Felix Salmon

Gawker and Gothamist were both started in 2003, and both grew to become big blogs; it’s interesting, now Gothamist is being sold to Rainbow Media, to see Gawker’s Nick Denton’s weird attempt to downplay the achievement of Jake Dobkin and Jen Chung.

Let’s say Jake and Jen end up with $1.5m each. That sounds like a lot; but they’ve been at the job seven years. And my understanding is that the contract would require them to stick around for another three, making a decade in total.

So that works out as about $150,000 per year — plus any compensation under the employment agreement they get from Cablevision.

Not bad — but still better to be even a junior analyst at Goldman Sachs or a fancy Moveable Type consultant. And you don’t have to work for the Dolans.

For one thing, I think that Jake and Jen are going to end up with more than $1.5m each, although the terms won’t be made public so we likely won’t ever know for sure. I don’t think either of them has been racking up debts along the way, so this is genuinely life-changing I’m-a-millionaire windfall money we’re talking about here, not a salary dribbled out over the course of a decade.

What’s more, it’s worth remembering how much Denton pays his bloggers. In 2003, when he launched Gawker, he paid editor Elizabeth Spiers $1,000 a month. Even today, now that he’s fully-fledged media mogul making millions of dollars himself, I still don’t think that any of his bloggers makes $150k a year.* And very few people can blog for Denton for more than a couple of years at a stretch. So Jen Chung, the editorial-side half of the Gothamist team, turns out to have made an extremely good decision indeed when she decided to stick with Gothamist equity rather than taking a better-paid editorial gig elsewhere — especially considering what’s happened to thousands of well-paid journalists in the past few years.

And Denton’s math is off, too: while Jake and Jen might not have paid themselves much at the beginning, they did start drawing a salary eventually. And going forwards, I think it’s safe to say that Rainbow Media is going to pay them substantially more than $150k/year, and not just for the next three years, either. Rainbow is acquiring talent here, especially Jen’s, and it’s going to want to keep her and her family happy and well fed for the foreseeable future, well past three years, if it possibly can. Rainbow Media is not something the Dolans take any particular interest in, and Jen’s going to be able to work with a very large degree of autonomy, including working a lot from home. A high-intensity Gawker Media gig with zero job security this is not; instead, Jen will overnight become the highest-paid blogger on any media company’s payroll, anywhere in the world.

As for Jake, he’s surely at or near the very top of his NYU Stern business-school class right now when it comes to financial success — and he’s done it on his own terms, building a spectacular archive of photographs in his plentiful spare time, never once dealing with a boss. The idea that he would have been better off trying his luck at Goldman Sachs or becoming a fancy Moveable Type consultant is laughable. (Jake would last about 10 minutes at Goldman, as he’ll be the first to tell you.)

Jake and Jen worked hard building something they were rightly both very proud of. They never sold any equity to anybody, and they ended up selling their company at a time of their choosing: I don’t think it’s a coincidence that both have recently become parents for the first time. They both have long careers ahead of them at Rainbow if that’s what they want, or can leave after three years with a world of opportunities and bulging pockets. So when Nick tells his readers to “hold off on the envy”, he’s living on a completely different planet. Jen and Jake have achieved something great here: they’ve built a real blog business with seven-figure revenues from scratch, they’ve got rich doing so, and they did it their way, on their own terms, all before either of them turned 35. Many congratulations to them both.

*Update: And that’s pre-tax. As right points out in the comments, Denton’s math is post-tax. I don’t think anybody on the editorial side at Gothamist comes close to making $150k after tax — and even making that much money as a fancy Moveable Type consultant is not going to be easy. Believe it or not, there are even junior analysts at Goldman Sachs who don’t make $150k after tax.

The smartest reaction so far to the Kinsley-Krugman hyperinflation debate comes from Ryan Avent:

The pain of hyperinflation is every bit as bad as and worse than the pain of tax increases, or spending cuts, or default. No politician would risk it, and even if the politicians were willing to, America’s independent Fed wouldn’t let them.

The truth about hyperinflation is that it isn’t so much an economic phenomenon as a political one; it corresponds to the complete breakdown of a country’s political institutions…

To get from America’s current situation to one in which hyperinflation is a realistic possibility, one must pass through an intervening step in which America’s political institutions utterly collapse. And I submit that if Mr Kinsley has reason to believe that such a collapse is imminent, he should be writing columns warning about that rather than the economic messes which might follow.

It’s also worth expanding on what Ryan’s hinting at in his reference to “America’s independent Fed” — and that’s a neat little rhetorical sleight-of-hand on the part of Kinsley. Consider:

The Federal Reserve is independent, but Congress and the White House have ways to pressure the Fed. Actually, just spending all this money we don’t have is one good way.

Compared with raising taxes or cutting spending, just letting inflation do the dirty work sounds easy. It will be a terrible temptation, and Obama’s historic reputation (not to mention the welfare of the nation) will depend on whether he succumbs. Or so I fear.

