Felix Salmon

JP Morgan, having lopped $29.4 billion off the value of WaMu’s loans when it took over the troubled lender, now reckons it’s going to get the lion’s share of that money back:

When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in pretax income before taxes and expenses.

WaMu failed in the middle of the sleepless craziness following the Lehman collapse, and in hindsight might well have been at least as much of a factor in the scary gapping-out of Libor as Lehman was. It’s worth remembering that these are the only two US financial institutions where senior lenders took a haircut — and in both cases the senior lenders were pretty much wiped out. In other bank failures, even the junior lenders generally emerged unscathed.

It increasingly seems as though a panicked FDIC thrust WaMu into the arms of Jamie Dimon, who could — and did — ask for pretty much anything he liked, including the right not to have to pay back any of WaMu’s creditors. The result was that the bank wholesale-funding market went straight into crisis: one sui generis default (Lehman) might have been navigable, but when you have two in as many weeks, it’s pretty clear which way the wind is blowing.

We’ve had endless rehashings of the weekends leading to the Bear Stearns and Lehman Brothers failures, but I’ve seen much less on the subject of WaMu, which is equally if not more fascinating and just as systemically important. The news out of JP Morgan that it massively undervalued WaMu’s loan books certainly seems to indicate that the likes of John Hempton have a point when they say that Sheila Bair got this particular decision spectacularly wrong, and in doing so put the entire US retail banking system on a much more fragile footing than was necessary.

Bair also took a relatively consumer-friendly bank (WaMu) and forced it to adopt the practices of a relatively consumer-unfriendly bank (Chase) — with predictable results: Chase is now telling former WaMu customers that even if they have directed the bank not to let their accounts go overdrawn, the bank can still push the account into overdrawn territory anyway, and, of course, “will assess an Insufficient Funds Fee” for doing so.

It’s clear that the big winner here is JP Morgan, but the rest of us — taxpayers, WaMu account holders, WaMu creditors — increasingly look like very big losers.

I’m not particularly surprised that big companies pay more than small companies. It stands to reason, really: successful companies will (a) be able to pay more than unsuccessful companies; and (b) be much more likely to grow to a large size.

The advantages of working for a small company don’t come in your regular paycheck. Instead, there’s more option value, if you’re at a start-up: the small but valuable chance that the company will be a huge success. Plus there’s often more collegiality and less bureaucracy, and any one individual has a much greater chance of being able to make visible change happen. But if you mainly want to maximize your take-home pay, working for the man has a lot to be said for it.

There’s one thing I’m not seeing amidst all the speculation surrounding Apple’s announcements at WWDC the week after next, and that’s a simple media server.

Apple’s computers and apps are great if you store all your media (music, photos, video) on the same startup disk where you house your operating system and your applications. But that’s never a particularly sensible way of organizing things. Yet the minute you start moving your media onto an external hard drive or — worse — a network drive, things start getting glitchy.

And heaven forfend you should want to share a music or photo library between different users on different computers on the same network. iTunes doesn’t like that — if one person adds songs to the library, the other computers on the network can go indefinitely without noticing — and iPhoto pretty much bars it entirely: if one person is using a certain library, no one else is allowed access to it. And what happens when your library outgrows one hard drive and you want to extend it onto another? Again, Apple’s apps don’t generally like that one bit.

HP has a media server which claims to be Mac-friendly, but you need a PC to set it up, and of course it can’t solve the software problems endemic to iPhoto and iTunes. The Apple TV is halfway there, but it’s built for video rather than music and photos, and is designed to be used in conjunction with a screen; what’s more, its hard drive is quite small, and it’s not expandable.

So while I fully expect Snow Leopard to include much easier ways to merge media libraries than exist right now, I’d really love a bit of dedicated hardware for such things as well.

Peter Kafka delves behind the New Yorker’s firewall today to look at the relationship between David Geffen and the New York Times, as reported by Lawrence Wright. The upshot is that if you’re worried about the future of the NYT, don’t be — the Sulzbergers can take all the risks they want, because they know that if it all goes horribly pear-shaped, the Geffen Put will always be there:

If the Times ever does need a deep-pocketed buyer, Geffen has made it very clear he’s available.

