The Big Money

So Long, Farewell

James Ledbetter — Fri, 30 Jul 2010 19:46:51 +0000

By now you may have heard that TBM is closing up shop. Slate Group chief Jacob Weisberg explains the reasoning here. It's obviously not the outcome we intended, and I'd like to thank all our loyal readers and advertisers for their support over the last two years. Our archive of stories and blog posts, we're told, will continue to live on Slate.com.

80 People Want a Flying Car

Matthew DeBord — Fri, 30 Jul 2010 15:39:47 +0000

Wired Autopia has the latest on the Terrafugia Transition, the flying car...er, roadable aircraft I wrote about last year. Seems that Terrafugia has managed to get a lot of customers interested in the vehicle:

Terrafugia says it is re-evaluating the price for the Transition. The company has received deposits from more than 80 customers. A previously announced price was $194,000. Meteer says the new design should be making its first drive later this year, and first flights are expected early next year.

Higher or lower on the price scale? One assumes lower.

Autopia also has a shot of the Transition's very simple cockpit, with its dual car/plane controls: a steering wheel for driving and a stick for flying. Quite cool.

Is Bob Dudley a Short-Term CEO for BP?

Matthew DeBord — Fri, 30 Jul 2010 14:45:34 +0000

The Financial Times' Lex blog thinks so. But more importantly, Lex offers the perfect characterization of what an oil company CEO should be like: a character from a late 1970s-1980s prime-time soap opera!:

Oil company executives are a particular breed. The role seems to demand a certain cragginess. Tony Hayward, chief executive of BP neither looks nor sounds like Jock Ewing. This was a handicap in BP’s response to the catastrophe in the Gulf of Mexico. He made the initial mistake, which has haunted the company’s response, of assuming the leaking well was an operational matter. If it had been, he would have been the perfect candidate to lead the response. But the Macondo well exposed corporate failure on a scale that would have ended any chief executive’s career. Res ipsa loquitur. It is inevitable that he should take responsibility.

As an aside, I've found it interesting how precise/imprecise publications have been about referring to the Gulf distaster. Many have called it the Gulf oil spill (inaccurate), while others have referred to the Deepwater Horizon spill, because the Deepwater Horizon was the floating drilling rig that caught fire, sank, and precipitated the disaster. Really, Lex has it right be referencing the Macondo well, which is the actual source of the problem: the hole the ocean floor, 5,000 feet beneath the sea.

Should GM Give Away 10,000 Chevy Volts?

Matthew DeBord — Fri, 30 Jul 2010 14:17:06 +0000

I'm surprised I haven't seen someone on the right float this idea yet. General Motors will initially build about 10,000 Chevy Volt extended-range electric vehicles. The government will provide up to a $7,500 tax credit for each Volt bought or leased. But GM also borrowed $50 billion for the U.S. Treasury to get through bailout and bankruptcy in 2009. At a sticker price of $41,000, GM could "donate" all 10,000 Volts to taxpayers (through some kind of lottery) and return $410 million bucks. Leaving it a mere $49.5 billion in the red to the American people.

Maybe I've missed something. Anyone out there want to assist me in finding out whether this has been proposed?

Prominent GOP Donors Charged With Enormous Fraud

Rachel Ensign — Fri, 30 Jul 2010 09:28:23 +0000

The SEC claims that Sam and Charles Wyly, a pair of Texan brothers who are faithful GOP contributors, have turned a profit of more than $550 million through illegal stock trades, the Washington Post reports. The SEC charged the brothers with fraud Thursday, alleging that they used overseas accounts based in the Isle of Man and the Cayman Islands to trade large amounts of stock of four public companies where they served on the board. The Post excerpts the SEC report that claims the elderly Wyly brothers spent the proceeds from their offshore stock sales on art, jewelry, real estate, and charitable contributions that include a building in Sam Wyly’s name on the University of Michigan’s campus.

Barack Obama, General Motors' majority stockholder, will tour one of the company's plants today, the New York Times reports. He will examine the brand new electric Chevy Volt and try to draw attention to the success of his auto-industry bailout. His administration claims that the bailout saved hundreds of thousands of jobs and will eventually make money for taxpayers. Things are looking up for G.M.—it posted a profit in the first quarter and has been adding shifts at their plants to keep up with demand. Still, Obama and the Democrats will face the political consequences of the bailout in the upcoming midterm elections.

Li Lu, a student leader of the Tiananmen Square protests, is a likely successor to Warren Buffett at Berkshire Hathaway, reports the Wall Street Journal. The 79 year-old Buffett has said that the company’s leadership will be divided between a CEO and an executive who handles investment once he steps down. When asked if Li would fill the role of leading the company’s investments, Berkshire’s vice chairman said, "In my mind, it's a foregone conclusion." Mr. Li is 44 years old and spent his childhood in Chinese foster homes after his parents were sent to labor camps during the Cultural Revolution. He helped organize the Tiananmen Square protests and participated in a hunger strike during the 1989 event. Li is now a hedge fund manager and was an integral part of Berkshire’s investment in BYD, a prospering lithium battery company based in China.