Kinsley continues:

Hyperinflation is the result of explicit policy choices by public officials… There are reasons to worry that our political leaders may opt for inflation even if there is no economic evidence of it happening naturally.

The logic here is that simply running large fiscal deficits is an “explicit policy choice” by officials who “opt for inflation”. Just by spending money, the government is pressuring the Fed to, um, what, exactly? Keep interest rates too low? Print money?

It’s true that the Fed isn’t looking particularly independent these days, but that’s largely because inflation isn’t a problem, and therefore the Fed is rightly concentrating on the second part of its dual mandate, which is reducing unemployment through loose monetary policy. Fiscal policy and monetary policy should both be pulling in the same direction right now — which is the direction of trying to extricate the country from the deepest recession in living memory.

It’s also hard to see the dynamics by which hyperinflation — or even plain old ordinary high inflation, for that matter — could emerge. If there’s a panicked run away from the dollar and dollar-denominated assets, that would hurt both the stock market and the bond market, hitting wealth hard. It would also send the cost of imports up. But the US doesn’t import so much that import-price inflation would pass through into domestic hyperinflation. And with the markets in turmoil, weak unions, and unemployment surely rising, I don’t think that workers would be in any position to ask for double-digit wage increases on an annual basis. In any case, to have any hyperinflation you need a maniac helming the printing press, and Ben Bernanke is not a maniac. Yes, he’s expanded the money supply significantly, but only when disinflation was the greatest risk facing the economy. It’s almost impossible to imagine the Fed continuing to print money once consumer prices start rising sharply on Main Street — and, frankly, it’s hard to imagine the Obama administration putting pressure on the Fed to do so.

As Krugman notes, it’s instructive to take a hard look at Japan, which ran enormous deficits for many years and which still has no sign of any inflation any time soon. Deficits, in and of themselves, do not cause inflation. And while Kinsley is right that there’s no obvious way out of America’s current fiscal problems, he’s wrong that politicians can simply choose inflation as an option. Just as the Treasury secretary does not control the value of the dollar, the president does not control the trajectory of consumer prices. So in order for his fears about hyperinflation to be remotely justified, Kinsley first has to explain how the Fed is going to transmogrify into the Reserve Bank of Zimbabwe. And he hasn’t come close to doing that.

Heidi Moore has a good story today about the banks winning the FDIC lotto and being allowed to take over the assets and deposits of other, failing banks. But I was left wanting more, especially when it came to her conclusion, so I took to IM:

Felix Salmon: You write “The FDIC’s pool of buyers—large or small—is getting tapped out” and that “as many buyers as the FDIC can find, it is not likely to be anywhere as many as it needs”.

Can you tell me a bit more about that?

Heidi Moore: Yes, definitely.

Felix Salmon: Once someone like Stearns takes over a bank, does that make it harder to take over another?

Heidi Moore: First, there is the expectation by many that bank failures will be higher in ’10 than they were in ’09. So the sheer numbers will be more.

Felix Salmon: If the sheer numbers just stayed constant, and the number of failures in 2010 stayed at 2009′s high level, would there still be a problem?

Heidi Moore: Yes

Felix Salmon: Are 2009′s buyers tapped out, as it were?

Heidi Moore: “Tapped out” is extreme. but they’re closer.

The FDIC has a mail list of about 400-600 banks or so that it contacts whenever a bank is coming up for auction.

These banks are chosen due to their strongish capital ratios

Felix Salmon: And that list more or less sufficed during 2009

Heidi Moore: Yes, although there were a handful of banks that simply didn’t get sold

Felix Salmon: But sometimes the capital ratios take a ding when a failed bank is taken over?

Heidi Moore: Yes, exactly. Every time you buy a failed bank, even if the FDIC is guaranteeing the assets, there are still some bad loans that need to be covered by adequate capital. There are few banks that can maintain high capital ratios to cover their own losses as well as the losses of more acquisitions.

And the FDIC is always checking in on them. For instance, they can’t apply the profit from an acquisition toward the capital ratio.

Felix Salmon: So it’s rare-to-never that an acquiring bank comes out of one of these deals with a capital ratio as good or stronger than when it went in.

Heidi Moore: There are enough repeat buyers that it’s not impossible. But yes, a hit is inevitable.

Felix Salmon: Which means that there’s basically a finite pool of excess capital at those 400-600 banks, and the FDIC is slowly depleting that pool.

Heidi Moore: Not “depleting” because the FDIC doesn’t sell unless the bank has proof that its cap ratio will bounce back.

Stearns, for instance, has a tier one ratio of something like 17%, and it has made 5 acquisitions.

Felix Salmon: Has its capital been depleted at all by those acquisitions?

Heidi Moore: This is why the stock-warrants plan is so great; banks can buy FDIC banks without handing over cash that could hurt the capital ratio.

