Reports From My Nanocosm

Or the more boring title for a paper I wrote for a mass communications class during the fall semester: Water Law Principles Applied to Spectrum Opportunities for Wireless Rural Broadband (PDF — 37 pages).

My paper recommends that the FCC utilize principles from water law to open up radio spectrum to encourage mobile/wireless broadband in rural areas.

From the introduction:

The Federal Communications Commission (FCC) issued an order in November 2008 to free up  unused radio spectrum in the television frequency band for unlicensed use by low power devices [White Spaces Order]. A  goal of the order is to help lower the costs of entry to potential wireless broadband providers by making more spectrum available for free to businesses and consumers.

One shortcoming in relation to rural users is the order’s failure to address backhaul between a rural  community and backbone networks. Frequencies in the television spectrum that are the focus of the  White Spaces Order do not lend themselves well to point to point communication necessary for longer  distance backhaul from a community to a backbone connection point. Without access to spectrum for  backhaul, rural communities will be forced to rely on other alternatives such as more expensive fibercables. As such, the Commission will need to provide spectrum that is better suited for backhaul required for viable and economic high speed Internet services in rural communities. To that end, I suggest that the Commission apply three modified principles of water law that: 1) require spectrum use  be beneficial and reasonable; 2) require the licensee to actually use the spectrum and not hold a license  for speculative purposes; and 3) provide for equivalent replacement of a communications signal.

Applying these principles will free up unused and underutilized spectrum for more productive purposes including point to point backhaul connections.

Continue reading: Water Law Principles Applied to Spectrum Opportunities for Wireless Rural Broadband (PDF — 37 pages).

I think the Catholic bishops are wrong to complain about Notre Dame University inviting President Obama to speak at its commencement ceremonies and honoring him for his achievements. Unlike a church, a university is intended to be an open environment that is tolerant of many different viewpoints. Notre Dame and the dozens of other Catholic universities in the U.S. have built well earned reputations as just such open environments.

Refusing to invite a diverse set of speakers based on a singular issue is clueless, as one bishop characterized Notre Dame’s decision. Do the bishops intend to expel all faculty, students, and staff who disagree with their position on abortion? Will they insist Notre Dame hold back degrees of students who voted for Obama, have had an abortion, supported a friend who had an abortion, or are supportive of a woman’s right to choose? Until they are ready to do either or both, then the bishops should let Catholic universities remain open academic environments, confer honorary degrees based on objective standards, and invite any speakers chosen by the school. God forbid the bishops should take any affirmative steps toward either action because we might just see an outright revolt by university trustees in addition to students choosing other universities. I, for one, would then not qualify to earn a law degree from Santa Clara Law School as I hold similar views to Mr. Obama with regard to a woman’s right to choose and stem cell research.

Need I even go so far as to point out that the bishops are not speaking from a very good spiritual position and the church is already struggling for relevance. This is, after all, the same set of bishops who played active roles in the still-fresh sexual abuse scandals.

AP, Y! News: Notre Dame’s Obama invite riles Catholic bishops.

This coming week, Bishop Thomas Wenski of the Roman Catholic Diocese of Orlando, Fla., will take the unusual step of celebrating a Mass of Reparation, to make amends for sins against God.

The motivation: to provide an outlet for Catholics upset with what Wenski calls the University of Notre Dame’s “clueless” decision to invite President Barack Obama to speak at its commencement and receive an honorary doctorate May 17.

The nation’s flagship Catholic university’s honoring of a politician whose abortion rights record clashes with a fundamental church teaching has triggered a reaction among the nation’s Catholic bishops that is remarkable in scope and tone, church observers say.

At least 55 bishops have publicly denounced or questioned Notre Dame in recent weeks, employing an arsenal of terms ranging from “travesty” and “debacle” to “extreme embarrassment.”

The bishops’ response is part of a decades-long march to make abortion the paramount issue for their activism, a marker of the kind of bishops Rome has sent to the U.S. and the latest front in a struggle over Catholic identity that has exposed rifts between hierarchy and flock.

Bishops who have spoken out so far account for 20 percent of the roughly 265 active U.S. bishops â?? a minority, but more than double the number who suggested five years ago that then-Democratic presidential hopeful and Catholic John Kerry should either be refused Communion or refrain from it because of his abortion stance.

My Administrative Law take-home midterm asked that I step into the shoes of a Supreme Court clerk and draft an opinion for FCC v. Fox, the fleeting expletives case. Naturally, because it is for Admin Law, it does not address the First Amendment issues that I think the Court should address. I liked the assignment since it made me think long and hard about the legal issues involved.

I. Draft decision upholding Fox, 489 F.3d 444 (2nd Cir. 2008), with regard to A.P.A. issues.

A. Statutory Interpretation

We find that the FCC impermissibly changed its interpretation of the term ‘indecent’ as used in the governing statute, 18 U.S.C. § 1464, which bars indecent content from broadcast radio and television.

