Felix Salmon

Someone put the proton on a diet! — NatGeo

There are five reasons to drink sake. — Language Log

A kid called Felix Salmon, in Melbourne, showing off his mad scooter skillz while wearing a Felix the Cat t-shirt — YouTube

Ultimate word rage — Language Log

“People over 65, of course, have the country’s highest mortality… death, of course, is unavoidable” — NYT

David Blackwell RIP — NYT

His most successful experiment is “a bacon fat-washed Compass Box Peat Monster Scotch mixed with Brown Sugar Syrup” — The Atlantic

Pay no attention to stock buybacks: they do not improve economic returns — Credit Trends

Treasury, Bund and gilt yields can remain historically low. There’s nowhere else for the risk-averse to go — FT

If the 2010 curve continues its current course, the 2010 slowdown will be more severe than 2008 was at the same point — Consumer Indexes

Letter to the FT: “We desperately need journalists with no sources, only data!” — FT

The Limits Of Indexing: “don’t assume that your index tracker is going to track the index”, especially in EM — Index Universe

Announcing the SEC settlement with Goldman Sachs yesterday, Robert Khuzami started waxing hyperbolic:

“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

This really isn’t true. For one thing, as Dan Gross points out, Mike Milken paid more money, in inflation-adjusted terms, back in 1990. But you don’t need to go back that far: AIG paid the SEC $800 million as part of a $1.6 billion settlement in 2006. I think it’s reasonable to consider AIG a financial-services firm, no?

And that wasn’t the end of big settlements for AIG: today, it agreed to cough up another $725 million to settle a long-running class-action fraud case brought by Ohio’s attorney general. The class, incidentally, is shareholders of AIG back in Hank Greenberg days, so essentially today’s shareholders (that’s the U.S. Treasury, in case you forgot) are paying the best part of a billion dollars to yesterday’s shareholders. The total settlement is $1.0095 billion, and includes $115 million from former AIG executives including Greenberg himself.

It seems to me that the SEC could at the very least have extracted more money from Goldman than it did from AIG in 2006, putting Goldman on top of the list of the biggest SEC settlements ever. (At the moment it’s third, behind AIG and the $750 million WorldCom settlement in 2003.) But Chris Whalen says that the real damage is yet to come:

I suspect that the board of GS will continue to support Blankfein in public and will allow him to oversee the remainder of the cleanup effort. But after a decent interval has passed, I expect that Blankfein and other key members of the management team will step down.

In other words, Blankfein’s position is looking a little like that of Tony Hayward at BP: he’ll continue to lead the company so long as it is the subject of broad-based public opprobrium, but once things start recovering, fresh blood will be brought in to represent a New Era. Goldman has a deep bench of executives capable of being an effective CEO; it doesn’t need Blankfein. The only question is where he might go, since the door to government seems closed at the moment. Maybe he’ll take a leaf out of Milken’s book, and try to rehabilitate himself through a high-profile charitable foundation.

Steve Jobs did a great job at his press conference today, in classic Stevenote style. He showed that the “death grip” problem is endemic to the entire smartphone space, rather than being something unique to the iPhone 4. He talked a lot about how most of his customers love the phone, and how its return rates are a fraction of the equivalent number on the iPhone 3GS. He put up cool photos of Apple’s formerly-secret anechoic chambers. He announced that the iPhone will soon be available in white, and in 17 new countries, including Canada, Italy, and Spain. And he’s throwing in a free case for anybody who wants one, or a full refund. (Which existed all along, but it still sounds good.)

The only slightly dubious part of the presentation came when he said that the rate of increase in dropped calls, for the iPhone 4 over the iPhone 3GS, was less than 1 call per hundred. Without knowing what the rate is for the 3GS, or how the iPhone 4 rate compares to other phones, that number is meaningless.

What Jobs did well in this presser was to be both helpful and informative, rather than merely apologetic. That’s probably smart, because it’s really hard for anybody to apologize effectively, especially someone with an ego the size of Jobs’s.

