeds, sometimes the loaf is round, sometimes it's square but the proven
formula stays true.

For people in the biz, the quality of the product is not the problem they most often cite in the face of declining seat sales. In a TV interview with one of the producers of the Island, this week,  pirating and its impact on time to DVD were given as the main reasons for the slump. She might as well
have got her talking points from the music arm of one of the studios.

Concurrently, virtual DVD store, Netflix, announced that it now has available more than 45,000 titles for its customer base. Netflix subscribers pay a monthly fee for the privilege of being able to choose among those 45,000 titles and to have a certain number of DVD's on hand at any given time --at Netflix you can keep a disc for as long as you want; when you are finished with it you mail it back to them and they send you out another. Given the reliance on choice, in contrast to Hollywood and the Network owners (BTW,one, Viacom, owns brick and
mortar competitor, Blockbuster),  Netflix is the ultimate new economy or long tail company. If you feel like hunkering down with a season of Tony Soprano, just let them know by putting
those discs at the top of your queue.  Netflix's policy is to have what you want on hand by the time you are ready to have them sent out. Netflix has clearly learned a lot from Amazon,
another long tail success story.

 The customer chooses from this wide variety, and importantly, rank what they've seen. Mining this feedback, Netflix can then let one customer know what other people
with similar tastes have also recommended or rented. Recommendations lead to other recommendations and as you browse, you find yourself adding ever more films, you may have known
little about, to your queue.

In perspective, with all of its 45,000 titles, Netflix has been able to gather and retain a subscriber base of little over 3 million people. Their recently reported quarterly gross revenues came to just over $146 million, the
typical three week gross of a single semi-successful film. Clearly, Netflix, in its present form, resembles more the fly in the ointment than the 800 pound gorilla in the room. But there are also rumblings that Netflix is busy this summer building the technical infrastructure to pave the way for its holy grail, the downloading of films on demand.

What this opens up to is something more broadly called IPTV, or, TV over the Internet.  At present day Internet speeds, even the fastest DSL, IPTV is mainly a novelty, no more relevant, say, than VOIP, or voice over the Internet was, back in the early days of dial-up Internet access. But what it will mean eventually for the cable companies, is real competition. 

Nonetheless, at present network speeds, we are far from IPTV. Still, that hasn't stopped a rapid acceleration in activity lately. 

So much so,  that long before we get to the high speed broadband that makes it really fly, there's already a flurry of activity: thousands of regular video bloggers (vloggers) turn out original content in all forms and shapes, streaming video is a
regular feature of NYTIMES.com coverage of major events, eyewitnesses capture video on their mobile phones and upload it to grassroots news sites that scoop the network, regularly providing the most striking shots of dramatic events as
they unfold; and most recently major players like the BBC, the Associated Press, CNN and CBS have all announced streaming video services on their websites. And just last week, a record number, nearly 450,000 people watched the launch of
Challenger via live streaming video  And for the two companies that most profit from a long tail world, Google and Yahoo, it was no time too soon to announce extensive additions to their video search and play services. In typical
Google fashion, this ia a "beta" site http://video.google.com but it also includes a downloadable video viewer. Google video not only locates
potential videos but lets the searcher know if the actual video is available on line as part of the search result.

Other groups, in a race to gather content, have announced that they will host downloadable video files on their servers at no cost to the content owners. And formats like Bit Torrent have
been developed that help to speed up downloads of (more compact) higher definition video formats.  On university campuses where 2nd generation high speed broadband networks
are available, pirated and copyright-free long films are being distributed.  The other day, for instance, someone made available, legally, the silent German expressionist film the Cabinet of Dr. Caligari,which apparently is old
enough (1918) to escape the long fingernails of the Sonny Bono copyright extension act.

The history of the Internet is the story of the long tail. Analysts often forget that Google, EBay, Amazon and Yahoo (the four great dotcoms still standing), owe their success to the long tail.
Google, of course, devours content as fast as it appears and spits it out in small, manageable doses. Their business model goes: you supply the content and we deliver it decorated with paid ads-- we get paid, you get traffic.  EBay, of course, no longer just sells the long tail remains of old attics, closets and cellars. Buyers often nowadays go on it looking for items so new they haven't yet
been imported much less hit the shelves of stores. The Internet works even in its most mundane manifestations because it is the anti supply-driven channel. Can't find a handle you are looking for in Restoration Warehouse, Expo
or Lowe's, just go onto the web. It's there somewhere, just Google it and off goes UPS.

