Felix Salmon

At this point, even I’m bored of the Salmon vs Blodget wars. But Henry has decided to grossly misrepresent my views, so it’s worth explaining in a bit more detail what I actually think about blog content and how it can and should be turned into money.

One of the first rules of blogging is to link a lot, especially if you’re writing about someone who has made their views freely available on the internet. For instance, my post on Wednesday about Blodget firing John Carney has seven external links, three of which are to Business Insider; my post on Friday about Business Insider’s economics had eight external links and one internal link, with six of the external links going either to Blodget’s site or his Twitter feed.

If you look at Henry’s post about me, however, it includes the word “Felix” five times, but he doesn’t link to me — or to anybody else — at all. Instead, he larded his post up with lots and lots of internal links. It’s easy to get from Henry’s post to somewhere else on his site; it’s impossible to get from his post to anywhere else on the internet, unless it’s someone who’s paying him for the privilege of advertising on TBI.

This is important, because Henry talks about how I “seem to feel” and about how “Felix’s criticism of our content is grossly unfair”. It’s simply wrong to blog such things without linking to the criticism in question and allowing your readers to make their own minds up about whether you’re characterizing it accurately — especially when Henry doesn’t even bother to quote me directly in his piece.

Now because Henry doesn’t quote me or link to me directly, it’s not clear exactly what he’s talking about. But the one thing that’s pretty clear is that he thinks that I think that TBI is failing to produce “long, text-heavy analysis, original reporting, and commentary”. Well, for the record, I don’t think that. But his tweetifesto does make it pretty clear that he judges such content in exactly the same way as he judges a dashed-off blog entry illustrated with a picture of two hot babes kissing: by how many pageviews it generates.

If you’re going to judge all stories using that particular yardstick, then it’s pretty obvious that you’re going to end up with lots of cheap posts with provocative headlines and/or photographs, and lots of slideshows which can generate dozens of pageviews per reader per post. And you’re going to end up firing people who are better at more thoughtful, longer-form content.

TBI’s lead developer, Ian White, left a comment on Henry’s post saying that TBI has published 2,547 stories in March to date — all with an editorial staff of 15, plus three interns. Ignoring weekends for the sake of simplicity, that works out at 8.5 posts per person per day. It’s the more-is-more sweatshop model: never mind the quality, feel the quantity. If you throw enough stuff up there, something’s bound to be a hit. And if you spend too much time and effort on any one post, the opportunity cost of doing so is large: you could be generating more pageviews by writing more, shorter pieces, or — better — putting together a slideshow instead.

This is a model which works until it doesn’t. It’s undoubtedly true that the more posts you put up, the more pageviews you get, and when you’re selling ads on a CPM basis, every extra pageview means extra revenue. It’s also true that if an airline charges a passenger $25 for checking a bag, that’s $25 of revenue it wouldn’t have had otherwise. But charging money for checking bags can result in lower revenues overall, and chasing pageviews can do likewise.

The fact is that while chasing pageviews like this worked well in the early days of the blogosphere, when Nick Denton asked his editors for at least 12 posts per day, it’s much less sustainable today — and the Gawker post quotient has been reduced to 6 abolished*, with layers of editors on top of the writers who bring the average number of posts per editorial employee per day lower still. Today, if you want to compete on who can produce the most SEO-honed content per day, you’re going to lose, and people like Demand Media are going to win.

Henry is proud of the fact that his RPMs (revenues per thousand pageviews) are much higher than RPMs at more generalist sites. But in an era of essentially unlimited inventory, creating vast amounts of new inventory in order to increase CPM-based revenues is not an obvious road to riches — I’ve called it “a junk-mail paradigm which benefits no one”, and no, that’s not just the view of a naive editorial-side person without business-side experience: it’s also the view of Jim Spanfeller. If your pageviews become less valuable, falling RPMs can mean lower revenues even on higher traffic.

Blodget should remind himself on a daily basis that publishers make money by selling readers, not adspace, and that if he’s going to make money, he’s going to have to do so by getting high-value readers that companies want to reach. At the moment, both Blodget and his advertisers are stuck in an increasingly out-of-date paradigm wherein pageviews serve as a proxy for readers, but today, unless you’re Demand Media or the like, that paradigm is doomed.

The job of the editorial side at TBI, then, should not be to maximize pageviews. Instead, it should be to create the best-quality content for the readers that Blodget wants: to build a large and loyal readership base which feels that it has a strong relationship with the site. Once the editorial side has built that readership, then it’s the job of the business side to monetize it. Yes, banner ads are one way of doing that — but they’re only one way of doing that, and they shouldn’t be allowed to determine the editorial mix to the detriment of editorial quality more generally.

