Friday, October 01, 2010

What If AIG Had Been Allowed To File A Conventional Chapter 11 Bankruptcy?

Yesterday's faux-repayment announcement by AIG rivaled GM's various announcements of debt repayment and an IPO for trying to disguise reality.

If you read the details, all that's really occurred is that Treasury has taken common shares to swap out the TARP's preferred shares in AIG. Hardly earth-shaking, is it?

The cognoscenti on CNBC yesterday morning were all a twitter about this development, with at least one co-anchor or guest host gushing that the TARP fund won't lose money, that AIG will ultimately not be a loss for the taxpayer, etc.

This got me thinking about the closest comparison to AIG- GM. Yesterday, I wrote this post about Paul Ingrassia's review of auto czar Steve Rattner's book on the administration's takeover of GM. In it, I observed, quoting from a prior post,

"Maybe if GM were allowed to go through a normal bankruptcy, and another firm had bought and reorganized various divisions of the old GM, all that borrowed Canadian and US money may have stayed in the private sector and funded other, better jobs with new firms."

What if AIG had also been allowed to proceed through a conventional, orderly Chapter 11 reorganization? As I wrote in one of many posts on this topic, found under the label "AIG,"

"I think Jenkins' idea is sound, but he omitted one very credible alternative that Geithner & Co. have never discussed.

That is, a simple carving out of AIG's financial products unit for placement into bankruptcy. Such a move would have isolated the troubled portion of the insurer from the heavily-regulated insurance operations.

Once in bankruptcy, AIG's counterparties would no longer have a right to 100% payments for positions. But an orderly disposition could have occurred, again avoiding needless losses to US taxpayers.

It continues to mystify me why only one Journal contributor has ever raised this option. It's the default path for failing companies, and should have been the preferred option for AIG.

Geithner may or may not have been guilty of various malfeasances or neglectful inactions in the AIG situation. But one thing is sure. He and his team were surely guilty of a lack of creativity and perspective on the situation."
In other posts, I suggested, as have others, that AIG could have been easily broken into three pieces: a group of conventional, state-regulated, solvent insurance units; a collection of asset management businesses which held, in trust, other peoples' money, and, finally; the problematic financial engineering and swaps-writing business units. Only the third was insolvent. As one Journal editorialist noted, a court could simply have assigned uniform haircuts to all counterparties and reduced the excess liabilities of the third unit.
That done, it could have been either closed or sold to the highest bidder.
But, like GM, our government chose to use taxpayer dollars to 'rescue' a firm which could have more efficiently and effectively been reorganized under existing Chapter 11 protections, with investors paying a market-determined value for any surviving operations and shareholders taking appropriate losses in bankruptcy.
So taxpayers footed the bill to keep dubious operations afloat and essentially prop up questionable asset values.
Wouldn't it have been a much better use of capital to allow investors and a bankruptcy court to determine asset values and use private money to reorganize, sell and/or liquidate various elements of both GM and AIG?
Then we wouldn't have this unholy entanglement of government and private sectors. Or the questionable use of taxpayer money to favor a few companies over others which went bust.
Then there's the question of opportunity costs. It's debatable that taxpayer funds will ever earn an appropriate, risk-adjusted return for the money pumped into either GM or AIG.
There was always an existing, appropriate path for handling GM and AIG- conventional Chapter 11 reorganization and, where necessary, bankruptcy.
What we see now is many government, GM and AIG officials, and selected pundits, misleading taxpayers about just what risks their money incurred for these bailouts, and what the appropriate return should have been or be in the future.
A classic example of a magician's misdirection and diversion from the real action, which, in this case, is that these companies should have been consigned to bankruptcy court where private investors could risk their own capital.

The 1930s: Could It Happen Again?

Tuesday's Wall Street Journal carried a rather innocuous staff editorial entitled A Game of Trade Chicken.

In it, the staff wrote,

"The U.S. and China are slouching toward a trade war, with the House of Representatives aiming to vote this week on a bill to impose duties on Chinese goods if Beijing doesn't revalue its currency against the dollar. Two can play at that game, however, as China is proving as it responds to earlier U.S. protectionism.

