Felix Salmon

I’m at a conference on the Squam Lake Report this afternoon, where Harvard’s Jeremy Stein has just given a very compelling presentation on the subject of executive compensation at banks. His bright idea is that you don’t regulate the level of pay at banks, and that you certainly don’t try to convert pay into stock, for reasons similar to those glossed by Justin Fox at HBR:

Equity in a highly leveraged firm (banks and investment banks have debt-to-equity ratios that start at 10-to-1 and go much higher) is equivalent to a call option. That is, if the firm goes bust the equity holders only lose a little but if it does well they can reap huge rewards. So shareholders have every incentive to push executives at highly leveraged firms to take big risks (and executives with big equity stakes have every incentive to take big risks).

This conforms with what we saw at Bear Stearns and Lehman Brothers, where the managers had large equity stakes.

So what to do? “It’s important to get incentive alignment,” said Stein, between managers and taxpayers. And one way of doing that is to force a large part of executive compensation to be paid in cash — and then to hold back that cash for several years, to be surrendered in the event that the bank fails or receives exceptional government support.

Stein writes:

Familiar forms of deferred compensation, such as stock awards and options, do little to reduce the conflict between systemically important financial institutions and society. Managers who receive stock become more aligned with stockholders, but this does not align them with taxpayers. Managers and stockholders both capture the upside when things go well, and transfer at least some of the losses to taxpayers when things go badly. Stock options give managers even more incentive to take risk. Thus, compensation that is deferred to satisfy this regulatory obligation should be for a fixed monetary amount. For example, firms might be required to withhold 20% of the estimated dollar value of each executive’s annual compensation, including cash, stock, and option grants, for five years. At the end of this period, employees would receive the fixed dollar amount of their deferred compensation if the firm has not declared bankruptcy or received extraordinary government support.

The ECB’s Lorenzo Bini Smaghi, at the conference, was broadly sympathetic to this idea, but feared — as I do — that it might not be particularly effective: after all, 80% of bank-executive compensation is already more than enough for anybody, so they might not care enough about the other 20%. And five years might be too short, given the length of the business cycle. Still, it’s a start.

Last month, I badgered Goldman Sachs about the unhelpful, self-defeating, and cruel attitude of its Litton subsidiary towards homeowners offering an everybody-wins way of staying in their homes. That story had a happy ending. So if the Vampire Squid can do the right thing in these situations, what are the chances that Fannie Mae might be able to follow suit? I’m not optimistic: so far Fannie’s flacks haven’t even managed to respond to multiple voicemails and emails. And Goldman can surely move a lot faster than Fannie can, when it puts its mind to it.

Once again, the story centers on a sale-and-leaseback proposal from American Homeowner Preservation, whom I wrote about in April. AHP’s principal, Jorge Newberry, explains what’s going on.

The homeowners here are Brad and Christina Brown, and the white knight is their neighbor Draga Sikanovski. Going via AHP, Sikanovski is willing to buy the Browns’ house in a short sale, at the market price, and then give the Browns an affordable five-year lease, along with a 5-year option to repurchase.

The Browns’ lender, One West Bank, was utterly useless. AHP offered to buy the home off them, but they lost the paperwork and then said that they needed the offer price raised to $115,000 to avoid a trustee sale on May 27. Sikanovski agreed to the higher price, and deposited the entire amount, in cash, into an escrow account, while the Los Angeles County Tax Assessor reduced the market value to $110,000.

And then, inexplicably, One West went ahead with the trustee sale anyway, which transferred title to Fannie Mae. Fannie Mae, working through local realtor Joe Mayol, did its standard thing, offering cash for keys: $3,000 if the Browns moved out within 15 days. AHP came straight back with a counteroffer: they would simply buy the house outright for $115,000 in cash, more than its appraised value. Newberry explains what happened then:

Mayol was friendly and indicated that he would like to help, but that the property was now controlled by Fannie Mae, whose REOs must go through the First Look program, whose stated intent is “to provide neighborhood stabilizing entities – owner occupants, public entities, non-profits, and similar organizations – a ‘first look’”. Thus, as Fannie Mae considers the AHP/Sikanovski offer an “investor” offer, the Browns would need to vacate the home and wait out a minimum 15-day waiting period before the AHP/Sikanovski offer could be presented.

