Felix Salmon

Dimmable LED bulbs!

Felix Salmon
Sep 17, 2009 19:47 UTC

Many thanks to Andrew Leonard and Alok Jha, who have discovered the Philips Econic. Here’s the relevant bit of their flyer (warning: 9.9MB PDF):


Yes, that really does say “dimmable”. And Jha says that this is the “new bulb that will hopefully make the doubters shut up”.

When I moved into my new apartment in 2005, we ended up needing a huge number of 40W reflectors, all on dimmers, which between them consume an insane amount of electricity. What’s more, they need very frequent replacing, which is non-trivial. If I can just replace them with dimmable LEDs which last for 25 years, I will be a very happy person indeed.


I think the manufacturer is crazy to believe that the average consumer will pay anywhere near $40 for a light bulb, let alone when the light output is only 1/3 a true 60W bulb. And the introductory price gimic is just that. It’s far more likely that in 3-6 months time the LED will be considerably cheaper than its $40 “introductory price.” I’m all for saving energy, but I give this product an F for value.

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Chart of the day: Wells Fargo’s construction loans

Felix Salmon
Sep 17, 2009 19:01 UTC

Teri Buhl found this chart at WLMlab.com. It shows the percentage of Wells Fargo’s $38 billion in construction and development loans which are in default, compared to nationwide figures:


“Alarming, Alarming, Alarming” is right — especially the last line, which shows that the loans more than three months in arrears are running at more than nine times the national rate. And that’s before the spike in delinquencies which seems certain to hit:

The bank specialized in underwriting short-term loans up to five years during the credit boom of 2005-2007. The standard terms for such loans included interest-only payments on a floating rate with a huge balloon payment in the final year of the loan. If these loans cannot be refinanced, more waves of defaults are inevitable.

“The bank”, here, is Wachovia, not Wells, but it’s all Wells Fargo’s problem now, along with untold billions in contingent CDS liabilities which no one seems to be able to estimate.

I fear that Wells Fargo is representative of the banking system as a whole: since MLEC and TARP and PPIP all failed in their original intent of ridding the system of its toxic loans, those loans remain stinking up balance sheets across the nation. Wells is bad — but then again, so might everybody else be, too.


We would like help or comments regarding our “toxic” commercial loan obtained from Wells Fargo Sterling Colorado Nov. 25, 2008 and in default after only 6 months. How is this possible under the current loans “watch dog”? We lost over $275,000 ( our 30% down payment and additional funds to run a restaurant incorporated in this loan), lost our excellent credit rating that we maintained our entire lives, maybe facing foreclosure ( according to Wells Fargo threatening letters, anytime now)and the loss of everything we worked for sofar. We are well into our 50′s and desperate. How did Wells Fargo Sterling Colorado approve such a loan when we had ABSOLUTELY no restaurant experience and the probability of failure and default was extremely high. Was Wells Fargo determined to get the loan fees ($5,000), higher than average interest rate and pretty much anything they could acquire from us, AT ANY COST ? How is this possible in this time and age ? Has Wells Fargo lost its INTEGRITY, FAIRNESS and JUDGEMENT in favor of making money AT ANY COST. Please help with comments or any feedback you may have. Tim Burnett (970) 470-1760

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Regulatory arbitrage of the day, Barclays edition

Felix Salmon
Sep 17, 2009 15:40 UTC

Nils Pratley and Neil Unmack both have good columns on the latest bit of regulatory arbitrage by Barclays. Essentially, the UK bank is taking $12.3 billion of toxic assets and replacing them with a $12.6 billion loan to some kind of special-purpose entity which exists to own those assets. By doing so, Barclays gives all the upside on that toxic debt to the new vehicle, called Protium; in return, it gets lower balance-sheet volatility, since the loan to Protium doesn’t need to be marked to market every day. The total amount of capital that Barclays has at risk will go up; meanwhile, the degree to which Barclays’ shareholders will have any degree of transparency will go sharply down.

