Opinion

Felix Salmon

Goldman’s image problem

Felix Salmon
Oct 5, 2009 17:39 UTC

Bloomberg and the FT have almost-identical headlines this morning, saying that Goldman Sachs stands to make $1 billion if CIT declares bankruptcy. Neither of them is long on specifics, and both seem to be based on information from a single anonymous source, which is then promptly denied by Goldman itself. Here’s Bloomberg:

Goldman Sachs Group Inc. is set to earn about $1 billion should CIT Group Inc. enter bankruptcy or otherwise end a $3 billion financing agreement, according to a person familiar with the matter, who declined to be identified because the payout hasn’t been disclosed…

“This would not be a windfall payment,” Goldman Sachs said in a statement today. “The make-whole payment, which was publicly disclosed at the time of the financing, is simply the present value of the spread to be earned over the life of the facility.”

In the lede we’re told that there will be a windfall of $1 billion for Goldman and that it hasn’t been disclosed, and shortly thereafter Goldman says that it won’t be a windfall and that it has been disclosed. What is a poor reader of such material to think? (The FT story is, if anything, even more confusing, since it conflates the deal with side-bets that Goldman has made in the CDS market to manage its CIT credit risk.)

The easy way out is to simply decide, as Peter Cohan does, that Goldman Is Evil:

Goldman has engineered the world so it wins no matter what…

Goldman’s 0.01 percent of the population is on track to average about $772,858 in total compensation this year, thanks to its ability to engineer the U.S. government and the rest of the business world so it wins while 99.99 percent of America loses.

One thing’s for sure: Goldman isn’t good at playing the press. I don’t know who the source for these stories was, but I’d wager it was the same source for both, someone on the CIT side of the debt renegotiation who knows that Goldman is very concerned with optics these days.

The stories come as Simon Johnson weighs in to the Goldman debate along similar lines, asserting that “US banks or bank holding companies would not generally be allowed” to use private-equity arms to invest in an industrial company like Geely Automotive. I don’t know where Simon got this idea, but generally there seems to have been very little resistance indeed to bank holding companies owning private-equity subsidiaries. (There has been much more resistance to the converse situation, where private-equity shops look to buy banks.) If the Geely deal had been with any bank other than Goldman, this blog entry might well have never appeared.

It’s interesting to me that no one is giving Goldman the benefit of the doubt, and that even in the face of flat-out denials both Bloomberg and the FT are happy to run with aggressive headlines. That says to me that no one trusts Goldman’s flacks to be telling the truth, and that the Goldman image problem remains as bad as it’s ever been.

Given the choice between making lots of money and having a good public reputation, Goldman will always choose the former. But the bank always used to have a reasonably large number of defenders in the press; that number seems to be shrinking daily. Even during the depths of the crisis, when extreme measures got taken every day, Goldman’s “Government Sachs” reputation was bad enough to singlehandedly derail the proposed merger with Wachovia. Since then — and especially since Matt Taibbi’s screed appeared — Goldman’s reputation has only deteriorated further.

Goldman has seconded its president’s chief of staff, Samuel Robinson, to the PR department in recent weeks, in what is surely an attempt to reverse this decline. Judging by today’s headlines, he still has his work cut out for him.

COMMENT

K: Doubtfull. His big article was probably meant to be a “limited hangout,” that hands us a villain and takes the heat of the bigger villains.

Btw… Felix, did you know that “squid” was Italian slang for mafia?

Why we were right not to nationalize the banks

Felix Salmon
Oct 5, 2009 14:24 UTC

Normally, when I admit that I was wrong, I don’t get a lot of responses basically saying “no, you were right the first time round”. But this time, when I admitted I was wrong about bank nationalization, I’ve received a lot of pushback along those lines. Charles’s comment is representative:

Really ? How did you come to that conclusion? As far as I can see, the “saved” banks are retreating on lending to SME and retail, stuffing their balance sheet with safe bonds (mainly govies) and recapitalizing themselves by taking advantage of the steepness of the yield curve. This has enormous opportunity costs for the taxpayer (these long bonds coupons will have to be paid one day…), depresses the “Real” economy, and is as close to “free lunch” for the banks than anything. The government, and the taxpayers, bear the burden of banking sector losses and get nothing in return. A nationalization has the same risks, but enjoys the potential upside.