Felix Salmon: So this is why I’m confused. If Stearns can buy banks without hurting its capital ratio, then why can’t it continue to do that more or less indefinitely?

Heidi Moore: The expectation of the FDIC is that the capital ratios will take a hit. That’s the risk inherent in the acquisition. So FDIC tries to mitigate it by offering loss-sharing, warrants, etc. There’s only so many times they can go back to that well, though, which is why they’re opening the door to private equity now.

I actually saw a FDIC document where they said “we’re running out of buyers”.

Once the IMterview was over, Heidi got a statement from the FDIC saying that “We are still seeing first-time buyers, and in the few cases when we can’t find a buyer for a failing bank, it is usually due to the make up of the failed bank’s deposits.” So it’s a bit unclear whether or not the FDIC is actually running out of buyers or not. But it’s certainly something that the FDIC should be worried about: it makes intuitive sense that if the FDIC only has a few hundred qualified buyers, and the number of bank failures is continuing to rise, then eventually it might run out of buyers. But whether that means that private-equity shops will finally be given the opening they’re looking for remains to be seen.

Matthew Bishop has a short piece on a new campaign called FAB, for Financial Access at Birth: the idea is explained in more detail here.

We propose that starting November 11, 2011 (11/11/11), every child born in this world will start life with a Financial Access at Birth (FAB) bank account. The opening of these “FAB” bank accounts would be integrated with the official birth registration process and perhaps with electronic banking. Governments, with the help of institutional/individual donors will make a deposit of US$100 in each FAB account.

On its face, the idea is a great one. It helps bring financial services to everybody: both newborns and their parents can benefit from having access to that bank account, and even if the initial $100 is untouchable until the child reaches the age of 16, the account can still be used in the interim by making deposits and withdrawals. And if there’s $100 in it for anybody who registers their child at birth, the world’s poorest children are much more likely to be known to their governments and whatever instruments of the social safety net exist. What’s more, once the bank accounts are set up, philanthropists both large and small can easily transfer money directly into them, bypassing financial intermediaries altogether.

The campaign was founded by Bhagwan Chowdhry, a finance professor at UCLA, whom I met on Sunday evening. He told me that former Mexican finance minister Francisco Gil-Diaz was on his board, and that got me reasonably excited, since Mexico is the obvious first place to try this scheme out. For one thing, Gil-Diaz is smart, well-intentioned, and powerful: a very potent combination indeed. Secondly, Mexico has a relatively low birth rate, which means that the cost of the scheme would be pretty modest there: with about 2.1 million births per year, the total deposits would only be about $200 million annually. The Mexican government could cover that sum easily. Thirdly, Mexico has large amounts of internal inequality, and a relatively weak federal government: this would be a good way of effectively transferring wealth from the richest parts of the country to the poorest. And finally, Mexico suffers from having a very small tax base and a very large informal economy; this would help to formalize a large part of the population over the course of the next couple of decades when Mexico’s oil revenues are going to continue to dwindle.

But I see problems with the FAB idea too.

Firstly, it’s not at all obvious whether any depositary institutions are both willing and able to open and manage bank accounts for millions of newborns. The poor are unbanked largely because banks don’t want to bank the poor: it’s not profitable for them. And governments tend to have severe restrictions on which institutions are allowed to take deposits: that’s one reason why microlenders often don’t do that. (And, of course, it’s a reason why unregulated mortgage lenders were a large part of the financial crisis, but that’s another story.)

The technology for banking the poor is improving fast, and often includes cellphones; in many cases, the cellphone providers themselves are the obvious providers of banking services. But in most countries that isn’t allowed. Meanwhile, the big international banks who might have interest partnering with FAB are very unlikely to actually want to manage millions of tiny bank accounts themselves.

Secondly, it’s still hard and expensive to transfer money internationally. Here’s Chowdhry:

Imagine further that your teenage daughter Emily decides to contribute $10 a month for Krupa for her college education. Krupa’s initial $100 deposit plus a $10 a month contribution from Emily accumulates interest until Krupa turns sixteen. At a (real) interest of 4% a year, Krupa would have accumulated nearly $3000 or Rupees 150,000 that can pay for her college education in India.

We are still a very long way from a world where a $10 deposit can wing its way from a US bank account to an individual’s account in India without being wiped out by transaction and currency-conversion fees along the way. And we’re equally far from a world in which a bank account with just $100 in it can predictably pay a 4% real rate of return — especially not in dollar terms. I’m pretty sure that’s never going to happen, and that it never has happened, either. Bank accounts simply aren’t things which pay positive real rates of interest, especially not positive real rates as large as 4%. If you can find a bank account paying just 0% in real terms that’s quite an achievement, most of the time.

And the IT infrastructure needed to put this scheme together is very likely to cost much more than the $100 per newborn that actually gets deposited into the accounts. Chowdhry was talking with great optimism about a plan in India which might cost as little as $5 per person, but I’ll believe it when I see it: enormous nationwide technology projects always cost insane amounts of money, and almost never come in on time and on budget.

