Message on Short Sales

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The SEC using its powers under 12(k)(2) of the Exchange Act has prohibited any person from effecting any short sale, as defined by Rule 200 of Regulation SHO, in the publicly traded securities of the financial institutions specified in the Order ("Included Financial Firm"). The Included Financial Firms are a significantly larger group than those included in the initial July 15, 2008 Emergency Order found at Exchange Act Release 58166 and subsequently amended and extended by subsequent Orders. (See Exchange Act Releases 58190 and 58572).

There are limited exceptions from the prohibition provided for bona fide market makers and block positioners in the securities as well as short sales that occur as a result of automatic exercise or assignment of an equity option held prior to the effectiveness of the Order due to expiration of the option. Option Market Makers are exempted from the prohibition completely until 11:59 PM September 19, 2008 in order to accommodate the expirations of options on September 20, 2008.

The Order is effective as of 12:01 EDT September 19, 2008 and extends to October 2, 2008 unless extended by the Commission. A copy of the Order with the list of Included Financial Firms is attached.

Don’t Buy That Textbook, Download It Free

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September 15, 2008
By NOAM COHEN
SQUINT hard, and textbook publishers can look a lot like drug makers. They both make money from doing obvious good — healing, educating — and they both have customers who may be willing to sacrifice their last pennies to buy what these companies are selling.

It is that fact that can suddenly turn the good guys into bad guys, especially when the prices they charge are compared with generic drugs or ordinary books. A final similarity, in the words of R. Preston McAfee, an economics professor at Cal Tech, is that both textbook publishers and drug makers benefit from the problem of “moral hazards” — that is, the doctor who prescribes medication and the professor who requires a textbook don’t have to bear the cost and thus usually don’t think twice about it.

“The person who pays for the book, the parent or the student, doesn’t choose it,” he said. “There is this sort of creep. It’s always O.K. to add $5.”

In protest of what he says are textbooks’ intolerably high prices — and the dumbing down of their content to appeal to the widest possible market — Professor McAfee has put his introductory economics textbook online free. He says he most likely could have earned a $100,000 advance on the book had he gone the traditional publishing route, and it would have had a list price approaching $200.

“This market is not working very well — except for the shareholders in the textbook publishers,” he said. “We have lots of knowledge, but we are not getting it out.”

•

While still on the periphery of the academic world, his volume, “Introduction to Economic Analysis,” is being used at some colleges, including Harvard and Claremont-McKenna, a private liberal arts college in Claremont, Calif..

And that, in a nutshell, is a big difference between textbook publishers and the drug makers. Sure, there have been scientists with Professor McAfee’s attitude — Jonas Salk was asked who owned the patent to the polio vaccine and scoffed: “Could you patent the sun?”

For the textbook makers, however, it is a different story. Professor McAfee allows anyone to download a Word file or PDF of his book, while also taking advantage of the growing marketplace for print on demand.

In true economist fashion, he has allowed two companies, Lulu and Flat World Knowledge, to sell print versions of his textbook, with Lulu charging $11 and Flat World anywhere from $19.95 to $59.95. As he said on his Web site, he is keeping the multiple options to “further constrain their ability to engage in monopoly pricing.”

A broader effort to publish free textbooks is called Connexions, which was the brainchild of Richard G. Baraniuk, an engineering professor at Rice University, which has received $6 million from the William and Flora Hewlett Foundation. In addition to being a repository for textbooks covering a wide range of subjects and educational levels, its ethic is taken from the digital music world, he said — rip, burn and mash.

Unlike other projects that share course materials, notably OpenCourseWare at M.I.T., Connexions uses broader Creative Commons license allowing students and teachers to rewrite and edit material as long as the originator is credited. Teachers put up material, called “modules,” and then mix and match their work with others’ to create a collection of material for students. “We are changing textbook publishing from a pipeline to an ecosystem,” he said.

Like Professor McAfee, Professor Baraniuk says he decided to share his material while writing a textbook.

“If I had finished my own book, I would have finished a couple years ago,” he said. “It would have taken five years. It would have spent five years in print and sold 2,000 copies.” Instead, he said, he posted it on the Web site and there have been 2.8 million page views of his textbook, “Signals and Systems,” including a translation into Spanish.