How else can an online business monetize its readership? AllThingsD makes lots of money from its conferences. And conferences don’t need to be huge events sold months in advance, either: smaller salons can also be very profitable, especially if they come pre-seeded with name-brand TBI talent like Carney and Blodget. The Daily Telegraph, in the UK, is a large retailer in its own right. As real-money prediction markets become legal in the US, there’s surely going to be a lot of money in writing about them and driving rich readers to them. If you have content which is so great that other people want to run it, you can make money syndicating it, or give them the option to embed it on their own site in a way that benefits you both. You can copy Wall Street research shops, which while nominally selling research reports are really selling access to the people writing them. That kind of business model benefits everybody: the kind of person willing to spend money to have phone access to a TBI reporter is probably exactly the kind of person that the TBI reporter wants to talk to in any case. And if you get a good amount of penetration within a certain financial community, there are some pretty interesting ways to make money by putting your readers in touch with each other. Finally, it’s almost impossible to underestimate the value and profits that can be found in a good email product, in a world where financial executives spend much more time on their BlackBerries than they do surfing the web.

If I was a venture capitalist backing TBI, I wouldn’t be asking Blodget for his pageview numbers: instead, I’d care much more about other metrics of reader quality, reader engagement, and reader loyalty. That’s where the big long-term money lies, since high-value readers are hard to find, and will always be worth a lot. If TBI puts too much effort into chasing CPM revenues, it’s likely to find itself firing exactly the employees who were doing the best job at building the reader relationships it most needs.

Now TBI is not, actually, bad at serving readers and building up a high-quality audience. I liked their experiment with embeddable content, I like their full RSS feeds, I especially like the way that they’re now including the full content of slideshows in their RSS feeds, and I think they do a very good job on the aggregation/curation front, finding and linking to the best financial news and commentary from around the web. They also know that they need high-quality original content of their own, and they have historically been good at supplying that, too. If their aim is to pick a set of readers and then give those readers everything they could want or need in terms of original content and external links, then up until now they’ve been doing a pretty good job — although, as I say, Blodget has always been a bit parsimonious on the external-link front when he’s writing his own blog entries.

But some things work against readers: reading a blog entry in a web browser shouldn’t turn into a game of Frogger where you have to make sure not to mouse over any word which has been underlined twice, for fear that it will open up an intrusive pop-up video ad. And when you’re lucky enough to have hired a name-brand journalist who is admired by your readership, who understands the medium, and who gives you desperately-needed credibility, don’t fire that journalist just because his paycheck is more than one-third of the direct CPM revenue he brings in. It’s absurd to assume that your own overhead should be somehow apportioned between journalists on the basis of how much they’re earning, and in fact it’s even more absurd to think of journalists as profit centers in the first place. Journalists are cost centers: you spend money on them in order to attract a high-quality readership. If a journalist does that but you’re having difficulty monetizing that readership, then don’t blame the journalist, and don’t try to get him to chase pageviews instead.

Traffic can be bought. Loyal reader relationships need to be earned, and that’s where stars like Carney are invaluable.

*Update: Nick Denton emails to say that Gawker now has no post quotient at all, and that his writers are now judged only by the new visitors that their pieces bring in, rather than the number of pageviews they generate. And Blodget responds — on the version of this post he excerpted on TBI, natch. In what I’m pretty sure is his first comment about Carney since he fired him, Henry says “he’s a good writer and a great guy, and we’ll miss him“.

In the wake of the debate we had earlier today, Henry Blodget took to Twitter to explain the numbers behind ad-supported blogs. The most interesting tweets, to me, were these:

Ad revenue for a general news site tend to range from $3-$6 per thousand pages. Ad revs for a business or premium site can run $10-$20… [does a bunch of math] And that’s at $10 per 1000 pages, which is actually a good monetization rate (business sites are higher, thankfully). If you work for a gossip or general news site, the revenue per thousand pages can be far lower, requiring vastly more pages per journo.

If $10 is “a good monetization rate”, then let’s be generous and say that Blodget is making $15 at TBI. And then let’s look at a typical TBI page — say, this one. You’ll probably see different ads than I do, but I see a MetLife banner across the top, a FedEx box in the right-hand column, a big Amex/OPEN ad underneath the post, and a Monster.com text ad just before the comments start.

Now check out TBI’s rack rates. The MetLife banner is $20, the FedEx box is $25, the Amex/OPEN ad is $30, and the text ad is $3. Or something like that, anyway. Add them all up and it comes to $78, but let’s call it $60.

If Blodget is running $60 worth of ads but getting only $15 of revenue, then either he’s discounting massively, or he’s not even coming close to selling out his inventory, or some combination of both. And the same is true even if he’s making $20 or even $25 per thousand pageviews.

But here’s the problem: when Henry starts talking about the number of pageviews that a journalist needs to generate in order for the site to make money, he’s working on the assumption that every marginal 1,000 pageviews produces $10 (or whatever) in marginal extra revenue. Whereas in reality what tends to happen is that the ad sales team either fails to sell out the site’s inventory, or only does so by discounting so deeply that it’s really only their own fault that the revenues are so low.

