Renters get owned

Ben Walsh
Dec 19, 2013 23:15 UTC

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In 2012, the federal government spent $240 billion on housing aid, according to a new study by the Center on Budget and Policy Priorities. Despite the fact that 65% of American households are homeowners, 75% of housing aid, or $180 billion, is set aside for homeowners. Not only is federal housing aid disproportionately targeted to homeowners, it’s disproportionately targeted to the wealthiest homeowners. Here’s the CBPP:

The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies… More than half of federal housing spending for which income data are available benefits households with incomes above $100,000.  The 5 million households with incomes of $200,000 or more receive a larger share of such spending than the more than 20 million households with incomes of $20,000 or less.

At the same time as housing aid focuses on relatively well-off, home-owning Americans, more renters need aid. HUD data show that the number of renters with household incomes that are 30% or less of the local median income (that’s about $19,000 nationally) has risen from just over 8 million in 1999 to 11.8 million in 2011. A recent Harvard study pointed out that for these 11.8 million renters, there “just 6.9 million rentals affordable at that income cutoff—a shortfall of 4.9 million units”. Affordable, at 30% or less of the local median income, means $375 a month or less. The Harvard study also pointed out that the problem is getting worse: the number of extremely low-income renters is rising, and 2.6 million of the affordable rentals are being occupied by higher-income households.

Felix looked at that data, combined with the “inexorable rise of rents”, and concluded that there “is an unprecedented squeeze on the people who can least afford the shelter they need”. The rest of America is starting to look more and more, he wrote, like San Francisco.

The Washington Post’s Lydia DePillis reports that San Francisco’s unaffordable housing problem is beginning to be taken seriously by at least some of the city’s tech elite. Peter Thiel thinks “the way rent and housing costs have gone through the roof in a number of cities where people go to start companies is a tremendous problem”. Thiel’s solution is to loosen zoning regulations. Surveying housing-related startups, DePillis observes that the focus is “on helping people navigate what’s already a terrible situation, not ameliorating it”.

Emily Badger points to a longer-term demographic shift that may drive even more demand for rentals: baby boomers downsizing. After moving to bigger and bigger houses in further and further afield suburbs and exurbs, boomers are beginning to reverse that trend by moving into smaller urban homes. And they are increasingly likely to be renters: “between 2002 and 2012, the number of renters ages 55 to 64 increased by 80%”. Badger points out that the big unknown is whether anyone will want to buy the McMansions boomers are moving out of. — Ben Walsh

On to today’s links:

Maybe don’t name your group chat “The Mafia”, Wall Street traders – Bloomberg
In case of a real war on Christmas, here’s how to invade the North Pole – Mother Jones

The cult of Vitamix – Bloomberg Businessweek

New Normal
The 49 states of rising child poverty – WaPo

The MIT group researching how to decrease long-term unemployment – Evan Soltas

New Normal
How cities and states royally screwed up the staid, old-fashioned pension fund – James Surowiecki

Is the safety net just masking tape? The problem of “pity charity” liberalism – Thomas Edsall
Previously: Are we at the completion of the liberal project? – Mike Konczal

Health Care
An interactive map of nearby ERs with the shortest wait times – ProPublica

20 things DC journalists can do to be happy besides moving to Kentucky – Jason Linkins

Primary Sources
The CFPB just won a $2 billion settlement with Ocwen over shoddy loan servicing – CFPB

“You would be better off letting a cat manage your money” – The Economist

How to shutter a bank in Europe. It’s so simple! – FT

Financial Arcana
The difference between risk premia and “behavioral craziness” – Noah Smith

The Hack List 2013: the best entry in Alex Pareene’s brilliant takedown – Salon

An apple a day could save thousands of lives a year – BBC

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

Greenspan shrugged off

Ben Walsh
Oct 21, 2013 22:12 UTC

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Based on the reviews of his new book “The Map and The Territory”, Alan Greenspan’s stock has fallen precipitously since he left the Federal Reserve to widespread acclaim in 2006.

