Felix Salmon

A wonderful meditation on terroir — Doon

“Young women are the market of the future, although it’s sad if they’re especially attracted to shiny floaty gold flakes” — Wine Economist

Kwak dismantles JP Morgan’s small-biz lending claims — Baseline Scenario

Are your piles of platinum problematic? — Dotgif

Michael Kinsley enters the Magazine Editors’ Hall of Fame next month. And, Michael Lewis dedicates his new book to him! — ASME

Arts on the chopping block again at Brandeis, as school threatens to close theater design department — Daily News Tribune

Psychedelic kitty — YouTube

Lauren Hatch mentions that the Hollywood Stock Exchange, which is to begin real-money trading on April 20, “has been just-for-fun since 1998″. What she doesn’t mention is that the company was sold to Cantor Fitzgerald with the express intention of turning it into a real-money exchange all the way back in 2001; it’s taken nine years to get the requisite permissions.

So while I’m happy to see a real-money prediction market finally get up and running on a fully-legal basis in the United States, it seems the barriers to entry in this business are so enormous that even Cantor Fitzgerald would probably not have bothered had they known what a hassle it would be.

A lot of the details about the new exchange remain unclear, including the degree to which it’s going to be accessible to ordinary punters as opposed to sophisticated investors. Whatever happens, its mechanism for returning money to participants can’t be worse than InTrade’s.

Bloomberg reports:

Ambac, MBIA Inc. and Assured Guaranty, the three largest bond insurers, have set aside 0.04 percent of the total public finance debt they insure, or $520 million, to pay claims on municipal securities, according to regulatory filings by the companies.

No, that’s not a misprint: the claims-paying reserves are 4 basis points of the total quantity of municipal bonds insured. What’s more, the market capitalization of all three monolines combined is less than $5 billion; the amount of municipal bonds insured, by contrast, is well over $1 trillion.

What could possibly go wrong?

Update: MBIA’s Kevin Brown emails to point out that loss reserves are not the same thing as total claims-paying resources, which are $5.5 billion at National Public Finance Guarantee, the muni arm of MBIA. That’s about 1.1% of its insured bonds.

This isn’t the first time that George Soros has wheeled out this particular argument against credit default swaps:

The situation is aggravated by the market in credit default swaps, which is biased in favor of those who speculate on failure. Being long CDS, the risk automatically declines if they are wrong. This is the exact opposite of short-selling in equity markets, where being wrong means that the risk automatically increases.

It’s worth explaining this in a bit more detail. If you short a stock, the amount of money you can lose is theoretically unlimited. It costs you little or nothing up front, but as the losses move against you, not only do you start getting hit by margin calls, but also the realistic total downside is increasing at the same time.

For instance, let’s say you short a stock at $100, and you know that there’s a 20% chance that the stock will rise by 20%, reaching $120 per share. When that happens, you’ve lost $20 — but now there’s a 20% chance that the stock will rise by another 20%, to $144. And if it gets there, there’s a good chance that it will continue to keep on rising. No matter how high the stock goes, your downside — the amount of money you can realistically expect to lose — continues to grow.

On the other hand, let’s say you spend $100 to insure $1,000 of bonds against default — without owning the underlying bonds. And let’s say that the price of the bonds rise, and their yield falls, as worries about their creditworthiness dissipate. Then the CDS you just bought for $100 might now be worth just $80: again, you’ve lost $20. But now your downside is smaller than it used to be: in the absolute worst-case scenario, you can only lose $80, while initially the worst-case scenario was that you could lose $100.

Financial professionals like Soros tend to mark their positions to market daily — if the market moves against them, then they consider themselves to have lost money, even if they don’t exit the position. And Soros is quite right that when they do decide to hold on to their position, a short stock position which has moved against you looks riskier than a long-protection CDS position which has moved against you.

