Felix Salmon

The Epicurean Dealmaker describes an “almost diffident” vampire squid. Is that even possible? — TED

The final report of the Future of the Rose Committee. All seems sensible to me. But will Brandeis pay any attention? — Brandeis

Giant Squid Caught Alive, Briefly, off U.S. — NatGeo

Dick Kovacevich to step down. — Reuters

Banks need to revamp their DDAs (a/k/a checking accounts) as Dodd cracks down on overdraft fees. — Celent

Bloomberg’s challenger suggests recent NYC bike infrastructure improvements have hurt small business. — StreetsBlog

Krugman, circa 2003, made the same mistake as Larry Summers, thinking rates would rise. But he didn’t lose $1 billion. — NYT

A hyphen vigilante! — Kenneth

FT Alphaville has been “pretty much profitable from Day One” — Crain’s

Man with two Jaguars, two Audis, a Range Rover and an Aston Martin rails against car culture — Telegraph

Why Fall Colors Are Different in U.S. (reddish) and Europe (yellowish) — Live Science

Far Eastern Economic Review, RIP. A sad day, but it had been moribund for years. — AP

Hear Dave Hickey’s talk at SVA last week, courtesy James Kalm — Vimeo

On Friday, Mike Arrington noted the overlooked player in the Mint-Intuit deal: Yodlee, the company which powers Mint’s backend and which competes directly with Intuit. I spoke to Yodlee’s Joe Polverari today, and he was very unimpressed with the Mint acquisition. He characterized Mint as essentially being a Yodlee service with a pretty user interface layered on top, and said that the natural place for people to go for online personal financial management was the bank. Mint, he said, had done a very good job of attracting “a niche of early adopters and tech-savvy people”, but they have now woken the sleeping giants (the banks), and indeed are already smaller than some of the big online-banking sites.

Polverari was, in sum, very skeptical that Mint was really worth $170 million, especially since its data isn’t particularly valuable to big banks, who already have access to substantially identical databases through their own personal financial management (PFM) systems. The value of Yodlee, he said, is “exponentially greater than whatever the valuation of Mint should be”.

Polverari also indicated that if and when Mint moves from Yodlee to Intuit’s own PFM system, that might degrade Mint’s users’ experience. After all, Mint chose Yodlee over Intuit in the first place, and there was no doubt in Polverari’s mind that the quality of the data it provides users was significantly better than Intuit’s.

I certainly agree with one of Polverari’s key points — which is that customers trust their bank with their financial information much more than they trust any third party. I trusted Mint more than Intuit, and now that Intuit is buying Mint, I’ll probably just stick with whatever service Citibank manages to put together. (Already, their online banking platform is pretty good, and I’m a fan of their iPhone app.) If Intuit is counting on continued strong growth in the Mint user base, it might be very disappointed.

The front page of Friday’s WSJ was not its finest hour. Along the top was the headline “Bankers Face Sweeping Curbs on Pay” — something which occasioned Justin Fox to note that “in the pre-Murdoch era that would have been a 600-word story on page A24, headlined ‘Fed Mulls Pay Guidelines’.”

Underneath that headline was the biggest front-page story: “U.S. Missile U-Turn Roils Allies”. Except there was nothing in the story to indicate that any allies were roiled at all. The online story now has the headline “Allies React to U.S. Missile U-Turn”, along with a formal correction of the old headline.

Dean Starkman wants to know “whether this is part of a larger story”: of course it is. The WSJ is now being edited by a man who cut his teeth in the fiercely competitive Australian and UK markets, where front-page stories drive newsstand sales and newsstand sales drive profits. Sweeping curbs on pay and roiled allies make for great headlines, and mean that readers are that much more likely to shell out $2 for the paper. Unfortunately, they also increase readers’ mistrust in the paper — Americans aren’t used to the feeling, common in the UK, that the headline massively oversells the story.

The WSJ doesn’t need to do this, but Murdoch does: it’s in his blood. A Murdoch paper without punchy headlines which grab you by the throat is pretty much a contradiction in terms. Readers of the WSJ will have to get used to trusting the stories more than the headlines, or the implicit news judgment which governs where they’re placed. The WSJ’s journalism seems to be much less scathed than the headlines have been.

