Felix Salmon

When online editors spew jargon

Felix Salmon
Jul 19, 2010 21:32 UTC

The history of the news business has no shortage of legendary larger-than-life straight-talkers with vision and drive and a bottle of whiskey in their desk drawer. The top editorial staff at newspapers, magazines, and television news shows might be well versed in the dark arts of office politics, but they nearly always make sure that their public face is a simple and often friendly one. They can be trusted, is the message.

So why is the online world so different? I don’t want to pick on any individual in particular, but this interview today with the executive editor of a major website, conducted via email so that he could clearly articulate exactly what he wanted to say, is full of the kind of business and management jargon that most editorial-side employees instinctively recoil at.

Focusing on key verticals… productization… thought-leaders… packaging the right applications and tools to support coverage… coverage verticals… legacy media… high-impact editorial packaging… as I described in our mission… work hip-to-hip every hour… driving a quickly evolving digital identity and user experience… a giant white space… adopting a “content-ownership strategy”… hire incremental editors… a shot at being great… That was achieved by hewing to our mission and adopting the content ownership strategy.

In principle, I think it makes sense for the old lines between the editorial and the business sides to blur, especially online. The success of both requires staying on top of the same technologies, and when the integration is done well, everyone benefits, especially the readers. The alternative is all to often that readers get annoyed by floating survey ads or other bright ideas dreamed up by some sadistic media buyer, which ultimately ruin the editorial product much more than any honest sponsorship would.

The top editor of most publications has always been wheeled out to impress advertisers on a regular basis, but online editors can often be much more constructive and helpful, without violating any ethical boundaries, than their print counterparts. They tend to have an instinctive idea of what works and what doesn’t, on their site — and that kind of hard-won intelligence is exactly what advertisers want to know.

It’s important, then, for top online editors to be able to speak the business side’s language. If nothing else, it helps them to get the resources they need to create a great product. But equally when they’re not dealing with business-side issues, I think there’s a lot of value in them showing that they haven’t had their brains eaten by zombies.

When economics meets politics, as we all know, politics wins. And when the business side meets the editorial side, the business side wins. And that’s the downside of merging the two: in a medium which in journalists are already increasingly pressured to maximize their daily pageview numbers, it falls to their bosses to fight for the kind of things which might not be as immediately quantifiable, but which are much better at building a long-term franchise.

When journalists instead see their bosses spewing missions and strategies and coverage-supporting application packages, they tend to get a little demoralized. Those things are all well and good, but I tend to get worried when I see them emanating from anybody with the word “editor” in his job title. It means that a crucial part of editorial leadership — clearly articulating the vision of the site or publication, rather than just asserting that you have one — is prone to getting lost.

The unique Paul Volcker

Felix Salmon
Jul 19, 2010 15:29 UTC

I like John Cassidy’s piece on Paul Volcker: it gives a great sense of how he’s managed to use his independence to great and important effect.

Certainly Volcker has achieved a lot since January 2009, when he refused to show up to support Treasury’s white paper on financial reform. Over the course of the rest of the year Volcker did a good job of distancing himself from the Obama Administration, and eventually, after Scott Brown won in Massachusetts, the Administration threw him a tasty bone.

The White House invited Volcker to come down for a meeting. On Christmas Eve, he had a long working lunch in the West Wing with Geithner and Summers, both of whom sensed that it was time for a policy switch. The financial-reform bill that had passed in the House in early December included an amendment from Paul Kanjorski, a Pennsylvania Democrat, giving the Fed the power to order individual banks to cease certain activities, including proprietary trading, if they were taking too many risks. Adopting Volcker’s proposal would go much further than that, and it would also serve an important political purpose. “We decided there was a way to do it that was O.K. policy and which had a bunch of tactical advantages,” the senior Administration official told me. “It would allow Volcker to align himself more fully with us. Because he was a little separate, people could project all sorts of things onto him. . . . They thought he was for all sorts of stuff he never was. That was damaging for the President, and it just wasn’t good strategy for us.”