But buying CDS protection is not really equivalent to shorting a stock — it’s much closer to buying a put option on a stock. And if you do that, your risk diminishes as the market moves against you, just like it does with CDS: you can never lose more money than you initially spent on entering the position. But it’s entirely commonplace for investors to short stocks by buying puts rather than by borrowing and selling securities. Similarly, there is a developed repo market in bonds, so anybody who wants to short a bond the old-fashioned way, by borrowing it and selling it, is welcome to do so. In that case, the risk profile falls somewhere in the middle: there is a limit to how much a bond can rise in price, since the yield will never fall much below zero, and the price is very unlikely to exceed the total value of all principal and coupon payments.

Ultimately, Soros’s argument here is pretty weak. Every CDS contract has a buyer and a seller, and in general it’s the seller of protection who ends up making money: the buyer of protection is often just hedging an existing position, and not looking to profit on the short leg of the trade. Buying credit default swaps is quite an expensive thing to do, and it’s hard to make money at it except for in times of chaos or crisis. If the market in CDS was really biased in favor of those who buy protection, then credit default swaps would be an asset class in their own right, and people would buy bundles of them in the hope of making money. But that doesn’t happen — and Greece, for one, has many bigger problems on its hands to worry about what might be going on in the market for Greek CDS.

The UK government has finally published — in the waning days of the Brown government — its take on vulture funds, and whether there should be legislation trying to ban their activities. It’s not clear whether the report has the backing of the Conservatives, but it is clear that a lot of good-faith hard work has gone into it, and that it’s not in any way a knee-jerk piece of populist financier-bashing, a la Maxine Waters.

The conclusion of the UK government, after considering submissions which were roughly equally weighted on both sides of the issue, is that legislation is justified, if it’s tightly constrained to include only a very narrowly-defined set of existing loans to a small group of highly-indebted poor countries. In that case, goes the argument, there’s little risk that the legislation will later be expanded to include a wider set of debts. What’s more, the report explicitly states that “it remains the Government’s view that it would be detrimental to both international development and financial markets to attempt to extend this legislation to countries that are not part of the HIPC Initiative”.

The obvious question, of course, is then why it’s not detrimental to international development and financial markets to implement this kind of legislation at all. Already it’s been stripped of any narrow applicability to vulture funds: it now applies to all creditors of HIPC countries, even commercial creditors who extended trade credit. Under the proposed law, all of them would effectively be bailed in to any debt-relief scheme that the Paris Club and other rich nations agreed upon.

The report calculates the benefit of the legislation at just £145 million, down from an initial estimate of £254 million. For that relatively modest benefit, the UK government seems willing to fundamentally undermine a large number of contractual and property rights, by unilaterally rewriting the law under which loans were agreed. I can’t help but wonder whether it might not be cheaper and easier for all concerned if the UK simply put £145 million into a kitty and made it available to any HIPC countries which ended up having to pay out large sums of money to litigious creditors in UK courts.

One of the worrying aspects of the report is that it seems designed to please no one: the two camps are far apart, and either want no legislation at all or want legislation covering not only a few past HIPC debts but also a large number of other developing-country debts, both sovereign and corporate, and both present and future. As a result, those voting in favor of such a bill are likely to be equally keen to support a much more far-reaching bill, and if this bill passes then that would make the passage of a stronger bill in future that much more likely.

The UK government doesn’t see it that way:

The Government, however, recognises that there will always remain at least a theoretical possibility of such legislation being introduced with respect to future debts by a future government. The perception of such a risk could arise irrespective of this proposed legislation. The Government remains of the view that it is unlikely that lenders will assess the increase in that risk resulting from the legislation proposed to be significant enough to affect the availability or terms of lending to low income countries.

This I think is clearly false. Up until now, the status of UK law as the governing law for many global financial contracts has meant that no government has wanted to interfere with those well-understood mechanisms in such a fundamental manner as this. If such interference ever happens once, the likelihood of it happening again surely rises substantially. At the very least, there would be a move in new lending from London-law contracts to New York-law contracts, which certainly counts as a change in the terms of lending to low-income countries.