China's Commerce Ministry Sunday unveiled its final order in an antidumping investigation against U.S. poultry. Effective yesterday, Beijing is levying duties ranging from 50% to 104%, depending on the producer, on imports of products such as chicken feet. The Chinese government claims U.S. companies sell in the Chinese market at a price less than their cost of production. In a separate case in August, Beijing slapped countervailing duties of between 4% and 31% on the imports, claiming U.S. agricultural policies unfairly subsidize chicken production in America.

These moves must be about politics because the economics of the cases make no sense. Far from dumping, U.S. poultry producers can sell chicken products in China at a premium over the American market because Chinese consumers prefer parts of the bird that Americans don't like—especially the feet, a delicacy known as "phoenix claw." And while it's hard to dispute that subsidies distort the U.S. agricultural marketplace far beyond anything Adam Smith would recognize, to the extent China feels the effects they amount to a U.S. subsidy for Chinese consumers.

This case also came after years of Chinese frustration with an unrelated move on Capitol Hill to block imports of cooked Chinese chicken over misguided safety concerns. Chinese chicken producers had complained about U.S. practices for a long time. In the face of mounting American protectionism, Beijing simply couldn't say no to its own domestic lobby anymore.

As for American lawmakers—and Mr. Obama—the chicken case is a warning. Merely because retaliation hurts China's own economy doesn't mean Beijing won't give in to political pressures to respond to American protectionism.

We're blithely told that a full-scale trade war a la the 1930s can't break out again because everyone knows better. But that's what we were told about the other lessons of Depression economics, and our leaders have already remade nearly every one of those mistakes. In a game of trade chicken, everybody will lose."

This case has hardly made the major media headlines, yet, for its potential consequences, it surely must be one of the most chilling and important news items of the past week.
That last paragraph says it all, does it not?
"...because everyone knows better. But that's what we were told about the other lessons of Depression economics, and our leaders have already remade nearly every one of those mistakes."
Worth repeating to really let it sink in.
We've had, by now, $1 trillion of nearly-pointless so-called stimulus spending. All that borrowed and printed money, which will have to be repaid somehow, has done no more to reduce unemployment, create jobs, than FDR's myriad make-work spending programs after which the stimulus was explicitly modeled.
Economists have criticized the stimulus bills for ignoring the reality that today's consumers, as taxpayers, realize that Keynesian fiscal pump-priming has to be repaid from higher subsequent taxes, so they feel poorer simply by watching such programs enacted.
While it's true that Bernanke's Fed hasn't shrunk the money supply as his predecessor did in the 1930s. If anything, he has erred on the side of excessive easing, creating a liquidity trap with 0% interest rates.
And now we have our Congress embarking on a trade war with our major creditor.
Smart. Really smart.
Between the new, beggar-thy-neighbor currency devaluations among major nations, and this new tilt toward tariff and trade wars, we're well on our way to repeating much of what made the US depression of the 1930s last so much longer and be so much more severe than it was in other countries of that time.
What was that about those who don't learn from the past are destined to repeat it, especially their prior mistakes?

Thursday, September 30, 2010

Ann Mulcahy "Turnaround Queen?"

Xerox's former CEO, Ann Mulcahy, has been a guest-host on today's CNBC morning program. As she arrived on the set, the talker at the bottom of the screen proclaimed her the "turnaround queen."

Really? I don't see it.

I didn't see it when I wrote this post last week concerning her reportedly being in the running to replace Larry Summers. In that post, I wrote,

"Mulcahy became CEO of Xerox on 1 August, 2001.

After a smartly-rising performance from 1990-1999, Xerox's share price deflated, along with that of many other technology firms, when the tech bubble burst in 2000. By 2001, the company's stock price had begun to recover, but has basically flat-lined over the period of Mulcahy's management. The S&P did roughly the same.

How does this make Mulcahy some sort of management maven? And why does anyone even bother with Xerox anymore? It's been a technology also-ran for at least a decade."

