Felix Salmon

Bob Rubin sex scandal: He can’t get past second base

Felix Salmon
Apr 30, 2010 22:03 UTC

Now this is what we really need on a Friday afternoon: a Bob Rubin sex scandal!

It’s all based on a whopping 3,500-word blog entry from Iris Mack, who had a long relationship with Bob Rubin which involved hundreds of phone calls, a few dates, the occasional “cuddle” — and no sex.

The post itself leaves the question of whether or not sex occurred slightly ambiguous, but I’ve cleared the matter up with Moe Tkacik, who helped Mack write the story, and the fact is that although Rubin clearly wanted sex, he never got it.

Mack says that Rubin behaved like a “bratty teenager”, and that she finally got disgusted enough with him to go public after she watched his dreadful performance in front of the FCIC. But not before this:

“Do you want to go upstairs and…cuddle?”

So that’s what this is about. For a moment I was totally speechless and had to dig into my Harvard trained PhD brain to figure out what the hell he meant by “cuddling”! What can I say; once a teetotaling math geek, always a bit slow to pick up on signals from the menfolk. So the former Treasury Secretary had a “crush” on me! And not long afterward the former Treasury Secretary had his tongue down my throat and hands everywhere sort of like an octopus. But as soon as the thought entered my mind — the former Treasury Secretary has his tongue down my throat?! — I came to my senses a bit and awkwardly went back home before we both got too carried away. This is to say, I said to myself that there would be no other former Treasury Secretary appendages entering any other of my orifices.

Rubin’s reputation has been in tatters for a while now, but that doesn’t stop him from having a lot of influence in the White House. I suspect that’s going to change now that no one’s going to be able to look at him without thinking of him jetting down to Miami on a booty call — and then failing to close the deal.

Meanwhile, Rubin’s professional reputation should be hurt by this, too:

It was a hellish season back at the Citigroup office; a few days after that first call a powerful analyst had put out a damning report all but declaring Citigroup insolvent, some regulators were already calling to break up the bank and the disgraced CEO Chuck Prince was negotiating his golden parachute.

But none of this seemed to require Bob Rubin to actually do very much. On November 1 he called me four times as I was leaving for a conference in Raleigh; first while I was packing, then in the cab to the airport, then again before I went through security, then again when I was supposed to land. When I had to put the phone away he acted like a little kid who’d been told it was bedtime, and said he would call me again when I got to my destination.

“Don’t you have work to do, Mr. Chairman?” I joked during our third call.

“I’m the chairman of the executive committee,” he specified.

“What the hell does that mean?” By then I was confused.

“It means the word ‘chairman’ is in the title and I get paid very handsomely, but I don’t have any actual managerial responsibilities.” He seemed pleased.

“Well excuse moi,” I shot back. “Nice work if you can get it!”

Three days after this chat, Prince resigned, forcing Bob Rubin to add an additional chairmanship — of the board — to his business cards. But he kept calling me all the while.

Of course, Rubin is retired now — although his Hamilton Project is still going on. I wonder how he’ll deal with this the next time he goes into his office there.


Yikes, make that “man bites dog.” Obviously no Harvard for me

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Does Justice care if Goldman settles its SEC suit?

Felix Salmon
Apr 30, 2010 21:09 UTC

Why did Goldman stock fall so far today? It’s pretty standard practice for SEC complaints to get forwarded over to Justice, so the news that Justice was looking at Goldman could hardly have come as all that much of a surprise to the market. But perhaps Justice isn’t looking at Abacus: if it’s looking at Timberwolf instead, then that’s a whole new can of worms for Goldman to deal with, and would help turn one bad deal into a fully-fledged pattern of criminal behavior.

So while Henry Blodget is right to say that the falling share price will increase the pressure on Goldman to settle with the SEC, I’m not sure he’s right when he says that “it could also ease the pressure on prosecutors to file criminal charges against the firm.” Now that Justice is looking at the firm, it’s going to make its own decisions — and if it files a criminal case against Goldman, that’s going to be devastating for the firm whether it has settled with the SEC or not.