In other words, AHP wants to buy the house to keep the present occupants in their home, but Fannie Mae is forcing the occupants out of the house before it will even consider the offer. You can see why Newberry is upset:

The AHP/Sikanovski offer would best achieve the “neighborhood stabilizing” goals of First Look and also net the highest return to Fannie Mae on this asset: the time and expense of cash-for-keys, preservation and marketing expenses would all be saved. Sadly, instead of allowing a neighbor helping neighbor solution to not only help stabilize this neighborhood, but also stabilize the Brown family, Fannie Mae is imposing their own solution which will displace the Brown family and result in yet another vacant bank-owned REO in Palmdale, a city already saturated with REOs begging for the buyers First Look is designed to attract.

Is there any way for Fannie Mae to embrace a bit of common sense here? It’s part of the government, so I’m not hopeful; they’re certainly not returning my calls. It’s increasingly looking as though Fannie Mae is one organization which makes even Goldman Sachs look good in comparison.

Tim Fernholz has the details on the new FDIC deposit-insurance cap: it looks like the temporary $250,000 limit is not only going to be made permanent, but will also be made retroactive, to cover uninsured depositors in IndyMac. And then there’s this:

The $100,000 cap hadn’t been increased since 1980, and only in 2006 was it indexed to inflation; one compromise in this measure will keep the cap at $250,000 until it would have risen above that level under the inflation index.

I’m not sure what this means, since $100,000 in 1980 dollars is actually slightly more than $250,000 in today’s dollars.

In any case, what we haven’t seen yet is any indication of how the banks are going to reimburse the FDIC for all the money it’s spent to date and will spend in future bailing out depositors. Chances are this process is going to take decades — and giving the banks all that extra time to come up with the money is a substantial back-door bailout in its own right. It’s not like we’re asking them to borrow the money at market rates, give it to the FDIC, and then pay interest to their creditors: the difference between that and what we’re going to end up with constitutes a multi-billion-dollar subsidy from the taxpayer to the banks.

And, of course, if there’s another major crisis in the next couple of decades, the FDIC fund might at this rate never get replenished.

I don’t have a problem with deposit insurance: it helps to ensure a stable banking system, and that’s a good thing. But it doesn’t come free, and I want to see a lot more detail on how it’s going to be paid for. Let’s make sure it’s the banks doing the paying, not the taxpayer.

Delta schedules an impossible flight, landing at 10:19pm when the curfew is 10pm. Consequences: predictable — Consumerist

Those tenacious payday telemarketers — MSNBC

Who needs to trade stocks if there’s a big lottery jackpot? — CXO

Panel Sharply Raises Estimate of Oil Spilling Into the Gulf — NYT

Fired for sleeping with your fiance — MSNBC

I’m Comic Sans, Asshole — McSweeney’s

What happens when you drop cesium in water? — Corante

For journeys averaging 798 miles, estimates for north-going trips were 99 minutes longer than for south-going trips — Science News

My sister’s tsunami story — Mail on Sunday

A monster PDF of the new subway map — Second Avenue Sagas

My second wine column for Reuters is out, and in it I talk a little bit about my wine contests; previous installments can be found here, here, and here, and I should definitely thank Tamara Lover for the original idea. If you want the price-quality graph and scatter graphs for the Beaujolais contest, here they are; they look much more like Merlot than Pinot. For the real nerds among you, the spreadsheet is here.

While I’m at it, I should mention a couple of other wine links which have caught my eye of late.