Turnaround? I'm not seeing it.

And, as I mentioned, Xerox has not been a 'high tech' firm for decades.

C'mon, in a world of iPads and such, copiers are high tech?

The co-anchors have been nearly genuflecting to Mulcahy all morning, and for what? Yes, she comes across as intelligent, poised and reserved. Probably competent at running a has-been technology firm which had fallen on very hard times. Not a rocket scientist, but not an idiot, either.

Want to see a real eye-opening graphic? How about the nearby chart comparing Xerox's and GE's stock prices since about 1975?
GE went up like a rocket until 2001, when Welch left, while Xerox was flat for a decade before rising during the 1990s, along with the US economy. But, since 2001, when both Immelt and Mulcahy became CEOs of their respective companies (within about a month of each other), Xerox has actually marginally outperformed GE. Mulcahy managed to keep Xerox flat, while Immelt destroyed value at GE.

Now, if Mulcahy is the "turnaround queen" for this performance at Xerox, what does that make Immelt's comparatively poorer performance at GE? And since NBC was sold to Comcast, will CNBC finally tell the truth about Immelt's disastrous reign at their former parent?

Paul Ingrassia Review's Rattner's "Overhaul"

My one-time squash partner and friend, former Wall Street Journal executive Paul Ingrassia wrote a review of Obama auto czar Steve Rattner's recently-published book, "Overhaul." As a Pulitzer Prize-winning author for his own auto-related book, Ingrassia was the natural choice of the Journal to comment on Rattner's alleged tell-all tale of the administration's intervention into GM's and Chyrsler's travails in 2009.

As I write this, I am picturing Paul sitting in front of me discussing his review, because, due to my past personal association with him, I don't want to find myself writing anything that, were I to run into him on the street this week (he lives in the next town), I wouldn't be at a loss to explain or defend.

That written, my overall reaction to Paul's review is that it reveals what I think is his latent liberal political bent. As a seasoned and highly successful journalist, Paul never made a practice of advertising a specific partisan bias, but I think it's fair to say that he certainly conveyed, at best, a sceptical acceptance of conservative fiscal and social policies.

Thus, he lauds the administration's decision to eschew conventional bankruptcy for GM. For me, the salient passages of his piece are these,

"Mr. Rattner recruited a 15-member task force whose members had private-equity backgrounds, not auto- industry experience. That turned out to be an advantage, because Team Auto, as the group called itself, wasn't constrained by Detroit's hidebound thinking. The conventional wisdom argued against the auto companies' declaring bankruptcy or the government's taking equity (if temporarily). 

President Obama is pictured as cool and decisive, especially when dealing with his divided staffers on whether to save Chrysler. There was no such debate about GM, which was deemed too big to fail.

But to his credit, Mr. Rattner also shows unexpected candor. He reveals that White House staffers vetoed GM's desire to move its headquarters from downtown Detroit to the suburbs, despite President Obama's insistence that the government wouldn't call the shots at the company.

Given the chance to do it again, Mr. Rattner writes, he would have reformed the fixed-pension systems at GM and Chrysler, which he says might come back to haunt both companies. He also expresses concern that the United Auto Workers union hasn't changed enough to be a partner instead of a problem for Detroit.

Mr. Rattner acknowledges that the bailout remains unpopular, though he believes that the government will recover most of the $82 billion spent—in part by selling its stock in what he calls "Shiny New GM." The money, he says, averted "a major economic calamity in the industrial Midwest and helped keep the national economy from spiraling from deep recession to outright depression." It's a self-serving statement, but credible. Team Auto did a fine job, and Mr. Rattner has written a good book about its efforts. Whether GM and Chrysler make the most of their second chance is yet to be determined and will be fodder for future books."

It's surprising to me that Paul would refer to a traditional Chapter 11 filing and court-supervised bankruptcy for GM as being against "conventional wisdom," I rather think such a filing was the conventional wisdom, and the entirely right thing. Except that it would be a non-government-tainted bankruptcy, in which the UAW wasn't paid back for political favors at the expense of bondholders with legitimate rights.