In the order at issue, the FCC changed not only its policy toward indecent content but its interpretation of the term ‘indecent’ provided in the statute, 18 U.S.C. § 1464. As such, the Chevron v. Natural Res. Defense Council, Inc., 467 U.S. 837 (1984) framework governs our review of the Commission’s construction. Congress has delegated to the Commission the authority to â??execute and enforceâ? the Communications Act, 47 U.S.C. § 151, which provides the FCC with power to regulate indecent content on broadcast radio and television. The Commission has the power to deliver administrative sanctions, such as sending cease and desist orders or revoking licenses, 47 U.S.C. § 312, and also to assess criminal forfeiture penalties, 47 U.S.C. §503(b)(1)(D).

Chevron established a familiar two-step procedure for evaluating whether an agency’s interpretation of a statute is lawful. Nat’l Cable and Telecommunications Assoc. v. Brand X Internet Svc., 545 U.S. 967, 986 (2005). As a first step we ask whether the statute’s plain terms â??directly address the precise question at issue.â? Brand X at 986. If the statute is ambiguous on the point, we defer, at step two, to the agency’s interpretation so long as the construction is a â??reasonable policy choice for the agency to make.â? Id.

In the first step of the Chevron analysis, we look at whether the statute directly defines the term ‘indecent’ or if the term, as used, is ambiguous. The statute, 18 U.S.C. § 1464, states in full: “Whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined under this title or imprisoned not more than two years, or both.” It is clear that Congress intended that no indecent language be used in radio communication but we find that indecent is not clearly defined thus leaving this portion of the statute ambiguous.¹ The ambiguous nature of the term can be seen in FCC v. Pacifica Foundation, 438 U.S. 726 (1978), in which the plurality opinion and concurrence had two different ideas about what qualified as indecent. Both felt the term meant â??patently offensiveâ? but differed in opinion about what qualified as such. The plurality opinion identified the plain meaning of indecent as â??merely referring to nonconformance with accepted standards of moralityâ? Pacifica at 741 and merely accepted that it was equivalent to patently offensive. The concurrence felt the term was more narrow, finding that the George Carlin monologue could be classified as “indecent” only because “the language employed is vulgar and offensive… [and] was repeated over and over as a sort of verbal shock treatment.” 438 U.S. At 757. (Powell, J., concurring). It is also through the ambiguous nature of the term indecent that the Commission’s rules operate and why it felt it necessary to change its policy as to what qualified.

We next proceed to step two of the Chevron analysis. If the statute is ambiguous on the point, we defer to the agency’s interpretation so long as the construction is a â??reasonable policy choice for the agency to make.â? Chevron’s premise is that it is for agencies, not courts, to fill statutory gaps. Brand X at 972. If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Brand X at 844. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. When the legislative delegation to an agency is implicit, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. Brand X at 844. This is true, even when the agency is changing rules, policies, and how it interprets a statute. Chevron at 863. Such a change, however, must provide a reasoned analysis to depart from prior precedent.

Here, the Commission has an implicit delegation to fill the statutory gap with regard to what is indecent. Through that delegation, the Commission changed how it interprets the term indecent to have a broader meaning than it had used in the past. Previously, the Commission had held that language was indecent if used to depict or describe sexual or excretory activities. In the order at issue, the Commission broadened the meaning of indecent when it determined that all uses of the words â??fuckâ? (the “F-Word”) and â??shitâ? (the “S-Word”) in all contexts depict or describe such activity. Golden Globes Order, 19 F.C.C.R. 4975, 4978. This is the case, with a single, isolated non-literal utterance of the word. For example, Bono’s statement, â??really, really fucking brilliant,â? in reaction to winning a Golden Globe award is considered indecent, although his use of the word did not involve sexual or excretory functions. Golden Globes Order at 4975. As pointed out by the lower court, prior to the Golden Globes decision the FCC had consistently taken the view that isolated, non-literal, fleeting expletives did not run afoul of its indecency regime. Fox Television Stations, Inc. v. FCC, 489 F.3d 444,455 (2nd Cir. 2007).

We find that the Commission provided very limited reasoning as to its new, broader interpretation of the term indecent.² Rather, it largely relied on its dismissal of previous interpretations of the term indecent as dicta and staff letters. It did provide some reason why it was changing policy with regard to how it would enforce the rule, however it did not discuss its new interpretation of the statute.³ The Commission simply announced that the “core meaning” of certain expletives is always indecent (Golden Globes at 4978), thus expanding the definition of the term indecent, although it had repeatedly held those same terms not indecent in the past.

B. Substantive Decision

Furthermore, we also find that the Commission failed to provide an adequately reasoned analysis for its change in policies and rules with regard to its its interpretation of the statute.

When an agency undertakes “a reversal of policy,” the APAâ??s mandate of reasoned decision making requires it to “adequately explain the reasons” for the change. Brand X at 981. Moreover, “[a]n agencyâ??s failure to come to grips with conflicting precedent constitutes an inexcusable departure from the essential requirement of reasoned decision making.” Ramaprakash v. FAA, 346 F.3d 1121, 1125 (D.C. Cir. 2003) (Roberts, J.).