Connexions is strongest in statistics and electrical engineering — areas with technologically advanced students and a greater need to update material than, say, works on medieval history. He said there were 850,000 unique users a month, with more than 50 percent of the traffic originating from outside the United States.

“It’s anyone’s guess as to when we will break through,” he said.

One of the most popular Connexions contributors is Sunil Kumar Singh, a production engineer from New Delhi who works for the Oil and Natural Gas Corporation of India. He explains physics for precollege students, using the feedback from readers who e-mail from all over the world.

“It is a two-way process,” he wrote in an e-mail message. “I, for one, have experienced difficulty during my formal study years with the best of textbooks around.” He said the new system “gives me opportunity to respond to the editing needs all the time.”

•

While these open-source projects slowly grow, the textbook publishers have entered the online publishing field with CourseSmart, a service owned by five publishers. In service for only a year, CourseSmart allows students to subscribe to a textbook and read it online, with the option of highlighting and printing out portions of it at a time.

The price is generally half of what a print book costs, a sum that can still appear staggering — an introductory economics textbook costs around $90 online. (This semester, a student has the option of downloading a book as well — but it is an either-or choice: read online or download to a computer.)

Frank Lyman, executive vice president at CourseSmart, said that the company was created in response to changing times. “There wasn’t a lot of content and it was in a bunch of formats,” he said of past efforts by publishers. “There never was any momentum.”

There are 4,000 textbooks currently available — about a third of the market — but the goal is to cover “50 percent of the backpack.” Without being specific, he said that tens of thousands of textbooks have been read online and that 1,240 separate institutions have a student who has made at least one e-textbook purchase.

While conceding that open-source textbooks would take hold in a few subject areas, Mr. Lyman stressed that the current system would still prevail and that collaborative works online would have a hard time winning an audience.

“Of all the things that are changing, one thing is consistent — the authorship model,” he said.

“What doesn’t worry me is that leading experts will say I will write my own damn book and people will read it.”

Infallible News Media

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Worth Considering

From the Pocket MBA at PLI

Term of the Week: Option ARM

Mortgage that permits the borrower to choose from among several types of repayment arrangements.
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Option ARM In The Real World:

Just when you thought it was safe to go back in the water. That was the tagline from advertisements for the sequel to the movie Jaws in the way-back time. But it could just as easily apply to the current credit/mortgage situation/crisis. Every time someone gets on television to say that the housing market has bottomed, the eerie Jaws theme music seems to start playing in Pocket MBA's ear. Da Dum...Da Dum...Dum-Dum, Dum-Dum, Dum-Dum...Aaaaarghhhhhhhh, my arm! And the shark bites again. The newsletter has previously covered subprime mortgages (Jaws) and Alt-A (Jaws 2); we seem to have weathered the threat of the first, and the second may not be as bad as originally thought, although who knows? And now comes Jaws 3-D, the ticking bomb that some say is represented by the resets in option ARM rates scheduled for next spring. Some finance people believe that to the extent the economy has avoided full-on recession this year, the option ARM problem could sink it next. That's because option ARMs represent a larger percentage of mortgages than subprime and Alt-A, and the homebuyers that took out option ARMs tended to be solid denizens of the middle class, including people who refinanced out of standard 30-year fixed mortgages. If they start to go bust, well you do the math. Da Dum...

So what is an option ARM, and how can it be the straw that breaks the camel's back, or the dangling leg (arm?) that tempts the Great White? You can Google the subject and get in-depth explanations with calculations and all that, but, simply put, an option ARM is an adjustable rate mortgage that gives the borrower up to four choices as to how much he will pay each month--that is, it gives payment options. Each of those options impacts the amount which the borrower will repay every month.

The most straightforward options are that a borrower can choose to pay the mortgage as if it were a standard 15- or 30-year mortgage. Pocket MBA imagines those who have chosen either of these two routes are probably doing just fine. After all, those are the options standard borrowers decide between when taking out a mortgage. It's the remaining two options that are problematic, although they didn't start out that way. So first, a little history.

