Felix Salmon

BP: Still not as evil as Goldman Sachs

Felix Salmon
Jun 11, 2010 14:46 UTC


I love this chart from BrandIndex, showing responses to the question “If you’ve heard anything about the brand in the last two weeks, was it positive or negative?”.

To get a score of -40, where Goldman Sachs seems to have fallen to, you’d need 70 people saying they were hearing negative stuff about the bank for every 30 saying they’d heard something positive. BP’s not there yet: I do wonder who’s hearing positive things about them.

But it’s interesting that BP was cruising along happily in positive territory until the spill, while Goldman has been negative for all of the past year. And both have deteriorated significantly in the past couple of months. Chances are there will be some kind of reversion to mean in the future in both cases, but it seems that BP has more upside than Goldman, whose public reputation is likely to stay in tatters for the foreseeable future.


Point One, GS was exposed on AIG. Point 2, the culture within GS was either morally bankrupt (ie encouraged the fabulous Fabrice) or morally vacuous (no way to control or rein in FF)
Point 3 VC firms go bust and they have an idea to exploit the product. What products have GS brought to market? (I am choosing to ignore the point that GS is not (properly understood) a VC firm.
Point 4, GS had inside information on Lehman’s (who do you think was briefing against them????) and helped to encourage their demise.
Point 5. When Buffett invested his money in Goldman, it makes me wonder which is worse: being the pimp or the prostitute?
Point 6. life inside GS is not a bed of roses and does not create well rounded corporate citizens. Instead one finds Hobbessian citizen who has no allegiance except to the partnership in the hopes that one day they can be included in the partnership.
Point 7. Would BP have been in as much trouble if it had its ex-employees embedded in DC or the Obama Administration? Can you imagine the outrage and hysteria if Ken Salazar had been the ex CEO of BP? Think about it, BP has done LESS to America and the world economy than Goldman Sachs and the other investment bankers. Nature will take care of itself, but who will replenish all the empty pension funds drained by the special vehicles created by GS and Co?

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Felix Salmon
Jun 11, 2010 05:12 UTC

North Korea: “If you don’t trade, you die.” — NYT

BP Spills Coffee — YouTube

“Something remains broken in America’s attitude toward wealth” — Economist

Kenneth Starr fraud charges now up to $59 million — NYT

Local Manhattan Boy Makes Good — Onion

The new “I park in bike lanes… I’m an asshole” bumper stickers — Daily Green

Cowen on Berlin: “Sometimes you can’t tell which national cuisine the Asian restaurants are serving and I don’t mean that as a compliment.” — MR

I also like Tyler’s response to the NYT multitasking article — MR

“If money doesn’t buy you freedom then it’s useless” (“Freedom”, here, means “Lamborghini”) — Jalopnik

There simply isn’t a plausible reason how or why Alvin Greene won in South Carolina — The Week

Fidelity might be trading iShares for free. But its execution quality is atrocious — Fundometry

Reihan Salam reluctantly concludes that swipe fee regulation isn’t bananas — Forbes

“The rogue knitters refuse to remove the cozy” — SF Gate

More detail from Edward Hugh on the demographics of credit and bubbles — NYT

The “intelligent speed bump,” which only acts as a speed bump if you’re going faster than the posted speed — How We Drive

Ritholtz BP listicle — Big Picture

NYT Bans the Word ‘Tweet’ — Awl


Glad to see one of the worst places in the world getting more coverage and it beats the NYT’s previous complaints about “obsessions” with Kim Jeong Il.

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The credit unions’ fight against interchange regulation

Felix Salmon
Jun 10, 2010 19:32 UTC

Yesterday saw an enormous lobbying effort from the credit union industry; John Magill, the chief lobbyist for the Credit Union National Association, told me that there were over 400,000 “contacts” with Congress this week. He was on the phone with Harriet May, the CEO of a big El Paso credit union, GECU, and the chairman of the CUNA board. She was trying hard to persuade me that credit unions are implacably opposed to regulating interchange fees, which she was prone to characterize as “government price fixing”.