One key point of my post was that the Obama administration is very good at tempering its initiatives with a clear-eyed view of what is possible and what isn’t. In the case of the decision not to nationalize the banks (which, it’s worth emphasizing, is different from a decision never to nationalize the banks), I think we’re seeing a real appreciation of the breadth of the possible unintended consequences, as well as the practical impossibilities involved in the government trying to run such an enormous banking book with so many different and competing parts.

How much of the decline in bank lending to individuals and small businesses is due to a drop-off in demand, and how much is due to banks’ increasing risk-aversion? It’s hard to say, but the former is clearly important, and having government-owned banks wouldn’t change that. Such lending is normally much more profitable than the big wholesale loans which banks have increasingly been keen on extending of late; that says to me that they’d be perfectly willing to make smaller loans if only there were reasonably high-quality demand out there. I might be wrong, but even if I am, it’s hard to see how government ownership would change things: government simply doesn’t have the ability to micromanage bank lending at that level.

The reason why I wanted to nationalize the banks is that they were suffering from a major liquidity crisis, and they were insolvent on a mark-to-market basis. In that situation, the government essentially has two options, when the banks are too big to fail. It needs to provide liquidity either way; the only question is whether it does so while taking ownership, or whether it leaves the banks to continue in their existing form, in the hope that the markets will recover and they will no longer be mark-to-market insolvent.

The latter is much easier, and is pretty much what happened. It also has the added advantage that you don’t have government ownership driving out private-sector risk capital. As an anonymous Treasury official says in Lizza’s piece, “People had money to put into banks. The nationalization crowd would have had the government putting all that money in.”

It’s true that when the government determines that a certain bank is too big to fail, and then lowers interest rates to the point at which the yield curve becomes steep, the result is a recapitalization of that bank through easy profits. And yes, those profits go to the bank’s private shareholders. You can call that a free lunch. The alternative, for taxpayers, is the possibility of a very expensive lunch indeed. Here’s Lizza again:

Furthermore, Summers said, there was a medium-term risk that nationalized banks would lose value, in the same way that the act of foreclosure decreases the value of a home. Summers pointed to the example of Sweden, which was regularly cited by economists who favored nationalization. But Summers noted that Sweden didn’t nationalize for two and a half years, by which time the situation had become so severe—interest rates had reached a hundred per cent—that there were no other options. In addition, Nordbanken, the largest bank nationalized in Sweden, was already eighty per cent government-owned. Summers concluded by emphasizing that nationalization was a strategy that governments turn to only after it is very clear that nothing else can work.

One of the problems facing Summers and Geithner when they made this decision was how to get the wholesale market in bank debt moving again. (Remember the TED spread?) Given that they couldn’t nationalize thousands of banks at once, and given that nationalization was tantamount to an admission that the banking system was insolvent, non-nationalized banks would have found it pretty much impossible to find funding at any level, and there might well have been a much larger number of bank failures than we’ve seen to date.

The fact is that nationalization is a negative-sum game. Just because banks are making large profits now, doesn’t mean that they would have made just as much under government ownership. And the political noise surrounding just about any decision that any nationalized bank made, especially as regards pay and bonuses, would have made any other kind of reform (healthcare, financial-regulation, you name it) even more difficult than such things have turned out to be sans bank nationalization.

Now that the results of the stress tests have been made public and the debt market has recovered impressively, there’s a strong case to be made that the banking system is no longer insolvent. If we could get here without the incredibly drastic measure of nationalization, that’s a good thing. Yes, we might have lost a bit of potential upside on our hypothetical equity stake in the big banks. And yes, it’s very depressing to see a large chunk of that upside going to the very bankers who helped drive the economy into the current recession in the first place. But let’s not kid ourselves that the nationalization option would have been trivially superior in all respects.