Here, the Commission failed to provide a rational connection to between the â??first blowâ? theory its policies regarding fleeting expletives or provide adequate reasoning to explain away the conflict between its current policy to consider a fleeting expletive a harmful â??first blowâ? and the prior 30 years when it did not. As pointed out in the court below, there is no identifiable or judicially manageable standard provided by the Commission for the first blow theory underlying its policy change. The Commission held that it had changed the definition of what it considers indecent to include all uses of the F-Word and S-Word to protect viewers (including children) from taking the first blow when an expletive is used. It then provided exemptions for some uses of expletives but not others. For example, it provided exemptions for expletive used during the Early Show and the movie Saving Private Ryan but not for the same expletives used during the Billboard Music Award programs. In which case, the Commission’s justifications relying upon the â??first blowâ? theory were undermined. Viewers to each program still took the â??first blowâ? and were subjected to the offending word(s). In each case, the Commission subjectively determined whether that particular instance was more deserving of an exemption than the others. It is unclear what standards the Commission used for each determination.

The decision by the lower court is affirmed and this matter remanded to the Commission.

Then don’t leave a longer than necessary or rambling voice mail. It leaves a bad impression.

I need to take my own advice.

I always found self-assessments to be the most difficult work assignments possible. Cover letters for job applications run a close second. I’m currently working on a cover letter.

California is getting some much needed rain in the lowlands and snow in the mountains. We need it badly. In fact, it would be very nice of mother nature to drop some snow onto the mountain snowpack everyday from now until May. That might help make up for our drought and fill our nearly empty reservoirs. Last I read, this has been one of the driest Januaries on record in California.  Most troubling is that the snowpack, our biggest reservoir, is below normal. An inadequate snowpack means less water for consumers come summer and fall.

In addition to a thin snowpack, California is entwined in a series of ecological and legal battles affecting our water supply. The most contentious are the battles over water from the Sacramento and San Joaquin Rivers Delta, affectionately and simply called “The Delta” by Central Californians. The Delta supplies water to irrigate more than 3 million acres of farmland and two-thirds of California residents. The Delta ecosystem is in distress due to a number of causes including from the pumps that extract huge volumes of water for use elsewhere in the state. Those pumps have been turned down in recent months after a recent string of legal wins for Delta environmental interests and, as a result, less water is now sent West to the San Francisco Bay Area and South to farmers in the San Joaquin Valley and cities in Southern California.

Needless to say, water agencies are now scrambling to find alternative supplies and convince water consumers to use less. Come summer we are all likely to see large scale water rationing. That might include limits on what water can be used for (such as landscaping) and even no deliveries to some water users.

I expect (or should I say hope) that the State Water Resources Control Board (SWRCB) also gives a serious look at what it considers a reasonable use of water. The California Constitution requires that water be used for beneficial and reasonable purposes. If not reasonable, a person’s water rights can be voided.

Consider, for example, the case of alfalfa a perrenial crop used as feed for cows and other grazing animals. Each acre of alfalfa requires 5 acre feet of water per year. An acre foot is the measurement used for large volumes of water. Each acre foot per year can support about 4 people in an urban setting.  Agriculture consumes 80% of water in California and alfalfa farming constitutes 15% of that amount. In other words, 12% of water consumed in California is used to grow alfalfa. The SWRCB should ask whether alfalfa farming during a drought is a reasonable use of water. I won’t make a decision without more information but think a formal review should at least be undertaken. Farmers who grow alfalfa argue that alfalfa is actually more efficient than other crops with comparisons such as: “303 pounds [of alfalfa], vs. 109 pounds for rice and 31 pounds for almonds, per inch of applied water.” The problem I have with that argument is they compare an item humans cannot consume to two other items we do. Scientific studies should determine the amount of human consumable food stuff, such as beef or milk, attributable to each pound of alfalfa and through that per inch of water. Without reliable scientific studies it sounds like growing alfalfa wastes water. To be fair, SWRCB also needs to look at urban landscaping (lawns mostly) which also consumes about 12% of water in California.

I wrote a paper last semester** on the precarious nature of one water agency’s water supply – Westlands Irrigation District. Westlands is the largest and one of the richest agricultural districts in the country but has a dirty little secret. Its soil drains poorly and contains high levels of salts and trace elements such as selenium and arsenic. If not drained properly (farmers want to drain their land into the Delta) then the land eventually becomes unusable and ground water too contaminated to use. In addition, the trace elements and salts are toxic to wildlife in high concentrations such as what is found in drainage water. Westlands is hardly alone in the Central Valley when it comes to poor drainage and salty soil. So the question is whether it is reasonable for the Central Valley Project (Federal reclamation project) to provide water to irrigate land with bad soil that drains poorly.
My conclusion:

“California is reaching the limit of its water supplies and will collectively need to readjust who gets water and for what purpose. By exploring the precarious nature of water availability to the largest water customer, Westlands Water District, of the largest federal reclamation project, I demonstrated just a few of the many ways access to water by a water user might be threatened by our changing times. In truth, Westlands is a proxy for any other water user, big or small.

