Internet File Sharing

There was an interesting Panorama program on the BBC last night which covered the government’s proposed legislation relating to the downloading of intellectual property by file sharers over the Internet.


The technology is called peer-to-peer and it involves the participation of a central server which co-ordinates the connection of numerous peers, i.e. home PCs and Macs. These machines, and there can be literally millions of these, then cooperate to assemble the required download byte by byte. I describe the technical process as it speaks to the utter stupidity of the proposed “solution” cannot by any stretch of the imagination solve the perceived problem.


If you have teenage kids, and they have access to a computer, then you can be pretty certain they are using Bit Torrent or similar technologies to get their hands on music, software, TV series and films. The government’s proposals, if fully enacted, will see you possibly having a stiff letter from the ISP and if this doesn’t work then eventually having your Internet service suspended. Forget for a second the obvious human rights implications of this and simply look at the practicalities. You can walk into any high street white good store and buy a “pay-as-you-go” 3g data card, plug it into your computer and off you go.


And how will they trace the download to you? They will use your IP address but unfortunately it takes minutes on the Internet to set up a transparent proxy, there are thousands freely available, and you are invisible and untraceable.


So how did proposed legislation of this level of unworkable stupidity ever even see the light of day? The vested interests in the music and film industry have lobbied tirelessly for as they are completely clueless about how to deal with the new economic environment they need to function in. Their natural instinct is to turn protectionism and that has never worked in the pas and there is not reason to suppose that it will work this time either. They quite like having their noses in the trough and would like to carry on pigging out if that’s OK with everyone.


Taking the music industry as an example; it has been exploiting the talent of artists for years and offering them derisory royalty rates in return. In the new economy an artist can reach their audience directly by bypassing the record industry and selling their music, for a reasonable price to their fans and using the recordings as promotional material for their live gigs. A consequence of this new era is the death of the superstar pop groups who take a disproportionate share of the available earnings at the expense of the journeymen who slog up and down the country on the live circuit.


As Billy Bragg said on the program the music industry is fine it is the record industry that has the problem. An artist that can get £10 a year from 500 fans has the foundations of making a living from music. The sooner we see the back of the record companies and their parasitic hangers on the better in my view.


UPDATE: Link to Register article on the Panorama program

Credit Default Swaps and Greece

Credit Default Swaps (CDS) are funny financial instruments. They are similar to an insurance policy intended to protect a creditor or bond holder from the risk of default by the debtor or bond issuer. All in all a very wise precaution if you are extending credit in the form of purchasing bonds from countries or companies.

 Where CDSs depart from insurance is that you can take out this insurance to protect a debt default on a debt for which you have no liability, this is similar to taking out an insurance policy on your neighbour's house because you think that his fire precautions are  bit slack and his house is likely to burn down. A very weird concept indeed. Another twist to the CDS trade is that the instruments are also tradable and can be bought or sold in an "Over the Counter" market.

 Your natural instinct in this situation is to profess this market to be crazy and allowing someone to buy insurance against a debt default for which they have no direct liability cannot be a good thing. This is the argument being put forward currently by the EU in respect to Greece. There has been considerable speculation in the CDS market on Greek bonds as the markets feel that a default by Greece is a reasonably likely outcome and they are willing to stump up the premiums required to benefit should such a default occur.

 The EU want to restrict the capability, particularly of Hedge Funds, to speculate about a Greek Default via the use of CDS instruments. I didagree with this position. The reason that Greece is in its current fiscal position is due to financial mismanagement and political weakness. The speculation by the markets whilst it will pile additional pressure on the EU and the Greeks, will also force them into addressing the fundamental problems in the Euro zone which are needed to prevent the Greek issue spreading to Italy, Spain, Portugal ,Ireland etc.

 The Hedge Funds involved isn this trade stand to make a lot of money should there be a default but also to lose a lot of money should that not happen. That is the natgure of the free market. Attempting to place artificial restrictions on trade, as was done with the short selling ban on bank shares last year, is counter-productive. CDS markets and short selling do not drive events, they react to events. The outcome of events is in the hands of politicians and it does no harms to have a bit of financial pressure to make them "do the right thing".