Felix Salmon

Shahien Nasiripour does some more digging into the HAMP mortgage-modification figures today, following on from last week‘s analysis. This time he’s looking at the percentage of trial loan mods which have been converted to permanent status, and the numbers are startling, to say the least:

Total number of trial modifications at the end of May: 50,130

Number of those being serviced by Ocwen: 1,058

Total number of permanent modifications as of September 1: 1,711

Number of those being serviced by Ocwen: 763

To put it another way, of the Ocwen has managed to convert more than 72% of its end-May trial loan mods to permanent status. The equivalent number for everybody else? 1.9%.

Ocwen’s looking good on other fronts, too, such as its redefault rate, which is much lower than the rest of the industry.

Is there any way to import Ocwen’s best practices to other servicers? Shahien quotes Valparaiso University’s Alan White as saying that Treasury “should start firing the under-performing servicers and bidding their work out to the successful companies”; what’s more, White is a law professor, which means that might even be legal.

More helpfully, Shahien explains one big difference between Ocwen and everybody else: Ocwen insists on having proof of income before it starts any trial modification. (And this doesn’t seem to have slowed it down at all; quite the contrary.) Other servicers might do well to follow suit.

Vehicle emissions are a major public health issue. We already know that the best thing you can do if you want to bring your crime rate down is to switch to unleaded gasoline and then wait for 20 years. Now we’re learning that if you want to improve the health of babies (and healthy babies become much more productive members of society when they grow up), simply installing an EZ-Pass tollbooth has a large and significant positive effect: the resulting improvements in congestion and emissions more than make up for any excess emissions from cars crawling through the toll plaza itself.

The negative externalities from driving, then, are significantly greater than the ones that the likes of Charles Komanoff calculates — and those are $160 per trip, in Manhattan. If we want to become a happier, healthier, more prosperous nation, then we have to wean ourselves off our car addiction. It won’t be fast, and it won’t be easy. But it’s profoundly necessary.

(Via Wessel)

Update: The E-Z Pass study can be found here; the link in the WSJ blog is broken. Thanks to Charles Kenny for the pointer.

Andrew Ross Sorkin today picks up the Law of the Excluded Middle and runs with it, in a column headlined “Don’t Fail, or Reward Success”:

We can’t have it both ways, either. At one moment, many in the nation crossed their fingers hoping Goldman and the rest of Wall Street would be saved to halt the country’s downward spiral. But when the banks finally get up on their feet, we want them to fall flat again. Mr. Blankfein can’t win.

It’s true that we didn’t want Goldman Sachs to fail. But that’s got nothing to do with some kind of national wish for Lloyd Blankfein’s continued success, and everything to do with the fact that Goldman Sachs is too big to fail. Had the natural order of capitalism been allowed to work its course, then AIG and Morgan Stanley and Goldman Sachs and Citigroup and Bank of America and the rest of the financial system would have essentially imploded. Needless to say, that would not have been good for the economy as a whole. But just because we need these banks to exist does not mean that we want these banks to make enormous profits.

Sorkin does, eventually, arrive at the nub of the argument:

The bad news is the absolute number. It is far greater than any other bonus figure on Wall Street. Goldman says that its compensation program is based on pay for performance, and it is hard to argue that it has not performed well.

The company also says that it needs to pay these large sums to retain its best people or risk losing them to rivals. That may be true for a small percentage of its most senior executives, but some experts suggest it is a disingenuous argument…

Indeed, it is possible that Goldman’s bonus largess is creating a vicious circle: other, perhaps lesser firms, are probably going to pay even higher bonuses to try to compete with Goldman.

And therein lies the rub: While Goldman may have the Midas touch, the rest of Wall Street never seems to be able to keep up. And the only way for rival firms to compete with Goldman is take to outsize risk.

Believe it or not, there’s a simple (if not easy) solution to this problem: Goldman should just pay its employees less money, and have more left over for shareholders. That’s not asking Goldman to “fall flat”, it’s just asking that it not contribute in a harmful way to the culture of risk-taking that pervades Wall Street.

How should Goldman do this? One way would be by putting a cap on bonuses. Most people, in most jobs, don’t get any bonus at all. When there is a bonus, it’s generally small: maybe a thousand dollars here, 5% there — enough to buy some nice Christmas presents, perhaps, but not enough to buy a small Latin American nation.