IPTV requires next generation bandwidth.  Right now, that means the cable guys and the telephone guys, period.  Maybe IP over electric lines will work, who knows.  Maybe high bandwidth across spectrum will function and there will be
some sort of competition, though as we noted above, even three players, isn't usually enough. There is also a role for Congress in pushing to speed up Internet 2.

If it stays at only two, Hollywood will eventually be forced to team with those two main future high-speed distributors, Cable and Telco.  Yes, cabin fever will always be with us, especially for the young, but as we can see
already today in the percentage of business DVD now delivers, big screen, surround-sound, home-entertainment centers will provide more and more of the seats for the movie industry and video on demand will become the main source of
paid entertainment.  It should be noted that already Cineplex seat sales represent only about 50% of the revenue that a movie brings in.  Not too long ago, that number was 85%. High price
tickets, the string of in-theatre ads, baby-shit smelling popcorn, kinky babysitters and choked roads make getting out of the house less and less of a viable alternative for many people. Hollywood will have to look
past the pox-faced kids in the multiplexes and try to figure out what the Gen X,Y and boomers at home will want to download. The year of IPTV? No, not quite but the decade of
the long tail, you bet!

So where does IPTV (or, better, the future) leave Netflix?  Netflix faces the perennial middleman problem, owning neither the content they move nor the distribution channels.  Their real value is in knowing who their
customers are (not terribly important in a two player broadband world, where the Cable and Telco's own the customers) and in the original content they have gathered from their customers through their rating and buying patterns.  There's value there, but not a home run. In our eyes that makes Netflix a buyout target and the future of the long tail, guaranteed. If Rumsfeld can understand it's time to
switch business models in Iraq and start pulling the troops out, Hollywood will probably get the message, too. That's the real value of being a dinosaur, you don't have to be too sharp.  Most of the time, you can count on the other
guy screwing up and as you finally do swing around your tail, that most critters have no choice but to duck and get out of the way.  Tune in later for more on tail.

Spectrum and "The Last Granny"

On January 1, 2009, television as we know it, will go dark forever if proposals now before both houses of Congress are approved. The final Bill will most directly impact that 19% of the population who get their TV through direct broadcast without the mediation of Cable or Satellite delivery. It's estimated, however, that as many as double that number of households still tune in directly through sets located in areas away from wall attachments or reception boxes.

What's at stake here, however, is more than the last granny or what is commonly seen in the hi-tech world as the unshakable legacy customer who won't upgrade until forced to do so. Granny or gramps may not have very good eyesight or a long attention span and therefore couldn't give a hoot whether the picture on their sets has 480 lines or 20 million. The trouble is that granny and gramps aren't alone when it comes to not lusting after that crisp and bright picture. Long before good ol' TV gets its final pink slip from Congress, the supply of new non-digital capable sets will be cut off. A way back, Congress passed a law that directs manufacturers to outfit all sets under 32 inch sold after July 2007 with HDTV receivers. The law also set January 1, 2007 as the date in which all broadcasters have to transmit in HDTV as well as traditional NTSC. That law, after some muscular lobbying, however, left a gaping loophole for the local broadcasters. It is unenforceable unless 85% of the sets in a given viewing area are HDTV ready.

In a political elite that professes to worship at the altar of "market forces" you also have to wonder what is going on that has Congress, fresh from taking a shellacking on Social Security, battling the old folks over their TV sets. Clearly, there's a whole bunch more at stake here.

At the heart of it is valuable unreal estate that happens to belong to the public.  It turns out that back in the dark ages when TV was being invented, nobody gave two hoots for spectrum. It was nothing you could see, feel, smell, much less bottle. Spectrum was just there and the only people who wanted it were broadcasters, civil aviators and the military. And there was so much of it to go around there was no need for efficiency or to put much of a value on it. As a legacy, radio and TV broadcasters to this day don't pay a single penny to the government for the privilege of using the airwaves and when their licenses come up for renewal they are asked to give back even less today --in public service air-time--  than they once did for the privilege.