Options ARMS are a creature of the 1980s, and as implied above, they were originally marketed to relatively high-end borrowers, many of whom had incomes that were stacked toward the end of the year, either via bonuses or self-employment arrangements. The options that attracted these borrowers were the ability to pay less than a standard fixed mortgage in certain months of the year, and then at the end of the year, when the borrowers had more income, they would make, in essence, a balloon payment to make up the difference and get back on the track they would be on with a standard mortgage. As option ARMs began being offered to those with less income, or standard earners (15th and 30th of the month, etc.), the option part of the payback started to become problematic. Dum-Dum.

The first of the non-standard options in an option ARM is to pay the mortgage as if it were an interest-only loan. Thus the borrower pays only the monthly interest on the loan (which can be fixed, but is often adjustable on a monthly basis), and the principal on the loan remains steady for whatever term the interest-only part of the loan occupies. At the end of that period, the borrower has to play catch-up. Again, this can work for a higher-end borrower who can invest the amount saved on the monthly payments and make up more than what he would have paid on the mortgage. Of course, if your investments don't work out, you're left holding the bag of a mortgage that must be paid off by the end of the mortgage term, and now you have interest and principal to pay in that amount of time. Da-Dum. Dum-Dum, Dum-Dum, Dum-Dum, Dum-Dum...

The second of the non-standard options for option ARM borrowers is the "minimum payment" or negative amortization option. This is the real killer, and again, it made sense for borrowers who had a certain threshold financial wherewithal. Under this option, the borrower pays an amount "X," that is predetermined and is less than even the accruing interest. An amount equal to the difference between X and the monthly interest owed on the loan gets tacked on to the principal balance. Thus, with the minimum payment option, the borrower owes more every month, and owns nothing, that is, his equity doesn't grow. This goes on for a year, at which point the interest rate is usually readjusted upward, but usually the monthly minimum is still relatively low. But, after a certain number of years (five or ten) or when the balance grows to a certain percentage above the original balance (say 115% or 120%), the loan gets "recast," so that it is fully amortizing. Then, no matter how much a person owes on a monthly basis to make up the negative amortization during the remainder of the loan term, that amount becomes the monthly payment, and the sky is the limit. For a slew of option ARMS on which borrowers have been paying the minimum option (and there are reports that the number of these is as high as 80% of all option ARMs), that date of reckoning is sometime next year. Dum-Dum, Dum-Dum, Dum-Dum, Dum-Dum...

So how did a loan that was meant for relatively well-off earners end up being marketed to everyday borrowers? Of course, it's the story of the credit/mortgage crisis writ large: falling interest rates create housing boom; more and more people enter the market; housing prices soar, thereby excluding the same people from the market unless banks come up with creative ways to enable affordability. Bing bang boom, you end up with a mismatch between lending product and borrower, and a potential foreclosure problem.

The funny thing is these minimum payment arrangements haven't hurt the lenders, at least until now. First, under GAAP, the banks are allowed to record as revenue the amount that would have been paid had the borrower chosen to pay at the fully amortized 30-year option. Thus the banks' bottom line looks great...at least until the borrower defaults. Then all those revenues have to be discounted. Also, as with subprime, many of these loans have been sold to investors via the securitizations that were the subject of this newsletter earlier in the year. The question is whether that will start a new round of financial institution stress. Tune in next spring to find out. Until then, it's definitely not safe to go back into the water.

Watch out below!

Famous Last Words

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"The judge can drop dead in his black robes," Quill shouted just before he was taken away. "We will not call off the strike. We'll defy the injunction and go to jail. I don't care if I rot in jail."

Two hours after his arrest, Quill collapsed in prison and was taken to Bellvue Hospital.

"Michael Quill, Transit Union Chief, Is Dead." St. Petersburg Times, v. 82, n. 189, January 29, 1966. 1-2.