It’s entirely conceivable that if Goldman started paying its bankers less money, the firm as a whole might become less profitable. From a public-policy point of view, that’s fine: the nation has no particular interest in Goldman making spectacular amounts of money every quarter. From a philosophical point of view, there’s a bit of a problem with artificial restraints on trade, but that’s something which goes hand in hand with too-big-to-fail status. If you’re a small investment-banking boutique, feel free to pay your people as much as you like. But if you have a trillion-dollar balance sheet and pose a major systemic risk to the economy, then you lose that freedom.

So the answer to the question Sorkin poses in the question is, essentially, “yes”: we don’t want Goldman to fail, and neither do we want Goldman to reward success in the way it has of late. What we do want is less excess and less systemic risk. Allowing a super-sized Goldman to pay out untold billions in bonuses every year — even if they’re cleverly structured in the form of slowly-vesting stock — achieves neither of those aims.

Depressing: “Borrowers have sold more than $1 trillion in U.S. corporate bonds in 2009, the fastest pace on record”. — Bloomberg

Yet another reason why retail investors shouldn’t buy individual stocks, and certainly shouldn’t play with stop-losses — Reuters

Guardian prevented from reporting parliament for unreportable reasons — Guardian

NYT metro desk cancels magazine, newspaper subscriptions. Says money better spent on freelancers — NYO

Are caps on data usage imminent for AT&T customers? — PCWorld

Justin Fox anticipated Surowiecki’s column with a Friday blog entry on the silly Chamber of Commerce — Time, TNY

Larry Lessig is a co-founder of The Global Poker Strategic Thinking Society — Chronicle

Lawrence Weiner embossed Moleskine notebooks — Walker

Modern book publicity — TNY

Men are more willing than women to replace traditional media with new digital platforms — AdWeek

Does microlending actually fight poverty? — Globe

3,000 words on traders doing cocaine — Bloomberg

If you slash a mag’s rate base and raise its subscription price, do you necessarily hurt its glossiness? — AdAge

Larry Summers, “deceptively agile” tennis player — TNR, Crimson

The Atlanta Fed charts how the number of people who work part-time but would like to work full time has doubled since the beginning of the recession. That’s not normal, even by the standards of previous harsh recessions:

Anybody care to hazard a guess why this time is so different? The underemployment rate is a whopping 17%, so it’s not just that the rate has doubled from a low base.

(Via Rampell)

One of the best ways for a TV show to drive DVD sales is to stream old episodes online. It worked wonders for Monty Python, and after looking at the numbers, Chadwick Matlin concludes that it probably helped stem a natural decline in DVD sales for Arrested Development, too. Plus, since Arrested Development was on Hulu, there was a decent amount of ad revenue there as well.

So, naturally, Fox decided to pull Arrested Development from Hulu. Why? Fox won’t say. But my guess is that it’s all part of Rupert Murdoch’s new information-wants-to-be-paid evangelism. He’s looking all over the internet to see where he’s giving away valuable content, and then bringing down the hammer.

Does Murdoch know that he’s serving up full RSS feeds for his WSJ blogs? That’s the right thing to do, of course. But given the way he’s clearly thinking these days, I wouldn’t be at all surprised to see him trying to restrict their broad dissemination, too.

Isn’t it ironic that Eugene Fama didn’t win the Nobel prize in economics? No, actually, it isn’t, and I’d like to give a special Alanis Morissette award to anybody who thinks it is. (Barry Ritholtz and Dan Gross, I’m looking at you. And you too, Peter.)

The ostensible irony here is that Fama invented the efficient markets theory — but the markets which predicted his win were wrong! Except that’s not what happened. Barry is completely wrong when he says that Fama was the “odds on favorite” to win the prize — in fact, as he himself noted yesterday, Fama had 2-to-1 odds against him winning, implying that the probability of Fama winning was about one in three. The Ladbrokes odds actually implied that Fama would not win, and in that sense they were absolutely right.

But the prize ended up going to Elinor Ostrom and Oliver Williamson, and the odds on their winning were even longer. Doesn’t that prove that the bookies were wrong? Well, it would if Ostrom and Williamson were more likely to win the prize than Fama. But they weren’t. The thing about the Economics Nobel is that it has an absolutely enormous number of possible winners, which means that most winners are long-shots. It’s not at all unusual that the winner had 50-1 odds against them: if anything it’s unusual that either of them were on the list at all. (In the Harvard betting pool, none of the 149 entrants bet on Ostrom.)