COMMENT

Felix: Don’t feel bad, we did nationalize the banks. Silly boy. Best, Chris

Posted by rcwhalen | Report as abusive

When Morgan Stanley almost died

Felix Salmon
Oct 5, 2009 06:13 UTC

It’s a day for long readings: not only Ryan Lizza in The New Yorker, but also Andrew Ross Sorkin, whose book excerpt in Vanity Fair — all 12,000 words of it — is now online in full.

If the excerpt gives any indication of the quality of the book as a whole, Sorkin has succeeded in writing the book of the crisis, with amazing levels of detail and access. Many books end up having much less detail than the day-to-day journalism in the papers, choosing instead to concentrate on the bigger picture. This one, by contrast, has a lot of detail, and it’s worth reading the Q&A with Sorkin to get an idea of how much reporting went into it.

The VF excerpt covers a period which has been rather overshadowed, in retrospect, by the collapse of Lehman Brothers — the week after that epochal event, when Morgan Stanley came thisclose to failing. At the time, my predictions that Morgan Stanley was going to fail resulted in my getting a serious death threat, so I was interested to read Sorkin’s account of this period to see how close I had been. The answer is very: on Wednesday September 17, Morgan Stanley’s CFO calculated that the bank was going to run out of money by the end of the week, and that was just one of many life-threatening crises for the bank.

All manner of options were looked at, including really messy mergers with Wachovia or Citigroup or JP Morgan. Nothing looked remotely attractive. China’s CIC bank had cash to play with but didn’t seem overly keen to do a deal; Japan’s Mitsubishi was also interested, but culturally pretty much incapable of moving with speed and decisiveness over the course of a sleepless weekend.

And then there was the too-many-cooks problem: because Morgan Stanley was systemically important and its collapse would almost certainly cause Goldman to domino into failure as well, Tim Geithner and Hank Paulson and Ben Bernanke were all breathing down the neck of Morgan Stanley’s CEO, John Mack. None of them had had much sleep either, and they were making rushed and ill-thought-through decisions, like trying to get Goldman to merge with Wachovia or even buy Citigroup. The Goldman-Wachovia deal, pushed by the Fed, almost happened, until it was vetoed by the very people who had encouraged it in the first place.

In Sorkin’s telling, Wachovia CEO Bob Steel has a moment of minor glory shouting at the Fed’s Kevin Warsh over a speakerphone, but it’s John Mack who has the real brass balls, fighting with Paulson himself and telling Geithner to “get fucked” while he’s putting a deal together with Mitsubishi. Mack’s a hero of this story: while everybody else is panicking, Mack is clear-eyed and doing the right thing for his employees and his shareholders. But how close did his gamble come to failing? I asked Sorkin, who replied:

As you’ll see in the book in the chapter that follows the excerpted material, the Mitsubishi deal briefly almost falls apart two weeks later, leaving Mack anxious that the firm was imperiled all over again. Of course, in the end, the deal is completed and disaster averted.

Mack had only bad choices to make: Sell to JP Morgan for $1 a share, which would have meant at least 20k employees would be fired, if not more; sell half the firm to the Chinese for next to nothing, which likely would have meant he would have had to raise capital again because CIC was only prepared to contribute a couple of billion; or pursue the deal with Mitsubishi. Of those choices, he clearly made the right one, but as you said, things could have turned out very differently. One other thing to consider: In the book, I provide a scene inside Morgan Stanley’s board meeting that Sunday afternoon — it was edited from the excerpt for space — but the group was pretty unanimous in its view that it should pursue Mitsubishi, despite someone else in the room suggesting otherwise. (There’s a fun little surprise in that scene, so I won’t spoil it for you.)

I’m looking forward to reading the book, including the board-meeting easter egg. But this excerpt, more than anything else I’ve read in the orgy of one-year-later reminiscing, shows just how close the entire financial world came to collapse. It should be required reading for anybody in Congress who is breathing easily again and thinks that the worst is over and we don’t need to do too much in the way of regulatory reform. These crises can come out of nowhere, and it’s imperative that the next time round, we have institutions capable of dealing with them, instead of having to rely on dumb luck and the occasional deus ex machina from Japan.

COMMENT

Yeah, I printed out all 24 pages of this article, sat down to read, then saw that sentence and threw it in the trash. What is it with the Times writers?