Annamaria Lusardi, Olivia Mitchell, and Vilsa Curto find:

There is now fairly robust evidence confirming that women do not do well in financial calculations and do not have a firm grasp of inflation and risk diversification.

I’d be fascinated to see whether this held true across cultures — does it apply in Japan, for instance, where women generally hold the pursestrings? And in any event, why should this result even hold true in the US? I can’t think of any good intuitive reason why men should be more financially literate than women, and certainly the experience of microfinance lenders is generally that women are much more responsible, when it comes to money, than men. There’s something very odd going on here: all theories gratefully accepted.

What year is this? 2005?

Ashley-Gayle Boothe and her husband Scott have applied for a USDA-backed loan to buy their first home, a three-bedroom house 30 minutes north of Tampa, for $127,500. “We didn’t want to put anything down,” says Ashley-Gayle Boothe. “We figured we’d have to buy appliances.”

Of course, the clue that this is happening right now is the lender — yes, USDA as in the Department of Agriculture. Somehow it’s got its hands on $10.5 billion to lend out as no-money-down home loans. And of course taxpayers have nothing to worry about:

The agency argues it adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash flow.

What could possibly go wrong?

(Via Moore)

After all the excitement yesterday, precipitated by a WSJ report, sell-side analysts have been pouring a bit of cold water on the idea that Argentina is about to reopen its 2005 debt exchange.

Certainly the markets don’t seem to think that something along the lines sketched by the WSJ is going to happen: the country’s defaulted debt is trading at about 29 cents on the dollar, while that kind of deal — complete with past-due interest and GDP warrants — would be valued at more like 45 cents (according to Barclays) or even 52 cents (according to Merrill Lynch).

The Barclays note, especially, is interesting, since Barclays is the main bank working on the deal. And this is what they have to say:

Our final assessment is that the ideas vented by the WSJ are unlikely to be the final proposal made to bondholders and that the process has a long way to go before the decision-makers give a go ahead to a specific proposal that can be seriously evaluated.

A generous deal might be more likely to get 75% take-up among the holdouts: that seems to be the critical mass needed for the markets to consider the old debt to have been restructured. But given that it’s still Nestor (rather than Cristina) Kirchner who is reportedly driving these things, and given that he’s very focused on domestic issues right now, it might well take a while to get there.

Remember the crazily-leveraged acquisition of Procter & Gamble’s drugs business by Warner Chilcott? Well, it turns out that demand for all that Warner Chilcott debt is even stronger than the bankers had anticipated. To the point at which they’re seriously considering giving up the loan part of the deal in order to bump up the bit of it designed to be sold to — wait for it — CLOs.

Vipal Monga has details of the deal, which comprises a $250 million credit line, a $1 billion A loan, a $1.5 billion B loan, and a $1.4 billion bridge loan. The bridge loan will ultimately become a high-yield bond, while the A loan will be kept by the banks. The B loan, says Monga, will be syndicated mainly to collateralized loan obligations. And appetite is super-strong:

Such is demand for Warner Chilcott’s institutional loan that the banks may merge the $1 billion A loan — which the banks themselves generally keep — with the B loan and offer it as a single $2.5 billion package.

If that happened, and if the expected high-yield bond comes on schedule, then the banks putting together the $4.1 billion financing would be left, at the end of the day, with nothing but a $250 million credit line — and a lot of very fat fees. This is the originate-to-distribute model coming back with a vengeance, and it’s being used to lend Warner Chilcott $4.1 billion towards a $3.1 billion acquisition: the buyer is putting no cash whatsoever towards the deal, and indeed is getting $1 billion cash back.

It really seems as though we’ve learned nothing from the crisis. CLOs are chomping up billions of dollars in leveraged loans like it’s 2006 all over again — and there’s nothing that any regulator seems to be able to do about it. There’s proof for you, if proof were needed, that it’s pretty much impossible to force the financial markets to deleverage. The only way to do that is to get rid of the tax advantages given to debt finance, and that ain’t going to happen.