This is one area where I think that Henry could take a leaf out of Nick Denton’s book, and refuse to run deeply-discounted ads. Doing that helps to improve the value of the brand among advertisers, and it also creates interesting opportunities for rewarding staff. At such a website, there will always be unsold inventory; at Gawker Media, that inventory is given over to the Gawker Artists program. At TBI, the inventory could be given over to staff journalists, in proportion to their pageviews the previous month, to donate to whichever organization they think could make best use of some free advertising on the site.

But for the time being I think it’s actually quite hard to say that a journalist with underperforming pageview numbers is being uneconomical for the site, especially when the ads you’re running on his pages are nominally worth four times what you’re being paid for them. That looks much more like a problem with the ad-sales team to me. The editorial team, after all, is clearly already producing way more content than the ad-sales team can manage to sell at decent rates. Maybe they should be the ones being fired.

I’m very happy that the Lower East Side People’s Federal Credit Union made it into the photomontage the NYT used to illustrate an article on switching bank accounts — even if there was no mention of credit unions in the article itself. I’m on the board of LESPFCU, and we’ll take all the publicity we can get.

But looking at this montage, I do wonder whether our friendly-local branding might not make us the most attractive place to move one’s money, compared to all the slick alternatives, especially since we don’t offer perks for people opening new bank accounts, and we certainly don’t offer things like 4% interest on checking accounts for heavy debit-card users.

I’m not a fan of people switching to a bank because of some gimmicky here-today-gone-tomorrow promotion: switching bank accounts is hard, and I’m sure the idea behind a lot of these promotions is that once the 4% interest rate or whatever goes away, the customer will still keep the account.

But I’m also very much a fan of doing anything which can persuade people to move their money to LESPFCU, so long as it ultimately serves the predominantly low-income owners it’s my job to represent in board meetings.

When I asked Twitter whether they thought the LESPFCU branding in the montage was good or bad, Kat Aaron had nothing but nice things to say about us — but that was based on her real-world experiences there. Alea, by contrast, going just on the pictures, said LESPFCU would absolutely be his last choice.

I do think that while people like the idea of community banks in principle, they also want a certain degree of slick professionalism at the same time. Wonky hand lettering might be humanizing to those of us devoted to the credit union, but it can also make us seem amateurish to outsiders.

The good news is that our members come overwhelmingly through word of mouth, and always will do; once they get to know us, they understand why our signage is like it is. But it does stand out among other banks — and not necessarily in a good way.

Next time a fund manager brags of outperforming the S&P 500, remember this:

A favorite index for advisers has been the S&P 500, because its performance has been below every other major asset class over the past decade. Virtually any portfolio diversification away from large-cap U.S. stocks would have outperformed the predominantly large-cap S&P 500. All an investor needed was a small allocation to international stocks, small-cap stocks, REITs or bonds–or even cash–and his portfolio would have “beaten the market.”

I don’t actually have a problem with using the S&P 500 as a benchmark for a fund with a dynamic asset-allocation policy, so long as the benchmark is consistently used and was set ex ante. But if anybody starts telling you now how much they’ve beaten the S&P 500 by over the past 10 years, then before investing with them it’s definitely worth asking to see their marketing materials in the intervening years. It’s pretty important that they always used the S&P 500, and not just when it made them look good. Otherwise, Richard Ferri is right that the comparison is downright misleading, and not the kind of behavior one would expect from a fiduciary.

(Via Abnormal Returns)

Back in September, Joe Brancatelli made a compelling case that bag-check fees at major airlines were actually losing them money, rather than making money. And that was before Southwest airlines embarked on a major marketing campaign touting the fact that they check bags for free — a campaign that Eric Joiner calls “pure marketing genius”.

Eric has some very smart and well-informed analysis of the economics of checking bags: essentially, if, like Southwest, you only have one kind of aircraft, then checking bags saves you money because it speeds up the rate at which passengers get on and off the plane. And he knows that the economics of reducing the bag-check fee from $25 to $0 are essentially the same as the economics of reducing it from $0 to -$25. And so:

What if an air carrier said…rather than charge you a fee to check a bag, They would PAY you to do so?

I love this idea. A lot of people, of course, simply hate the idea of risking their bags being lost, and/or of milling around at a baggage carousel waiting for their bags to arrive. But many others would love the idea of getting paid, in dollars or in frequent-flyer miles, for checking their bags — especially if they had realtime information on exactly where their bags were at all times. (I think the current paper baggage tags would need to be replaced by tags with RFID chips, but that’s doable.)

The result? Passengers would get on and off planes more quickly, the airlines would make more money, and everybody would be happier. It’s a vast improvement from the status quo, where, according to Eric, airlines sometimes deliberately lose bags:

Consumers think the airlines lost the luggage. In fact many times the airline couldn’t accommodate it so they chose to pay a premium to deliver it to you later, often at the cost of your loyalty and future business.