Posted by ifstone | Report as abusive

Counterparties

Felix Salmon
Oct 5, 2009 04:23 UTC

Did you know the pata negra iberico pig originated in the US? — Feedbag

Olivia Judson with a good short explanation of what’s happening to Simon Singh in the UK — NYT

A long piece on the new Damien Hirst, by Sarah Thornton — Times

Hope, donated by lobbyists. Frank Rich is on form this week. — NYT

Why housing derivatives will never take off: you can’t delta-hedge them. — Rortybomb

The high dollar price of being gay — NYT

Shouldn’t the “extensive newsroom dialogue” on WaPo Twitter guidelines come before their publication, rather than after? — WaPo

NYT ‘obtains’ 248-pg report on bloody Afghanistan battle- & then doesn’t post it or explain why not — NYT

I had good fun on BNN Friday. The DC studio is definitely nicer than the Nasdaq studios in Times Square. — BNN

Evening Standard to be free paper — BBC

COMMENT

Really good article at http://www.goldalert.com/stories/Gold-Pr ice-Up-Dollar-Down-Does-it-Really-Matter that discusses the Fed’s role in creating many of the monetary problems in our country, and how the gold price and gold mining companies should continue to benefit from the Fed’s money printing efforts to avoid deflation. There are numerous unintended consequences of the Fed’s unprecedented actions that have the potential to cause even further damage to paper currencies.

Posted by mthomas | Report as abusive

The good things about Larry Summers

Felix Salmon
Oct 5, 2009 02:12 UTC

Yikes the Ryan Lizza piece on Larry Summers is long — over 11,500 words. And even then it manages to say absolutely nothing about some key issues, such as the $5.2 million he was paid by DE Shaw to work one day a week in 2008; or the allegations of Summers actively working to marginalize the influence of Paul Volcker; or l’affaire Shleifer. But Lizza does get Summers to admit to mistakes during his tenure at Treasury, at least as regards the subject of derivatives:

In Rubin’s memoir, “In an Uncertain World: Tough Choices from Wall Street to Washington,” he describes the debate that he and Summers had over the issue. “Larry thought I was overly concerned with the risks of derivatives,” Rubin writes. “His argument was characteristic of many students of markets, who argue that derivatives serve an important purpose in allocating risk by letting each person take as much of whatever kind of risk he wants. Larry’s position held together under normal circumstances but seemed to me not to take into account what might happen under extraordinary circumstances.” Summers told me, “If we had known that derivatives markets would mushroom the way they did and that regulators would remain spectators, we would have acted. With hindsight, all of us with involvement in financial policy wish we had done more to forestall problems.”

This is a good find from Rubin’s book — which was written, remember, in 2002, many years before the CDS exposure at AIG Financial Products threatened to bring down the entire global financial architecture. And although it’s now pretty clear that Summers’s deregulatory impulses as Treasury secretary had pretty gruesome consequences, it still reflects well on Summers — a man of no small ego — that he is willing to admit as much.

Lizza also provides a lot of detail on Obama’s decision not to nationalize the banks:

On March 31st, Summers sent the President a page-and-a-half memo outlining the reasoning behind the decision not to nationalize any banks. Obama was on his way to the G-20 meeting in London, and he wanted to be prepared with the best case against it.

The memo was divided into four sections. First, Summers explained that there was no legal authority to take over large bank-holding companies like Bank of America and Citigroup. Next, he pointed out that full nationalization of a financial institution might trigger systemic shocks, as investors retreated from other banks, creating exactly the kind of panic that nationalization was intended to prevent. (As Sperling often argued, “You might come out and say, ‘I’m gonna take over Bank of America and Wells Fargo, but everybody else is safe!’ Maybe they believe you. And maybe they don’t. But if you get this wrong the Dow’s at thirty-five hundred! You’re the worst economic manager in the history of the United States!”)

Furthermore, Summers said, there was a medium-term risk that nationalized banks would lose value, in the same way that the act of foreclosure decreases the value of a home. Summers pointed to the example of Sweden, which was regularly cited by economists who favored nationalization. But Summers noted that Sweden didn’t nationalize for two and a half years, by which time the situation had become so severe—interest rates had reached a hundred per cent—that there were no other options. In addition, Nordbanken, the largest bank nationalized in Sweden, was already eighty per cent government-owned. Summers concluded by emphasizing that nationalization was a strategy that governments turn to only after it is very clear that nothing else can work.