This is good news for all concerned, I think. The option to sell to Geffen has real value to the Sulzbergers even if they never exercise it — it essentially gets rid of the worst-case-scenario of an LA Times-style death spiral where the newspaper is owned by a for-profit owner who has no idea what he’s doing nor any respect for sacred trusts and the like.

Meanwhile, Ryan Chittum tweets that an annual subscription to the dead-tree NYT is now $811 a year. Which means that if you’re earning the $45,000 median income for New York City and you subscribe to the NYT, almost 2% of your pre-tax income is spent on your newspaper. I’d love to see a chart of the NYT’s subscription cost as a ratio of NYC median income — has it ever been this high? And what’s a realistic upper bound for that figure?

Update: Ryan now says the cost isn’t $811 but rather $770. That’s still $59.23 every four weeks, which is a 40% hike from the $42.40 which I’m currently paying; it definitely approaches the point at which only the cost-insensitive won’t think about unsubscribing.

Ecuador has closed out its bond exchange offer at the higher end of expectations, paying 35 cents on the dollar to investors who hold the 2012 and 2030 global bonds. That’s higher than the bonds have traded all year, and certainly higher than they have traded since Ecuador defaulted — which means that any vulture investors who bought the bonds in default will be able to lock in a decent profit for doing essentially no work at all.

What’s more, Ecuador has announced that anybody who put in an offer higher than 35 cents will be allowed to re-tender at the 35 cent level. This makes sense from Ecuador’s point of view, and gives people who tendered high the opportunity to re-think their strategy in the light of known events. It’s pretty clear that at this level a supermajority of the total bonds outstanding will end up being owned by Ecuador — which means that Ecuador will have the ability to strip a lot of creditor protections out of the instruments.

Ecuador has suffered no negative repercussions from its actions — quite the opposite. If the country needs any money in the next few years, it’ll be able to get it, from the Andean Development Bank or the Inter-American Development Bank or the World Bank or even the International Monetary Fund. None of them seem to particularly care that Ecuador defaulted on its global bonds, and emerging-market bondholders are so weak and fragmented these days that they hold very little sway any more within international financial institutions.

Indeed, given the short memory of emerging-market bondholders, I wouldn’t be surprised to see Ecuador regain its access to the international capital markets within a few years, thanks to the way in which it has managed to substantially reduce its (already pretty low) debt-to-GDP ratio. That could well be the thinking behind the decision to remain current on the 2015 global bonds, which were issued when current president Rafael Correa was finance minister. Look, he’s saying: we pay back the money that we borrow. We just don’t pay back debt which was originally borrowed decades ago and which was restructured twice in a manner designed to be as friendly as possible to private-sector creditors.

Looking at this from a systemic perspective, it’s pretty clear that in this instance the cost of default, to Ecuador, was negative. That’s dangerous: it radically increases the probability of tactical defaults from all manner of other countries, including Argentina, Venezuela, and various African states. And once a wave of sovereign defaults starts, it’s very difficult to stop, since the cost of default drops with each new event. Right now the risk of such a wave is surely near a multi-decade high.

The done thing when the Case-Shiller index comes out is to look first at the first derivative — how fast is it falling? Then people look at the second derivative — is the rate of decrease slowing down or speeding up? And if there’s no optimism there, you can always find it somewhere. The official press release leads with a graph of the first derivative over time, and then adds this:

“This is the second month since October 2007 where the 10- and 20-City Composites did not post a record annual decline. Based on the March data, however, we see no evidence that that a recovery in home prices has begun.”

I don’t think we needed an index to tell us that. But it is worth taking a step back and looking at the level of the index, rather than just its rate of change:

This is the Composite-10 index; the National and Composite-20 indices are similar, and in general show house prices at their levels from 6-7 years ago; all the same, the length and severity of the drop in house prices is still just a fraction of what we saw on the way up: we had a ten-year boom from 1997 to 2007, and there’s no particular reason why the bust shouldn’t last just as long — especially given the natural stickiness of house prices on the way down.

