China’s other internet IPO

Ben Walsh
May 22, 2014 21:40 UTC

The Chinese internet IPO you haven’t been waiting for is finally here., whichBloomberg Businessweek’s Bruce Einhorn calls “the closest thing to a Chinese version of”, priced its $1.8 billion offering at $19 a share, above the initial $16 to $18 range. It opened today on the NASDAQ at $21.75 and gained 10% in its first day of trading, valuing the company at approximately $30 billion.

Above-range pricing plus a nice opening day pop is as good a way as any to please both those selling stock in the IPO and those buying it.’s selling shareholdersinclude the company’s founder and CEO Richard Liu, Chase Coleman’s Tiger Global (best known for 45% returns in 2011), and Yuri Milner’s DST (an early investor in Facebook who helped Goldman Sachs to become a later investor in Facebook).

Interestingly, Alibaba is also probably pretty happy with the reception for one of its main ecommerce competitors.’s IPO, says Reuters David Gaffen, is seen as a precursor to Alibaba’s offering. The latter is a much, much larger compnay, both in terms of ecommerce – with 47 times the gross merchandise value of – as well as its sheer range of businesses.

The WSJ’s Michelle Yuan thinks’s successful-so-far listing could help Chinese tech stocks more broadly, if only by improving their vibes. (Which as methods for predicting short-term stock movements go is about as good as anything.) If you are looking for best-in-class governance, it’s better to look elsewhere, says DealBook’s Robyn Mak: the company revealed on Monday that it gave Liu $591 million in amusingly euphemistic “immediately vesting restricted stock units” (aka “stock he can sell immediately”).

What the company does offer, writes Quartz’s Gwynn Guilford, is a sort of Chinese online retail moonshot: a chance to convert inland provinces, which have 125 cities with a million plus residents, to ecommerce. The company, Guildford says, is going to spend more than a billion dollars of its newly raised capital on delivery infrastructure. That may please investors, but it won’t produce as immediate returns as the company’s first day of trading. — Ben Walsh

On to today’s links:

Must Reads
The case for reparations - Ta-Nehisi Coates

Old Normal
The racist history of Chicago’s housing policies - The Atlantic

A great rent vs. buy calculator - The Upshot
“In New York, SF and LA, buying a home again looks like a perilous investment” - Neil Irwin

Maybe we overestimate what the government can do about inequality - Chris Dillow

On Language
Mumpsimus and 15 other weird old words that should make a comeback - Mental Floss

Awful But Informative
Facebook’s Director of Insignificant Viral Content dismayed by the prevalence of insignificant viral content - Mike Hudack

Mail Online is a revenue juggernaut - The Guardian

“The biggest failure was… leaving families struggling with mortgages they can’t afford” -The Atlantic

In defense of trigger warnings - NY Mag

Good Questions
How did we get so busy? (A few days old, but you know, we’ve been busy…) - NYer

Tim Geithner has some rather, um, eccentric ideas about FDR - Matt O’Brien
Geithner doesn’t get what caused the Great Recession - Mike Konczal

So Hot Right Now
The new subprime is good old-fashioned loan sharking - Bloomberg

Glocalization hits home

Ben Walsh
May 21, 2014 21:26 UTC

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For a select few real estate markets, “location, location, location” is taking on a new meaning. Price is no longer a block by block or neighborhood by neighborhood consideration. There is, says James Surowiecki, an emerging global market for real estate. The case study is Vancouver, which has the median income of Reno but the costly property prices of San Francisco:

Sotheby’s examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales. In Miami, a huge influx of money from Latin America has enabled the city’s housing market to recover from the bursting of the housing bubble, and has set off a condo-construction spree. Australia has become a prime market for Chinese investors, who Credit Suisse estimates will buy forty-four billion dollars’ worth of real estate there in the next seven years.

These locations are what Surowiecki, quoting urban planner Andy Yan, calls “hedge cities”. Legal, political, and social stability are extremely high. Foreign buyers who can afford to are ready to pay what to locals seem like frothy prices. The calculation is simple: it’s better to lose some of your principal on a condo in a Vancouver housing bubble than to lose everything in a coup.

Yan’s thesis is backed up by research showing that London property prices are directly correlated with overseas political turmoil. The FT’s James Pickford and Kate Allen write that the “phenomenon operates independently within small zones of the city and across a range of income levels”. Unrest in a country, like Pakistan for instance, boosts house prices in neighborhoods with a high density of Pakistani residents. The effect is most obvious in very expensive sections of central London, but it exists in more moderately priced areas as well. Stability isn’t the only thing people will pay for: real estate in Mecca around the Grand Mosque goes for $18,000 a square foot, compared to the Monaco average of $4,400.