I’m a fan of credit unions in general, but I’m suspicious of this lobbying effort. I’m on the board of directors of my local credit union, and I don’t think any of us are opposed to the Durbin amendment. May told me that some credit unions don’t care about this issue because they don’t issue cards — but we do, both credit and debit.

In any case, May’s main argument was that debit cards are expensive for credit unions, and that interchange fees help to offset that expense. “My debit card losses are high,” she said, “but they’re offset by the interchange”.

The problem was that she refused to say just how high her debit card losses were, beyond saying that she had to replace over 1,000 cards in the wake of the Heartland affair. Similarly, the official factsheet sent out by CUNA asserts baldly that “for most credit unions debit interchange currently covers somewhat more than the direct costs of providing debit services but is not disproportinate given their expenses and potential costs such as those relating to fraud”, without actually quantifying those costs.

When I asked whether the sensible response to fraud would be better security, through things like chip cards, rather than higher interchange fees to cover the ex post expenses associated with fraud, she said that she would welcome chip cards, and that she suspected that interchange fees would be lower if chip cards were introduced.

At the same time, however, she was at pains to point out that she wasn’t setting interchange fees, and that she wasn’t entirely clear on how Visa and Mastercard did set them: I would have to talk to Visa and Mastercard, she said, or to the Electronic Payments Coalition, to get a clear bead on how exactly interchange fees are set. As a result, she couldn’t or wouldn’t answer my simple question: since banks have proved themselves able to increase their revenues by raising interchange fees, what’s to stop them continuing to raise those interchange fees regardless of whether their costs are rising?

The fact is that the banks have worked out, over the past five years or so, that raising interchange fees is a great way of making money, more or less invisibly. As financial regulatory reform curtails their ability to make money in other ways, they’re going to look to interchange fees as a method of making up for revenue lost elsewhere — unless the Durbin amendment, or something like it, passes.

May’s stated reason for believing that U.S. interchange fees — which are already the highest in the world — won’t continue to rise indefinitely is that “merchants can work together with the card associations and we can work through it”. But the fact is that this is a game where the card associations very much have the upper hand: merchants aren’t allowed to group together in a negotiating bloc, and most of the time just have take-it-or-leave-it offers from the Visa/Mastercard duopoly.

What’s more, Senator Durbin himself has written forcefully to the CEOs of Visa and Mastercard, telling them in no uncertain terms not to disadvantage credit unions or other small issuers — who are specifically excluded from Durbin’s amendment.

So unless and until banks or credit unions can plausibly demonstrate that their debit-card losses are high and rising, I’m not going to have much sympathy with them. And I’m going to continue to believe that interchange rates are too high; that they should come down; and that absent any regulation, they’re going to continue to go up instead.


@wprosapiao, I share Felix’s sense of frustration about people talking past each other on this issue, I think your claim that “interchange RATES have not risen” is a great example.

Felix has even covered this in a past post, it’s simply inaccurate to claim that interchange fees haven’t risen: http://blogs.reuters.com/felix-salmon/20 10/01/05/the-interchange-fee-rip-off/

As much as people like to paint the interchange issue as being primarily about BIG business, or BIG banks, it’s about anyone (big or small) who issues cards or accepts them. This is a systemic issue that affects us all, and I’d argue it’s entirely appropriate to tackle it with financial reform.

In comparison to everything else being covered in the reform bill, are interchange fees really that complex?

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New Jersey’s crazy war on oysters

Felix Salmon
Jun 10, 2010 17:34 UTC

In the wake of the Deepwater Horizon disaster, we’ve heard a great deal about how companies and regulators are bad at preventing things which are very unlikely to happen. One only wishes that was true of the New Jersey Department of Environmental Protection — which seems to have transformed itself into the New Jersey Department of Completely Bonkers.