Still, it’s going to be hard for this one event to counteract the narrative that has slowly built up over the past 22 days. Jobs is famous for pushing his design criteria beyond the bounds of common sense — most famously with the NeXTcube, but with the Apple Cube as well. (The cube on 5th Avenue is more successful.) So the story was easy to tell: Jobs loved the idea of a simple band around the edge of the phone which would act as the antenna. That kind of band doesn’t work well when touched. But Jobs overrode those objections because he loved the design so much.

In any case, the free-cases-for-everybody solution solves the problem, insofar as it is a problem. There are now two competing narratives when it comes to smartphone antennae and reception, the discussion is going to become very geeky very quickly, and most people will sensibly ignore it. Jobs also set up competing narratives when it comes to yesterday’s Bloomberg article alleging that he knew about antenna issues before the phone was released: by vehemently denying the allegations, Jobs again just creates a noisy debate which most people will pay no attention to. (Of course, the Bloomberg article also conflicts with the storyline that Jobs didn’t know about the problem because the real-world testing of the iPhone 4 took place in cases which disguised it.)

I also love the way that Jobs explicitly privileged customers over investors: he knows that investors ultimately care more about Apple’s happy customers than they do about the stock moving up or down $5 in a month.

Personally, I’m not a huge fan of the iPhone 4: while the screen is beautiful, I don’t like the hard edges, the extra weight, and the way that there’s no easy way of telling by touch which side is the front and which the back. But that’s just me. The US population as a whole seems to love the phone, and although there’s been a media firestorm over the antenna issues, Jobs has done such a good job of building up the Apple brand that the real-world effect of the story seems to have been minimal.

As Jobs says, Apple’s not perfect. But the real story here I think is one of brand value: if people love your products, they’ll trust you much more than if they don’t. The only downside is that the media will tend to glom on to any perceived problems. It’s a trade-off that all of Apple’s rivals would be very willing to accept.

The Basel Committee has started producing pretty detailed documents: today it released what it calls a “a fully fleshed out countercyclical capital buffer proposal“.

The idea of countercyclical capital buffers is a really good one. When credit is expanding faster than GDP, bank regulators slowly increase their capital requirements, signaling those requirements clearly one year in advance. The higher capital requirements serve three main purposes: they help to slow down credit bubbles, they make an economy’s banks stronger, and they offer a way out of the paradox of capital.

The paradox of capital is pretty simple: let’s say that a bank has a minimum capital requirement, and then suffers a series of write-downs. Because the write-downs come straight out of capital, the bank is left below the minimum. So it is forced to raise new capital right at the worst possible time to do so, or else fail. The minimum capital requirements, which were meant to make banks safer, end up making the entire system more precarious.

Enter countercyclical capital buffers. With them, banks increase their capital in good times, not bad. And then, in bad times, they disappear: regulators can (and indeed are encouraged to) abolish the buffers immediately, if there’s some kind of credit crisis. When write-downs eat into bank capital, they eat only into the buffer, which is no longer required, rather than the underlying minimum capital requirement.

The BIS proposals are well formed: banks are required to hold capital according to the jurisdictions in which their loans are made, for instance, rather than where their headquarters are. That makes perfect sense.

But for a document which purports to be “fully fleshed out”, the single most important thing is missing: any indication of how big these countercyclical capital buffers should be. Essentially, the BIS has released the uncontroversial bits of the proposal, and is kicking the can down the road when it comes to the biggest, toughest question.

Reading between the lines, the BIS seems to be thinking of buffers which max out at about 2% or 3% of assets. Is that big enough? Should it be bigger? Where’s the debate on the actual number, and is any of that debate happening in public? These are important questions, and it would be great to have a lot more transparency on how they’re being answered. It’s possible that litigating such things in public is not the best way of coming to a consensus — but at the same time, if they’re adopted in smoke-filled rooms full to bursting with bank lobbyists, they’re unlikely to have much credibility. Let’s hope the BIS keeps us all posted on how exactly these buffers are going to get set.