So while this report is undoubtedly sensible and sober by the standards of most vulture-bashing, I still think that the possible benefits of its recommendations are tiny compared to its possible costs. And I take some solace in the fact that a new government is likely to come in to power in the UK, which probably won’t make this kind of legislation a priority in the foreseeable future.

Tyler Cowen has a copy of Gary Gorton’s new paper, and likes it. The excerpt he gives us raises a serious point about fragilities in the banking system: banks fund themselves in the repo market so much that they need about $12 trillion of collateral just to keep ticking over. So if you implement a 20% haircut on repos, banks would need to raise $2 trillion, which is impossible.

The first thing to note here is that no one is proposing a 20% haircut on repos. There’s a school of thought which says that the Miller-Moore amendment does that, but it doesn’t. And in any case, the Miller-Moore amendment only comes into effect after a bank has failed — it’s entirely a question of who takes the associated losses, and has nothing to do with the amount of capital that banks need to hold against their repo-funding operations.

More generally, Gorton suggests that banks’ reliance on the repo market constitutes a systemic fragility which renders the entire banking system prone to runs: “Gorton predicts the crisis was not a one-off event and it could happen again”, writes Cowen. I suspect this is true, but I also hope that Gorton doesn’t go on to advocate some kind of government backstop of the repo market. He wanted the government to start insuring securitizations in an earlier paper, and that was a very bad idea; regulating and insuring the repo market would be equally misguided.

The real underlying problem here is the treacherous state of denial in which the bond market generally finds itself 99% of the time. Participants in the repo markets know that there are risks there, but they ignore them, because ignoring the risks creates a smooth funding mechanism and allows credit to flow much more easily. Then, when there’s a credit panic and everybody becomes alive to the risks, everything grinds to a chaotic halt.

When the government started insuring deposits, it did so to protect both to protect depositors and to protect banks from runs: if depositors are insured, they don’t engage in runs on banks. Nowadays, as banks have moved away from deposits and towards repos as a funding source, deposit insurance still protects depositors; it just doesn’t prevent bank runs as well as it used to. And yes, that’s a systemic risk, which any systemic-risk regulator needs to be alive to. Whether anything can be done about it, on the other hand, is another question entirely.

Update: Gorton’s paper can be found here.

On Warren Buffett’s Olympic-grade ex post rationalizations — Jeff Matthews

Porchetta wins today — Grub St

A basic rule of thumb: never invest with a hedge-fund manager based in Florida — Jalopnik (although actually he was based in Atlanta)

Michael Hanley, A GM Autoworker, Commutes 1,000 Miles To Keep Job — HuffPo

Lehman bankruptcy fees: $642 million — 24/7

Maxwell Kennerly weighs in on Cablevision vs JP Morgan — Litigation & Trial

Cutest ever 3rd-grader hatemail — PBS

Cub reporters in Korea drink a lot, “on the theory that plying sources with drinks will be part of their routine” — LAT

Memo to Lucas van Praag and the rest of the Goldman Sachs communications machine: you are broadly considered to be out of touch, living large on Planet Billions while the rest of us struggle in one of the harshest economic environments of the post-war era. You might want do something about that. Characterizing €2.367 billion as being “a rather small” amount of money is not going to help.

The fact is that €2.367 billion is a rather large amount of money — both in absolute terms and in terms of a percentage of GDP. Your adjectives just make you look out-of-touch, both in your official press release, where you describe the sum as “just 1.6%” of Greece’s GDP, and in your statement to the UK parliament that it was “a rather small but nevertheless not insignificant reduction” in official debt figures.

Translating into American, remember, 1.6% of GDP is about $227 billion — more than the cost of bailing out AIG, Bear Stearns, GM, and Chrysler combined. And depending on how you account for them, you might even be able to throw Fannie and Freddie in there as well. There’s no such thing as “just” 1.6% of GDP — especially when you’re magically making those billions disappear through clever manipulation of currency swaps.