Bloomberg’s Daniel Akst calls the book infuriating, writing that the “plodding text oscillates maddeningly between equivocation and chutzpah”. Akst slams Greenspan for calling the financial crisis “almost universally unanticipated”, despite what Akst says were “a host of indicators that were pointing to trouble”. Akst is frustrated that despite the book’s subtitle (“Risk, Human Nature, and the Future of Forecasting”), and the author’s self-professed expertise in economic forecasting, how Greenspan could have not seen danger ahead is barely explored. Furthermore, Greenspan’s claimed concern for federal deficits is undercut, Akst writes, by his endorsement of both of President Bush’s rounds of tax cuts.

The WaPo’s Steven Pearlstein says Greenspan’s effort at introspection simply yields a reiteration of his prior “unshakable faith in free markets, an antipathy toward market regulation, and a conviction that progressive taxes and social spending are to blame for slow growth, stagnant wages and exploding deficits”.

Paul Krugman expands the criticism, pointing to “Greenspan’s amazing track record since leaving office — a record of being wrong about everything, and learning nothing therefrom”. Greenspan’s refusal to accept responsibility for his misjudgment makes him, in Krugman’s view, not just a “bad economist… he’s being a bad person”.

In office, Greenspan saw no credit risk in Fannie or Freddie, and made no indication that a housing bubble, undercapitalized banking system, or securitized assets posed any risk whatsoever to the US economy. Since leaving office, Greenspan predicted in 2010 that US would quickly become the next Greece. He has also argued in favor of austerity, both in the US and UK, despite the fact that austerity killed Europe’s nascent recovery, and pushed up the US unemployment rate while dragging down growth.

Larry Summers is disappointed that Greenspan hasn’t changed his anti-Keynesian views, but lavishes (projects?) praise on the intellect of a man he had the “privilege to work closely with”. Summers writes that “Greenspan’s range, vision and boldness is especially important at a time like the present, when Washington is preoccupied with the political and petty”.

The NYT’s Binyamin Appelbaum thinks Greenspan has found a kernel of an interesting idea when he discusses the economic consequences of human irrationality. But Appelbaum laments that Greenspan dwells on this topic for just a single chapter and instead spends most of the book retreading old, largely discredited ideas like tax cuts to spur business investment. — Ben Walsh

On to today’s links:

Magnetar goes long a small Ohio town, while shorting its tax base – Bloomberg

A byproduct of Japan’s experiment in economic stimulus: increasing inequality – Bloomberg

It’s actually (sometimes) a good idea to eat in empty restaurants – Tyler Cowen

Be Afraid
Your new candidate for the next credit crisis: Thailand – Euromoney

Growth Industries
The fracking boom won’t do much for climate change. But it will make us a bit richer – WaPo

Get ready to use credit card reward points in taxis (and everywhere else) – Techcrunch

Steve Cohen and Guy Fieri went to the Super Duper Weenie together – NY Post

Sad But Probably True
“Ethics only gets you so far in banking” – WSJ

Right On
“At a Death Cafe people, often strangers, gather to eat cake, drink tea and discuss death” – Death Cafe

No one reads tablet magazine apps – Adweek

Crisis Retro
Predatory lending practices increased sub-prime default rates by about a third – NBER

GWU admits its undergrad admissions process is not “need blind” – The GW Hatchet

Old Normal
Mapping the most syphilitic states in the Union – Slate

It’s Academic
Private schools are good at demographic selection; public schools are better at education – The Atlantic

Data Points
$47 billion in 7 weeks: ETFs see huge inflows – Bloomberg

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.


Twitter economics

Ben Walsh
Oct 16, 2013 21:57 UTC

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As its mid-November IPO approaches, Twitter is losing money at an accelerating pace. The company’s amended filings show that last quarter it approximately doubled revenues to $168.6 million compared to a year ago, while its net loss more than tripled to $64.6 million. Fortune’s Stephen Gandel digs into the new numbers, and how Twitter changed the way it’s booking revenue:

Twitter derives most of its revenue from advertising. Most of the deals it strikes with advertisers are not fixed upfront… Twitter says that in most instances it only counts the revenue from a deal after the services have been delivered and the company knows how much it will get paid. But it says in some more complicated deals, it resorts to estimating what it might get paid.

Tax experts, Gandel reports, say that Twitter wouldn’t have changed its language on this topic without the SEC raising an eyebrow. Twitter is also looking to diversify its sources of revenue by mining its user data to help sell ads on other sites, the FT reports. (Twitter does not disclose how effective its own ads are). Selling ads across the web would put them in direct competition with Google’s Adsense, which dominates online ad buying. Facebook’s ad sales, in contrast, are limited to Facebook alone.

