Felix Salmon

The fight between capital and labor has been a bit lopsided of late, so I’m quite happy to see that the Teamsters seem to have scored a real win from their latest PR campaign against Goldman Sachs.

Goldman Sachs stopped making markets in bonds and credit default swaps (CDSs) on US freight company YRC Trucking for around two weeks from December 16, as part of an effort to stave off a public relations catastrophe. The decision to stop quoting on YRC is understood to have been taken at a very senior level in Goldman, after freight union International Brotherhood of Teamsters (IBT) sent letters to congressmen, senators and state attorneys-general accusing the bank of encouraging investors to torpedo YRC’s restructuring – which would have threatened the jobs of around 30,000 IBT members.

Later on in the article there’s bellyaching from anonymous credit traders that the IBT seems to be using the CDS market as a bugaboo much more successfully than semi-mythical “empty creditors” have ever been able to use it to force bankruptcies. “The episode has sparked concern,” write the authors with a straight face, “that failing companies could use political pressure to strong-arm banks and investors into backing restructurings”.

Doesn’t your heart just bleed.

Personally, I’m far from convinced that empty creditors are a real problem. But if they can be used as a bogeyman to save jobs and prevent unnecessary and costly bankruptcies, then they will have served some good purpose. Well done to the Teamsters for executing this strategy so well, and I look forward to its being used again in future.

It will be the job of the Consumer Financial Protection Agency — assuming it ever comes into existence — to crack down on banks sneaking inadequately-disclosed fees onto their customers. in the mean time, we have to make do with the Fed, and, um, the New York attorney general:

Citigroup Inc. agreed Monday to suspend plans to charge fees on certain kinds of checking accounts as part of a settlement reached with the New York Attorney General’s office.

The fees would have affected more than 1 million customers.

Attorney General Andrew Cuomo said Citigroup failed to provide adequate disclosures about the fees, and also didn’t offer a free checking program long enough before implementing the charges. Cuomo did say the bank had the right to start charging fees, but it needs to respect consumers’ rights and give proper notice.

New York’s banks are, of course, no strangers to the experience of cowering in the face of an onslaught from an attorney general with gubernatorial ambitions. But I do wonder what will happen if and when the CFPA is created, and how many turf wars there might be.

Update: Maybe Cuomo should take a look at Citi’s latest attempt to find a loophole in the new credit-card rules.

It probably comes as no surprise to learn that bankers have discovered a loophole allowing them to turn their restricted stock into cash. The trick is to notice that restricted stock can still be vested stock — which means that although it can’t be sold, it is owned by the employee in question and can therefore be pledged as collateral against some kind of equity derivative.

Liam Vaughan’s article is vague on the specifics, talking only about “strategies such as call options, put options, and collars” which allow bankers to cash out at “a discount of up to 50%”; I’d be interested to know exactly how this works. The obvious thing to do is just sell the stock forward on the date it stops being restricted, but maybe that’s not allowed or there’s a smarter way to do the same thing using options.

Does anybody have any details on what’s going on here, and how widespread this practice is? And does this tactic defeat the purpose of paying bankers in stock, or is the 50% discount punishment enough?

Lucas van Praag is enjoying himself: “It is preposterous that The WSJ would even consider publishing such effluent.” — WSJ

Jürgen Habermas says he’s not on Twitter. Shame — Jonathan Stray

“Propping up house prices is now an explicit goal of the US government” — FT

Real estate bubbles are more dangerous than stock-market bubbles. Thankfully, they’re also easier to spot — Dsquared

Very pretty country-by-country CO2 emissions chart — Junk Charts

Identity cards on the internet? Maybe it’s a better idea than it sounds — Time

Index social security to the number of kids you have — Economist

The Volcker rule is an attempt to ensure that banks which are too big or interconnected to fail — institutions which will certainly get bailed out if they blow up — don’t take inordinate risks on their own account. So this worries me:

Some institutions will be able to avoid facing the Volcker rule by shedding their insured deposits, according to U.S. Deputy Treasury Secretary Neal Wolin on Monday.

Goldman Sachs Group, which funds fewer than 5 percent of its assets with deposits, could easily change its funding profile to get out from under the rule.

Why should an enormous bank like Goldman get out from under the Volcker rule just by dint of not taking deposits? If it’s a leveraged institution with a risk of systemically-damaging failure, then it’s exactly the kind of bank which should be subject to the rule. Or is Treasury, here, trying to weaken Volcker’s intent?

On Friday, Lance Knobel rose to the defense of the World Economic Forum. On Saturday, I was cornered by a particularly aggressive Young Global Leader, who had taken the oath, and whose plans for making the world a better place I developed a severe aversion to quite early, at exactly the time that he used the word “platform” as a verb. On Sunday I talked to another YGL who had also taken the oath and was happy to defend it. And today I stumbled across a piece of Davos PR fluff claiming that “the Forum has reached a worldwide audience of 430 million readers online namely through the use of social networks”.