Speaking as someone who came to your defense in this case, today’s statements make me feel much less inclined to push that case any further: they look as though you’re trying, unsubtly, to downplay the severity of what Greece did here. That’s not a good idea, not in an era when full transparency is the greatest possible good. If this is how you’re attempting to “re-burnish the image of Goldman“, you might want to start questioning the advice you’re getting.

Are you still working your way through that 10,600-word Paul Krugman profile in the New Yorker? If you haven’t finished it yet, I strongly suggest you give up — you’re not going to learn much, beyond the names of his cats — and go read Jed Rakoff’s ruling in SEC vs Bank of America instead. It’s much more trenchant, much better written, and much more interesting.

Jonathan Stempel has a few of the Rakoff zingers, including the bit where he calls his acceptance of the SEC deal “half-baked justice at best”, but there’s much more where that came from: I’m particularly fond of the bit where he says that “the relevant decision-makers… appear never to have considered at all the impact that the accelerated payment of over $3.6 billion in bonuses might have on a company that was verging on financial ruin”. And the very end, where “this court, while shaking its head, grants the SEC’s motion”.

But it really is worth reading the whole thing, especially in the light of Rakoff’s ruling against JP Morgan in the Cablevision case, and the fact that Rakoff seems ill-disposed towards the SEC in the Galleon case as well. This crisis has thrown up very few heroes; Rakoff is one of them. Long may he continue to assail both America’s largest banks and the regulators who are captured by them.

The outcome of this suit — if it’s ever made public — is going to be very interesting. JP Morgan advised Consolidated Minerals when it received a series of takeover offers: as the adviser to the target company, it was pretty much guaranteed a fee, no matter who ended up buying the company. The question is just how much of a fee it was going to get.

ConsMin reckons that it agreed to a cap of A$7 million on JP Morgan’s fees in a 2006 telephone call; JP Morgan, meanwhile, submitted an invoice for A$50.8 million, and claims that in fact it’s due as much as A$86.9 million for its 14 months’ work on the deal, thanks in part to racking up new fees every time a new bid appeared. I’m sure it’s happy it doesn’t have Jed Rakoff trying the case.

(Via McKibben)

Barbara Kiviat asks whether credit card companies “might be getting their groove back”, and cites this chart:

But, as Eric Dash reports, it turns out that there’s an interesting change of composition hidden in that final uptick:

While most major card lenders sharply cut back on direct mail last year, almost nine out of 10 new card offers were attached to a rewards program that appeals to big spenders, according to Synovate, a global marketing research firm. Only six in 10 applications were for a rewards card program in 2007, before the financial crisis struck.

Now that the CARD Act has come into force, the amount of money that credit-card companies can extract from the sweat box of delinquency has dropped sharply, and they’re looking for more revenue sources. Cards carrying a high annual fee are one such source, since, well, they carry a high annual fee. But they also come with another, more hidden, income stream:

Retailers pay about 2.1 percent of the transaction value on a purchase made by a high-end rewards cardholder, compared to around 1.47 percent for an ordinary customer, according to Visa data.

I’ve never quite understood why and how interchange fees can be so much larger on rewards cards and business cards than on any other credit card. But the card companies are clearly drawing a bad on the fact that they are higher, and doing everything in their power to push rewards cards, even as they weaken the rewards which come with them:

Chase, for example, has overhauled its once generous Freedom rewards card no fewer than three times in the last three years.

In 2006, cardholders were offered a 1 percent rebate in cash or points on all purchases, and 3 percent on items bought at grocery stores, gas stations and fast-food restaurants. By last year, Chase’s Freedom program was far more restrictive. Cardholders had to register online to be eligible to receive the 3 percent rebates — and they were available only in three categories that rotated each quarter.

In other words, the CARD Act might have passed, but the terrain here is still treacherous for both consumers and retailers. Maybe, eventually, we can have a Consumer Financial Protection Agency which helps to rein in some of the excesses. For the time being, though, the banks will chase every loophole they can find.

