HuffPo won’t get “more traffic and pageviews” from a content-sharing partnership with Yahoo. It should ask for cash — Techcrunch
The Duke of Hamilton held the marquisates of Douglas and Clydesdale, the earldoms of Angus, Lanark, Arran and Cambridge, the lordships of Abernethy, Jedburgh Forest, Aven, Innerdale, Machansyre and Polmont, and the barony of Dutton; he was also pretender to the French Dukedom of Châtelherault — Telegraph
This Is Not How You’re Supposed to Fly Out of Dallas-Fort Worth International Airport — Dallas Observer
California’s SR91 highway: The left 2 lanes, priced, carry as much traffic during rush hour as the four free lanes to the right — Twitpic
Tyler Cowen and Matt Yglesias have not had time to read Todd Zywicki’s 63-page paper on interchange fees; it certainly doesn’t need to be nearly as long as it is. But the fact is that you don’t need to read all that far past the abstract to realize how silly and contentious it is.
For instance, Zywicki spends a lot of time making the argument that “the increased revenues merchants receive from shifting credit losses on sales to card issuers by itself exceeds interchange costs” (his italics):
Visa and MasterCard card issuers alone wrote off almost $50 billion in uncollected credit card debt in the U.S. in 2008, and $65 billion in 2009—more than 5% of the total volume of credit card purchases by their cardholders last year. This uncollected debt represents revenue or profits that merchants would not have received without issuing banks assuming the credit risk for those transactions and suffering the loss. In essence, these losses reflect revenues the merchants received from card issuers for sales that were made but not actually paid for by cardholders…
To the extent that a part of the interchange fee represents an allocation of the cost of increased credit risk to merchants (who undeniably benefit from the increased revenues it represents and who otherwise would have to bear that risk themselves), merchant claims that any portion of these fees above the “direct administrative costs” of operating a credit system are unjustified and meritless.
You can see why it might be hard to wade through 63 pages of this stuff, especially when Zywicki’s arguments are as disingenuous as this. Interchange fees are not, never have been, and never should be an attempt to charge merchants for the credit risk of their customers. The $65 billion of credit-card write-offs in 2009 is a large number — but it is significantly smaller than the total amount of interest charged by credit-card issuers. The extension of credit, for credit-card companies, is a profit center, not a loss center. If you’re just looking at the credit side of things, the card issuers should be paying merchants for bringing them new transactions from which they make so much money, rather than the other way around.
You also need to do a lot of footnote-chasing, with this paper. Consider:
Supporting the importance of risk-shifting for credit cards and their value to merchants is the fact that while total (credit card plus debit card) interchange fees collected have, on average, increased slightly, interchange rates on debit cards—which entail almost no credit risk—have been declining.
This surprised me, so I followed the footnote, which took me to this blog entry, written by a colleague of Zywicki. The blog entry, in turn, pointed me to Chart 3 in this paper. Here’s the chart in question:
The first thing you note is that the CAGR on the right hand side shows debit-card fees rising by 0.5% a year on average, not falling. And the second thing you notice is that the chart ends in 2004, long before the spike in debit-card fees that everybody is complaining about.
Back in January, Andrew Martin published a much more up-to-date chart, which I blogged here: a glance at it makes clear that if you’re only using data on interchange fees which ends in 2004, you can’t be taken seriously in this debate.
At heart, Zywicki’s argument is that merchants benefit from payment cards, therefore they have nothing to complain about. But this is silly. Yes, merchants benefit from these cards. But that doesn’t mean that the card issuers can or should be able to continue to ratchet up interchange fees. The reason for the Durbin amendment isn’t so the level of interchange fees, so much as it it’s the rate at which they’re rising: these things were profitable for the card issuers when they were much lower than they are now, and all the recent increases have been pure gouging, made possible by the Visa/Mastercard duopoly.
Zywicki spends an inordinate amount of time arguing that payment cards are a good thing, that handling cash is expensive, and various other assertions which no one has any objection to. What he doesn’t do is provide any good reason for rising interchange fees: debit cards, in particular, should be significantly cheaper than cash, for merchants, and increasingly they’re not. Still, he gives it the old college try:
A small increase in interchange fees would make participation in the network more expensive for merchants, but it would also enable banks to enhance their card offerings. Thus, this would tend to increase the number of consumers using that network’s cards and thus make the network more attractive for merchants.