Senate Republicans blocked a bill that would increase lending to small businesses yesterday, reports Reuters. Democrats say that the $30 billion plan would make loans for small businesses less difficult to come by and give them billions in tax breaks. Republicans object to the large amount of federal spending in the bill; "While I support the bill's tax incentives for America's job-creating small businesses, I can't support creating yet another lending fund that turns the Treasury Department into our national bank," said one GOP Senator. Despite the minority party’s loud objections, the bill could pass next week after further negotiations. Obama has been pushing hard for the plan, which has already passed in the House.

In the latest in recall news, MiceDirect, a Georgia-based company that sells frozen mice over the Internet, is the source of hundreds of salmonella outbreaks in the U.S. and Great Britain, reports the New York Times. Health officials found the same strain of salmonella in people who regularly fed the company’s frozen mice to their reptiles and prompted the company to recall millions of its deceased products this week. The recall also covers the company’s frozen rats and chickens. MiceDirect doesn’t seem to be doing much in the way of making the recall anything more than a formality though, “The company’s recall notice was not prominently posted on its Web site until Thursday. And neither the company’s site nor the FDA’s site gave clear instructions on what to do with mice that customers still had.” One man who recently bought 10,500 frozen mice from the company was unaware of the recall until a reporter called him.

The Enron Revisionists

Mark Gimein — Fri, 30 Jul 2010 01:30:11 +0000

When Ken Lay, the chairman of Enron, died in the middle of his 2006 trial, the New York Post put a picture of a coffin on its front page with the memorable headline “Make Sure He’s In It.” It’s safe to assume that Lay is indeed dead and buried. But now, close to a decade after Enron’s collapse in the seminal corporate scandal of the new century, Enron’s reputation is undergoing a surprising resurrection.

From the appeals courts to the business press to blogs, a name once synonymous with corporate scandal is having a new life, with a lengthening chorus of defenders. They see Enron and its executives as the victim of overreaching prosecutors, a broader anti-business climate, and bad luck.

And sometimes even as heroes. “I wish,” a onetime Enron employee named Cara Ellison writes in her blog, in an entry titled “Enron Men Bring the Hotness,” “all men were like Enron men. I wish men today didn’t have to be babied and pacified but would take the reins of their own destiny and just be brilliant.”

“Whenever I’m writing fiction,” Ellison continues, “whenever I’m stuck on a male character, and I wonder what direction to go, I just think, ‘What would Jeff Skilling do?’” The answer, in case you’re wondering, is never “Cook the books” or “Get an opinion from the accountants.”

Ellison—a lower-level employee not directly involved with the scandals, who’s now studying to be a paralegal—has been covering the ins and outs of the Enron case for the last several years. She is without a doubt the most breathless of the Enron defenders. But even within the tamer confines of the mainstream media, there is no shortage of outrage and ardor on Enron’s behalf.

Sometimes the defense is nuanced, focused less on the successes of Enron than on the failures and misdeeds of prosecutors—an approach exemplified by Joe Weisenthal’s bluntly titled story “The Complete Humiliation of the Enron Task Force” in Business Insider. In other places, though, the efforts at prettifying the corpse of Enron’s reputation go a good deal further. In the editorial pages of the Wall Street Journal, the unfairness of the Enron prosecution is a settled fact, the go-to example of anti-business attitudes in white-collar prosecutions.

“Ken Lay,” WSJ columnist Holman Jenkins wrote last year, “was prosecuted not for the sins that brought down Enron, but for failing to tell investors that the company was predestined to fail even as he tried to save it.” In death, and close to a decade later, the man who once was pilloried for having made many millions selling Enron shares before it all fell apart is now recast as the unfortunate person faced with the Herculean task of trying to keep the company afloat. And with the tidal wave of revelations of Wall Street malfeasance that followed the Lehman Brothers bankruptcy in 2008, the severity of Enron’s sins arguably fades in the rear-view mirror.

The gathering force of Enron revisionism has been fueled by a series of court-room reversals in the still-ongoing Enron saga. For anybody genuinely concerned with civil liberties, parts of the Enron story do give serious pause. The prosecution theories used in the Enron case were aggressive and relied on vaguely worded statute—something underlined by the 9-0 decision of the Supreme Court in June to send CEO Jeff Skilling’s conviction on one charge back to the lower courts.

Of the Enron cases that went to trial (in many cases prosecutors secured guilty pleas), few ended in convictions that haven’t been reversed. Prosecutors piled on huge numbers of charges. There’s meaningful evidence that the threat of indictment kept some at Enron from cooperating with the defense of others. Beyond that, the decision to prosecute Lea Fastow, the wife of financial chief Andrew Fastow—is deeply troubling (and was from the start even to some in the government, as Enron prosecutor John Kroger details in his book Convictions).

For those who would defend Enron today, the lesson of the Enron story is that what appear as crimes after the fact were merely mistakes of judgment. They see Enron as a case not of a company looted through fraud, but of one faced with the consequences of its misjudgments. “What happened at Enron,” says the Business Insider’s Weisenthal, “was more like a typical bank run or a Wall Street collapse than a case of criminal fraud. Due to weakness in the business and an inability to trust management there was a run on the bank.”