Wajahat Ali vs Wells Fargo: An astonishing loan-mod tale — McSweeney’s

Marion Maneker raises questions about the legality of breaking up & selling the Polaroid photo collection — Art Market Monitor

Jay McInerney to replace Becher & Gaiter as WSJ wine columnist. Expect lots of rich-people wines — Dr Vino

Asked if the president can “order a village” to be exterminated, Yoo answers, “Sure.” pg. 70, PDF — NYT

The Best Way to Enjoy Wine: Try Overpaying — Smart Money

Zero tolerance vs common sense — William Polley

Paulson sorry he blamed UK for Lehman failure — Times

“It is a little hard to find a place for Mr. Greenspan in my homes. He is still there, but in a closet” — WSJ

Citi Warns of Withdrawal Gate — Future of Capitalism

A Charlie Munger parable — Slate

Is this the beginning of the end of ETFs as an asset class? Ian Salisbury has an important story this weekend, saying that the average ETF underperformed its benchmark by 125bp in 2009, and even the monster SPY underperformed by 19bp. That’s more than twice its total expense ratio.

The problem is that when ETFs become very big, they become lumbering and predictable, and nimble hedgies know exactly what they’re going to do and when they’re going to do it. As a result, the smart money front-runs the dumb ETFs, which end up underperforming, sometimes by a very large margin: the $40 billion iShares MSCI Emerging Markets Index ETF (EEM) lagged its benchmark by a whopping 6.7 percentage points in 2009. That’s over nine times its total expense ratio.

So while it’s a good idea to avoid small ETFs, and to avoid commodity-based ETFs as well, even the biggest, safest ETFs are beginning to look as though they might have reached a level of size and popularity that makes them suboptimal investments. That’s sad, if true, because they were great while they lasted, and because there’s no real alternative out there.

But the fact is that there’s no rule of investing saying that there is always an easy and obvious investment strategy for people of relatively modest wealth. Investing involves taking a large number of risks, some obvious, some less so. And if ETFs continue to underperform in 2010 to the same degree that they underperformed in 2009, their repo income notwithstanding, then ETFs — which looked for a while there as though they really might be that rarest of animals, a positive financial innovation — might well turn out to be a grave disappointment for millions of investors who thought they could make a handful of asset-allocation decisions and then sit back doing little if any more work from then on.

We’re not quite there yet: as Salisbury points out, EEM is still outperforming its benchmark since inception, and it ouperformed in 2008. And for long-term investors, a single year’s underperformance shouldn’t matter a great deal. But if this turns out to be something newly endemic to the asset class, there might well be no cure for the problem — and that’s worrying, given how popular ETFs have become.

Update: On the other hand, if EEM is good enough for the Harvard endowment to have $388 million in it…

The FICO people invited me to a press dinner on Thursday evening, where I learned quite a bit about their credit-scoring system — including the fact that the “free” credit score being sleazily shilled by Ben Stein is not actually a FICO score at all, and therefore even more useless than I’d thought. I also learned about their new Credit Capacity Index — a pretty useful tool, I think, which tells banks not how likely someone is to default on their present debt load, but rather how likely they are to default if you extend even more credit to them.

The bulk of my conversation with CEO Mark Greene, however, was about the way in which FICO scores are being made available to individuals. If you go to FICO’s consumer site, myFICO, you’ll be bombarded with offers for products like ScoreWatch ($100/year), Quarterly Monitoring ($50/year), and even Suze Orman’s FICO Kit Platinum (a one-off $50; there doesn’t seem to be a cheaper Gold or Silver version).

If you hunt hard enough on the website, you can find some useful free information on what goes into your FICO score, what doesn’t go into your FICO score, and how to improve your score. Here’s how that last page kicks off:

It’s important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time.