Thirdly, Chowdhry is a bit confused, I think, about the whole question of which currency these accounts are going to be in. He talks about them being seeded with “US$100″, but if they’re dollar-denominated, that essentially means that the deposits have to leave the country and travel, ultimately, to the US. (It also means there’s no chance in hell of them earning a 4% real rate of interest.) Worse, it makes it very hard for the owners of the accounts to make deposits and withdrawals, which is a large part of the reason for setting up the accounts in the first place.

So it makes more sense, and it’s certainly more intuitive, for the accounts to be denominated in local currency instead. The problem then, of course, is that they’re utterly exposed to the risk that the local currency will be eroded away by inflation and/or devaluation to the point at which the initial deposit becomes worthless long before the child’s 16th birthday. Currency crises are, sadly, quite common things in poor countries: even Mexico has had two big ones over the course of Gil-Diaz’s career. And during a currency crisis, small locally-denominated bank deposits tend to be hit very hard indeed. Many of the world’s poorest would be much better off with 10% of a cow than they would with the local equivalent of $100 in the bank: real property can’t devalue like money can.

More generally, the FAB campaign seems to be operating in something of a vacuum: rather than trying to coordinate closely with international development institutions like the World Bank or the Inter-American Development Bank, it’s barging ahead on its own, largely oblivious to whether or not the campaign is actually being helpful in the broader development context. Access to financial services is indeed a key part of any development agenda, but it should ideally be deeply integrated into that broader agenda, I think, rather than being freelanced by US finance professors with a bright idea. Chowdhry and the rest of FAB’s board are undoubtedly well-intentioned, but that alone gets you precisely nowhere in the world of development, as we’ve seen many, many times in the past.

My feeling is that this whole scheme has been dreamed up by a group of rich men who live in a world where people can just walk into a bank and open an account and put money in it and have that money be safe there. Their dream is of a massive top-down project which gets implemented on a country-by-country basis. But that’s not the world that most people live in. And when it comes to successful development projects in the realm of financial services, it’s the schemes at the other end of the spectrum which often work the best: the ones targeted at women, which are built from the ground up, and which get rolled out slowly on a village-by-village basis. Those schemes aren’t as ambitious, but at least if they break they don’t end up costing billions of dollars.

Back on March 11, when Chris Dodd put financial reform on a forced short timetable, I said that “financial reform is not dead yet: we’ll have a much better idea at the end of next week what its real chances are”. Well, that date has been and gone, and now a bill with no Republican support has been pushed through the Senate banking committee in a move that Bob Corker called “pretty unbelievable”. And yet, reform is still not dead: Dick Shelby, for one, sounds reasonably constructive when he says that “we’re not going to the floor polarized; we’re going to the floor right now in the spirit of trying to work a consensus bill, a meaningful, substantive bill that I’ve said all along that we need.”

Daniel Indiviglio thinks that means we’re in for “a wild battle”, even as Tim Geithner tries his hardest to make the conservative case for reform. And here’s his analysis of the political calculus:

Dodd can’t pass this bill without at least one Republican. He might believe he has a better chance at luring non-Banking Committee Republicans to vote for the bill with fewer changes than would have been necessary to get Republicans on the committee to go along. And he could be right. But I’m not at all convinced that he’ll necessarily have all 59 Democrats with him, so he may very well need several Republicans to come to his side. After all, even in the more liberal House, financial reform only passed by five votes, despite that chamber’s much stronger Democrat majority.

I suspect this is right. It’s not that there’s any chance of a bill passing with multiple Republicans supporting it even as a handful of Democrats vote nay. Rather, it’s that a handful of Democrats are only going to vote aye if there’s non-trivial Republican support for the bill. Or to put it another way, don’t expect this bill to pass with 60 or 61 yes votes. If it passes at all, it’s going to have more than that. And the route to getting the support of a decent minority of Republicans is still via Dick Shelby: the whole interlude of flirtation with Corker now seems, with hindsight, like it was a complete waste of time.

People have many legitimate reasons to have a grievance against their bank. In fact, it’s rare to find someone who hasn’t been extremely angry at their bank at some point. But rarely is there a case as clear-cut as this one, from Aaron Elstein:

Last November, Martin Cadillac, a prominent New York area car dealer, sued Mr. Antonucci and Park Avenue Bank, claiming the bank made “extortionate demands” and engaged in “predatory lending.”

Martin Cadillac alleges that Mr. Antonucci threatened to terminate its credit line, which would have put the dealer out of business, unless it agreed to provide cars to the bank and members of Mr. Antonucci’s family. The dealer gave Mr. Antonucci’s son a $33,000 Land Rover for no charge, two Cadillac SRXs worth around $50,000 each to his wife, and a $75,000 Cadillac Escalade to the bank, according to court documents…

The feds say they began investigating Mr. Antonucci last October, and he resigned as CEO the same month. Earlier this month, regulators seized Park Avenue Bank and transferred its accounts to Valley National Bank.

