Felix Salmon


Felix Salmon
Oct 16, 2009 23:16 UTC


Error-riddled “Superfreakonomics” — Climate Progress. The complaints ring true to me.

Why business media has to be very big or very small. — The Deal

A nuanced appreciation of Bruce Wasserstein — TED

Why the wrong person always wins — TNR

The Washington Post Has the Worst Opinion Section in America — Gawker

Why works of conceptual art have an inherent investment risk — NYT

Tullett Prebon’s BlackBerry burners — Guardian

The crazy story of Nicholas Bolton, the seemingly-idiotic Australian kid who ended up making millions — Greenbackd

Trust and Delegation — SSRN. As written up in the FT.

Danish workaholics — Jon Lund

Ads disappear from the Daily Mail’s exercise in homophobic hatemongering — Media Blog

A small, realistic painting of NYT op ed columnist David Brooks, by young American artist Matthew Cerletty — Jenbee

“We’re not looking interested in digging up private details about private citizens,” lies Gawker, stalking Goldmanites — Gawker


The heat created from solar energy by solar cells would be reradiated back into space, and therefore increases temperature in the short-term; removing the cells would cause the temperature to decrease again, but would not undo the benefit of reduced carbon emission. The effect of the carbon dioxide on the equilibrium temperature of the earth is likely to be far higher. This is explained by a scientist who writes in after the fact; the author originally seems to miss it.

ClimateProgress does, however, label as “howlers” two and a half points that involve the at-best uncharitable reading that instead of saying “Here’s an example from solar power,” he’s saying “Every conceivable form of solar power is an example.” The only remaining “howler” is, in fact, pants-wettingly comic, but only as committed by ClimateProgress. “Actually, state of the art only converts 82% of the energy directly into heat” is something I would expect from a Simpsons’ character; cf. “Actually, I did my thesis on life experience.” The children are right to laugh at you, Ralph.

Dow 10,000 in rhyme

Felix Salmon
Oct 16, 2009 20:56 UTC

Bill Radke is some kind of genius. Whose bright idea was it that news should be delivered in prose, anyway? This poetry thing is seriously disruptive technology.

Marketplace Minute 10/16/09 from Marketplace on Vimeo.


MediaCurves.com conducted a study among 385 viewers of a news clip featuring the Dow Jones Industrial topping 10,000. Results showed that more than half of viewers (57%) reported that the national economy is improving. Despite reports of the improved economic conditions, the majority of viewers (68%) who indicated that the economy was improving also stated that they do not plan to increase their spending. In addition, 42% of the viewers reported that they are currently searching for a job.
More in depth results can be seen at:
http://www.mediacurves.com/Culture/J7600 -USEconomy/Index.cfm

Is Russ Feingold joining the war on vulture funds?

Felix Salmon
Oct 16, 2009 16:35 UTC

Remember the silly war on vulture funds being waged in the UK and, in the US, by Congresswoman Maxine Waters? Well, I have good news and bad news. The bad news is that it’s making its way into the US Senate: Russ Feingold, the chairman of the Subcommittee on African Affairs, is thinking of introducing legislation of his own. The good news is that his staffers are reaching out to people like me, and seem genuinely interested in trying to understand the issues and the potential negative consequences of any legislation.

I just had a pretty long conversation with three of Feingold’s staffers on this subject, and they were asking if there was any way that they might be able to introduce a bill which curtailed some of the most egregious actions of vulture funds while not going as far as the Waters bill. I told them that the short answer is no: debt markets would react very badly to any attempt to prevent or impede trading debt instruments in the secondary market. And what’s more, none of these bills would make the problem of developing-country debt go away: it would simply keep that debt in the hands of original creditors, who might well start employing more vulture-like tactics to get their money back if they were prevented from selling their claims.