So, Southwest (or JetBlue, or Virgin America, or one of you guys), whaddyathink? Who wants to be the first airline with a negative bag-check fee?

(HT: Ryan Schick)

May I present to you Shia LeBoeuf, momentum trader:

After preparing for his turn as a hedge-fund trader by visiting trading floors of small brokerage houses, LaBeouf in the April issue of GQ talked up the stock of an oil and natural gas exploration company that has yet to produce any of either.

“IOC’s momentum is major, and it will surprise to the upside,” LaBeouf said in a text message to the GQ article’s author, Adam Sachs, using the trader lingo he apparently picked up while prepping for the film.

IOC has been a darling of the short-seller crowd for a long time now: in June 2009 I received but did not open a letter from one such short-seller puporting to contain a Markopolos-style lay-down proof that the company is a fraud. It’s a copy of a letter which was sent to the SEC, and the short-seller in question wanted third-party confirmation that he had sent the letter and knew what was going on at a certain date.

IOC was trading in the 30s at the time; it has more than doubled since then, and at the beginning of this year, when I reckon LeBoeuf sent his text message, it was trading in the low 80s. That’s a really painful short squeeze.

Personally I have not spent much time looking into IOC. But the short side of the trade is represented by some very smart money indeed, while the long side seems to be represented by Shia LeBoeuf and other momentum traders making a lot of money squeezing those shorts. In finance, of course, nobody much cares if you’re right: they only care if you’re profitable. But I can only imagine what the shorts said when they found out yesterday that their investors’ money had been transferred into the pockets of a Hollywood pretty-boy.

I don’t even pretend to understand the parliamentary mechanism by which the long-overdue overhaul of the student loan system was pushed through inside a health-care reconciliation fix. Certainly that says a lot about how dysfunctional Congress is.

But it gets worse. Simplified, the question was what to do with the $60 billion or so over 10 years that the government will save by no longer subsidizing private student lenders through guaranteeing their loans. The Republicans, who wanted to keep the status quo, evidently thought that Sallie Mae et al were a great place to send that money. The Democrats, by contrast, thought it would be better spent on “federal grants to needy students and help fund other federal education programs, such as support for community colleges and historically black schools”.

You probably won’t be surprised to hear that I’m with the Dems on this one. (And so, interestingly, are a majority of Republicans.) But note what happens when the government finds a large annual savings somewhere in the budget: the money immediately gets spent elsewhere. As far as I can tell, no one seriously proposed that the private loan guarantees be abolished with the savings simply going towards a lower annual deficit. Right now, that money is (weirdly, indirectly, inefficiently) being spent “on education”, and so we have a bipartisan consensus that it should therefore continue to be Spent On Education going forwards, even if the original expenditure was wasteful and nonsensical.

And not just spent on education in general — the money must be spent on tertiary education in particular. Heaven forfend that savings from one part of the education budget might be spent on, say, shoring up holes in the K-12 area. When it comes to federal budgets, money is most certainly not fungible.

Politicians are always good at lauding inputs rather than outputs: you can be sure that Democrats will talk proudly, in the next election, at least to certain constituencies, of how they increased funding for community colleges and historically black schools. And they’ll do that regardless of whether or not the quality of education at those colleges actually improves. Which is why reducing government spending, even when we’re running a trillion-dollar deficit, is such an incredibly difficult thing to do.

Update: OK, this makes a little more sense: Matt Yglesias says that “some of the saved money is going to finance Affordable Care Act activities in the early years” — which means that it’s not all going into tertiary education, and that including the bill in the health-care reform process has at least some justification.

BofA’s “earned principal forgiveness” program looks very similar to the Responsible Homeowner Reward plan of Loan Value Group that I wrote about yesterday. In both cases, homeowners staying current on their mortgage payments get a reward after a certain number of years — a principal write-down on their mortgage in the first case, and an old-fashioned cash payment in the second.

I think I prefer the cash payment to the principal write-down, assuming that the write-down would cost the bank just as much money as a cash payment would. While the effect on the homeowner’s balance sheet is the same, most people would prefer a pile of cash to a principal reduction — especially if the principal reduction is taxable, which it might well be, in five years’ time.

There are two problems with such programs catching on, however. The first, as detailed by Shahien Nasiripour, is that Treasury’s loan-mod program seems designed to use principal reductions only as a last resort. And the second is the fact that although such plans can benefit both borrowers and lenders, that doesn’t mean that everybody ends up happy. Tom Brown reprints with approval this letter:

Dear Mr. Moynihan,

I awoke this morning to read that Bank of America intends to begin forgiving mortgage principal for delinquent borrowers. I am writing to inform you that I will never bank with your firm ever again.

Principal forgiveness is an affront to every responsible, non-delinquent borrower in your book of assets… you are rewarding those who bit off more than they could chew, while those who did not take on excess leverage, or who kept their income-to-debt ratios manageable, see no benefit, even as their home equity values have declined. Even worse, you are denying savers who sit in the cash market the opportunity to purchase inventory from the delinquent.