After Buffett’s depressing proclamation that Goldman is the very embodiment of moral rectitude, and the revelation that he is in the process of arranging the nuptials of one of his granddaughters to Fabrice Tourre, all hope for fairness seems lost.

Lucas van Praag must be fuming, having lost a cushy job to an eighty-year-old from Omaha.

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Housing quiz answers

Felix Salmon
Apr 30, 2010 20:47 UTC

The wisdom of crowds, it turns out, is pretty reliable. I asked for the names of the two unidentified cities at the top of the housing-price and price-to-rent scales, and the correct answers started rolling in immediately: Honolulu and San Jose. Here’s the chart with a bunch more names added in:


Congratulations to stevenlyons, kmitchelson, petertemplar, and ACS, all of whom win a copy of Richard Florida’s new book.


I do not know much about Honolulu, but there is this source

http://www.honoluluadvertiser.com/articl e/20100407/BREAKING03/100407031/Oahu-hom e-sales-median-price-rise-in-March-from- year-ago

which says that March ’10 median sales prices on Oahu were 599 (detached) and 310 (condo).

And US News

http://www.usnews.com/money/best-places/ listing/hawaii/honolulu/housing#tabs

claims that the median price (both detached and attached?) is only 375.

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Europe’s strained marriage

Felix Salmon
Apr 30, 2010 16:32 UTC

On Monday, I looked at Germany’s attitude to Greece from a nationalist/tactical perspective, and promptly got slapped down by dsquared: “Congratulations,” he wrote, “you’ve proved the impossibility of not only the 2004 and 2007 accessions, but also of the Common Agricultural Policy.”

But the fact is that the Europe which grew in 2004 and 2007, and the Europe which came together to create the CAP, now looks as though it is falling apart. Philip Stephens has an essay in today’s FT which diagnoses this well, and which captures the sudden shift that we’ve seen of late, from the “reassuringly ineluctable” EU of a couple of years ago to something much more precarious today:

Europe no longer carries the stamp of inevitability. Quite suddenly, it has become almost as easy to foresee a future in which the Union fractures…

Germany relishes instead the chance to become a “normal” country, separating what it sees as its national from the European interest. Helmut Kohl’s historical insights are forgotten in the insistence that German taxpayers should not be asked to remain the continent’s paymaster. So too are Berlin’s long-term interests in European-wide political stability and in open markets for its exports.

France struggles with the dynamics of a Union in which more Europe no longer necessarily means more France. Nicolas Sarkozy’s admirable energy is unconnected to strategic purpose. Britain, as ever, stands half on the sidelines. Italy, led by Silvio Berlusconi, has removed itself from influence.

There have been moments of stasis before. But the rules have changed. The fall of the Berlin Wall and the collapse of communism have turned an enterprise of necessity into one of choice. If the Union falls into disrepair everyone will still be the loser; but the threat no longer seems an existential one…

The response of Europe’s politicians has been to sacrifice the strategic to the tactical.

Stephens diagnoses this as a failure of leadership, and narrowly he’s right; certainly it’s impossible to imagine today’s European heads of state making the collective decision to adopt the euro.

But Paul Krugman takes the opposite tack: the failure of leadership, he says, was encapsulated in the decision to adopt the euro in the first place.

The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.

I’m probably closer to Stephens than to Krugman on this one, but it’s true that the architects of the euro assumed that it would foster political unity, in much the same way as some couples think that having a baby will help to save their marriage. Certainly the stakes were raised, but if Germany and Greece never really got on very well in the first place, it was with hindsight far too optimistic to assume that joining together in monetary matrimony would suddenly make them sovereign soul-mates. When they were just cohabiting in the EU, their differences were manageable. But now they’ve had the euro together, that’s not true any more.