Why shouldn’t the FDIC borrow funds to replenish its reserves from healthy banks, rather than from Treasury? After all, the banks will end up repaying the money, with their insurance premiums, in one form or another, and this solution gives them a bit more of a financial interest in each others’ health.

That said, the main reasons for this happening are a bit depressing: the banks don’t want any more money from Treasury, in any form, since they hate the extra oversight which tends to come with it. And Sheila Bair, personally, “would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” according to the president of the Independent Community Bankers. Which hardly speaks to a smooth-running regulatory infrastructure.

There’s one more problem with the proposal, under which, according to the NYT, “the lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry.” If the bonds are coming from the government, that’s likely to mean they’ll be treated as government debt, and it certainly means that there’s an implicit government guarantee there. Once again, the FDIC is using government guarantees, rather than real cash, and pretending that doing so doesn’t cost the government anything. We’ve done that too many times already — including in the Bear, BofA, and Citi bailouts — and we should be putting an end to such shenanigans.

A profile of Paul Holdengräber, bouncy polymath — Times

Alphaville vs Wells Fargo! — FT

Surowiecki on rationalizing the student-loan system — TNY

Regulatory overhaul: learning from bacteria — New Scientist

Anderson Valley Pinot: “The more ambitious the pricing…the more likely the glop” — SF Gate

Bloomberg users get live feed of The New York Times, including blogs — PR Newswire

Intuit pwns Mint: The next generation bends over — 37signals

How well do you eyeball things? (I got 3.5) — Woodgears

Sheldon Adelson talks like a pirate — Time

Dave Hickey is the greatest living American — Little Known Facts

Liaquat Ahamed on “The Future of Global Finance” — NYT

Atul Gawande as interim Massachusetts senator? A great idea! — Think Progress

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When Argentina did its very creditor-unfriendly debt swap in 2005, a large number of bondholders held on to their defaulted paper rather than let the country buy it back for a pittance. The holdout strategy had after all paid enormous dividends in countries such as Peru, Brazil, Ecuador, and Uruguay. The stakes were much bigger in Argentina, of course, but a large number of aggressive creditors had no intention of letting Argentina off cheaply.

Their strategy didn’t work, and since the Argentine default “holdout” creditors, as they’re known, have received very short shrift in other countries too, like Ecuador and Liberia. And now it seems that they’re more than willing to capitulate in Argentina, tendering their bonds in a deal that’s worse than the original offer, plus offering to lend $1 billion in new money.

The new deal has been put together by Barclays (f/k/a Lehman), which reportedly has found bondholders with $8 billion (face) of debt who are more than willing to pay all of Barclays’ fees and take pretty much exactly the same offer which they rejected in 2005. If the deal goes through, there will still be many billions of dollars’ worth of holdouts, but most of them will probably be judgment creditors rather than bondholders, which means that they’re basically ruling themselves out of any bond-swap exit.

The defaulted debt is trading in the high 20s right now; if and when this deal happens, it could go even higher. That’s because according to market rumor, the deal as it’s currently structured will have quite a tasty GDP warrant sweetener.

Of course, anybody who tendered into the original exchange, in 2005, got GDP warrants too, it’s true. But no one valued them at much more than zero at the time. It was only over the subsequent years of explosive growth in Argentina that the warrants started becoming extremely valuable to bondholders. This deal is existing bondholders’ chance to get in on that lucrative GDP-warrant action. And better yet, the Argentines even seem willing to give the holdouts all the old payouts on the GDP warrants, in the form of some kind of security — depending on the secondary-market value of those securities, that could be worth a lot of money. Argentina even is considering, or so I’m told, paying past-due interest on its repudiated Discount bonds all the way back to 2003, again in the form of new bonds.

What’s in it for Argentina? Well, for one thing, it gets $1 billion of new money from the bondholders represented by Barclays. But much more importantly, this deal, if it really does get up to somewhere in the $8-10 billion range, might well be enough to reopen conversations with the IMF, which is currently refusing to have anything to do with this deadbeat creditor.