The resonance of Enron for today’s economy is clear to everyone. Enron’s defenders look with suspicion at the efforts to prosecute Wall Street bankers in the wake of the financial crash. The Enron story makes them skeptical of charges against Wall Street banks—and each failed attempt at bringing Wall Street charges reinforces the sense that the failure of Enron was just how business sometimes works. “What happened at Enron was the same thing that happened at Bear Stearns,” says Cara Ellison, “People were just shocked and they looked for a criminal element.”

As we pull further away from the Enron debacle, however, the failings of the Enron cases have come to obscure the basic facts about Enron’s operations that led to the debacle. Indeed, to say, as folks like Holman Jenkins do, that Enron’s executives were trying to save the company invites the question, “Save it from what?” It is clearly true that there was something like a “run on the bank”—a drying up of credit lines and an inability to continue doing business as creditors and partners braced for an impending collapse. It’s also true that Enron’s executives tried to keep it going, furiously arguing with short-sellers like James Chanos and reporters at Fortune and the Wall Street Journal who told investors that the company was in dire shape.

What the revision of the Enron history misses, however, is the bottom-line truth: What doomed Enron was not the vultures in the press. Whether it could have been delayed by few months by executives “trying to save it” or not, its collapse was a certainty. It was a company filled with bogus business (like the largely fictional Enron Broadband), with a balance sheet propped up by complicated accounting that built up phantom gains and obscured losses.

If those who demonize business go overboard and assume that every failed company is corrupt, the defenders of Enron tilt in the opposite direction. They discount any evidence of corporate dishonesty and deception that cannot yield a conviction and a clear story of executives with their hands in the cookie jar. That will always be a rarity in a world in which corporate mismanagement is veiled by deception and a forest of opaque accounting.

The Enron trials were supposed to send a signal that white collar crime would be pursued and punished. In fact, the signal may be the opposite: Yesterday's unpardonable misdeeds are today's vague memories. Enron's failings were pursued by prosecutors far more aggressively than the more devastating ones of the subprime fiasco. Now, just a few years after the fact, the sins of Enron executives (“sweet, good men,” in Ellison’s view) are well on their way to forgiveness—while those of the latest wave of scandals haven’t even made it to court.

App-etizers July 29: Google Launches Location-Based Ads

Kevin Kelleher — Thu, 29 Jul 2010 22:50:26 +0000

Google introduces location-based ads on iPhones and Android phones. (TechCrunch)

Apple invites developers to advertise their apps through the company's new iAd program. (MacRumors)

Millions of people downloaded Android wallpaper that collects personal data, sends it to China. (VentureBeat)

Ballmer said Windows-based tablets will ship “as soon as they are ready." Whenever that is. (CNET)

True to his word, Mark Zuckerberg ditches iPhone for an Android phone. (Redmond Pie)

Viper app, which locks and unlocks cars with a smartphone, now available for Android phones.

Something About Apple Brings Out the Stupid in People

Kevin Kelleher — Thu, 29 Jul 2010 22:34:12 +0000

"Reality distortion field" is a term originated way back in the early 80s by a manager of the original Macintosh software team. There is no distortion field, of course, but it does describe some mysterious phenomenon where Steve Jobs's charisma gets people to believe some irrational, even crazy things. It even seems to make some people say stupid things without really realizing it.

One of the stupidest I've seen in a long, long time is this story from Fox News, about an academic paper that argues, with a straight face, that Apple is like a religion for many of the company's fans, and that Steve Jobs embodies several Jesus-like traits, including having a creation myth with humble origins (a garage, not a manger), a Satan-like enemy (Microsoft (MSFT)) and a resurrection (losing his job and then returning to help Apple succeed).

Comparisons with Apple to religions are a dime a dozen. Most are the stuff of cocktail parties and huffy blog posts. What's rare is an attempt to take a frivolous notion and treat it like a serious academic argument. To pull it off, you have to ignore a lot of basic stuff about the business world, such as the fact that many companies, if not most, have arch-rivals like Apple has Microsoft. And that nearly every company has a humble beginning. The troubles that Apple faced after Jobs left the company have as much to do with the poor choice to replace him (John Sculley, a soda salesman) as anything else.

The abstract of the paper suggests that a lot hinges on the term "Jesus phone" for the iPhone. But the paper seems to mistake that term as one used by Apple fanboys, whereas it's nearly always used by people burnt out on the Apple hype and critics of those fanboys. The authors of the paper are oblivious to the irony in the phrase, which mocks the very religious parallels that the paper claims to be examining. Many Christians also find the pharase demeaning to a being they consider their personal savior.

The co-authors, Heidi Campbell and Antonio La Pastina, are professors at the Texas A&M University's department of communications. When I was in college, communications was a major for people with little curisosity and even less ambition. Their abstract has some trouble communicating even the basic points the paper is making—I found this part to be nothing more than gobbledygook:

Intertextuality serves as a framework to unpack the deployment of religion to frame technology and meanings communicated. We also reflect on how religious language may communicate both positive and negative aspects of a technology and instigate an unintentional trajectory in popular discourse as it is employed by different audiences, both online and offline.

I read that and wondered if the paper wasn't another one of physicist Alan Sokal's pranks on poststructuralism. Alas, it wasn't. It was just another one of the academic papers that Sokal likes to make fun of.