In hindsight, Summers was right and those urging nationalization were wrong. (Which group includes Paul Krugman and Nouriel Roubini, as well as me.) What I’m particularly happy about is that the debate took place, in a lot of detail, within the White House, between people who had no ideological axe to grind and who were intent on working out the objectively right thing to do, given the uncertainty surrounding the banking system and the economy.

I can see why Summers’s memo could not have been leaked at the time — the worst possible outcome would have been to reveal that the nationalization option was being seriously debated at the White House, sending markets into a tailspin which then would have gotten even worse when the government revealed that it wasn’t going to nationalize after all. But in hindsight, Summers seems to have made some very strong arguments.

Lizza’s article concludes with this:

So far, none of the worst fears of those who believed that the stimulus was too small or that nationalization was the only option or that taking over car companies would destroy the fabric of capitalism have materialized. Indeed, several private forecasters have credited the stimulus with blunting the impact of the recession—it probably added around three points to the G.D.P. last quarter—and the banking system has dramatically stabilized since the stress tests were completed.

This doesn’t mean that all these decisions were necessarily exactly right. But in politics, the quality of the implementation is often at least as important as the quality of the original decision. And the way that the Obama administration has spent its $787 billion, or avoided nationalizing the banks, or bailed out the auto industry, has been extremely professional and effective.

Indeed, in homage to the great dsquared, I’ll ask a question: can anybody give me an example of something with the following three characteristics:

  1. It is a policy initiative of the current Obama administration
  2. It was significant enough in scale that I’d have heard of it (at a pinch, that I should have heard of it)
  3. It wasn’t fundamentally extremely well-managed during the execution.

The point here is that policy initiatives are sometimes good and sometimes bad. We all disagree with some of the Obama administration’s decisions, like for instance the tariffs on Chinese tires. But once that decision was made, it was handled very well, and seems to have had very little in the way of negative knock-on consequences. Similarly, after the PPIP was announced with great fanfare, it was allowed to get scaled back to a tiny fraction of its original size and ambition once it became clear that it was neither particularly useful nor particularly popular.

I don’t know how much credit can be given to Summers for this one; I personally would be inclined to give most of the credit to Obama himself. But Summers has clearly settled into a very important role in this administration, and I can see how his ingrained contrarianism and skepticism might be very good at keeping everybody else that much more intellectually honest and well-prepared.

Update: Dean Baker is unimpressed.

Update 2: The consensus of the commenters seems to be that Afghanistan and pushing healthcare reform through Congress both meet my criteria. I also like Carol Shannon’s nomination of Cash-for-Clunkers.

COMMENT

Cash for Clunkers worked: addressed externalities, got people buying, is a large part of the positive GDP all y’all are talking about for Q3.

It was, as with most ObamaNation initiatives, poorly discussed. (For someone who is a “leader,” BarryO has been drug around by the likes of Max Baucus and Joe Liarman.)

That said, the “first” stimulus is a concrete example of Failed Obama Policy–of which he himself admitted (and John Emerson noted on this blog) that he “started with his ultimate compromise” and got whittled down from there.

Why give Ken Lewis a break?

Felix Salmon
Oct 3, 2009 18:07 UTC

Tom Lindmark says I should give Ken Lewis a break:

Felix Salmon made a good point in a post yesterday when he said that running a mega bank was not something that any individual was capable of doing…

While Felix thinks that bank CEO’s cannot positively influence the outcome of their institutions, he seems perfectly willing to assert that they can destroy the bank. This makes no sense logically but it does typify the sort of disparagement that has been dealt out to Lewis and others.

I do think that the importance of CEOs is often overrated, but of course Ken Lewis is and was entirely capable of destroying shareholder value. One of the ways he did that was by growing Nationsbank, by acquisition, into a bank which is now too big to manage or effectively run. Another way he did that was by buying Countrywide and Merrill Lynch.