In short, Westlands is likely to come out on the short end of the battle over Delta water. It has low priority and is subordinate to the established water rights of riparians, appropriators senior to the CVP, and exchange contractors. In times of shortage, which sound more likely with global warming, it will share the lesser amounts of water available on a pro-rata basis with other water service contractors. Furthermore, there is a chance the SWRCB finds the irrigation of salty soil with poor drainage to be an unreasonable use. Westlands can force the Bureau to create a drainage solution but any plan to complete the San Luis drain is likely to run into obstacles. And, if the Bureau has too hard a time building a drainage solution, it may back out of the contract through section 11(a) which spares it liability for decreasing water allocations. Regardless of whether the drain is ever built, environmental interest groups and government agencies tasked with protecting wildlife and keeping water clean will be watching for potential violations of laws such as FESA.”

** I should note that, although I did hand it in, I consider this paper a rough draft. It is not my best paper. I only have myself to blame as I wrote it in less than two days using the ream of research I compiled after finishing my tax paper.

BTW: Are you feeling smug because you’re in a Great Lake state where there is plenty of water? Don’t be. Not taking care of the resources you have might give parched Western states a way to void the recently signed Great Lakes compact. The compact can be improved and your water resources even more protected than they are. In fact, consider the damage you’re doing to your waterways by using salt on your roads during winter. The argument that you are likely to hear again in your lifetime is that “Look at those Great Lakes folks with too much water. They just want to hoard the water and keep it to themselves. But look at them, they don’t manage or use the water properly and let it go to waste. We can do better.”

This follows up my earlier post regarding a presentation I gave to my tax policy class. I have since completed a final draft of my paper (PDF). I turned it in last night. There is much more that can be said about the subject but I realized part way through semester that it would be helpful to have had a background in economics. I checked out several books about economics and even sequestered myself in the libraries more than once but barely skim the top of the subject in the paper. I wish I’d studied economics in college, even if just a class or two. Fascinating stuff.

Since I gave the presentation, Senator Chuck Grassley sent a letter on November 14, 2008 to Inspector General Eric M. Thompson of the United States Treasury requesting a formal investigation into the origins of Notice 2008-83 and conflicts of interest in the Treasury leadership and their relations with bankers who will benefit from the guidance. The investigation is ongoing. http://finance.senate.gov/press/Gpress/2008/prg111408c.pdf

In addition, Senator Bernie Sanders introduced a bill to rescind Notice 2008-83. His web site has more information about the bill - Closing Corporate Loopholes news release, November 18 2008.

I agree with Sen. Sanders that it should be rescinded. It does not make sense, Treasury clearly lacks authority (in my view at least) to waive application of Section 382(h), and the banks should know better than to rely on it. This maxim comes to mind: “If it sounds too good to be true, it is.” If Treasury had wanted to really waive the rule, I think a better choice would have been to apply the waiver temporarily to all corporations that can show the purpose was not to traffic in NOLs and require the ownership change to involve an operating business and a substantial level of business continuity. Such a change in the program will accomplish a few things. It will limit macroeconomic distortions by encouraging investment and recapitalization of all business types. It will ensure that the original intent of Congress, to prevent or limit trafficking in NOLs, is met. And it will be more administrable than ad hoc regulation directed to correct market failures in one industry or group of corporations However, it might not be politically acceptable because it will limit Federal revenues and will increase an already large tab for the bailout of the financial system.

As for fixing the financial system (not my paper topic), the bailout is a failure. It is not targeted to the root causes of the chaos: trust. Or, I should say lack of trust. The Madoff ponzi scheme is just one more nail in the coffin of the bubble that the market is. The real issue is that nobody knows the true value of the assets held by banks, companies, or individuals. Those fancy securities with acronymns for names (CDO, MBS, etc.) are not transparent and escape any real valuation until everyone knows what they contain (not just dud grenades or sour grapes). In addition, the bailouts have come without two necessary components – revenge and accountability. Revenge is not just necessary from the tax payers vantage point but to lessen the moral hazard and prevent this from ever happening again.  If I were in Treasury, and I came very close to applying on change.gov, I would set up a separate unit/corporation of government that would take all of the bundled securities from banks and other entities that needed bailouts, enter bankruptcy protection, etc. and have that government entity sort out all the securities, insert transparency and then sell them off. The government would keep a share (say 50%) and give the rest back to the original holder. Such a plan would: 1) allow everyone to trust those securities again; 2) enact some modicum of revenge that lessens the moral hazard and makes it more acceptable to tax payers; and 3) through the first two create some accountability.

I gave a presentation in my tax policy seminar today, scratchy throat and all, based on the topic of a paper I am writing for the class. The U.S. Treasury Department intrigued and scared me with some of the moves it made in September and October so I ended up writing my paper on the actions it is taking. In particular, I focus on one notice of guidance issued by the I.R.S. that essentially waives application of a section of the code – 26 U.S.C. 382(h) – for banks only. This waiver is credited with Wells Fargo snatching up Wachovia, which had already agreed to a sale to Citibank. The drama of it all. I estimate Wells Fargo will save about $26 billion in taxes and enlarge itself to boot.

The slides below are followed by my notes, including for the missing slide. Keep in mind that this presentation greatly simplifies one of the most complex sections of the code. Comments are welcome. Enjoy!

• I am interested in how the tax code is being used to help combat the current financial crises.
• one place Treasury started was 382, which limits the use of losses and gains by a new loss corporation

We will quickly cover …

The treasury department has been active in identifying trouble spots and issing guidance to corporations to help deflect some of the market turmoil.

