Felix Salmon

I asked; Spamhaus has answered.

The purpose of the spam is to trick recipients into responding to answer the questions. The questions and their responses are actually a system of gathering data to compile a series of “Answer your questions” websites run by “X Media Partners” which generate revenue from Google adverts placed alongside the answers…

The main person behind this spam operation appears to be a Canadian named “Doug Collins” who also goes as “Ryan Collins” and “Amanda Collins”, of 30 Gooderham Dr., Georgetown, ON L7G5R6, CA.

When Spamhaus investigated these ‘random question’ spams, we found that in each case the identical questions were used by the websites above and the answers sent back by recipients who had fallen for the spams were also on these same websites. To verify this, Spamhaus answered one spam from “winstonfinancial@gmail.com” which asked “How to pack teenagers for europe?”. Our answer, word-for-word including intentional mispellings appeared as if by magic a few minutes later on the website www.goftp.com.

Clever! I wonder whether “Doug Collins” will suffer at all for this. Somehow I doubt it.

Treasury has released its first report on the success to date of the Making Home Affordable program:

The purpose of the report is to document the number of struggling homeowners already helped under the program, provide information on servicer performance and expand transparency around the initiative.

The problem is that the report seems to have more spin than transparency. Consider this graph:

Yay! It’s up and to the right! Things must be great, no? Except there’s that annoying word “cumulative”. Cumulative graphs are generally misleading: they can only ever go up, and can’t ever go down. In order to judge this graph, you really have to look very closely at the gradient, to see whether the rate of modification trials is increasing at all. And it seems that it isn’t.

What’s more, you’ll look in vain, in this report, for any indication of how the rate of new modifications compares to the rate of new foreclosures. That’s the key thing to look at: if the rate of foreclosures starts to fall, we might be getting somewhere. But that rate isn’t mentioned in the report.

Yes, the report does single out some servicers, such as Wachovia Mortgage, for their very low modification rates. But overall it seems to be determined to paint a rosy picture of the HMA scheme, rather than objectively reporting on whether it’s working or not.

The news that Tim Geithner “blasted top U.S. financial regulators in an expletive-laced critique last Friday” is certainly noteworthy, but I must admit to a lingering suspicion that Geithner exploded in such a manner only because he wanted the news to be leaked.

I can imagine the assembled regulators sitting at Treasury, sharing puzzled glances as Geithner went on his tirade, and then thinking “oh, now I get it” when they saw this morning’s WSJ. Geithner has been losing control of the regulatory-reform news agenda of late, and now he’s sent a clear and public message that any regulator standing in public opposition to his plan will be viewed as being in opposition to regulatory reform more generally. It’s a pretty effective way of quashing public debate, during a time when public debate is, at the margin, only going to delay or weaken any eventual reform.

The risk, of course, is that if regulators aren’t allowed to oppose Geithner’s plan in public, then they might just quietly start siding, emotionally, with the financial-services industry which generally opposes any new regulation at all. And if new regulation does come in, then already the regulators will have been largely captured by the banks they’re supposed to be regulating.

There are enough different regulators in the Geithner plan that they will all be more than happy to blame one of the other ones if something goes wrong. This is a recipe for failure, especially if the regulators are dragged reluctantly into the new scheme, rather than being genuinely in favor.

John Varley is surely unhappy about the reception given to his latest pearl of wisdom:

On Monday John Varley, chief executive of British bank Barclays Plc, said the priority for him and his top investment banker Bob Diamond was to field the best team possible.

“That in a sense is exactly the same as a football manager, if they are going to win. Our obligation is to ensure we pay appropriately to attract and retain the best people,” Varley said.

Amid all the snark about whether or not Barclays could sell shirts with their stars’ names on the back, however, I think an important point is being lost here, by both Varley and his critics: football managers are paid only a small fraction of the money that they’re forced to shell out to their stars.

Yes, there are occasionally star traders who make more than the CEO for a year or two. But if a bank was really run like a successful sports franchise, its executives would in general be paid a single-digit percentage of what the top earners were getting. And I suspect that the amount of public ire directed at banks’ executives would be much lower if they didn’t pay themselves hundreds of millions of dollars not for making money, necessarily, but just for managing the people who make the money.

