Felix Salmon

Warren Buffett sure does love his metaphors. Here he is talking about mistakes being made in economic policy during the crisis:

How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery.

I count seven metaphors in three sentences here: the tumbling-yet-supposedly-indestructible pillars (architecture); the meltdown (nuclear power); the gusher (um, oil drilling?); the playing of a role (theatre); the rescue (although maybe “rescue” is at this point so ubiquitous as to no longer be metaphorical); the emergency-room-and-recovery (healthcare); and the slow path (walking, I guess).

Buffett still can’t lay a finger on Bill Gross, though, who once went so far as to explain how “the pyramid begins to unravel”. Why is it that financial-sector billionaires seem to be unwilling or unable to be edited?

Drewbie left me a comment this morning talking about people interviewing for jobs and not getting them, just because they had visible tattoos. I can well believe it. But at the same time, precisely because of this discrimination, I tend to both expect and receive much better service from people with visible tattoos. (Update: Thanks to Sebastian, in the comments, for spelling out the logic here.)

Businesses with tattooed employees are signalling to me that they have better service, and as a result I’m more likely to try them out. Given how well such messages work, how long can it be until the discrimination against the tattoos swings the other way, and it becomes easier to get a public-facing job if you have a tattoo? And if that happens, will the pendulum swing back to where we are right now, or will we just settle on a boring happy middle where no one cares about such things any longer?

This isn’t the first time that Bernie Madoff’s lover has tried to make money by taking dirty laundry and printing it:

After the affair ended, Weinstein rebuilt her emotional life with her husband… She took antidepressants. They began to run a commercial laundry trade publication.

Apparently the two are still together. Commercial laundry trade publications: they’re just like marriage counselors, but cheaper.

If Robin Goldstein went to the trouble of collecting 700 datapoints off Craigslist for a single blog entry, I thought the least I could do was turn it into a pretty scatterchart for him:

What we’re looking at here is the average price of a used car in each metro area, on the x-axis, against the average price of a used bike, on the y-axis. As Goldstein says:

Not one city fell out of line in the inverse order. Where cars were selling for the most, bikes were selling for the least; where cars were selling for the least, bikes were selling for the most; and so on, inversely, in between.

The really weird thing is that the cities with the most bikes, like Portland, also have the most expensive bikes:

I know this is sort of quaint, but the last time I bought a bike, I think I spent $35 and it wasn’t hot. It was a road bike; it had 18 speeds, I think; it squeaked; and it served my needs (biking from my house to school every day) perfectly well…

The guy in the store asked me how much I wanted to spend…

He had something super-cheap for me, an old road bike that they’d fixed up. It wasn’t exactly my size, but it would do. It was a 1991 model, a Trek, I think. It was in good working condition, it had some newer components, and it came with a warranty. I could have it, he said, for $475.

I’m with Robin: this makes no sense. You can buy a really nice new bike for less than that — and new bikes cost the same no matter where in the country you buy them. They also have brand-new components, and component technology has been improving a lot of late. The only real problem with a new bike is that it’s a bit more attractive to thieves.

Still, the second-hand bike dealers are clearly on to a good thing, and there does seem to be an implicit understanding among them that they’re not going to compete on price. So this state of affairs might well last indefinitely.

I’m with the CEO in this story, and the anonymous female friend: never wear a tie to a job interview at a startup. And in general, don’t wear a tie to a job interview where you won’t be wearing a tie day-to-day.

There’s a syndrome I’ve seen quite often and has never made sense to me: manager A, who rarely wears a suit, interviews candidate B, who would rarely if ever wear a suit on the job. Yet for the interview, and only because it’s a job interview, both of them wear suits and ties. Not exactly Pareto-optimal.

As for me, I haven’t had much experience interviewing job-seekers (thankfully), but I always feel a bit uncomfortable if they’re wearing a suit and tie. Conversely, my best journalistic interviews with CEOs and finance ministers and the like have been when neither of us have been wearing a tie.

My conclusion? Tying yourself up isn’t conducive to unfettered communication. Which is one reason why I haven’t worn a tie in over a decade. That and the fact that I hate how it feels.

The UBS numbers, as reported by the WSJ, don’t make a lot of sense to me:

UBS AG will hand over some 4,450 names of U.S. account holders as part of a U.S.-Swiss tax-evasion settlement and investigation that could produce in total 10,000 account identities, according to people familiar with the situation…

Aside from the account identities being turned over by UBS, some 5,000 names are expected to be produced through a special IRS amnesty program where UBS clients acknowledge unpaid income tax.