The fact that the UK regulators are letting Barclays get away with this is very depressing — and yet another sign that in the world of high finance, we’ve learned nothing, and nothing has changed. For all the grand rhetoric which will be ladled on in Pittsburgh this weekend, the base-case scenario now is that nothing substantive is going to happen at all when it comes to regulatory reform.


article in housingwire differs from what you say.

they say that the assets remain on barclays’ balance sheet for regulatory cap purposes and that this move serves to lower balance sheet volatility for investors, not for regulatory capital purposes.

i don’t know the truth, but this story differs from yours:
http://www.housingwire.com/2009/09/17/ba rclays-sells-123bn-of-assets-to-protium- finance/

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Risky arbitrage

Felix Salmon
Sep 17, 2009 14:11 UTC

The existence of arbitrage, and arbitrageurs, is a necessary precondition for having a reasonably efficient market. Arbitrage allows the law of one price to become roughly true, and in turn belief in the law of one price is the central faith of any arbitrageur, who will pick up on price discrepancies safe in the knowledge that sooner rather than later the law will turn those trades into profits.

The problem is that the law of one price is not some kind of physical law with replicable effects, and sometimes it disappears entirely. So this kind of thing is actually true of all arbitrage:

DLC arbitrage is characterized by substantial idiosyncratic return volatility and a high incidence of large negative returns.

DLC (dual-listed company) arbitrage — where you look at the share price of the same company in different countries, and bet that they’ll converge — is one of the purest forms of arbitrage there is. But it’s not surprise to learn that it comes with “a high incidence of large negative returns”: any arbitrage strategy is ultimately a game of picking up nickels in front of a steamroller. Unless you have unlimited liquidity and never need to worry about margin calls, the market is likely to move against you just until you give up, at which time it will snap back to where you would have made a huge profit. Just ask the guys at LTCM, or the stat-arb hedgies who blew up in 2007.

This is why only the biggest and most liquid companies tend to try their hands at arbitrage: it’s very much a don’t-try-this-at-home strategy. Even if you’re convinced that the trade is risk-free, it really isn’t.


think you mean 1997. gosh, has it been that long?

Twitter’s billions

Felix Salmon
Sep 17, 2009 13:37 UTC

Twitter seems to have quadrupled in value over the course of just a few months: after raising $35 million at a $250 million valuation earlier this year, it’s now raising another $50 million at a — wait for it — $1 billion valuation. At these kind of levels, one assumes, there must be some idea of how to make money in the future. I also hope the founders are beginning to cash out at this point: or does Twitter really have a burn rate which would make Michael Wolff proud?


So far I have been able to identify two benefits to Twitter:

1. It appears to be excellent for organizing rallies and revolutions; and

2. It is an effective means for mobile restaurants (hot trucks) to inform the world where they are in real-time.

Most of the rest of it seems to be primarily associated with gossip and “fast-breaking news” in the middle of an era when it seems everyone must be breathless about everything.

I wonder what the total market value is for all of the multiple outlets for breathless communications dumped to everybody. Presumably Twitter would only be a relatively small percentage of that. I skipped the dot.com bubble and burst because I started to add up what the shills and stock market were claiming the sector was worth and it did not appear to be a sustainable percentage of the broader economy.

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Overdraft: The (short) movie

Felix Salmon
Sep 17, 2009 12:03 UTC

For those of you who prefer your overdraft journalism in video form, here’s a short documentary by Karney Hatch about overdraft fees. It’s very good, partly because it actually tells you what to do if you’ve been dinged by these things and the bank won’t refund your money. Small-claims court is your friend! And works!

Update: This is just the trailer, it turns out.  The short version ran on Current TV; the long version is available on Amazon.


Thanks for the mention, Felix. This is actually a short version of a full-length documentary I did on the subject, “Overdrawn!”, which will be having a screening on Capitol Hill at the end of October.

Details at:


Felix Salmon
Sep 17, 2009 05:02 UTC

The Income Map — Creative Class

I missed this story from last month about the secondary market in delinquent tax bills. Sobering and a bit scary — NYT

Jon Weil nails it on the SEC — Bloomberg


Privatising property tax collection and securatisation/factoring at the same time, fatal.

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Maneker on Salmon

Felix Salmon
Sep 17, 2009 03:26 UTC

I’m most flattered that The Big Money considered me interesting enough to warrant a 1,800-word profile by Marion Maneker. There’s a few bits of it which are interesting even to me:

Even with his Stein trophy, there’s good reason to take Salmon at his word and assume he has little clout. He doesn’t have the massive traffic of the biggest business bloggers. He estimates he gets a few hundred thousand page views a month, hardly what the big dogs in the space like zerohedge or Barry Ritholtz are pulling. What Salmon does seem to have is a knack for getting attention.