Capitalism should migrate assets from the weak to the strong, not the contrary… allowing those who are delinquent to now benefit from their financial excesses is a despicable solution that ignores the integrity and responsibility of those who actually finance the lion’s share of your earnings: those who don’t default.

I’m not entirely clear how banks are supposed to give their savers the opportunity to buy distressed real estate, or why anybody thinks that’s a particularly good idea. But what’s abundantly clear, not only here but in the comments to my Loan Value Group blog entry, is that the anger behind the infamous Santelli tea party rant has not gone away, and that if people hated the idea of interest-rate reductions on mortgages back then, they’ll really hate the idea of principal write-downs now.

Bankers are always on the look-out for a good excuse not to engage in principal write-downs, and this is another arrow to add to their quiver of such excuses: doing so will enrage and inflame their customer base.

Remember too that it’s pretty much impossible to quantify the upside, to a bank, of a principal reduction, since doing so requires calculating exactly how much the probability of redefault has been reduced. Bankers, as we know, like to do things that make their bank money in quantifiable ways, so that they can then show their boss how much money they’ve made, and ask for a nice seven-figure bonus at the end of the year.

For all these reasons, I suspect that BofA’s move into the world of principal reduction will remain very small-scale, and that insofar as the practice takes off, it will do so only among hedge funds and others who have bought mortgages on the secondary market. At least unless and until Treasury modifies its modification principles.

Update: WaPo is now reporting that “For the first time, the government will offer financial incentives to lenders that cut the principal these homeowners owe on primary mortgages.” I’ll believe it when I see it, although this is undoubtedly encouraging.

I’m a bit late to this, but Stephen Gandel had an interesting post this weekend about the now-famous Harvard thesis upon which Michael Lewis based a lot of his latest book, and whether it partially exonerates Goldman Sachs from the charge of deliberately building CDOs which were designed to go bad, to the profit of Goldman Sachs.

Gandel gets comments from both Janet Tavakoli, who will never admit that Goldman is anything but pure evil, and from AK Barnett-Hart, the author of the thesis, who keeps a certain amount of scholarly caution while agreeing that Gandel basically read the thesis correctly.

Here’s what he found:

One thing Barnett-Hart examines is how the CDOs of different investment banks performed. Turns out Goldman wasn’t the worst CDO underwriter after all. Quite the opposite.  Barnett-Hart looked at CDO deals underwritten by investment banks from 2002 to 2007, and found that out of about 700, Goldman’s CDOs performed better than every other major underwriter of the investment product on the street. Through the end of 2008, just 10% of the bonds that Goldman packed into its CDOs had gone bad. J.P. Morgan’s rate of default was about four times that, making it the worst U.S. investment bank in the CDO game. But plenty of others had similarly bad numbers. Merrill and Bear came in at a default rate of about 35%, and Citigroup posted a similarly depressing 30%. Barnett-Hart goes on to praise Goldman’s CDO underwriting prowess.

Of course, the likes of Merrill, Bear, and Citigroup never went short mortgages, so they can’t possibly be accused of deliberately constructing highly-toxic CDOs in the knowledge that those CDOs would end up defaulting. It’s hard to be evil when you’re fundamentally incompetent. But as the Lewis book shows, it was really Deutsche, not Goldman, which was most cognisant of the coming subprime collapse. And Goldman’s decision to go short came really rather late in the game.

Lewis is a storyteller, not a historian, so when it comes to finding evil intent at investment banks, absence of evidence is not evidence of absence. But Lewis also clearly has no love for Goldman, and the Goldman press office, for one, is upset with the contents of the book. Given the book’s subject matter and Lewis’s sourcing, I’m sure he would have loved to include a Goldman plot to rip off its own buy-side clients. But in fact it seems that Goldman’s clients were better served than the clients of other sell-side players in the CDO market.

How climate change is affecting Latin America’s coffee crop — NPR

Tonchi moving from T to W: obviously V was passed over — NYT

Advice for PBS: “Instead of showing Andrea Bocelli, I’d telecast David Robertson and the St. Louis Symphony performing Samuel Barber’s ‘Prayers of Kierkegaard.’” — WSJ

Contrarian Pundit has a letter being sent out by Ernst & Young “to address certain media coverage and commentary on the Examiner’s Report that has at times been inaccurate, if not misleading”.

It’s pretty obvious why the letter isn’t being sent to the media outlets in question: it’s hilariously disingenuous, and anybody reading it side-by-side with, say, this piece at ZeroHedge will find it simply laughable. For instance:

Because effective control of the securities was surrendered to the counterparty in the Repo 105 arrangements, the accounting literature (SFAS 140) required Lehman to account for Repo 105 transactions as sales rather than financings.