This may be patently obvious but if there are still any Turks left who think they have a chance to join the EU, they may as well forget it for at least a generation. I know that Eurozone is not the same as EU accession but to carry on your analogy, a squabbling family really isn’t of a mind to adopt.

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Switzerland’s non-exposure to Greece

Felix Salmon
Apr 30, 2010 13:43 UTC

exposure.gifRemember all those Swiss banks with massive exposure to Greece? Er, never mind. The WSJ’s Brian Blackstone has* this great little chart, which shows Switzerland’s $79 billion of exposure falling by 95% between the third and fourth quarters. He’s got to the bottom of what exactly happened, too. And it has nothing whatsoever to do with CDS:

Eurobank EFG is based in Athens, listed on the Athens stock exchange and has roughly 1,600 branches in Greece and other countries in Central, Eastern and Southern Europe. It is controlled by EFG Group, a holding company that is indirectly controlled by the billionaire Latsis family of Greece.

Until recently, EFG Group had its headquarters in Switzerland…

It is unlikely that the bank posed any significant financial risk to Switzerland. Like all Greek banks, its deposits are insured by the Greek government.

Eurobank EFG’s exposure was classified as Swiss because its parent company was based in Switzerland. In the fourth quarter, the parent company underwent a restructuring; EFG Group is now based in Luxembourg but not classified as a bank there.

It seems that the BIS itself is in dire need of moving from a rules-based to a principles-based regime. EFG is a Greek bank, it was always a Greek bank, and it should always have been reported as such. If some narrow-minded bureaucrat decided that the rules meant that it had to be reported as Swiss, then obviously the BIS should have changed the rules. It’s worth asking why that never happened.

Update: Reuters had it first. And I think, although BIS statistics are very confusing, that what we’re looking at here is double-counting: EFG showing up in both the Greece and the Switzerland statistics. Until Q4, at which point it was just Greece.

Update 2: Or maybe Alphaville had it first.


Not surprisingly, our 5 senses correlate with our needs for clean food, clean water, safety and reproduction. The senses of touch, smell, taste, sound, and of sight. These are resource based research, tools. We are all researchers in our own right.

The planet provides the resources and our survival is a testament to a high functioning, ability to find and use these resources. We get together and passionately volunteer our time and energy to promote the freedom of the next breath.

Funny, no sense of an on going monetary computation, required to sustain life? Somewhere along the way we picked up this parasite that promotes, taxation, indebtedness, aggression greed…etcetera, etcetera, U could help me fill many pages. The evidence shows, as reported world wide, in many, languages, that this monetary system threatens our freedom.
When a parasite is found do U promote, regulate or “fix” it?… or eliminate and replace with a resource based, system, that we are designed to deal with.

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Angus Maddison, RIP

Felix Salmon
Apr 30, 2010 13:14 UTC

photo.jpgMy reference library is the internet. But I do have a few indispensible books on my shelves, and right next to the OED is Angus Maddison’s magisterial The World Economy: A Millennial Perspective. The product of a lifetime’s erudition and research, it might get updated over the coming few decades but I doubt it will be replaced for a very long time, if ever.

I just came across Maddison’s name yesterday, as I was reading Matt Ridley’s new book, and he dropped in the fact that China was the only country in the world to have lower GDP in 1950 than it had in 1000. That’s the kind of thing which no one knew, certainly not with any confidence, before Maddison came along.

Maddison died on April 24, I just found out. The Economist has an excellent obituary. But as far as the economic literature is concerned, he’s one of the immortals.


