Websites to Google 'You're killing our business!'.

NEW YORK - Google made one of the biggest changes ever to its search results this week, which immediately had a noticeable effect on many Web properties that rely on the world's biggest search engine to drive traffic to their sites.

The major tweak aims to move better quality content to the top of Google's search rankings. The changes will affect 12% Google's results, the company said in a blog post late Thursday.

"Our goal is simple: to give users the most relevant answers to their queries as quickly as possible," said Gabriel Stricker, Google spokesman. "This requires constant tuning of our algorithms, as new content -- both good and bad -- comes online all the time. Recently we've heard from our users that they want to see fewer low quality sites in our results."

Typically, Google's algorithm changes are so subtle that few people notice them. But these most recent changes could be seen immediately.

How to test the change: The IP address 64.233.179.104 displays Google search results as they would have appeared before the recent algorithm change, according to several webmasters posting to the WebmasterWorld.com forum.

Google would not confirm that IP address uses the older algorithm, but comparing searches of trending topics on google.com with searches using the special Google IP address reveals how the search engine now seems to be favoring certain content.

The changes appear to be affecting so-called "content farms" the most, which are websites that amass content based on the most-searched terms of the day. Demand Media, AOL, Mahalo and the Huffington Post have all been accused of such tactics, including a notable "story" from HuffPo about the Super Bowl that Slate.com media critic Jack Shafer called "the greatest example of SEO whoring of all time."

Tests using trending topics show Google's tweaks in action.

The current top Google result for a search of Charlie Sheen rant target "Haim Levine" is a New York Daily News page, followed by a story from gossipcop.com. The old algorithm would have featured two Huffington Post stories at the top, with the New York Daily News story not appearing appear until the second results page.

A controversial decision: Any change to Google's algorithm is a zero-sum game. Some websites win, some lose.

Comments from site operators lit up on the WebmasterWorld.com forum starting on Wednesday. Many webmasters complained that traffic to their sites dropped dramatically overnight, and others expressed concern that they can't adapt quickly enough to Google's changes to its algorithm.

"Why is it that every single time the search engine result page starts to stabilize and sales return, Google has to throw a monkey wrench in the system again?" asked commenter backdraft7. "Hey Google, this is not fun anymore - YOU'RE KILLING OUR BUSINESSES!"

"My God. I just lost 40% of my traffic from Google today," said commenter DickBaker. "Referrals from Yahoo, Bing, direct sources, and other sources are the same, but Google dropped like a rock."

There are many legitimate ways content creators optimize their sites to rise to the top of Google's results. But Google has been cracking down on what it regards as inappropriate attempts to do so: The company recently penalized Overstock.com and JC Penney in its search results after the companies were found to have set up fake websites that linked to their own, causing Google's algorithm to rank them higher.

When it comes to site content, the lines get very fuzzy. Operators like Demand Media (DMD) -- which now has a market valuation of $1.9 billion, more than the New York Times Co. is worth -- sit right on the ever-shifting boundaries.

"Sites of this type have always been controversial," said Daniel Ruby, research director at Chitika, Inc. a search advertising analytics company. "On one hand, they often do produce extremely informative, well-written articles. On the other hand, they put out countless articles on a daily basis, and some claim they exist only to generate the top result on as many keywords as possible."

Demand put out a very carefully worded response to Google's changes.

"As might be expected, a content library as diverse as ours saw some content go up and some go down in Google search results," Larry Fitzgibbon, the company's executive vice president of media and operations, wrote in a blog post. "It's impossible to speculate how these or any changes made by Google impact any online business in the long term -- but at this point in time, we haven't seen a material net impact."

So will Google's changes have a lasting effect on search quality? Perhaps. But it's an arms race: Any time the company adjusts its algorithms, those determined to beat them immediately adjust.

"Content originators make money, and Google makes money," said Whit Andrews, analyst for Gartner. "Their interests will always be in conflict, and as long as there is greed, people will try to game system." To top of page.

Behind the Rebound in Commercial REITs

With the commercial real estate sector's vital signs stabilizing, indexes of real estate investment trusts have posted big gains this year


The U.S. commercial real estate market has so far averted the catastrophe that many strategists were predicting last year. While the residential sector faces the threat of further home-price declines, analysts see commercial real estate values stabilizing. (In the residential sector, the cumulative 17.3 percent rise in sales of existing homes in August and September didn't even halve the cumulative 36.6 percent drop from May through July.)