NJ DEP commissioner Bob Martin put out a press release on Monday, saying that he was banning research-related oyster cultivation, and also seeking immediate removal of all such oysters.

This is not the kind of action that one would expect from a commissioner charged with environmental protection. Oysters are an incredibly cheap and effective way of filtering pollution out of water, and if you get rid of them, it’s extremely difficult and expensive to achieve the same results through alternative remediation projects.

Oysters are native to New Jersey, and it seems wrong to eradicate them from contaminated waters just because they’re unfit for human consumption — especially since they’re doing such a good job of cleaning those waters. So why is Martin taking this action?

“If someone gets sick from eating shellfish from contaminated waters, people may stop buying or eating New Jersey products or shellfish from approved waters. It could severely hurt the industry. We can’t allow that to happen.”

The full brunt of the ban will fall on one extremely worthy organization, NY/NJ Baykeepers. They make some excellent points in response:

Our oysters are not fit for human consumption. Just like blue crabs, ribbed mussels, finfish and all manner of other crustaceans and shellfish in the harbor, our oysters live and grow in contaminated water and are the subject of consumption advisories. The DEP seems to fear that there are people out there who will find our reefs — though underwater at all times, — choose our oysters — though they are too small for human consumption, — remove them — though they are firmly affixed to immovable structures, — and then sell them to unwitting consumers. We think that danger is vanishingly unlikely.

Still, we have frequently offered to work with the DEP to improve security. We have proposed many solutions to the supposed public health risk, including caging the oysters, citizen patrols, deputized volunteer patrols, and motion sensing technology. DEP has never seriously entertained these offers and now stands poised to decimate our oyster program even though it is the most cost effective method for environmental improvement currently on the table. We had hoped that Commissioner Martin would be willing to consider small business solutions for environmental problems, but now we know he just doesn’t get it. Instead, NY/NJ Baykeeper will potentially face layoffs, lose over a million dollars in project funding, and New Jersey residents will face huge tax bills when they are forced to fund more expensive remediation projects such as sewer separation and storm water control.

One useful way of thinking about this action is to reduce everything to dollars. Extra safeguards on the Deepwater Horizon might have cost a few million dollars, but they might have prevented billions of dollars in environmental damage — not to mention the loss of eleven lives. If there was say a one-in-1,000 chance of this disaster happening, you can multiply the up-front cost by 1,000 and then compare it to the damage caused by the disaster, and arrive at some pretty compelling numbers. Let’s say the extra safeguards would cost $10 million: multiply that by 1,000 and you get $10 billion. Whereas the cost of the disaster is maybe $50 billion. So you’re spending $1 for every $5 you save.

If you apply the same math to the oyster decision, then the decision still doesn’t make any sense. Say there’s a one-in-1,000 chance of contaminated oysters being found, chosen, removed, entered into the human-consumption supply chain, eaten, and ultimately damaging the New Jersey shellfish industry to the tune of say 25% of sales. Let’s put the costs of the decision at $10 million: multiply that by 1,000 and you get $10 billion. 25% of New Jersey shellfish sales is $200 million. So you’re essentially spending $50, here, for every dollar you save. It makes no sense.

I suspect that what’s happening here is a result of lobbying by the New Jersey shellfish industry, which will suffer no harm at all as a result of this decision. They’re surely happy about it. But they seem also to have a callous disregard for NY/NJ Baykeepers, for the environmental protection of New Jersey’s estuaries, and for New Jersey’s taxpayers more generally.

If similar reclamation schemes are a big success in the Chesapeake and elsewhere — which also have commercial shellfish operations nearby — they should work in New Jersey as well. So I hope there’s some small chance that Martin will do the right thing and change his mind. Maybe New Jersey’s oyster lovers can explain to him that they’re not worried about their food, so he shouldn’t be worried about it either.

Update: Count the high-end local oyster distributor W&T Seafood in among the opponents of Martin’s decision. If they don’t approve of it, who does?