China – per capita GDP, not GDP (which had grown a lot due to population rises)

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Felix Salmon
Apr 30, 2010 03:28 UTC

Markets in everything: A one-week internship at Vogue sells for $42,500 — Gawker

Justice Dept. Said to Open Goldman Inquiry — NYT

Utterly incomprehensible AP press release talks about reaching “emerging devices like… desktops” — AP

‘Push-cop’ Pogan found guilty of lying, faces up to 4 years — NYPost

Ben Nelson, Wife Own as Much as $6 Million in Berkshire Stock — Businessweek

Did Goldman’s Ex-Mortgage Guru Lie Under Oath? I’m not convinced, but the circumstantial evidence is strong — Mother Jones

Paul Collier has a new book, The Plundered Planet — Amazon

Steve Jobs vs Flash. He’s convinced me — Apple

The LSE seems to be the fivethirtyeight of the UK elections — LSE

6 Palm execs make $8 million in 2 weeks — Footnoted

I now have a comments feed for this blog — Reuters RSS


So why is it so hard to turn off Flash in Safari?

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Housing quiz

Felix Salmon
Apr 30, 2010 02:15 UTC

Chart of the day comes from Richard Florida:


He’s re-running the numbers on the rent-vs-buy debate, and the first thing to notice about this chart, if you just look at the distribution along the y-axis, is that there really aren’t all that many cities below David Leonhardt’s cut-off of 20, and there are precious few indeed below Dean Baker’s cut-off of 15. Most of the country, it seems, is still pretty expensive on a rental-ratio basis.

But be careful with those numbers: Florida, here, is comparing house prices in these cities to rents in these cities. But that ratio is always going to be higher than the ratio between the price of any given house and the annual cost of renting it, since houses for sale tend to be bigger and more expensive and located in nicer neighborhoods than houses for rent.

That, in turn, helps to explain at least a little bit of the startling positive correlation we see in the chart: the cities at the top-right are more likely to be ghettoized into expensive neighborhoods where everybody owns and cheap neighborhoods where everybody rents. Meanwhile, I’ll happily hazard a guess that the cities at the bottom-left will see much less in the way of that kind of differentiation.

But I think there’s something real going on in this chart as well, and it’s rational, to boot. Let’s ignore the difference in housing stock between purchase and rental properties for the time being, and create an oversimplified model where prices are set, in a rational market, at the net present value of future rents. Does it make sense that the prospects for future rent increases are much more robust in LA, NY, and SF than they are in Tampa and Atlanta? Of course it does: vibrant urban centers are much better placed, economically speaking, than endless crumbling exurbs.

In turn, what that says to me is that the market does a pretty good job with respect to pricing in future appreciation or depreciation in rents. There’s a clear baseline cluster around the 20 mark, and then an adjustment is made to that number according to the rental outlook from city to city.

Still, the top five cities are clearly outliers and far too expensive: it would be foolish, I think, to buy in any of them. Which raises an important question for Richard: What are the other two cities in that cluster of five up in the top right hand corner?

I’ll drop Richard an email to find out, but in the meantime put your guesses in the comments, and I’ll try and get his publicist to send a copy of his new book to the first people who get the answer right.

Update: Quiz over. It’s Honolulu and San Jose.


We do need to figure out a way to normalize for quality on rentals vs. owner occupied homes, but these ratios are a great start at affordability analysis. This chart is a little funny to me though — especially fitting a linear trend to it. In what case would we expect home prices to not be correlated to a ratio that also contains home prices?

I’ve done a little work on affordability myself. Using the FHFA home price index and the census median income and rent figures I’ve calculated price-to-income and price to rent ratios for a bunch of metros here:

http://www.deptofnumbers.com/affordabili ty/

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Fuld’s perjury

Felix Salmon
Apr 29, 2010 21:31 UTC

Dick Fuld said under oath that he was paid less than $310 million from 2000 through 2007, and that he held, rather than sold, the “vast majority” of his shares, if not all of them. But it’s becoming increasingly clear that he was lying. The latest bombshells come from former Lehman lawyer Oliver Budde, who spent many years drafting the bank’s compensation disclosures and hiding the restricted stock unit (RSU) component of Fuld’s pay. Lehman had to change that after Budde left, but it didn’t:

Budde calculated that while Lehman reported Fuld’s RSUs as worth $146 million, the real figure, based on the Section 16 reports, was $409.5 million. Lehman had counted just 2 of 15 RSU awards…

Considering his options, Budde decided to go to the SEC as a whistleblower. He sent a detailed two-page e-mail on April 14, 2008, to the SEC’s Enforcement Division, under the subject line “Possible Material Noncompliance with New Executive Compensation Disclosure Rules.”…

He got a standardized form thanking him for his letter in return. He never heard anything else…

While Fuld said he earned less than $310 million from 2000 through 2007, he actually had received $529.4 million, according to Budde’s calculations.

