Why Google Guidelines Sometimes Depart From Reality

Mar 2nd

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.

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.

Published: March 2, 2008

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Comments

March 2, 2008 - 4:00pm

Interesting (and scary) testimony by Bernanke to Congress. But I would be quite shocked to see the Fed declare a "Do No Evil" policy carried by Google and Schmidt. If so, redefining "evil" would be a prerequisite as we have seen with the redefining of "torture". In Googleland, they own the definitions of "relevance", "quality" and "value" and that does put them in a unique position that often departs from reality.

March 3, 2008 - 12:26am

Bernanke did not actually make that comment...that was the point...was that if he made that comment (even though it is entirely true) the market would be rattled. :)

March 3, 2008 - 6:18am

Minor Irony: You know two people who just *love* Buffett and eat up his reports and practice his type of investing?

Sergey and Larry of course.

He's the reason Google stock will never split.

March 3, 2008 - 8:12am

Interesting (and scary) testimony by Bernanke to Congress. But I would be quite shocked to see the Fed declare a "Do No Evil" policy carried by Google and Schmidt. If so, redefining "evil" would be a prerequisite as we have seen with the redefining of "torture". In Googleland, they own the definitions of "relevance", "quality" and "value" and that does put them in a unique position that often departs from reality.

Evil is whatever Sergey decides is evil.

March 4, 2008 - 4:59am

The Feds version of 'do no evil' would be to allow free markets to do their stuff, freely. The Fed pushes this idea while the White House pushes the other way. Politicians are inherently short sighted and act to please the public in ways that help to get them votes. So when millions of home owners are defaulting on loans and big banks are on the verge of insolvency the White House wants to rush to bail them out with public funds. They think it means keeping people employed and in their homes and maybe gets them more votes next election. The Fed urges otherwise. Reality often ends up somewhere in the middle.

Google preaches "don't buy links to game SERPs" but here too reality falls somewhere in the middle.

* to gotads. I don't think Google would be making a wise choice to never split the stock. Birkshire Hathaway is a boring holding company for Warrens holdings in other companies like Coke, Gillette, Geico, etc.. Meanwhile most these companies still trade publicly on their own and remain at attainable price levels for the average investors buying shares in 100 lots. If GOOG went to $10,000 per share they would lock out all the small investors and only large institutions, pension funds and mutual funds could afford to buy them.

But there is value there too I suppose. Less volatility in stock price as these large funds hold very large positions and can't simply dump them on a whim. Small investors would still own GOOG by proxy through their pensions and IRA accounts, but it would greatly damper sell offs like we saw over the past month. On the flip side it also also dampens the rise in stock when markets are in full bull charge mode. Excluding of course for the quick and nimble hedge funds that won't even blink when they decide to offload $1B in shares at the click of a mouse.

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