A banker has a huge amount of power over his borrowers: he can end their credit line and their banking relationship at any time, and since it takes a long time to build up that kind of trust and relationship, such an action can mean the business is forced to fail. If these allegations have any truth to them, Antonucci deserves to go away for a very long time indeed.

Antonucci stands out for another reason, too: he’s one of the very few bankers who was so far beyond the pale that Treasury wouldn’t even give him the $11.3 million of TARP funds that he asked for. It seems that the bailout machine wasn’t completely a rubber stamp, after all.

The SEC: Still toothless — Bond Girl

You want to move your money. But where to? USAA Bank would be a good choice — BankSimple

Is CLP a prime example of a company which does NOT prepare for fat-tail events? — Alice Schroeder

Every time you make a powerpoint, Edward Tufte kills a kitten — Goetz

Another GS board member steps down: this time it’s The Management Consultant, Rajat Gupta — Marketwatch

(Quick note: blogging’s going to be light Monday, since I’ll be spending most of the day in a UCLA conference room judging magazine articles.)

Beware of academics wielding exclamation marks!! Gary Gorton is a very highly respected professor in the fields of finance and economics, but that doesn’t stop him throwing double-shrieks into his official paper for the US Financial Crisis Inquiry Commission. Here they are, in situ:

The problem here is that while double-A-rated corporate bonds did indeed trade through triple-A-rate corporate bonds at the end of 2008 and beginning of 2009, Gorton’s explanation — even with two exclamation marks attached — is entirely wrong.

Finance Guy gives the long version of the takedown, and it’s well worth reading. But the short version is simple. Gorton thinks that triple-A-rated corporates gapped out because they were being sold off in “fire sales”. But in fact, triple-A-rated corporates in general didn’t gap out at all. General Electric gapped out, for very good reason: as David Merkel recalls, “GE Capital nearly bought the farm in early 2009″ due to the fact that it had a major maturity mismatch and was having difficulty rolling over the short-term liabilities with which it was funding its long-term assets.

In March 2009, GE’s CDS were trading at a spread of more than 1,000bp – and GE’s bonds made up the majority of the index of triple-A commercial bonds. (There are precious few triple-A commercial credits these days, and most of them issue very little in the way of bonds.) So it’s hardly surprising that the triple-A commercial-bond index gapped out — and the reason for it has nothing to do with forced selling, or even with selling at all. Indeed, my guess is that almost no GE bonds were sold during those periods.

If Gorton wants to provide evidence of forced sales of high-rated corporate debt at certain periods of time, he’s going to have to provide some volume figures, rather than trying to extrapolate volumes from price charts. Because the chart he provides simply doesn’t show what he says it shows.

(Incidentally, this is yet another example of the blogosphere being extremely good at fact-checking claims by experts. When done well, everybody wins: see for instance my friend Stefan Geens’s refutation of an article by the economist Craig J. Richardson entitled Visual Evidence of the Cost of Destroying Property Rights which was then picked up by Alex Tabarrok of Marginal Revolution. Once Alex saw Stefan’s post, he prominently updated his post to reflect the newly-revealed facts of the matter. I wonder whether Gorton will do anything similar.)

While I was waiting in an interminable security line at America’s friendliest airport today, a woman’s voice came over the intercom and scolded us that it was basically our fault that the screening was taking so long, and proceeded in a mildly unintelligible voice (the intercom’s fault, not her own) to go into great detail about exactly what had to be done with both small and large containers of liquids, gels, aerosols, and whatnot. People who didn’t fully understand the liquids-and-gels policy, she said, were causing unnecessary delays for everybody else.

It’s worth remembering, here, that the TSA’s security policies “are designed to be unpredictable” and to change from week to week and from airport to airport. Frequent fliers might eventually learn to navigate this kind of security theater with Zen-like grace, but for most travelers it will always be a confusing and exasperating hassle. If the TSA feels the need to implement confusing policies, then it’s a bit much for its officials to then turn around and blame the public for getting confused.

All of which reminded me of nothing so much as the acres of agate type which accompany checking accounts, credit cards, and pretty much all other consumer products. We consumers never read the small print, but we end up being blamed when we’re dinged by billions of dollars in unexpected fees every month. “It’s not the banks’ fault,” say their apologists: “it’s the consumers’ fault for not keeping a solid grip on their personal finances”.

Well, some people don’t keep a solid grip on their personal finances. That’s simply a fact of life. And if you happen to fall into that particular subset of the US population, there’s no reason that you deserve to pay enormous amounts of money to your bank. It might be the reason that you get dinged so much, but it doesn’t really make it your fault – especially in a world where banks deliberately profit from creating as much complexity and confusion as they possibly can. Why else would they be so opposed to offering plain-vanilla products?