Selling Pot Lozenges to a 20 Year Old Could Soon Be Illegal

Dan Mitchell — Thu, 29 Jul 2010 20:17:17 +0000

There is an insane bill making its way through Congress that is worthy of a 1950s health-class scare film. It takes on the mythical "candy-flavored meth" menace. Last week, a change was made to the bill that offers a bit of protection to legal medical-marijuana dispensers, but still leaves them vulnerable to prosecution.

The bill, called The Saving Kids From Dangerous Drugs Act, was written by Sens. Dianne Feinstein (D-Calif.) and Chuck Grassley (R-Iowa). It is aimed at unknown people who supposedly "target our children by peddling candy-flavored drugs," Feinstein is quoted as saying. It would double the federal sentences of drug dealers who mix their product with candy.

Because while selling methamphetamine to kids is bad and all, selling them candy-flavored methamphetamine is truly evil.

Initially, the bill targeted sale of controlled substances that are "combined with a candy product," "marketed or packaged to appear similar to a candy product," or "modified by flavoring or coloring the controlled substance with the intent to distribute, dispense, or sell the controlled substance to a person under 21 years of age." Products that meet all of those descriptions are routinely sold by medical-pot dispensaries. The language of the bill was changed from "…or sell the controlled substance to a person under 21 years of age to "…and sell…"So if a medical-marijuana dispensary sells pot lozenges to a 20-year-old cancer patient, the owner could face serious jail time.

"This change reduces but does not eliminate the threat to medical marijuana sellers, since some of the patients they supply are younger than 21 and it is unclear how intent would be proven," notes Jacob Sullum of Reason, who goes on to ridicule the intent of the bill as "absurdly disconnected from reality." "In the world imagined by Feinstein and Grassley," he continues, "kids do not use drugs because it feels good; they use drugs because it tastes good. Furthermore, they are so repelled by the very notion of using drugs that they have to be tricked into trying them by candy camouflage, after which they are irretrievably hooked and keep coming back for more."

Sullum provides several links to Reason's examination of whether candy-flavored meth is really a problem. In short, it isn't. The bill reportedly hit the Senate floor for debate today.

Twitter's New Firehose Blasted Me Away

Steve Spillman — Thu, 29 Jul 2010 20:11:44 +0000

As of now, third-party Twitter apps have to refresh every minute or so to keep all your friends’ tweets coming in. Twitter wants to change that. It’s starting a new thing called the Streaming API that essentially pushes data to apps as the data comes in. No more refreshing—everything just updates constantly, in real time.

It’s a big opportunity for Twitter, which loves to call itself an information network and stresses how their product helps you “share and discover what is happening right now.” Until this update, it’s always been more like “a few seconds ago.” The real-time information network they promise is on its way.

TweetDeck, which is still growing like crazy, is one of the first third-party Twitter apps (along with Echofon) to use this new system. TweetDeck granted my account access to try out the limited user preview (it’s only available to 5000 users so far) and let me tell you—it’s absolutely insane.

Like, insane insane. And mesmerizing. Every time someone you follow tweets, it just drops into place at the top of that stack. Immediately. As they do it. Replies, favorites, and new follows do too. I set up a search column for mentions of Kanye West (@kanyewest)—who recently joined Twitter and is so good at it—and the tweets over there come through at the rate of six or seven per second, just flying by.

Look, someone made a screencast of what it looks like. This is serious.

It’s basically the apex of what Twitter promises to be — a real time, constantly-updated record of what the world is talking about. Which leads me to its biggest problem — I haven’t really paid attention to Twitter in the day I’ve been using this thing. Usually, with Tweetie and the refresh system, I check tweets pretty consistently throughout the day; basically, whenever the icon indicates I have new tweets, I read them.

With the streaming API, though, if I switch windows to check my email and write a few paragraphs of a blog post, by the time I switch back to TweetDeck dozens of my friends’ tweets have passed by. What the service really needs is something like the little bar on Twitter’s website that tells you how many new tweets have occurred since you started reading. You know, this one:

I’d love to watch that number grow over time, but I want to make sure I don’t miss a whole lot of tweets just because they’re pouring in too fast for me to read them all. There was an hour-long span this morning where I just sat enraptured by the pure volume of Twitter, tumbling down my screen. But I don’t have time to do that forever, nor do I want to.

The streaming API will be groundbreaking as soon as it’s manageable. For now, it’s stress-inducing, and intriguing, eye candy.

Presented By:

Thu, 29 Jul 2010 20:11:44 +0000

Arnie Terminates Farm Overtime Bill

Dan Mitchell — Thu, 29 Jul 2010 18:54:36 +0000

California Gov. Arnold Schwarzenegger on Wednesday vetoed a bill that would have made the state's 700,000 farmworkers the only ones in the country to get overtime pay for working more than 40 hours a week or eight hours a day.

"The governor had a chance to make history," said state Sen. Dean Florez, the Democrat who wrote the bill. "He had a chance to wipe a 70-year-old shame off the books of California. Instead, he has decided to side with the shameful."

That "shame," though, is on the books of the whole country. Federal law exempts farmworkers from overtime pay, as Schwarzenegger noted. He also noted that forcing farms to pay overtime at that level could put some of them out of business. And he noted that some workers would get less pay because farmers would simply hire more people and cut hours for everybody.

