Blog Ipsa Loquitur

In what scientists will doubtlessly (and breathlessly) refer to as Dominic’s Icy Precipitate Postulate of ‘09, I postulate the following.

The awesomeness of a snow day is directly proportional to how much you expect it to happen.  For instance, as a wee child, you expect the heavens to issue a salvo of powdery white “Get Out of Doing Homework Free” cards upon command.  I mean, you begged and pleaded for those Teenage Mutant Ninja Turtles action figures, and that worked, right?  It has to work for some snow: snow is free!

As you get older, this phenomenon eventually tapers off, as you’ve realized how badly you want something has little to no bearing on whether it happens: at least with regard to snowman DNA.  Eventually, you get to college in Buffalo, only to find out it doesn’t snow there nearly as much as you’d heard.

But here I am in New York City, which apparently gets about two feet of snow per winter.  I’m way more excited than I thought I would be for a snow day, mostly because I was convinced I’d never get another snow day in my life.  Which is what led me to create Dominic’s Icy Precipitate Postulate of ‘09.  Observe its elegant simplicity in chart form:

Look upon my works, ye employed, and despair!  I am nerd of nerds!

While all the morning talk(ing heads’) shows were focusing on last night’s self-congratulatory industry awards for excellence in the field of excellent filmmaking results, I’ve been catching up on Depression Watch 2009. As proof that law school irredeemably changes the way you think, I offer my train of thought.

I keep reading about the people in charge of investing all kinds of money into what the media continues to call “toxic assets” - securities that aren’t worth nearly what investors were betting they’d be worth. This bit from today’s New York Times struck me:

Still, the big banks say they remain relatively healthy and that, with time and support from the government, they will regain their footing. But many economists, Wall Street analysts and even some bank executives contend that some of the banks are already effectively insolvent.

Even though banks have reported billions of dollars of losses from bad loans, these critics say, the major institutions still carry trillions of dollars in additional toxic assets and are too damaged to resume normal lending.

Trillions? With a T? When we the taxpayers floated Citigroup $50 billion, that was less than 2% of the market’s total toxic assets? At this point, incompetence can’t hope to explain this mess. The banks who made these investment decisions inflated short-term profits (and short-term bonuses) so much that the people responsible can retire today in comfort for the rest of their lives.

I’ve had this vague sense of how horrible this situation is; I understand that we haven’t hit bottom just yet; I know that $50 billion is a mind boggling amount of money, and I can’t imagine that there are trillions of dollars of these assets that just aren’t worth trillions of dollars.

At this point, I started thinking about one of the fundamental concepts of my criminal law class from last year: the culpable mental state. While doing something bad (actus reus), you have to have something happening in your brain (mens rea) that makes you responsible in some capacity for your action.

sidebar: Were I still in college, I’d probably diverge into a long and perilously drawn out discussion of how difficult or impossible it can be to discern the subjective mental state of another person. The law makes certain allowances for this. I’ll satisfy my urge to be the Socratic gadfly to my own monologue with a link to the wonderful Stanford Encyclopedia of Philosophy’s entry for philosophical zombies, and pose the question: can we ever see what (if anything) goes on inside someone’s head?

The two relevant mental states with regard to the banks are negligence and recklessness.

Negligence in the criminal sense is characterized in part by the failure to perceive a substantial and unjustifiable risk that a certain result will occur, or a certain circumstance does exist. As always, I’m oversimplifying - the full text of the law is available on Justia here. The part of the definition I want to focus on is the existence of a substantial risk that the actor fails to perceive.

In the case of the bankers, I gave them the benefit of the doubt. When word came out about the toxicity of the banks’ assets, I knew I had heard relatively few details and I assumed that these people are good at what they do. It’s clear that there was a risk that mortgage-backed securities would burst into flames and plunge the country into a second Great Depression, but the bankers were probably ignorant, right? Why would you take a risk that will kill your 150 year old investment firm? It seemed to be an irrational action against self interest that no rational actor would take.

But I’m starting to see the behavior of the banks as less negligent and more reckless. Recklessness is different from negligence in that the actor perceives the substantial risk before he goes ahead with his action anyway. It seems baffling that bankers could think there was no risk in having over 30 times as much debt as assets, with so many of their “assets” in the form of mortgage-backed securities that the government has $4.6 trillion tied up in shoring up the market.

It’s obvious now that there was a risk: perhaps it wasn’t certain that the gross overvaluation of assets like mortgage-backed securities would cripple the economy exactly when it did, but there was clearly an ongoing risk. It’s a multi-trillion liability, and it seems impossible that people who were paid to assess risk didn’t see this possibility.

So where I assumed simple negligence had caused this problem, now it’s hard to believe that this is anything but recklessness.