A lot of the rest of the paper is devoted to the old arguments about how if you stop banks from making money in secret, through interchange fees, then they’ll just start making money more transparently, through higher annual fees and interest rates on credit cards. Which may or may not be true, but it’s a good thing either way, I think. Maybe it will help to swing the pendulum away from credit cards and back towards old-fashioned personal loans, as a way for individuals to borrow money. And yes, it’ll mean lower profits for the banks. I’m perfectly happy with that.
Update: Zywicki responds in the comments. I still don’t follow his argument: I don’t see why merchants, if they extended credit themselves at non-zero rates, would have have lost money rather than made money by doing so. But check out his comment for yourself.
Goldman Sachs has lost another $2 billion in market capitalization today, as the Financial Crisis Inquiry Commission lashes out at its “you want documents? We’ll give you documents” approach to cooperating with the government:
“We did not ask them to pull up a dump truck to our offices to dump a bunch of rubbish,” Angelides said during a conference call following the announcement that the FCIC had sent Goldman a subpoena Friday.
The tone of both Angelides and FCIC Vice Chairman Bill Thomas was notably angry…
Thomas said Goldman was deliberately delaying because it knows the FCIC must wrap up its investigation and deliver a report on the crisis at the end of the year. Angelides agreed, describing Goldman as making a “very deliberate effort to run out the clock.”
It’s hard not to be reminded, here, of the way in which the SEC came out swinging at Goldman Sachs with its Abacus complaint, without giving the bank the opportunity to respond or settle privately: it seems that Goldman is making a habit of rubbing Washington types the wrong way.
This comes as some surprise, from the bank often referred to as “Government Sachs” – whatever happened to the days in which one could barely tell the difference between government technocrats and Goldman executives? Goldman seems happy to jettison decades of goodwill in DC just out of spite: either that, or it really does have something to hide.
There is one other possibility, of course: that Goldman is being whiter than white here, and fully cooperative, and that Washington types are grandstanding and picking on Goldman because it’s the easiest target. I don’t believe it. Angelides and Thomas aren’t running for elective office: they’re just trying to get to the bottom of things. And Goldman is obstructing them. Which can’t be in its best interests. The echoes here of the Pecora hearings are very strong indeed; Charles Mitchell, the head of the supercilious and obstructive City Bank, didn’t survive those. Will Blankfein survive these?
Update: The FCIC has released more details (PDF). Essentially, Goldman stonewalled, and delayed, and produced incomplete data — until eventually they dumped five terabytes of data onto the commission. OK, now they have no benefit of the doubt whatsoever.
The forced retirement of Helen Thomas is further proof, if any were needed, that it’s still unacceptable, in public discourse, to be wrong in one’s opinions. I find that sad.
Thomas gave voice to an opinion which she then, almost immediately, retracted; no one, in the subsequent debate, defended the substance of her remarks. She was wrong; everybody, including Thomas, agrees on that point, and no real harm was done to anyone but Thomas when the video of her remarks surfaced.
But if you turn out to be wrong, even temporarily, even only once, on a hot-button issue, that’s enough for effective excommunication from polite society. That, to me, is chilling: I’d much rather live in a world where people should be able to change their minds and should be allowed to be wrong on occasion. For surely we are all wrong, much more often than we like to think.
A couple of years ago, Tyler Cowen, in conversation with Wil Wilkinson, said something quite profound:
Take whatever your political beliefs happen to be. Obviously the view you hold you think is most likely to be true, but I think you should give that something like 60-40, whereas in reality most people will give it 95 to 5 or 99 to 1 in terms of probability that it is correct. Or if you ask people what is the chance this view of yours is wrong, very few people are willing to assign it any number at all. Or if you ask people who believe in God or are atheists, what’s the chance you’re wrong – I’ve asked atheists what’s the chance you’re wrong and they’ll say something like a trillion to one, and that to me is absurd, that even if you think all of the strongest arguments for atheism are correct, your estimate that atheism is in fact the correct point of view shouldn’t be that high, maybe you know 90-10 or 95 to 5, at most.
My view at at the time was that this was not only true, but was much more true of men than of women, and that women, being more rational and more sensible than men, tend to be less sure of their own opinions.