Traditional TV, it turns out, is a huge spectrum hog. Getting the TV stations onto a digital signal that can be highly compressed and thus take up less spectrum space will allow the broadcasters to pack much more programming onto a much tinier band. As a result, highly desired bandwidth --something that in the age of cell phones and Blackberries can be auctioned off for an estimated 20-30 billion dollars and undoubtedly foster a whole slew of new businesses and applications-- will be freed up.

Not surprisingly, the military and police also want their share of this surplus bandwidth. From our perspective, there's a pretty easy way to get around the legacy problem. Hand out to granny and gramps as many free converter boxes as they want. That would probably drive the price of a converter down to about $20, while siphoning less than $100 million for the multiple billions that the spectrum auctions will yield.

HDTV can be good for everybody.  So let's look at what's really interesting here. What is it about the market in this case that just isn't working? After all, the consumer gets a better picture and more services, the broadcasters get the opportunity to package more content into their signals, the set-makers get to sell more TV's, the cable companies get to package DSL and telephone into their services, the government gets money for nothing and the citizens get police and firemen able to communicate with each other.

But it turns out that on the ubiquitous smaller sets there isn't that great a difference in the picture. Sure, everybody looks at those HDTV-ready LCD and Plasma sets in the stores and likes the crisp and bright pictures they see. The problem is that as nice as the newer sets are, thus a no-brainer for anybody who can afford the $3,000 plus price-tags, once you get them home there's a major gap in what HD programming you get. Even the major broadcasters have not yet switched over all their new programming to HDTV, local stations are lagging even further behind in their efforts and in some communities the cable companies can't support digital broadcasts even if they originate in HDTV. To make matters worse, DVD's, the big home theatre motivator, do not meet HDTV specifications.

So what's the takeaway?  People like improvements in technology, and if the pain to gain ratio is reasonable, will move along with the crowd. So the problem with HDTV emigration is not that nobody notices the difference but that, most importantly, the move is still too costly. Finally, there's far too much confusion and far too little information. Take the set-making industry's refusal to bundle receivers into the sets they sell. Sure the typical gal who goes out and spends $3,000 and up is probably going to subscribe to Cable or Satellite or both, so she only needs a "monitor'.  That is, until the day her cable service goes down and she finds out she can't just switch over to her antenna.  Put an HDTV receiver into every set you sell, folks! The price will come down to nothing and you won't notice the difference. Michael Dell, it appears, has got this message.

Next, the confusion: somebody has to get honest with people and tell them why this is going on. For example, "straight-shooter" Senator McCain, who recently introduced a Bill that sets the digital transition deadline --cutting off granny and gramps-- for December 31, 2008, cited homeland security concerns, according the WSJ. It's hard to expect Congress to level on their interests for the money and those of the lobbyists around them and this is an area where the MSM (mainstream media) have a big stake, too. But who's left to help us sort this out?  Maybe we should also be debating just what it means to lease or auction off this public resource and where the money will go from the receipts.  The public has to wake up, too, every once in a while.

When the market refuses to budge for all the reasons we mentioned above, there's always the big stick of lawmaking. Maybe Microsoft ought to take heed of this when they finally get around to rolling out their new operating system, Longhorn. Left to their own devices, it may take a long time to wean the public off of XP. And if there is too much pain, some folks, not granny and gramps, for sure just might take the opportunity to switch over to a nicely bundled Linux product. It's a long shot but MSFT might just get the horns. Bill, rev your lobbyists!

The Parable of the Long Tail

No one, certainly no one here in Dymaxia, can argue that in some important ways, the range of content available to consumers today, is broader than at any time in history thanks mainly to what's come to be called the long tail of the Internet. Even within the limited scope of our BlogDrome  section, we are able to consistently reblog meaningful, thoughtful, sometimes jarring, sometimes amusing work being freely circulated by dedicated bloggers on the isthmus of media, technology, economy and politics.