And what of stories announcing a “new frenzy” of house-buying in Phoenix, poster-city for the housing bubble? I think this could be a sign of a real two-way market developing, with the number of buyers approaching the number of sellers. That’s good for price transparency, but it doesn’t tell us anything about the future direction of house prices: liquid markets can fall just as easily as they can rise. And, in this case, probably will.

Received opinion has it that stock prices are a leading indicator of economic conditions — they price in expected future events — while the unemployment rate is a lagging indicator, since it reflects the outcome of decisions made in the past, and businesses only just beginning to come out of a recession are generally hesitant to start hiring again.

Looking at this graph, however, it seems that the two indicators are much more coincident than you might think, and it’s pretty hard to look at that uptick in stock prices over the past couple of months and see compelling evidence of “green shoots”. Especially given the absolute magnitude of the unemployment rate, which is now so high that it’s seriously hurting consumption.

If and when the recovery does take place, we won’t just move cyclically back into a period reminiscent of the last boom. Rather, the new economy will look very different from the old economy: it will be much less reliant on personal consumption expenditures than before, and especially on expenditures which were financed by debt, be it on credit cards or the proceeds of home equity withdrawals.

A glance at the chart shows that stock prices are very volatile these days, and that you extrapolate from short-term countertrends at your peril. It’s the red line which really charts the state of the economy, not the blue line. And although there’s the vaguest hint of a suggestion that the red line might just be leveling off, it’s worth remembering that it’s pretty hard to paint a picture of economic recovery with the unemployment rate at current levels.

When unemployment starts to drop — then, and only then, will I start to believe that a rising stock market might be telling me something. Of course, I’m not a stock-market speculator, so I’m not worried about missing out on the market rising further — in fact I’d love to see stocks roar upwards, and the attendant inrush of liquidity help to kick-start the economy. But I’m not holding my breath.

(Update: The chart shows U6 underemployment, which is a broad measure of the number of people looking for more work than they have right now. But just about any of the unemployment ratios would show much the same thing.)

On Friday I asked, both here and on Twitter, whether I should auto-publish my blog entries to my Twitter feed. The results, where “no” includes people who say “start a new Twitter account for that”:

(Midas Oracle got counted twice, once as a yes and once as a no; dctag, on the other hand, seemed so diffident I didn’t count him at all.)

Maybe the thing to do is to start off manually, picking and choosing the blog entries to link to and maybe linking to more than one at a time. But to do that easily I’d want a Firefox plugin where I can right-click on a hyperlink, select “shorten”, and have a bit.ly address or somesuch automatically copied into my clipboard. Otherwise tweeting more than one URL at a time is a bit of a pain.

Another company defaults on its obligations because its chairman thought his market would simply rise forever:

“In my 30-plus years in the business there’s never been a year that was down versus the prior year,” he said. “This is a first.”

It’s a wonder he didn’t go into mortgage securitization, really.

The good news: the NYT’s ombudsman, Clark Hoyt, has weighed in with uncommon speed on l’affaire Andrews. But he’s done so in a most peculiar way: he spends 11 paragraphs on whether or not Andrews should be covering his own personal housing crisis at all, given his job, and then moves on to Megan McArdle’s bombshell with one final tacked-on graf, in which he can’t even bring himself to mention McArdle by name. (She’s first “a blogger for The Atlantic”, and then just “the blogger”. You’ll excuse me for reading that language pejoratively: if a newspaper columnist had written the same thing, I doubt they would have just been “a columnist” and “the columnist”.)

Here’s Hoyt’s conclusion in full:

Andrews is an excellent reporter who explains complex issues clearly. There are plenty of them to cover without assigning him to those that could directly affect whether he keeps his own house. He is too close to that story.