This morning, I had an interesting conversation with Christopher Hitchens, who’s in town plugging his memoir. He professed to be a man of few beliefs, political or otherwise: “my only commitment is to a group of skeptics who are not sure of anything,” he said. But when I asked him what he wasn’t sure about, he started talking about galaxy formation, of all things. He said that “my greatest delight is being proved right in my own lifetime”, and said that he couldn’t think of the last time that he was wrong about anything. In other words, he’s highly skeptical of others, but utterly incapable of interrogating his own opinions with the same kind of approach.
Hitchens, in other words, would make an atrociously bad trader. He has the cocky-and-arrogant bit down, to be sure — in order to beat the market you have to think that you’re smarter than the market. But you also have to be incredibly insecure, willing to change your mind and your opinions very quickly.
At the beginning of the conversation, Hitchens expressed a certain amount of intellectual pleasure in noting that the statement “Christopher Hitchens is dead” is false now, but will be true in the future. But that’s trivial. When it comes to the opinions he expresses in his columns and books, he’s much less willing to admit that any of them are anything but certainly and timelessly true.
I try hard to believe the opposite: that many if not most of my opinions are wrong (although of course I have no idea which they are), and that many of the most interesting and useful things I write come out of my being wrong rather than being right. This is not, as Wilkinson noted to Cowen, an easy intellectual stance to hold: he calls it “a weird violation of the actual computational constraints of the human mind”.
But I think it’s undoubtedly worth working on, and, as I say, I think it’s one which is more common in women than in men. And I think it’s a serious weakness of Hitchens’ that he places so much importance on his being right.
Was the Hungary-related market swoon on Friday the result of misguided naivete on the part of investors who really have no idea how to parse statements from Hungarian politicians? Erik D’Amato, in Budapest, certainly thinks so:
In what must be one of the craziest episodes I’ve witnessed in almost 20 years covering financial markets, a global mini-meltdown has been triggered or at least stoked by people listening to – and taking seriously – the ramblings of a few Hungarian politicians…
Asia was still down earlier today, with Hungary cited as a major reason for the selling.
And all because people foolishly assumed that some Hungarian politicians might be telling the truth! …
In this case there was certainly never any reason to believe that what was being said was believed even by the people saying it.
The point here is that the incoming government ran on a platform of fiscal easing: that’s usually a good way of getting elected. And so in order to make the fiscal cuts necessary to remain compliant with EU and IMF conditionality, they had to get very serious very quickly — in public — about the severity of the government’s financial problems.
New to government, they went too far. But there’s a case to be made that the markets should have taken the government’s remarks as good news, since they indicated that everything was going according to plan and that the government was just as serious about fiscal austerity as anybody could hope, and was trying to use scare tactics to sell the need for budget cuts to the populace more generally.
European markets aren’t buying it: they’re trading below their Friday closing levels today, as is the euro. But then again, the whole idea that global markets suddenly cared about Hungary on Friday was always a bit bizarre. They never cared much about Hungary before, and the country isn’t a member of the eurozone, so doesn’t pose the existential risks to the European project that Greece does. Most likely this was just another one of those random triggers which might normally have been easily ignored, but which was simply the excuse that jittery and volatile markets needed to sell off sharply.
These little news bombs can and will come from anywhere: by their nature they’re unpredictable. What’s clear is that markets aren’t robust to them these days. Which raises the question: do you want to “invest” in an asset class which is so prone to panic?
I just found Tony Hsieh’s astonishing book excerpt in Inc, entitled “Why I Sold Zappos“. It makes for very sad reading. Hsieh starts by explaining that he never wanted to sell to Amazon:
Our hope was that we’d eventually go into all sorts of other businesses. We saw Zappos as a global brand like Virgin — except whereas Virgin was about being hip and cool, Zappos would be about offering the best service. The plan was to grow sales to $1 billion by 2010 and eventually go public.
But then Amazon came calling again:
As before, our plan was to stay independent and eventually go public.