Losing money at such a growing rate, especially relative to revenue, diverges from models set by companies like Facebook, Zygna, or LinkedIn. Each of those companies, the WSJ points out, were each profitable before going public. The WSJ quotes analyst James Gellert characterizing Twitter as “more like a venture growth company”. Investors, Gellert says, are betting on Twitter’s “ability to achieve things in the future, rather than a historical demonstration of that ability”.

The company is spending aggressively, Vindu Goel and Michael de la Merced report, on research and development, along with employee stock and pay — paying, in other words, to create new products, and keep and acquire talent. Investors will hope those products will mean higher profits. “In the right hands,” David Carr writes, “Twitter can be a magical wealth-creation machine powered mostly by hot air”. — Ben Walsh

On to today’s links:

Right On
The government shutdown is ending. Here’s how - Neil Irwin
The moral of the debacle: Open-source everything – Paul Ford

The push for transparency in CEO pay has pushed compensation even higher - James Surowiecki

Long Reads
Why Americans are no longer moving, and how it’s holding the economy back – Timothy Noah

A jailhouse visit with “the Dread Pirate Roberts,” the alleged kingpin of Silk Road – San Francisco magazine

“Economists effectively put unfair economic outcomes in the same box as externalities like pollution” – Yves Smith

BofA’s Q3 in a nutshell: Fewer bad loans, but elsewhere things got mostly worse – Peter Rudegeair

S&P was minutes away from downgrading America to selective default – Newseek 
What Fitch has to say about the US debt rating (hint: it’s not good) - Fitch

JP Morgan
JP Morgan will pay $100 million to the CFTC in its last Whale settlement – Bloomberg

The gambler’s fallacy and market corrections – Carl Richards

Glenn Greenwald is heading to a media startup funded by Pierre Omidyar – Reuters
My next adventure in journalism – Pierre Omidyar

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

Counterparties: Madvillainy

Ben Walsh
Jun 25, 2013 22:10 UTC

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Jon Corzine may be about to be charged with being a bad CEO. Ben Protess reports that the Commodity Futures Trading Commission is planning a civil suit against the former head of MF Global, charging him with failing to meet his responsibilities as the person in control of the brokerage firm. The charges, Protess writes, could result in millions of dollars in fines and a lifetime ban from commodities trading.

Breaking with the tendency of financial regulators to stop short of taking cases to trial, the CFTC will not allow Corzine to settle before filing the lawsuit. The agency may also sue other former MF Global employees, including ex-assistant Treasurer Edith O’Brien.

Kevin Roose observes that the “notable bit of news is what won’t happen to [Corzine]: namely, criminal charges”. That’s not necessarily a surprising development. Reuters reported last year that the criminal investigation was “going cold”.

A spokesman for Corzine said the charges “would be an unprecedented and meritless civil enforcement action”. Insofar as this case is unprecedented, of course, many might cheer regulators’ new prosecutorial zeal: someone needs to be the first.

On the merit of the case, Corzine would seem to be missing one big defense: Jonathan Weil does not think that the ex-New Jersey Governor can argue that “MF’s regulators knew about the company’s problems or had blessed its financial reporting”. As Felix wrote, one of the big takeaways from bankruptcy trustee James Giddens’ report on MF Global’s downfall is that “when regulators started asking him to raise more capital against his risky European bond positions, he just moved a chunk of those positions out of MF Global proper”.

Weil doesn’t expect a quick trial. Corzine, he says, is “fighting for his legacy. Don’t look for any quick resolutions. This case could drag on for years”. Regardless, this isn’t how Corzine imagined his return from Hamptons exile. He reportedly wanted to run a hedge fund, where he would be free to trade European sovereign debt on his Blackberry during meetings without having to worry about running a firm with hundreds of employees. — Ben Walsh

On to today’s links:

For the Wages
Cool offices: just another way to get you to work more – The Atlantic

The last 500 years haven’t been good for gold investors – Matthew O’Brien

Just because it’s an acronym doesn’t mean it’s an investment opportunity – Quartz