Please someone tell me where the oysters for sale are harvested in NJ?

I am sure that the native oyster population in NJ is extinct, and that there is no oyster fishing industry in NJ.

This means that there is nothing to protect here, except our fears.


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The FT’s experiment with paywalled blogs

Felix Salmon
Jun 10, 2010 15:57 UTC

Thanks to JDB for alerting me to the fact that the FT is now moving its blogs behind its paywall, starting with Money Supply:

Dear readers,

The Money Supply blog will become subject to FT.com’s subscription rules from Wednesday June 9… This brings Money Supply in line with the majority of FT.com content.

We appreciate your readership and comments, and hope you continue to enjoy the blog.

The post has received three comments so far, all of which are from subscribers to the print newspaper who say that they will henceforth no longer read the blog.

The move makes sense in a kind of tyranny-of-consistency way: the FT.com site believes that paywalls are the way to go, Money Supply is on the FT.com site, therefore Money Supply must be behind the paywall. But beyond that, it’s silly.

For one thing, the best reason for newspapers to put a paywall around their website is to support the circulation of the print product, where readers are much more lucrative in terms of both subscription and advertising revenue. Newspapers with free websites fear that their print readers will desert the newspaper for the online product, and they put up paywalls to make that decision less attractive.

Blogs are a great way for a newspaper to add online value for their print subscribers: they can put nichey content like wonky posts on central banking online, without using up precious newsprint. But the FT doesn’t give online access to its print subscribers: that’s a key difference between the FT paywall and the one being proposed by the NYT. And print subscribers understandably don’t particularly want to pay twice for the same content. So their relationship with the FT will necessarily weaken when they lose access to the blog content.

If the FT doesn’t seem to care about its print subscribers here, it cares even less about its bloggers. Money Supply was never going to be a big mainstream blog — it’s far too wonky for that — but it’s written by smart people, and it has very good content, and it had a real chance of becoming part of the broader online conversation. But there’s now essentially zero chance that its audience will grow substantially from its present low level. The writers of the Money Supply blog are very smart and valuable FT staffers, and they have no real interest in shouting into a void. What’s more, the FT has no real interest in using their valuable time to create something that almost nobody is reading. So inevitably Money Supply is going to drop slowly down the list of its writers’ and the FT’s priorities.

Even the paper’s online subscribers aren’t going to be reading Money Supply very much, if they don’t go looking for it: because it’s on the blog platform rather than the main newspaper-publishing platform, its entries don’t appear in FT search results. It’s all well and good treating all online content equally, but that doesn’t work if you set your blogs apart on a completely separate platform and even at a separate URL (blogs.ft.com rather than www.ft.com).

My guess is that the most likely outcome here is that Money Supply will fail to get much more traction, and will be quietly mothballed at some point down the road: right now I can’t see the FT reversing its decision and making it free again. That’s sad, because this kind of blog is a great way of using the power of the web. But the fact is that blogs and paywalls just don’t mix.


More from Robert Shrimsley, managing editor of FT.com, on how more FT blogs will follow – http://www.journalism.co.uk/2/articles/5 39159.php

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Is Basel III already prompting bank sales?

Felix Salmon
Jun 10, 2010 13:29 UTC

The WSJ cites an interesting reason why BofA sold its stake in Santander Mexico:

People close to the bank say the decision to sell its stake in the business was driven in part by concerns over a proposed rule under the so-called Basel regulatory accord, which would increase the capital requirements associated with holding minority stakes in other institutions. The banking industry is fighting against the proposal, arguing it would make such arrangements prohibitively expensive…

The Santander deal is “a cleanup of minority exposures ahead of the Basel III implementation,” said Joseph Dickerson, an analyst at London brokerage firm Execution Noble Ltd…

The regulatory concerns also played a role in Bank of America’s recent decision to unload its holdings in Brazil’s largest private bank, Itau Unibanco Holding SA, for about $4 billion.