The NYT has a look at the new sources of revenue that banks are turning to now that the financial reform bill has killed off (or will kill off) many of their old cash cows. From a consumer perspective, the new old thing is fees on checking accounts:

Free checking, a banking mainstay of the last decade, could soon go the way of free toasters for new account holders. Banks are already moving to make up the revenue they will lose on lower overdraft and debit card transaction charges by raising fees on other services.

Banks like Wells Fargo, Regions Financial of Alabama and Fifth Third of Ohio, for instance, recently began charging new customers a monthly maintenance fee of $2 to $15 a month — as much as $180 a year — on the most basic accounts. Even TCF Financial of Minnesota, whose marketing mantra championed “totally free checking,” started imposing fees this year in anticipation of the new rules.

To be sure, in many cases customers can escape the new checking account charges by maintaining a minimum balance or by using other banking services, like direct deposit for paychecks and signing up for a debit card.

Still, with checking account fees spreading, Bank of America rolled out a fee-free, bare-bones account on Wednesday, the eve of the Senate vote. The catch? To avoid any charges, customers must forgo using tellers at their local branch, use only Bank of America cash machines, and opt to receive only online statements.

I’d love to know whose account charges $15 per month — that’s a lot of money. But I don’t think it’s particularly fair to pick on BofA for being at the forefront of the monthly-fee trend. American Banker’s story on BofA’s new product, for instance, leads by saying that “Bank of America Corp. is charging some customers to receive their monthly statement in the mail, the industry’s most aggressive move yet to encourage paperless banking,” adding as context that “financial companies are eager to find new sources of recurring revenue.”

I’m more inclined to take the eBanking account, as it’s known, at face value for the time being. The marketing materials make it clear who it’s aimed at:

You’re always online and using ATMs – that’s how you manage your banking. Now Bank of America offers a checking account that helps you avoid the monthly maintenance fee just by doing what you already do.

In other words, if you never use tellers anyway, and you spend your life online, this could be a good product for you. Certainly that describes me and lots of people I know. If you sign up for an account called eBanking, then you’ve got to expect that it’ll be an online account which doesn’t include things like lining up at teller windows or carefully storing bank statements in a shoebox somewhere. (I would, however, hope that BofA allows instant access to the past 18 months’ worth of statements online: it’s incredibly annoying, when you have e-statements and you’re doing your taxes in April, to have to wait a certain number of hours or business days before the previous year’s statements are all available.)

Certainly there will be people at BofA thinking about rolling out these kind of fees more generally, for accounts which aren’t called eBanking. But I’m sure that all the other big banks are thinking along similar lines too, and it’s silly in any event to start prosecuting thought crimes.

Besides, monthly checking fees aren’t the end of the world. They were widespread and common as recently as my own arrival in the US, in the late 1990s, and their replacement with “free checking” was basically a nasty and invidious way of replacing a broadly-targeted fee with a much more narrowly-targeted set of charges on the people who could least afford it: those who regularly overdraw their account.

The real thing to be worried about, I think, is not the introduction of monthly fees per se, so much as any attempt by banks to use monthly fees to discourage large swathes of the population from banking with them at all. All big banks should have some kind of low-cost bare-bones checking product for people who aren’t always online and who don’t have $100 a year to spend on monthly fees. We don’t want the unbanked population to rise significantly as a result of the end of overdraft fees.

But I see no end to banks competing aggressively for customers, and that’s going to mean that for the time being, most Americans will be able to find a low-fee checking account nearby pretty easily. And, in general, fees which are up-front and clearly disclosed are much better for customers than overdraft fees and other ways of exploiting human psychology. They might even help banks become less hated.