Vacancies for apartment buildings, office complexes, retail malls, and self-storage facilities are no longer rising meaningfully, rents are no longer falling, and many real estate investment trusts, the main vehicle for individual investors to participate in the sector, continue to reduce their debt loads.

Equity investors have taken notice: FTSE Nareit's All-REIT index, comprising 148 publicly traded REITs, was up 23.9 percent year-to-date as of Oct. 29 while the Standard & Poor's 500-stock index was up 7.84 percent. Publicly traded REITs represent 15 percent of the total U.S. commercial real estate market.

Equally striking is how much more confidence investors have put in U.S. mutual funds and exchange-traded funds that focus on real estate assets than they have in equity funds in general. Year-to-date through October, $2.35 billion flowed into U.S. real estate mutual funds and ETFs, while $54.4 billion flowed out of U.S. equity funds and ETFs, according to fund research firm TrimTabs.

However, the popularity of real estate funds is worrisome, says TrimTabs. "When big investment inflows coincide with lots of equity issuance, it is often a sign of trouble ahead," says a Nov. 4 report from the firm. New equity offerings for REITs already total $2.0 billion in the fourth quarter, putting it on track to be the highest since the second quarter of 2009, TrimTabs warned. Normally, such oversupply would mean stock prices are near a peak, but the Federal Reserve's encouragement to buy assets could delay a pullback, TrimTabs chief executive Charles Biderman told Bloomberg Businessweek.
Big Rebounds

The 20 best-performing commercial REITS from the start of January through Oct. 29, according to Bloomberg Rankings, included a handful of highly leveraged companies whose stock prices were hammered in 2009, when prospects for refinancing maturing loans amid frozen credit markets looked especially grim. Take Glimcher Realty Trust (GRT), which owns and operates regional malls and community shopping centers and was first in the Bloomberg rankings with a total return of 183.4 percent through Oct. 29.

"[Glimcher's] balance sheet was challenged in 2009, but they have worked through their maturities," says R.J. Milligan, an analyst at Raymond James. "Now in 2010, the risk that people associated with the stock, given its balance sheet, has been relatively taken out of the stock price. Now they're going to be able to manage their maturities."

The quest for income and higher yields than can be found in U.S. Treasury bonds is the main reason investors have flocked to REITs in 2010. The ongoing rally in U.S. REITs can also be attributed to much improved credit markets, which have enabled the trusts to refinance debt and issue equity that can be used to pay down debt early or buy more properties, CreditSights' lead REIT analyst Craig Guttenplan said in an e-mail.
Effect of Lower Interest Rates

Deutsche Bank Securities said in an Oct. 15 research note that negative economic news has helped strengthen REIT markets, which have been anticipating a second round of quantitative easing by the Federal Reserve to stimulate economic growth. (The Fed said on Nov. 2 it would purchase a further $600 billion of longer-term Treasury securities by mid-2011 to help boost the recovery.) The lower interest rates that would result would make people more willing to pay higher prices for commercial properties.

From a fixed-income perspective, equity REITs may well be trading at fair value, when you measure their 3.6 percent dividend yield against a 2.8 percent yield for 10-year Treasury bonds, says John Wenker, co-manager of the $2.25 billion First American Real Estate Securities Fund (FREAX). They look fairly expensive, though, from an equity standpoint, trading at 21 times adjusted funds from operations (FFO), compared with the historical average of 14 times adjusted FFO, he says.

Still, Wenker believes there's perceived value in REITs "if you're of the mind that the eventual economic recovery will lead to increased occupancy and higher rental rates."
Impact of Momentum

While REITs with better-quality properties and stronger balance sheets continue to trade at the highest multiples, investors may start to shift from sectors and stocks that have done quite well to others whose fundamentals are improving but that have more attractive valuations, says Paul Adornato, an analyst at BMO Capital Markets. Or, if this fourth quarter mirrors some in the past, "the winners keep on winning and losers keep on losing into yearend, because there's less concern with valuation and more attention paid to momentum [stocks]," he says.

Dave Rodgers, a REIT analyst at RBC Capital Markets, expects commercial real estate prices to continue to climb, in part because the Fed's commitment to keeping interest rates low will make higher-priced properties more affordable. Any further depreciation in the value of the U.S. dollar against foreign currencies will likely continue to attract foreign buyers for high-quality properties, especially in central business districts of the biggest U.S. cities, he says. In general, Rodgers sees "more capital chasing higher priced properties."

