Felix Salmon

America’s soaring deposit base

Felix Salmon
Aug 20, 2009 19:23 UTC

With the savings rate skyrocketing, US deposits are rising fast too. Yes, a lot of people probably intend to invest their savings in the market, but you have to save the money first, before you can invest it. And with the market looking a bit rich these days, certainly by the standards of a few months ago, a lot of people, quite sensibly, don’t feel that they want to risk losing any of their hard-earned money anyway. So:

Domestic U.S. deposits grew nearly $500 billion to a record $7.5 trillion during the year ended in March, according to the Federal Deposit Insurance Corp. And they appear to have kept growing since.

I’m confused about where the WSJ journalist, Marshall Eckblad, goes from there, however:

Overflowing deposits don’t necessarily lead to big profits, since big banks have to cover hefty fixed costs for buildings, computers and layers of full-time staff.

This makes very little sense. Deposits, to a first order of approximation, are free money. The more free money they have to lend out, the more profits they make. And $7.5 trillion, lent out at an average of say 7%, throws off more than $500 billion per year. It’s hard to spend that kind of money on buildings and computers.

(Via Moore)





Henry Blodget allows embedded content

Felix Salmon
Aug 20, 2009 18:55 UTC

Well done to Henry Blodget, who is now allowing anybody to republish his content for free, by embedding posts from his site. Like this:

This is a great idea, and something I’ve wanted to do for a while. Bloggers want their stuff read by as many people as possible, and there’s no need to force your readers to come to your own site before your readers can do that.

Henry, by doing this, is allowing his most engaged readers to pick and choose their favorite articles and put them on their own sites — it’s free advertising for him, it gives him reach to a large number of readers he otherwise wouldn’t have, and it shows a real embrace of the medium, and a desire to reach readers in the manner most convenient for them. All of that is a great way of building a business.

There’s been talk of publishers doing something like this for some time, often with ads embedded along with the copy, but this is much simpler and easier, with no embedded ads (except of course for the prominent branding for Henry’s own site). I hope it’s a great success, and widely copied.


Reuters allows this, too.

Hail Nouriel!

Felix Salmon
Aug 20, 2009 18:44 UTC

Nouriel Roubini False Prophet.jpg

The photo of the day comes from Wall St Cheat Sheet, which has put together this wonderful picture to illustrate a piece entitled “Is Nouriel Roubini a False Prophet?”.

From left, we can see Tim Geithner, in the background, followed by the garlanded Nouriel himself, followed by Brad Setser (sadly no longer blogging), who looks over the shoulder of CNBC’s Joe Kernen. Over to the right, in black and white, is Stephen Mihm, who wrote a long profile of Roubini for the NYT magazine. Larry Summers is conspicuous by his absence; maybe he’s in the sky above, pulling all the strings.


Nouriel had quite a run of publicity for a while…wonder who his publicists were, because I think his well has run dry…I’ve read about his lavish parties in Manhattan…He’s juicing his pseudo-celebrity.

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Amazon arbitrage of the day

Felix Salmon
Aug 20, 2009 18:30 UTC

One of the best travel books ever written (indeed, one of my favorite books, period, ever) is The Surprise of Cremona by Edith Templeton. Unfortunately, it’s not easy to find: your best bet is to track down the 2003 Pallas Athene paperback with an introduction by Anita Brookner.

If you go to the Amazon page for that book, you’ll find there are “7 new” copies for sale. The cheapest is $20; the most expensive is $166.18. Woody’s Books, for instance, is selling the book for $27.50 — plus a $125.79 “sourcing fee”, plus $3.99 shipping from New Jersey — $157.28 in all.

On the other hand, if you check the book out on Amazon.co.uk, you’ll find “6 new” copies for sale, including Woody’s UK, which will sell you the book for £12.99, plus a sourcing fee of just £0.01. Shipping, to the US, is £3.08, for a total of £16.08, or about $26.51 in dollars — less than the sticker price on the US book before the massive sourcing fee. And yes, the book is still shipped from New Jersey.

In other words, the same book, from the same US-based seller, being shipped to the same US address, costs either $26.51 if you buy it on Amazon.co.uk, or $157.28 — pretty much six times as much — if you buy it on Amazon.com. There might be a good reason why Woody’s is doing this. But I don’t think it reflects particularly well on Amazon.


