Felix Salmon

Elizabeth Warren’s new job

Felix Salmon
Sep 17, 2010 19:55 UTC

Elizabeth Warren had a conference call with left-wing bloggers this afternoon, just after being introduced to the public by Barack Obama in the White House Rose Garden. She said that she first started talking to Barack Obama about a consumer financial protection agency in December 2006 — before even her Democracy article came out.

As of Monday, when she moves in to her new office and already has lunch scheduled with Tim Geithner, Warren is going to be a fully-fledged member of the White House economic team, meeting with the president and the rest of his economic advisors on a regular basis. Yes, her portfolio will specifically be consumer protection, but she’ll be able to advise in any area where she feels she can add value.

She was also clear that she has the authority to get the Consumer Financial Protection Bureau up and running as quickly as she can — to hire people, set the budget, and so forth. She wouldn’t be drawn on the question of appointing a director, or whether she has any desire to return to Harvard. But she was clear that she was excited “to make this shift from being on the outside to being on the inside”.

She also talked a lot about being “willing to fight back on behalf middle-class families”. Her vision for the CFPB is very focused on the middle class: there was no mention, for instance, of the unbanked or of yesterday’s poverty numbers. You can be sure they would have featured much more prominently had Michael Barr got the nod.

So the message was clear: The CFPB is Warren’s baby, she’s in control, and she has the explicit support of Obama to get cracking at full speed. I reckon she’ll start off with a lot of momentum, and that it’s going to be pretty much impossible to stop her once she gets started. For the time being, it seems, the question of who will be appointed director and when is a moot one. It’s going to have to be addressed at some point before the end of Obama’s first term in office, but I’m not holding my breath: it could be a long while yet.


Warren’s got everything it takes to be effective. And she has the most special of all qualities: Common sense.

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Teaching journalists to read

Felix Salmon
Sep 17, 2010 13:32 UTC

Every six months or so, The Audit, CJR’s financial-journalism blog, holds a breakfast to update interested parties on how the blog is doing. Each breakfast has an invited speaker, and so it was that I found myself at 7:45 this morning in a very posh Upper East Side club, being offered an array of ties to choose from before being allowed upstairs to take my seat between Nicholas Lemann and Victor Navasky.

The main thrust of my speech, which rapidly became a spirited and high-level discussion, was that journalistic entities — newspapers, magazines, websites, and, yes, Columbia J-school itself — have to start putting much more emphasis on reading, as opposed to writing.

The reason, fundamentally, is that journalism is becoming much more conversational. It started with the rise of the blogs, and if blogs are now slowly dying out, that’s only because the conversation has overtaken them. It’s moved to Twitter, and Facebook, and many mainstream websites, too: the web is social now. You no longer need a blog to be part of the conversation; you don’t even need a Tumblr. Everybody is a publisher now, and all these new networks have helped to create a new vibrancy in public discourse.

This thesis was a good one to bring to an Audit breakfast, I think, because it runs directly counter to the ideas of the Audit’s Dean Starkman, who has written a long piece about what he calls the “hamster wheel” of contemporary journalism. (It’s ultimately going to become part of a book he’s writing on financial journalism and the financial crisis.)

Where Dean sees vast amounts of “completely unimportant” dross, I see journalists simply engaging more with their readers, which is a good thing. Here’s Dean, turning the snark dial to 11:

Put it this way, given limited resources, not all readers would think to assign seven (!) staffers to live blog the opening ceremonies of the Winter Olympics, as The Wall Street Journal did in February:

The preceremony starts, with instructions to the audience. As always in Canada, all explanations are in English and French.

But again, that’s just me. Perhaps there was nothing else to look into that night—in the whole world.

But these were WSJ reporters in Canada to cover the Olympics. There’s only one Olympic event going on during the opening ceremony, and such ceremonies always have lots of reporters at them. The only difference now is that the reporters are transparent about being there, and are trying to provide at least a little bit of value for their readers at the same time. Does Dean really think that if they weren’t live-blogging the ceremonies, they would instead be shouting into their cellphones over the noise, trying to track down some securities fraudster?

Dean has a very old-fashioned view of what journalism is and should be: “the corest of core” values, he says, at any news organization, are investigations. Now I have nothing against good investigative journalism, but it’s hardly a defining feature of most journalism, and in fact Dean’s attitude is extremely elitist, germane only for a handful of big daily newspapers. Most copy in all newspapers, and all copy in most newspapers, is simple stuff, and always has been. People read it because it’s relevant to them, because they can talk about it, and because they might as well read the stories after they’ve bought the paper for the supermarket coupons.

Dean, for instance, doesn’t think this is real journalism:

For the first time in many years, the Howard County Sheriff Department is planning not to purchase any new patrol cars, saving the county $185,000.