Still, plenty of commercial real estate loans are in default. In an Aug. 20 report, Fitch Ratings said that 14 percent of the 158 loans in commercial mortgage-backed securities set to mature in November—representing $1.6 billion in face value—are either delinquent or in foreclosure. (Commercial mortgage-backed securities are pools of loans that were bundled and sold to investors in tranches rated for their level of risk of default.)
Gap Between Distressed and High Quality

There are early signs that banks' willingness to give commercial property owners more time to repay maturing loans—to avoid having to foreclose on them and put them on the books at sharply marked-down prices—may be coming to an end. A handful of retail REITs "that have been on the sidelines waiting for the day when banks will stop 'extend and pretend' are starting to believe that transactions may start to come their way" as early as the first quarter of 2011, says BMO's Adornato.

But Milligan at Raymond James says he doesn't expect properties to flood the market as a result. He cites a big gap between distressed properties, whose prices have continued to decline, and top-quality properties, whose desirable locations in densely populated areas have helped push prices back up to peak levels. Well-capitalized REITs will be able to get discounts on the distressed properties but not on the high-quality ones, he points out.

Increased competition for more desirable properties, particularly from institutional investors often willing to accept lower returns on investment, is forcing REITs to pay more for these properties, says Milligan. He points to the decline in net operating income yields on the purchase price, commonly called cap rates: That decline indicates buyers are willing to pay more for the same amount of operating revenue—which means the buyers would take longer to recoup their investment.

Playing Bonds Instead of Stocks

In reporting third-quarter earnings, most REITs on CreditSights' coverage list reaffirmed or boosted their full-year forecasts for FFO, according to Guttenplan. CreditSights continues to recommend an overweight position in REITs' credit, such as unsecured bonds. "Despite being the best-performing sector year-to-date, REIT spreads [vs. Treasuries of comparable maturities] are still the widest of the investment-grade sectors and should continue to benefit from the ongoing reach for yield," Guttenplan said in his e-mail. On Nov. 1, Simon Property Group (SPG) raised its full-year forecast for funds from operations to $5.90 to $5.95 per share from an earlier estimate of no more than $5.87 per share. The company also increased the dividend it will pay in the fourth quarter by 33 percent, to 80¢ per share from 60¢.

Rodgers at RBC Capital sees liquidity as a more important factor for REIT investors to watch than outstanding debt, because liquidity determines how much capital a company can afford to spend on acquisitions. An attractive balance sheet doesn't necessarily mean strong liquidity, he says. Warehouse REIT ProLogis (PLD) bolstered its liquidity by issuing 80 million shares at $12.30 each on Oct. 26. "That gives them more [options] about what they want to do—more development, pay off debt early," he says. At the Nov. 3 close, the stock was up 8.3 percent since its equity offering.

Boston Properties (BXP) used $2.5 billion in investment capacity, including untapped credit lines, to buy "high-quality trophy buildings," such as the John Hancock Tower in Boston and 510 Madison Avenue in New York, "so liquidity has helped," says Rodgers. The $275 million acquisition of 510 Madison was completed on Sept. 24 and the $930 million purchase of the Hancock Tower, the tallest building in New England, is expected to close by the end of 2010.

Equity Residential (EQR), SL Green (SLG), and Simon Property Group have been the biggest acquirers so far, according to CreditSights. Brandywine Realty Trust (BDN) is buying office buildings in downtown Philadelphia, and Kilroy Realty (KRC) is acquiring properties on the West Coast,
The Yield Advantage

REITs have a permanent place in the investment portfolios that Palisades Hudson Asset Management, in Scarsdale, N.Y., manages for its clients because of the higher yields they offer vs. government bonds. On Oct. 29, the yield on the FTSE Nareit Equity REIT index was 3.61 percent, compared with 2.80 percent for the 10-year Treasury bond. "You can't fake dividends," says Jonathan Bergman, chief investment officer at Palisades Hudson. His firm uses mutual funds with a focus on developed economies, such as the Morgan Stanley Institutional U.S. Real Estate Fund (MSUSX) and the Morgan Stanley International Real Estate Fund (MSUAX), to invest in REITs.

The best REITs to own if the economy continues to recover aren't necessarily ones with higher-quality properties in their portfolios, says Milligan at Raymond James. He cites as an example the self-storage sector, which is recovering more quickly than expected. "We currently have Extra Space Storage (EXR) and U-Store-It Trust (YSI) rated buy, both of which lost more occupancy in the recession than Public Storage (PSA) and therefore are more sensitive to an economic rebound, he says.