What’s more, a list of Ladbrokes odds is emphatically not a prediction market, since there’s no two-way market in prices. (You can’t bet against Fama winning the prize at 2-to-1 odds, you can only bet on it.) There was a real prediction market in the economics Nobel over at InTrade, but it only featured three names: Fama, Paul Romer, and Ernst Fehr. And total volume in all three names was exactly zero, which means that not a single price (or extrapolated probability) came out of the market. Even Eugene Fama wouldn’t claim efficiency for a non-clearing market with no prices.

The simple fact is that the long tail of possible winners provided the actual winner — just like it normally does with this particular prize. The favorite (who was not an odds-on favorite) did not get the prize. There’s nothing unexpected about that outcome, and certainly nothing ironic.

Update: I’ll add this quickly, before the inevitable comments start appearing: yes, I know that it’s the Swedish Central Bank Prize for Economics in Honor of Alfred Nobel and not an original-issue Nobel Prize. But if nobelprize.org considers it a Nobel Prize, then so do I. It’s not fake, Matt, it’s real.

Is there an M&A lesson to be learned from the Microsoft/Danger/Sidekick fiasco? Here’s Dave Methvin:

Any $500 million acquisition usually comes with some technical due diligence. When Microsoft bought Danger, didn’t they have someone take a look at how the company ran their servers? During the more than 18 months since the acquisition, didn’t anyone review how Danger was operating?

The implication here is that the meltdown would have happened if Microsoft hadn’t bought Danger, and that Microsoft’s biggest mistake was not managing its acquisition more diligently. But Danger seemed to be perfectly good at cloud computing until Microsoft bought it — and then buried its founders so far down the org chart that one could easily forgive them for becoming somewhat demoralized.

It’s pretty obvious that company founders aren’t going to act with the same drive and sense of ownership when they’re a tiny part of a monster organization as they did when they owned and ran their own shop. Microsoft should have been on top of what was (and, more importantly, what wasn’t) going on at Danger, and been alert to defections and any hints of dissatisfaction in the team. Instead, it’s managed to deliver the single largest blow yet to the whole concept of cloud computing. And there’s lots of indication that Microsoft is at fault here:

Microsoft’s takeover of Danger almost two years ago should have given the software giant the time to fortify and secure Danger’s online operations. Instead, it appears the company actually removed support to cut costs…

Microsoft’s accountability in supporting its acquired SideKick support obligations with T-Mobile was also shirked… Microsoft could get more money from T-Mobile for their support contract if T-Mobile thought that there were still hundreds of engineers working on the Sidekick platform. As we saw from their recent embarrassment with Sidekick data outages, that has clearly not been the case for some time.

That indicates that Danger’s high profile cloud services failure didn’t occur in spite of Microsoft’s ownership, but rather because of it.

It’s not just that company founders lose zeal once they’ve been acquired; it’s also that executives at the acquiring company are often suspicious of what they’ve bought, especially when that company used to be a direct competitor. If you’re going to be spending billions of dollars on acquisitions, you should certainly invest a chunk of time and money ensuring smooth integration. That clearly didn’t happen here.

Update: Andrew Leonard has another idea:

Maybe we should consider this a Machiavellian shot across Google’s bow? What better way to defend the Windows/desktop franchise than to create a sense of fear, uncertainty and doubt concerning the fundamental security of cloud computing?

Time looks at the problem of jingle mail, and explains how “because it underwrites low-cost housing for high-risk groups, the FHA’s problems are particularly acute”:

Homeowners of a new and unattractive breed are plaguing the Federal Housing Administration these days. Known as “the walkaways,” they are people who find themselves unable to meet their mortgage payments—and to solve the problem simply move out their belongings at night, drop their house key in the mailbox and disappear… In seven South Florida counties, walkaways have abandoned 3,000 FHA-guaranteed homes in the past twelve months.

The hat-tip goes to Mark Gimein, who dug this story up: it’s 47 years old, and it proves two things: (a) there’s nothing new about jingle mail; and (b) it’s entirely a function of jurisprudence and economics, rather than the Moral Character of the Nation.

Mark’s trod this ground before, but it bears revisiting: there are often very good reasons to walk away from your house. It’s never a first-best option: with interest rates low and banks under a lot of pressure to modify loans, it’s often possible to negotiate a deal whereby you get to stay in your house at a reasonable cost. But if your bank won’t be nice to you, then there’s no particular reason that you should be nice to them.