Eric Asimov had a great piece on the way in which Bordeaux is falling out of favor among the younger generation of sommeliers and wine lovers, partly because of the price factor:

Good Bordeaux might start at $35 to $50 retail, and $85 to $100 in a restaurant, and soar from there — far more than, say, reds from the Loire, Beaujolais or Alto Adige, darlings of the sommeliers and neighborhood wine shops.

At those levels, you don’t want to experiment. And if you’re playing it safe in Bordeaux, prices are much, much higher.

And Mike Steinberger has an equally great article in The World of Fine Wine — you’ll have to download it as a PDF — about the distinction between traditionalists and modernists in the wine world. He points out, quite rightly, that it’s not nearly as simple as the partisans (mostly self-styled traditionalists) would have you believe, and that in general both sides of the battle have come out very well of late.

Elsewhere, Jonah Lehrer talks about why wine tastes better when we know that it’s expensive, and Mike Veseth draws another important distinction, between what he calls Wagnerians, who enjoy wine every day, and Martians, who feel that there’s no point in making wine unless one aspires to true greatness. He quotes Thomas Pinney as saying something that I, for one, must definitely bear in mind as I continue on my way as a wine columnist:

The people who write about wine in the popular press largely appear to be Martians, who take for granted that anything under $20 a bottle is a “bargain” wine and who routinely review for their middle-class readership wines costing $30, $40, $50 and up. Even in affluent America such wines can hardly be part of a daily supper. They enforce the idea that wine must be something special — a matter of display, or of costly indulgence. That idea is strongly reinforced by the price of wine in restaurants, where a not particularly distinguished bottle routinely costs two or three times the price of the most expensive entrée on the menu.

I’m going to be spending next week at the beach, and this morning I bought two mixed cases of wine, including quite a lot of rosé, for $248, tax included. There were a couple of relatively expensive reds in there, but nothing over $15 a bottle, and I have every intention of getting a great deal of enjoyment out of all the wine that I bought.

It’s only natural for someone writing or talking about wine to gravitate to the rare and fabulous and expensive. But I’m a great believer in wine as a wonderful — and really quite affordable — everyday drink. It’s not always easy to find great wines for under $10 or $15 a bottle — which works out, on a per-glass basis, at less than the cost of a coffee at Starbucks. But it can be done, as I demonstrated with my $5.99 Morgon from Trader Joe’s, which did so well in the Beaujolais contest. And it’s definitely worth the effort seeking those wines out.

Paul Carr has a nice old rant at TechCrunch about the way in which Forbes is moving to an unpaid-contributor model:

There are almost not enough words to describe how wrong-headed this move is: Forbes’ online editorial standards are already in the toilet and Dvorkin has just yanked on the flush. Not only will this new breed of hacks add thousands of pages of self-promotional, unedited (Forbes simply doesn’t have the resources to monitor thousands of contributors) drivel to Forbes.com but, by lowering the barrier to entry to anyone with a keyboard, the publication will also scare away those top tier contributors – captains of industry, statesmen and the like – who are prepared to pen a free article for Forbes just for the kudos that comes from being asked.

He’s right about this: Forbes is doomed if it thinks that running vast amounts of PR drivel (the flacks are already salivating) is any way of building a successful website. Which is not to say that Lewis Dvorkin, newly arrived from True/Slant, is wrong that it’s a good idea for editors to “increasingly become curators of talent”. It’s just to say that Forbes isn’t going to implement that idea with anything like the seriousness or budget that it deserves.

One of the reasons for the enormous success of Twitter is that it acts as a real-time curation machine: the idea is to follow a smart group of people, who are in aggregate reading a lot of material online and who tweet the really good stuff. In that sense, it’s much more efficient at driving you to quality content than say an old-fashioned RSS reader, because the RSS reader has no built-in human quality-control filter. Either you subscribe to a feed or you don’t; you can’t just subscribe to the posts that other people think are good.