Why you don’t actually get compensated for taking on extra equity risk:

In the world’s 12 most valuable companies there are 3 banks. Two are Chinese; the other is Hongkong and Shanghai.

“There are several things I love to do on the Vineyard. The first is ride my tricycle. I have two adult tricycles…”

Harvard goes trademark-bonkers

Lots of geektastic detail on “latency arbitrage” — which is a much better name than “high-frequency trading”

TED spread now <30bp for the first time since March 2007

“Big Wall Street firms view SEC fines the way UPS and FedEx view parking tickets in Manhattan“

Bloomberg’s MTA wishlist is full of goodies. Pity none of it is going to happen.

Hugo Lindgren invents the Hot Waitress Index — no sympathy for the fembots!

Sarah Wildman on how insurers never pay for pregnancy (and please, WPNI, give me a single-page option!)

Charlie Rose hypocrisy alert: he says GE doesn’t control NBC content, while brokering deals to do just that

Most “abandoned” cities

Cognitive dissonance, Temasek edition

Andrew Hall is back in the news, so I might as well disinter an April blog entry: Citigroup can’t keep Phibro

NYT tries and fails to work out how on earth Annie Leibovitz ended up $24m in the hole

Cute interactive how-people-spend-their-day chart

Anil Dash delivers 2,271 words on how Apple should give up its culture of secrecy

Two early bids for the Boston Globe, one would turn it into a nonprofit.

Hubristic datapoint of the day: Trader Monthly thinks it’s worth more than $0

Zachary Seward has some “very rough, back-of-the-envelope calculations” of the amount of money Gawker pays and receives for a reasonably-successful blog entry like the one Hamilton Nolan wrote about Anne Loehr. The upshot? The cost of the journalism was about $20, while the revenue from the blog entry is about $200. A good business to be in!

Do Seward’s numbers make sense? Yes. Ian Shapira reports that Nolan is paid $4,000 a month (which surprises me, I would have guessed he was making more than that). If you divide that $4,000 by the 260 blog entries Nolan writes each month, it comes to about $15; on the other hand, if you reckon that the $4,000 is paying for Nolan’s 2.3 million monthly pageviews, and say that this one blog entry accounted for 12,500 of them, then you get to just over $20. (Gawker’s stats can be found here.)

On the revenue side, Gawker is running three ads on that blog page, with a rack rate CPM of $8 each. If the ads were all discounted by one-third, then Gawker’s getting $16 per thousand pages served, which works out at exactly $200 for 12,500 pageviews.

Of course, Gawker has more expenses than Hamilton Nolan’s $4,000 a month. There’s his bonus, for one — and then there’s the cost of selling those ads, and all of Gawker’s overhead. Plus, it’s the beginning of the month; later on, Gawker might not be selling out its inventory like it is right now.

On the other hand, Gawker has more revenue than just the ads from individual blog entries — it also serves ads on its sites’ home pages, which bring in a lot of money, as well as archived blog entries by bloggers who no longer work for the company. So overall it’s easy to see how Gawker has now grown to the point at which it’s a highly profitable media company.

Presented without comment, from Jake:

Simon Johnson, today, wonders why America’s small community banks are lobbying against the Consumer Financial Protection Agency, or CFPA. He gives some very big-picture reasons why they shouldn’t — basically, what’s good for consumers is good for their bankers. But on a much narrower level, the opposition still doesn’t make much sense. Here are some reasons why:

1. Small community banks are good at boring, simple banking — think the Bailey Building & Loan. That kind of activity should pass a CFPA audit without breaking a sweat. Conversely, a CFPA audit is akin to a tax on size and complexity — the more opaque a bank and its products, the harder it will be to persuade the CFPA that what it’s doing is good for consumers.
2. Small community banks compete with predatory lenders, and in extremis are forced into the gutter with them. The CFPA, by severely curtailing predatory activity, moves the battleground back onto the community lenders’ own turf. More generally, the CFPA will turn formerly-unregulated lenders into regulated financial institutions, which will help level the competitive playing field.
3. The CFPA is rightly prejudiced against yield spread premiums and other hidden ways of gouging consumers, such as putting prime customers into subprime loans. Small community banks don’t engage in such shenanigans. Meanwhile, community banks are really good at old-fashioned know-your-customer underwriting, which the big financial institutions find more or less impossible.