• it started with the rescue of Fannie Mae and Freddi Mac, which remain publicly traded corporations
• then it was confronted with AIG
• then it decided to help recapitalize corporations so it gave a safe harbor from the law
• The last one is the topic of my paper
  • treasury excuses banks from 382(h) which restricts trafficking in built-in losses
  • we’ll come back to this, but first …382

NOL:

• Occurs when tax-deductible expenses exceed taxable revenues
• carry back: to offset income during the previous two tax years;
  • OR
• carry over for a 20 years before they expire.
• considered a tax asset under GAAP accounting standard and shows as an asset on balance sheets
  • Good example: GM took a $39 billion write-down in September 2007 to realize losses on tax assets that were expiring or it did not expect to redeem.  GM lists â??Other current assets and deferred income taxesâ? in its 10Q. In the August 2008 10Q, it is  $3.58 Billion.Key terminology:

Loss Corporation is entitled to use the loss

• Old loss corporation is the one that generated the loss before the change date
• New loss corporation is the one that can use the NOL after the change date

382(b) â?? places annual limits on NOLs after ownership change

Change in ownership is complex

• Just know it can be triggered by a number of things:
• sale of the corporation, reorganizations, recapitalization, capital injection, stock transfer, IPO.The old and new loss corp can be the same
• Assumption here: corporation acquired all at once

Annual limit

• equal to, or less than, the value of the old loss corporation times the long-term federal tax-exempt bond rate – set by the IRS monthly 4.65%
• Carryforward allowed, carry back prohibited.
• Wachovia example: 24.5 Billion * 4.65% = 1.14 Bill.
• GM example: 3.64 Billion * 4.65% = 169 million

NOLs expire after 20 years.

• If the annual limit is $5 million dollars due to 382, the maximum deductible amount is $100 million dollars.
• Wachovia ex: 1.14 Billion * 20 years = $22.79 Bill.
• GM example: 169 million * 20 years = $3.4 billion – based on market cap on Y! Finance
• These are the  NOLs that can be utilized by the new loss corporation over the 20 year carry forward term.

• 382(h): Limits new loss corporations from using net unrealized built-in gains or losse (I’ll cover losses only)
• Without 382(h), a loss corporation could speed up or slow down recognition of gains or losses.

NUBIL: net unrealized built-in losses

• includes depreciation, amortization, and depletion.
• When built-in loss is recognized, that loss is then added to the pre-change NOL carryovers and limited as such.
• limits are only placed on losses recognized during the five years after the change date.
• Elements
  • must be accrued at the time of the ownership changes
  • the amount must be substantial (>=15% fmv of the assets or $10mill) â?? de minimis rule
  • recognized within a limited period (five years).
  • After year 5, the built-in losses are carried over without limitation.

Burden on the new loss corp. to establish that a loss recognized during the recognition period is not a RBIL.

IRS Notice 2008-83

• Waives application 382(h) for banks
• Applies only to banks
• Has no termination date

Immediately after the merger is complete

• Wells can recognize NUBILs it owns through its acquisition of Wachovia
• apply those losses through carry back mechanism to offset income during the past two tax years.
• gets a refund check from the I.R.S.

Wells expects to eventually write down $74 Billion in value from Wachovia’s loan portfolio – NUBIL.

• once recognized, those $74 billion in losses would be attributed to Wells Fargo, rather than Wachovia.
• immediately be used to offset income
• Any remaining amount can then be carried over as NOL to subsequent tax years, to offset future gains, either as NOLs that are carried forward or that offset income during a given tax year.

Possible scenario for carryback:

• Taxable income â?? 2007: $11.6 Billion
  • annual report: 3.57Bill. tax paid / 30.7% effective tax rate
• Taxable income â?? 2006: $12.7 Billion
  • annual report: $4.23 Billion tax paid / 33.4% effective tax rate

• Unequal treatment creates macroeconomic distortions.
• Generally, similarly situated taxpayers should be treated similarly.
• Others w/ large NUBIL: insurance companies, investment banks, manufacutures, real estate developers or holding companies, and

Similarly situated taxpayers can include both small and large corporations and span across different industries because the corporations follow the same tax laws and regulations. It can also be used more narrowly to only apply to companies large or small or only companies within a particular industry. I think it should apply broadly and inclusively.

argument for providing the banks (under 581) a bypass around 382(h).

• perhaps saving the financial system could trump economic efficiency arguments.
• Counter: Citibank bid for Wachovia without this provision.
  • Citi had the gov’t assume certain risks. Here Wells assumed the risk and paid a premium for Wachovia, versus Citi.
• Counter what about all the other companies part of the finanical system not covered? And other important industries?

distortions are pushing non-bank financial servicers to become banks or bank holding companies

• take advantage of tax breaks and other government assistance that is being provided to banks.
• take advantage of 2008-83.
• GMAC announced on Nov. 5
• Amex on Monday
• Investment banks Goldman Sachs and Morgan Stanley have already received permission to become bank holding companies.
• Will insurance companies be next?