I disagree. I think people in Howard County care about this kind of thing — they talk about this kind of thing. If you were walking down the street and saw cinema screens being built, you’d stop to take a look. The New Haven Register allows you to do that from your home computer? Great!

Meanwhile, what does Dean think is being lost?

Do you fly to Chicago to talk to that guy about that thing? Do you read that bankruptcy examiner’s report? Or do you do three things that are easier?

What if you don’t need to fly to Chicago to talk to that guy about that thing, because he’s already put up a detailed explanation of what he thinks online? And if Dean means the bankruptcy examiner’s report I think he means, I’d point him here. Really good journalism is being written about such things every day — it’s just that a lot of it isn’t coming from old-school media outlets. Vanity Fair’s Bethany McLean was also at the breakfast, and she confirmed that the blogosphere is a goldmine for people like her who want to understand the crisis, both in hindsight and as a way of working out what people were thinking and saying contemporaneously.

And of course there are new sources of pure investigative journalism online, too.

What’s more, even in those halcyon days when investigative reporters could spend years on an investigation, the number of readers that investigation reached was tiny: you needed to fortuitously be a reader of the right newspaper on the right day when it appeared, and you needed to be interested in the subject. Today, investigations are much more likely to reach a broad and influential audience, because they are easily available, in perpetuity, no matter where you are in the world.

But Dean doesn’t see it, because he’s concentrating only on old-fashioned media. He complains (without linking) that “the news business has lost an estimated 15,000 journalists since 2000″ — but I don’t think that’s true at all. Mike Mandel is excellent on this, and in fact is a prime example of what’s going on: he might no longer be working for an old-school publication like Businessweek, but he’s still very much a journalist, and is even employing journalists as well:

Overall the number of employed journalists, based on the Current Population Survey, has increased by 19% over the past three year. Meanwhile, the number of employed college graduates has risen by only 3%, and overall employment, as measured by the CPS, has dropped by almost 5%…

Yahoo, for example, hired Jane Sasseen, BW’s very good Washington Bureau chief, to help beef up politics coverage. That job likely shows up in the industry “internet publishing and broadcasting and web search portals”, which has grown by 22% over the past three years. Or take my business, Visible Economy LLC. We’ve hired three young journalists, but it’s tough to say whether these jobs would show up in educational services or in journalism.

Financial journalists know better than most how tight the journalism job market really is: in my field, demand for good journalists vastly exceeds supply*. I get asked on a weekly basis if I can recommend someone for this or that job. And normally the answer is that no, I can’t: pretty much everybody’s taken already. The result is that journalists are getting poached on a regular basis, and salaries are rising impressively: we live in a world where Dennis Kneale has reportedly been pulling down $500,000 a year.

The fact is that a huge universe of great material is being published every day, by old media and new media alike. And increasingly, tools like Twitter are doing a good job of helping the public find the really good stuff. It might be a smaller percentage of the whole than we’re used to, and there might even be less of it on an absolute basis than there was in the past. But there’s much more great journalism available to the average member of the population than there ever used to be. In the olden days, if you didn’t get the NYT or the WaPo, you didn’t read their journalism.* Nowadays, when they publish something great, you read it. Just like when Gawker publishes something great. Or Yahoo blogs. Or some guy in Australia with a blogspot account who can move a stock 20% overnight by sheer force of argument alone.

Still, the biggest thing that’s missing in the journalistic establishment is people who are good at finding all that great material, and collating it, curating it, adding value to it, linking to it, presenting it to their readers. It’s a function which has historically been pushed into a blog ghetto, and which newspapers and old media generally have been pretty bad at. And of course old media doesn’t understand blogs in the first place, let alone have the confidence or the ability to incorporate such thinking into everything they do.

Think about it this way: reading is to writing as listening is to talking — and someone who talks without listening is both a boor and a bore. If you can’t read, I don’t want you in my newsroom. Because you aren’t taking part in the conversation which is all around you.

When journalists apply for jobs today, they’re usually given some kind of writing test. Certainly the people hiring them will look at their clips. Everybody cares about how good a writer you are. So long as you write well, it seems, that’s all that matters.

But if I were hiring, the first thing I’d look at would be the prospective employee’s Twitter feed. What are they linking to? What are they reading? If they’re linking to great stuff from a disparate range of sources, if they’re following smart people on Twitter, if they’re engaged in the conversation — that’s hugely valuable. More valuable, in fact, than being able to put together an artfully-constructed lede.

One of the best new media properties to come along in recent years is the Atlantic Wire. It’s run on a shoestring budget, and staffed by young, smart, hardworking kids with fantastic reading skills. Many of them can write, too — but they write short and punchy. Which is something else Old Media needs to learn how to do: it’s always much more fun reading a Gawker pickup of a Washington Post story than reading the original piece.