Curiously, Paul is completely silent on this point in his review. Instead, he seems to have swallowed Rattner's argument that only by employing non-auto task force members was his 'Team Auto' able to devise the correct and best solution to GM's woes.

That's just nonsense. That Rattner and his Team were involved at all shows how what should have been a straightforward, unbiased, court-adjudicated reorganization of GM's operations became political theatre and an opportunity to dispense political largesse while appearing to be concerned with larger economic issues.

Many, myself included, feel that the only larger economic effect of the poisoned GM bankruptcy was the nearly-complete erosion of investors' faith in the rule of law in the US.

At least Paul highlights what Rattner revealed, which is that his Team and the government exercised far more control over GM, despite promises to the contrary, than they admitted in public at the time. Or now.

I'm puzzled that Paul didn't chide Rattner for only musing that reforming the outdated defined-benefit pensions of GM's employees was necessary to truly reorganize GM for any future success. You'd have to have had your head in sand somewhere for the past 20 years to believe otherwise. Every major US industry involving capital goods, beginning with steel, then airlines, and, now, autos, has seen its defined-benefit pensions gutted by economic reality. For anyone to think that any auto company will long survive with this sort of retirement scheme is ludicrous.

Finally, I was, again, not surprised that Paul wrote so approvingly that "Team Auto did a fine job."

Team Auto did a job that should never have been attempted. I've contended in prior posts, here and here, there was a simple and clear path to cleaning up GM's problems. In one of those posts, I wrote,

"Who are you, or any government official, to say that the alleged new 7,500 jobs at GM are better than letting capital markets create jobs?

Maybe if GM were allowed to go through a normal bankruptcy, and another firm had bought and reorganized various divisions of the old GM, all that borrowed Canadian and US money may have stayed in the private sector and funded other, better jobs with new firms.

My brilliant boss at Chase, SVP Gerry Weiss, used to remind us that the real value of informed resource allocation across the bank's many businesses was realized by transferring money and employee counts from the least-efficient, money-losing units, to more efficient, more profitable and, typically, much faster-growing units. The major delta in the bank's performance would result from this move of resources from extremes. From extremely bad uses to extremely good uses.

It is just this process that is frustrated by crony capitalism such as we've witnessed in the GM bailout. Instead of the resources wasted at GM being freed up to be used elsewhere in the economy, they were allowed to remain in place, then more capital added, from taxpayers, as a free equity injection. Free to GM, but very costly to taxpayers and the economy in general."

Paul himself admitted to being biased for the big auto companies in a prior Journal book review. I therefore expected him to pretty much back whatever the administration had to do to "save" GM. It's in his blood, and I really think it's such a deeply-rooted, emotional facet of Paul as a former beat auto sector reporter that he literally cannot change how he feels and, therefore, thinks about the GM situation.

As such, he would never quarrel with someone whose job was to manage the government's dominant role in preserving GM, rather than taking a broader, longer range economic viewpoint. Paul seems to simply assume that the many claims of complete US economic depression resulting from a GM court-supervised Chapter 11 reorganization were true on their face, without any evidence of that contention. As friends with experience in Chapter 11 proceedings have assured me, filing for and undergoing reorganization, and actually dissolving a company, are two completely different events. The former allows for continued operation of business while closures, sales and such are consummated.

Plenty of other old, famous US corporate names from the past have vanished over the years- TWA, RCA, Continental Bank, and American Motors, to name just a few. Death and dismemberment of outdated businesses is one of the inherent strengths of the US economic system.

That means reliance on relatively-free, of government interference, for one, markets in both good and finance, to make the best choices on the uses of resources and their values.

Not reliance on a handful of bureaucrats picked by politicians in Washington.

Thus, not only does Rattner's book obviously come from a heavily vested-interest perspective but, unfortunately, so, too, does Paul Ingrassia's review of that book.