He can’t be too cautious. On Thursday, he came under attack from a blogger for The Atlantic for not mentioning in his book that his wife had twice filed for bankruptcy — the second time while they were married, though Andrews said it involved an old loan from a family member. He said he had wanted to spare his wife any more embarrassment. The blogger said the omission undercut Andrews’s story, but I think it was clear that he and his wife could not manage their finances, bankruptcies or no. Still, he should have revealed the second one, if only to head off the criticism.

“He can’t be too cautious” carries with it the clear implication that the next bit of criticism is largely unwarranted — an implication which is reinforced by Hoyt’s inability to name McArdle. And the way he talks about Andrews being “under attack” from this anonymous blogger also naturally puts the reader on Andrews’s side.

Eventually, Hoyt decides that Andrews’s wife’s bankruptcies really aren’t germane after all, on the rather peculiar grounds that since Andrews is open about his inability to manage his finances in any event, the news of the bankruptcies doesn’t really add anything. Huh? There’s a world of difference between a couple who can’t manage their finances and who are sucked into the subprime bubble, on the one hand, and a couple with two bankruptcy filings in the space of 8 years and 4 months, on the other. (You’re not allowed to file for bankruptcy within 8 years of your last filing.)

The reason why Andrews should have revealed both bankruptcy filings (not only the second one) is that they’re highly relevant to his family’s finances, and he’s written an entire book about his family’s finances. The reason is not just “to head off the criticism” he might end up receiving from the blogosphere.

As for the whiff of latent blogophobia which wafts through the whole thing, it’s worth noting that although Hoyt has a blog, he hasn’t written a substantive blog entry there all year — all the content from 2009 so far has been written by others and simply posted by Hoyt. What’s more, the NYT has broken links to his predecessors’ blogs: Dan Okrent’s blog used to be here, while Barney Calame’s used to be here. Neither link works any more. Clearly, if you want to make an impression on the public editor, it’s best to avoid any hint that you might be a blogger. It seems that McArdle should have mailed Hoyt an official complaint, on Atlantic letterhead, signing herself the Business and Economics Editor of The Atlantic: Hoyt would probably have taken that more seriously. It’s very sad that he still hasn’t moved on from that credentialist world.

I got a very smart email from Zoltan, one of my readers, yesterday, on the subject of credit cards:

In the recent past, I worked as a management consultant for some major credit card issuers. I can tell you that internally, these companies have a common term for customers who pay off their entire balance every month: “freeloaders”.

These “freeloaders” aren’t necessarily unprofitable; some are, most aren’t, on average the group is mildly profitable, but not nearly as profitable as those who carry a balance. If you’re wondering how a “freeloading” customer can be unprofitable, there are several factors. For one, about 0.8% of the 2%-3% interchange fee goes to rewards, but a diligent customer can push that to 1.5% or more by optimizing the collection and redemption of rewards points. Beyond that, the credit card issuer finances everything the “freeloader” buys on the card for 15 to 45 days. Finally, there are the various expenses a customer costs: printing and mailing cards and statements, call center service, various card benefits, etc.

The result is that roughly 20% of a credit card issuer’s customers are unprofitable (this can vary tremendously, depending on the company and calculation – for instance, allocation of fixed costs). This isn’t particularly remarkable, I suspect the number might be similar for Safeway or Best Buy. But this legislation is going to increase that percentage, by either increasing the number of unprofitable customers (the numerator) or decreasing the total number of customers (the denominator).

The legislation changes credit card economics fundamentally, making it less profitable. The issuers will try to restore some of the lost revenue by playing with their pricing, rewards, and servicing. A pricing structure built on a revenue model of 30% fees, 40% interest, and 30% interchange, will have to change when the revenue model is shifted overnight to 25% fees, 35% interest, and 40% interchange (these numbers are just theoretical examples).

One company may just raise the basic interest rate. Others might raise annual fees or reduce rewards. Many will do a combination of things. But the point is that some companies will make changes that will definitely disadvantage customers who don’t carry a balance (i.e., “freeloaders”), while other changes will be neutral. Eventually the issuers will settle at a competitive equilibrium or develop their respective niches. However, as someone who knows how these decisions are made, I can’t think of any fruitful changes they could make that would improve things for “freeloaders”. So on average “freeloaders” will lose out. Will they lose out as badly as the industry implies? No way, but they will still lose out.