New Normal
Labor’s share of income is falling is across developed nations – Bruce Bartlett

High Returns
How to invest in dope, the private equity way – NYTMag

Bearish Semantics
Why markets don’t trust the Fed – Evan Soltas
“The irony is that higher rates are likely to mean more people can get mortgages” – AP

Study Says
Bad math skills keep people from repaying their unaffordable mortgages – WSJ

JP Morgan’s interesting explanation for tight liquidity in China – Sober Look

Side Effects
Health insurance may be an effective antidepressant – Boston Globe

Data Points
Consumer confidence is the highest in 5 years – Conference Board

Meet the CEO with a $159 million pension, the biggest on record – WSJ

Two Point Oh No
It’s like a hedge fund, but for Twitter – eFinancialCareers

Quis custodiet ipsos system administrators? – NYT

Management Secrets
What’s behind Snapchat’s $800 million valuation? Who knows! – Dan Primack

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

Counterparties: Denial of service

Jun 17, 2013 22:21 UTC

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As the victims of the tornado in Moore, Oklahoma start the process of rebuilding their town, David Dayen reports that they’re finding themselves in a new crisis: navigating the homeowners’ insurance process. That task, it turns out, also means dealing with the often maddening world of mortgage servicers.

It’s standard practice for homeowners’ insurance claim checks to written out jointly to both the homeowner and the mortgage servicer, Dayen writes. As a result, servicers often use the need for a signature as leverage to pressure borrowers into repaying their mortgage instead of using the money to rebuild their home.

The news from Oklahoma comes in the wake of accusations that surfaced Friday from former Bank of America employees, who allege that the bank misled struggling homeowners about their options. The former employees say BofA “deliberately denied eligible home owners loan modifications and lied to them about the status of their mortgage payments and documents”. The bank, Reuters reports, allegedly steered borrowers from the government’s flagship homeowner aid program, the Home Affordable Modification Program. Court documents filed last week allege that employees were compensated for forcing foreclosure: sometimes in cash bonuses, sometimes in gift cards to Target.

ProPublica reported on a similar situation at the Goldman Sachs subsidiary Litton Loan Servicing last year:

As of the end of 2010, fewer than 12 percent of the borrowers who’d applied for a HAMP modification with Litton were granted one. The vast majority of those denials, Wyatt says, were not legitimate. Goldman Sachs’ emphasis on maximizing profits rather than preventing foreclosures is typical of the servicing industry, he says, particularly the larger banks.

Meanwhile, Reuters reports banks are getting out of the mortgage servicing game. The loans that seven-largest non-bank servicers handle rose by 69% in the first quarter, to $1.4 trillion. Banks are increasingly selling the rights to collect payments on loans to companies that aren’t bound by the same capital regulations. That doesn’t necessarily mean the situation is rosier for the homeowners, however. – Shane Ferro

On to today’s links:

New Normal
Inside China’s terrible job market for college graduates – NYT
Detroit, where per capita income is just $15,000, is taking aim at its pensioners - Felix
Detroit’s 10-cents-on-the-dollar meme - Cate Long

The Fed
What the bond market is telling the Fed – Gavyn Davies

What’s more important: A college degree or being born rich? – Matt Bruenig

The Fed
“In every year of the economic recovery, the Fed has overestimated how fast the economy would grow” – WSJ
Another Fed trial balloon on tapering – FT

“I’ve come to understand… the power of little details”: in praise of TKs – Jeff Pearlman

Your Retirement Plans
The inventor of the 401(k) says it was “never meant to take care of everyone” – Marketplace

Inflation helped the British keep unemployment down – Neil Irwin

New Normal
“I will hide nothing. But I will conceal everything.” – Walter Kirn
First gentrification, then plutocratisation: “The great cities are becoming elite citadels” – Simon Kuper

Reading fiction makes people comfortable with ambiguity, researchers find – Pacific Standard

Orson Welles: One of those people you really, really want to have had lunch with – Peter Biskind

“The Canadian Snowbird Association” got a provision written into the immigration bill – USA Today

Crisis Retro
CDOs are maybe not coming back, after all – FT

And, of course, there are many more links at Counterparties.