Publishers like those at Forbes love the idea of “curation” partly because it sounds sophisticated but mainly because it’s cheap. But curation, done on the cheap, fails. You need a halfways-decent investment, like say that seen at Atlantic Wire, before you can really take off — and Atlantic Wire is really only a nod in the direction that a truly ambitious curator could move in.

Here’s what I’d love to see in a site which took curation really seriously.

First, I’d keep the full editorial budget — and just spend it in different ways, rather than trying to cut it. You should be able to get more bang for your buck, but that doesn’t mean cutting the bucks.

What should be done with that budget? Paying contributors, obviously. That shows seriousness of purpose, and it helps to put a natural constraint on how much material can be published. A curation site should have high standards, and one way to ensure those standards remain high is to force it to pay something — say $50 or $100 — every time a piece is published. And pieces would, wherever possible, be published in full — not just excerpted with a click to read the whole thing elsewhere. Comments should, wherever possible, be unified, using technology from Disqus or Echo.

There would be a large team of smart editors, who would be in charge of finding great content from around the internet. No biz-dev deals allowed: the only way to get content onto the site is to be found and liked and paid by one of the editors. Anybody offering to write for free, or even to pay to get their material on the site, should be politely refused.

The editors, whose key skillset should be reading rather than writing, would be charged with finding material which the authors are happy to see republished. That would naturally exclude most of the mainstream media, and would force the editors onto blogs and tumblrs and places like HuffPo to find the jewels which are published in these places every day by people who would love to get the occasional $50 or $100 check, not to mention prominent exposure on a reputable site.

Tools like Twitter will help the editors find the good material, but it’s hard work, and most of what they read won’t make the cut. Still, it’s great when you do discover a distinct new voice, and it’s also great not to ever worry about pitches or contracts or kill fees or deadlines or people not turning in what was requested of them. Working at a site like this could well be a lot of fun — and the final product, if well designed and well edited, could be very successful. It’s just too bad that nobody has really tried it. Certainly we’re not going to see anything like it at Forbes.

Every so often, a reporter gets a glimpse of the enormous amount of behind-the-scenes craziness that goes on in advance of even the most mundane interview. Rarely, however, does it become public that an interview preparation session resulted in a flack storming out of the company, taking the CEO to arbitration, and eventually scoring a six-figure financial settlement. That’s what seems to have happened after eBay CEO Meg Whitman was unhappy with her PR person’s preparation for an interview with Adam Pasick of Reuters.

Of course you want to know how the interview went, so here it is:

Back in 2006, I started writing about Zipcar insurance. Zipcar — which is going public in an offering worth as much as $75 million — has a history of being more than a little disingenuous about the degree to which its drivers are insured. I spoke to them in February 2007, and they promised to change the language on their website; instead, in May 2007, they decided to start leaving sock-puppet comments on my blog, rather than actually do what they’d promised. Eventually, in October, they merged with Flexcar, which had much better insurance policies, and as part of the merger they adopted Flexcar’s insurance plan. (They had to, or face mass defections by Flexcar’s corporate client base.)

Today, they still tout their “comprehensive insurance” (the image at right is from this page). But when push comes to shove, it seems they’re still interested in putting liability onto their members when there’s an accident, like the time when Zipcar member Dale Douglas rear-ended Leslie Minto. Minto took Zipcar to court, but Zipcar won, saying that it was not liable “for harm to persons or property that results or arises out of the use, operation, or possession of [their vehicles] during the period of the rental or lease”. As a result, Douglas has to personally pay Minto’s damages.*

In the short term, this is probably good for prospective shareholders in Zipcar, which don’t need to worry about large potential legal exposure. The bigger picture, however, is that Zipcar might not have put its insurance worries behind it. Anecdotally, I still speak to a lot of people who say that they won’t use Zipcar because they’re worried about the insurance situation. And if Zipcar starts to get a reputation for sticking its customers with damages after telling them that they had comprehensive insurance, that’s not going to be good for its business.