How is this IRS amnesty supposed to work? I was under the impression that they’ve tried this already: “if you fess up now, before we get our list of 4,450 names, and you’re on the list, then we won’t hit you with massive penalties — but if you don’t fess up and you’re on the list, then we’ll be much harsher”.

But 4,450 is a lower number than expected, and I’m pretty sure that substantially all of UBS’s clients will opt to take their chances rather than voluntarily going to the IRS. If they get caught, then so be it. But if they don’t, they’re basically home free: after all this back-and-forth, no one has any appetite to go through the whole thing all over again.

Indeed, there’s a possible upside to this whole affair for UBS: if I were a private-banking client of a major Swiss bank which wasn’t UBS, I’d be inclined to move my funds to UBS right now just on the grounds that lightning is most unlikely to strike twice. Not that UBS has any interest in condoning US tax-evasion any more, of course. Oh no.

Ed Fay, smug-faced and self-defeating Daily News exec, and his idiotic driving habits

The Highest P/E Ever!

The danger of a microfinance bubble

Michael Govan says he “couldn’t have” taken his LACMA job for less than $1m per year

It’s the random squirrel!

The official rules for the Duke Riley craziness in Queens. Needless to say, things didn’t really go according to plan.

The Fed goes multimedia

How huge is insurance companies’ ROI on their lobbying activities?

Household debt to net worth ratio spiking

It’s quite clear that Pimco is talking its book when it says that active management makes more sense than indexing if you’re buying TIPS. On the other hand, Pimco’s arguments are quite compelling — more compelling, indeed, than counterarguments which don’t really address what Pimco says and instead fall back to the standard passive-investing-is-always-better approach.

The WSJ came to exactly the right conclusion, I think, after looking at the numbers:

Over the past five years iShares Barclays TIPS Bond posted an average annual return of 4.28%, according to Morningstar. That is slightly better than the 4.14% return on the Pimco Real Return fund’s “D” shares, which investors can purchase through a discount brokerage account.

But as always with mutual funds, costs are key. Investors with access to the Pimco funds’ “institutional” shares through a large company retirement plan would have outperformed the ETF, while those in one of the load-paying broker-sold shares classes would have done significantly worse.

I’d only add that it’s crucial, whenever you’re dealing with TIPS, to understand the tax consequences of investing in them — that can make a huge amount of difference, and it’s not uncommon for investors to avoid TIPS entirely just because they can’t deal with the concomitant tax hassle.

As for bond investing, there’s an extra layer of complication here in that it’s very hard to come up with a good index: you can’t just buy-and-hold bonds, as you can with stocks, because that way your duration is constantly declining. As a result, it’s far from clear what constitutes outperforming or underperforming — everything just becomes relative to other investors’ performance.

Still, I’ll stick to the ETFs, just because they’re easier to understand and it’s less likely I’ll be ripped off or subject to some managerial blow-up. My gut feeling is that individual investors are generally foolish to seek outperformance — which is ultimately what Pimco is selling here. And that anybody who can outperform a little can underperform a lot.

We knew that medical costs can lead to foreclosure. But it turns out it works the other way round too:

Nearly half of people studied while undergoing foreclosure reported depressive symptoms, and 37 percent met screening criteria for major depression, according to new University of Pennsylvania School of Medicine research published online this week in the American Journal of Public Health.

This is surely one reason why loan modification is hard and time-consuming: you’re dealing with people who are, in many cases, clinically depressed. But it’s also a reason why there’s a strong public interest in minimizing foreclosures and making sure those loan mods happen.

(Via Marr)

Chris Swann today delivers a slightly more grown-up and footnoted version of my television rant from yesterday about how banks are paying their employees far too much money; I agree with almost all of his conclusion.

Excessive banking pay is a social ill. The sector has long sucked in far too much of society’s brightest graduates — putting them to tasks which often have little social value and at worst are parasitic. Politicians should not regulate bank pay directly. But lower compensation for bankers will be a sign that regulatory reform is working.

The bit I disagree with is about politicians regulating bank pay directly: I see nothing wrong with a Feinberg-style pay czar preventing banks with implicit or explicit government backstops from taking on too much risk.