No doubt, this is all true. The question is how true. I could find no recent, independent economic analysis of how farmers might actually react to having overtime forced on them. It's hard to believe, though, that they wouldn't react just how Schwarzenegger describes, to some degree.

But it really doesn't matter because there are better arguments against the bill—arguments that explain why such strict overtime rules aren't imposed on farmers anywhere in the country. Those arguments are made even by people like Paul Underhill, a crunchy, organic farmer who wrote an op-ed in the Sacramento Bee in December. Agriculture, he noted, "needs different rules governing overtime pay than industries where people work 40 hours a week, 50 weeks a year regardless of the weather and the season. It's not an issue of fairness or discrimination. It's a simple, practical recognition that farmers cannot control the weather or the growth of their crops. There's simply more work to be done on farms during the summer."

And very little to be done during the winter. "Farmworkers make up for their lower incomes and shorter hours in the winter by working more in the summer," Underhill wrote, underscoring what should be an elementary point.

For Florez, though, such arguments are merely a defense of "a labor practice derived from the segregationist South."

There is one provision in the vetoed bill that should have been passed years ago—allowing farmworkers to take one day off after working six days. Because we live in a civilized country, and people need to rest, even during harvest time.

Farmers Provide Migratory Motels Near Spill

Dan Mitchell — Thu, 29 Jul 2010 16:43:22 +0000

The Gulf oil gusher is benefiting some farmers in southern states. They are getting paid to provide alternative wetlands for migratory ducks and geese that can't hang out in oil-befouled, food-deprived waters on their way south.

The $20 million program is meant to make about 150,000 acres available by mid-August in the five Gulf states as well as Arkansas, Georgia, and Missouri, the Associated Press reports. One farmer of rice and crawfish in Louisiana will get $132,441 over three years to turn 762 acres into wetlands.

That's far from lucrative. The AP reports that his contract with the government will "cover his costs but provide little if any profit."

Given the relative lack of largesse, this is obviously not your typical federal farm-subsidy program. Nevertheless, the USDA program "is so popular that Texas and Louisiana exhausted their initial funding within weeks and lobbied for more," the AP says.

Google Outdeals Microsoft in Japan

Chris Thompson — Thu, 29 Jul 2010 15:56:48 +0000

Here in the United States, Microsoft (MSFT) may have gotten the better of Google (GOOG) with its Yahoo (YHOO) alliance. But it's a different story in Japan, where Yahoo has just entered into a new partnership with Google, to the clear fury of Microsoft executives.

Under the terms of the new alliance, Yahoo will use Google’s search and advertising platform technology to power its site, matching Google’s superior tech with its own, highly popular content portals. In Japan, Google hasn’t quite enjoyed the success it has elsewhere around the world, trailing Yahoo in search dominance. This new deal makes it the cock of the walk; according to the New York Times, Google and Yahoo together comprise 90.5 percent of the Japanese search market. (If you’re wondering why Yahoo would cut against Microsoft like this, the answer is that Yahoo is actually a minority owner in its own Japanese property; the biggest shareholder is the cell phone company SoftBank.)

And that has left Microsoft sputtering with rage. The software giant has put a lot of money down on creating Bing, siding with Yahoo in America, and fighting back against the overwhelming dominance of Google. The Yahoo alliance was particularly crucial, as Bing’s technology suddenly powered more than 20 percent of the American search market, which gave Microsoft at least a fighting chance to compete. Now, Google has essentially done the same thing in Japan, but this deal has left it in control of virtually the entire market.

“This agreement is even more anticompetitive than Google's deal with Yahoo in the United States and Canada that the Department of Justice found to be illegal,” Microsoft general counsel Brad Smith wrote in a statement to eWeek. “It means there will be no search competition in Japan and that Google will end up controlling all personal search information for all Japanese consumers and businesses.”

Obviously, neither Google nor Yahoo Japan feel the same way. Representatives from both companies have rushed to defend the deal, claiming that while Yahoo will use Google technology, its advertising business will remain separate, and the two firms will still compete for the one thing that really matters: ad revenue. And according to the Wall Street Journal, Japan’s lead anti-trust official, Fair Trade Commission Secretary General Takahide Matsuyama, agreed. “Based on those conditions, the partnership wouldn't immediately cause any problems related to antitrust regulations,” he announced at a press conference.

Again according to the Journal, anti-trust experts are as surprised as Microsoft that the Japanese government so blithely allowed this deal to go through; one Japanese law professor went so far as to say the government just doesn’t understand the search business. Nevertheless, it’s clear that Google outmaneuvered Microsoft in one of the most lucrative and sophisticated markets in the world. No wonder they’re pissed.

Making Bank With Android ... and My Little Pony

Chris Thompson — Thu, 29 Jul 2010 15:53:07 +0000

In a recent sit-down with the Wall Street Journal, Google (GOOG) CEO Eric Schmidt predicted that some day, his company will earn $10 billion per year on the Android smartphone operating system. “If we have a billion people using Android, you think we can’t make money from that?” he asked.

We know at least one person who’s working on making money off of Android. According to VentureBeat, someone uploaded a mobile phone app to the Android Market, where between 1 million and 4 million people used it to slap My Little Pony and Star Wars wallpaper on their devices. But the app did one other thing users didn’t expect: It steals personal information such as your SIM card number, your subscriber identification, and your voice-mail password, and sent the data to a Web site owned by someone in Shenzen, China. Not quite what Eric Schmidt had in mind, we suspect.