The proposed Basel rule could affect the holdings of many other banks, such as London-based Barclays PLC, whose stakes include 20% in BlackRock Global Investors.

I thought briefly about this possibility yesterday, when I wrote about the deal, but dismissed it. This particular provision of Basel III is still being opposed by a wide group of industry players, and might never make it in to the final rule. And even if it does, it’s going to be telegraphed long in advance: Basel III will be phased in slowly, over many years, giving BofA a lot of time to sell off minority stakes before it’s ever enforced. So the timing seems weird: why sell $6.5 billion of strategic Latin American banking assets just on the off-chance that they might, in future, be treated harshly by the new international capital-adequacy regime?

What’s more, the stated reason for the sale of the Brazil stake made perfect sense on its own:

Bank of America spokesman Jerry Dubrowski said in an email, “In December 2009, in connection with repayment of TARP [the Treasury's Troubled Asset Relief Program], Bank of America committed to increase its Tier 1 common equity by $3 billion through the sale of assets or raising additional common equity.”

BofA’s stake in Itaú Unibanco is a legacy of its expansion-via acquisition strategy: it bought FleetBoston, which in turn was a merger of Fleet with Bank Boston, and Bank Boston was historically an important player in Latin American banking. But at the BofA level, BankBoston’s Latin expertise was never particularly valued, especially after the Argentine crisis essentially destroyed the Argentina subsidiary, which was always BankBoston’s crown jewel. So I don’t buy the story that the Brazil deal came out of Basel III concerns.

Also, why would Basel III rules be problematic with respect to Barclays’ stake in BlackRock? As I understand it, the reasoning behind the new regulations is that if the partially-owned bank gets into trouble, then there’s a good chance that the bank with the minority stake will be pressured to help make up the losses. But that’s not really a problem with BlackRock, which operates with essentially zero leverage. Owning banks is dangerous, because they can lose much more than their entire equity. That’s much less of a problem with owning an institutional investor like BlackRock.

So I wouldn’t read too much into the WSJ story today. Yes, Basel III might have an effect on minority bank stakes in the future. But I don’t think it’s driving large strategic decisions right now.


Leverage and fiat money (as unleashed by Basel II) is the destroyer of our world.

http://gregpytel.blogspot.com/2009/04/la rgest-heist-in-history.html

Read it then send GeeDubYah and Tony B Liar and thank-you card.

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Felix Salmon
Jun 10, 2010 05:27 UTC

Lindsey Graham’s climate-change U-turn (see update) — TNR

Nigerian spammers aren’t remotely this clever. But it’s still funny — Bronte Capital

WTF is HTML5? — Focus

Crossposting isn’t spamdexing

Felix Salmon
Jun 9, 2010 21:38 UTC

A rather angry commenter named IbexSalad reacted quite angrily to my post on Edward Hugh:

Mr. Hugh is one of the blog world’s biggest spamdexers.

What the NYT characterizes as ‘…writes for a suite of blogs…’ is, in fact, ‘…crossposts to a suite of blogs…’. The end result is that Google searches for country specific economic analysis constantly turn up multiple repeats of the same articles written by the same Mr. Hugh.

When another commenter remarked innocently that Hugh “certainly understands how Google works”, IbexSalad responded:

No Claus – that would be how Google fails to work. Fortunately it doesn’t happen too often outside the realm of selling gland enlargement supplements, and the like.

Spamdexing is taboo.

Putting aside the question of Edward Hugh specifically, I think it’s a very bad idea to consider crossposting to be the same thing as spamdexing. In fact, I’m a fan of crossposting, and consider it just another way in which people can use all manner of techniques to reach a broad audience of readers.

I think that the best content finds its way to readers, rather than the other way around. That’s one of the reasons I’m a fan of full RSS feeds, and it’s the main reason why I’m happy to let Seeking Alpha republish my blog entries for free: Seeking Alpha’s readers are not the same as the readers of my blog on Reuters, so I reach more people that way. I also like the way in which Seeking Alpha readers get my posts sent to them by email. And if other sites with wide readership also want to carry my stuff, I’ll be happy about that too.