@ Rather Not Say

You said:

“But that wasn’t the comparison I made; I said that *Amazon* has a better inventory system than either drop-shipping or non-dropshipping booksellers. Futhermore, there’s guaranteed lag in using their API. My point was simple: when you buy a used book on Amazon, much of your discount is your risk of not getting the book, whether it’s in stock at the used bookseller’s or not.

By “podunk” I just mean relatively small; probably a bad choice of words. There’s no contradiction between being podunk and being competitive

And where did I disparage anybody? I don’t have anything against any booksellers.”

And before, you wrote: “I suggest that if you *must* have the book, you should buy it new.”

Here’s the disparagement (and I’m not claiming intent on your part, btw) – my claim is that a good booksellers inventory is just as reliable as amazon.com’s- that’s the assumption and the foundation of 3rd party selling on amazon.com.

And, ironically, it’s an assumption that’s built into the practice of drop-shipping.


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Place not your hopes in mortgage servicers

Felix Salmon
Aug 20, 2009 15:57 UTC

Mike Konczal has a spectacularly good post up at Baseline Scenario today about mortgage servicers. He gives a lot of examples of how incredibly bad and/or evil they are at anything to do with loan modification, and concludes:

Servicers were never designed to do this kind of work; they don’t underwrite, and paying them $1,000 isn’t going to give them the experience needed for underwriting. It’s hard work that requires experience and dedication, skills that we don’t have currently…

But isn’t it at least possible that as the sophistication of the servicers increase, they’ll become equally good at learning how to game the system? I don’t mean this as a gotcha point, because I think it is the fundamental problem here, and there isn’t any way to break it…

The people we are trying to ‘nudge’ into acting as the fiduciary are going to be more than happy to rent-seek these instruments while they crush the consumer economy. This ‘gordian knot’ has to be broken, but it’ll need to be done outside the instruments – in the bankruptcy court.

He’s completely right. If we look to mortgage servicers as our best hope of modifying and restructuring the mortgages which are dragging down the US economy, we are doomed to disappointment. It was probably worth a try, because it’s the easiest and most obvious place to do this kind of thing. But the experiment has failed, and we should move on, and try something else instead.


Check out http://www.obamamortgagerelief.org/ There needs to be a program for the elderly but not quite to retirement age for mortgage modification when the have lost their job during this particular recession. I made a decent wage because I put my time into a company and now have no job. I am looking at $10 – to $12 hr jobs after working all my life. You can’t make a mortgage payment on that kind of money. I will eventually lose my home.

Adventures in muni league tables

Felix Salmon
Aug 20, 2009 15:06 UTC

JP Morgan is making a big push into the muni market, by throwing its balance sheet around. It’s lending $1.5 billion to California, in return for getting the mandate to sell $10.5 billion of “revenue anticipation notes” next month; it also provided billions of dollars in support for Illinois, last November, and New Jersey, in June. “We are trying to build up our municipal franchise,” JPM’s Jeff Bosland told Michael Corkery. “With a state the size of California, we have the capability to help on a big scale. People tend to remember you when you were there for them in tough times.”

So, how is JP Morgan doing in those municipal-bond league tables? In the first half of this year, it’s in third place, having underwritten $22.6 billion in munis for an 11.6% market share. The leader, Citigroup, underwrote $31.6 billion in bonds, while Bank of America is in second place on $26.8 billion.

It’s worth comparing that position to the state of affairs in 2007, before JP Morgan bought Bear Stearns. For the full year, JP Morgan was in 5th place with $25.6 billion and a 6.0% market share, while Bear was in 8th place with $24.6 billion and a 5.8% market share. Add the two together (there might be a tiny bit of double-counting on issues they co-ran, but I doubt it would make much difference) and you get $50.2 billion, which would have been good for a comfortable second place, behind Citigroup. On the other hand, if you add together the 2007 deals of Bank of America and Merrill Lynch you get to a whopping $65 billion, good for first place, ahead of Citigroup.