Wednesday, September 29, 2010

GM Uses Taxpayer Money To Lobby Congress & Fund Political Campaign Coffers

In another story of sordid uses of government money, last Friday's Wall Street Journal featured a staff editorial focused on the use of what is now predominantly taxpayer's money to fund Midwestern Democrats' campaigns as well as pay a slew of Washington lobbyists.

The editorial points out some questionable legalities, including GM's being a near-government entity and, thus, barred from lobbying Congress. Then there is the UAW, which is also now a part-owner of GM, and conducts extensive partisan political fundraising and lobbying. Both situations walk precariously close to the line separating government and non-government, and, thus, blur it, since two organizations which are joined in minority ownership of GM with the federal government are using fungible money to influence the latter.

It's a tortured, unholy mess.

A failed company uses taxpayer money to influence its new political masters. We, as taxpayers, are funding the bankrupt firm to influence the government for which we also pay, enriching lobbyists to the tune of some $7MM, and the campaign coffers of selected politicians with about. $90K of contributions

How in the world is this healthy? Or legal?

This is just yet another example of the expensive distortions of real economic forces which occur when government intervenes unwisely in private industry, rather than simply allowing things to take their normal course.

In GM's case, that would have been to file a normal Chapter 11 bankruptcy and be reorganized under court protection, with no involvement from unions or the federal government.

The Perils of Government Selecting Private Sector "Winners"

Here's a post from my companion political blog concerning Michigan's investment in private sector battery makers. It illustrates the perverse results which can flow from allowing government, under the auspices of fostering business growth, to choose winners, and, by exclusion, losers in the private sector.

Regardless of which party does it, having government do anything other than let contracts for services will lead to unintended, entangling, consequences for reasons other than economic, between itself and the private sector.

Tuesday, September 28, 2010

Jamie Dimon's "Halo" Effect

It never fails to amaze me how many people ascribe unique managerial powers and skill to Jamie Dimon, despite any significant evidence that he's ever been anything but a cost-cutter trained at Sandy Weill's knee.

In yesterday's Wall Street Journal's book review, Philip Delves Broughton reviewed Paul Sullivan's new book, Clutch. Here's the passage from the review that I found to be amazingly ill-informed and wrong-headed.

"At one point he contrasts the performances of Jamie Dimon, chief executive of JPMorgan Chase, and Kenneth Lewis, the former head of Bank of America, during the financial crisis of 2008. Both men went into the crisis with their firms in good health. By the end of it, Mr. Dimon had acquired Bear Stearns and Washington Mutual and handsomely increased his company's share price. Mr. Lewis had acquired the teetering Merrill Lynch and seen Bank of America lose $90 billion in shareholder value.

Why the difference? Mr. Lewis made the errors typical of chokers. He over-thought the situation, and he was over-confident. When the Merrill deal was criticized, he tried to avoid the blame. He acted, according to Mr. Sullivan, as an "imperial chief executive," refusing to believe that the worst might happen. Mr. Dimon, by contrast, immersed himself in every detail of his acquisitions, fought to get prices that made hard financial sense and never shirked from the consequences. It was as if all his experience as a financier and manager had found its perfect expression in that moment."


Well, here's an alternative view. Substantiated by facts. The accompanying chart displays stock price series for Chase, Goldman Sachs, Wells Fargo and the S&P500 Index from 2006 to the present. Dimon became CEO of Chase at the beginning of 2006.

That BofA and Citi are the worst two performers is no particular surprise, is it? While it's not crystal clear from the chart, one can deduce that Goldman and Chase performed roughly the same, while Wells Fargo and the S&P500 did a little worse.

Much of Chase's milder value loss during the recent financial crisis stemmed, as I've written in prior posts, from it's simply being slower and less agile in getting into the mortgage-backed game in the first place. Thus, the bank's traditional stodginess and slow execution accidentally saved it from becoming another Citigroup or BofA. It was an error of omission, not commission.

Regarding the acquisition of various wrecked investment and commercial banks, I think Broughton wrongly gives Sullivan a pass on incomplete understanding of the situations.