Conversely, there are ways for bank CEOs to protect shareholder value. In an interest-rate environment like the one we have right now, banks will be steadily and highly profitable on a week-to-week basis. The job of senior management is to keep an eye on the risk book, and make sure that no one is taking outsize risks which can’t be managed. Goldman Sachs and JP Morgan are both very good at this. Ken Lewis was always very bad at that aspect of the job: when things started heading south in the housing market, he decided the best thing to do was to redouble his housing bets by buying Countrywide.

Lindmark suggests that the disparagement of Lewis is snobbish NYC elitism:

Lewis’s real problem was never about his ability to run a bank but rather about his looks, demeanor, background and geographic location. He isn’t Jamie Dimon smooth and he looks like a man either in a permanent state of confusion or one about to rip out a subordinates throat. He never made any bones about his middle class background nor about his strong desire to succeed and running a bank based in Charlotte automatically knocks you down a lot of pegs in the viewpoint of the New York crowd.

Jamie Dimon bought Bear Stearns and got a sweetheart deal from the government to make it work. Ken Lewis bought Merrill Lynch and went back after the fact to get their backing. Little is said of Dimon’s deal while Lewis is vilified for everything connected with the Merrill acquisition.

This is ridiculous. People hate Lewis because he’s middle class? Er, no. Because he’s ambitious? (And Dimon isn’t?) Because he’s based in Charlotte? Come on. They hated on Stan O’Neal and Dick Fuld and Jimmy Cayne and Chuck Prince just as much, and they were based in New York.

As for Ken Lewis getting more grief for buying Merrill than Dimon has got for buying Bear, well, yes. Lewis overpaid massively for his failing investment bank, while Dimon got the Federal Reserve to subsidize his purchase to the tune of $29 billion. Both CEOs are ambitious, but only one let his ambition get the better of him. And he’s the one who just resigned.

COMMENT

Those running index funds can’t add much value, but they can destroy value by poor and expensive execution.

CEO’s can’t add much value, but they sure can destroy value.

Posted by Richard | Report as abusive

The humbling of Robert Parker

Felix Salmon
Oct 2, 2009 20:14 UTC

Spending a couple of high-intensity days in Washington, as I’ve just done, is enough to send anybody dreaming of booze. And so it’s quite lovely to read Dr Vino’s missive from the latest Executive Wine Seminar, which featured not only 15 spectacular 2005 Bordeaux wines, but also Robert Parker, tasting them blind.

Parker has rated all these wines, of course. But would his blind ranking bear much if any relation to his official ranking? And how many of the wines could he successfully identify? The answers, I wasn’t at all surprised to hear, were “no”, and “zero”.

To take just one example, Parker identified wine #8, the mainly-Merlot L’Eglise Clinet from Pomerol, as being the mainly-Cabernet Cos d’Estournel from Saint-Estèphe.

Writes Dr Vino, charitably:

A final issue is about points and the nature of blind tasting, a capricious undertaking if there ever were one. Although Parker did not rate the wines yesterday, his top wine of the evening (Le Gay) was the lowest rated in the lineup from his most recent published reviews… For all the precision that a point score implies, it is not dynamic, changing with the wines as they change in the bottle nor does it capture performance from one tasting to the next.

So should we do away with blind tasting altogether? Tom Matthews, the executive editor of Wine Spectator, wrote this on my blog:

Blind tasting is not easy, but that does not mean it’s not useful. With all due respect to Bob Millman, it’s not that tasting blind is “judging from ignorance”; it’s that ignorant judges do poorly in blind tastings.

Millman is the person who runs the Executive Wine Seminar tastings, and he’s much less constructive on the subject of blind tastings than Matthews, and it’s not hard to see why: after all, it does rather seem as though Matthews is saying that Parker is an ignorant judge.

Parker isn’t an ignorant judge, of course. And I daresay he actually did well in this tasting, in terms of judging the wines purely as he was drinking them. He just did badly in terms of identifying what they were, or giving them this time around the same ranking that they got the last time he ranked them. Wine is not a fungible commodity, where one bottle is always the same as the next — quite the opposite. But the fact that wine changes, from bottle to bottle and from month to month, rather defeats the purpose of magazines such as Wine Spectator.