The New Republic writer neglects one key underlying fact about use of insurance proceeds to repair or rebuild a home with a mortgage – these are proceeds related to an asset in which the lender has a secured interest. He seems surprised that people don’t just get a big check with the understanding that it will be used to repair or rebuild, which would ignore the lender’s security interest. It may be a real problem, but this author’s take on it is exceptionally poor – I can’t tell if it’s only because he is biased or also because he is ignorant.

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Counterparties: Unpaid internship

Jun 14, 2013 21:25 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

Good news for America’s unpaid army of latte-fetchers and lunch-order-takers! A Federal district judge in Manhattan has ruled that Fox Searchlight Pictures violated state and federal labor laws by using unpaid production interns on “500 Days of Summer” and “Black Swan”.

The ruling in the “Black Swan” case could have a big impact for the estimated 1 million American college students who work in unpaid internships. Ross Perlin, author of the 2011’s “Intern Nation”, says the decision could end decades of what’s effectively “wage theft”:

At their peak following the 2008 crash, unpaid internships were increasingly crowding out paid ones and replacing regular positions altogether, in the process turning the entry-level job into an endangered species. It was “a capitalist’s dream,” as sociologist Andrew Ross put it: free white collar labor made to seem almost entirely normal.

Dylan Matthews – a former intern himself — writes that the ruling has the effect of turning a 2010 Department of Labor fact sheet into established law: the judge in the Black Swan case said Searchlight’s internships violated all six of that document’s criteria on what an internship should be. Rebecca Greenfield – whose LinkedIn profile suggest that, yes, she’s been an intern — talked with both of the plaintiffs. Both were well-off enough to afford to perform free labor: one got money from his mother to live in New York and work for free; the other lived off his savings from a previous job at AIG.

That unpaid internships favor the wealthy isn’t a new argument, but recent legal scrutiny hasn’t gotten rid of the practice. ProPublica is running an investigation into the intern economy — there’s even a Kickstarter campaign to help them hire an intern to cover interns. The organization’s research intern has held six internships, both paid and unpaid, and writes that she’s struggled financially since finishing grad school in 2011. She does, however, say that she’s both learning and getting paid at ProPublica.

Matt Yglesias, who earned valuable intern-ish experience getting coffee at Rolling Stone, worries that enforcing minimum wage labor laws for internships will just push people into expensive grad schools. “Erecting extremely sharp walls between ‘education,’ ‘training,’ and ‘work’” doesn’t make a ton of sense,” he writes. (Though it’s much easier to put scare quotes on “work” when you have it.) In the end,Yglesias nods approvingly at arrangements like Germany’s vocational training programs, where students do, in fact, get paid.

This won’t be the last intern lawsuit. Former Hearst interns filed their own suit last month. Yesterday, two former magazine interns at noted intern factory Conde Nast got in on the act. One former intern at W, Condé’s high-end fashion book, described her 10-hour days as being like “The Devil Wears Prada”, but worse. That could describe every internship ever. – Ryan McCarthy, who is not an intern, either paid or unpaid, but is a former intern, and, after a few beers, will probably tell you he’s probably still bitter about the whole thing.

On to today’s links:

Detroit will default on its unsecured debt - Reuters
Some positive news about Detroit - BI

Let’s all invest in San Francisco parking spots! - AP

American CEOs remain “oblivious to political reality” - Bloomberg

Right On
The best response to the failed policies of austerity: full employment - Guardian

The 50 worst charities in America - Tampa Bay Times

How to avoid tax avoidance - Reuters

Data Points
In 1956, Argentina’s annual per-capita beef consumption was 222 pounds - NYT

The BBC spent $152 million on a failed CMS - Economist

Hilarious says Yahoo might buy a company that doesn’t exist anymore - Valleywag

And, of course, there are many more links at Counterparties.

from Felix Salmon:

Counterparties: Government’s governance problem

Ben Walsh
Jun 12, 2013 22:21 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.

Britain’s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. In the US, it’s Fannie Mae and Freddie Mac, the mortgage giants that have been under federal conservatorship since 2008.

Hours after a senior official at the Bank of England called for a more certain timetable for RBS’s privatization, CEO Stephen Hester, who took over in November 2008, unexpectedly announced his departure.