For one thing, it’s jolly good that E&Y is so clear about this now, after the head of its Lehman team, Hillary Hansen, told the examiner that she had no idea what Repo 105 even was as late as June 2008. And more to the point, the examiner never says that the accounting treatment of the Repo 105 transactions was wrong; he says that the disclosure surrounding those arrangements was clearly inadequate. To which E&Y responds that “the 2007 audited financial statements were presented in accordance with US GAAP, and clearly presented Lehman as a leveraged entity operating in a risky and volatile industry”.

Well, yes. Which makes it all the more important that off-balance-sheet sources of leverage and risk should be clearly disclosed, no?

The letter continues in this vein for two pages, denying allegations which haven’t been made while stepping gently around the ones which have. Even if you haven’t seen things like the ZH report, the tone of the letter is decidedly weird. If you have seen things like the ZH report, the letter will only serve to make your opinion of E&Y even worse. If I was on the audit committee which received this letter, I would certainly be shopping my account right now. And if this is the best defense that E&Y can muster, they really are in for a world of Lehman-related pain.

Why did Henry Blodget fire John Carney? I suspect that Carney himself will tell us soon enough. But the broad narrative of Foster Kamer’s post today rings true: it’s the age-old tension between the popular and the high-quality.

Now it’s worth remembering here that John Carney, for all his highbrow bona fides and thousand-word essays on whether Lehman executives deserve criminal prosecution, is entirely comfortable with lowbrow and populist fare. He helped launch Dealbreaker, he has an intuitive understanding for what kind of things generate traffic and pageviews, and he’s great at writing provocative headlines just crying out to be clicked on. Martin Wolf he is not.

Yet, writes Foster:

Blodget wanted more sensational, pageview-grabbing posts and click-friendly features like galleries, while Carney wanted to put forth breaking news scoops that told a longer narrative. It was also speculated that Carney, one of the highest paid members on the Business Insider staff, wasn’t bringing the traffic numbers to sufficiently satisfy Henry Blodget.

Of course Carney wanted longer news scoops: that’s where the pro-blogging world is headed. Without them, it’s still possible to get traffic, especially if you have aggressive or deep-pocketed business-development people, but it becomes much harder to garner the kind of respect needed to be able to charge $20-$30 CPMs and start making some real money from ads. None of this should come as news to Blodget, so I wonder whether this is indicative of a conscious decision to move downmarket, or possibly of a cash crunch or pressure from The Business Insider’s investors to ramp up traffic and cashflow more aggressively. TBI is a venture-backed company, and its investors want a highly-profitable exit: that kind of business model has always been hard to square with building a strong franchise for the ages.

The mention of Carney’s salary is also indicative of a newfound focus on cashflow at TBI. There’s a finite number of name-brand financial bloggers out there, and when you hire one of those brands, you do so in large part for the respect that gives your franchise as a whole, rather than doing silly math about whether the ad revenue from his pageviews justifies his monthly paycheck. Blodget wants to be taken seriously as a financial news outlet: he wants to compete directly with the FT. And to be able to do that, he’s going to have to be able to hire talent. After today’s events, however, he’s going to find it extremely difficult to hire any respected financial journalist with a reasonably secure job.

Carney certainly has his idiosyncrasies, and he wouldn’t last a week at Bloomberg, but he’s perfectly open about them, and one of the great things about media companies in general and blog companies in particular is that they’re pretty good about letting the talent do what it needs to do, just so long as the stories keep coming. And Carney always kept the stories coming. What’s more, the beating heart of Clusterstock is the dynamic duo of Carney and Joe Weisenthal; now that he’s fired Carney, Blodget must know that he risks losing Weisenthal as well. If he loses them both, he’ll rapidly become something like 24/7 Wall Street or Minyanville: a site with lots of low-quality traffic and generally uninspiring editorial content. After all, left to his own devices, Blodget is prone to publishing silly and irrelevant stuff like this which is barely worth tweeting.

Kamer’s sources within TBI certainly don’t seem happy about this news, and on its face there’s a lot more downside than upside for Blodget in firing Carney. I don’t worry about John: he’s a huge talent who will certainly land on his feet. But if I was an investor in TBI, I’d be very worried about Blodget, and I’d be phoning him up right around now asking him what exactly he thinks he’s doing. Because this kind of thing is likely to lose him a lot of respect in the finance and media communities.

Update: It’s worth noting that Henry Blodget put a post up last week with the headline “The Internet Is Making Us Shallow and Vapid! (Or Maybe We Were Just Shallow And Vapid To Begin With)”. Clearly he’s come to peace with appealing to the shallow and vapid. And once he did that, I’m sure the decision to fire Carney was made easier.

There’s a constant drumbeat of stories about how the price of credit protection on the USA says little if anything about America’s creditworthiness: Dan Gross had one just last week. I’ve written much the same story myself, but at least I tried to explain what was actually going on in that market; what I’m still waiting for is a journalist who can find someone who’s actually buying or selling these things, so that we can find out from the horse’s mouth why they’re doing so.