Feingold is commendably concerned about the fate of small African countries, who might be in the position of receiving hundreds of millions of dollars of debt relief from the US government, only to find that freed-up cashflow suddenly eyed by greedy vultures. And he doesn’t want hedge-fund types receiving any part of the money that Congress apportions to developing-country debt relief. I’m sympathetic. But the fact is that vulture funds have been having a dreadful time of it recently, and are losing cases much more frequently than they’re winning them. The total amount of money that’s at issue here is minuscule, compared to the enormous effect that it could have on the capital markets as a whole. The whole issue of vulture funds looks very much like a solution in search of a problem.

I told Feingold’s staffers that they should be sure to talk to a range of developing countries about their legislation — not just the poorest countries whose debt would be directly effected, but also richer countries who might see their credit spreads widen if Congress started messing about with the enforceability of sovereign debt obligations. Even the poorest countries aspire to tapping private capital in future, and might be very wary of legislation along these lines.

More generally, it might behoove market participants and industry groups to start talking seriously to Feingold’s office on this subject, especially if they can put together some hard data on just how much money we’re talking about here. It certainly makes sense to try to quantify the scale of the problem before putting a huge amount of effort, not to mention enormous knock-on consequences in the market, into some kind of solution.


Africa faces huge challenges:

1. It is split between Muslim and Christian (the latter sub equatorial)
2. Diseases such as malaria and drug trafficking
3. Rebels and warlords
4. Arms trade and Land mines
5. Corruption and Productivity
6. A ‘split’ African Union
7. Superpowers trying to get their claws on minerals and energy
8. Despots
9. Inconsistent distribution of aid and debt servicing.

As callous is it sounds, I agree with ‘urgs’. The IMF, World Bank & Co should manage funding, at present every free dollar should go the US citizens/taxpayers.

Coercive positioning for minerals and energy should take place on a transparent and arms-length basis.

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Ken Lewis’s symbolic pay cut

Felix Salmon
Oct 16, 2009 13:32 UTC

I love the fact that Kenneth Feinberg has made his largely symbolic cut to Ken Lewis’s 2009 payout:

At U.S. pay czar Kenneth Feinberg’s request, Lewis will not receive the $1.5 million salary he was slated to make this year, company spokesman Bob Stickler on Thursday. Lewis will not receive a bonus or any other payments for 2009…

A breakdown of Lewis’s outgoing compensation shows that he is expecting about $53 million of pension benefits from an account frozen years ago and another $72 million of accrued and deferred stock compensation.

Obviously, money is fungible, and Lewis’s $1.5 million in salary was just going to be the cherry on top of the other $125 million he’s managing to walk home with upon departing BofA. Since Feinberg had no real jurisdiction over the big lump sum due Lewis, he just decided to bring the sum he could control down to zero.

Lewis clearly isn’t running BofA well — in the current interest-rate environment, it’s actually really quite difficult for a bank to have racked up a billion-dollar loss last quarter, even after $2.2 billion in Merrill Lynch profits. Any pay that Lewis gets is not going to be for performance.

On the other hand, BofA’s loss, coming as it does on the heels of similar results at Citigroup, shows that times remain very tough in the real world west of the Hudson River. And that’s something the stock-market bulls, and the Goldman Sachs plutocrats, would do well to remember.


I know I won’t be satisfied until I see OLD MONEY in jail.

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Dow 10,000: It’s do-over time!

Felix Salmon
Oct 15, 2009 21:24 UTC

Remember the grim days of March? You should. Millions of small investors across the country were staring aghast at their brokerage statements, with one thought going through their heads: “I should never have invested in the stock market”. They’d done so on the advice of people who had assured them that stocks always go up over the long term, and then they’d seen their holdings decimated. In hindsight, they decided, they had less of a risk appetite than they needed to have that kind of exposure to the stock market. But selling at the bottom and capitulating to the bear felt impossible.

The good news is that the current stock-market rally has given them a second chance. If you’ve been diligently putting money into stocks for years, there’s a good chance that the current value of your portfolio is not hugely lower than the total nominal amount saved. If you had an idea, back in March, of what your risk appetite really was, then now’s the time to rebalance your portfolio in line with the degree of risk aversion you discovered in yourself seven months ago. If and when stocks drop again, then you really will only have yourself to blame.