*Update: Zipcar’s general counsel, Maria Stahl, has now responded, via email:

Our insurance program covers our members for third party liability up to $300,000 per occurrence.  Accordingly, Mr. Douglas was in fact covered for this accident up to $300,000.  Your posting stated that “As a result, Douglas has to personally pay Minto’s damages.”  That simply is not true.  If Ms. Minto’s damages had been in excess of $300,000, Mr. Douglas may have been held liable, exactly as he would be had he been driving his own car and damages resulting from an accident had exceeded his own policy limits.

Ms. Minto had brought suit against Mr. Douglas as the driver of the vehicle and against Zipcar.  The court’s decision dismissed Zipcar from the lawsuit.  Zipcar’s dismissal from the action does not in any way affect Mr. Douglas’ coverage under the policy we maintain for members.

The NYT has a clear policy when it comes to primary sources — if you’re writing about a certain document, then you should link to it, if it’s online. Increasingly, the NYT’s journalists are actually doing that.

On the other hand, when it’s the journalists themselves who come up with the original documents, they tend to be very bad at putting them online. And it turns out that when you ask NYT types why they’re not putting those documents online, you often get a very interesting answer: doing so would be a copyright violation. Underneath that answer, however, is a regrettable and old-fashioned attitude towards primary documents: the NYT doesn’t particularly feel any need to post them in the first place.

I had a very interesting conversation yesterday with Richard Samson, the NYT’s top copyright lawyer; you might remember him from his nastygram to the WSJ earlier this month, or his nastygram to Apple with respect to the Pulse RSS reader, which resulted in the app getting temporarily pulled from the iTunes app store. (He says he’s now “in conversations with the developers”, but that “the fact that they’re charging for it certainly is a concern”.) If you’re a restaurateur, say, who reproduces a NYT review on your website, he’s the person you’re likely to hear from.

Samson explained to me that when it comes to posting primary documents, copyright simply isn’t an issue when you’re dealing with anything coming out of the federal government — there’s no copyright there. And it also isn’t an issue when you’re linking to or embedding documents hosted elsewhere: the NYT can happily embed a Scribd document, for instance, if it was uploaded by someone else, no matter who holds the copyright.

But if the NYT obtains a document itself where someone else owns the copyright — the Akin Gump memo on gender disparities at Wal-Mart, for instance — then it might well be legally constrained from posting it online. “We want our readers to respect intellectual property,” says Samson. “Intellectual property is arguably the biggest asset of this company. We value others’ IP rights, and we want their IP rights to be respected.”

What’s more, posting a copyrighted document would unnecessarily expose the NYT to legal jeopardy: “we don’t want to give them an obvious sword”, says Samson, adding that the NYT can be sued for damages even if it takes the document down as soon as it’s first asked to.

At the same time, this seems to be something of a non-issue in the newsroom. Samson talked to some editors about this before our conversation, and they told him that the NYT’s readers were not complaining about the lack of links to primary sources. “The journalist’s job is to read the documents and write the story and tell the reader what’s important,” says Samson. “If the journalist is doing his job there’s no need to provide the source documents. We’re trying to tell the news and if we feel that we’ve done that, then there’s no reason to do more than that.”

I couldn’t agree less. The real news value in something like the Wal-Mart memo is the memo itself, and publishing the memo alongside the story would increase the trust that the NYT’s readers have in it. Here’s how Julian Paul Assange, the founder of Wikileaks, explained it to the New Yorker:

Assange told me, “I want to set up a new standard: ‘scientific journalism.’ If you publish a paper on DNA, you are required, by all the good biological journals, to submit the data that has informed your research—the idea being that people will replicate it, check it, verify it. So this is something that needs to be done for journalism as well. There is an immediate power imbalance, in that readers are unable to verify what they are being told, and that leads to abuse.”