The new language was quickly dubbed — by Obama himself — “the Volcker rule”, “thus associating the White House with a figure known for his independence and integrity”, as Cassidy puts it. There was lots of legislative jockeying thereafter, but the Volcker rule did manage to make it in to the final legislation, with some compromises.

This is surely a positive development, even if the rule has little practical effect. Cassidy happily parrots the official Goldman line that “at Goldman Sachs, proprietary trading accounts for about ten per cent of the firm’s revenues” — but that’s a completely made-up number, as far as I can tell. Goldman flacks were telling me straight-facedly a year ago that they had no proprietary trading at all; my feeling is that they upped their number from zero to 10% just so that it would be a little more credible, and so that they could claim to have made a substantive change when they drop it back down to zero again. The fact is that the majority of Goldman’s revenues come from its trading operations, and Goldman traders are using the bank’s own balance sheet to take positions. That looks and smells like proprietary trading, even if it’s covered by the fig-leaf that Goldman is acting on behalf of clients.

My guess is that any attempt to define proprietary trading is impossible, and that so long as broker-dealers have banking licenses, the Volcker rule will prove toothless. But it turns out that there’s more to Volcker than his eponymous rule: he’s managed to insert into the Dodd-Frank bill a brand new job at the Fed, as well.

[The] second vice-chairman of the Fed… will be explicitly responsible to Congress for financial regulation. “I think that might turn out to be one of the most important things in there,” he said. “It focuses the responsibility on one person.”

I like the idea of having a senior Fed official in Washington responsible for financial regulation. The job of president of the New York Fed has historically been the closest to that, but the New York Fed is prone to capture, and often thinks of itself as an intelligence-gathering operation, talking to the markets and acting as a conduit between Wall Street and Washington. That’s an important role, but it’s hard to wear that hat and the tough-regulator hat at the same time. So putting a tough regulator in Washington could well be very smart indeed — assuming, of course, that you pick the right person.

The problem, of course, is that the people in charge of financial regulation are, in Cassidy’s words, going to be “less independently minded men” than Volcker. People like Volcker are rare gems, and off the top of my head I can’t think of a great candidate for the second vice-chairman of the Fed, who would be able to muster internal support for tough crackdowns on profitable activities in the financial sector. The best I can come up with is Joe Stiglitz, but I don’t think he’s respected enough within the Fed. Any better ideas?


PS. That’s just what the BIS thought a decade ago. What could be simpler, or more elegant?

Many of us bought it, few of us thought it through. If the ratings agencies hadn’t failed us, we’d be in capitalist/humanist nirvana. What a shame.aargh!!

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Good news from Hungary

Felix Salmon
Jul 19, 2010 14:12 UTC

Remember the storm-in-a-teacup Hungary crisis, back in June? Global markets all tumbled on fears about Hungarian austerity, of all things. It was all a bit weird for two reasons: firstly, the crisis was caused by remarks from a brand-new and wholly inexperienced incoming government, which had yet to find its legs or implement any policies at all. And secondly, Hungary is not a part of the eurozone, so there was no chance of a broader euro crisis resulting from what went on there: in the worst case scenario, the forint would simply weaken. The obvious conclusion was that markets were just looking for any excuse to plunge.

Today, Hungary blew up all over again, the forint fell by more than 2%, and debt spreads widened out to their early-June levels, as austerity talks with the IMF fell apart. This was, on its face, a more credible crisis: it was caused by a real failure rather than just talk. But markets outside Hungary didn’t seem to notice, and neither the forint nor Hungarian spreads have yet found themselves at noticeably worse levels than they saw in June.

In June, I described the Hungary crisis as “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”. So I’m not surprised that markets were sanguine today: lightning rarely strikes twice in the same spot.