That’s not spamdexing, that’s just humbly going to where the readers are, rather than forcing the readers to come to me. There can be issues surrounding comment streams, and I’d love it if more sites standardized on Disqus or Echo or similar, so that you don’t have to try to keep up with multiple conversations. (As it is, I almost never read my comments on Seeking Alpha, sadly.)

It’s true that some search engines will end up returning the same post multiple times if it’s crossposted to multiple places. But Google has worked out how to deal with that bug in Google News, where wire copy can often appear in hundreds of different places, and I’m sure it’s going to work out something similar for cross-posted blogs as well. Crossposting is just a natural issue for search engines to deal with, it’s not a black-hat or taboo way for bloggers to try to boost their search results.

It would have taken me years to find Hugh were it not for the fact that he was crossposting from early on to A Fistful of Euros. I’m glad he did that, and I think it’s great that he has other outlets as well. Let’s not excoriate him for being open with his intellectual property, rather than jealously guarding it in one place.


Content is valuable, but it’s old-economy to assign high value to content in isolation from context… in my opinion, anyway. Blogging tends to be content in energetic search of novel context, making it understandable that bloggers may strive by any means necessary to be seen and read as widely as possible at least until notoriety and the temptation to paywall is assured.

This could involve cross-posting or virtual syndication by any legitimate means. While not as tolerant of the “legal unless prohibited” argument as abused by investment bankers, in the case of honest hardworking bloggers I’m inclined to regard cross-posting as innocent until proven otherwise.

The accusation of our man Ed “spamdexing” however, which if I understand it correctly would involve any web publication improperly burying irrelevant keywords in metatags and/or transparent layers of landing pages, strikes me as presently unfounded.

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The ever-falling BP share price

Felix Salmon
Jun 9, 2010 18:34 UTC

With its latest stock-price plunge today, BP has broken three important psychological levels: it’s below book value, it’s trading at less than half of its 52-week high, and it’s worth less than $100 billion. The culprit this time around would seem to be the dividend. The company has been paying out a steady 84 cents per share per quarter, and that payment is now in jeopardy; as recently as last week, it seemed to be safe.

How does the retention of $3.36 in annual dividend payments justify a $4.50 fall in the share price? Well, so long as BP holds on to that money and doesn’t transfer it to shareholders, it can be forced to transfer it elsewhere instead — for instance to workers who were laid off from other oil companies upon the introduction of the moratorium on off-shore drilling. BP’s coffers are not at all a safe place to store shareholders’ cash: they can be raided by all manner of legal and regulatory eventualities.

But there’s another dynamic at work here: BP and Shell between them account for 50% of the dividends paid by UK companies every year. It seems quaint, but there really are a lot of far-from-wealthy people in the UK who live off their dividend income, and those people constitute a surprisingly large part of BP’s shareholder base. If BP suspends its dividend, the only way they can get money from their stock is by selling it.

If BP doesn’t suspend its dividend, it would seem to be approaching screaming-buy levels right now: a $3.36 dividend on a stock worth $30.42 is a dividend yield of 11%. Plus of course there’s the possibility of an exit via takeover. But the fact is that the government can and will trump all of those considerations; it’s certainly not going to allow BP to declare an enormous special dividend, sell most of its remaining assets to Exxon, and then plead bankruptcy when the cleanup bill arrives. If such a thing were possible, BP stock would surely be worth a lot more than it is right now. But, thankfully, it’s not.


It took 17 years for Exxon to be finally penalised for Valdez. I would consider this the lower estimate for BP.

Why? Well BP has more avenues to fight this than Exxon mainly because the American contractors it got in to do the drilling and well prep were the ones who seemed to have slipped up.

The clean up will actually happend far quicker than people expect

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