BMO's Adornato advises individual investors to make sure a REIT is flexible enough to be able to make money whether the economy is slow or growing. "I still see a very slow, unsteady recovery under way," he says. "Companies in the office, and industrial, and even the retail segments are looking to fill existing vacancies as a way to grow cash flow" by offering discounted rents.

Attack of the Commerce Clause

A new assault on regulation is gathering force—and it's deploying a constitutional weapon.

On the afternoon of Jan. 31, Richard A. Epstein was in his office at New York University Law School when a request came in from a conservative website called Ricochet.com. A federal district court judge in Florida had just struck down the Obama Administration's health-care overhaul, and the site wanted Epstein's reaction. Judge Roger Vinson had ruled that in passing the bill last year, Congress exceeded the authority granted it by the so-called Commerce Clause: Article I, Section 8, Clause 3 of the U.S. Constitution, which allows lawmakers "to regulate Commerce … among the several states." For Epstein, 67, a voluble and prolific scholar who for four decades has been arming conservatives with intellectual weaponry to attack regulation, it was an I-told-you-so moment. "The Commerce Clause challenge to Obamacare indeed has legs," he blogged. "The government played table stakes poker, and for the moment it has lost."

A central figure at the University of Chicago until he moved to NYU last year, Epstein has written over the years about a dizzying array of legal issues: zoning, banking, and job discrimination; product liability, patents, and pharmaceuticals; the environment, workers' comp, and taxation. Unifying his scholarship is a persistent theme: Government stifles capitalist ingenuity and generally screws things up. "It's amazingly consistent that way," he says amiably, ringed by a mountain range of papers in his Greenwich Village office.

The legal fight over health-care reform is likely to end up before the U.S. Supreme Court just in time for the 2012 Presidential race. (Federal appeals courts will have their say in coming months, making the issue a strong candidate for the justices' election-year docket.) Even with his cause riding high, though, Epstein isn't getting carried away with optimism. The high court lost its way on the topic of regulation back in the 1930s, he says. "We've been on the wrong track ever since."

For its first 150 years, the Supreme Court interpreted "among the several states" to mean that legislators could set rules only for trade that crossed state lines—via railroad, for example—and not for manufacturing, farming, or other business conducted exclusively within a state. In the face of the Great Depression's economic devastation and relentless political pressure from President Franklin D. Roosevelt, however, the court drastically shifted its understanding of the Commerce Clause (along with its view of a number of other parts of the Constitution). By 1942, in the landmark case of Wickard v. Filburn, the court upheld federal regulation of a farmer who grew wheat strictly for his own consumption. In a modern economy, the court reasoned, even subsistence crops affect demand in the national marketplace.

Does the logic of Wickard v. Filburn cover President Barack Obama's plan for health care, an industry responsible for 17 percent of the nation's gross domestic product? It's a dandy law school exam question. It's also the most important inquiry about the interplay of government and business percolating in the U.S. legal system. Two Republican-appointed federal judges—the one in Florida and another in Virginia—have answered "no," ruling that Congress exceeded its Commerce Clause authority when it imposed a requirement last year that all American adults obtain health insurance. Two Democratic judicial appointees—one in Michigan, another in Virginia—have disagreed, upholding the statute. When the battle reaches the high court, the fate of near-universal health care may hang on the swing vote of a single justice.

Take a step back, though, "and there's a much bigger fight here that goes way beyond health insurance," says Eric Lane, a liberal constitutional scholar at Hofstra Law School. It's a new assault on regulation being led by the ascendant Republican majority in the House of Representatives. Party leaders vow to use committee hearings and floor debates to make 2011 a year of misery for executive branch regulators. In Congress and the courts alike, skirmishes are under way over the Environmental Protection Agency's authority to limit greenhouse gas emissions and the legitimacy of last year's Wall Street reform legislation. And conservative legal tacticians who have rolled back government limits on campaign spending and gun ownership are seeking to extend those victories. Perhaps Professor Epstein should be in a more hopeful mood.

At the highest levels of the U.S. judiciary, there have always been jurists who sought to revisit America's long-settled understanding of the proper extent of congressional authority over economic affairs. The late Justice William H. Rehnquist kept the flame alive in a series of solo dissents in the 1970s and '80s, earning him the nickname "the Lone Ranger" before his elevation to Chief Justice in 1986 inclined him more toward cooperation. That year, President Ronald Reagan's Attorney General, Edwin Meese III, invited Epstein to make a presentation on the Commerce Clause at the Justice Dept. "The Reagan people knew me from Takings," Epstein explains, referring to a book he published in 1985 that laid out a controversial theory of the Fifth Amendment's Takings Clause. That clause states that private property can't be "taken for public use, without just compensation." Epstein maintains that any regulation reducing the value of private property—such as zoning—requires compensation of the owner.