Against this very strong argument — that enforced information asymmetry clearly harms readers — Samson has some very weak arguments for doing nothing. “It’s probably kind of a pain to do it sometimes, because the documents are so big: there’s time considerations, and labor,” he says. “We would feel the need to review an entire document before putting it up on the website.”

This confused me: once the copyright considerations were dealt with, one way or another, what else would the document be reviewed for? Samson was a little vague on that front, but pointed to issues like privacy and obscenity as things that someone would need to look out for before the NYT published anything. That’s the nature of being a newspaper, he said: the publisher needs to vet everything that’s published. He continued by saying that “the role of a newspaper is to analyze and comment. It would be inappropriate to just put it out and say you guys figure it out.”

Of course, I never suggested that the NYT simply post documents without any gloss or commentary at all, but I did ask about sites like The Smoking Gun, which specialize in posting primary documents. Are they not legitimate news organizations? “The Smoking Gun is a different business than being a newspaper,” said Samson.

I also asked Samson about the Guardian’s attempt to crowdsource the mystery of Tony Blair’s finances; he didn’t know about that specific case, but it was obvious that the NYT was a very long way indeed from doing something like that. If the NYT gets documents and doesn’t fully understand what they mean, it won’t ask its readers for help in working them out. A sad wasted opportunity — and hubristic, to boot, since it’s predicated on the idea that if the NYT’s readers can work something out, then then NYT’s journalists should also be able to do that, on their own.

The one big thing I learned from talking to Samson is that when NYT journalists talk about copyright constraints preventing them from putting documents online, they’re not particularly upset about that. In fact, they might secretly be quite happy that there’s no question of posting the document they spent so much effort obtaining. Journalists are human, after all, and can be quite jealous and competitive: they don’t want to simply give the story, on a plate, to their competitors, and will happily sit on documents rather than publishing them if they’re given half a chance to do so. Samson said he couldn’t think of a single instance where a journalist was begging him to be able to publish something and he said no, for copyright reasons.

After all, it’s easy for the NYT to post copyrighted documents if it’s so inclined — it just needs to send them to any one of dozens of organizations who will happily put them online, and then link or embed the document into the story. Or the journalist can just ask their source to go ahead and post the document online, in some anonymous place where it can be linked to or embedded. But that never seems to happen. And even when there’s no copyright at all, as in the case of the Hank Paulson ethics waiver, the NYT went on the record as saying that the reporters “would probably be uncomfortable simply handing over documents” even to one of their colleagues, let alone to the world in general. After all, said Tim O’Brien, an editor there, “they had spent a lot of time and energy to find, analyze, and report on” that document.

And the NYT’s dual standard when it comes to embedding documents is just plain weird. It’s happy to embed Scribd documents posted by someone else without poring over every page, but it refuses to post any document itself without poring over every page. Yet to the reader, the effect is identical: the distinction is entirely legalistic.

In any case, the lesson here is that the next time you see a NYT story which doesn’t provide the source documents it’s working from, don’t be charitable in your assumptions. I know that I, and most of the people I talk to, have historically simply assumed that the NYT would love to post the source documents, but was unable to because their source asked them not to, or because doing so might reveal who their source was. But in reality, NYT journalists don’t particularly want to post such documents in the first place, even if their source would be perfectly happy for them to do so. And when asked why they don’t, they have an easy excuse in copyright law.

The NYT is a brave paper, when it wants to be. If it finds a document and thinks that publishing it would be in the national interest, I’m sure that it could defend its action on public-interest grounds even if copyright in that document was held by someone else. But it doesn’t seem to have the slightest interest in publishing primary documents: it’s perfectly happy to just write about those documents, and say “trust us, we’ve read them, and we’re telling you everything that’s important about them”.

Of course there are lots of people who don’t trust the NYT, and many of the rest of us would love to take the trust-but-verify route. I look forward to the time when the NYT will make it easy for us to do that. But I’m not holding my breath.