Of course, everybody’s individual situation is different, but in aggregate we’ve gone from devastation to mere pain. And when you’re involved in something painful, and you can get out of it, a quiet exit is often the best thing you can do. Of course, stocks could go up further from here. But that’s not the point. Unless you can afford to see your stocks fall, you shouldn’t be invested in them.

You don’t need to sell all your stocks, of course. Some exposure to equities makes perfect sense. But make sure you have a decent cash cushion first. And if you have any kind of debt at all — even if it’s just a mortgage — there’s a strong case to be made that you should pay that down by selling your stocks. Paying down a 6% mortgage is the functional equivalent of getting a guaranteed 6% return on your money, risk-free. (Ignoring the tax benefits of having a mortgage for the time being.) That seems a lot more attractive than buying stocks at these levels.


VenDatta and Emma, quite right, it also depends what the tax effects of the new investment return would be and what the tax regime is in the particular environment. Also, cash losses might be so high, and the property value could dip to below the mortgage owing. Then one would be in trouble, as I suspect most people are right now.At the start of a mortgage, one usually pays interest until close to maturity, say on a mortgage of 20-30 years, the first 15 to 20 years is mostly interest repayments.

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Great moments in punditry, Lenin edition

Felix Salmon
Oct 15, 2009 19:38 UTC

Jim Cramer has decided that people upset at Wall Street bonuses are in fact revolutionary Marxist-Leninists, intent on “stringing up guys like John Mack and feeling great about it”. A brief edited transcript, if you can’t bear to watch the whole thing:

Melissa Francis: Jim, let me ask you very quickly: what did you think about John Mack’s answer to the big question of the day, which is the divergence between Main Street and Wall Street. We see Dow 10,000, and bonuses are back; at the same time Main Street is in a shambles.

Jim Cramer: When I took a Master’s reading communism we learned these things. I took seven courses in communism. Lenin when he came in in 1917 thought that the bankers were making too much money, and confiscated all the wealth. The peasantry felt terrific about it. The bankers, many of them, were killed. And there was a terrific surge of opinion that Lenin was a great man. It didn’t work out.

It’s very easy for me. I know that, I can do that rap, I studied it. I know most of Lenin’s speeches during the period. And it’s really about stringing up guys like John Mack and feeling great about it. I’m not being facetious. I studied Lenin, and I was very caught up in this notion that the peasantry should win.

Melissa Francis: Speaking of the peasantry, let’s give ‘em some trades.

Yeah, let’s.

(HT: David Gaffen)


It’s not the greed.

It’s the corruption of their regulators, the gaming of the system, the production of toxic financial products to fool and plunder, the utter lack of business ethics.

And when the deeds are done and the economy crashes, they get the taxpayer bailouts.

That’s not greed. That’s corporate fascists pretending as capitalists, destroy as imperialist and got away being socialists.

Even the Russian mafia admire them.

Posted by The Real Deal | Report as abusive

Bicycling paradise of the day

Felix Salmon
Oct 15, 2009 15:52 UTC


The morning and afternoon commute in Copenhagen is a spectacle involving tens of thousands of cyclists roaring down dedicated lanes in tight packs, past cars moving at half the speed, if at all…

Traffic lights that were once co-ordinated for car speeds were adjusted to cater to the pace of the average cyclist, allowing them to travel long distances without ever getting a red light. To increase safety, stop lines for cars are five metres behind those for bikes. Cyclists get a green light up to 12 seconds ahead of cars to help increase their visibility.

In the winter months, bike ridership drops off 20 per cent. Still, an armada of plows is ready to clear bike lanes when snow flies. They get priority over routes for cars.

How do other cities get there from here? Slowly. You don’t do everything at once, but instead just add things incrementally, until you reach the point at which cyclists outnumber car drivers. Lots of attitudes need to be changed, including those of today’s cyclists, who, in car-centered cities, tend to be highly aggressive. And attitudes change slowly. But it can — and should — be done.