I responded:

I guess where I don’t follow you is where you talk about when “the issuers will try to restore some of the lost revenue” — aren’t they trying to maximize their revenue already? Aren’t they basically trying to maximize the profitability of the freeloaders in the face of known competition?

The analogy I have in mind is health care reform, where people ask how the health insurers will be able to make as much money as they do today — the answer is that they won’t. And the same with credit cards — why can’t they simply become less profitable, like, I dunno, video rental stores?

It strikes me that if freeloaders, as a group, are profitable right now, then at least some credit card companies will be content to continue to make money off them as they do right now. And if other credit card companies start raising fees etc, those customers will just defect to those companies which don’t, no?

And I got this back from Zoltan:

Yeah, that “restore lost revenue” part wasn’t as clear as it could have been. What I meant is that the current pricing and service structure has been optimized (or ostensibly optimized) for a certain type and level of revenue. Once that revenue changes, they will reconfigure things to maximize profitability under the new conditions. The profit-maximizing pricing structure of January 2009 won’t be the same in July 2009. I can’t conceive of any way that the new profit-maximizing pricing structure will have lower prices for anything. I can’t say it’s impossible, but I don’t see it.

I think health care is a great example. Of course, insurers will make less money if there is health reform. But they will also change the structure of their plans (beyond merely what’s required by legislation) to adjust to the new reality. Certain types of policies or benefits will become less profitable, even unprofitable, and be phased out. Others will be more profitable and be pushed. Many (mostly well off) people will be worse off than they are now, in that they’ll have to pay more (through premiums or taxes), or have less benefits. The idea that some have that the entire cost can be borne by the insurers is a fantasy. Even if it weren’t, the idea that everyone will be better of, as opposed to, say, 80% being better off and 20% being worse off, is also wrong. (I’m Canadian, so I don’t really have skin in the U.S. health care game, although I think the U.S. status quo maximizes our sizable free rider benefits).

There are tradeoffs for everything. If hotels were banned from charging $8 for a minibar beer and $2/minute for phone calls and $25 for breakfast, the hotel chains would have to reevaluate their pricing structure. The result would probably be higher room rates and some closed hotels. If airlines had a price limit put on their business class seats, you can bet coach tickets would go up in price and the number of flights would go down.

In these cases and in the case of credit cards, there is tremendous profitability in one customer segment that, to an extent, essentially subsidizes another segment because it is willing to pay ridiculous prices. The difference is that with airlines and hotels, the people paying the ridiculous prices are corporations and rich people, while in credit cards, it’s the stupid and the poor. That may argue in favour of the legislation.

Even if you don’t buy my arguments, it’s pretty clear that the industry will have less revenue per customer, and higher fixed costs per customer (due to the allocation of fixed costs among fewer customers). Economically speaking, this will cause the supply curve for credit cards to shift leftward, increasing price.

You’re definitely correct that the new equilibrium is card issuers making less money. But that isn’t necessarily a good thing for those (like me) who are currently maximizing the benefits and minimizing the costs of our cards. That said, I think the overall effect on “freeloaders” will probably be minor, maybe a few dollars a year in extra fees, maybe a small depreciation in rewards schemes. I think the bulk of the loss will be shared by the credit card companies and by those who continue to carry a balance, in the form of increased interest rates and increases in whatever fees can still be increased and assessed.

Your last paragraph about issuers trying to keep making money off freeloaders is essentially correct. American Express’ charge card (as opposed to credit card) business, for example, is made up entirely of freeloaders, and is very profitable. But they are an exception. Most companies can’t cordon off their freeloaders and charge them a specific pricing structure that makes them profitable (although they do try). They’re often stuck in the same ABC Bank Gold Rewards card as the people who carry a balance. So if they change the pricing for that card, everyone gets hit.

