These earlier posts discuss the high cost of the government’s prohibition of internet gambling, but this Sallie James/TCS Daily op-ed reports that those costs are about ready to go up another level entirely:

On March 30, a World Trade Organization tribunal handed down a potentially significant finding against U.S. restrictions on internet gambling.
The panel was set up at the request of Antigua and Barbuda, who complained that the United States had not complied with the WTO’s earlier decision that it must change the way it regulates gambling over the internet. The previous ruling, in April 2005, found that while the United States was within its rights to restrict the import of goods and services on “public morals” grounds, as it had argued in its defense, those rules must be applied in a non-discriminatory manner. If the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.
And therein lies the rub: the United States allows interstate online betting on horseracing. The United States had also agreed during the Uruguay Round to open its markets to foreign suppliers of gambling and betting services, although the United States Trade Representative (through a spokesman) claimed in 2004 that the previous administration “clearly intended to exclude gambling from U.S. service commitments” when they signed the deal. Both of those inconsistencies lost it the original case.
The United States Congress passed the Unlawful Internet Gambling Enforcement Act in October 2006, ostensibly to bring its laws into conformity with the April 2005 ruling. But the compliance panel ruled that the United States has taken no satisfactory remedial action that would bring its laws into conformity with its previously-established obligations. Moreover, it appears that the United States applies its laws in a discriminatory manner, by prosecuting foreign gambling entities more than it does U.S. gaming firms. Game, set and match: Antigua and Barbuda.

Frankly, the WTO decision sounds about right to me.

I’m a bit tardy in catching up on Sam Zell’s deal for the Chicago Tribune, which Clear Thinkers favorites the WSJ’s Holman Jenkins ($) and Larry Ribstein have already analyzed with their usual sharp insight. As Jenkins and Professor Ribstein both note, the deal is potentially quite sweet for Zell and, of course, the sale of the Cubs will be a reasonably lucrative sideshow. However, the structure of the deal is that the Tribune employees will be the main owners of newspaper while Zell will control it. So, it’s pretty important to the employee-owners that Zell knows what he is doing in the quickly-changing media business. Based on Zell’s comments in this Washington Post article, my sense is that Tribune employees have much to be worried about:

It’s time for newspapers to stop giving away their stories to popular search engines such as Google, according to Samuel Zell, the real estate magnate whose bid for Tribune Co. was accepted this week.
In conversations before and after a speech Zell delivered Thursday night at Stanford Law School in Palo Alto, Calif., the billionaire said newspapers could not economically sustain the practice of allowing their articles, photos and other content to be used free by other Internet news aggregators.
“If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?” Zell said during the question period after his speech. “Not very.”
Newspapers have allowed Google to use their articles in exchange for a small cut of advertising revenue, but search engines also help to distribute their content to wider online audiences.

My goodness, what on earth is this all about? First, I don’t know much about Google News’ business model, but I’m pretty sure that it does not involve giving newspapers a cut of ad revenue. The reason I know this? Because I use Google News frequently and I haven’t noticed any advertising. Likewise, Google doesn’t steal media content. Rather, it simply indexes the content. Does Zell not understand the difference?
Zell is a smart guy with a track record of success in his ventures. But Zell’s comments indicate that he does not yet appreciate how people find information on the Internet, which is a pretty darn important thing to understand if you are going to run a company that produces a tiny bit of that sea of information. If Zell wants to make money with the Tribune online, then my sense is that he better make friends with Google, not threaten it.

I have avoided the entire Don Imus flap until now, probably because I abhor the type of “entertainment” that Imus provides. Nevertheless, CBS’s decision to fire Imus surprised me, particularly given that Imus’ brusque behavior hasnít prevented from being invited to speak at the National Association of Broadcastersí dinner or from having a line of politicians, media types and other seemingly important people ready and willing to appear on his show. Is anyone really surprised that he insulted the Rutgers women’s basketball team? The hypocrisy of some of Imus’ former supporters who called for his scalp is worse than Imus’ insult.
My sense is that CBS must have had a valid business reason to do this apart from punishing Imus for the insult. Otherwise, the decision would appear to be an overreaction. Given the nature of Imus’ program and his past behavior that CBS willingly indulged, I can’t imagine that CBS had grounds to fire Imus for cause, so CBS is presumably on the hook for the balance of Imus’ contract. And if Imus wants to work and compete with CBS, it’s not as if he is going to have to look hard for a new job. Satellite radio would appear to be ready made for him.
By the way, Jason Whitlock, a bright sports columnist for the Kansas City Star who happens to be a black man, has some interesting thoughts on the Imus affair, as does Radley Balko.