(Via Florida)


This is a piece of heart-warming news for all cyclists in the world! It also indicates a few important points, first of all, a differentiated traffic light system that is coordinated for cyclists is helpful and achievable. Second, the attitudes of today’s cyclists need to be moderated for their aggressiveness. Third, there is a recognition that all these changes need time.


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How securitization works

Felix Salmon
Oct 15, 2009 15:21 UTC

It seems so obvious: of course John Bird and John Fortune should simply appear directly on FT.com. Go watch their latest George Parr interview, it’s fantastic:

GP: You can’t have it both ways. Everybody says that banks have got to be boring. Well, you’ve got to have an incentive to be boring.

There’s also a wonderful explanation of how securitzation works, at about 5:30.

GP: We thought we’d found a way where even if house prices didn’t go on rising forever, we wouldn’t have to worry about it.

Q: This is securitization.

GP: Securitization. You see, the problem about lending money who don’t have a glimmer of a chance of paying it back is that there’s a risk.

Q: That they won’t be able to pay it back?

GP: That’s not a risk, that’s a cast-iron certainty. No, no, the risk is that in some very complicated way the bank will lose money. Now what happens with securitization? You see before securitization, we could see the risk. It was there. We had it. And then, after securitization, what that did was, whooooo. The risk was sort of out there. Somewhere. Nobody knew. Then we looked back, and my god, it was still there after all!

Clever, that.


Structured Products Guy:

Of course we cannot call those NINJ subprime loans innocent. They are perpetrated by a different gang of bastards in the field.

If you ask me to agree that there are things worse than securitization in the whole mess, yes I agree. The subprime stuff is the original sin. Securitization aggregates and multiplies that. There is nothing fundamentally wrong with securitization. It is how it was done by WSM gang – using CDO slice and dice, using fraudulent ratings, using CDS trading to cover up the risks and leverage up the profits. I maintain that the combined practice is criminal, prospectus fine prints notwithstanding. Yet no one has been charged. Could this be the perfect crime of the past 4 centuries?

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Too-big-to-fail datapoint of the day

Felix Salmon
Oct 15, 2009 13:03 UTC

Good luck to any mere mortal trying to make sense of Citi’s earning announcement today. Here’s the company’s own headline:

Citigroup Reports Third Quarter Net Income of $101 Million

Loss Per Share of $0.27 Included $(0.18) Impact of Exchange Offers

The headline itself, incidentally, comes with the first of four footnotes that Citi felt the need to append to the earnings release. But the main point is that none of this makes any sense. How can you have positive net income while you have negative income per share? Because of the impact of exchange offers? Well, partially — but they account for only 18 cents of the 27-cent net loss.

There’s not much more clarity in the rest of the release, although there are some big numbers: a negative $1.7 billion “credit value adjustment” to revenues at Citicorp; and a further $8 billion of credit losses, which becomes $11 billion in “managed credit losses”. (How Citi contrived to lose so much money on the credit front during one of the best quarters for credit in living memory is not explained.) And then there’s this:

Deposits were $833 billion, up $28 billion from the second quarter of 2009. Deposit growth was strong in both Transaction Services and Regional Consumer Banking.

That’s not a typo: Citigroup really does have $833 billion in deposits, and they’re growing. Most of those deposits are international, but that doesn’t mean there isn’t moral hazard there: everybody in the world knows that Citi is too big to fail, and therefore one of the safest places they can possibly deposit their millions.

A year ago, I was worried that Citi might lose its deposit base; instead, it’s grown since then, and has become one of the biggest moral-hazard plays in finance. No bank should ever have that many deposits — but you can be sure that regulators are going to do nothing about it. Citi needs that cheap retail funding.


So, if I’m reading Sandrew’s comment correctly, the answer is that we are now past bookkeeping and into accounting, per the old joke. (In bookkeeping, the question is “What is the total?” In accounting, the question is “What do you want the total to be?”)

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