The really ironic thing to all this is that paying star hires lots of money doesn’t work. Jeffrey Pfeffer puts it well:

When a company hires a star away from another firm, the star’s performance falls (46 percent of the research analysts did poorly in the year they switched jobs and their performance remained lower even after five years), there is a decline in the performance of the group the star joins, the market value of the company hiring the star falls, and the star doesn’t stay with the new employer for very long…

Chasing talent doesn’t work and just costs the companies doing the chasing a lot of wasted money… And there is another lesson in this sorry tale: the banks and securities firms who defend the practice of chasing stars as a justification for outrageous salaries are either being disingenuous or they really don’t fully understand what makes companies in their industry successful and the empirical data on the ineffectiveness of a “war for talent” strategy. Given their financial performance, the latter — pervasive ignorance of the determinants of success — is a real possibility.

Perhaps what we need isn’t a pay czar using draconian powers to cap executive compensation, but rather Pfeffer and his biz-school ilk (Boris Groysberg, Lucian Bebchuk) going out on tour to the boardrooms and C-suites of the major banks, explaining, with full empirical backup, that there really isn’t any point in entering into hiring wars. It’s not only harmful to taxpayers, it’s contraindicated from an internal profitability point of view as well.

As TED says, the only way to become Goldman Sachs is to grow that culture “organically, and slowly, over time”. CEOs in a hurry won’t like that conclusion. But it’s inescapable.

Bloomberg’s Katya Kazakina has a story on the relationship between Goldman Sachs and Annie Leibovitz today which adds very little to (and fails to credit the reporting of) the New York magazine story by Andrew Goldman. Given that Goldman got there first and got much more detail, it would have been nice to see Bloomberg give him some credit here.

Still, Bloomberg has succeeded where both Goldman and Gawker’s John Cook had failed, and got actual numbers out of Art Capital spokesman Montieth Illingworth as regards the commission Leibovitz has to pay them whenever any of her work is sold:

If Leibovitz doesn’t default, Art Capital would receive a 10 percent commission on copyright and real estate sales, Illingworth said. If she does, the commission would increase to 25 percent of the sale of the collateral (the higher rate includes 11 percent to 13 percent in legal, real estate and other fees, Illingworth said.)

“We have interest in the loan agreement and we have interest in the sales agreement,” Illingworth said, referring to the contracts related to the $24 million loan. “They would have to make an offer to buy out both.”

“They”, here, is Goldman Sachs, which has expressed an interest in buying the Leibovitz lien. And this story seems to confirm what I said yesterday, which is that Art Capital is valuing its loan at much more than $24 million: there’s the pure debt part of the deal, and then there’s the sales agreement on top, which is worth millions more to Art Capital. Art Capital values Leibovitz’s copyright at $50 million: even if they sold it for only $32 million after September 8, that would give them an extra $8 million in commission income, over and above everything which Leibovitz owes them on the loan. And the loan alone carries a 12% interest rate.

So my guess is that if Goldman wanted to buy Art Capital out of this deal, it would have to pay the best part of $30 million to do so. And then they would be owed $30 million by Annie Leibovitz, a woman whose decades-long history of repaying debts is uniformly atrocious. Somehow, with the best will in the world, I don’t see this deal happening. And the one thing you can be sure of, when it comes to Leibovitz and Art Capital, is that there’s no good will at all. Which means that Leibovitz is probably stuck with Art Capital for the foreseeable future, and Goldman Sachs is not going to be able to work out a white-knight deal.

I just got a rather hilarious phone call from Brand Democracy (specialists in “psychographic segmentation studies”), a UK company interviewing “CEOs, businessmen, and key opinion formers” on the subject of their opinion of Argentina; their client is the Argentine secretariat of tourism. It’s a slow news day, so I played along; Unicef got a donation at the end. And what fascinated me most was that after a couple of pro-forma questions about visiting Argentina at the beginning, the bulk of the interview was all about my opinion of doing business in Argentina.

How easy, on a scale from one to 10, did I think it was to do business in Argentina? Would it change my mind if we told you that Amnesty International says that Argentina has a better human rights record than the US? Or if we told you that Buenos Aires has only one-tenth the homicide rate of Rio de Janeiro? How attractive do I think Argentina is now, as a place to do business? What if we told you that it’s the eighth-biggest land mass in the world, just after India, and its economy has been growing fast since it defaulted in 2001? Now how attractive do I think Argentina is as a place to do business?