Update: Thanks to jennkepka, in the comments, who remembered that the NYT did try a crowdsourcing experiment on its Economix blog last year, with respect to Tim Geithner’s schedules. I’m quite sure that if pressure to post primary documents comes from anywhere within the NYT, it’ll come from the blogs.

Update 2: A great example of a NYT blog putting lots of source documents up online is Dealbook, whose Scribd account has almost 100,000 subscribers and 648 separate uploads, which between them have been viewed almost 2 million times. NYT editors, take note! People do care about these things!

Thomas Kinkade, drunk driver — Sacramento Bee

The death of the sun’s “magnetic soul”? — New Scientist

England 1-1 USA in lego — Guardian

McCain tweets words of wisdom to Jersey Shore’s Snooki — NYT

Congressman behaving badly — YouTube

These are beautiful, but are they true? If so, now I know what I’ve been doing wrong all these years — Design You Trust

The CFTC has approved trading in film futures. This means almost nothing. A handful of contracts will trade in the next few weeks, but once the financial regulatory reform bill is signed into law, all such trading will come to an end. The opponents of box-office futures never really thought that the CFTC would change its mind and prevent these futures from trading, so they went over the CFTC’s head to Congress. Which is determined to make sure this market never takes off.

So enjoy these futures while they last. It won’t be long until they’re no more than a footnote in film-finance history.

Sebastian Mallaby came in to Reuters today to plug his new book, and so naturally we talked about hedge funds. He’s more positive about them than I am, but even he reckons that they make sense as investments only for big institutional investors:

My post on falling homeownership sparked an interesting debate about whether and where one might find positive externalities associated with people owning their homes. Certainly a lot of old-fashioned home-improvement expenditures, which make sense insofar as they increase the value of the home, stop making sense when any increase in value just goes straight to the bank. But are there other areas in which homeowners impose more positive externalities than renters?

DanHess, in the comments to my post, says that some investments make sense just on a cashflow basis, and therefore could sensibly be implemented even by someone underwater on their mortgage:

I have found that many things I have done on my home were discretionary, from the kitchen to bathrooms. New energy efficient windows, attic insulation, an attic fan, ceiling fans, and high efficiency appliances are all examples of investments I made which are each realizing a 10% or greater real return for the lifetime of the investment because of utility savings. In each case, I have been able to see the savings appear. That insulation will be just fine 50 years from now. None of these investments are available to renters.

And Matt DeBord, of TBM’s Shifting Gears blog, shared by email his own experience in LA. He’s helped create a dual-language immersion program at a nearby grade school, now headed into year 3, and he’s going out of his way to support locally-owned businesses, rather than big national chains. Those aren’t the kind of things that he did when he was renting downtown.

Are these not the kind of things that renters in his neighborhood do as well? Well, they might be, if his neighborhood had much in the way of renters, which it doesn’t. And insofar as it does have rental properties, they tend to be much less nice than the homes which are owner-occupied. In areas like downtown with nice rental properties, renters can end up with more disposable income (since renting is still cheaper than buying), but it doesn’t benefit the neighborhood in the same way, since the neighborhood is more dominated by national chains, and there’s less effort put in to supporting local schools.

For me, it’s important to distinguish between two things which are separate, if highly correlated: homeownership, on the one hand, and the amount of time that you expect to stay in your home, on the other. A lot of the rhetoric about the upside of homeownership elides these two things; and for a long time doing so made perfect sense. After all, someone with a 30-year mortgage is likely to stay put for much longer than someone with a 1-year lease.

But during and after the housing bubble, that changed. Buyers were encouraged to “Flip this House“, and then, when they ended up underwater or when their teaser mortgage ended, resigned themselves to losing their home. Anecdotally, friends of mine who were planning to have babies were buying apartments which were not remotely suited to raising a family, intending to sell at a profit when the baby arrived: the ownership time horizon shrank a lot, during the bubble, and I don’t think that it has grown much if at all since.