It’s well known that Charlie Gasparino likes getting into mini-feuds with reporters who write about him, myself included. It’s part of what makes him Charlie, and he’s welcome to call me a twerpy nutjob as much as he likes. But he and former Trader Monthly publisher Randall Lane now seem to have gone far beyond name-calling on blogs: it looks as though they have gone so far as to get a full-time reporter fired from her job, in retaliation for her writing about them.

What’s worse, the reporter in question, Teri Buhl, hasn’t just been fired from her job at Greenwich Time, a Hearst newspaper in Connecticut; her entire archive of blog entries there has disappeared, leaving only a message saying “This blog has been archived or suspended”. It’s as though Hearst wanted not only to fire her, but to make it seem as though they’d never hired her — although there is still an archive of stories she wrote for the newspaper itself.

What caused this vindictive and aggressive behavior towards a reporter who is, after all, now going to be looking for freelance work based on the quality of her clips? To erase all of those clips is harsh punishment indeed, which would only be conceivably justifiable if there were very serious questions indeed over the accuracy of lots of her work.

But in fact, according to Buhl, when she was fired on Thursday by David McCumber, the editor in chief, the reasons he gave for firing her were mainly about the rough quality of her writing, and the fact that it needed a lot of editing. (He also, she says, told her that he didn’t know what was going to happen to her blog archive, or why it was taken down.)

The complaint about writing quality, says Buhl, was very odd indeed, since neither her editor nor McCumber had ever complained to her about such things in the past, let alone indicated that they might be a fireable offense.

I talked briefly today to Buhl’s editor, Jim Zebora, and to McCumber; both of them politely declined to comment, so the only source I have to go on here is Buhl herself. But I’ve been following her stuff for some time, and I consider her to be a very good, very dogged financial reporter, with an intuitive understanding of the blog medium. Nothing I’ve ever seen from her would seem to merit this kind of punishment.

So what happened here? Buhl wrote about Gasparino a couple of times on the blog she was hired to write at the beginning of this year — the blog entries are now down, of course, but for the time being the Google cache can be seen here and here. They weren’t particularly nice about Charlie, and they called him “Gas-bag”, a common nickname which he doesn’t like. Angered, Charlie called up Zebora, Teri’s editor, and accused her of “stalking” him; Zebora, like any good editor, had her back.

But it didn’t end there: Charlie then called Zebora’s boss, McCumber, and made the same complaint. Once again, he didn’t get very far. And then Charlie went further still, calling Steven Swartz, the president of Hearst newspapers, again with the same complaint. (Again, I only know about these calls because their substance was conveyed to Teri, who told me about them, but I do believe her when she says they happened.)

Meanwhile, another media bigwig was getting annoyed by Buhl. Buhl had written a story about Randall Lane for Dealbreaker in July 2009, saying that he would find it difficult to sell the assets of his bankrupt company, Doubledown Media, and that he’d given his cousin access to Doubledown’s subscriber list after promising his subscribers that he would never do such a thing.

Teri wrote about Lane on her Greenwich Time blog in February (Google cache here), and immediately Lane, too, started calling her superiors, complaining that she was “stalking” him.

It’s worth noting here that Buhl used to fact-check Gasparino’s column at Trader Monthly, which Gasparino wrote for Lane: all these people know each other. And if Gasparino was complaining about Buhl being a stalker to various Hearst executives, it’s easy to imagine him telling Lane the whole story after Buhl’s story on Lane came out.

In the wake of writing the story about Lane, Buhl says that she started fielding some very weird accusations from higher ups, saying that she was stalking Lane, or that she had written things in her blog entry which simply weren’t there. Shortly thereafter, she was fired, and although the stalking accusations were brought up, they weren’t cited as the main grounds for dismissal. Needless to say, a single blog entry on a person hardly constitutes stalking, and nobody ever came up with any evidence to support the stalking accusations. And it’s also worth noting that all of Buhl’s blog entries were edited by Zebora before they went up on the site, and that he was happy with everything that was published.

Back in February, the Greenwich Roundup blog published this letter:

Teri Buhl is probably the best thing that has happened in a long time at the Greenwich Time.

Dear Greenwich Roundup,

I hope she doesn’t get fired for stepping on too many toes or copying too much from others!!

Well, she certainly didn’t get fired for copying too much from others — that’s one accusation no one has made. But getting fired for stepping on too many toes? That seems to be exactly what has happened.

Update: I’ve now spoken to another source — someone familiar with the situation who said that Gasparino only complained to Swartz once, when she published a Mapquest link to his house on her blog, which was then taken down. The source says that there were no complaints when Buhl wrote about Gasparino subsequently, and that Gasparino never talked about Buhl to Lane.