GM FAIL! The Chevy Volt Is Overpriced

Matthew DeBord — Thu, 29 Jul 2010 15:47:21 +0000

For months now, I've been eagerly anticipating General Motors' pricing announcement for the forthcoming Chevy Volt extended-range electric car. I can't say I was surprised when it finally came down two days ago: $41,000, much of that in the battery. But I wanted to be much, much more surprised.

The sticker was roughly in line with what people who've been paying attention to this issue expected. After tax credits (up to a max $7,500), the Volt drops to a more palatable $33,500 to buy, and GM cannily developed a leasing package that would match what Nissan is offering with its all-electric Leaf, also on pre-order and headed for showrooms later this year. However, GM needs to do better than this. That is, the New GM needs to do better than this.

The big question about the Volt, and about all electric cars hitting the pavement in 2010: The Year of the Electric Car, is whether they're meant to compete head-to-head with existing gas-burners, or whether they're more of a niche play, cool toys for early adopters. Is the Chevy Volt in the same market as, say, a Lexus ES sedan, or is it trying to make an argument for itself versus the previous Car of Virtue and the Future, the Toyota Prius?

Toyota was OK with taking a loss on the Prius, a technologically advanced automobile, when it first hit the USA 10 years ago. The whole point was to own the hybrid mindspace. You don't spend more than $1 billion to create the car of the future and then screw up the pricing so much that only a bunch of gearhead futurists buys the thing. The upshot? Many automakers build hybrids, but Toyota owns the hybrid brand.

Because GM developed the Volt as a range-extended E.V. (it has an electric motor good for 40 miles, at which point a small gas engine kicks in to generate electrical power), it probably didn't see itself going into battle against the pure E.V.s, like the Leaf. But into battle it will be going, and Nissan has been very aggressive about Leaf pricing, pushing the Leaf right into the Prius' kitchen with a California price that comes in just north of $20,000. This has shown the public that Nissan is incredibly serious about being THE mass-market electric car company.

GM didn't have to get the Volt into that pricing territory. But anything the automaker could have done to slip beneath $30,000 with the tax-credit bottom line would have made the Volt a true Prius killer. And a mindshare champion. It's so versatile that it would have gone down in history as the first real electric car. Now the much less flexible Leaf (after 100 miles, its batteries are dead, dead, dead) will get to share that space. Too bad, as the Volt shares something with the $110,000 Tesla (TSLA) Roadster, currently the only E.V. you can buy and drive on the freeway: It looks pretty cool. But it deviates from the Roadster in one major way (and not just because it can seat four): the Roadster is based on a Lotus design, and Lotuses are a U.K. product—but the Volt is all-American.

There are many angles from which to consider this. The New GM, which is still emerging from bankruptcy, wants to advertise that even its most out-there cars will have to earn their way. The people bailed us out, and we will make the people money. Or perhaps GM doesn't see enough of an EV market right now, given the price of gas, to be aggressive about grabbing market share. The Volt could always be discounted later, much as Apple (AAPL) has lowered the prices on iPhones over the years. Maybe GM hopes to use Volt profits to fund additional R&D for electric propulsion—a savvy business move, to take what amounts to R&D funding straight from the pockets of early adopters who are probably affluent enough to afford.

Regardless, I still say it's a missed opportunity. And General Motors won't get this chance back.

The Volt Jolt

Daniel Gross — Thu, 29 Jul 2010 14:56:40 +0000

General Motors has announced that the bottom-end version of the Chevy Volt, its new electric car, will cost $41,000. Even after a generous federal rebate, it's still pricey. In 2008, median household income in the United States was $50,303. And so it's bound to generate loads of skepticism. How can this electric vehicle, which has "a gas powered range-extending engine/generator," compete with gas-powered sedans that cost half as much? The Chevrolet Malibu starts at about $21,000. Why would anyone switch? How can we save the planet if U.S. companies are pitching these products only to the rich?

The skepticism is warranted. So long as gas prices stay comparatively low and cars that burn only gas are much cheaper, hybrids and electric cars will have a tough time catching on. But the skeptics ignore history. For the moment, the Malibu enjoys several advantages over the Volt: It's produced in massive quantities while the Volt is made in small batches. The Volt requires new, expensive technology. The Malibu is the beneficiary of a century's worth of experience in building gas-powered cars cheaply. The Volt is competing with a few other electric and hybrid models in a tiny sliver of the market. The Malibu has to compete in a crowded marketplace filled by aggressive companies willing to sacrifice margins for market share. But the Volt—and its purchasers—may ultimately benefit from these same processes. Business history is rich with examples of products that start as luxuries, but quickly become cheaper and more accessible than imagined. The first computer I bought, a Macintosh, cost almost $2,000 in 1990, and it came with a floppy disk drive, no modem, and a pathetically tiny screen. Now consider how much computing power and performance you can get for $500. And price reductions are seen in the price of services as well as goods. Twenty-five years ago, only a very rich person would think about purchasing a cellular phone—both the device and the per-minute cost were quite high. Today, phones and minutes are so cheap that pretty much everybody has one.