What’s new is stories looking at yields on Treasury notes and extrapolating default probabilities from those. Bloomberg had a headline on Monday saying “Obama Pays More Than Buffett as U.S. Risks AAA Rating”, which led with this:

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

I’m pretty sure it’s safe to say that sentence simply isn’t true. For one thing, it’s predicated on the idea that Berkshire Hathaway bonds were yielding 3.5bp less than equivalent-maturity Treasuries, “according to data compiled by Bloomberg”, but when you start looking at gaps that small, you have to be very careful with the reliability of your data, and I suspect that the people at Bloomberg weren’t. In the comments over at Marginal Revolution, Ricardo pulls up all the actual trades of the Berkshire bond in question on March 18, the day that Bloomberg says it yielded less than Treasuries; there are seven of them altogether, starting at 1.206% and finishing at 1.023%. All but one are above the 0.93% that Bloomberg says Treasuries were yielding, and it’s not clear how much Treasuries were yielding at exactly that point in the day.

But that doesn’t stop Bloomberg from taking one suspect datapoint and constructing a large edifice of rhetoric atop it, talking about “concerns whether the U.S. deserves its AAA credit rating” and so forth.

Today, it’s the 10-year swap spread, which has followed the 30-year swap spread into negative territory, and suddenly everybody’s talking about “the fiscal situation in the US” and how “increased sovereign risk” is the culprit.

Well, it might be (or it might not be: Bond Girl has good non-default-risk reasons why this might have happened) but I’m going to need a hell of a lot more evidence before I start thinking of the Treasury market as including a measurable or even extant premium for default risk. In theory, it might well be there, and indeed the existence of that CDS market on US debt is prima facie evidence that it exists. But if it’s there, there have got to be better ways of finding it than by pouncing on curious anomalies in the bond market.

Update: Mark Gongloff has a good roundup of the various different explanations for negative swap spreads; sovereign default risk doesn’t even make the cut.

Ben Stein has a bit of free time on his hands these days, now that his odorous association with FreeScore.com and its sleazy owners Vertrue means that he’s no longer writing a column for the NYT. So he might be interested in reading the blistering 62-page ruling that Judge Robert Hutchison has just handed down in Iowa, which goes into great detail about how Vertrue has violated all manner of laws in that state with its unfair and deceptive practices.

Here’s the bit about Ben Stein’s arm of the company:

Vertrue maintains its own website FreeScore.com, where the consumers can purchase a service involving credit scores. However, Vertrue bundles another distinct product, Privacy Plus, with the purchase of the initial service, for an additional monthly fee of $1.00. Thus, to purchase the initial service, a consumer must purchase Privacy Plus, although this fact is obscured as much as possible. In such instances, although the record is unclear as to whether a consumer receives one welcome e-mail for both services or two separate e-mails for the two distinct services, there is no ambiguity that to cancel both services, a member must call two separate 800 numbers, even though the consumer had no choice but to purchase both services together. Most consumers will likely be unaware of the purchase of the second service (much like the post-transaction solicitations discussed above), and that when the consumer calls an 800 number to cancel the primary service, he or she will continue to be billed for the (unknown) add-on service. Moreover, even for the wary consumer that understands that two services are being purchased with only one click of the mouse, such a consumer may not understand that calling one number to cancel does not cancel both services, despite the “one-click” nature of the initial purchase.

And the rest of Vertrue is even worse: Hutchison goes into great detail about how it preys on the elderly, almost never provides any benefits to the users of its products, and goes to great lengths to create bogus “surveys” and the like, the results of which are always discarded unread, to make people think that they’re being rewarded for doing something. He writes:

Unlike Vertrue‘s memberships, most consumer goods are tangible. Thus, for example, if a membership arrangement involves the periodic review of books or CDs on a negative option basis, the receipt of the items themselves serves as unequivocal notice to the consumer of the fact of membership and its attendant obligations.

By contrast, a membership that provides “access” to benefits may be all but invisible and may have little concrete presence in a consumer‘s life, especially in instances where the consumer is not even aware of purchasing the “access” in the first instance. Here Vertrue fosters invisibility by utilizing a marketing structure that obscures effective notice to the consumer of the membership enrollment and places numerous burdens on the consumer: the burden to cancel in order to avoid the onset of charges; the burden to differentiate a membership notice from the junk mail or spam that it resembles; and the burden to detect an ambiguous charge on one‘s account statement and act on it. Vertrue‘s own records show that 84% of the more than 860,000 Iowa memberships involved no discernible use whatsoever of any membership benefits by the consumers who were subject to membership charges. Thus, the Defendants‘ overall marketing scheme has netted more than $35 million in membership charges from Iowans, and has provided remarkably little in return. Indeed, Vertrue‘s own benefit usage data for memberships that began after 1989 and were active as of May of 2009 shows that 91.5% of memberships involved no benefit usage whatsoever.