One might think that with its two major competitors — Citigroup and BofA — both hobbled by government supervision, JP Morgan would be taking the opportunity to carve out a true leadership position in the municipal bond market. But in fact Citi seems to be doing very well indeed in that market, while BofA is very much holding its own. Maybe municipal finance is something federal regulators positively encourage, or maybe integrating the Bear Stearns team with the JP Morgan team was non-trivial. But in any case competition in this market doesn’t seem to have gone away, even with the consolidation of Merrill and Bear, and the fact that the #3 player in 2007 (UBS) has disappeared from the line-up entirely.


Not to take anything away from JPM’s generous actions, but the stimulus bill enacted in February has a little noticed provision that results in very attractive after tax returns for banks that earn interest on loans or bonds from state and local governments. (It permits banks to earn tax-exempt interest and lose only 20% of the associated interest expense deduction; before the legislation, the disallowance was 100%.) Also, when JPM took over Bear, they got rid of almost everyone from Bear’s municipal department.

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Felix Salmon, athlete

Felix Salmon
Aug 20, 2009 13:36 UTC

Not only can I do mad tricks on my scooter, I’m also a baseball great. I’m thinking of taking up the javelin next.


Is ‘athlete’ spoken with one syllable or two…there is a distinction..

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Wednesday links look south

Felix Salmon
Aug 19, 2009 22:16 UTC

The intersection of Wall and Satan

When I Go Into The Bank, I Get Rattled‘ — a marvelous cartoon

The Economist moves from swanky 57th Street to much-schlubbier 3rd Ave

BusinessWeek’s subscription liabilities

Felix Salmon
Aug 19, 2009 18:56 UTC

We know that BusinessWeek is for sale. But is there a good chance the print magazine could die completely? That would seem to be the subtext of Keith Kelly’s column today, in which he writes:

OpenGate, at least on paper, might be considered a likely candidate as well. However, even with magazine veteran and acting CEO Jack Kliger on hand for the management presentation from McGraw-Hill, OpenGate might not be able to absorb the estimated $40 million in subscription liabilities that would come with the 900,000-circulation weekly.

What’s a subscription liability? It’s basically all the money which BusinessWeek has already been paid, in subscription revenues, for magazines it has yet to deliver. It’s a liability because if it can’t deliver the magazines, BusinessWeek would have to refund its subscribers their money, or somehow try to fob them off with an equivalent product.

One would assume that the winner of the BusinessWeek auction, which is currently being conducted between nine different potential acquirers, would intend to continue to publish the magazine weekly. If they do so, however, the subscriber base isn’t really a liability at all: it’s an asset, to be treasured. The only time you start worrying about things like “$40 million in subscription liabilities” is if you’re thinking about going web-only, or biweekly, or something like that. Which would be especially difficult given the name of the book.

So for all that numbers in the $35 million range have been bandied around as the purchase price for BusinessWeek, that might just be the headline number, which would then be offset by a “refund of subscription liabilities” or the like. We might yet end up with another $1 purchase price.


A key point that you are overlooking is that the subscriber liability is not a real liability to these private equity companies who will form LLC’s and protect themselves completely from any future claims. If an unscrupulous PE firm wants to take the working capital and significant amount of the cash flow for themselves and run the business into bankruptcy, the sub liability is a non-issue because individual subscribers have no ability(and probably no desire) to recoup their prepaid subscription unless there is some type of class-action suit and attorney general involvement. Again, unlikely because the individual dollars are so low compared to other class action litigation. Plus, once it is in bankruptcy there are other creditors who will be demanding restitution such as the employees, printers, paper suppliers and other vendors who may have been harmed along with the subscribers.
A strategic partner or public company does have an obligation to fulfill the subscriber liability which is why they are better potential partners for the business being run properly and existing for the long term…perhaps short term as well! It would be very sad indeed to see such a wonderful iconic brand like Business Week fall into the hands of a bottom-feeder PE firm that really has no plans to invest in and preserve/build the brand. One would hope that the current Mcgraw Hill owners require that specific covenants are put in place to prevent new owners from just taking out cash and that certified proof of appropriate resources(ie–a cash fund) exist for the purpose of running/investing in the business.
Lastly, If Business Week is truly losing $40-$50million per year, then they have far greater problems and issues to resolve than worrying about the sub liability.

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