Epstein's research on the Commerce Clause produced an article published in 1987 in the Virginia Law Review. "The idea that Congress can restrict pretty much any economic activity that has a 'substantial effect' on commerce—which the Supreme Court announced in 1942 in Wickard—was always wrong," Epstein says, summarizing his findings. "I'd say it was a giant fraud, and it has stifled economic liberty ever since."

He remains in a distinct minority on this point. Most constitutional scholars— and judges—see the expansion of federal power as a natural outgrowth of the vastly increased complexity of the American economy brought on by industrialization, modern transportation, and improvements in communication. "Congress's power to regulate 'interstate commerce' became, in effect, the power to regulate 'commerce' generally," David D. Cole, a liberal law professor at Georgetown University, wrote late last month in The New York Review of Books. "The court rejected as empty formalisms the distinctions it had previously drawn between local and interstate, between production and commerce, and between 'direct' and 'indirect' effects."

Despite a concerted program of issue-oriented litigation and conservative judicial appointments—one supported by the Federalist Society, a private network of right-leaning lawyers and scholars—the Reagan Administration had little success pushing Epstein's views in court. In 1995, Douglas H. Ginsburg, a Reagan appointee on the federal appeals court in Washington, publicly mourned what he called "the Constitution-in-exile": provisions such as the Commerce, Takings, and Contract Clauses, which he argued had been unwisely marginalized by the Supreme Court. "The memory of these ancient exiles, banished for standing in opposition to unlimited government," Ginsburg wrote in the journal Regulation, "is kept alive by a few scholars who labor on in the hope of a restoration, a second coming of the Constitution of liberty—even if perhaps not in their own lifetimes."

Although the second coming has not occurred, the debate continues. In 1995 the Supreme Court struck down an obscure federal law prohibiting possession of a gun near a school. Without disturbing any precedent, Rehnquist wrote in U.S. v. Lopez that, under any definition, the mere possession of a firearm in a local school did not affect interstate commerce. The decision had little practical consequence, since gun infractions near schools were still covered by state laws. Still, Lopez caused a stir in legal circles because it marked the first time since the New Deal that the high court said the Commerce Clause did not accommodate something Congress wanted to do.

Justice Clarence Thomas, who sided with the Lopez majority, identified himself as the inheritor of Rehnquist's Lone Ranger hat. In a separate concurrence that echoed Epstein's 1987 Virginia Law Review article, Thomas wrote that the Supreme Court erred when it departed in the 1930s from 19th century legal doctrines that strictly limited federal regulatory power. In an open-ended invitation to litigants, Thomas wrote: "In a future case, we ought to temper our Commerce Clause jurisprudence in a manner that both makes sense of our more recent case law and is more faithful to the original understanding of that clause."

"What Justice Thomas was getting at—more aggressively than anyone else—was that the actual words of the Constitution don't say Congress can do whatever it wants in regulating the economy," says John Yoo, a constitutional law professor at the University of California at Berkeley. As a newly minted lawyer, Yoo was clerking for Thomas when Lopez was decided. "If the court wanted to get back to what the founders had in mind about commerce," he adds, "the text and history of the Constitution would support a big change in the doctrine." Thomas's presence on the country's top tribunal makes it more plausible for business interests and conservatives to argue in lower courts that one or another regulation deserves to be struck down.

Cass R. Sunstein, a Harvard law professor on leave while he runs Obama's Office of Information and Regulatory Affairs, takes the Thomas invitation seriously. In 2004 he warned about the return of what he called "Herbert Hoover's Constitution"—a liberal's derisive spin on Ginsburg's Constitution-in-exile. Under the Hoover Constitution, Sunstein wrote in Washington Monthly, "the powers of the national government were sharply limited." He accurately predicted that if fortified by second-term appointments by President George W. Bush, the Supreme Court might read the Second Amendment expansively to curb federal and state gun control laws. Led by Bush-nominated Chief Justice John G. Roberts, the court in 2008, and again last year, struck down firearm restrictions in Washington, D.C., and Chicago, declaring clearly for the first time an individual right to keep a handgun. Sunstein was also prescient in saying that a conservative majority might curtail campaign-finance regulation, as it did in 2010 in a ruling strengthening the First Amendment speech rights of corporate interests. On yet another front, Sunstein envisaged an assault on environmental regulations. That offensive is well under way as Texas spearheads litigation intended to hobble the EPA's ability to regulate carbon emissions.