I look forward to Vertrue being slapped with a massive fine in Iowa, and to the authorities in 49 other states following suit. Sadly I doubt Ben Stein can be held personally liable for any of this, but he’s certainly morally culpable. And next time he cashes a check from Vertrue, he should think about the story of Charles Pope:

Charles Pope, a 63-year-old military veteran from Marshalltown, testified at trial regarding his experience with a check mailer. Mr. Pope‘s experience appears to be representative, and well illustrates the objectionable features of Vertrue‘s method of marketing in the direct mail channel.

Mr. Pope received a mailing in the form of a “snap-pack,” a check-sized envelope that is to be opened by tearing off a perforated stub at the end. The outside of the snap- pack bore the name and the logo of the consumer‘s credit card issuer (“Union Plus” in Mr. Pope‘s case), and also bore the words “CHECK ENCLOSED” above Pope‘s name and address. The envelope contained a $10 check made out to Mr. Pope. The envelope also contained a check-sized slip of paper, which explained in small print that by cashing or depositing the check the consumer would be enrolling in a trial membership, which would lead to charges on the consumer‘s bank (or credit) account unless the consumer affirmatively canceled…

Vertrue‘s billing records showed that Mr. Pope‘s Union Plus credit card was charged $12.95 a month beginning in October of 2004, and the monthly charges continued through September of 2008, by which time the charge had risen to $14.95. Mr. Pope testified that he was not aware that he was a member of any Vertrue program until he was contacted by the Attorney General‘s office in about September of 2008, at which time he canceled the membership. He recalled receiving the check in the mail, but had assumed that he was being reimbursed for overpaying his credit card account. Mr. Pope testified that he never intentionally enrolled, and never made any use of whatever benefits the membership involved. Mr. Pope testified that he had seen the charges on his statement, but mistakenly believed that they related to insurance. By the time he canceled after four years, Mr. Pope had unwittingly paid $695.60 in membership fees. Upon cancellation, he was refunded only one payment of $14.95.

I wonder whether Stein feels like paying Mr Pope the other $680.65 out of his own pocket.

Loan Value Group has one of the best ideas I’ve seen in the housing crisis so far. It involves no legislation or government cash, it keeps homeowners in their home, it prevents distressed foreclosure sales, and it benefits both borrowers and lenders. In a world where the pervasive problem of negative equity is signally failing to turn up in significant principal reductions, LVG has come up with a clever way of doing something substantially similar, without lenders having to take the hits to their balance sheet which are necessary when they do an immediate principal write-down.

The LVG trick doesn’t work for everyone: it’s really only for strategic defaulters, who have the ability but not the willingness to pay. And the idea is to give them a nudge to keep on paying, and to do what most people with mortgages want to do, which is to stay current on their loan. Up until now, homeowners have faced only the sticks of moral disapproval and reduced credit rating when pondering whether or not to walk away from their loans; now, LVG is offering them a substantial cash carrot as well.

If you just keep on doing what you’ve been doing all along, and make your mortgage payments on time, LVG will offer you a lump-sum payment under its Responsible Homeowner Reward plan, which is explained in some detail in this press release. The reward is paid by the lender, and is calibrated to your specific circumstances, including just how underwater you are on your mortgage. And it can be implemented in just a few days, bypassing entirely the infuriatingly incompetent customer service representatives at loan servicers, who seem to be able to do nothing but lose paperwork on a predictably regular basis.

One of the surprises about this crisis has been how few strategic defaulters there have been to date. But the number is rising, and it’s very much in the best interests of the financial system that it never approach the kind of critical mass at which strategic default tips over into being a perfectly normal and acceptable thing to do. Schemes like LVG’s are a very good way of minimizing strategic defaults, and they benefit not only the homeowner and the borrower, but also the solvency of the financial system as a whole. I hope they catch on among more than just a few hedge funds buying up mortgages in the secondary market.

Today, Max Abelson uncovers a very interesting nugget about LVG: one of the owners is none other than Howie Hubler, the former Morgan Stanley bond trader who contrived to lose $9 billion on mortgage-backed securities and who is one of the great chumps in Michael Lewis’s new book. Hubler saw clearly that subprime mortgages were going to go bad, but he believed for far too long in the models which banks and ratings agencies used to get triple-A ratings for a bunch of nuclear waste. And so he ended up selling Deutsche Bank’s Greg Lippmann, and others, enormous amounts of credit protection on triple-A MBS in order to fund his bearish bets on the weaker end of the market. When the crisis then hit and correlations went to 1, Hubler lost billions — but not before walking away from the bank with a ten-figure bonus.

I have no problem with Hubler’s second act: he’s received the single most expensive education in mortgages that anybody could ever have, and it’s silly for that expensive education to go to waste. If he can turn LVG into a force for good in the housing market, that might make up for some tiny part of the chaos he caused during the crisis. I wish him and LVG luck — especially if they don’t turn into patent trolls who try to aggressively prevent other people from implementing similar ideas.