Update 2: Buhl has left a pair of comments below, saying that Gasparino made multiple complaints and that my anonymous source is “either unfamilar or not telling the whole truth“. I put the update up just because it moved the story along and made clear that there is a fundamental disagreement here, but I am not saying I believe my anonymous source on this one. Without saying anything about this one in particular, I’m certainly comfortable saying that anonymous sources in general are dangerous and unreliable things, and deserve to be treated with skepticism.

Update 3: Buhl takes to Twitter to add a bit more detail:

I’d like to make a point re publishing Gasbag’s weekend address. My editor had to approve that and it was never mentioned as a reason to fire me. Gasparino had just been bragging about having a second home in Rowyaton, CT at a New Canaan book talk. I actually didn’t think he’d mind. When Gasparino got verbally abusive about the mapquest link to his street-I agreed with my editor it should be taken down. But when he kept calling up the editoral food chain that I was stalking him- I thought that was really odd- besides being untrue. I remember my editor Zebora saying well if Gasparino can get Head of Hearst news ear you will have to be careful what you write about him. Lincoln Millstein, vp of interactive, asked what did you do to Gasparino-what’s between u two-just make sure u dont just write negative abt him. It was just really odd to see how some Hearst ppl were afraid of Gas-Bag. At least both my editors admitted he’s a ‘professional asshole’.

Sad I can’t make this — BLDG

A very smart post by Avent: residents of dense neighborhoods fight development just as much as suburbanites — The Bellows

How to pay off your credit card debt: an inspiring true story — Consumerist

Bank Of America Has The Crappiest Credit Card Customers — Consumerist

Steve Ballmer’s head-in-the-sand attitude to Apple — Matthews

Madoff and the Colombo crime family boss — WSJ

Fact: that ink ain’t fake. Warren Buffett really has full sleeves! — NYT

Quite a spat between author and foreword writer — Guardian

Chittum sniffs around Sorkin’s sourcing, doesn’t like what he finds — CJR

The Bar Bouloud “nugget” game for wine geeks — Dr Vino

“Day Trading for Dummies: Yes. Yes, it is.” — Josh.sg

There’s a nice empirical post-script to the debate over the economic effects of classifying the Spotted Owl as an endangered species. Freakonomics cites a study putting the effect at $46 billion, but others, including John Berry, who wrote a story on the subject for the Washington Post, think it’s much closer to zero.

And now it seems the Berry side of the argument has some good Freakonomics-style panel OLS regression analysis of the microeconomy of the Pacific Northwest to back up its side of the argument. A new paper by Annabel Kirschner finds that unemployment in the region didn’t go up when the timber industry improved, and it didn’t go down when the timber industry declined — not after you adjust for much more obvious things like the presence of minorities in the area.

From the abstract:

The controversy that ensued with this listing quickly became framed as one of jobs versus the environment, a contention that often characterizes conservation efforts. This contention is closely tied to export-based economic theory which assumes that a rural area’s natural resource commodity base is the most important factor in economic development and community well-being. However, other factors could impact well-being… Industrial restructuring and the presence of minorities are the only significant explanatory variables for poverty. The presence of minorities is the only significant variable for unemployment rates.

That’s industrial restructuring in the timber industry as a whole that we’re talking about here, not the effects of the Spotted Owl decision specifically. Employment in the timber industry in the region generally was in terminal decline whether or not the Spotted Owl was made an endangered species, and the decision to list the owl had zero visible effect either way.

Just don’t expect this particular paper to make it into the next edition of Freakonomics.

John Hempton is the kind of guy who compares the numbers for quarter-by-quarter average assets in Bank of America’s annual reports with the numbers for total quarter-end assets in its quarterly reports. And guess what — if you look at the year 2006, BofA’s total assets were always substantially lower at the end of the quarter than they were over the course of the quarter as a whole.

Remind you of anyone?

The numbers in question are big: $49 billion in the third quarter of 2006, which is pretty much the same amount of money as Lehman Brothers hid off-balance-sheet at the height of the crisis. And Hempton explicitly says that BofA was using Repo 105 to get these results:

Repo 105 is fraud. Its a lie to investors and rating and regulatory agencies. It was also fraud when BofA did it. But both Lehman and Ken Lewis compartmentalized it as OK. And it was not the fraud that undid them – it was the overweening arrogance that thought this was alright.

Hempton even says he knows where the money went: to Japan, of all places. But I do wonder whether BofA used a foreign subsidiary to perpetrate these deals, as Lehman did, or whether it managed to find a US law firm to certify them kosher. Either way, this is a story which deserves to come out in some detail. Does anybody have Ken Lewis’s phone number?

Sam Jones has the clearest, shortest rebuttal of Alan Greenspan’s 66-page Brookings paper that I’ve yet seen. And most impressively, Sam wrote it more than a year ago. While Greenspan is becoming increasingly contrite about his failures of regulatory oversight, he still continues to say that his monetary policy was blameless in the crisis, since during his tenure short-term rates, which the Fed controls, ceased to have much if any effect on mortgage rates, which were the key driver of the global housing bubble.