As for your point about “freeloaders” defecting from companies that raise fees, that will definitely occur, but I still believe the eventual equilibrium will be higher pricing.

This is pretty convincing stuff. Yes, those of us who pay our credit-card bills off in full each month might be worse off as a result of this legislation, but probably only by a few dollars a year. On the other hand, all of us will be better off in that we will no longer run the risk, however small, of being egregiously shafted by the credit-card companies.

Think of the credit card legislation as an insurance premium: it might cost a few bucks a year, but it might end up saving you a huge amount of money and hassle. Meanwhile, it’ll certainly help out millions of cardholders who are less assiduous in paying their cards off in full each month. So net-net, the new regulations are a very good thing — unless you, like John Hempton, think that it’s a great public good that banks make enormous profits each year.

Update: Another reader adds:

I have worked for five years in the credit card industry for two major issuers, actually running and developing the financial models (NPV etc) on which the decisions were made to solicit and approve consumers. I am now in b-school, but can shed some light on the consequences of this legislation, in light of your below article. In my five years in the two companies, I have been intimately involved in decisions to lend more than $100B to US consumers through credit card. So, I am talking form reality here, not conjectures.

Credit card industry works on a bar-bell business model. All the profits (mainly through fees and very very high interest stretching into 30% or more) are made form people below 650 FICO, all the assets (loans or balances) are from people from above 700 FICO. The industry is just a giant wealth transfer mechanism from poor people to wealthly people. The profits from below (subprime) serve to subsidize the interest rate and rewards cost of people in the ‘super prime’ category. You can bet that that will disappear soon. The discussion about ‘transactors’ (thats the industry term, not freeloaders) is a side distraction, not relevant at all. At best, transactors are mildly profitable, at worst they breakeven. The interchange rate is 1.87%, not 2 or 3%.

The subprime people need to be saved from themselves, no doubt about that. I couldn’t myself stomach the usurious 35% interest rate charged on them by my companies on a $500 credit line, in addition to the varying forms of fees, while a superprime customer had a $30K line at 5% interest rate.

I ran multiple simulations last fall in my previous company on behalf of the CFO in anticipation of these new laws and I can tell you that we were deeply unprofitable in every scenario. Considering my knowledge of the business model of other card issuers, I wouldn’t be surprised if they are in the same position too.

Welcome to the new age of credit cards, when they will actually be used as a convenience service, rather than as an ATM. This can only be a good thing.

A long-overdue tab dump which will make me feel much freer over the long Memorial Day weekend:

$400 billion of Lehman Brothers assets (“at nondistressed prices”) are being valued at $45 billion.

Rick Bookstaber: The Flight to Simplicity in Derivatives

Models Didn’t Bring Down Wall Street; People Brought Down Wall Street: I basically agree with this, although it’s couched as though we disagree. (I’m the “author who has been widely published on the subject of Wall Street’s use of mathematical models” the blog entry is talking about.)

U.S. Household Deleveraging and Future Consumption Growth: The future’s not pretty. Yet another case where a very long boom is likely to be followed by a similarly long bust, and yet another reason not to get too bullish right now.

An interesting question from Willem Buiter: “interest on money is forbidden by the Quran. I don’t know what Sharia scholars would have to say about negative nominal interest rates.”

Ryan Chittum sees “Hints of an Explosive Wall Street Story from FT’s Tett” — he may be right, but I don’t smell the same smoking gun that he smells. On the other hand, if there really are banks which have positioned themselves to benefit from a bankruptcy, only to then push that borrower into bankruptcy, Chittum is right that all hell would break loose — especially if they turned out to be US banks. Banks have a lot of power to decide who gets to roll over their loans and who doesn’t. They should never abuse that power for their own speculative profit.

Google drops idea to buy newspaper: Unless there’s “some massive, massive set of corporate bankruptcies”. Which isn’t all that unlikely.

I just found this, from Brad DeLong:

One reason that we academics tend to judge journalists harshly is because of their… excessive claims of originality. We tend to believe strongly that situating your work and your contribution in the ongoing discussion is one of the very first duties of a writer–and a duty that is absolutely essential to any attempt to inform or educate readers.