Goldman had $27 billion in cash and short-term securities on March 31 — Footnoted

Chittum deftly fillets the WSJ’s poor effort on farmers and the fin reg bill — CJR

The behavioral psychology of IPOs — PsyFi

The Team America patch that helped get McChrystal in trouble — Atlantic

2,000 words on the mathematics of apportioning Congressional seats, and possible fixes — HNN

What does India’s new currency symbol symbolize? “It is just a symbol,” says the designer — Gulf News

The Alan Greenspan Chair of Economics at NYU Stern. For real — Ritholtz

Justin Fox’s plan for world domination continues on course — BusinessWire

Hans Rosling on global population growth. He’s a superstar. Watch this talk, it’s only 10 minutes. It’s great — TED

Paul Murphy explains how to use EDGAR. It’s non-trivial — Alphaville

Dan Ariely launches his Procrastinator app. I’m definitely not buying it today — Ariely

Notebooks from “the company the makes the paper for the Euro note”. Now 50% off. In dollar terms — DWR

Time to short WEIRD debt! — NYT

How to bike and be chic: ride the wrong way down the middle of a one-way street — WSJ

Ben Stein’s new book tells you to ignore Ben Stein. So I guess that’s one piece of good advice — Elfenbein

Argentina approves landmark gay marriage bill — Reuters

This is the stock chart for ATP Oil and Gas over the past five days: it plunged at the open on Tuesday and then soared at the close today. And it’s all because of Joseph Allman, the analyst for ATP at JP Morgan

ATP stock closed at $10.43 on Monday and then dropped to $9.12 on Tuesday morning — a fall of more than 12.5% — when JP Morgan put out a very bearish research note with the title “Trading at a Premium; Financing Needs Likely Greater Than Market Thinks; Downgrading to Underweight.”

The headline was bad enough, including as it did a downgrade on the stock, but the meat of the note was worse: Allman calculated that ATPG would need $500 million of external capital — more than its entire market capitalization.

Oops.

At the end of the trading day today, Allman put out a second research note, saying that the first note was wrong:

In our July 13 note, we stated that it appeared that ATPG would need $500MM of external capital. This model corrects that error and reduces that need to $50MM.

Yep, JP Morgan was out by an entire order of magnitude in the calculations which prompted the downgrade. And when it admitted its mistake today, the stock went straight back up to $10.12, a rise of 11.1% on the day and of a whopping 14.4% from the day’s low.

When JPM’s mea culpa appeared today, ATP’s stock immediately shot back up — but of course by that point it was too late for anybody who had been stopped out on the way down.

And if you were lucky enough to have any kind of early access to JP Morgan’s research product, you could have made a fortune first selling ATPG on the way down and then buying it back on the way up.

There are three lessons to this story, I think. Firstly, small stocks are volatile. Secondly, paying too much attention to sell-side analysis can be hazardous to your wealth. And thirdly, prices really do move on sell-side research. Even when it’s utterly wrong-headed.

Assistant Treasury secretary Mike Barr celebrated the passage of the financial reform bill today by phoning me up for a chat. So of course I asked him how much has really been achieved, and how much the really important stuff has been left to the Basel III negotiation process.

Barr said that the reforms passed today “were absolutely essential to the process,” and added something I didn’t know before — which is that they include Congressional authority for regulators to adopt all the Basel III standards. In other words, there’s no risk of Basel III getting caught up in Congressional opposition, as Basel II did. Once it’s agreed in Switzerland, US regulators are free to implement it immediately. “We got all the authority that we needed in this legislation that just passed,” Barr said. “The regulatory community will be ready to implement it in the US.”

As for timing, Barr was still hopeful that Basel III will be done this year; I’ll believe it when I see it. Then the various ratios will be phased in over many years. In terms of the bill which has now passed, different bits of it take effect at different times: resolution authority, for instance, is effective immediately, while the rules on interchange fees take effect in 9 months, and the new Volcker Rule — which has yet to even be defined, and which will surely the the subject of much financial-industry lobbying — becomes law in 18 months.

What I didn’t ask Barr about, sadly, was who he’d like to see head the Consumer Financial Protection Bureau. Shahien Nasiripour says, plausibly enough, that Tim Geithner is opposed to tapping Elizabeth Warren for the job, despite the fact that she’s the obvious choice. I hope he doesn’t get his way. The bureau would never have come into being without Warren pushing it hard; it’s only fair she gets a chance to run it at inception, and shape the way it does business. Even if she has been harsh in her public questioning of Geithner.