So why the opposition? I think it’s a combination of fear of the unknown, on the one hand, and fear of the big banks, on the other. Since every regulator to date has been successfully captured by Wall Street, it’s reasonable to assume that the CFPA might end up being captured by Wall Street too. In which case the burdens of the CFPA might end up being borne disproportionately by smaller community banks.

Mike Konczal sends me a great quote from Richard Serlin, I’m not sure exactly where it comes from, but it’s spot-on:

There may be great opportunities to profit by deceiving consumers, and large scale advertising and other marketing can be very effective at that. Big companies are much more capable of doing this than small ones because of the great economies of scale involved. With regulation, you can take away these opportunities to deceive people into taking bad deals with large scale marketing, and this hurts the big companies’ competitiveness much more than the small ones’.

This may be an important issue. With things more plain vanilla and clear, a lot of customers may have a natural preference to go with the local community bank. If the big and/or internet banks can’t falsely make it seem like they have a substantially better deal through confusion, a lot of people may like to just go to their local bank, by their home, and sit down with someone.

The question is, how do we persuade the community bankers themselves of this? How can we turn their fear into greed? Because they could make the difference between the CFPA coming into existence and it dying a death in committee somewhere.

The Economist doesn’t approve of ad agencies “stretching the accordion”, and branching out into non-core businesses such as product design and environmental consulting:

The grim economic climate does not favour such dabbling. It takes cash and time to develop a fledgling unit. Those are two things that many agencies do not have.

Well, they may not have cash, but they do have time. What should happen, in a cyclical business, to an employee whose net present value to the company is high — if you take into account all her future work — but who has relatively little to do right now? In a badly-managed business, you get massively-multiplying meetings: every decision, no matter how tiny, ends up being debated and signed off on by far too many people, who thereby get to feel (and show their bosses) that they’re Doing Something.

Much more intelligent, in a creative company, to do something potentially very valuable with temporarily-underemployed executives and staff. If it works, that’s fantastic; if it doesn’t, the employees have still had a valuable and productive experience, and the company hasn’t bogged down in bureaucracy. Meanwhile, layoffs have been avoided, and top employees don’t end up working at a competitor.

Recessions are often a great time to launch new businesses — if you can make it work right now, you’re likely very well placed for the future. And talent is easier to come by. So in theory I can see how stretching the accordion might make a lot of sense — so long as the marginal cost remains very low.

File under “failed incentives”: Bank of America lied about $3.6 billion in Merrill Lynch bonuses, and as a result will pay $33 million in fines to the SEC. That’s less than 0.92% of the bonuses in question.

If I were Citigroup, and the Feds were telling me not to pay Andrew Hall his $100 million bonus, I’d be inclined to just pay it anyway. And then sheepishly apologize and pay a $920,000 fine. So much easier than doing the right thing from the beginning.

Jonathan Ford thinks that GDP bonds are a good idea. What’s a GDP bond?

Imagine a country that normally grew its GDP at 5 percent a year. To the extent it grew at 6 percent, the coupon would be reset upwards by one percentage point. If it undershot by one percentage point, the interest rate would be similarly reduced.

Ford explains that this is good for both issuers and investors:

Most investors have three objectives: long-term growth; inflation protection and low price volatility… GDP bonds meet all three requirements…

For the issuer, GDP bonds also have appeal. As Willem Buiter has recently observed, they would give government debt some of the characteristics of an equity security. Their servicing costs would rise and fall in line with the state’s own ability to pay. This, Buiter observes, “would reduce the expansion of the public debt through the intrinsic debt dynamics that comes out of the product of the interest rate and the outstanding stock of debt.”

Ford and Buiter both worry about governments fiddling with macroeconomic statistics, but that’s actually the least of the problems here.