The Hoover Constitution isn't likely to be restored in full, Sunstein acknowledged. "But don't be surprised if you see significant movement in its direction." A spokesman for Sunstein declined to comment.

The Supreme Court's more recent Commerce Clause pronouncements leave the fate of the health insurance mandate an open question. In 2000 the court said Congress exceeded its authority when it passed a law giving victims of gender-motivated violence a basis for suing attackers in federal court. Regardless of good intentions, the statute did not concern commerce, the majority concluded. Leaning in the opposite direction, the court ruled in 2005 that Congress could criminalize homegrown marijuana, even for medicinal use. "If the majority is to be taken seriously," Thomas wrote in dissent, "the federal government may now regulate quilting bees, clothes drives, and potluck suppers throughout the 50 states."

Federal regulation of quilting bees isn't being litigated, but Obama's attempt to create a health insurance system covering all Americans surely is. David B. Rivkin Jr., a lawyer who served in the Reagan and George H.W. Bush administrations, has been bothered by the idea of mandated insurance for nearly two decades. In 1993 he took to the op-ed page of The Wall Street Journal to argue that Clinton Administration proposals for universal participation in a national health system would "draw the curtain on the Constitution of 1787," confirming "that there is nothing that Congress cannot do under the Commerce Clause." In the 1990s, as Rivkin noted, some Republicans in Congress also supported the idea of requiring everyone to participate in the health system, so that costs would be spread across the entire population. The issue became moot when Clinton-era health reform died on Capitol Hill.

When Obama revived the campaign for comprehensive health coverage in 2009, Rivkin returned to the ramparts, arguing its unconstitutionality in the Journal and venues sponsored by the Federalist Society. He also provided legal advice to GOP state officials skeptical of the Obama plan. The counseling grew into a paid post at Baker Hostetler, the corporate law firm in whose Washington office Rivkin is a partner. He and a team of colleagues represent a coalition of 26 states challenging the health-care bill in Florida.

Born in 1956 in a small village in the former Soviet Union, Rivkin brings an immigrant's patriotic zeal to defending his vision of the U.S. Constitution. A classical bust of George Washington greets a visitor to his office. With characteristic zest, he declares that "the Obama health reform law is the most profoundly unconstitutional statute in U.S. history." At the same time, he insists, he is not trying to alter Supreme Court jurisprudence. Instead, he says the justices have always assumed that the Commerce Clause authorizes regulation of economic "activity." The health insurance mandate, Rivkin contends, is unconstitutional because it regulates "inactivity"—namely, individuals' decision not to buy insurance. "Inactivity cannot be regulated under the Commerce Clause," he argued before U.S. District Judge Vinson in Pensacola, Fla., on Dec. 16. Vinson agreed, and the activity/inactivity distinction became central to his ruling.

The Obama Administration has called mandatory coverage the health plan's financial linchpin because without it, some people would refrain from acquiring insurance until they get sick, driving up costs. Ian H. Gershengorn, the senior Justice Dept. attorney defending health reform in the courts, told Judge Vinson in oral argument that those who don't buy health insurance are making an economic decision to pay later or shift the cost to others. Everyone, at some point, takes part in the health-care market. "The uninsured are not inactive," Gershengorn argued. Striking down the overhaul would amount to "a return to the 1930s," he said.

Judge Vinson didn't buy it. He said that he wasn't deciding on the wisdom of health reform, but on a more abstract principle. "If Congress can penalize a passive individual for failing to engage in commerce, the enumeration of powers in the Constitution would have been in vain for it would be difficult to perceive any limitation on federal power," he wrote in his 78-page Jan. 31 ruling. "We would have a Constitution in name only."

Epstein has nothing but admiration for Vinson's bold move. Like some other Supreme Court watchers, he expects a 5-4 resolution, with the conservative but sometimes unpredictable Justice Anthony M. Kennedy casting the deciding vote. If pressed, Epstein forecasts that Kennedy will vote to uphold the legislation "on the ground that the mandate is but one part of a comprehensive health-care whole, so that the mandate has to be judged, to borrow from John Donne, not as an island, but as a piece of the main." On the other hand, he adds, maybe Kennedy will pleasantly surprise him and turn the court in Epstein's direction. Says the professor: "I have been wrong before."