But our board of directors had other ideas. Although I’d financed much of Zappos myself during its early days, we’d eventually raised tens of millions of dollars from outside investors, including $48 million from Sequoia Capital…
By early 2009, we were at a stalemate. Because of a complicated legal structure, I effectively controlled the majority of the common shares, so that the board couldn’t force a sale of the company. But on the five-person board, only two of us — Alfred Lin, our CFO and COO, and myself — were completely committed to Zappos’s culture. This made it likely that if the economy didn’t improve, the board would fire me and hire a new CEO who was concerned only with maximizing profits. The threat was never made overtly, but I could tell that was the direction things were going…
I left Seattle pretty sure that Amazon would be a better partner for Zappos than our current board of directors.
Essentially, Hsieh never wanted to sell, but Amazon was a less-bad option than sticking with the bean-counters at Sequoia, who never really signed on to Hsieh’s philosophy:
Some board members had always viewed our company culture as a pet project — “Tony’s social experiments,” they called it… The board’s attitude was that my “social experiments” might make for good PR but that they didn’t move the overall business forward. The board wanted me, or whoever was CEO, to spend less time on worrying about employee happiness and more time selling shoes.
The tensions between Hsieh and his board (for which read Sequoia GP Mike Moritz) were reported by PE Hub at the time, and then dismissed by the NYT; it seems PE Hub was right. This is a lesson for anybody who takes VC gold: VCs always have an eye on their exit, and they usually want it more quickly than the founders do.
Still the tensions can’t have been all that bad. After Zappos was sold to Amazon for $1.2 billion in Amazon stock, the team which had fought to keep it independent — Tony Hsieh and Alfred Lin — stayed on at the company. Until, in April, Lin announced that he was leaving. To go to Sequoia Capital. I wonder how closely he’ll be working with Moritz?
I sent AT&T spokesman Mark Siegel some questions this morning:
1. Will you have “rollover megabytes”? If not, why not?
2. Why do the plans have to be chosen ex ante, rather than ex post? Wouldn’t the plans be much more convenient for consumers if they just automatically paid for the Data Pro plan when they went over 200 MB, but paid only for Data Plus if they consumed less than 200 MB?
3. How exactly does data plan switching work? If I’ve consumed 150 MB in a month and switch from Plus to Pro for the rest of the month, do I pay any more than if I had been on Pro all along? What if I’ve consumed 250 MB in that month before making the switch? Do I pay $30 or $25? And what if I switch down from Pro to Plus — is the amount of time I spent on the Pro plan pro-rated, or do I still get the whole month for $15?
It’s a patently cyncially priced plan. It’s extremely easy to exceed 200MB if you use your phone to surf the web and use Google Maps on a fairly regular basis, but you’re unlikely to exceed 500MB unless you do data intensive stuff like downloading music and streaming video.
You say you’re all about consumer choice, but it does seem that your choices are clear ones only for (a) Blackberry users who mainly just use email; and (b) heavy users who stream music/video, or who have a 3G iPad. The rest of us — which I think would include most people with an iPhone — are in that unhappy cusp zone around 200 MB where it’s very easy to make the wrong choice. Are these plans specifically designed to make us unhappy?
5. An AT&T representative said here that iPad 3G owners who turn off their $30 unlimited plan will be able to turn it back on again. Is that true? And is it fair for people to characterize the widespread advertising of the unlimited iPad plan as a bait-and-switch, given that it lasted less than 40 days?
We don’t have rollover megabytes.
The iPad plans are all prepaid and no-commitment. You pick the plan that works for you. Want to drop it? No problem. Want to pick it up at some other time? Also no problem.
We think that approach is easy and flexible and puts the customer in charge of what they want to do.
On switching plans: Customers can switch between the two new plans easily, even in the middle of the month. They can do so themselves on the Web or by contacting us. In either case, they choose whether to make the jump from DataPlus to DataPro that day, for the next cycle, or backdate to the beginning of the cycle to avoid overage charges. And remember, we give free text message (and email if we have the address) alerts at three usage levels, in addition to all of the other ways customers can monitor usage.
If you buy the iPad before June 7 and want to use the unlimited plan, you can.
So, that’s one question answered, at least: it seems that you can backdate your data plan to the beginning of your billing cycle if you’re switching up from Plus to Pro. (It’s not clear if you can backdate a downswitch from Pro to Plus.)
It’s also pretty clear that if you turn off your unlimited data plan on the iPad, you won’t be able to turn it back on again. But we knew that already, didn’t we.
