Bailing Out the Red Light District

by Doug French

Hustler magazine's Larry Flint

With the federal government ladling out billions in bailout money to the financial and auto industries, a number of businesses now have their hands out. Home builders, retailers and commercial real-estate developers all want a piece of the bailout pie. Not like there is an existing warm pie cooling on the window sill waiting to be cut and served. No, this money pie is created out of nowhere, to be paid for in higher prices as the inflation is forced upon the unwitting public.

Nobody could imagine that pornographers would be brazen enough to line up at the government trough. But sure enough, Hustler magazine publisher Larry Flynt and Joe Francis of Girls Gone Wild fame have asked their local Congressman, Henry Waxman, for $5 billion because, "People are too depressed to be sexually active," according to Flynt. Ever the patriot, Flynt says an unsexed nation is an "unhealthy" nation. "Americans can do without cars and such but they cannot do without sex."

No doubt being depressed about losing your job or the general correction of the real-estate bubble doesn't do much for your get up and go. And if past escapades on Capitol Hill are any guide, this is a subject lawmakers are very interested in. However, the head Hustler honcho is stretching it a bit to think that a $5 billion injection into the porn industry will provide a lasting stimulus — economic or otherwise.

Upon hearing the news of Flynt and Francis's panhandling, most people likely figured that it was all a big publicity stunt. But there really is a method to their madness. In an interview with Fox Business, Francis revealed what really has his business in a funk. When asked what he would do with the $5 billion, he said they would "invest in building new means of distribution, and shoring up our distribution right now to prevent further erosion from factors like YouPorn and other internet content that has seriously affected our business over the past few years."

"Most web-commerce innovations have come from the porn industry."

What Francis is talking about is that he and Flynt and others in the porn business have been unable to use copyright protections effectively to protect a monopoly on their content. Because pornographers don't enjoy the same social approval that other businesses have, "the industry has not focused on using the legal system to protect its intellectual property," professors Michele Boldrin and David K. Levine explain in their new book Against Intellectual Monopoly.

Unlike the mainstream Hollywood movie industry, the porn industry has had a tenuous legal status, according to the authors, making "it difficult for it to use copyright laws to inhibit competition, and so as technology has changed, pornography has become a cottage industry with many competing small-scale producers."

Indeed, Francis was once one of these small-scale producers until his Girls Gone Wild series took off. Now that his company employs 400 people and sales exceed $100 million, it sounds like he wants to use intellectual-property laws to protect his content from pesky competitors like YouPorn.

As Boldrin and Levine describe, "The thousands of Internet sites distributing pornographic materials around the globe are, most of the time, imitators of the main initial producers, most often in violation of copyrights and licensing restrictions."

Because porn companies have trouble enforcing copyright laws, they must constantly innovate, and, because of this, it is no secret that most web-commerce innovations have come from the porn industry. "Their bold experimentation has helped make porn one of the most profitable online industries, and their ideas have spread to other legitimate companies and become the source of many successful and highly valuable imitations," note Boldrin and Levine.

So the jobs that Joe Francis assured Fox Business that he and Flynt would create are likely to be jobs for intellectual-property lawyers, in hopes of benefiting Hustler and Francis's Mantra Films, Inc. at the expense of their innovative and creative competitors.

No matter what Larry Flynt contends, there is no lack of inexpensive porn available to stimulate Americans. In fact, using $5 billion of taxpayer money "to prevent further erosion from factors like YouPorn and other internet content that has seriously affected our business over the past few years," will only make his product more expensive and less accessible.

Throwing money at Flynt and Francis — like bailing out the automakers and the big banks — stifles innovation and new technologies in order to keep outmoded business models in place at the expense of taxpayers.

Americans ‘Get’ TARP, They Just Can’t Stand It

Americans ‘Get’ TARP, They Just Can’t Stand It: Caroline Baum

Commentary by Caroline Baum

Jan. 22 (Bloomberg) -- Barack Obama begins his term as 44th president of the United States with an ambitious agenda in addition to the pressing problems posed by an economic and financial crisis.

Before he can get to either, the new president needs to take some time for community outreach. Specifically, he should explain to the public why bailing out ailing banks with taxpayer dollars isn’t throwing good money after bad. Both scientific opinion polls and less formal sentiment gauges suggest most Americans aren’t convinced.

A Jan. 15 Gallup poll found that 62 percent of those surveyed said Congress should block the release of the remaining $350 billion in Troubled Asset Relief Program funds until more details are provided on how those funds will be spent. (The survey was taken before the Senate voted to release the remaining $350 billion last week.) Twelve percent didn’t want any more money released. Only 20 percent were in favor of releasing the funds.

What’s more, a majority of Americans (80 percent) think the TARP isn’t working. It’s not clear from the Jan. 16 CNN/Opinion Research Corporation Poll exactly why or how the folks surveyed came to this conclusion. Could it have something to do with the fact that the banks keep coming back for more? Perhaps it’s the message inherent in the imploding share prices of banks like Citigroup Inc. and Bank of America Corp., both double-dippers at the government trough.

What Banks Do

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson have tried to explain why financial institutions are different from, say, industrial companies. Banks are financial intermediaries, taking in deposits from those with excess funds and lending the money out to businesses and consumers that want to borrow.

In their role of middlemen -- the job description used to include due diligence on the borrower -- banks make credit allocation more efficient than if a borrower had to scout around to find a willing lender.

When this process shuts down, the economy ceases to function.

If the average American was beginning to grasp why banks are different, he was thrown for a loop when the government put General Motors and Chrysler on the too-big-to-fail (at least right now) list. Insurance giant American International Group made the cut as well last September, right after Lehman Brothers was cut loose.

No wonder the public is confused, not to mention angry. That anger is palpable everywhere you turn.

Truth Serum

Driving in the car Saturday morning, I was listening to “Washington Journal” on C-SPAN radio. Callers were voicing their opinions -- grievances, mostly -- on Obama’s proposed economic stimulus plan and the bank bailouts. One woman wanted to know why it is “when rich people need financial assistance from the government it’s called a bailout, but when low-income people need assistance from the government it’s called welfare.”

Another caller conceded that bailing out the banks was necessary “to save the economy, but it makes me mad.” She went on to say that she didn’t have good credit because of medical bills several years ago and pays “very high rates on credit cards.” Somehow banks “don’t mind taking my tax dollars to bail themselves out, but when I ask for help from them, they don’t help us out,” she said.

‘Smoke and Mirrors’

One man said the whole bank bailout was “smoke and mirrors,” which is not too different from the verdict handed down by TARP’s Congressional Oversight Panel earlier this month. Another asked how the government could “spend like crazy” when it has no money. Someone else advocated cutting the corporate tax rate to re-energize animal spirits in this country. Still another put the blame at the feet of the government, including the Environmental Protection Agency, “which makes laws and tells people how to run their businesses.”

To be fair, it’s generally the opponents of any policy that have the loudest voices. So there may be an inherent bias to the feedback.

Still, what struck me about the polling results and the call-ins was their essential truth; some kernel, at least. Ordinary Americans, it seems, “get it.”

They understand that financial stocks are trading at such depressed levels because shareholders anticipate a significant injection of new capital, that in the current circumstances no one but the government is going to provide it, and that existing shareholders will be at the end of the line when it comes to any cash dividend or voting power.

They understand at a fundamental level that rewarding failure is not only a bad idea but antithetical to the principles on which this country was founded.

And they understand that, as a practical matter, the need to save the banking system may supersede even principles, as bad a precedent as it sets.

What ordinary Americans also understand is the current initiatives aren’t working. Come to think of it, maybe the public is way ahead of even the new administration.