So I feel like I need to say one last time — and with any luck this’ll be my last Davos post for the year — No. No, your oath is not something which at best is a good thing and which in any case can do no harm. No, it’s not “pretty rare” to find well-intentioned people anywhere in the world. No, you didn’t reach 430 million people. In fact, you didn’t even reach 1 million, your high follower count on Twitter notwithstanding.

All of these things are part of the bigger phenomenon of Davos hubris and exceptionalism — the very thing which I think can be so very dangerous. Hang out at Davos for long enough, and you become convinced that you’re a special person who can make the world a better place and who indeed has a moral obligation to act thusly. If you start believing everything that people in Davos say to you, you can eventually end up with the kind of mindset which leads to a convinction that invading Iraq is a really good idea.

Why do people go to Davos? Because being invited makes you feel like you’re a member of a select club. Because the message makes you feel good about yourself and your ability to change the world. Because people keep on referring to you as a “leader”. Because, for the minority of people at Davos who genuinely are important, it’s a place where you can let your guard down for a bit, and chat to the person sitting on the couch next to you without having to deal with them as a potential starfucker or protestor or whatever.

That’s why it’s really not in the slightest bit impressive that Percy Barnevik was nice to Lance Knobel’s spouse — Davos does the prefiltering for you, and you can relax once you’re there in your bed of vanity. “You wouldn’t be here if you weren’t important,” the YGL told me, with a perfectly straight face, on Saturday night, basking in the reflected glory of being in the same bar as moguls and billionaires singing loudly along with Barry the piano man. Davos is a social occasion, and in many ways it’s closer to being a four-day-long cocktail party than it is to being a place where anything substantive gets done. Besides, interesting people often have interesting spouses, and Lance is no exception in that respect; more generally, just as the most interesting panels are the ones you know nothing about, the most interesting people you meet are likely to be ones you’ve never heard of before.

The problem here is that Davos isn’t content being a place where people make polite conversation and serendipitously end up sitting next to someone fascinating at dinner; it also aspires to changing the world. Lance says that I’m “overrating the Forum’s influence and power” when I say that it was responsible, at least in part, for the economic and financial catastrophe which befell the world in 2008 — but my point isn’t that Davos is influential or powerful in itself, just that it inculcates a mindset in its delegates where they’re convinced that they’re doing good (the oath is a prime example of this), and never stop to modestly wonder whether they’re wrong. And that kind of mindset can be very destructive: if the road to hell is paved with good intentions, then Davos is the road crew keeping it smooth and fast.

What counts as a core Citicorp holding, and what counts as a Citi Holdings asset which should probably be sold? If you think there’s any kind of coherent philosophy determining such decisions, think again:

Citigroup Inc. plans to sell or split off its $10 billion Citi Private Equity unit…

Other money-management units marked for sale or closure include the Citi Property Investors real-estate unit, which oversees $12.5 billion; and the Hedge Fund Management Group, which allocates money to hedge funds on behalf of its own investors, the people said.

Citigroup plans to keep Metalmark Capital LLC, a buyout firm the bank agreed to buy for an undisclosed sum in December 2007…

The bank also is keeping another fund, Citi Venture Capital International, which focuses on China, India, Central and Eastern Europe and Latin America.

Essentially, all this boils down to “if you happen to be in Vikram’s good books this week, he’ll want to keep you, otherwise he’ll decide to sell you”. That’s not a strategy, it’s a monarchy.

Citigroup’s largest shareholder is the US government, which has made it abundantly clear that it wants all banks — not just Citi — to sell off all of their hedge-fund and private-equity operations. Pandit should get out in front of this rule, and put the entire Citi Capital Advisors operation, along with all the rest of his buy-side operations, on the block. It’s not like they ever moved the needle in any case.

It would be overly simplistic, but partially accurate, to ascribe the current crisis at Harper’s to the fact that its website is mostly hidden behind a paywall. I can’t even remember when I let my subscription lapse, but the magazine simply isn’t on my radar screen these days: with the exception of its current highly controversial Guantanamo story (which, notably, Harper’s put outside the paywall), pieces from Harper’s simply don’t get talked about.

A magazine’s website can and should be a force multiplier, extending the reach of the magazine from its historical place in subscribers’ homes. No one has ever subscribed to Harper’s because of something they read on its website, and as public discourse moves increasingly online, any public-interest magazine with a high paywall will be doomed to irrelevance.

What’s clear in the case of Harper’s is that its paywall — just like its editor’s decision to remove himself from the office voicemail directory — is a clear sign of how stodgy and old-fashioned it is. Newspapers flirting with the idea of erecting such a wall should remember that, and realize that it’s a big step backwards. You can coast on an existing store of momentum for a while, but eventually and inevitably that momentum will fizzle out. If you want to build a franchise which can thrive over the long term, you need to pick up new readers to replace those who drop out. And in order to do that, you need an exciting and vibrant website.