In direct contradiction to Fuld’s claim to Waxman that he had not sold the majority of his shares, Budde estimates that Fuld earned $469 million from stock sales between 2000 and 2008.

Budde’s numbers are almost identical to the numbers already published by Lucian Bebchuk, so they are credible on their face. And Budde clearly knows what he’s talking about.

It comes down to this: Fuld claimed that he was paid less than $310 million over the years in question, and lost nearly all of it. In fact, according to Budde, he was paid $529 million, and kept $469 million — more than he said he was paid in total.

Fuld’s in a lot of legal jeopardy already, of course. But we’re still waiting for a villain from this crisis to end up in jail. Is there any chance, do you think, that an aggressive attorney general somewhere might launch a criminal prosecution for perjury?


Martha came to mind more than once for me also.

Martha could not get away because of legal reasons, but the contrasting stories also exemplify how dysfunctional the current anti-fraud laws are interpreted, for the purpose of litigating the hardened crooks who deliberately hid and contributed to the story.

Emails showed that Martha was tipped. Then her brokers bought those stocks. I heard her explain on TV that she should have been thinking more carefully, implying that she should have known, but she did not know.
The law specifies that “should have known” is enough to convict such tippers and tippees’ behavior as insider tradings violations. They did siphon off profits from ordinary investors and shareholders based on knowledge that should have been private. Her position with the exchange rendered her without excuse.

Fuld, and his team of lawyers know all the laws. Their actions, accounting methods were tageted specifically at the accounting loopholes, and the lack of specific laws forbidding the use of auctions, to effectuate fraud.

There is also no law yet, specifically criminalizing somebody who knew the market was about to crash, and put together bets as if he did not know that the market would crash. Until Congress makes it manifestly illegal for J Paulson’s failure to disclose his inside insight into the fraudulent nature of the entire subprime-market, to people he was putting together the portfolio for, it appears, so far, that Khuzami is not planning to prosecute J Paulson. That kind of misrepresenting, (though we might think of as fraud), was not within the contemplation of Congress at the time of their legislation.


It’s up to the Supreme Court ultimately, to interpret the laws narrowly or broadly. Khuzami and the head of the SEC seem to be interpreting the concept of misrepresentation narrowly. Most common voters, from the sentiments expressed, would have voted to interpret the scope of “misrepresentation” broadly, and the fiduciary duty more broadly. If Khuzami & the head of SEC continues to interpret J Paulson’s misrepresentation as NOT included in the law, then there is no chance taxpayers can recuperate money from J Paulson. Based on the precedents, Roberts and Alito would likely have voted to interpret it like Khuzami now. However, somebody like Goodwin Liu, President of the American Constitution Society, were to interpret the concept of “misrepresentation”, it might be more consistent with what common people, and common sense would interpret it.

His views are that legislations are a “living” set of laws that should be applied with common sense to situations not within the original contemplation of the legislators. If the Supreme Court consists of somebody like Goodwin Liu, then Sotomayor, and others might be persuaded to interpret laws with more common sense, and J Paulson may be convicted.

Professional murderers are more difficult to catch than drunk drives who inadvertently kill. If common sense is not used where discretion is allowed, convictions for professional murderers could be impossible. How often do such “professional” leave a trail that is not within a legal loophole.

Obama should know that. He should pick a Sup Court judge who sides with the American People, where the law itself allows such degree of discretion.

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