The biggest shortage in journalism right now isn’t good writers, or even enlightened proprietors willing to fund investigations. It’s critical readers – journalists who can see when they’re being snowed, who can read between the lines, who can pick up information from across the blogosphere and the twittersphere and be able to judge it on its own merits rather than simply trusting the publisher.

We need much more critical reading, and we also, desperately, need much more linking from Old Media to outside sources. Links aren’t something cute to relegate to a blog ghetto — they’re an intrinsic part of what journalism has to be in the 21st Century. And most journalists are very, very, bad at linking.

Linking and reading, of course, are close cousins: you can’t do the former unless you do the latter.

But once we achieve a world where reading and linking are taught and valued as much as writing, then suddenly the prospects for journalism start looking bright again. The best material will get found and disseminated broadly, through links, and that in turn will encourage publishers to invest in producing such material. Look, again, at Gawker Media, which gets the majority of its traffic through original reporting, much of it of extremely high quality. (And, I’d add, which pays good six-figure salaries to its top bloggers.)

We’ll have much less pointless redundancy, the idiotic syndrome whereby hundreds of journalists from loads of different publications all descend on the same press conference or event, and all file virtually-identical copy. That’s commodity news, and it’s low-hanging fruit in terms of journalistic effort which can and should be eliminated.

And we’ll have much more valuable insight, as experts become disintermediated and journalists start linking to them rather than quoting them. It’s much less work for the journalist, and it’s more valuable and transparent for the reader.

The Audit, and especially its lead writer Ryan Chittum, is a great exemplar of what good critical reading can be, and of how to take part in the debate and the conversation. They’re a harbinger of what everybody will be doing, sooner or later.

But it’s going to take a while to get there: when I expressed these thoughts at the breakfast, I got pushback from the likes of Jonathan Dahl, the editor in chief of Smart Money. He has a substantial staff dedicated to Smart Money’s website, and every day his Google Alert shows him all of the great inbound links that the website is generating. These are people who don’t just like the material so much that they read it: they like it enough to link to it, too. It’s a great validation of the work that Smart Money is doing.

Yet Dahl, for all that he’s grateful for the links, actually dislikes what he’s seeing. He reckons that all those bloggers are just parasitical on his staff’s original reporting and work, and reckons that he has the tough and thankless task of producing the original material, with everybody else outsourcing that work to him without paying him.

Lemann, too, said something similar, comparing the online journalistic ecosystem to a lemon meringue pie with a whisper-thin layer of lemon at the bottom and lots of frothy meringue layered on top. (The lemon, of course, is “reporting”, while the meringue is “commentary”.)

That kind of view says to me that most senior journalists still don’t appreciate the real value being added by the blogosphere — and nor do they appreciate just how much original reporting is done by blogs and other online outlets these days. You can’t become popular just by linking and aggregating, any more: you need good original content.

Still, Lemann’s moving in the right direction: he appreciates that Columbia’s J-school graduates often have to do a lot of critical reading and curating the minute they leave university, and therefore is looking at ways of teaching that. He and I are both optimistic that Emily Bell will be able to help on that front. I’d just love it if things could speed up a bit. Because right now a lot of old-school publications are getting left far behind. And that’s not helping their financial prospects one bit.

*Update: To clarify, the journalism jobs market in general isn’t tight. Look at Demand Media, and the way in which they seem to have no problem hiring people to write for a pittance. But the financial-journalism jobs market is very tight. And in the olden days, NYT and WaPo journalism appeared across the country, in many regional newspapers, thanks to their respective newswires. So you could find NYT journalism without buying the NYT, you just needed to buy a paper which carried NYT stories.


Much of this article stuck out as spot-on in my mind, and I suspect that I could respond in-kind to almost every thought/paragraph, but since I don’t have the kind of time (Yom Kippur starting soon and all) and you don’t have the time or inclination to read/respond/read/respond, I’ll save us and your readers all the trouble and just pick one that I think is particularly relevant to the topic at-hand.

“That kind of view says to me that most senior journalists still don’t appreciate the real value being added by the blogosphere — and nor do they appreciate just how much original reporting is done by blogs and other online outlets these days. You can’t become popular just by linking and aggregating, any more: you need good original content.”

Many journalist (and quasi-blogger-journalist hybrid) friends of mine will undoubtedly be less-than-thrilled with me for saying this (ad nauseum), but while I think that point is absolutely true, I don’t think you’ve gone far enough.

