Opinion

Felix Salmon

Counterparties

Felix Salmon
Sep 22, 2009 22:43 UTC

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

Yodlee’s take on the Mint acquisition

Felix Salmon
Sep 22, 2009 22:19 UTC

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.

COMMENT

Looks like Yodlee was right – over the past few months my Mint.com accounts have all had issues, some resolved, but the most important ones have not been. It seems Mint’s customer service is overwhelmed with issues as they are doing some initial responses to issues (very boilerplate) and then taking a week or more with any follow up. Most of the time their responses leave existing users with loads of transactions already on their servers out in the cold.

Posted by herewegoinvt | Report as abusive

The sensationalist WSJ

Felix Salmon
Sep 22, 2009 20:27 UTC

frontpage.tiff

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.

COMMENT

“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”

I guess you subscribe or read it online – in Atlanta the news stand price is $3 a paper, which is outrageous.

I decided not to renew when The Journal added what it regarded as a sports page. No thanks – ESPN.com and SI.com take care of that for me.

As opposed to being a great business news paper, The Journal is now just another newspaper with an excellent business section.

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Why aren’t women more financially literate?

Felix Salmon
Sep 22, 2009 19:20 UTC

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.

COMMENT

I believe this isn’t necessarily a gendar issue but more of an generation issue. In the past the women usually stay home as the men work and do all the finances so men must be more educated in this area. Today woman are running companies and have been educated on finances so we do have a grasp on financial issues but we also have a huge job at home raising children,etc and working a job, so we trust the head of the household to understand and prepare our fincances for the family….which us usually the husband.

Keep in mind this generation has been raised as consumers. The economy today proves this. So as adults let’s teach our children, boys and girls, about finances and economy now so we can change these statistics.

No-money-down lender of the day

Felix Salmon
Sep 22, 2009 18:46 UTC

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)

COMMENT

“And of course taxpayers have nothing to worry about:”

I imagine taxpayers have less to worry about because I imagine if the borrowers don’t pay back their loan, they can be threatened with their wages being garnished until the day they die…. Can someone say if that’s true? (Is that also true about the FHA loans?)

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Argentina update: Don’t hold your breath

Felix Salmon
Sep 22, 2009 15:43 UTC

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.

COMMENT

Absurd to have Argentina in the G20 when they refuse to honor their obligations.

Leverage datapoint of the day

Felix Salmon
Sep 22, 2009 14:22 UTC

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.

COMMENT

the buyer is putting no cash whatsoever towards the deal, and indeed is getting $1 billion cash back.

This is factually false: they are not receiving $1B in cash, they are simply simultaneously refinancing existing debt. To insinuate otherwise is incorrect.

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How to replenish the FDIC’s coffers

Felix Salmon
Sep 22, 2009 13:31 UTC

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.

COMMENT

this also does not help monetary velocity one whit, for banks to be lending the FDIC fund that insures failing banks

i also find it ironic in that the FDIC is (i suspect) having a harder and harder time finding banks willing to takeover failing banks, so they ask if all the banks are willing to lend monies for the same purpose (although ofcourse, such lending is TO the govt, not to the failing banks)

interesting times

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Counterparties

Felix Salmon
Sep 21, 2009 21:23 UTC

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

(more…)

COMMENT

2.07 on the eyeballing. It’s actually made a lot easier on a LCD screen since you can judge the slope of some of the lines by how aliased they are.

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