For one thing, although Ford and Buiter both point to Argentina as a precedent, there’s a big difference between what Argentina did and what they’re proposing. Argentina stapled detachable GDP warrants to its plain-vanilla bonds — they had upside, if GDP grew quickly, but no possible downside. Under this GDP bond scenario, by contrast, a bondholder could actually lose out by holding a GDP bond:

With $1 million worth of 10-year debt, for instance, there would be an amortisation of $100,000 each year, unless the growth rate of GDP that year were negative… With minus 2 percent GDP growth in year 1, interest payments would be minus 10,000, which could be paid as a reduction in principal repayments that year to $90,000.

Bond investors in general, and government bond investors in particular, are highly loss-averse — they’ll require much higher yields if there’s a real risk that they won’t be repaid their principal in full.

What’s more, bond investors valued those Argentine GDP warrants at zero when they were issued. If a detachable option with upside but no downside is valued at zero, then a built-in option with symmetrical upside and downside will clearly be valued at less than zero: the government is going to have to pay a big premium to complicate matters in this manner.

In general, it’s nearly always a bad idea to add optionality to bonds: it’s the kind of thing which seems very clever to investment bankers pitching deals, but which never really catches on among the buy-side.

With government bonds, the hurdles are even higher. Government bonds, after all, serve a dual purpose: they’re a mechanism allowing the government to borrow money, and they’re also the instrument by which the financial markets construct a benchmark yield curve. If GDP bond issuance were only a tiny proportion of the whole, like inflation-linked bonds are right now, then the upside for governments — lower interest expenses during recessions — would barely be noticeable. On the other hand, if they became the norm, then we would no longer be able to see at a glance what the risk-free rate of return was for any given maturity.

The fact is that while GDP bonds make a certain amount of sense in theory, they make no sense in practice. For the national treasury — a/k/a taxpayers — they will nearly always be more expensive than plain vanilla debt. At the same time, the fixed-income investors who tend to buy nearly all government debt want, well, a fixed income, not a variable dividend. If they wanted a variable dividend, they’d buy equities.

Steve Forbes interviewed Duncan Niederauer, the CEO of the NYSE, and asked him about high-frequency trading. Unsurprisingly, Niederauer came out in favor of high-frequency traders:

They’re actually probably the most consistent source of liquidity provision in the market today. I actually don’t think they added to the volatility in the crisis. If anything, the studies that we’ve done would suggest it’s a pretty consistent provision of liquidity that would dampen volatility.

The NYSE has done studies on this? Does anybody know where I might be able to find them?

James Glynn has an odd article today, headlined “Australia Tries to Avoid a Housing Bubble”:

Home values have started rising again, after falling in 2008, and are slightly above their record high reached in February last year…

One reason that Australia’s housing market is comparatively tight right now is that it didn’t get too out of control during flush years. Although Australia had its property boom between 1997 and 2003, policy makers were able to prevent prices from getting too far out of whack.

I think that by most metrics Australia’s property bubble was bigger than that in the US. But let’s go to the tape:

Between 1992 and 2008, real Australian house prices, as measured by the OECD, rose by 95% in real terms, while US house prices rose by 40%.

Or, for that matter, ignore the crazy bubble years of 2002 and 2003, and just look at house prices since Australian “policy makers were able to prevent prices from getting too far out of whack”: between 2004 and 2008, US house prices rose 12% in real terms, while Australian house prices rose 17%.

Australia did have a property bubble, and prices did get out of control, especially in 2002-3. The main difference between Australia and the US is that Australia’s property bubble hasn’t burst yet.

Update: See also Hempton.

Charlie Gasparino knows that a well-argued print column is a much better tool for building credibility than any number of high-volume television appearances. Unfortunately, he seems to have a problem with the “well-argued” bit:

If AIG is imploding and you’re the government and you need help restructuring the company or figuring out ways the government can fix the problem, Goldman is a good place to start. Of course the firm had conflicts of interest—given its exposure to AIG insured debt and all its connections in government—but so did just about everyone else in this sordid mess, and at least the guys at Goldman are smart as hell. … (Ben Stein, it should be pointed out, once made a far more reasoned and persuasive attack against the firm in a column suggesting that Goldman had used its research to drive down the subprime market when it put on the short sale).