The best example of a luxury product getting cheaper very quickly has nothing to do with microchips and everything to do with engineering genius and the power of scale and competition. It is the product the Volt is trying to replace: the gas-powered vehicle.

When the automobile age dawned at the turn of the 20^th century, cars were toys, luxury products and status symbols for the rich to race and tool around in. They weren't affordable for the overwhelming majority of Americans. In 1903, most car companies were "turning out products with steep prices of $3,000 or even $4,000," writes Douglas Brinkley in Wheels for the World: Henry Ford, His Company, and a Century of Progress. In 1903, about 12,000 cars were sold in the United States The following year, Henry Ford introduced his Model B "at a startling $2,000." Now, the Bureau of Labor Statistics' inflation calculator only goes back to 1913. But $3,000 in 1913 is worth about $66,114 today. This BLS report suggests that average family income in 1901 was about $750. Any way you slice it, cars were very expensive. A luxury car cost about four times what a family earned in a year. What kind of future was there for the car as a democratic object?

A pretty good one, it turned out. The Model T debuted in 1908 at a price of $850—still expensive, but less exorbitant given rising incomes. But as Henry Ford increased volumes and continually figured out ways to produce cars more effectively, as Model T's were produced in the millions, the price plummeted. "The two-seat Model T Runabout, which had gone for $395 in 1919, cost only $260 in 1925, the least that would ever be charged for a new American car," writes Brinkley. "The car's 1925 sticker price amounted to only about one eighth of the average annual income in the United States."

Now, of course, Ford's achievement with the Model T was one for the ages. His manufacturing advances were quantum leaps. But auto manufacturers have continued to innovate, develop efficiencies, and offer drivers more for less. The story of our modern age is better performance, better equipment, and better materials for less money. A few years ago, I went to buy a bicycle for the first time in a decade and was shocked to see how far my money could go. Compare the bicycle you can buy today for $300 with one you would have paid $300 for five or 10 years ago. By the same token, a $25,000 car today comes loaded with features that would have been unimaginable five or 10 years ago.

This is not to say that electric cars will cost $10,000 in a few years. But if the industry spends a decade or two developing the infrastructure, technology, and human knowledge to produce 10 million electric cars per year rather than 10,000, and if lots of companies are willing to fail in an effort to crack the market, the price of the Volt and its successors will fall significantly in real terms, if not in nominal terms. And imagine that gas prices continue to rise and throw in the wild card of higher gas taxes. You don't have to be a fantasist to believe that the purchase and operating costs of electric-powered cars could be competitive with gas-powered ones sooner rather than later.

Give Me Your Saab Stories

Matthew DeBord — Thu, 29 Jul 2010 14:33:13 +0000

Autoblog reports that Saab, the storied Swedish automaker sold by a bankrupt GM to Dutch supercar purveyor Spyker, had a terrible 2009 but still made money, somehow:

Without Saab's extraordinary efforts to remain in business, the company would have lost $752 million in 2009. The Swedish automaker sold a mere 38,756 vehicles during the tumultuous year, generating revenue of just $820 million.

Saab made about $500 million, due to various accounting moves, but more to the point—38,756 people bought Saabs?!

It's no secret that Shifting Gears could be called on some days Shifting Saabs. I love Saabs and have been joyfully piloting one for years. But I want to hear more from the 38,756 brave souls who took the plunge on a new Saab in 2009. What made you do it? Are you happy? What do you see in the future? Please enter your thoughts in the comments and I'll recap in a follow-up post. The best comment will receive a one-of-a-kind Shifting Saabs T-shirt, hand-lettered and logoed by your humble blogger.

Auto Media: Jonny Lieberman Makes the Move to Motor Trend

Matthew DeBord — Thu, 29 Jul 2010 14:05:18 +0000

The last time I wrote about Jonny Lieberman, it was summer 2009, Shifting Gears was young, and he was headed for Autoblog. Coincidentally or not, Michael Schumacher was also making a return to Forumla 1. Momentous events! Now, more Lieberman news: After laboring in the bloggy vineyards for quite a while, Jonny has been snapped up by Motor Trend, where editor Angus MacKenzie is a fan of his work. And why wouldn't he be?

Lieberman is one of the best car writers out there. He's also one of the best writer writers out there, a reminder that automotive journalism has been, for decades, an incubator of prose stylists. Blogging isn't always about craftsmanship, but he brought that to the game big time, as I learned when I worked with him (all too briefly) at Jalopnik. He isn't afraid to take chances, to push the envelope, but he also knows his automobiles and is passionate about why global car culture is extremely important. I would say this even sort of signals something from Motor Trend, which doesn't have quite the reputation for being a writer's book as Car & Driver or Automobile.

So bravo, Motor Trend, and congratulations, Lieberman. Now let the madness begin!

Is the Facebook Leak a Big Deal?

Caitlin McDevitt — Thu, 29 Jul 2010 12:31:00 +0000

Yesterday, many news sites started screeching about a huge leak of Facebook profile data, only to be shushed by the tech blogosphere and Facebook. Here’s what happened: A security researcher named Ron Bowes crawled Facebook’s open directory, scooping out data that more than 100 million users had not secured using available privacy settings. He pulled all of that data—which included names and profile IDs—into his own database.