Grassroots or Citizen Journalism, as it has come to be called, is a powerful means for getting information amplified and out into the public forum. The advent of powerful and diligent search engines that constantly troll the Internet for updated content and RSS feeds that notify consumers when their favorite sites have new content to offer, have made a major contribution to the speed and depth of the stream. Diligent consumers can also use their browsers to access content provided world wide by media organizations once found only in the largest of libraries, days old. Large organizations like the NY Times, the BBC and others make available video and audio feeds, podcasters offer a wide range of talk out of the control of the near monopoly radio broadcast networks.

Yet, against this backdrop of expansive long-tail content availability, it's not hard to argue that the big picture is darker, and far from a golden age. Take the dominant force in content production, the US entertainment/media complex. "The business", appears to be suffering a crisis of its own making. For years, it has increasingly tweaked its products in its successful attempt at ever wider audiences and near-complete hegemony. Time-Warner, the largest of these conglomerates, Disney, Viacom, Fox and the media wing of GE carefully manicure the distribution and cross-marketing of their products.

And just as the US has achieved sole superpower status by outspending the rest of the world, developing the most technically sophisticated military ever fielded --able, at least on paper, to take on foes anywhere in the world and near space with Rambo-like impunity-- Hollywood has built a bulllet-proof product line that is designed to span a wide range of markets with a common denominator for nearly every taste. The ideal product, in this formula, is a movie that has enough testosterone and estrogen stimulation for the teenagers who flock the live screens, a simple enough plot line and character pool familiar enough to be recognizable from Auckland to St. Petersburg and a secret blend of contemporary camp sauce to pique the appetites of the ever growing stay at home DVD aftermarket.

In so doing, Hollywood has succeeded --some would say, perhaps too well for their own good (especially, since most recently year over year box-office numbers are down for the last 20 weeks running)-- in chasing out the competition. Only India has been able to sustain a thriving domestic film industry. Countries, that played major creative roles in early film history, like Italy, France, Germany, Britain, Japan, Sweden, Russia, etc. have, for all practical purposes, gone out of business. Only tiny Denmark seems to have managed to avoid annihilation.

Italy, for just one example, turned out more movies annually in the early 60's than Hollywood now produces in a decade. It is impossible to imagine our cinemateque minus the likes of Eisenstein, Tarkovsky, Bunuel, Lang, Dreyer, Fellini, Rossolini, Bergman, Visconti, Vigo, Resnais, Godard, Losey, Wenders, Fassbinder, Misoguchi, Kurosawa, etc., not to mention the many great American directors who first learned their trade abroad, people like Wilder, Hitchcock and Von Stroheim.

On the broad information front, the situation is equally bleak: the network nightly news has become such a tepid shadow of itself that its sometimes impossible to distinguish it from shows like Entertainment Tonight. Does anyone still tune into 60 Minutes expecting to see them to break a story on the level of the Enron or MCI ponzi schemes? In today's atmosphere, can we really expect to see the Washington Post able to take the heat of pursuing a story of the scope of Watergate? Can we be sure that the NY Times would have the guts to release the equivalent of the Pentagon Papers this time around? In the past they had to resist the accusation of being anti-American, pro-communist; today they will surely be accused of being anti-Christian.

In the lead up to the ongoing war, all of the leading news-breaking media organizations --the number of these is unfortunately quite limited-- have acknowledged burying critical stories that questioned assumptions that were the main rationale for the invasion. Would anyone seriously argue today that minus the threat of WMD and a terrorism link with OBL and the promise of a cakewalk, a majority of Americans would have gone along with the invasion plans? Noticably, although Americans and Iraqis die every day from bloody attacks, there appears to be some sort of ban on photo coverage of these gory events. We do know that the Pentagon has made it impossible to cover through images the stream of coffins returning to the country.

But how seriously has this same MSM taken the revelations coming out of the Air Force Academy. In the wake of stories about fundamentalist Christian control of the Academy's leadership, and even manifested bizarrely by its football team, the Academy's Lutheran chaplain resigned this week and took the charge onto Nightline that it's common practice in the Institution to deny the existence of a Constitutional separation of church and state. When the training ground for the elite officer corps of the US Air Force, the guys that command the flight of the fighters and bombers and the missile launchers, is challenged on Constitutional grounds by its own Christian chaplain, this has got to be worthy of in-depth reporting! Hopefully, MSM editors will prove us wrong and have already assigned top journalists to a story that the Pentagon felt needed a press conference during the week.