Please let this be the final word on ridiculous Zero Hedge monetization conspiracy theories — Accrued Interest

Iceland welcomed more tourists in the 8 months to August than it has inhabitants — Bloomberg

Periodic Table of Hedge Fund Returns — Lyrishq

Can anybody solve Mark Thoma’s compact parking puzzle? — Thoma

Is Damon Darlin Ben Stein’s replacement as the NYT Everybody’s Business columnist? — NYT

Boston Globe’s fate unclear. Bid deadline was Friday — NYT

Mitra Kalita profiles Karen King, who has debts of $36,000 and a credit score of 576. King wants to get the former down and the latter up, but sometimes those two impulses work against each other:

With the aid of a financial counselor provided by a nonprofit, Ms. King is applying triage to her debts. “First, I want to take care of all the little things,” she says, “and then the student loans.”

When a utility to which she owed $300 offered to settle for less, Ms. King says, she declined, because she was told an overdue bill takes longer to come off a person’s credit report when it is settled for a partial payment.

This is what happens when people obsess about credit score at the expense of their broad financial health: it’s much the same thing that happens when people try to lose weight instead of simply trying to get healthier.

In an ideal world, people would simply find their credit score increasing as their financial well-being improved. But in the real world, there’s a whole cottage industry which has sprung up devoted to trying to maximize credit scores, as well as ancillary industries such as Ben Stein’s evil attempt to trick people into paying $30 a month for a service they neither need nor can afford.

What worries me is that the financial counselor provided by a nonprofit might well have been the person advising Ms King not to pay off her utility bill at a discount. Often these financial counselors are seconded from some arm of the financial-services industry, which has an institutional interest in people paying as much of their debts and penalties as possible. Meanwhile, of course, from an individual perspective, if you can pay off a debt at a discount, most of the time it makes perfect sense to do so.

Annoyingly, Kalita never tells us whether it’s generally true that paying off an overdue bill at a discount is likely to be bad for your credit. If it’s not true, of course, then King was extremely badly advised. But even if it is true, there’s a strong case that she should have taken the offer anyway.

Given that the government (despite my urging) isn’t going to significantly increase its arts funding, creative types are naturally going to look online for alternative sources of funds. And a new model is springing up across the web which I like a lot.

The way it works is that projects get posted on a website, and individual funders can pledge money towards them. Once a certain total amount is pledged, the money is released; often the funders get some kind of material recompense as well, like a print or a CD or even a share of the eventual proceeds.

So far Kickstarter, Funding the Arts, and Trust Art all seem to have adopted more or less this model, although in the case of Trust Art the creatives have to be invited to participate, which makes it less democratic. I’m sure there are others out there too.

The key difference between this model and fundraising 1.0 is that funders pay nothing unless and until a certain total is reached. In that sense, it’s a bit like Lending Club: if someone’s asking to borrow $5,000 and I offer to lend that person $50 of the total, that money won’t be lent out until other people club together to raise the other $4,950.* The result is that the people asking for money have an incentive to keep their asks and their budgets low, and that individuals offering a small amount know that they get to keep that money until the project is genuinely going to get off the ground.

I’m not particularly familiar with any of these websites, but it would make a certain amount of sense for one such site to be the clear leader in the field, with many more fundraisers and funders than the others. Everybody’s better off with one eBay than with a thousand smaller, competing auction sites. But I have no idea how any one of these sites might be able to set itself off from the rest and become the default place to donate and raise money for the arts.

*Update: Turns out this isn’t actually true: if you don’t “raise” the full amount you ask for, you have the option of taking only the amount that you did raise, or alternatively of trying again from scratch a second time. About 85% of qualified Lending Club loans are fully funded, 8-10% are partially funded, and the last 5-10% either don’t take the partial funding or relist.

Ryan Lizza’s New Yorker profile of Larry Summers was very good, but in many ways it’s the accompanying photograph, by Martin Schoeller, which is even more intriguing: it shows the key members of Barack Obama’s economic team striding purposefully away from the White House, with intense lighting from both front and back. There’s a certain Reservoir Dogs feeling to it, with Christy Romer playing the Chris Penn odd-man-out role.

But here’s the thing: what’s up with the men’s ties?

They’re all purple burgundy, and although it’s hard to tell from the lighting, they’re all virtually identical shades of purple burgundy. But each one has a different density of yellow spots, from Peter Orszag, whose tie is positively teeming with the things, through to Tim Geithner, whose tie has none at all. Summers is closer to the Orszag end of the spectrum, while Jared Bernstein is closer to Geithner.

It all reminds me of nothing so much as the semiotics of shirt collars in Martin Scorsese’s Casino, where the more pointed your collar was, the more senior you were within the crime organization. But the meaning of the yellow dots, I have to say, defeats me. Does anybody have the decoder ring?