There’s an implicit distinction here between clout, traffic, and attention, although Maneker doesn’t really explore it. I think that clout, or influence, is vaguely related to traffic but not in very strong way: if the NYT didn’t listen to me on the subject of Ben Stein, it certainly wouldn’t listen to zerohedge. On the other hand, someone like Brad Setser, when he had a blog, was much more influential than his traffic figures might suggest. It’s not how many people that are reading you which matters in terms of influence — it’s who is reading you.

Maneker’s not clear on exactly whose attention I have the knack of getting; I’m not entirely clear on that myself. But I think I’m relatively weak on appealing to individual investors — I almost never blog investment ideas, and when I do, you’d generally be much better off doing the exact opposite. Saying things like “buying an Apple computer is a much better investment than buying Apple stock” is not the kind of thing which tends to endear me to CNBC-watchers.

Bloggers, on the other hand, seem to read me quite a lot: thanks to their linkjuice, I’m #2 in the Mediate rankings, compared to just #18 in the Seeking Alpha rankings. Neither means anything on its own, but the comparison is interesting. What bloggers and editors want is not usually what investors are looking for.

The most interesting part of the article for me is that Maneker seems to harbor a weird prejudice against blogs, despite being a first-rate blogger himself. He says that “no one” would cite Nouriel Roubini’s blog “as the source of his fame or influence”, which is simply false: many people, myself included, would do just that. As soon as he quotes me saying that the blogosphere is “the best graduate seminar ever invented”, Maneker pooh-poohs the notion. And then there’s this:

If you ask Felix, it’s not just coverage that blogs provide. Ironically, they give you depth.

Ironically? What’s ironic about getting depth from a medium which Maneker himself considers “wonkish journalism”? The irony here is surely that Maneker, a blogger who knows his way around the internet, would write an article which seems to work from the unexamined assumption that blogs are superficial, silly things. (And would also write an article which quotes me extensively but links to me only sparingly.) I’m a blogger who can happily write long and super-wonky blog entries on vulture funds or synthetic CDOs, and according to Marion, I’m “the blogosphere’s signal personality”. So there’s clearly nothing ironic about getting deep, wonky information from a blog.

That said, however, the profile is more than fair — it’s downright fulsome. And when no less an authority than Jack Shafer says it’s terrific, I can’t help but be very happy indeed with the way it turned out.


In a very competitive market, he manages to be clear, well informed and very interesting. This is FS’s role – a well informed commentator helping the layman keep up with what’s new in his field. I guess this is why he’s so appreciated, not because people think he’s Bernanke or Mankiw.

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Shareholders aren’t regulators

Felix Salmon
Sep 16, 2009 21:01 UTC

Eliot Spitzer is surely right about this:

Our market has been–and will continue to be–undermined by regulators who are intellectually or ideologically unwilling to confront powerful market players.

I can’t agree with him, however, about his proposed solution to the problem:

Instead of adding bureaucracy, we should be using the government to help invigorate shareholders to police companies. They should be empowered to control executive compensation, eliminating all the conflicts that now encumber those decisions.

Shareholders, like all stakeholders, will make a better determination about the use of their capital than bureaucrats who don’t ever suffer the downside of a bad investment. We need to facilitate opportunities for shareholders to actually participate in key decisions, and to deny those whose interests are not aligned from hijacking them. Strangely, we’ve heard a lot about executives and bureaucrats in this moment of reform. But shareholders, a force integral to the integrity and vitality of markets, have largely been left out of the discussion. We need them now more than ever.

Shareholders simply don’t have the time, information, or ability to do this: they’re owners, not managers. And they certainly have no way to address systemic, as opposed to company-specific, risks. Federal and indeed international regulations and regulators are absolutely necessary; the only question is whether they will be sufficient.


Regulators should be in place to make sure that same rules apply to everyone and also to enforce transparency. I, as an investor, want to be able to trust the system. We should simply hold everyone to the same standard.

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