I wonder how people are feeling at the IMF today. Gordon Fairclough reports that “one way the IMF can encourage compliance is to suspend talks with borrowers and allow a punishing market reaction” — but it seems that Hungary can easily weather this particular punishment, so long as it doesn’t get any worse.

So all of this is good news, I think: global markets are less prone to panic, and even Hungarian markets seem to have made peace with the idea that there might not be an IMF backstop for the time being. Maybe the “new normal” is, slowly, becoming normal.


A very balanced piece – and probably right. But beware the Party now in power…they are populists of the worst kind. It was a smart(ish) move of the IMF to fire a shot across their bows…I sense they figured a battle now might obviate a war later.

I do note, however, that the IMF sent a not entirely coded message to the G20 over the weekend, the gist of which was ‘we need more money if we’re gonna get through this minefield’.

Tell me, is it me – or is a deadly combination of greed, stupidity, speed and complexity now making investment analysis something of a mug’s game? This might apply….

http://nbyslog.blogspot.com/2010/07/inve stment-object-lesson-in-why-small.html

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Felix Salmon
Jul 19, 2010 05:34 UTC

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


Love the word rage clip… how many times I wished I could do just that j/k (mostly). lol I must be in finance, I even hedge my comments!

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Fraud settlement datapoints of the day

Felix Salmon
Jul 16, 2010 22:28 UTC

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.


Yeah, Ernie, I read somewhere that RBS is thinking about suing GS over this and my reading of the settlement is that the 100million doesn’t go towards any other settlement, ie if RBS sues and wins 891million then they get 891million not 791million with the 100million already paid taken into consideration.

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The value of a strong brand, Apple edition

Felix Salmon
Jul 16, 2010 18:04 UTC

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.


Apple’s more than a brand; it’s a lifestyle. Actually, it’s the idealization of an all-embracing lifestyle, which is branding process incarnate. If all you need in life is a phone that helps you get things done in an ideal world, you could make worse choices than Apple’s iPhone.

In the real world, unfortunately, you also need AT&T to make it work at all. And AT&T isn’t so much a brand or idealization of anything. AT&T is a death style, to which no soul is sacred.

Goethe wrote the book on this sort of epiphenomenon.

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Basel III: The incomplete capital buffer proposal

Felix Salmon
Jul 16, 2010 15:52 UTC

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 Basel proposal is complicated and I think you might do your readers a service if you were to summarize it clearly. Here is my quickie, blog-comment version:

1. There is a *minimum* tier 1 capital requirement of perhaps 4% of risk-weighted assets. A bank that falls below this level is subject to *operational intervention* by its regulator: sell assets, raise more capital, be sold to a competitor/shut down, or whatever.

2. There is a “conservation buffer” above this minimum, of perhaps 2%. A bank that is above the minimum but below the conservation level is not operationally constrained, but is constrained on how it may distribute its earnings. It is an explicit objective of the committee that these constraints should not be so onerous as to cause banks to view the conservation level as the effective minimum.

3. There is a market-specific (not bank-specific) “counter-cyclical buffer” above the conservation buffer (or you could view it as a multiplier of the conservation buffer to the same effect.) This might be another 2%, say, and it only kicks in when a period of “excess” credit growth is detected – the BIS reckons perhaps once every 20 years or so, in a given national market.

The things to be calibrated are therefore A) the minimum, B) the conservation level, C) the maximum counter-cyclical add-on, D) the credit conditions that trigger this add-on, and E) the schedule of restrictions on earning distributions as a function of where your capital level is within the buffer.

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When checking fees replace overdraft fees

Felix Salmon
Jul 16, 2010 14:33 UTC

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.


It’s not like money belongs to people, is it? The best way to rob a major bank is to own one.

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Felix Salmon
Jul 16, 2010 06:43 UTC

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


Dan Hess, and I mean this in the most tasteful fashion possible, optimism’s the only way you can possibly call today’s Western economy a free one. People who live in glass houses, copulation control, etc.

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