Similarly, it’s hard to believe that my train of thought wanders into legal definitions. Halfway to getting my J.D., law school has broken my brain.

The internet is a funny place. In the very first days, when it included computers at all of four universities, the internet was very clearly an extension of the “real world.” For a great number of years, people just used their actual names on the internet: see the 1982 Usenet discussion of the creation of the emoticon. (This discussion quickly deteriorated into arch-nerdery, because the guys on the internet in 1982 were arch-nerds.)

At some point, (perhaps the Eternal September?) the internet took a turn for the anonymous. The problem with anonymity is perhaps best summed up in a cartoon, of all things. Specifically, in a mathematical equation within a cartoon. Normal people do crazy things on the internet, because they’re anonymous and they can do crazy things. You grow up understanding that actions have consequences, but when you’re SkiRacerX88, and not Jimmy down the street, there really aren’t any consequences for behaving like a jackass.

It Knows

However, the internet is the largest collection of information about any topic ever assembled. In the face of such unabashed hyperbole, the revelation that some of this information is about you, Dear Reader, should not surprise. (In fact, there’s even some information about me.)

To pretend that you’re anonymous on the internet is to open yourself up to hilarious consequences. The internet forums at 4Chan.org are famous for their anonymity: you don’t have to use your real name, and you don’t even have to use a username. But you’re only anonymous up until you make a big enough mess that someone goes through the few steps needed to find you. The guy who read Governor Palin’s email is a great example, because he made a really really big mess.

I’d like to discuss two news stories that illustrate the tension between some very different viewpoints about just how anonymous you are on the internet.

Can’t Stop the Music

The first regards a web site called Last.fm that collects data about the music its users listen to. When you register for the Last.fm service, you have the option of installing a plugin on your computer that sends data about your listening habits to the Last.fm servers. Users compare their musical tastes, and the site sorts out users into compatible groups based on the kinds of music they like.

sidebar: I think it’s telling that the internet has facilitated communication and co-mingling with other people to such an absurd degree that we have_ too many _people to talk to. Now sites can provide a service by telling you how much in common you have with other people, so you know whether or not you want to talk music with them. Sure, we both like the same Hendrix song, but you like the Stones and I like the Beatles; do we really want to have this conversation about “The Wind Cries Mary?” I’d rather have it with someone who can relate it to Revolver, thank you.

Back to my point about anonymity, the music industry is famous for their litigious approach to people infringing on their hard-earned copyrighted songs. (They liked Old Media, and the New Media isn’t their cup of tea. They’ve lawyered up and are being dragged into the sunset kicking and screaming.) When word gets out that U2’s newest album is being pirated before it even goes on sale, the music industry’s lawyers are on the case.

The difficult task of tracking down pirates is mitigated significantly when the pirates tell Last.fm (and through that site, the entire world) that they’re pirating the U2 album. Apparently, a number of people have forgotten to turn off their plugins that report their listening habits to Last.fm before listening to their shiny new (pirated) copy of U2’s new album. That number seems to be about 7,000.

Why on earth would you publish the exact time and date that you listened to an album that isn’t legally on sale yet? It could be because you’re forgetful. It could be because you don’t live in America. It could also be because you have a username like TheFly1983, or jetjaguar72, and you forget that this pseudonym is easily linked to your actual name in the actual world in your parents’ basement actual apartment. Which is, not coincidentally, where the guy serving you notice of the copyright infringement lawsuit is going to find you. The internet is a public place: do not advertise your exploits on it.

A Small Detour re: The Feds

As a legal note, the federal law that governs the release of server logs against the user’s wishes present a barrier to government agencies getting their hands on said logs, but not to private parties who want to do the same. Voluntary release of server logs (in this case, by Last.fm’s parent company, CBS) is legal if it’s to a private party (in this case, the music industry’s lawyers), even if it’s against the user’s (in this case, Mr. TheFly1983) wishes.

But if the FBI had asked CBS to turn over the server logs, the FBI would need a special subpoena for those records, or CBS would have been forbidden by law to hand them over. This also goes for your ISP’s logs: be kind to the people that know about your exploits if you do publish them on the internet. If you’d like to read the legalese, you’re looking for 18 U.S.C. 2702, which is part of the Stored Communications Act.

The Show Me State

The second news story is not about people with a false sense of anonymity; this is a story about a British couple living with a bad case of the digital willies. (A cursory Google search reveals that I am the first person to use this term on the internet for technophobia, as opposed to a reference to genitalia.)

It appears that one Mr. and Mrs. Boring (you really can’t make this stuff up) were horrified to learn that Google had taken a photograph of their house and put it on the internet. Google did this as part of its Google Street View product, which takes pictures of streets and puts them on the internet in a huge searchable database. For instance, here’s a picture of my law school.