Five Years, 30,000 Lawsuits, and Counting

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A moment of MP3 silence, please, as we observe the fifth anniversary of the Recording Industry Association of America's massive litigation campaign against peer-to-peer sharing of copyrighted songs. It was five years ago today that the RIAA filed its first round of lawsuits against 261 defendants, observes David Kravets of Wired's Threat Level blog. Today, the number of lawsuits has soared to 30,000 and shows no sign of abating. "We're just barely scratching the surface of the legal issues," Ray Beckerman, the New York lawyer who defends -- and blogs about -- RIAA cases, tells Kravets. "They're extorting people -- and for what purpose?"

Because many of the people the RIAA sues cannot afford to hire a lawyer and defend themselves, many of the cases settle for a few thousand dollars. So common are these settlements that the RIAA has set up a Web site to accept and process settlement payments, much in the same way one would pay a phone or credit card bill. But Kravets' post raises the question of whether the RIAA's campaign has accomplished anything or "shaped up as an utter failure." The RIAA's only jury-trial win, the case against Minnesota mother Jammie Thomas, is expected to be declared a mistrial any day now due to the judge's second thoughts on whether copyright law requires proof of an actual transfer of files, as opposed to simply making them available. In two other cases, the RIAA has lost on the "making available" issue, although it won damages in one of those cases due to the defendant's tampering with his hard drive.

Litigation outcomes aside, the RIAA says the campaign has been successful as a public relations effort, having spawned a "general sense of awareness" that file sharing of copyright music is illegal. But critics condemn the RIAA for both the way it litigates these cases and the way it investigates them. Washington state lawyer Lory Lybeck is leading a prospective class action against RIAA over its "sham" litigation tactics. She tells Kravets that RIAA is setting the price of settlement at a point where defendants can't afford to fight. And Electronic Frontier Foundation staff attorney Fred von Lohmann questions whether the campaign has led to any reduction in file sharing. "If the goal is to reduce file sharing," he said, "it's a failure." Failure or not, the RIAA litigation has yet to download its swan song.

Exercise

See if this link works for JAMA video
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STUDY FINDS PHYSICAL ACTIVITY MAY HELP IMPROVE COGNITIVE FUNCTION

INTRO:
With so many people living longer these days, it is estimated that the number of older adults living with Alzheimer’s disease worldwide will increase from about twenty-six million today to about one hundred and six million by the year 2050. Researchers are looking for ways to help delay the onset of dementia. A new study finds increasing physical activity may make a difference. Jennifer Mitchell explains in this week's JAMA Report.

Ms Dewey is Pretty Cool

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Fewer or Less

Tesco to ditch 'ten items or less' sign after good grammar campaign
By Tom Peterkin
Last Updated: 12:01am BST 01/09/2008

From now on, signs in new stores are to say "up to 10 items" after a long running argument with those who have objected to the use of the word "less" in that context.

Many have argued that the signs ought to read "ten items or fewer" instead of "ten items or less".

Their argument is that the word 'fewer' should be used when it refers to quantities that can be counted.

'Less', they say, should refer to quantities that cannot be counted. The new form of words comes from a suggestion by the Plain English Campaign.

"There is a debate about whether the word should be 'less' or 'fewer'," a campaign spokesman said.

"Saying 'up to ten items' is easy to understand and avoids any debate."

Guidance from Oxford University Press says: "Less means 'not as much'. Fewer means 'not as many'. This can be tricky when referring to quantities. For example, we say less than six weeks, not fewer than six weeks, because we are not referring to six individual weeks, but to a single period of time lasting six weeks."

Hopes that changing the wording would provide a satisfactory solution to the knotty problem appear premature with some critics claiming that the new signs are themselves ambiguous.

Some would argue that "up to ten items" could mean "ten items and no more" or "nine items or fewer".

A Tesco spokesman said: "The debate about what is right has been going on for years now, and I still don't think we know if 'less' or 'fewer' is correct.

"The new signs will be in the rolling out of new stores. We are not going to see any new ones in existing shops so shoppers in those will not see the change."

West Headnote of the Day

110k406(6) k. Admissions as to Commission of or Participation in Commission of Crime.

Defendant's statement to codefendant that "this was stupidest robbery they'd ever done" was admissible in robbery prosecution as admission of guilt.
People v. Oquendo, 232 A.D.2d 881 (1996)