Bear Stearns was the smallest of the publicly-traded investment banks, and Chase only rescued it with assurances of loss guarantees from the government. Maybe that counts as Dimon's skill, maybe not. At that point, with mortgage-backed instruments having caused tens of billions of write-offs on bank balance sheets beginning in late 2007, only an idiot would not have required such guarantees when agreeing to purchase a bushel full of them by way of taking over the failed Bear Stearns. It surely wasn't rocket science.

By the way, Lewis did the same thing with Merrill Lynch, even to the point of trying to walk away from the deal, only to be basically blackmailed by the Treasury and Fed.

Regarding Chase's WaMu takeover, it is positioned as more brilliant than it actually was. As a commercial bank, WaMu's dissolution was a relatively straightforward event. The FDIC handles these routinely, albeit on a smaller scale. But a bank like WaMu was, in comparison with Bear Stearns, a fairly simple 'acquisition.' Chase simply took over the deposits and branches, negotiating with the FDIC on various aspects of the assets. But it was a known business.

I see the difference between Lewis and Dimon as more a matter of different types of flaws. Dimon has never been a big-picture guy. Yes, he is probably very astute on details, because that's what his mentor, Sandy Weill, focused on as he acquired his string of brokerages to build Shearson Lehman. But every large-scale concept Weill pursued exploded in loss. Particularly....Citigroup. Nobody would ever accuse Dimon of having new, innovative strategic concepts, or implementing any successfully.

Lewis, on the other hand, evidently thought strategic acquisitions came with the executive suite he inherited from Hugh McColl. The missing acquisition mistake in the review, and perhaps the book, is BofA's purchase of the wreckages of Countrywide. As a mortgage bank, Countrywide's demise didn't really threaten the financial system, so Lewis' overpayment for it was a self-inflicted wound. There was no pressure for any bank to 'rescue' the troubled mortgage lender. It wasn't seen as a key financial institution in the fabric of the US economy.

The Merrill Lynch acquisition was more complex than Chase's of Bear Stearns. I see Lewis' mistake, again, as one of scope, rather than detail. And, frankly, both Lewis and Dimon, already heading firms that were among the largest five commercial banks in the US, did not really need any of these acquisitions to remain so. Consolidation is the dominant trend in the sector, but these two firms were already pretty much impervious, absent tremendous operating losses, to losing their positions as financial utilities, whether they bought any of the failed investment and commercial banks, or not.

Wells' successful digestion of Wachovia remains uncertain. Wachovia had unwisely overpaid for Golden West, which helped destroy the North Carolina bank.

To me, viewing the last five years of performances of these institutions, the lesson is that only the most and least aggressive two firms came out on top. Goldman maneuvered through the crisis, while Chase more or less hunkered down, with a few distressed asset purchases relying on government guarantees.

Perhaps the better lesson from Lewis' and Dimon's behaviors is that it's better not to operate beyond your capabilities in the first place. That doesn't mean Dimon is a better overall manager, but, in this case, that his particular skills in micro-management and small-picture thinking happened to dovetail with the brief era. The sort of skills, come to think of it, which are all one probably needs to oversee a lumbering, slow-growth, unexciting financial utility.

Selective Recall: Former Fed Governor Randy Kroszner On CNBC This Morning

Former Fed governor Randy Kroszner appeared on CNBC this morning, fully displaying a case of extremely selective memory regarding monetary policy and the Great Depression.

When co-anchor and token conservative Joe Kernen asked Kroszner  if it wasn't possible tit was time to just let the economy recover on its own, Krosznerhat  immediately channeled the ghost of the Great Depression, claiming 'they tried that in the 1930s and look what you got.'

Evidently, Kroszner's only knowledge of history comes from Friedman and Kagan's A Monetary History of the United States.

Never mind the tax hikes, regulatory assault on business, a plethora of government agencies designed to compete with business (e.g., TVA), and the Smoot-Hawley Tariff. In Kroszner's world, simply noting the admitted mistake of excessive tightening and employment of the 'real bills' doctrine choked US money supply during the Depression, so its opposite must be employed now, e.g., excessive monetary easing.