First, Goldman’s exposure/conflict when it came to AIG was a lot bigger than anybody else’s. The Goldman chaps may or may not have been “smart as hell”, but they were in a pretty pickle when it came to their $13 billion AIG exposure, and they really should have been barred from advising the government on AIG. Instead, as Joe Hagan puts it, they were “on every side of the large conference table, with triple the number of representatives as other banks” when the decision to bail out AIG was made. Yes, the other banks might have been conflicted, but they weren’t as conflicted as Goldman. And they weren’t nearly as zealous as Goldman when it came to lobbying the government to get what they wanted, either.

Second, just because its partners are “smart as hell”, in the words of TED, “doesn’t mean that Goldman Sachs isn’t out to get you.” Indeed, quite the opposite. That’s how they make their billions.

And most importantly, anybody who calls Ben Stein’s December 2007 column “reasoned and persuasive” is on crack. Obviously, I didn’t think much of it. But don’t take my word for it: ask Paul Krugman, Dean Baker, Yves Smith, Roger Ehrenberg, Brad DeLong, Calculated Risk, Chew Your Grouse, Ryan Avent, Talking Biz News, John Gapper, Mark Thoma, Herb Greenberg, or any of many others, including pretty much everybody at DealBreaker including John Carney (1, 2, 3, 4, 5, 6).

One of the more notable aspects of Matt Taibbi’s attack on Goldman Sachs is that although at first glance it looked as though he was taking an everything-and-the-kitchen-sink approach, in fact he stopped short of reiterating the craziest conspiracy theories, such as those of Ben Stein. If Gasparino chooses to take aim at Taibbi while defending Stein, he’s doomed to be considered as a blowhard at best, and a laughingstock at worst.

If the price of art falls, that means that now is the time to buy. This is the kind of rhetoric we’ve been hearing from real-estate professionals for a while now, repurposed by their counterparts in the art world:

Prices of works by artists born after 1945 have fallen nearly a third since a late-2007 peak, according to widely used market data compiler Artprice, and analysts say this could be a great time to get in.

Remember too that if the price of art rises, that also means that now is the time to buy:

The odd high-profile sale has underlined the category’s potential: a David Hockney portrait of Betty Freeman sold for $8 million in May, a world record for the artist — and still tipped as a sound investment.

“Whoever bought that work got an absolute total bargain,” said Simon de Pury, chairman of auction house Phillips de Pury & Company, who believes Hockney’s works will follow the pattern set by fellow British painter Francis Bacon, whose prices rocketed after an initial struggle.

Of course, Hockney was born in 1937, which means that technically he doesn’t fall into the “born after 1945″ category, but I’m sure no one really cares about that — the important thing is to buy! Now!

In reality, art — especially contemporary art — is never “a sound investment”. There are some driven collectors who buy it because they can’t help themselves; there are also some very succesful dealers who are extremely good at moving inventory and driving prices upwards. There’s even a tiny number of artists who saw their prices fall, only to then participate in a rebound during the 2000s art boom. But in general, once prices for a given artist start falling, they never recover. And the overwhelming majority of paintings by artists born after 1945 can’t be sold for any sum, let alone anything approaching the initial amount paid for them.

I have a rule of thumb for both paintings and houses: would you buy it at this price today if you knew that you could only ever sell it for $1 in the future? If the answer is yes, then go ahead and buy. If it’s no, then think very hard indeed before buying.

Houses don’t generally go to zero, of course — not outside Detroit, anyway. But the thought experiment is still worth running, because it helps to crystallize the degree to which you’re implicitly speculating on the housing market when you buy a home.

If it’s cheaper to buy than to rent, it doesn’t matter if the value of the house goes to zero — you’re still better off buying. Alternatively, if you love a particular property and very much want to own it, and you’re willing to pay a lot of money to do so, that’s fine too. (That’s the main reason why people should buy art.) But if you’re buying as an investment, in the hope that your property will rise in value, it might be worth taking another look at your risk profile. Maybe you can afford to take that kind of risk. But then again, maybe you can’t.