Moral Hazard â?? taxpayer behavior distorted by removing some risk of failure

Missing slide:

Start by asking what is this regulation intended to correct? Does it actually accomplish that goal or are there other intended or unintended consequences

• Seems this guidance is intended to help recapitalize banks.
• If so, compare to other methods to recapitalize banks. Are there better ways? Direct capitalization? Bankruptcy?

Direct capitalization

• Wells: $74 billion write off – Assume 35% tax rate â?? expect $25.9 billion in taxes lost
• Is $25.9 billion in lost tax revenue better used recapitalizing Wachovia?

Bankruptcy or receivership?

• 382 includes a bankruptcy exception that provides what amounts to a waiver of 382.

Creates super bank

• Is Wells taking risks it would not otherwise take (moral hazard)?
• What if Wells Fargo is mistaken about the risks inherent in the bank it acquires or their own portfolios?
• Is it worth the risks to have two banks fail rather than one if there are bigger losses than anticipated in the new loss corporation as a result of the acquisition?

[no notes]

• Notice 2008-83 has received public attention of Senators from both parties
  Charles Schumer (democrat)
  Charles Grassley (republican)
  Both are upset because Congress was not consulted, yet this will cost hundreds of billions of dollars.

Poor tax policy to give only one industry a waiver to 382(h) requirements.

Better choice?

• Apply waiver temporarily to all corps that can show the purpose was not to traffic in NOLs
  • require sale of an operating business & business continuity

• Limits macroeconomic distortions by encouraging investment and recapitalization of all business types
• Ensures the original intent of Congress, to prevent or limit trafficking in NOLs
• More administrable than ad hoc regulation directed to correct market failures in one industry or group of corporations
• Might not be politically acceptable because it will limit Federal revenues and it will

I think it would have also been better for Treasury to insert this into the discussions of the big bailout package since Notice 2008-83 came out while Congress was debating the bailout.

… now for me to finish writing the paper.

Update (12/18/08): I finished the paper. Sources for the information given above is identified in the paper.

Wow, July is almost over. Just the other day, it was June First. The weeks have flown by. That’s probably because I’ve kept pretty busy all summer, for good reason. As a result, a great number of things have languished, waiting until I get some time. Two things that languished were to post my privacy law paper (below) and check on all my grades. Last time I checked, they weren’t all in yet. I finally got around to it last week almost three several weeks ago when I needed to print my grades for tuition reimbursement at work. (can you tell I started drafting this post weeks ago?) And with that I realized I had not thought much about or reflected on the spring semester since it ended. Did I really take exams? And I finished my paper?

The spring semester was busy. I expected it to be busy. It turned out to be much busier than I expected. I was close to exhaustion by the end of the semester.

I started working again during the semester, so not only did I balance school with work, I found time to get ready for our little Sprout. It is worth saying that I thought I could manage my time and handle work and school. I now have a new-found appreciation for those who work and go to school at the same time. I’m not sure how anyone does it through all of law school. Wow. And to keep good grades, double wow. I nearly killed myself getting grades similar to last fall. More than once during the semester, I thought about resigning from work. But I like both so I will keep at it.

I did finish my Privacy Law paper. Giving a presentation turned out, like last semester, to be a good preparation for the paper. You can review the presentation in an earlier post – Zones of Privacy (wonkish & raw). As with the presentation, the paper is very wonkish and raw. The ideas arenâ??t completely fleshed out and the whole thing is very much a work in progress. If you’d like to read all 36 pages, including footnotes, please do: Zones of Privacy: A New Analytical Framework (PDF).

I’m satisfied with my Privacy Law paper but I know it could have been better. I ran out of time and didn’t fix some obvious errors and missed a few citations in my haste to finish. I like the ideas behind it and will spend the next year or two refining it and prepping it for publication, eventually.

I now have the academia bug. Some people get the travel bug. I have a bug for school. If I won the lottery, I would be a professional student. When I finish law school, I intend to apply to graduate programs in public policy with the intention of completing a Ph.D. and teaching on the college level. I already know my focus will be on technology policy with a special interest in privacy. The privacy paper cemented that goal.

School begins next week. I’m looking forward to it. I’m excited to have the classes I do: Water Law, Tax Policy, and Negotiation.

This video is likely entertaining only to folks who are forced to live with Microsoft hovering over Yahoo!, who are into video mashing and editing, or who like making fun of the first two groups. Even if you aren’t in those groups, watch anyway; it is short enough for everyone to watch and ponder.

I’ve wanted to post and comment on this video since I saw it a few weeks ago. Now I get my chance, as I work through some of my copyrights outline (test tomorrow).

I assume the Charlie Rose show is copyrighted. I also assume, Charlie Rose or the owner of his show can make out a prima facie case (this means they showed infringement of their copyrighted work). In that case, the maker of this video will need to argue a Fair Use defense under section 107 of the copyright statute.

Section 107 of the copyright act (usc title 17, section 107) provides four factors for courts to assess a fair use claim. It requires a court to consider: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

First, a court must consider the purpose and character of the use, analyzed along two axes: commercial versus non-commercial; and the superseding object of the original versus transformative uses. The commercial nature of a work is generally not dispositive and is given very little weight. Courts frequently provide this quote from an old case: “no man but a blockhead ever wrote, except for money.” It isn’t entirely true, but sums up U.S. courts’ opinions about how they regard this requirement. Along the second axis, the video appears to be transformative because, to me, it appears to “add something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” Is it a parody? In which case it is given more deference. Is it only satire? If so, it gets less deference. I think that because the video’s creator adds another meaning, that of this philosophical conversation with self, it likely passes as transformative.