With major newspaper readership in a downward spiral, many Americans get their news in short bursts from the radio and television or by taking quick glances at their local dailies. The all news channels tend to parade their rosters of talking heads who generally spout talking points listing canned party line positions, which, of course is really most useful for people trying to read the tea leaves of inside-the-beltway Washington.

The format on NPR's Morning Edition, All Things Considered and talk venues like the Diane Reim Show, Talk of the Nation, Science Friday etc. provide opportunities for a wide variety of beyond-the-sound-byte discussion. On television, PBS's News Hour with Jim Lehrer has little competition in the time it takes to treat four or five major daily stories. Another program that can often be counted on for in-depth reporting and some guts in taking on tough issues has been ABC's Nightline, which unfortunately appears to be in its death throes.

Given the preponderance of public broadcasting programs on our short list, it should come as no surprise that the entire public broadcasting system is under attack by the Administration and the conservative right. The campaign against public broadcasting has been multi-pronged this time around, which makes it a much more deadly strike than in the past when Congressional funding, alone, was put under attack. Deservedly, public broadcasting has a large and vocal audience that has been successful in pushing back the funding attack. This time around the Administration has appointed an ally, Kenneth Tomlinson, to head the Corporation for Public Broadcasting, the parent organization for PBS and NPR. Behind the scenes, Tomlinson has fought what conservatives call bias on NPR and PBS, managing first to get Bill Moyers removed from his program Now. Moyers, an experienced and passionate journalist and one of the founding fathers of public broadcasting, was punished, it seems, for offering, among other things, the kind of pro-immigrant and labor stories that have disappeared from media coverage but would hardly have raised an eyebrow 40 years ago, when PBS was founded. For "balance", PBS was convinced to run a Tucker Carlson show and one featuring the Wall Street Journal Editorial Board, a group that consistently takes conservative positions in contrast even to stories published by WSJ's own journalists. This week, in typical fashion, it distinguished itself with a long piece denying once again the validity of the role atmospheric carbon dioxide plays in global warming
 

Thursday, Tomlinson managed to get Patricia S. Harrison, the assistant secretary of state for educational and cultural affairs, selected as the new President of CPB, after three days of closed meetings by the corporation’s board of directors. She was co-chair of the Republican National Committee from 1997 to 2001.

The attempted funding cuts for public broadcasting were meant to go very deep. They were aimed across the board at stations but also at particular programs. One irony, from this "conservative" Congressional attack is their focused aim at PBS's children's programming. In the cultural wars that have pitted the Bible Belt against Hollywood, it might have been assumed that PBS, the home of Sesame Street, et al. would be supported by parents offended by the Saturday morning fare coming from an industry they oppose.

But in a longstanding inside the Beltway tradition most recently exemplified by uber-lobbyists Jack Abramoff and Mike Scanlon, official Washington particularly relishes an opportunity to please their big contributors while hiding behind their culture war cloak. In the case of Abramoff and Scanlon, it was Christians and Indian tribes being played against an exceedingly profitable middle, while in the case of weakening PBS, that same vilified entertainment industry, itself a major contributor, could hope to eliminate competition via the lobbying capital of conservative groups. The coincidence that NPR's Morning Edition, the most listened to early morning radio program in the country, and that competitor in every market, Clear Channel  -- a major contributor to conservative causes-- is nothing to snicker at. Neither, does it go unnoticed in a very competitive TV advertising climate, that PBS has the ability to consistently attract a prime-time TV audience of affluent trendsetters away from the major networks.

America's economic problems flowing out of the massive trade deficit (see, China's unsolicited bid to buy Unocal  this week, as just the latest wrinkle), the out-of-control housing market, the accelerating exportation of manufacturing and service jobs, the growing budget deficit, looming problems in the health system, etc. not to mention a way out of the Iraq quagmire, are going to boil out of the mud at some point. After years of happy talk, Americans are going to have to face very likely a combination of grave issues with very complex solutions at some point soon. They are going to need well sourced information that may not please anyone. Only a very tiny portion of that will come from citizen journalists.