As for the lack of rollover megabytes, I think that underlines that the underlying business plan here is cynical/evil. AT&T loves to talk about how many people use less than 200 MB of data per month on average — and if they really cared about serving those people, then they would be happy to let them roll over their unused megabytes. But as it is, someone like me who uses less than 200 MB of data per month on average is still probably going to end up subscribing to the Data Pro plan. Which is great for AT&T — an extra $10 a month for them — but is hardly the customer service that Siegel’s making it out to be.
David Enrich and Damian Paletta have the latest news on the Basel III front, and the compromise seems to be coming into focus: not so much on the substance, which remains more or less intact, but rather on the timing, which could get pushed out as much as a decade.
I don’t have any problem with this. And it sounds like no one else does either. If the new requirements are stiff enough to actually make a difference, we’d be nuts to demand that banks adopt them immediately in an environment where growth is already slow, lending is anemic, and raising risk capital is difficult. The real question isn’t so much the timeframe for adopting the new rules, it’s whether the rules are any good.
This makes some sense, but as anybody who’s ever faced a deadline knows, if you commit to doing something by some far-off date, you’ll end up doing absolutely nothing until suddenly it rushes up on you.
What’s more, it’s worth remembering that Basel II was meant to be fully implemented by 2004, and still hasn’t really been adopted in the U.S., six years after that deadline. So I fear that the pushed-back deadlines for Basel III will in effect be the date at which banks start worrying about the new rules, rather than any kind of firm line in the sand.
Still, if we’re going to compromise on anything, then compromising on timing makes sense. Let’s just hope that it comes with a commitment by national regulators to hold their banks to the timetable, and to make sure they’re on course to meet that pushed-back deadline once it’s set.
I know a lot of people — myself included — don’t have the time or inclination to watch videos online. So for those of you who didn’t watch the full congestion pricing debate, here’s a few highlights.
The first video, at about 1:40, starts with Charles Komanoff using Times Square as an example of how a city’s residents and visitors can benefit as a group, even if some drivers are inconvenienced. New York recently pedestrianized Broadway, and the result, says Komanoff, is that “it does reduce the amount of space that cars and taxis have to operate, but considering that there are so many more people walking than there are in motor vehicles, this rebalancing has been a very positive thing for the city”.
Corey Bearak says that New York businesses need all the customers they can get right now — but Reihan Salam responds by looking at precedents elsewhere in the world, which have generally been very good for centrally-located businesses.
One of the key themes running through the conversation is that the politics of congestion charging is always local and usually anecdotal. Bearak’s opposition is grounded in the reality of where subways do and don’t reach, or whether federal funds can be found to subsidize New York City transit; it’s really hard, Komanoff’s spreadsheet notwithstanding, to return to solid empirical data.
Still, some of the anecdotes are useful. Skymeter’s Kamal Hassan, at about 8:10, notes that if you have a congestion-charge boundary, as London does, then you get boundary effects: things like cars idling on the perimeter of the boundary until the off-peak period begins, or taking circuitous routes around the boundary because they’re free. He’s right, even though he’s talking his book: a per-mile charge, which could change gradually rather than drastically according to geography, would solve all those problems. (In the second video, at about 10:30, Komanoff talks about how it might be possible to charge very low rates in Queens, and very high rates in Times Square.)
Kamal adds, at about 9:20, that “you can change traffic patterns and traffic flows just through parking charging and parking policies, and if you set up smart parking policies within a city, you can have a very large effect on what happens”. This is an important point, because it shows just how many moving parts there are in terms of congestion pricing, and how many different ways there are of getting to where we want to be.
At the beginning of the second video, Kamal goes into more detail: for instance, the cost of a taxi medallion — currently a very large fixed cost — could be turned into a per-mile charge, which would decrease the amount of empty taxicabs cruising for fares, and increase the number of stationary cabs at taxi ranks.
At around 7:00 in the second video, Bearak says that the capacity of New York’s transit system is insufficient to cope with the increase in demand that would come from a congestion charge. To which Kamal agrees that “it’s very important, if you’re going to do congestion charging of any sort, that you make sure people have alternatives” — while at the same time noting that subway ridership fell, in London, when the congestion charge was introduced, and so higher capacity on the underground wasn’t necessary. And it’s much easier to add capacity with new buses than it is to build new subway lines.