That’s kinda funny, because the losing-weight analogy is exactly the one I used when talking to Greene. If somebody is unhealthily overweight, then yes they do need to lose weight — primarily as a means to the end of becoming healthier. But it’s not a good idea to weigh yourself too frequently, especially if you end up doing unhealthy things in an attempt to lose as much weight as possible as quickly as possible.

Credit scores are similar, in my view: if you increase your overall financial health, by doing things like spending less than you earn and paying down your debt, your credit score will naturally rise. And it’s certainly a good idea to look at your credit report once a year, by visiting annualcreditreport.com and getting it for free, to make sure that there’s nothing factually untrue on it. For the overwhelming majority of consumers, that annual free credit-report download is all they should ever need or want when it comes to these matters.

But myFICO doesn’t seem to think that way:

You can get 1 credit report from each of the three major credit bureaus (TransUnion, Equifax, and Experian) once every 12 months from annualcreditreport.com. However, this site doesn’t provide credit scores, or more specifically FICO® scores.

What FICO’s saying here is true, as far as it goes: your annual free credit report does not include your FICO score. But the point worth bearing in mind here is that there’s really nothing that you can do with your FICO score once you’ve got it. If there’s a factual issue with your credit report, you can begin the long and arduous process of appealing it. But if the facts on your credit report are right, the FICO score is just something which drops out once you run those facts through the FICO computer algorithm.

Essentially, it’s very hard indeed to imagine a consumer who would get so much value out of knowing their FICO score — over and above the value they get from their free annual credit report — that they would be well advised to pay upwards of $15.95 to get it. All those consumer-facing FICO products might do wonders for FICO’s revenues (or they might not, I didn’t ask Green about that), but I don’t think they’re good for consumers at all.

So I’m glad that FICO is looking at another way of getting credit scores to consumers: a plugin for online banking sites. This is already being trialled by a handful of institutions: when you log in to your online bank account, a little box in the corner of the screen shows you what your FICO score is. Click on the box, and you’ll get useful and customized free information about how you might be able to improve that score; your bank will also probably try to upsell you some service or other. But for most users, this feature will simply be a useful and valuable aspect of their overall online-banking experience, which might even make them feel more well-disposed towards their bank.

There’s another thing that Greene said that FICO was working on, too: responsibility metrics. FICO officially frowns on the fact that employers, landlords, and the like obtain access to individuals’ credit scores and use those scores as a proxy for that person’s general moral upstandingness. After all, that’s not what FICO scores are designed to do. But at the same time, there is a correlation there: those landlords and employers might be acting in a sleazy manner, but they’re also acting rationally.

I’m a little worried about FICO getting into the business of trying to quantify moral probity: it seems to be a business rife with massive potential pitfalls. But then again, I suppose that FICO doesn’t need to worry about its own Rectitude Rating. It’s a public company, its only obligation is to try to make money for shareholders, right?

Still, if FICO wants to create a new product, I’ve got a great idea for them. It turns out that your FICO score is only an indicator of the probability that you’re going to default: it says nothing at all about the amount of money that banks are likely to be able to recover from you in the event that you do default. If FICO started selling a recovery-given-default rating alongside its main FICO rating, that would surely be even more valuable to banks than the credit capacity rating. After all, if a bank lends money only to people who were ultimately likely to repay their debt in full after going into default, it will end up making much more money than a bank which lends to people with the same probability of default but who are much more prone, in such a situation, to just walk away from their debts and never repay them.

It seems to me that a recovery rating would be a much more obvious and profitable business for FICO than either morality ratings or the consumer products that they’re pushing on their myFICO website. And would make the company much less disliked among consumer advocates, too. But maybe they don’t have the data necessary to put a recovery rating together.

Arthur Sulzberger, Janet Robinson, and Martin Nisenholtz of the NYT all took the opportunity of hosting today’s PaidContent conference to talk at length about their paywall plans. Which makes it all the more surprising that their message was so garbled: when they weren’t simply refusing to say anything at all, they were giving three conflicting answers to the same question.