Privacy watchdog Simon Davies told BBC News that "Facebook should have anticipated this attack and put measures in place to prevent it.” Meanwhile, Gizmodo’s Adam Frucci told everyone to calm down. “Don't freak out: all the data was already available publicly,” he wrote. In accordance, TechCrunch downplayed the incident, noting that all Bowes really did was to prove that “Facebook’s public data is public.”

Facebook swiftly defended itself, making the same point—that all of the data Bowes found was already publicly available in the Facebook directory. And Facebook doesn’t force users to appear in the directory. In fact, it offers clear instructions on how to make yourself disappear from the directory by tweaking your search privacy settings. In a statement, Facebook said:

In this case, information that people have agreed to make public was collected by a single researcher. This information already exists in Google, Bing, other search engines, as well as on Facebook. No private data is available or has been compromised. Similar to the white pages of the phone book, this is the information available to enable people to find each other, which is the reason people join Facebook.

So while the whole “leak” may be a bit overblown, it presents a new kind of privacy problem for Facebook. Typically, when Facebook runs into a privacy dilemma—which it does all the time—it tells users that fixing their privacy settings will fix the problem. But, in this case, the damage is already done. Turning up privacy settings on Facebook won’t make the data that Bowes has already collected go away. So, this time, instead of giving users the same old "this is how you protect yourself" speech, Facebook could only wag its finger and tell users what they should have done to protect themselves. Bowes realized this while working on the project. He wrote:

But as I thought more about it, and talked to other people, I realized that this is a scary privacy issue. I can find the name of pretty much every person on Facebook. Facebook helpfully informs you that "[a]nyone can opt out of appearing here by changing their Search privacy settings" -- but that doesn't help much anymore considering I already have them all (and you will too, when you download the torrent). Suckers!

Banks Are Convincing Customers To Opt In to Overdraft Fees

Laura Mortkowitz — Thu, 29 Jul 2010 10:31:19 +0000

Banks are relying on outside companies to pinpoint the customers who are most likely to overdraw from accounts, reports the Wall Street Journal. The Federal Reserve’s new overdraft rules state that customers have to “sign up for a bank's overdraft program before the bank can charge the customer for overdrawing the account.” Under the new rules, then banks will have to reject overdrawn charges for customers instead of just charging a fee. Banks made more than $37 billion from overdraft fees last year, so they are now scrambling to convince customers to sign up. With the help of technology and marketing companies, banks are trying to pinpoint those “most likely to incur the hefty fees” before the rules take effect on Aug. 15. Those frequent overdraft users are very important to banks because fewer than one-quarter of bank customers generate 75 percent of overdraft fees.

The state of California’s finances are now bad enough that Gov. Arnold Schwarzenegger declared a state of emergency. According to Reuters, the state’s budget is a month overdue, and it’s facing a $19 billion shortfall. Last year, Schwarzenegger signed a $85 billion general fund budget, but California’s revenue has dropped off so steeply that the deficit is almost a quarter of the budget. The governor has been scrounging up money where he can, like his newest order that all state employees take off three days without pay every month. While California isn’t the only big state overdue with its budget—New York is as well—a further delay “threatens to lower the state's already weak credit rating,” which is barely above junk.

The new Consumer Financial Protection Bureau doesn’t have a director just yet, but Elizabeth Warren might be a little closer to snagging the position after some compliments from two Republicans, reports the Washington Post. The Harvard law professor is chair of the Congressional Oversight Panel, and two Republicans on the panel wrote a statement about how professional she is to work with. While the two men were concerned criticisms of her “might hinder her chances as a candidate to direct the new consumer bureau,” they were also quick to point out they were not endorsing her and that they do oppose the creation of the regulator.

In case anyone had doubts, the Fed’s beige book confirmed that the recovery began slowing down in June, reports the Wall Street Journal. Some parts of the country are seeing improved job market conditions, while the housing market remained weak all around and all 12 districts reported increased tourism. Unsurprisingly, the district that covers most of the Gulf states “noted concerns about lower leisure travel to the Gulf Coast.” The beige book will be used “at the U.S. central bank's next policy-setting meeting Aug. 10.”

Reception troubles made a lot of customers unhappy with Apple (AAPL), but the company tried to smooth it over by giving out free cases to help with the troubles. Now the companies that make cases for the iPhone are unhappy, according to the Los Angeles Times. By giving away cases, there will be less of a demand for those made by third-party suppliers. While the giveaway may cost Apple $175 million, it will also be costly for other companies unless they successfully make and market “more fully featured cases to differentiate their products from Apple's Bumpers.”

Finally, Novartis (NVS) knows how to take unhappy customers and turn them to the drug company’s advantage, reports the New York Times. When competitor Johnson & Johnson (JNJ) had to recall “an estimated 136 million bottles of liquid children’s Tylenol,” Novartis devised a campaign to “woo” customers. From Aug. 2 to Aug. 8, the company “plans to give away up to 250,000 bottles of its new liquid children’s medicine, Triaminic Fever Reducer Pain Reliever,” through rebates. This marketing program, which is taking advantage of the void in the market from Johnson & Johnson’s recall, is expected to cost Novartis roughly $1.5 million.

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Thu, 29 Jul 2010 10:31:19 +0000