When it comes to overemphasizing the power of the long tail, we might be reminded of the ancient Chinese parable  of the blind men and the elephant. In the tale, the blind man who hangs onto the tail, declares with great assurance that the beast is like a rope.
 

Bush's No-Hedge Strategy

The Washington Post survey has Bush up by around 8 percentage points coming out of August. The bump was the result of a concerted attack first to undermine Kerry's record in Vietnam by the Swift Boatees and then a pile on by McCain, Giuliani, the batty senator from Georgia, Zell Miller, Cheney and the President himself. What they all said was that the present Iraq War, despite some pre and post attack mistakes, was succeeding in bringing the attack (in the War on Terrorism) to the enemy over there and hence was making us all safer over here.

The double pounding worked for much of August as the media took its eyes off the real story on the ground in Iraq, the anemic economic situation at home and focused on the spectacle of a smear campaign working its corrosive magic. For days the Kerry folks seem stymied by an attack that they should have fully anticipated. Our guess is that Kerry's emphasis on his Vietnam War record at his convention that overshadowed any political agenda he might have presented, was designed to preempt attacks that his campaign must have known were coming.

But by going for the jugular Bush has put his own campaign at great risk. For Kerry the only good news is that the election is not going to be held this week and there are still over 7 weeks left before voters actually go into the booths and cast their votes. A lot can happen. Here's Bush's major problem as we see it: He has now virtually wrapped himself around his Iraq War strategy and this presents him with major potential pitfalls, mainly the truth as to what the situation on the ground in Iraq really is.

Humpty Dumpty

Everybody in Washington, including John McCain and the brass at the Pentagon knows that the Iraq strategy is becoming a catastrophic failure. Given enough time and media focus the reality on the ground in Iraq will be revealed to the American people who will then have to face a much graver choice than the one offered in the turmoil of 1968 when Nixon managed to get elected. The strategic importance of the Vietnamese War hinged on what was called the Domino Theory that promised that any Communist expansion would lead to a cascade of falling neighboring countries. We all know now that there was no such catastrophe after the abandonment of Saigon by the Americans and an entirely different dynamic occurred in the region as Hanoi played off Moscow against Beijing. The second factor, of course, was lost American blood, treasure and prestige. All those deaths, all that hard feeling at home, all that loss of innocence and swagger in the jungles of Southeast Asia; is it any wonder that we are still trying to sort this out?

The blowback for W may occur before the election. Since he has so tightly bound his premise for re-election to results on the ground in Iraq and Afghanistan, there is always the possibility that major attacks on US and Iraq and Allawi-led government forces will re-inflame what is already a knawing feeling among a majority. But, more significantly, whether it's Bush or Kerry who gets elected, the victor will be faced with a much more difficult situation than Nixon and Kissinger had: Iraq is not Vietnam. It festers at the heart of the world's energy supply zone, an area that has been newly put in play by Osama Bin Laden. There is no Iraqi nationalistic movement that might emerge victorious as did Hanoi. Instead there is a newly resuscitated mullah-led government in Iran that will become the major backer of the Shiites in the South, militias on the ground, break-away Kurds in the North and a determined group of Sunnis and Mujahadeen in the center --all the makings of a failed state.

Notice that J. Paul Bremmer, the erstwhile Proconsul has been put into the witness protection program never to be seen again. Notice that neither Rumsfeld nor Powell were anywhere in view at the Republic Convention. Cheney would have been gone too, if they could have thought up an excuse. Instead, he was nicely positioned right after crazy Zell who would make anyone, even the Vice President look reasonable by comparison. And notice most significantly, the total absence of any mention of Osama Ben Laden and the head of the Taliban, Mullah Omar.

And so goes our little drama. Can Carl Rove and company continue to dominate the news cycle with distractions right up until Election Day? Take the argument over whether the letter that CBS showed the other evening was created on a word processor and thus a forgery. Could CBS have been set up or will we find that IBM had a proportional font wheel for its electric typewriters that allowed for the questionable "th"?

So far so good for the Bushies who couldn't have asked for anything better than seeing Clinton's heart operation grab the oxygen for a day or two or even another 5-day hurricane cycle. But one thing is for sure