Nisenholtz did say quite clearly that he expected ad revenue to go up rather than down, which implied to me that that paywall was going to be pretty porous. And Sulzberger said that “we are not trying to eliminate ourselves from the digital ecosystem”. But when I asked about specifics, it all got rather messy. It started when I asked whether the NYT’s own blogs would be counted towards the quota, and Nisenholtz replied that “our intention is to keep blogs behind the wall”.

That shocked me: blogs rely on loyal readers who come back to read them often. But few blog readers are loyal enough to pay for the privilege of reading that blog. And if you’re someone who participates regularly in the Freakonomics comments section, for instance, you’re going to be very annoyed if you’re forced to buy a subscription to the entire nytimes.com site in order to do so.

My guess is that if Nisenholtz does this, a lot of the branded blogs on nytimes.com, including both Freakonomics and Paul Krugman, will simply leave and set (back) up on their own. It’s possible that the NYT digital team could quietly exempt those blogs from the meter, but it’s important with any system like this to be transparent about which pages count and which don’t, and carving out exceptions could quickly make things far too complicated to be easily comprehensible.

The moderator, Staci Kramer, then asked Nisenholtz whether that meant there wasn’t something very weird going on as a result: that if you follow a link to a NYT story from a NYT blog, then that counts towards your quota, while if you follow a link to a NYT story from any other blog, then it doesn’t. After all, Nisenholtz is on the record as saying that “if you are coming to NYTimes.com from another Web site and it brings you to our site to view an article, you will have access to that article and it will not count toward your allotment of free ones”.

And that’s where things started getting messy: Nisenholtz started talking about Google’s offer to cap the number of first-link-free stories that people can read, and seemed to say that links to NYT content from external blogs would not be free after all. (According to my notes, he said “if you link to us, then it’s counted” — but he might have misspoke, or I might have missheard.) He did seem to change his mind later and revert to the position that incoming links would be free — but at the same time, Sulzberger said that “we can’t construct a system that just tries to please the 5-7% of the audience” who come through the side door. That was a clear message to people like me that the traffic we drive doesn’t matter and that he’s not going to pay us much attention.

The facts, here, seem to be that a good 60% of the NYT’s most loyal users come through the home page, and that an enormous proportion of the rest come through Google. Facebook, Nisenholtz told me, accounts for much less traffic than Google does, the latest research from Compete notwithstanding.

All the while, I was sitting next to a couple of NYT staffers on the paywall project, who were at great pains to tell me absolutely nothing whatsoever, while also making it clear that they’re reading what I’m writing, that they’re listening to bloggers’ concerns, and that as they build the paywall from the bottom up, they’re going to try to avoid the obvious pitfalls.

What I conclude from all this is that the top brass — the people speaking at the lunch — see the big picture, where the overwhelming majority of content consumed is old-fashioned self-contained articles, and where most traffic comes through the home page, and where the broad outlines of how they want to structure a paywall are pretty clear. And I’m going to hold out hope that Sulzberger and Nisenholtz will give their underlings a stylized description of what they want to achieve, and that the underlings will try in good faith to deal with tough cases as sensibly as possible, instead of simply applying rigorous rules.

But if I were the Freakonomics guys, I’d still be asking for a meeting with Nisenholtz to get some reassurance that their blog won’t disappear behind a paywall.

Update: A NYT spokeswoman confirms to the WSJ that NYT blogs will be behind the meter. And adds this:

On so-called side-door enterants, she added that those people will have free access to that article even if they have exhausted their allotment of free ones. However, the Times might consider adopting a service from Google that would let the Times set a cap on Times articles arrived at from third parties.

Update 2: Video of the session is here; Nisenholtz says that “our intention is to keep blogs behind the wall” at about 20:50. The odd bit comes immediately afterwards, around 21:30, when he says that if an external blogger links to a NYT blog, “it’s not open, it’s counted”. But he seems to backtrack on that later.