David Roodman has an interesting post saying that calls for debt relief in Haiti are misguided. He’s put together this chart:

Roodman’s point here is that we should concentrate political capital where it does the most good — by trying to reduce tariffs to increase Haiti’s exports, and by reducing barriers to immigration from Haiti, to boost remittances. Concentrating on debt relief is a distraction: Haiti had most of its debt wiped out in 2009, and most of the rest is being paid Haiti’s behalf for the US. What remains is mainly debt to Taiwan and Venezuela, the country which sent the first planes of humanitarian aid to arrive in Port-au-Prince, and which is unlikely to push for timely repayment for the foreseeable future.

Or, to put it another way, efforts to enable Haiti to pay its modest foreign debt are sure to be much more effective than efforts to simply eradicate it. The main task facing the developed world right now is to rebuild Haiti and its institutions; if it ever reaches the point where it’s capable of paying its debts, we will have succeeded.

But mightn’t wiping out debts help on other fronts too? Tim Harford wonders whether “one should seize on a simple focal issue and then once you have people’s attention, broaden the scope of political pressure”. My feeling is that in this case, that doesn’t work very well, since Haiti’s creditors are not the same institutions which can help on other fronts.

In general, debt relief is useful only insofar as it’s a solution to a serious problem — and since debt-service costs aren’t a problem at all in Haiti right now, debt relief isn’t much of a solution to anything. And it’s certain that the fiscal cost of wiping out Haiti’s debt — the write-off which Haiti’s creditors would have to incur if they did so — would be much better spent in other forms of aid.

Being debt-free isn’t some halcyon state to which any successful nation aspires: even net creditor countries tend to have significant amounts of debt. Asking for Haiti’s debt to be wiped out has undertones of paternalism and even imperialism, and while I wouldn’t say that it was harmful, I do agree with Roodman that there are much more important things to concentrate on.

Update: Annie Lowrey responds to Roodman.

I’ve landed in London, where I woke up this morning to a classic piece of British journalism, under the headline “Lloyd Blankfein of Goldman Sachs ‘expecting $100 million bonus’“:

Goldman Sachs, the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts.

Bankers in Davos for the World Economic Forum (WEF) told The Times yesterday they understood that Lloyd Blankfein and other top Goldman bankers outside Britain were set to receive some of the bank’s biggest-ever payouts. “This is Lloyd thumbing his nose at Obama,” said a banker at one of Goldman’s rivals.

It goes without saying, of course, that Goldman’s rivals couldn’t possibly know what Blankfein’s bonus is going to be. And given Goldman’s record-low compensation ratio this year, along with the bank’s cap on bonuses in the UK, it frankly boggles the imagination that he’s going to get anywhere near $100 million. Goldman knows that bonuses are a hot-button issue politically, and it’s going to keep them (relatively, by its standards) modest for 2009.

Blankfein — who hardly needs the money — knows full well that he can’t, this of all years, pay himself the largest bonus ever received by a bank CEO in the history of the world. As a result, his bonus is going to be less than the $68 million he made in 2007. It’ll probably be in the eight figures, but it won’t be anywhere near $100 million. No matter what Helen Power heard from gossipy bankers in Davos.

Regulators around the world are trying to both change their regulatory framework in dramatic ways and to bring those new frameworks into line with each other. Given the difficulty in doing either, my feeling is that successfully doing both, while necessary, is also all but impossible.

For an example of just how difficult this kind of thing can be, just take a look at the the latest international incident surrounding Swiss bank accounts. This time, it’s details of 1,500 alleged German tax evaders with accounts at HSBC Switzerland; their information is being shopped to the German authorities for €2.5 million.

Put to one side the ethics of paying for stolen information; assume that former HSBC employe Herve Falciani was willing to give the information to the Germans for free. The point here is that something which is perfectly legal in Switzerland — tax evasion — is illegal right across the border in Germany.

For most of the recent boom in the financial services industry, there has been a deregulatory race to the bottom — the equivalent of all countries feeling forced to adopt a Swiss-style regime where most financial transactions and accounts are essentially sheltered beyond regulatory oversight. Any time that someone started talking about beefing things up a bit, the big banks and their lobbyists would start talking about “the status of [insert city/country here] as a financial center”, and nothing would come of it. All you need is one London or Switzerland where the rules are lax and where money flows freely, and everybody else is essentially rendered powerless to prevent excesses and abuses.

The UK authorities, having suffered an enormous fiscal cost in bailing out banks which took too much risk, are now on board in principle with the need to tighten things up; in terms of private banking, the Swiss aren’t even close yet. But in order to see what regulatory arbitrage looks like in the real world, all you need to do is ask the tax authorities in the US, Germany, and France what they think of the Swiss regime, and what they think of prospects for constructive cooperation going forwards. If it’s not going to happen in the world of private banking, it’s going to be hard to get the same banks regulated consistently when it comes to their commercial and investment banking functions.