Meanwhile, in a world where landlords have no ability to raise rents significantly for the foreseeable future, renters can feel a lot safer in their homes than they have in years. Many people who have learned the lesson of the housing bubble are now happy to rent in perpetuity — and that doesn’t mean moving house on a regular basis.

So it seems to me that owners, with shortening time horizons, are less likely now to do things like install high-efficiency appliances and invest time and effort into their local schools, while renters, with lengthening time horizons, are more likely to. Probably homeowners still score higher on the positive-externality front than renters do, but the difference is narrowing.

Matthew DeBord isn’t so sure. “Limited evidence on my front suggests that those getting out from under negative equity stay in the hood, rent, and continue to build the area,” he writes. “They’re already vets of commitment.” That makes sense: you go to the more-expensive local hardware store because doing so pays off over time, once you’ve built up a relationship there. And once you have that relationship, then you don’t need to lose it just because you lose your house.

My feeling is that a lot of what we’re seeing is related to rental properties generally being designed for and marketed to the childless, while families, who tend to stay put if only to give the kids continuity, are more likely to own and to build up real local communities. Parent-teacher meetings are a great way of getting to know your neighbors. But if and when families start to rent nice places, they’re just as likely to build strong communities as those who own. It’s not homeownership that creates the positive externalities, so much as simply intending to stay where you are for a while.

Update: There’s nothing like empirical data to destroy a blog thesis! Adam Ozimek compares rental tenures in 2004 and 2008, and finds no evidence that renters are staying in their homes any longer.

Here’s a graph of the stock market plunge in the wake of Moody’s shocking four-notch downgrade of Greece to junk status:

By my eyes, that’s a drop of about 2 points in the S&P 500, or 0.18%. In other words, the market didn’t even blink.

There are two big lessons here, I think. Firstly, beware all market reporting: you can be quite sure that if the market was down sharply today, everybody would be citing the Greece news as the reason for that. And secondly, no one cares about the ratings agencies any more. Moody’s is a joke, it’s massively behind the curve, and bond investors feel free to ignore anything it says.

It’s true that there are still some bond investors who are constrained by credit ratings, but they’re not the kind of people who are playing in the market for Greek debt, which has for months been dominated by European banks and the ECB. Even so, a monster downgrade of an EU country to junk status would have caused chaos in the markets not all that long ago.

So well done, markets, for finally treating the ratings agencies with the respect they deserve — which is to say, none at all. Now let’s try to get the government to do the same thing, and get rid of the silly and outdated NRSRO designation.

Mike Mandel has an interesting nominee for the most significant economic event of the past decade: the failure of the Human Genome Project to become the medical and financial blockbuster that everybody expected ten years ago.

If the project had met its expectations, says Mandel, we might be looking at spending much less money on treating incurable diseases like cancer and diabetes; we would have created a lot more great jobs in the pharma industry; and the US would have a trade surplus in pharmaceuticals, rather than a trade deficit of more than $30 billion.

Still, hope springs eternal, for Mandel, at least:

Here’s how I see it: The U.S, and more broadly the “advanced” countries, did what they were supposed to. They invested heavily in the cutting-edge new technology, biotech, which promised to make the biggest difference in the most important areas–health, food, energy. The research has gone great, tremendous progress has been made. Commercialization thus far has sporadic–but the gap between research and commercialization is one which has been repeatedly bridged in the past. So I’d say that the odds are good that the Human Genome Project will have a significant economic impact over the next 5-10 years.

Mandel does worry whether “a misguided patent system” is a “structural impediment in the U.S. innovation system”; I’d be interested in that too. But the big picture is that the US made a multi-billion-dollar bet on genomics, and so far that bet has failed to pay off. That doesn’t mean it was a bad decision, but it’s still worth thinking about what might have been. Maybe we were just unlucky.