Another attempt at movie derivatives. Any particular reason to believe this one will succeed where so many have failed? — FT

Why are the ratings agencies like the villainous South African diplomat in Lethal Weapon 2? — FinReg21

Sam Sifton is Reinhold Niebuhr’s grandson?! — TBM

My blog goes multimedia! Or, Reuters points a video camera at me and gets me to talk about Phibro — Reuters

If shares in a pizza rise from $1 to $2, the meal will still be no bigger. Why stocks aren’t wealth — Economist

Mohamed El-Erian and Chase Carey might agree. But I’m dubious about mustachioed men earning more — Reuters

Rovzar on the NYT on Harvard — NYMag

How to boil an egg, scientifically — Serious Eats

The Stocktwits Charity Poker Tournament — Pokerformycharity

TheStreet jumps the shark — Wall St Cheat Sheet

Dynamite the Nobel prize in economics! — Reuters

How did I miss this? High-Frequency Trading Hits The Daily Show –TBI

Good on Audit Integrity for fighting back against the blatant bullying being perpetrated on it by Hertz.

A brief history is in order: on September 16, Audit Integrity released a report, based on new and proprietary analysis, listing 20 large public companies with the highest probability of declaring bankruptcy in the next twelve months. One of those companies was Hertz, which, in its latest 10-K, has a 23 pages of risk factors, including these:

We have substantial debt and may incur substantial additional debt, which could adversely affect our financial condition, our ability to obtain financing in the future and our ability to react to changes in our business…

Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt…

Our reliance on asset-backed financing to purchase cars subjects us to a number of risks, many of which are beyond our control…

We may not be able to generate sufficient cash to service all of our debt or refinance our obligations and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful…

A significant portion of our outstanding indebtedness is secured by substantially all of our consolidated assets. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent to the extent the value of such assets exceeded the amount of our indebtedness and other obligations.

Hertz wasn’t happy with the Audit Integrity report, and sent the company a rather silly letter on September 22, which included lines like this:

Several analysts follow Hertz and its competitors closely, and all of them have significantly increased their estimates of the per-share price of Hertz’s common stock from where their price targets were 6 months ago. In addition, had your staff taken the time to review what the analyst community is saying about the rental car industry in general and Hertz in particular, you would have learned the favorable macro economic factors working in favor of the industry into the foreseeable future.

Heaven forfend that an independent research house should do something other than just “review what the analyst community is saying” and look at “macro economic factors”!

The really nasty bit of the letter, however, was where Hertz’s general counsel not only threatened to sue Audit Integrity over the report, but also copied the general counsels of all the other companies on Audit Integrity’s list, encouraging them to do likewise.

The lawsuit arrived on September 25. It’s pretty weak stuff, but Hertz is clearly hoping that it can embroil Audit Integrity in a large number of annoying and expensive lawsuits, brought not only by itself but by any other company that Audit Integrity singles out as being at risk.

So Audit Integrity’s chairman, James Kaplan, has decided to take this to the SEC:

Hertz is entitled to protest Audit Integrity’s findings. It also has the right – in fact, we believe the obligation — to address the areas of risk which we identified, and take steps to correct them. Such actions would benefit Hertz’s shareholders and would show that fact-based research was being used to improve the transparency and financial health of the company. Instead, the company has chosen to defame our methods – which are published on our website, but which the company’s management apparently has not read – and to invite unrelated companies to file action against us.

Frivolous attempts to crush independent research do not benefit investors. Publicly dismissing our model as “misinformation and untruths” also is a materially misleading statement about Hertz’s current financial condition…

As you have stated that you plan to step up the SEC’s enforcement efforts and better protect investors, it is my hope you will investigate this matter. It is possible Hertz will yet prove to be one of America’s great corporate success stories, but there is a disturbing trend of financially precarious companies aggressively trying to silence or tarnish their critics in the months immediately prior to their demise (Enron, Tyco, and Lehman immediately come to mind). If Hertz is allowed to mask serious financial risk by attempting to discredit quantitative research, Hertz’s shareholders may follow in the footsteps of others who suffered from a lack of warning.

It would be great if the SEC took this letter very seriously. Not all independent research is accurate, but the way for companies to deal with inaccurate research is to engage it on the merits and the substance, rather than to launch bullying lawsuits which have the aim of shutting down the research house in question. I haven’t spent any time looking in detail at the Audit Integrity report, but I do know that Hertz’s response is extremely worrying, and in and of itself raises serious questions about the company’s commitment to transparency and openness.