Update: Turns out that Geithner does support Warren for the bureau after all. Treasury just sent me this statement:

“Given her strong leadership on consumer protection, Secretary Geithner believes that Elizabeth Warren is exceptionally well qualified to lead the new bureau, and, ultimately, that’s a decision the President will have to make.” – Andrew Williams, Deputy Assistant Secretary for Public Affairs

My favorite part of the SEC settlement with Goldman Sachs is the bit where Goldman agrees to “a permanent injunction from violations of Section 17(a) of the Securities Act of 1933″. Well, that’s reassuring, knowing that from now on Goldman has promised not to break the law. Goldman has also consented to an agreement that when it puts together new mortgage securities, it’ll run any prospectuses or term sheets by its legal or compliance departments. As if it wasn’t doing that already. And there’s lots more like that: people on the mortgage desk have to attend training seminars on disclosure! Goldman “shall provide for appropriate record keeping”! And so on and so forth.

Meanwhile, the closest thing to an admission of wrongdoing coming from Goldman is this:

It was a mistake for the Goldman marketing materials to state that the reference portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson & Co. Inc in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

This doesn’t even rise to the level of an apology: it’s just a “regret”. Meanwhile, Goldman will be more than happy to wire $150 million to IKB and $100 million to RBS, as detailed in the proposed judgment. (Technically the judgment is contingent on being approved by the New York judge, but that’s just a formality.) As a way of getting out from under this suit, it would be cheap at twice the price.

The only bit of possible embarrassment still left for Goldman is the litigation against Fabrice Tourre, which is ongoing. I find that peculiar, since Tourre was pretty junior, and the people responsible for him behaving correctly all seem to be home safe. I’m not sure what the SEC thinks it might achieve with continued litigation against Tourre, or whether Goldman now feels that it can safely hang the poor chap out to dry. But this story has always been about Goldman’s actions, not Tourre’s. And it would be unfair, to say the least, if Tourre bore the brunt of the punishment, while Goldman gets away with little more than writing a check which barely makes a dent in its vast cash pile.

Goldman Sachs has come to a settlement with the SEC: it will pay $300 million in fines, and another $250 million in restitution, according to the NYT. There’s no indication that any Goldman executives are being forced out: this is a purely financial settlement, and does not even include Goldman admitting any wrongdoing.

This is surely a massive win for Goldman, whose entire business was at stake if it was found guilty of serious wrongdoing. The company’s shares are soaring in after-market trade, and although they won’t approach their pre-case levels any time soon, Goldman can now begin to distance itself from Abacus noise, and try to put the whole sordid tale behind it.

In financial markets, memories are short, and the effects of this case and its settlement will fade away quite quickly. Clients will probably never trust Goldman as much as they did before the crisis, but that was true even before the SEC brought its case. And Goldman is putting a lot of effort into becoming much more transparent on the conflicts-and-ethics front:

A “business standards committee” is in the middle of an internal review that will examine everything from Goldman’s management of conflicts of interest to product suitability for clients. A quarter of the firm’s 400 partners will contribute to the report, which will be handed to a board committee in December. The findings will be made public.

This settlement is surely testament to the extraordinary powers of persuasion which still exist within Goldman Sachs, but some kind of settlement was always likely: the SEC didn’t want to risk bringing a complex case like this in front of an inherently-unpredictable jury. I’m just surprised that they didn’t even get any management changes, or any kind of mea culpa. The risk, of course, is that Goldman’s victory here will only serve to exacerbate its arrogance. Could the Squids of West Street become even more insufferable, now?

George Loewenstein and Peter Ubel are about as expert on behavioral economics as it gets, so it’s interesting that they’ve taken to the op-ed page of the NYT today to urge politicians to spend less time on nudges and more time making substantive policy changes.

The problem here is that although behavioral economics can result in policies with positive effects, it can also mean that those policies get put into place instead of ones which really have teeth.

Prime Minister David Cameron of Britain recently promoted behavioral economics as a remedy for his country’s over-use of electricity, citing what he claimed were remarkable results from a study that reduced household electricity use by informing consumers of how their use compared to that of their neighbors.