To which Sam says:

It was, of course, (not solely, but significantly) the Fed’s low interest rates that sparked the conditions necessary for such a disconnect – an event Greenspan waves away with a vague mists of time/”turn of this century” sleight of pen. His conceit is basically that the development of a “well arbitraged global market” was a break with the past that the Fed played no part in.

Therein the problem. Precisely because the Fed should have played a part. It should have recognised the huge macroeconomic changes afoot and it should have sought to navigate them.

Instead of which, the Fed stood passively by, nay, it saw what was happening and it recused itself. Turn Greenspan’s excuse around and it becomes a damning indictment: if the Fed realised in 2004 that it could not use its monetary policy tools to control the rapidly inflating US mortgage market, then why on earth did it do nothing for the next three years?

The problem is that it would have been ideologically very difficult for Greenspan, who always wanted the absolute minimum of government interference in the markets and the world generally, to expand the role of the Fed from that of simply setting short-term interest rates. Even when the Fed’s control of short-term interest rates was clearly inadequate to achieve what it’s the job of a central bank to do.

To make matters worse, the reason that short-term interest rates were increasingly powerless was that Greenspan kept them near zero for so long: he basically created frictionless market conditions in which anything could happen — and anything did. Greenspan’s main problem was that he thought that giving up control was a good thing. And while he’s realized that he was wrong in terms of regulatory policy, he still hasn’t realized how wrong he was in terms of monetary policy as well.

I just had an interesting conversation with a senior market participant about the optimal way to structure and regulate the CDS market, compared to the proposal which has now been put forward by Chris Dodd. Essentially, there are two options here: you can either consolidate all the different functions (trading, matching, confirmation, clearing, information warehousing) onto a handful of big global exchanges — or you can disaggregate those functions and allow competition in each of them separately.

It’s pretty obvious that the exchanges, especially the big ones like the CME Group, would love to see everything consolidated with them* (Update: The CME says this isn’t true, see below.) And they’re in luck: that’s exactly what we see in the Dodd bill. I’m sure that makes for happy pillow talk in the Dodd household: Dodd’s wife, Jackie Clegg, is a director of the CME, which paid her $153,219 in 2009; she also owns shares in the company worth about $235,000. (The CME makes no mention of her husband on its website or in its SEC filings, despite the fact that he’s surely a big part of the reason why she has the position.)

That said, consolidating on exchanges is a relatively simple and elegant solution. The alternative is to allow a number of different companies to compete at each stage in the process: trading platforms (Tradeweb, MarketAxess, that kind of thing); matching and confirmation services like ICE Link; and clearing and settlement companies like ICE Trust or LCH.Clearnet. Once all that was done, all of the data would be aggregated into a common standard and warehoused at DTCC and possibly somewhere else as well; the systemic risk regulator would keep a close eye on all that data, and everybody else could too, since it would be made public in a form where new analytics could be applied to it very easily.

The risk with the exchange-based solution is that the exchanges will get protective over their data, and while they’ll surely show it to the systemic risk regulator, the risk regulator will be the only one aggregating the data, and it’ll be harder for the public to get access to it. And, of course, there will be a relatively small number of exchanges trading CDS; as such, the winners in that market — most likely including the CME — will probably end up making windfall profits off everybody else, thanks to their greater pricing power.

On the other hand, the risk with breaking up the different functions of the exchanges is that they’ll end up being dispersed around the country and the world, with the effect that many of them are likely to be pretty free of regulatory oversight. I’m not sure how much of a problem that is, if all the data is publicly warehoused, but conceptually it’s certainly easier for the SEC and CFTC to keep a close eye on the CME, and for their European counterparts to oversee Eurex, than it is for a disparate group of international regulators to try to keep up with a rapidly-evolving set of obscure market facilitators.

My feeling is that while I have no particular love for the exchanges, they’re clearly not part of the problem here, and that if they take over large chunks of the CDS market, little if any harm will be done. I would, however, ask them to report all their data to the DTCC for warehousing, and then require the DTCC to make that data available in a publicly-tractable form. It might not be the solution that today’s big CDS players most like — they’re likely to lose profits to the exchanges — but I’m not going to shed any tears for them. In theory, an alternative system might work. But in practice, moving everything to exchanges is much easier to grasp and implement.

Update: CME spokeswoman Anita Liskey tells me that “we don’t offer trading for CDS, only clearing services”, and sends over this statement:

“We do not believe that clearing should be mandated for all over-the-counter products because it exposes a clearinghouse  to undo risk.  In addition, many contracts do not lend themselves to central counter party clearing because of the complexity of their pricing.  We have publicly stated that mandated OTC clearing does not further the stated goals to bring transparency, integrity and stability to OTC derivatives markets.   Clearing should be encouraged through appropriate capital charges and tailored regulation for participating swap dealers.”