Second, the nature of the copyrighted work is as a published video of non-fiction. I’m assuming that the video was taken from archived copies of the Charlie Rose show. This part of the analysis matters very little unless it was an unpublished work that was intended to be sold for money. This was the case in the late 1970′s when the Nation Magazine scooped the juicy details that were to the “very heart” of former President Gerald Ford’s memoirs of his time in office. The Nation acquired a copy of the manuscript before it was published, and caused Time Magazine to cancel out on the advance it had paid to have first dibs on a review. D’oh! Here, if the video clips were taken from previously broadcast Charlie Rose episodes, Obi Wan Kenobi is not needed to say “There is nothing here. Move along.”

Third, a court will look at the amount ans substantiality of the portion used in relation to the copyrighted work as a whole. It seems this video takes very little of two separate shows. It is a toss-up how a court will come down on this. A court will not let someone take the heart of a work, as in the Nation Magazine scooping Gerry Ford’s story, even though it used a few hundred words of a 300 or more page book. I think it is unlikely they would consider this went to the heart of the Charlie Rose episodes in question because it was changed so much so that I’m not sure what was discussed beyond Yahoo! and Microsoft.

Fourth, a court will look at the effect upon the market value of the original, copyrighted work. It isn’t clear to me, but I doubt it will have much impact. The new video does not substitute for the original. In fact, I think it might lead people to want to view the shows to see what was said originally.

All said, I think this video will likely qualify as fair use.

I’m preparing for a Copyrights exam in less than 48 hours. One part of the test for copyright infringement asks whether the “ordinary observer” would find substantial similarity between the two works.

This video provides a good opportunity for you, as the ordinary observer, to decide whether songs are substantially similar to each other. There are several sets of provided, the original work followed by the allegedly infringing song.

The last one is the most trippy. You can hear the full version of Taurus by Spirit on this video:
http://www.youtube.com/watch?v=ogTFdlbup24 (embedding not allowed on this one.)

And here is a second set to provide your opinion as the “ordinary observer.”

I gave a presentation during my privacy law class this afternoon regarding the research paper I’m working on. I warn you that it is very wonkish and raw. The ideas aren’t completely fleshed out and the whole thing is very much a work in progress.

This contains my personal thoughts and work product. Sorry for the image quality of some slides. I might distribute the slideshow file itself one day.

• The image has no special meaning
• My paper and this presentation just serve as a high level overview of the zones of privacy.
• My goal is to make a more responsive framework to consider privacy interests and to help the dialog regarding the right to privacy.

• Outline of my discussion

• One of the earliest arguments in the Supreme Court for implied rights to privacy came in Olmstead in 1928.
• Olmstead was the first case in front of the Supreme Court to challenge a wiretap of phone conversations.
• The court held that wiretapping did not require the police to enter the home, therefore did not require the higher standard of probable cause.
• Brandeis, in his dissent, identified an overreaching privacy interests:
  • privacy of the individual
• Holmes provides the first mention of privacy rights in penumbras I can find.

• Justice Douglas replaced Brandeis on the Supreme Court
• In Pollak, the Court sustained a challenge to a policy that allowed public bus to play a local radio station over speakers.
• But Douglas dissented, arguing that it violated the sanctity of thought and belief.
  • Douglas built on what Brandeis had to say in Olmstead.
  • Argued that a right to privacy is found in the Fourth Amendment which protects the home from invasion, as well as the First Amendment which respects the thoughts and beliefs of people.
    • This presented two different zones

• Toward the end of the McCarthy era, Douglas gave a few speeches that he then published as a book entitled The Right of the People.
• Douglas talked through much of what he was thinking about privacy and then later used in his Griswold opinion less than ten years later.
• The second section was: The Right to be Let Alone
  • Douglas focused on privacy related to:
    • Conscience
    • Person/body
    • Home
  • He also picked up on Holmes dissent in Olmstead which identifies penumbras, or shadows, of the Bill of Rights as potential origins of privacy.

• Douglas referred to a natural right to privacy underlying the Bill of Rights.
• He concluded that privacy extends to:
  • matters of conscience
  • sanctity of the home
  • sanctity of the person and their body

• These zones of privacy have been described in terms of Concentric Circles.
• The further you go towards the center, the more protected that privacy interest is.
• Here, the privacy interests move outward from conscience to body to home.
• I’ll return to this model later.

• The case that put â??zones of privacyâ? into the lexicon is Griswold.
• Douglas, in his opinion, built on ideas he talked through in Right of the People.
• He also revisited the Holmes dissent in Olmstead which identified penumbras of the Bill of Rights as potential origins of the zones of privacy.
• Right of privacy lies within
  • 1st Amendment
  • 3rd Amendment
  • 4th Amendment
  • 5th Amendment
  • 9th Amendment

• Next in the progression establishing zones of privacy were the abortion cases: Roe v. Wade and Doe v. Bolton.
• Roe confirmed that there are zones of privacy
• It provided that the zones of privacy are broad enough to protect a woman’s right to abortion, but it was not an absolute right.
• Roots of the right to privacy lie in the
  • First Amendment,
  • Fourth and Fifth Amendments
  • penumbras of the Bill of Rights
  • Ninth Amendment
  • concepts of liberty guaranteed by the first section of the Fourteenth Amendment.