The Borings do have a valid point in asking that the pictures of their property be removed from Google Street View. Their house sits on its own road, which is also apparently their driveway, and is marked “private.” Yet the Google Street View images let you see their driveway/private road, and now people can see the pool and houses that were already visible from the satellite maps.

The $25,000 question remains, though: who cares? I’d never heard of the Borings, and neither had you, Dear Reader. I suppose it’s possible that someday they could have upset someone who could use Google Street View to examine the Boring property. But that same person could just drive over to the Boring property and snoop about anyway: there’s no fence, no gate, and nothing but a sign marked “private.” Google hasn’t invaded the Borings’ privacy, just shown how superficial any expectation was.

Dismissed

The judge in this case has thrown out the lawsuit, although I think the Borings had a valid claim for trespassing if Google’s employees had set foot on the Borings’ property. It’s not necessary to cause any damage to someone’s property to be liable for trespassing: in America, we’re pretty big on sovereign property rights. (See also: that guy in Texas who shot some kids that broke into his house. Don’t mess with Texans.)

The lawsuit was by and large without merit for the same reason that other prior lawsuits relating to Google Street View were unsuccessful: you haven’t lost any privacy simply because your house is visible from the sidewalk. No one has invaded your home because you left your curtains open and people can see your cat. The fact that I don’t have to leave my house to look at your sidewalk is nicely tempered by the fact that the photos are months or years out of date. Your cat’s probably not perched on the back of that couch.

I’ve already alluded to the second big reason: nobody cares about Mr. and Mrs. Boring. Or Mary Kalin-Casey. Until they made a big enough fuss about the internet removing their privacy, they were all anonymous: nobody knew who they were. While it was possible to look at their pool or their cat, nobody did. Ironically, in their failed quests to salvage their privacy, they obliterated both their anonymity and their privacy. A quick Google search reveals the home addresses of both The Borings and the apartment building in which Ms. Kalin-Casey lived.

Does this mean that we live under the tyranny of the Techno-Info-Fascist rule of Google, and the only way to remain anonymous is to keep your mouth shut and hope that the great panopticon’s lantern is not shone on you? I don’t think so. Photographs of public places are hardly oppressive - that you are visible in public is not an invasion of privacy.

Honestly, the telephone book provides more useful information than Google does. Any crazed stalker will need to know where you live before he needs to know whether your house has red shutters or green ones. You could drive around for hours in Oakland, looking for a single beige apartment building. I just don’t see the harm or lost privacy in taking photos like this in public places.

The internet is not some magical wonderland, where social norms break down because information is digital. Publishing details of your criminal activities is always a bad idea, whether online or in the newspaper. And likewise, public places are just that: public, whether online or in the phone book.

Like Socrates, I know that I know nothing. (Unlike Socrates, if someone hands me a Hemlock smoothie, I’ll probably pass.) But I do know how to create a corporation.

It’s actually a remarkably simple process: you get a person called an “incorporator” to sign a legal document called the Certificate of Incorporation which has some Magic Language (dictated by statute). You send the document off to the Secretary of State (of your state, not Ms. Clinton), and some clerk stamps the document, files it, and proceeds to do the same for the next ten thousand documents in the inbox.

he corporation now exists: there are three categories of people that are more or less unique to the corporate anatomy. We’ve all heard about these people, but I for one was almost completely ignorant of their actual relationship to one another and the corporation before law school.

The first group of people by necessity is the Board of Directors. These people individually have little to no power to run the corporation. Any single Director is virtually powerless, but like the Justice League, when they assemble, they wield formidable powers. By majority vote, they make the big decisions for the corporation like entering into contracts and hiring the second group of people.

The second group of people is the Officers. They have familiar titles like President and Vice President and Treasurer and so on. The officers are elected by the Board of Directors, and hired for lots and lots of money because they’re in charge of running the day to day operations of the corporation. They hire employees like management (who hires other employees like middle managers and janitors) and have meetings and look at charts and pick which widgets they want the company to sell.

The third group of people are the Shareholders. These are people who’ve invested money into the corporation, and in exchange, have the right to get some money back (in the form of dividends) when the company is doing well enough to hand it out.

The Shareholders are the only group that doesn’t owe a very strict duty to act in the best interests of the corporation: the Directors and the Officers can be sued for all kinds of money if they use their powers to do anything to enrich themselves personally: they’re there to serve the corporation and the corporation only. Shareholders can even take their dividends and use it to start a company that directly competes against the corporation. A director would be in big trouble if he tried that.

