Felix Salmon

Mortgage modification datapoint of the day, Ocwen edition

Felix Salmon
Oct 13, 2009 19:15 UTC

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.



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Vehicle emissions datapoint of the day

Felix Salmon
Oct 13, 2009 15:45 UTC

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.


Changing the mentality of car loving americans would take more work than this. Besides advicing people against buying their own cars, improvements to road infrastructure and remapping of routes so that the most efficient route is taken by motorists can be helpful to the environment as well. But I support your point of wanting us to cut down on our own car addiction too.

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Hobbling Goldman

Felix Salmon
Oct 13, 2009 13:37 UTC

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.


How is it possible for Goldman Sachs to make so much money when the economy is doing so poorly and there is so little private investment? Does anyone else find this extremely suspect?

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Felix Salmon
Oct 12, 2009 22:39 UTC

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


Ja, but in a Chauncey Gardiner sort of way ;)

Chart of the day, underemployment edition

Felix Salmon
Oct 12, 2009 20:43 UTC

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)


how about too much in the way of average marginal tax rates, unemployment benefits and/or safety nets? i mean, there’s never been less incentive to work.

Murdoch defeats self, again

Felix Salmon
Oct 12, 2009 19:43 UTC

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.


WSJ is very easy to get in ways besides the RSS. Install Greasemonkey and then look on userscripts.org. Easy as pie.

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The non-ironic Nobel

Felix Salmon
Oct 12, 2009 18:13 UTC

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.


Am I correct in saying that this year the Prize was for Economic Governance and not Applied Maths ? Now that is ironic.

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How the Sidekick fiasco is Microsoft’s fault

Felix Salmon
Oct 12, 2009 15:13 UTC

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?


For a multi-billion dollar company like Microsoft not to have a redundant backup is simply unforgivable and inexcusable! Whether Danger failed to make a backup before its upgrade or Microsoft’s oversight http://www.microsoft.com/en-us/office365  /, this incident is a total disaster especially for its customers.

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Jingle-mail datapoint of the day

Felix Salmon
Oct 12, 2009 13:49 UTC

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.


Why not go the Australian way and make all mortgages full recourse?

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