Reuters’ Matt Scuffham reports that the RBS board decided Hester need to be replaced after he refused “to make an open-ended commitment to remain”. Analysts, the WSJ says, were “surprised and disappointed” by Hester’s departure just as the bank’s privatization process is getting underway. Faisal Islam thinks Hester’s exit may be a sign that the government wants to restructure how it manages the bank, something it has had trouble doing in the past.

The US government, meanwhile, is facing a lawsuit from Fannie and Freddie shareholders seeking $41 billion in damages for improperly seizing the companies in 2008. Fannie’s stock has been on a tear recently, based on the essentially speculative rationale that the government will decide to privatize the company. Matt Levine makes the great point that the bailout-related lawsuit could should cause the government to keep its hands on the mortgage companies:

Fannie and Freddie were designed to carry out a public purpose while also making money for private shareholders. When those goals conflicted, the public purpose won and the private shareholders were thrown into the abyss. If you’re the government: that’s perfect. Except now those shareholders are suing, as shareholders tend to do. If you’re the government: why would you set yourself up for more of that?

Jesse Eisinger argues that Congress continues to find new and interesting ways to bungle Fannie and Freddie’s rehabilitation. Neither of the two main proposals to reform Fannie and Freddie, Eisinger writes, reflect what we’ve learned about the housing market since the crisis. Not that Frannie were ever that sound to begin with. The companies were flawed all along, Eisinger says: "hybrids, privately held institutions with government charters – along with too much political influence and too little capital.” – Ben Walsh

On to today’s links:

Mysteries Explained
Don't worry, credit cards are the reason you're a bad person - Derek Thompson

Big Brother Inc.
About half a million private contractors have access to top-secret info - Brad Plumer

New Normal
The President’s report on the "Great Gatsby Curve" - White House

Foreign exchange rate benchmarks may have been manipulated daily for the last decade - Bloomberg
Maybe all that FX market manipulation was just standard trading - Felix Salmon
The term "market manipulation" used to mean something - Matt Levine
Dan Loeb is giving more money to charter schools to get back at the teachers' union - Bloomberg

"The tectonic plates of the world economy are shifting" - David Wessel
Are central bankers finally losing control of long-term interest rates? - BI

Health Care
The overlooked driver of health care costs: lack of competition - Eduardo Porter

Why Pandora just bought a radio station in South Dakota - Bloomberg Businessweek

Ya Think
Large banks are still Too Big to Fail, and S&P is on it! - FT

JP Morgan
Jamie Dimon doesn't agree with JP Morgan - Jonathan Weil

Niche Markets
The French film industry threatens to torpedo major US-EU trade talks - Reuters

Crisis Retro
Regulators say AIG Financial Products is having trouble managing risk again - Shahien Nasiripour

The JOBS Act has been a big missed opportunity to spur more small company IPOs - Steven Davidoff

That Kanye West interview everyone is talking about - NYT

A majority of Americans responded truthfully to a survey - WSJ

And, of course, there are many more links at Counterparties.


“The JOBS Act has been a big missed opportunity to spur more small company IPOs”

Who on earth other than Wall Street cares how many IPOs there are? It has nothing to do with anything that matters, other than a general sign of overall economic activity. Should we also waste time maximizing the number of ice cream cones?

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from Felix Salmon:

Counterparties: Living longer with less

Ben Walsh
Jun 10, 2013 22:31 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

Americans with $1 million in savings may be in for a dispiriting surprise -- they still haven’t saved nearly enough. The problem, reports the NYT’s Jeff Somer, is that bond yields have fallen and life expectancies have risen.

A  65-year old couple with a $1 million nest egg of tax-free municipal bonds that withdraws 4% per year, Somer says, has a 72% chance of running through their retirement savings before they die. The even larger problem is that the millionaire 65-year old couple is far from typical. The median household retirement account balance for Americans aged 55-64 is just $120,000.

“The bottom line,” Somer quotes NYU professor Edward Wolff saying, “is that people at nearly all levels of the income distribution have undersaved”. The result, according to Wolff, is that Social Security will be the primary income source for most retirees, even for retirees who are relatively well off.

Mutual fund managers’ solution to the problem is mandatory savings. BlackRock’s Larry Fink is one of the most visible champions of mandatory investment plans like Australia’s, which have the benefits of removing the market-timing itch and the problem of employers who have no retirement plan at all. Under the Australian model, employers must contribute 9% of pay (rising to 12% in 2020) for their workers. This, Dan Kadlec writes, “increasingly is being held up as a model for the US”.

