The man who helped pioneer Internet pop-up ads is now undertaking an action that, if successful, would probably greatly curtail their use.
Brian Shuster's motivation is far from altruistic, however. Having received a patent for pop-up technology, he is planning on extracting licensing fees from any company that uses such advertising. Many I-experts believe he'll have a tough time enforcing the patents, but if he's successful it would certainly cut down on the number of pops you'd see when surfing.
Before you send him a note of thanks, however, you should know that Shuster is currently working on technology for so-called "pop-up audio" ads. According to MSNBC, you'd have to listen to such ads from start to finish, with no way to turn them off.
In today's Motley Fool Take:
- Greenspan Rebuffs Buffett
- Quote of Note
- A Victory for Music-Swappers
- Get a Broker
- April Showers on Retail
- Discussion Board of the Day: Pixar
- Quick Takes: Comcast, Reliant Resources, HealthSouth, more
- And Finally...
Greenspan Rebuffs Buffett
Take that, Warren Buffett and Charlie Munger! Fed head Alan Greenspan threw out some fighting words today on derivatives that contradict Buffett's recent dire warnings on the so-called "financial weapons of mass destruction." Greenspan said, "The benefits of derivatives, in my judgment, have far exceeded their costs" and went on to argue against further government regulation of the instruments.
As we've written about before, Buffett's latest letter to shareholders included a whole section devoted to derivatives, their abuse, and the great financial risk they represent both to the parties using them and the economy as a whole. At Berkshire Hathaway's
So, what are derivatives? They're basically bets on the direction of all things financial. There are simple derivatives, like a bet that interest rates will rise by X% over the next two years, and there are complicated ones that seem to have no real connection with actual events. These are designed to reduce risk.
For Buffett, derivatives' hard-to-quantify off-balance sheet presence makes it difficult to figure out a financial institution's true market risk exposure. That lingering uncertainty, to Buffett, lurks like a looming iceberg beneath the economy's waters.
Essentially calling Greenspan out on the issue, Buffett also pointed to the insolvency and Fed-led 1998 bailout of hedge fund Long-Term Capital Management as evidence of how a little-known fund could create havoc for the rest of the market. Buffett noted that the Fed engineered the rescue of LTCM because it feared the potential impact on other financial institutions. In other words, the Fed viewed LTCM as "too big to fail."
Greenspan countered directly by acknowledging LTCM's crisis and the part derivatives played in it, but said that most banks manage their risks just fine. Financial institutions use vehicles like swaps, futures, and forwards to hedge their interest rate and market exposures, and Greenspan pointed out that the prudent use of derivatives has helped banks survive the recession by reducing risk.
It's a fine line. Derivatives are risky, but they can also be effective risk-management tools. Buffett skews towards thinking that most derivative users either don't understand the risk they're assuming or that they're willingly and wantonly betting the house by engaging in derivatives trading. Greenspan, on the other hand, appears to believe that the majority of financial institutions use derivatives wisely and that Buffett's overstating the problem.
They also differ when it comes to derivatives' potential threat to the economy. Buffett thinks they represent a huge risk, and that some sort of further regulation is needed to protect the economy. Greenspan, though, believes that the market could handle, and has handled, derivatives' risk, and that more regulation could create a moral hazard, actually encouraging banks to assume more risk instead of less.
One can't help but see a bit of the old Ayn Rand devotee in Greenspan shining through here. (Check out Capitalism: The Unknown Ideal'stable of contents.) He's resistant to more regulation and believes that market participants can work out most derivatives problems themselves.
Who's right? They both are, in a way. Derivatives contributed to the failure of Enron and nearly brought down LTCM. That's undeniable. However, the use of most derivatives goes unnoticed because nothing catastrophic happens. This is a battle that's likely to go on and on, with both sides holding fast to their positions until proven wrong by another big market event.
Quote of Note
"Fortune cannot aid those who do nothing." -- Sophocles (497–406/5 B.C.), Greek tragedian. Fragments, l. 302 (Minos)
A Victory for Music-Swappers
In the noisy war over music file-sharing services, some important news passed rather quietly a couple of weeks ago when a federal judge dismissed a copyright infringement lawsuit against Morpheus and Grokster -- services through which millions of files are illegally shared.
Why did the courts shut down Napster in 2000, but not these two services? U.S. District Court Judge Stephen Wilson said that unlike Napster, Morpheus and Grokster did not control and facilitate the sharing of copyrighted files. As a representative for Morpheus said, "When you make a piece of software and distribute it to the world, and therefore have no ability to control what people do with it, you are in the same shoes as those who manufacturer photocopiers and VCRs."
The decision surprised and dismayed the Motion Picture Association of America (MPAA) and the Recording Industry Association of America (RIAA), the plaintiffs who were representing various film and music companies such as Sony
Soon after, the RIAA -- in an action that exemplifies its utter failure to win the public-relations part of this battle -- sent threatening instant-message warnings to hundreds of thousands of users it suspected were illegally swapping music. It read, in part, "When you offer music on these systems, you are not anonymous and you can easily be identified." It was a brilliant way to further alienate music lovers while making practically no difference in their file-swapping habits.
As Rick Munarriz (TMF Edible) has pointed out, there's a slight breeze of hope blowing through the industry that Apple's
As of now, Apple is not just the best hope for the music industry... it's the only hope.
Get a Broker
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April Showers on Retail
It's same-store sales Thursday once again. Retailers large and small announced how their sales in stores open at least a year fared last month.
April was supposed to be better than March, as spring dawned, Easter shifted to later in the year, and the war with Iraq tapered to a somewhat lukewarm finale. 'Twas not to be, however. Chilly, drizzly weather dampened shoppers' enthusiasm, and for some reason, the victory in Iraq didn't immediately make people want to hop off their couches and run out to buy khakis, lawn chairs, shoes, or electronic equipment.
The world's biggest retailer, Wal-Mart
Among the specialty retailers, Gap
Discussion Board of the Day: Pixar
Will Finding Nemo be another winner for Pixar, or is it time for the company to learn a lesson in mortality at the box office? Should Pixar stick with Disney or find a better deal somewhere else? All this and more -- in the Pixar discussion board. Only on Fool.com.
Cable provider Comcast
We can all breathe a sigh of relief. The ex-CEO of HealthSouth has access once again to his substantial wealth. (Whew.) A federal judge said the SEC hadn't yet "established" that Richard Scrushy was involved in the fraud that was apparently going on for years at the Birmingham, Ala.-based company. Given this, the judge ruled that Scrushy should be allowed access to his 31 bank and brokerage accounts, 34 automobiles, two airplanes, one enormous yacht, his other 10 boats, four mansions, and his many millions of dollars.
In local news, they're still chuckling at Bertha's Clothing Shop. Sally Jenks, paying for a pair of pantyhose, was told, "That will be $2.53, plus tax." "Tacks?" replied Sally. "I thought they stayed up all by themselves!"
Today on Fool.com:
- Do you enjoy reading The Motley Fool Take? Ever wanted to edit it? You're in luck. See our job description under Assistant Managing Editor in the Editorial department at jobs.fool.com.
- Jeff Fischer looks at the performance of his 8 recent picks and pans.
- A Stock for Mom: Lance, Inc., the distributor of Cape Cod brand potato chips, could be poised for a turnaround.
- Burton Malkiel says don't bet against America.
- In Fool's School, is it really best to buy and hold stocks?
- For updated stories throughout the day, bookmark our ever-changing News section.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Dayana Yochim