Remember awhile back when Barney Frank was actually making some sense in regard to a business matter?
Well, as that post noted, that didn’t last long. Rep. Frank is now advocating that investors in mortgage-backed securities should be liable for the underlying subprime loans that those securities facilitated because the investors violated the “loaned too much money” rule:

“More money was being lent than should have been lent,” Frank said in an interview from Washington. Frank, who last month predicted that the House would approve such a bill this year, said growth in the market for mortgage bonds “provided liquidity without responsibility.” [. . . ]
Lenders this decade have increasingly relied on mortgage-backed securities to fund new loans rather than tap capital from federally insured bank deposits. Frank called the process flawed, saying that as a subprime financing mechanism, banks’ exposure to the risk of default is excessively diluted.
By dispersing risk, the bonds fueled reckless and unscrupulous lending and compromised underwriting standards, he said. “There should be a decrease” in the money available for subprime mortgages, he said.

H’mm, the markets have already caused a dramatic decrease in the money available for subprime mortgages (without new legislation, mind you). Underwriting standards have tightened and the lenders with poor controls are already being washed out of the market. Investors who could affort to do so poured too much money into the subprime mortgage market, those investors got burned, and now the market has adjusted. But after too much money was poured into that market, just how little money does Rep. Frank want to have available in the future for people who cannot qualify for a conventional mortgage?
Rep. Frank’s proposal to penalize bondholders reflects that he doesn’t understand what has happened or simply doesn’t care because of political considerations. The growth of mortgage-backed securities has made the U.S. mortgage market the most efficient and productive mortgage market in the world. Rep. Frank wants to harm that market. Go figure.

Whether to buy or rent is not always an easy decision, so I’ve been meaning to pass along this nifty NY Times calculator that provides you with a quick and easy calculation whether competing buy or rent offers make sense. This related David Leonhardt article that addresses a number of the issues, including the following observation:

Clearly, there are benefits to owning a house beyond the financial, like the comfort of knowing you can stay as long as you want or can fix the roof without permission. But real estate has been sold as more than a good way to spend money. It has been sold as a canít-miss investment. Back in 2005, near the peak of the market, the chief economist of the Realtorsí association, David Lereah, published a book called ìAre You Missing the Real Estate Boom?î The canít-miss argument was wrong then, and it may still be wrong today.

Check it out. Felix Salmon provides further analysis.

Jeff Matthews ran this insightful post recently summing up the business competition between Google and Microsoft:

Now, the last quarter I saw, Microsoft had 71,000 employees, whose efforts generated about $3.5 billion in operating income.
Meanwhile, Googleís ìrandomî collection of not quite 11,000 employees generated $1 billion in operating income in the same quarter.
Sharp-eyed readers will have already done the math, which is this: Microsoft generated only slightly more than three times the profit of Google despite having almost seven times as many employees as Googleís random collection of hipster do-good engineers.
That lack of productivity does not speak well of Ballmerís aging time-card-punchers who, you might recall, now require dinners-to-go from Wolfgang Puck to keep them from seeking greener pastures than Redmond. (See ìMicrosoft Brings BackÖThe Comfy Chairî from May 31, 2006.)
Yet Ballmer retains complete confidence in his demonstrably less productive crew’s ability to turn back the encroaching tideóor at least he expresses such confidenceódespite all evidence to the contrary . . .

Read the entire post. So, which horse are you betting on?

Felix Salmon, who authors a very good blog about finance and economics, makes the following observation about the dramatic increase in the amount of leveraged loans held by hedge funds:

[J]unk bonds are rapidly becoming a thing of the past. Today, it’s all about junk loans ñ illiquid instruments which hedge-funds hedge in the equally opaque and non-public CDS (credit default swaps) market. The good news, insofar as there is any, is that if and when a lot of these loans go sour, the impact on the banking system will be much lower than the volume of loans would imply. But the bad news is that ever-larger chunks of corporate balance sheets are now completely unregulated.

I’m not sure I follow the reasoning of Salmon’s final sentence. Privately-owned hedge funds, whose investors are wealthy folks, own a large amount of leveraged loans. That ownership has reduced the risk of loss of lending institutions, which generally do not have the profit margins to take on that sort of risk. Thus, the financing market has developed to shift the risk of these loans to those who can best afford to take the risk, which is a good thing. That large portions of corporate balance sheets are unregulated is one of the reasons that such a market developed in the first place.