But all defined-contribution schemes are reliant on the market going up. And no such plan, Tadas Viskanta writes, can treat the market like an “ATM machine from which one can extract guaranteed returns”. -- Ben Walsh

On to today’s links:

Unintended Consequences
Gazprom's demise could topple the Putin regime - Anders Aslund

The Fed
The history of the Fed's balance sheet, visualized - Sober Look

Big Brother Inc.
There's never been a more important leak in American history than Edward Snowden's - Daniel Ellsberg
“The national security apparatus has been more and more privatized and turned over to contractors” - NYT
A look at the VC firm that helps the NSA find startup investments - TechCrunch

Google is (finally) close to acquiring Waze for more than $1 billion - AllThingsD

New Normal
5 maps that show how divided America really is - Atlantic Cities
Low-paying jobs in retail, hospitality and temp-help accounted for 55% of May's job gains - Bloomberg

Sheila Bair's financial regulation listicle - VoxEU

Facebook is maybe, possibly gonna be included in the S&P 500 within the next year - Bloomberg

At CNN, longform reporting loses out to B-roll footage of a guy on a beach every time - Zocalo Public Square

In the fight for survival, funds of funds go bespoke - FT

Primary Sources
S&P raises its outlook on US debt to stable - S&P

The Singularity
A Kickstarter for the world's first remote-controlled cyborg - Christopher Mims

Fannie and Freddie are worried that mortgage servicing companies are getting too big - Reuters

And, of course, there are many more links at Counterparties.


“Let the government offer a default option and allow people to opt into a qualified private provider if they so chose.”

What kind of fee structure do you envision, y2kurtus? Will Wall Street be skimming 1%+ per year for the hard work of punching a few buttons to tell computers to execute pre-programmed strategies or will they settle for “just” 0.1% of the wealth of the country each year?

Besides, we already have mandatory Social Security contributions of 12%+ annually (half from employee, half from employer). You want to layer another 10% on top of that?

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from Felix Salmon:

Counterparties: America’s consistently dissatisfying jobs market

Ben Walsh
Jun 7, 2013 21:44 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

America's jobs market seems to have found its boring, dissatisfying comfort zone.

The Labor Department announced today that the US economy added 175,000 thousand jobs in May. (Unemployment ticked up a notch to 7.6%.) Matthew O’Brien writes that this is basically the same thing that’s been happening for the past two and a half years. “There were 175,000 new jobs a month in 2011, 183,000 in 2012, and 189,000 so far in 2013.” Kevin Roose thinks “there's something to be said for this kind of quiet, steady progress”.

For all its consistency, the labor market has been subpar. The percentage of Americans participating in the workforce has fallen steadily over the last four years. The government continues to cut jobs, putting increasing importance on private sector job growth. (Annie Lowrey has the details of how government cuts are becoming much deeper thanks to sequestration.) The scariest US jobs chart is still terrifying.

At the current rate of job creation, employment, on an absolute level, won’t reach pre-crisis levels until late 2014, a full 8 years since the recession began. The Chicago Fed estimates that the economy needs to create 80,000 jobs per month to have a chance at making a dent in unemployment. Multiples of that may actually be needed to bring down unemployment, as more Americans return to the workforce. The Chicago Fed also projects that a return to full employment (where the unemployed are workers between jobs but still in the workforce) could take another five years, a timetable that, Matthew Klein writes, “puts the US on track for a lost decade”.

Wall Street is rooting for things to get ever so slightly worse, hoping to stave off any decrease in the Fed’s bond buying programs. Fed-whisperer Jon Hilsenrath reports that if the economy continues to grow at its current pace, the Fed will slow bond purchasing later this year.

Ryan Avent concludes that the Fed is perfectly happy for the US outlook to be consistently gloomy with rays of hope:

178,000 jobs per month seems to be the Fed's good-enough-rate... It is hard to see the logic in that; there are few things more damaging to an economy than a prolonged period of high unemployment. But there is no sign that policymakers are interested in any other path.