I asked Matthews what he considered a “good judge” to be, and whether there were any downsides to tasting blind. He wrote back:

On judges: Yes, in my opinion, judgment is a quality that lies along a spectrum. “Ignorant” judges lack the context to make useful distinctions; “good” judges have enough experience and understanding to apply appropriate criteria to the wine in the glass. All judges begin in ignorance. If they work hard — taste widely, concentrate intently, read and travel and interview the experts — they may become good. At Wine Spectator, it’s less a matter of “choosing” judges than training them. Before an editor qualifies as a wine critic, he or she undergoes a long and intensive period of apprenticeship with us. The “empirical data” we look for is their consistency of judgment, breadth of understanding and sensitivity to the qualities of the wines they are tasting (faults, structure, flavor descriptors, etc.) Once they do qualify, they are given responsibilty for specific wine types, and as they prove their consistency and expertise, they take on larger tasting beats.

On “downsides”: The challenge in evaluating wine is eliminating externalities that can bias judgment (such as price and reputation) without eliminating so much context that judgment is impossible (since good wine is supposed to reflect its vintage, terroir, etc). Carefully-calibrated single-blind tasting is the methodology that long experience has convinced us is the best and fairest approach. But enjoying wine is a different matter, and in that situation, blind tasting can rob us of information that can supply both pleasure and edification. At dinner parties, I like to serve a wine blind, to get an “unbiased” reaction, then unveil it, so we can learn both from our reactions, and from the wine.

In a world where Robert Parker fails to perform on the criterion of “consistency of judgment”, even in the context of a “carefully-calibrated single-blind tasting”, this does ring a little hollow. Parker didn’t invent the guess-this-wine game that many tastings become, but he is partly responsible for the idea that people who are good at that game are necessarily the people best qualified to judge wine. It’s definitely fun to see him hoist on his own petard once in a while.

COMMENT

It was an eye opener to see how hard it was to tell cab, merlot and carmenere from each other at a blind tasting which included some people in the trade.

I always question numeric ratings because the point scores and price almost always go hand in hand. My $13 zin was three times more popular than a $30 zin at a recent blind tasting.

Posted by RaScott | Report as abusive

Everything is OK

Felix Salmon
Oct 2, 2009 19:45 UTC

Via Paul comes this montage of highlights from the people who brought you the Everything is OK series. What makes it especially fabulous for me is the fact that a  large chunk of it takes place right outside Reuters HQ in Canary Wharf. Obviously, you shouldn’t watch it. Do your job instead. Or go shopping. One or the other.

COMMENT

Very interesting few words from you.
Lucky to have this freind.
Grand boost to us and to Reuters team.
I expect a big inputs on many lively subjects.
Thanks to Reuters and to with its writers,autors and comments writers.

Chart of the day, hours-worked edition

Felix Salmon
Oct 2, 2009 17:49 UTC

Jake is on fire with employment charts this morning in the wake of the atrocious payrolls report. This one in particular is new to me, and extremely sobering:

hours per civ.png

Even at the worst points of the worst recessions of the 1970s and 1980s, never has the number of hours worked per US person been lower than it is now. And this isn’t happy productive people taking time off because they don’t need to work as hard any more: this is unhappy unemployed people who desperately want and need to earn money but can’t.

What we’re seeing in this graph is, I think, the violent implosion of a large swathe of the working classes. Many of those jobs — the ones which, in the boom, were in or connected to the housing or auto industries in particular — will never come back; if they’re replaced at all it will be with lower-wage, lower-skill service-industry jobs. That bodes very ill for the US economy as a whole, and reinforces my notion that the best-case scenario right now, economically speaking, is essentially a square-root-shaped recession where we rebound from the lows but then fail to grow over the medium or long term.

That said, previous plunges in this graph have been followed by relatively sharp rebounds, so maybe we’ll see the same thing happen again. I just can’t work out what the driver of all that new employment will be.

COMMENT

If a Chinese autoworker earns $2.40/hour why not here? Bye-bye American Paradise.

Posted by Jim | Report as abusive
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