Under closer scrutiny, however, tests of the program found that better information reduced energy use by a mere 1 percent to 2.5 percent — modest relative to the hopes being pinned on it.

Compare that with the likely results of a solution rooted in traditional economics: a carbon tax would instantly bring the price of energy into line with its true cost and would unleash the creative power of the marketplace to generate cleaner energy sources.

Behavioral economics should complement, not substitute for, more substantive economic interventions.

You can quibble with the specific example here — Barbara Kiviat notes that other studies show greater effects — but conceptually it’s easy to see that any behavioral-economics solution carries with it a potential problem, which interestingly enough might be exactly the kind of thing best studied by behavioral economists.

Consider an issue with two possible lines of attack: a cheap behavioral-economics solution, B, and a more expensive and politically-fraught substantive solution, S. Does implementing B make implementing S less likely? If B didn’t exist, would S be more likely to come about? Surely there are cases where the answer to both questions is yes — and where therefore behavioral economics is a bad thing, not a good thing. The ability to cover up issues with a behavioral band-aid is often just a way of doing as little as possible while appearing to tackle the issue at hand.

That said, in a lot of cases S would never happen anyway, and in those cases B is better than nothing. And in other cases S will happen either way, and again adding B to the mix is going to be a good thing. So the only cases we’re worried about are the ones where the existence of B significantly changes the likelihood of implementing S. I wonder how common that is.

Can Europe’s bank stress tests do for banks over there what the US tests did on this side of the pond? Mohamed El-Erian is not optimistic:

Last year’s stress test in the US applied to institutions that were the main cause of the financial instabilities, and the government had budgetary room to support the sector. Europe’s situation is different. The concern about banks is a derived concern, reflecting worries about sovereign debt in some countries and the overall economic situation; and there are greater limits today on budgetary resources.

In other words, if bank solvency is the problem, then the government rescuing the banks — or forcing them to recapitalize — can be the solution. But if government finances are the problem, then it’s very unlikely that any kind of intervention in the banking sector can solve anything much. The one thing which no one was worried about during the financial crisis of 2008 was US banks’ exposure to the US government. But the one thing that everybody is worried about in 2010 is European banks’ exposure to European governments.

That said, I think and hope that the European stress tests, if they prove credible (and that’s a big if), will get the interbank market moving again at least between the strongest institutions. Which would be an undeniable improvement on where we’re at now. As El-Erian explains:

Europe would be in the midst of a major banking crisis if the European Central Bank had not become the major counterparty to both sides of the interbank market. Weak banks go to the ECB for liquidity. Strong banks deposit their excess funds at the ECB rather than face other banks in the interbank market.

And what’s to become of the weak banks? Well, they either recapitalize or get taken over by strong banks. Europe’s banks are too big already, and they’re about to get bigger, it seems. But that always happens in a crisis. When you’re worried about solvency, concerns over size always retreat to the back burner.

The WSJ has its own Basel III update today, which recapitulates most of what we learned yesterday. But there’s one new twist — or new emphasis on an old twist, I’m not sure which. When it comes to proposed liquidity requirements, says the accompanying graphic, “the proposal could cause huge funding shortfalls for banks world-wide.” And the article elaborates:

Something called the “net stable funding ratio,” is another sticking point. That formula would require banks to hold more long-term funding in an effort to make them less susceptible to freezes in the funding markets. Some analysts say that the requirement alone could cost banks trillions of dollars in new funds, and officials could postpone or shelve the idea, people familiar with the matter said.

It would be really helpful to know who the anonymous “analysts” are here: are they part of the IIF-based lobbying to downsize Basel III as much as possible, or are they genuinely independent? And what exactly is meant by “new funds”? Remember that we’re not talking about capital requirements here: the liquidity requirements talk about what form capital should take, rather than how much of it there should be. If you manage your liabilities so that they’re long-term rather than short-term, does that constitute raising “trillions of dollars in new funds,” or is it just a liability-management exercise?