• In Doe, Douglas penned a concurrence in which he broadened his initial zones of privacy to be more inclusive
  • autonomy over development and expression of intellect
    • corresponds with matters of conscience
  • freedom of choice over basic decisions over life
    • corresponds with sanctity of body/person and home
  • freedom to care for health, from bodily restraint or compulsion
    • corresponds with sanctity of body/person

• Returning to the visual model of concentric circles used earlier
• Justice Douglas broadened his original zones of privacy from the Right of the People so the circles encompass more broad freedoms enjoyed in life.
• Here, the privacy interests move outward from autonomy of the mind to freedom of basic life decisions to freedom of health and movement.
• Again, the idea of concentric circles is a visual model I’ve seen used by others commenting on the zones of privacy.

• I think a better way to visualize the variety of privacy interests is a stack, like a stack of pancakes, stacked on top of one another.
• This visual model can serve as a framework for further identifying and analyzing the zones of privacy.
• The more fundamental interests live at the bottom, or foundation, of the stack.
  • Here, the most fundamental right and privacy interest belongs to the mind
  • Then the body
  • And on up.
• A stack is a more scalable framework with which to consider privacy interests.
• In addition to the interests here, we can add additional interests as they arise.

• A stack can be broken down into generic, high-level categories
• Or like here, take a sectoral approach that considers privacy on a more granular level.

• Or a stack can return to more generic levels of privacy interests such as Douglas in Right of the People.

• A cross-section of each interest can then be divided into concentric circles based on the relation to the person in question.
• Relationships:
  • Self
  • Very Close: Spouse; Immediate Family; or special relation, such as priest, lawyer, doctor, etc
  • Very close would also include banks, accountants, email service providers, and anyone with a similar confidential relationship.
  • Personal: Friends, neighbors, close co-workers, house guest
  • Semi-public:
  • Public: when out on the street

• The further someone is from the center, the more that is required to pierce the veil between each relationship.
• Example: The interests of the states in the viability of a fetus has been found to reach into a woman’s interest in her body that is protected by a right to abortion.
  • State interest grows with the progression of the pregnancy and the relationship grows closer.
• Example: The tax man comes calling with questions regarding discrepancies between reported 1099 income and investment income reported on an Income Tax form.
  • The relationship becomes closer since it is more direct. Here, it is more of a personal relationship.
  • However, it remains specific to only items related to income tax filings.
  • Government can’t use taxpayer relationship to ask for health information.

• This could be similar to First Amendment jurisprudence.
  • Strict Scrutiny:
    • 1st Am: necessary to promote a compelling govâ??t interest
    • Privacy: Covers public relationships encroaching the boundaries of close and even personal relationships
  • Intermediate scrutiny:
    • 1st Am: substantial relation to a important govâ??t interest
    • Privacy: When the distance between the request is not as much
  • Rational Basis:
    • 1st Am: rational relationship to a legitimate govâ??t interest
    • Privacy: used when the relationship gap is minimal or non-existent.

• Cases immediately following Roe & Doe confirmed that zones of privacy exist
  • They include independence to make important decisions
  • And are broad enough to protect a woman from State interference when she chooses to abort a pregnancy.
• Cases generally focused on the explicit rights of privacy provided by the Fourth and Fifth Amendments.
• Cases have also refused to define certain aspects of life within a zone of privacy such as bank records.

• The court also drew lines in the sand to limit the reach of the zones of privacy
  • In Bowers v. Hardwick, the court limited the right to privacy in a home to legal rights.
    • Sexual freedom in the bedroom once deemed illegal was not protected from government interference.
  • This was overruled 17 years later in Lawrence v. Texas
• There has also been a group of unhappy dissenters who have argued strongly against a right to privacy.
  • 4 justices in Casey
  • 3 justices in Lawrence â?? this quote from Justice Thomas says it all. He can’t find a general right of privacy.

• Because the Zones of Privacy rely on implicit rights from the Bill of Rights, they are vulnerable to change
  • It is possible that Justice Thomas will get his way and the clock reversed to 1964, pre-Griswold.
• To preserve any of the implied rights currently in the zones of privacy, we need a Constitutional amendment regarding an explicit right to privacy.
  • Needs to cover people & corporations because most data is collected by private parties and the government gets a lot of its information from private parties.

The winds of change are blowing again and my direction in life has shifted again, if only slightly. I begin working at Yahoo! on Wednesday, returning to the small team responsible for the privacy policy. I’ll work 30-35 hours a week. I also downshifted to part-time status at school and am taking nine units this semester: Tax, Privacy Law, and Copyrights. I can still graduate in May 2009, although I may take my time now that Sprout will join us in June. I need to average just under nine units over four semesters to finish.

I’m just glad these changes don’t involve a move in any way. We’re keeping our little one bedroom apartment.