I fear the Argentine secretariat of tourism won’t be too happy with my answers: the country bumped along at a 3/10 no matter how many times they asked the question, and when they asked for the single best reason to do business in Argentina, I couldn’t think of one. But I am fascinated that the tourism ministry, of all people, has given Brand Democracy the mandate (and the money) to do this survey.

Why should that be the case? The best reason that I can come up with is that Argentina thinks it needs some a serious boost to its touristic infrastructure, and is looking for external investment on that front. It is after all a gorgeous country with great wine country and a beautiful and sophisticated capital city; it’s also the main port of exit for anybody going to Antarctica. So it should by rights get more tourist traffic than it does. Maybe this is all part of an attempt to get the big international tourism-industry companies to start investing much more heavily in Argentina.

Of course, there are other reasons why the tourism minister might award a large contract to a foreign media company. But those aren’t the kind of reasons which make doing business in Argentina any more attractive.

I’m featured on yesterday’s Planet Money podcast, along with Mike Konczal and Tyler Cowen. I think they give me a fair amount of time to make my points, even though they cut the conversation down from well over an hour to just 25 minutes or so, including a lot of their own background and exegesis. In any case, if you prefer your Felix in audio format, here you are!

A tweet from Joe Weisenthal yesterday, on the subject of Annie Leibovitz, is I think revealing of a particularly American mindset: call it the Wealth Corollary of the Efficient Market Hypothesis. In a nutshell, it says that if you’ve made lots of money, you must be pretty smart.

I think there’s a pretty good case to be made that the EMH(WC) is responsible for a lot of the rules surrounding the limitations on who is and who is not allowed to invest in hedge funds, and also for many of the obsequious interviews with rich individuals frequently featured in the financial media.

“If she’s rich, smart and has access to good advisers,” said Joe, “it’s on her to take such a huge decision [borrowing $24 million from Art Capital Group] seriously.”

That’s fair, as far as it goes, but the only evidence that Joe had of Leibovitz being a smart person with access to good advisers was that she had lots of money. The problem is that it’s far too easy for people to simply assume, on the grounds of wealth alone, that therefore there must also be some degree of financial sophistication.

The annals of finance are full of people taking advantage of the financially-illiterate, and while it’s certainly possible to take advantage of the financially-illiterate poor (lotteries, numbers games, payday lending, overdraft fees, etc) it’s equally lucrative to take advantage of the financially-illiterate rich, both through outright fraud and through hidden and/or excessive money-management fees. Or, in the case of Art Capital Group, getting Leibovitz to take out a loan with punitive default provisions, in the full and certain knowledge that she would be forced to default.

The fallacy embedded in the EMH(WC) can be hard for financial journalists to grok, because we have such a high financial-sophistication-to-wealth ratio. (More thanks to a low denominator than to a high numerator, it must be said.) If a financial journalist became wealthy, there’s a good chance they would be qualified to look after their money reasonably well. But that doesn’t mean for a minute that the same is true of photographers, say, or baseball stars like Lenny Dykstra, or pop stars like Michael Jackson, or any number of other people who have struck it rich in the sports/media/entertainment business. Annie Leibovitz was ill-advised for many years, and would have been much better off taking simple off-the-peg advice from her client American Express. But they were smart enough not to go down that road:

Because of her credit issues, Leibovitz was forced to deal almost exclusively in cash. In 1987, American Express offered her a plum ad campaign. Ironically, Leibovitz’s application for a card had been denied many times.

The American Dream is fundamentally meritocratic: if you’re smart and work hard, you can be massively successful. But the reality is different: some people are massively successful, and some non-negligible proportion of those people is not smart at all, especially not when it comes to finances. Having lots of money, sometimes, just makes it that much easier not to ever worry or think about matters financial. And that, in turn, makes it much more likely that you’ll end up being taken advantage of.

As someone who knows a fair amount about Felix the Cat, I can concur with Skip Gates that he is not and was not a caricature of African-Americans. I can also concur with Paul Krugman and James Fallows that it is by no means necessary that Felix be African-American for Niall Ferguson’s FT lede (“President Barack Obama reminds me of Felix the Cat. One of the best-loved cartoon characters of the 1920s, Felix was not only black. He was also very, very lucky”) to be utterly inappropriate and offensive.

Which leaves only one question: What did Ferguson elide, with an ellipsis, in the email from Gates? I can’t imagine that Gates let Ferguson off quite as easily as Ferguson suggests.