Why Google Guidelines Sometimes Depart From Reality

The Federal Reserve is somewhat like a market maker, or at the very least a market influence, on the value of currency. Google acts in a similar value, placing value on and evaluating the value of information and collections of information.

Reading this blog post about Ben Bernanke and replace words like credit and inflation with paid links and search spam and you can see (and perhaps even respect) how Google manipulates the press, why Google's guidelines are often forced to be removed from reality, and search engineer editorial action is often harsh beyond reason.

Here is an excerpt from the blog post about Ben Bernanke:

The last time a slowing economy failed to moderate prices was the 1970s. Even as the economy slid into recession, we had major spikes in the prices of energy, food, clothing.

What is particularly worrisome to me is that as we have slashed interest rates 225 basis points, consumer loans -- mortgages and revolving credit -- have actually moved higher.

Gentleman, this is a major problem. And our internal, non-public projections forecast it is only going to get worse for the next 4 quarters . . .

Paying a PR firm is not much different than buying PageRank, other than it perceived by Google as being cleaner.

And if you are big into economic stuff here is some more good stuff...

First, Warren Buffet's Berkshire Hathaway Annual Report [PDF] offers a lot of great business strategies and insights. If you have never read any of his letters, make sure to read from the heading on page 5 or 6 about Business - The Great, the Good and the Gruesome right on through to the end of that section a couple pages later. You can also read Warren's older reports here.

Nouriel Roubini on The Current U.S. Recession & the Risk of Systemic Financial Crisis [PDF] offers a bearish outlook on housing:

This is the worst housing recession in US history, and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak, that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use "jingle mail" (i.e. default, put the home keys in an envelope and send it to their mortgage bank).

Some of the early lending institution losses are being socialized by inflation and other sources

Countrywide - an institution that was more likely insolvent than illiquid - has been bailed out with public money via a $55 billion loan from the FHLB system, a semi-public system of funding of mortgage lenders.

And this is altering the online economy heavily.

• CountryWide cut their online display ad budget by ~ 60% from December to January.
• LendingTree swung to an operating loss of $508.1 million in the fourth quarter. In early February LendingTree killed many of their affiliate relationships. Affiliates should be a low risk channel, so how healthy can their other ad channels be?

A few years ago credit card companies rewrote the bankruptcy laws, but mortgages have not yet been re-written to favor corporate interests. Nouriel Roubini highlights further risks associated with house price depreciation:

What is happening is just the consequences of rational economic behavior. In most US states mortgages are non-recourse loans; thus, if a home owner defaults on its mortgage then banks take over the collateral - the home - via foreclosure but once that happens it cannot go after the borrower for any difference between the value of the original mortgage and the current value of the property.