The WSJ’s Jason Chow reports that wealthy Chinese investors aren’t sticking solely to residential properties around the world. They’re getting into the commercial real estate game, too. Chow, citing a CBRE report, points out that in the first quarter, Chinese investment in international commercial real estate increased 54% year-over-year to $1.4 billion. 39% of that investment came from private individuals. Chinese institutions accounted for 31%.

Izabella Kaminska looks at the cranes in the sky and the data being collected to conclude that we are in “a brave new commoditised real estate world in which generic flats have become equal to gold, property developers the equivalent of gold miners, and London the Klondike territory”. Residents of Vancouver might relate to that. — Ben Walsh

On to today’s links:

Comrade capitalism: How a billion-dollar Russian medical project funded Putin’s palace - Reuters

Must Read
“Let’s, like, demolish laundry” - Jessica Pressler

Tax Arcana
Classifying Chuck Taylors as slippers cuts the tariff from 37.5% to 3% - Gazette Cetera

Central Banking
The FOMC minutes - Federal Reserve
Kocherlakota says the Fed will keep missing its inflation target until 2018 - WSJ
Bernanke to the Fed balance sheet: you’re perfect just the way you are - Reuters

Thomas Pikitteh’s “Catipal in the 21st Century” - Catipal

Eduardo Porter interviews Piketty - NYT

Crisis Retro
There were flaws in almost every pre-crisis mortgage-backed security - Bloomberg

Crime and/or Punishment
Criminal guilt with no material impact. Except names, the US got what it wanted from Credit Suisse - Peter Eavis

Job insecurity

Ben Walsh
May 19, 2014 21:39 UTC

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Even positive news about long-term unemployment is depressing. 3.4 millionAmericans have been out of work for more than 27 weeks, a million less than last year. (27 weeks is the widely used definition of long-term joblessness.) Despite its recent decline, there’s still more long-term unemployment in the U.S now than in any pre-recession period since data-keeping began in 1948.

Matt O’Brien finds that your chances becoming a member of the long-term unemployed are almost twice as bad today as after the dot com bust. “Long-term unemployment isn’t a story about lazy people choosing to live on the dole instead of getting a job”, says O’Brien. “It’s a story about people who want a job not being able to find one… It’s a story about  macroeconomic bad luck”. The long-term unemployed are, on average, about as well educated as the shorter-term unemployed. (And the often-talked-about skills gap issomething of an urban myth across the board, according to Inc.’s Cait Murphy).

Paul Krugman thinks O’Brien refutes the idea “the long-term unemployed are workers with a problem”. In Krugman’s view, it’s not personal:

In 2000, with labor scarce, there probably was something wrong with many people who got laid off; in 2009, it was just a matter of being in the wrong place. So if unemployment was about personal characteristics, being unemployed should have mattered less for job search after the Great Recession than before. What we actually see, of course, is the opposite.

Krugman’s solution, not for the first time, is more stimulus. But he’s not, by his own admission, averse to repetition.

Justin Wolfers sees increasing evidence that the current jobs malaise is permanently scarring the U.S. economy. He concludes that the U.S. labor market is (maybe) not broken. The relationship between the unemployment rate and the job vacancy rate (the Beveridge curve in econo-speak) has historically been inversely correlated: when one rises, the other falls. After the financial crisis, however, both rose. Now, says Wolfers, unemployment is falling and job openings are staying flat, supporting the idea that the recovery will make make the damage done by the recession temporary.

The chance of almost any policy help is slim. Since the end of 2013, 1.3 millionAmerican have lost federal unemployment benefits. A retroactive reinstatement of those benefits has passed the Senate, but is going nowhere in the House. Even if it were politically possible, in the larger scheme of the underwhelming recovery, federal unemployment benefits are a small bore, if tangible, response. Diane Swonk, chief economist at Mesirow Financial, says the U.S. has a “wound that’s too gaping to be covered by a band-aid”. If passing unemployment benefits is unlikely, there’s almost no hope for a true economic bandage like broad stimulus. — Ben Walsh

On to today’s links:

The ROI of American colleges - Radio Open Source
The top 20% captured 80% of post-recession income gains - WSJ

Headline of the Day
Thomas Friedman learned a new shape - Gawker

AT&T wants to buy DirectTV for $48.5 billion - Reuters
AstraZeneca rejects Pfizer’s final offer, which probably won’t be Pfizer’s final offer - FT

Financial Arcana
Counting (and double counting) cleared OTC derivatives - ISDA Blog

Surprising no one, the price of cable TV has risen four times faster than inflation - Ars Technica

Data Points
Over the last two centuries, the stock market provided great 40-year returns - The Conversation

Study Says
Giving cash to the poor and hungry is better than giving food - Chris Blattman

Twitch has more primetime broadband traffic than Hulu and Amazon - The Verge

Mas Kapital
RIP Deutsche’s plan to boost capital by making money. It’s raising $11 billion instead -WSJ

Crime and/or Punishment
Credit Suisse pleads guilty to criminal charges - DealBook

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

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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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