I guess when you've been a member of the Fed, it's impossible for you to see it as a warped, possibly-unconstitutional, grossly imperfect and usually badly-run central bank. Kroszner clearly has no ability to even entertain the thought that, as Alan Reynolds' research has shown, a little over a year ago in the Wall Street Journal, that the Fed's interventions in periods of economic softness have deepened and lengthened US recessions.

When challenged, Kroszner solemnly intones or implies that now-familiar argument so often used by the current administration in defense of its wasted, nearly-pointless fiscal stimulus programs,

'Ah, but it would have been so much worse without Fed intervention.'

By appearing on CNBC with the grandeur of a monetary wizard, and the deference of the co-anchors, Kroszner delivers a sense of certainty and absolutism in defense of any Fed intervention, no matter how massive nor disruptive of naturally-clearing and healing financial markets. And no matter that actual evidence of Kroszner's contentions is non-existent.

Monday, September 27, 2010

Ivi Debuts with "Live TV On The Internet"

A colleague recently sent me this article regarding Ivi, a new television content-to-PC service. Billed as "live TV on the internet," it describes the service thus:
The Seattle-based company is launching a downloadable PC application that takes a live feed from TV channels and distributes that stream, uninterrupted and without delays, to viewers worldwide 24 hours a day. Ivi is offering a 30-day free trial for the service to watch major broadcast channels including ABC, NBC, CBS, Fox, The CW, PBS and other local affiliates.

The Ivi TV player transforms a computer into a television with multiple channel offerings. Users can select the channel by using a simple channel guide. The TV player can be downloaded to any Windows, Mac, or Linux computer. It will soon be available on platforms such as mobile devices, tablets and set-top boxes.

The company claims Ivi will make set-top boxes obsolete by allowing viewers to watch their TV shows anywhere, on any PC where they download the application. Todd Weaver started Ivi in 2007. He serves as chief executive.

One of the features that consumers have long wanted is a la carte TV channels. Most of the time, consumers may want only one or two channels. But they have to subscribe to a whole bundle of channels in order to get what they want. Ivi says it can enable such a la carte service.

The basic Ivi Air package contains over 25 major broadcast channels for $4.99 a month, after the 30-day free trial. More channels will be added each month for no additional costs. If you want time shifting, or digital video recording that allows you to watch a show whenever you want, you pay 99 cents a a month more.

Ivi hopes to create a bigger hole in the cable TV industry, which is losing lots of subscribers. Market researcher SNL Kagan reported that the cable TV companies lost 711,000 subscribers in the second quarter of 2010. Yankee Group said that pay-TV revenues are starting to decrease, partly due to rising cable service rates. Ivi claims that it has legal rights to run TV shows on the web and it will be paying royalties to copyright holders.

Ivi’s service does not require buffering, or a delay which occurs as a video downloads to a user’s system. You can watch the Ivi shows in any quality level you want. You can watch local content anywhere in the world. You can view New York City broadcast channels wherever you are. The company is one among many companies that are promising to disrupt the TV business. Others include Apple with Apple TV, Google with Google TV, Samsung with its TV apps, and Logitech with its upcoming Google TV set-top box.

There's no doubt that Ivi, if it operates as claimed, gives you instant PC- or other digital device-based access to television content wherever you can get an internet connection. And it certainly allows your PC to function like a television with a digital recorder.

In this regard, it certainly offers an ability to drop a $50+ monthly cable television subscription.

However, it's unclear how Ivi disrupts the provision of cable signals to an actual home television. I can think of two methods of doing that. One is to simply dedicate a laptop or Ipad with a companion large flat panel monitor as one's home television. Another is to buy a new Tivo remote with which to access the internet.

So it's likely one can fashion a method of linking those last few feet from a home digital device to one's television. I simply found it odd that Ivi celebrates making your laptop into a television, which is already old news, what with Hulu already offering free access to previously-aired programming. Yes, the real-time television content hook might be worthwhile. But if you time shift already, maybe not.

Still, with Ivi available, and for such a low monthly fee, the further disintermediation of cable television and its revenues looks to be given another big shove.