The next paragraph of the article suggests that it might be the latter, and that the anonymous analysts do indeed have a dog in the fight:

Delegates at this week’s meetings discussed current studies by Basel staff and others estimating the likely impact of the proposed rules. Those studies in general show that the version of the rules outlined in December could require banks world-wide to raise nearly $1 trillion in new capital, according to people briefed on the process. That’s considerably less than the multi-trillion-dollar estimates published by some industry groups.

The debate over Basel III is by its nature tough to report on, because financial journalists’ sources tend to be in the financial-services industry, and you really can’t take anything that anybody in that industry says at face value on this subject. Meanwhile, central bankers and other technocrats deeply involved in the negotiations tend not to want to say anything on the record, which means that these stories are full of anonymous sources saying things which may or may not be trustworthy, and which they certainly can’t be held accountable for.

Is it too much to ask that when anonymous sources are used, they can at least be characterized broadly by whether they’re public-sector technocrats or private-sector financial-services professionals with an entrenched interest in weakening the Basel III regulations as much as possible? The standard WSJ “people familiar with the matter” formulation simply isn’t good enough here, especially when it’s used ambiguously: are the “people familiar with the matter” saying just that the liquidity requirements could be shelved, or are they also the source for the multi-trillion-dollar scare estimates?

Basel III is not going to be decided by a legislature susceptible to traditional lobbying techniques. So banks seeking to influence the outcome are naturally going to try to set the tone of the debate by talking strategically to members of the press. Anybody reporting this story should assume that they’re being used, somehow. And be very careful in what they say and how they say it.

Robert Benmosche is probably the highest-paid public-sector employee in America: his $10.5 million salary means that he takes home Barack Obama’s $400,000 annual pay every two weeks. And yes, Obama is his ultimate boss.

Along with his outsize remuneration, Benmosche gets lots of other privileges normally denied to civil servants, especially in this administration. He’s allowed to throw regular diva fits, he’s allowed to bully his own board into submission, and he’s even, it seems, allowed to fire his boss against the board’s wishes. In other words, AIG is not controlled by its 80% shareholder: instead, it’s the Benmosche show, with the rest of us just spectators.

This is, needless to say, a novel way of running a state-owned company. Historically the problem with such companies has been that they were hobbled by interference from above; in this case, the problem is exactly the opposite, that the government seems to have no control over the company at all. Yes, it can appoint board members, but the board members wanted Golub to stay on as chairman and he resigned anyway, and they also seem to be incapable of giving Benmosche any kind of strategic guidance. He does what he wants, and if there’s any pushback from the board, he simply threatens to quit.

All of this is complicated by the fact that you can’t look at AIG’s share price to give any kind of indication of how Benmosche is doing: it’s something out of a Borges novel, a security which gets traded at $37.50 per share but which doesn’t really have any value. The important part of AIG’s capital structure is the billions of dollars in debt owed to Treasury: the question there is not whether it will be repaid (it won’t) but how much of it will be repaid. If that number is going up — if the expected amount that the Treasury is going to get back from AIG is rising — then Benmosche is ultimately doing a good job. If it’s going down, then Benmosche is doing a bad job.

So I’m thinking that Treasury should securitize some small portion of what it’s owed by AIG — just a couple of billion dollars, not so much as to make a big difference, but enough to create a liquid market. Then we can look at the market price of those securities, and judge Benmosche much more easily. Without such an indication, he’ll continue to make a mockery of AIG’s corporate governance, and his bosses, American taxpayers.

Steinbrenner pays no estate tax; this is “a social scientist’s fondest dream” — Improbable Research

NYC Man Fined $2,000 For Taking Discarded Garbage — WCBS

Having small investors participate in the market only undermines markets’ role in governance and capital allocation — Yglesias

This TBI parody is absolutely priceless — Photobucket

Possibly the greatest media prank ever: Rupert Murdoch, Neel Shah, and the Short Pants — Get Excited

Khoi Vinh is leaving the NYT. A huge loss for them, very sad. He’ll do great in his new projects — Subtraction

Someone tell Oyl Miller that a tweet can’t be 503 words long — McSweeney’s

Cardiff Garcia on Sebastian Mallaby on hedge funds — Garcia