At about 12:20 in the second video, there’s an interesting terminological interlude: Bearak says that a congestion charge is “taxing folks”, Komanoff says that it’s “taxing traffic”, and Hassan says it’s “paying for convenience”. This is the point that Ryan Avent makes today:
Commuters who didn’t value their time as much as they valued a marginal dollar (and these will tend to be lower income individuals) will feel some loss from this shift. But it’s unlikely that there will be BIG losers; even the poorest automobile commuters out there (and you can’t be that poor and still be an automobile commuter) place a positive value on their time.
Meanwhile, there will be enormous utility gains elsewhere. Some subset of commuters would have preferred to use transit to driving, but found the bus system too slow and unreliable to be a reasonable option. Bus riders, current and potential, also benefit substantially from congestion pricing. Poor riders who never had the financial option to drive will experience huge gains from faster and more reliable bus transit. And just as the positive value of time ensures that there will be no big losers among drivers, it also means there will be some very big winners. This includes the rich, obviously, but also those with pressing needs. Any given day, there are many, many drivers who need to get somewhere in a hurry: for economic, or medical, or other reasons. These drivers would likely be willing to pay tens or hundreds or thousands of dollars to avoid congestion, but before congestion pricing they wouldn’t have that option. The consumer surplus generated for these drivers from an effective congestion price is simply massive.
Then at about 13:00, Reihan Salam has a great rant. “The idea that you should pay $2 or $9 to drive in to New York when other folks have to pay some amount to take a subway into New York and have a much smaller impact, in terms of traffic congestion, seems pretty fair”.
And at 16:40, Komanoff makes one of those points which is only obvious once it’s made: that the places with the worst congestion are invariably the same as the places with the best transit access. Moving people from cars to transit is not, in principle, all that hard.
And at about 17:00, Hassan raises the prospect of charging people little or nothing for driving in their own neighborhoods, especially in the suburbs — again, something that’s very easy with Skymeter technology. At about 19:30, Komanoff pans out a bit, talking about a tax on miles traveled as an extension of the congestion charge for the rest of the country:
“Even though it’s true that congestion pricing needs to have subways and very dense cities and preferably large cities, the idea of per-mile road pricing, in urban areas and in metropolitan areas, is extremely viable. The average person who has a car is making 1,500 trips a year. It’s not as though every one of those 1,500 trips has equal value to that person. So as we impose the per-mile charges, everyone will prioritize his or her own trips.”
Matt DeBord watched the whole thing, and he’s worried about the implications for “individual liberty” of a Skymeter solution. I’ve addressed this before: in theory, if you make your Skymeter payments in advance, you never need to have your movements monitored or recorded anywhere: the payments just get deducted from your account. Certainly the Singaporean government, if it implements this kind of a solution, is going to be prone to keeping all that extra data. But I’m convinced that DeBord’s “serious privacy issues” can be addressed as and when they arise: they’re not a reason to object ex ante to charging for certain types of driving.
DeBord also raises the issue of electric cars:
Many electric car startups, and even well-established automakers getting into EVs, are aiming to market their limited-range vehicles to city dwellers. You can image what the congestion-charge crowd thinks when it thinks about that.
Actually, as someone who’s spent quite a lot of time around the congestion-charge crowd of late, I can’t imagine what they think on this issue. But I know what I think, and I’m pretty sure that Komanoff thinks similarly: traffic congestion is traffic congestion, no matter what the car engines look like.
Finally, it’s worth pointing out that Frank McArdle (Megan’s dad) has left two interesting comments on this subject, here and here. A snippet:
Congestion is actually a good thing. It tells us that many people see great value in being someplace at the same time.We really don’t want it to go away, since it also reflects the higher values in the economy of places where there is congestion. We know that when there is no congestion at the beaches it is probably not a good beach day for most. That lesson applies very broadly.
What we really want is there to be congestion, but not enough to upset our private benefit. But we all know that the roads we take will have congestion at some points and some days. We factor it into our lives. The proof is in the changes in average commuting times over the last four decades,which have changed significantly only in those places where everyone wants to be because they can make more money than elsewhere.
I think this elides the distinction between congestion and density: the holy grail is to get the latter without the former. New York already has high density; its next job is to lower the amount of congestion that density is prone to create. One way of doing that is through public transit. But another way is through a congestion charge. It’s silly not to use all the tools at one’s disposal in the service of making a city as livable as possible.