August 21st, 2008

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Subprime, subprime, subprime . . . .

I had an extremely depressing conversation with my father. He is doing an article on how Congress has effectively lost control of the power of the purse (he is a Professor at BU Law who specializes in tax and federal policy). Over the course of the conversation, we were discussing how Congress and the Executive Branch hide the ball on the budget deficit. Turns out that the Social Security Trust Fund is counted as federal revenue and against the budget deficit despite purportedly being in an untouchable "lock box."

How? Well, it turns out that the Social Security Trust Fund (SSTF) makes the federal government a no interest loan of the surplus money. Because it is federal revenue and through this method accessible, the budget score does not include it as a loan or debit the amount due against the deficit. OTOH, the SSTF treats it as if it were held in zero interest bonds (it isn't), and therefore claims it is fully funded with a surplus.

My depression does not result from the discovery of yet more federal accounting chicanery. I've reached the point where I will actually admire a clever and elegant swindle by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). No, my depression was caused by the realization that the SSTF is the largest subprime lender in the world, holding notes worth $7 Trillion or thereabouts from the fed.

Two more things to note from this:
(a) If Bush had actually succeeded in privatizing Social Security, the federal deficit hole would be much, much worse. The surplus would not be sitting there to be raided by the Federal Government, but would be invested in private capital markets. Whatever other benefits or risks associated with privatization, I can't help but wonder if it was this unspoken factor that prompted so much resistance from the Congressional Rs on the Ways and Means Committees.

(b) We are scheduled -- assuming the demographics hold -- to run out of surplus and shift Social Security into the red in about 15 years (I forget the precise date). At that point, the SSTF will need to call in those notes.

OTOH, the demographics are subject to change. Our population curve is like a diminishing wave rather than an inverted pyramid as in Japan and industrialized European countries (or a pyramid as in Islamic countries and Latin America), so we have a wave of recent college grads entering the job market. Recent data also show that our lack of health care, careless environmental policies, and overall poor eating and health habits are starting to seriously diminish our life expectancy, so the length of time people receive Social Security may diminish. OTOH, Medicare expenses are increasingly rapidly (according to my father, adding Medicare to the national debt projections (it is currently also excluded) would add $30 trillion to the deficit over time).

In happier news, I note this Washington Post article that FDIC is restructuring some of the home mortgages it inherited from IndyMac to livable interest rates to avoid defaults. I had suggested a year ago that the federal government adopt this approach, buying loans secured by a primary residence for 25 cents on the dollar and then renegotiating them down to something that would avoid foreclosure. As always, there is no dearth of people to explain to me that I do not understand economics, which is why my life is so filled with Cassandrafruede. Nevertheless, I'm glad to see FDIC being sensible. Perhaps it will spread to the industry as a whole.
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Let's Go Crazy Over A Good Copyright Decision

A district court in California found that a copyright holder must consider whether a use is permissible before filing a DMCA notice and take down.

For me, the issue here is about cost shifting and abuse of discretion. The DMCA is supposed to be a balance between a right holder's concern that infringing material is being made available, requiring immediate take down to prevent further injury, and the right of the person posting the content, since the content may not infringe.

Because DMCA notice generally imposes no cost on copyright holders, it has been widely abused. DMCA notices get cranked out and most folks don't have the resources to challenge them. And people can suffer real economic harm by having their non-infringing websites taken down even for brief periods of time. Weighting this toward the rights holder also creates serious issues for time sensitive critical or political speech. OTOH, the argument is that the unsophisticated content holder will not risk sending a legitimate DMCA take down if the cost of doing so depends on a difficult legal judgment.

I've written on this subject before. My feeling here is that no system is perfect, and this one is very documentably out of whack in favor of rights holders making automated spurious claims and imposing serious costs on others. I think requiring them to do some due diligence first or risk paying costs is reasonable, even if it will ultimately prevent some meritorious suits.

Public policy is trade offs.