However, in return, the Shareholders have even less power than the Directors. The Shareholders all get together and elect the Board of Directors: generally speaking, (there are always exceptions in the the law, it seems.) you get one vote for one share. This makes sense: the more money you invest in the corporation, the more of a say you get in the election of the people who have all the say in hiring the people who run the company.

Of course, then, if one person owns a majority of the shares, he can elect whomever he likes to the Board of Directors. It follows that this majority Shareholder, controlling the Board of Directors, can then control who is appointed as an Officer. He can have himself appointed as the President, CEO, or whatever he likes.

Of course, as a practical matter, he’s got the biggest stake in whatever mess he makes, so if he insists on appointing himself President and promptly runs the company into the ground, no shareholder has lost more of their investment than he. The employees are a different story, however. They had better hope that if there’s an egomaniacal shareholder trying to get 51% of the shares, he’s got some solid business acumen.

I have to confess to being completely ignorant of how income taxes work as recently as last month. I’m still pretty ignorant, but I’m law school ignorant, which is a fair sight more educated than the guy who tries to sell you on Gold as the ultimate investment. Or folks who think that a 240% interest rate signals “safe bet.”

sidebar: The people who lost their savings were, by and large, operating through brokers. If ever there were a time when judges should consider sentencing someone to serve as the aggrieved party’s butler, (like that show within a show on Seinfeld) I think this is it. It’s not nice to throw away other peoples’ money.

The first and most fundamental concept of income tax is deciding what a taxpayer’s Gross Income is. Your Gross Income is your “raw” income, before you start doing any crazy deductions or hiding money in bizarre off-shore pyramid-shaped tax shelters. Tax liability is set at a certain percentage of a person’s gross income, so you have to know what that number is before you can decide what percent of it’s owed to Uncle Sam.  

Marginal Rates, An Intro To

Note that there’s no single percentage for your entire income. I don’t have the precise numbers in front of me, but as an example,

• -Your first $30,000 is taxed at 10%,
• The next $30,000_ [income between $30,001 and $60,000] is taxed at 15%,
• The next $40,000 is taxed at 20%,
• And then your next $100,000 [your income between $100,001 and $200,000] is taxed at 22%.
• and so on and so forth.

There’s a popular misconception that if you made $120,000, your entire income would be subject to the 22% tax rate. Really, only $20,000 would be subject to that 22% tax rate in this fictional tax schedule. The real tax schedule works just like this, but with different numbers.

Back to Gross Income

The Internal Revenue Code lists a whole bunch of examples of what the IRS will consider gross income: the list isn’t exhaustive, but it does illustrate just how much stuff is gross income that you wouldn’t think should count.

In a rather recursive example, if your employer notices that you owe $15,000 in income tax this year, and promptly gives you the $15,000 to pay the IRS, that $15,000 is actually gross income. As a result, while you just handed the IRS a check for $15,000, now you’re counted as having made $15,000 more than you thought you did: you didn’t owe $15,000 in taxes, but $18,000.  You owe the IRS $3,000 more.

So now if your employer pays this extra $3,000, you’ll owe an extra $600, and so on and so forth. This recursion can only go on for so long: eventually, your employer will be tossing you fractions of pennies, and the IRS will be taxing a fraction of those fractions of pennies. You can whip up an Excel spreadsheet to do this math for you in a few minutes, if you like. Or you can read what Zeno had to say about these sorts of fractions of fractions of fractions.

So why on earth does the IRS get to keep taking more and more? If my employer will pay for my taxes, why should that count? I don’t get to keep the money. If I’m smart, I don’t ever even touch the money - it just goes right to the IRS. Surely you can’t tax me for money I never received, right?

Bringing it Home

Think about it this way: say you backed into Tony Soprano’s favorite Mercedes trying to park your car. He seems like a nice enough guy: he’s only going to take 10% of what you earn every week until you fix his car. The next day, you go into work and tell your boss that from now on, you want your company to pay for your rent, so Tony is none the wiser, and you get to keep more of your money.

Well, Tony might not immediately catch on that you’re lying about how much you make. But when he does, rest assured that Paulie Walnuts and Joey Baggadonuts are going to kick you and your boss in your respective shins very hard. You can’t trick either Tony or the IRS just by claiming you never touched the money: if you get someone to take care of money you owe (payment to Tony, or taxes to the IRS), that’s gross income.

Just be glad that when the IRS says they’re going to audit you, they don’t mean “beat you into unconsciousness with a baseball bat and stuff you in the trunk.”

A: “Man, Constitutional Law is seriously the third time I’ve had to read Lawrence v. Texas [wiki] [cornell]”

B: “Third time?  What was the third?

A: “Criminal Law, Family Law, and…”

B: “Your self defense?”

Even the “dude, you’re gay” jokes in law school are complicated.