Argentina’s running out of money, and although I’m sure a lot of investment banks might be willing to try and underwrite a new bond deal if this exchange goes well, I doubt there’s that much appetite out there for new Argentine global bonds, especially now they’re yielding less than they have done in years. The IMF I think would love to find an excuse to start working closely again with Argentina — which is, after all, a fully-fledged member of the G20. And in turn Argentina would love to have access to IMF liquidity. If it needs to do some kind of bond swap in order to make that happen, then so be it.

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Kenneth Harney has got his hands on a fascinating new study from Experian and Oliver Wyman, which looks at the prevalence of strategic mortgage defaults, a/k/a “jingle mail” or “walking away”. Unsurprisingly, it’s financially sophisticated borrowers in non-recourse states like California who are doing this in droves: apparently there were 588,000 nationwide strategic defaults in 2008, more than double the total in 2007.

This is a perfectly rational and ethically defensible thing to do, but subprime borrowers, almost by definition, tend not to have the sophistication to default in the most financially-advantageous way.

Interestingly, the Experian-Wyman study (if anybody has a copy of it, do send it on over) recommends “that lenders and loan servicers take steps to screen and identify strategic defaulters in advance”. I’d love to know how lenders are meant to do that. Credit score obviously isn’t a good indicator, so what is? Financial literacy?

In advance of the G20 meeting, the Independent’s Johann Hari resuscitated the “evil vulture fund” meme, concentrating especially (and extremely selectively) on the deal between Zambia and Michael Sheehan.

Hari is late to this story: I gave a very full version of it on my blog back in February 2007, and everything I wrote back then is still germane today. But Sheehan has replied to Hari, and his letter’s worth reading, so I’ve put it after the jump.

Interestingly, the G20 meeting this year might well coincide with some kind of announcement from the Argentines that they are reopening their old debt-exchange deal from 2005. One of the sticking points with any deal is that Argentina’s finance minister, Amado Boudou, has said that he doesn’t want to do any deals with “vultures” who are litigating against Argentina in New York. He probably needn’t worry: they’re probably not the kind of investors likely to tender into any deal in any event. But the heated rhetoric surrounding this issue is clearly helping no one. Which is why it’s sad to see contentious columns like Hari’s.

In any case, here’s Sheehan’s letter:

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From the WSJ:

Last month, Bill Wamsley, a commercial real estate broker in Mill Valley, Calif., hoped to replace his wife’s Lexus sedan with a 2009 Cadillac CTS.

From information Mr. Wamsley collected online he determined a CTS lease would run around $580 a month when all costs were factored in. After some shopping, he found he could lease a Mercedes C300, with roughly the same retail price, for about $450 a month.

General Motors spent so many years as a leasing company with an automaker attached that it must feel weird to see the tables turned like this.

$580 a month is $6,960 a year, or 19% of the $36,560 base price for the Mercedes. $450 a month, by contrast, is $5,400 a year, or 15.5% of the $34,650 base price for the C300 Luxury. The difference, of over $1,500 a year, is significant enough that GM is now faced with an invidious dilemma: either risk blowing up their loan book, or else reduce their prices so much that they’ll never make any money making cars.

Here’s what I don’t understand about Chris Dodd’s financial reform proposal. On the one hand, he wants to fold the FDIC, the OCC, and the OTS (but not the NCUA, for some reason) into the Federal Reserve — something which makes sense to me.

But on the other hand, he says he wants the Fed to be less powerful, and “would reduce the stature of the Federal Reserve in several ways”.

Is this possible? Or was something lost in translation when the trial balloon was floated over the NYT?

I’m going to be offline for most of today, spending it instead downtown installing pirate flags at the South Street Seaport. The opening is at 4pm tomorrow (yes, I know it’s Rosh Hashanah, but it’s also International Talk Like A Pirate Day) in Cannon’s Walk, which even the lifelong New Yorkers among you probably never knew existed. It would be wonderful to see you all there, but if you can’t make the opening then just pop down to the Seaport at any point over the next month. It’s not just for tourists! And I can assure you that the whole pirate project is going to look spectacular. Yaargh!