Journalists act differently. They try to make their readers as ignorant as they can about where the information is coming from. In my view, this is both unethical and ineffective: it tends to lead to great suspicion of American journalists, and a discounting of what they write.

“Situating your work and your contribution in the ongoing discussion” is exactly what bloggers do — and it’s something that journalists find very difficult. Being original (the fetishization of the “scoop”, even if it’s only by five minutes) is vastly overpraised in journalism, and journalists as a group tend to imbue everything they do with an incredible amount of secrecy. Try asking a magazine writer what she’s working on: she probably won’t tell you. After all, you might scoop her!

I think Brad’s insight helps explain to a very large extent the reason why academics took to the blogosphere with so much more alacrity than journalists, and why journalists-turned-bloggers can be pretty stingy with links and hat-tips, at least when they’re starting out. And of course it helps explain the otherwise inexplicable decision by Bloomberg to bar its reporters from even discussing “media competitors”, let alone linking to them.

One of the things I dislike about many of the big for-profit blogs is that they seem to be much more likely to internalize this kind of competitive mindset, where they become obsessed with their “competition” and tend not to link to them. It’s silly, and it helps to poison the helpful and positive-sum spirit of the blogosphere; it’s also one reason I think why Twitter, with its re-tweets and nobody really caring who got something first, feels a bit like the blogosphere circa 2003, which is increasingly feeling like some kind of halcyon golden age.

On which subject: a question, if I may. Should I automatically link to my blog entries from my Twitter feed? I tend to get annoyed when people do that, but I also appreciate that many people are using Twitter as an RSS substitute. Let me know on Twitter or in the comments!

I had an interesting lunch with Vipal Monga of The Deal this afternoon, and he came out with a rather startling datapoint: apparently there’s roughly $500 billion of leveraged loans out there which mature between 2012 and 2014. Is there any conceivable way those loans will be able to be refinanced?

But now go back and read your Lucian Bebchuk: he says that under the stress tests, Treasury didn’t even try to guess the value of assets on banks’ books which mature after 2011. Let’s say I’m a bank with a $10 billion portfolio of leveraged loans maturing in 2012. Under Treasury’s adverse scenario, that portfolio will be worth a lot less than $10 billion in 2010 — and if they’d run a solvency calculation using a reasonable value for that portfolio, the results might well have been very ugly. But under the stress tests, Treasury just ignored any drop in value of those assets. Yikes.

Is this the mechanism behind a coming W-shaped recession? Just as today’s fabled green shoots start growing into something viable, we’ll be hit by a massive new spike in defaults in newly-toxic asset classes: not just leveraged loans but also munis, sovereigns, and other things which have yet to blow up enormously. And of course the banks will be hit all over again, and will require yet another round of monster bailouts. If the crisis in structured finance grew to become a broader economic crisis, then the economic crisis might well yet swing around to bring down asset classes on the finance side which have been largely default-free to date, if only because they’re long-term loans which got locked in at low interest rates at the height of the credit bubble.

Ryan Tate is quite right that there’s no way Bloomberg is going to be able to enforce the attempted ban on its journalists so much as linking to a news story from their Facebook page — although the ban is entirely in line with the company’s longstanding webophobia. Bloomberg killed its RSS feeds as long ago as 2006, and Mike Bloomberg told me as far back as 1995 that he had no interest whatsoever in going onto the web. He was always much happier being in complete control of the Bloomberg space, banning rude words on the messaging system, and so forth.

I’m sure this memo is making a lot of people at Reuters very happy, since it makes it much easier for us to compete with Bloomberg for journalistic talent. And it’s certainly not going to stop me from linking to Bloomberg articles online. Even if I risk receiving a nastygram in return every time I do so. (See the update at the bottom of the blog.) How long until Bloomberg Finally Gets It? My guess is that it’ll be a long time indeed — and certainly won’t happen while Matt Winkler is still there. A shame, for the blogosphere and for freedom of expression, but a good thing for my new employer.