-- Ben Walsh

On to today’s links:

Tax Arcana
"POPS" -- the illegal tax shelter that may cost HP's former chairman $100 million - Bloomberg

MF Doom
MF Global's auditor at PwC had a history of missing financial problems -- including Madoff's - Francine McKenna

New Normal
Labor's share of income is falling everywhere (not just in the US) - Timothy Taylor

Health Care
The culprit behind high US health care prices? Blame employers - NYT

Libel Tourism
Saudi prince takes Forbes to court in England for allegedly understating his fortune - Reuters

American Idol stars dominate the celebrity list at Wal-Mart's shareholder meeting - NYT

Canada posts its biggest employment gain in 11 years - Reuters
"Bad is not good. Good is good, unless your timeframe is the lifespan of fly." - Josh Brown

Lloyd Blankfein's advice to new college graduates: "appreciate that life is unpredictable" - Politico

Facebook is killing "sponsored stories" - Ad Age

Mary Meeker's State of the Internet is maybe not the factual State of the Internet - SF Chronicle
Mark Meeker’s reply: “We stand by the report”- KPCB

The Fed
Goldman: This is when the Fed will pull back - Finansakrobat

And, of course, there are many more links at Counterparties.


Is my memory mistaken, or is Josh Brown usually smarter than to confuse “I think X will/should cause stock prices to go up” with “I think X would be a good thing”? Or to think that “X will/should cause stock prices to go up” equates with “cheering for X”?

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from Felix Salmon:

Counterparties: The unbearable lightness of silicon beings

Ben Walsh
Jun 4, 2013 22:04 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

If you build a company on something lighter-than-air, will it inevitably float back to earth? Kara Swisher reported yesterday that Zynga is laying off 520 employees and closing its LA and New York offices. The company’s core business -- selling desktop games for Facebook -- is declining, and the company says it is focusing on the faster-growing but less profitable mobile market. Zynga’s stock is now down 70% since it went public in December 2011.

Two years ago, Zynga was declared the winner of the “great social game Gold Rush”. Better than anyone, it figured how to make money out of the inordinate amount of time wasted on Facebook. It never was, and won’t ever be, a “frighteningly ambitious startup”. Despite being a big financial success, Zynga always had limited ambition.

Nick Bilton worries that too many startups are tackling small problems, aimed at the founders’ “technophile friends rather than the public”. His example: Twist, an app that uses geolocation technology to tell people exactly how late you are running. It’s just one product among many of companies started to find “solutions for mundane problems”.

Many of these companies are the product of the new Silicon Valley that George Packer recently cataloged in the New Yorker. Examining Sean Parker’s $10 million eco-unfriendly wedding, Alexis Madrigal summarizes this ethos as “dream big, privatize the previously public, pay no attention to the rules, build recklessly, enjoy shamelessly, invoke magic, and then pay everybody off”.

The short seller Carson Block, the founder of research firm Muddy Waters, has decided now is the time to switch some of his focus from fraudulent Chinese firms to technology “pretenders.” -- Ben Walsh

On to today’s links:

The myriad reasons why Wall Street generally hates Facebook - Wired

World's Smallest Violins
Wall Street frets over losing SAC's "golden little crumbs" - Peter Lattman

US financial regulators vote to give themselves the power to regulate financial companies - WSJ

The state of the US economy, in four data points - Jared Bernstein

Prosecute the patent trolls! - Reuters
The full White House fact sheet on patent trolls - White House

New Normal
Why Americans work so much: single mothers face an huge economic burden - Derek Thompson

Three years later, only 38% of Dodd-Frank's 398 rules have been finalized - USA Today

Anonymous is about to get into the news business - Bloomberg Businessweek

The geographic distribution of Starbucks vs Dunkin Donuts - Boston Globe

AIG and GM are back! (in the S&P 500) - Reuters

Reminder: The Cadillac tax is a great idea - Charles Lane

It’s Academic
Study suggests partisans might not believe partisan lies - Dylan Matthews

"A Wall Street bildungsroman" - Peter Lattman

Data Points
"So, are nearly a quarter of European young people unemployed? No. Fewer than 10% are" - FT
GM’s Cadillac posts biggest 5-month gain since disco era - Bloomberg

And, of course, there are many more links at Counterparties.

  • # Editors & Key Contributors