The big journalism (or “journalism,” since I wouldn’t insult the profession by calling most of the drivel in most papers/websites real Journalism) outlets are so far out of it, still, its unbelievable. Its 2010! Even giving such outlets the benefit of the doubt that the blogosphere didn’t explode until say 2006, there’s no excuse to still be so far behind the curve. Not pride. Not hubris. No.excuse.

Step 1 is admitting you have a problem (I’m told), and the Old Guard (and to a lesser extent) of leaders at these media outlets need to man up already and get with the program. As you say, every outlet in the country doesn’t need to send a reporter to every damn event. Syndicate AP/whatever and focus on core competencies/areas with comparative advantage/etc. Hell, start staffing people to curate instead of re-hash commoditized information and syndicate the best of what’s out there, whether from a blog or traditional media outlet or wire service.

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Felix Salmon
Sep 17, 2010 06:28 UTC

Some Unsolicited Advice for Regulators — Economics of Contempt

There are 43.6 million Americans living in poverty — Reuters

The Bloomberg terminal wedding cake — YouTube

The stupidity of Comic Sans, it’s contagious! — The Atlantic

Flavorwire on author photos: “Who wouldn’t trust someone who likes a good couch sitting now and then?” — Flavorwire

Of 294 terror attacks in Europe in 2009, 1 was Islamist (vs 237 separatist, 40 leftist, 4 rightist) — Geographic Travels

Assessing the TARP on the Eve of Its Expiration: The COP‘s last report — COP (Update: Not the last report, it turns out: they’ll continue through April 2011.)


“But the poverty count itself defines poverty as pre-tax money income from all sources being less than the poverty line. There is nothing in the definition about people who would have been poor but for government aid.”

That’s rather my point.

Every other country (as well as using a relative, not absolute, poverty measure) defines poverty after the efforts to alleviate poverty….after the influence of the tax and benefit systems. The US alone defines it as before the influence of the major poverty alleviation efforts.

The numbers are really rather large: add in Medicaid, EITC, Section 8 and the rest and there’s over $500 billion being spent on those 50 million ish people being defined as poor. While the money isn’t distributed evenly if it were that would mean that the mythical family of four, Mom,, Pop and two kinds, is getting $40k a year….which isn’t really, anyone’s definition of poverty.

So we don’t in fact know who is not now poor because of the aid they get….but that’s actually the one number we’re really interested in. How much more do we have to do to get rid of poverty?

As to hte best sources, well, there really isn’t one that’s updated. Back in, I think, 2004, the Census did run through the calculations of what the effects of poverty alleviation were. You’ll have to hunt to find it though, it’s been moved since the last time I looked it up. Also, it’s not updated. The general poverty rate fell to around 8% and the child poverty rate to something tiny, 2 or 3% as I recall it.

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Appointing Warren

Felix Salmon
Sep 16, 2010 21:23 UTC

It’s weirdly depressing watching everybody scramble around trying to work out what on earth the kindasorta appointment of Elizabeth Warren to create the Consumer Financial Protection Bureau actually means. As Ryan Chittum notes, the WSJ certainly can’t make up its mind: David Weidner says that Warren is being sidelined and that “someone else will make the final decisions”; the paper’s news story, by contrast, says that she will have broad powers.

She will recruit staff for the agency, set the policy mission and serve as the recognizable public face for a new agency the administration wants to promote.

The big outstanding question is whether the White House intends to nominate Warren to lead the CFPB at some point in the future, before Obama’s first term is out. Jim Pethokoukis explains today that she’s probably here to stay:

There is an old management rule: Never hire someone you can’t fire. Obama violated this rule by picking Hillary Clinton for secretary of state. And he just did it again.

But weirdly, in exactly the same post, Jim says “it now seems unlikely that either Warren or Michael Barr will end up running this new agency”. It’s very hard indeed to reconcile the two positions: once the director is named, Warren’s job disappears. So either Warren is fired, or else she becomes the director. I can’t see any other outcome.

Ezra Klein, too, is trying desperately to hold two contradictory thoughts at the same time: this appointment “in no way prevents a permanent nomination from occurring at some later date”, he says, while at the same time “there’s no way Senate Republicans will ever let her have the permanent spot”.

My feeling is that once Warren has had this job for a while, and proven that she isn’t the devil incarnate, it might be possible to ratify her in the director’s position on a permanent basis. I certainly hope that’s what ends up happening. Probably both she and the White House want to keep their options open for the time being. But the communication around all this has been very messy, and there’s no sign that anything is going to get cleared up any time soon.


Elizabeth Warren is the right man for the job. I mean that in the best possible way. Every time I see her on TV I think to myself, “Jesus, this woman is talking straight and she’s not waffling or using mealy-mouthed code words!” She’s clearly not a politician. She doesn’t seem beholden to anyone. And she so clearly doesn’t give a whit about her image. If she ran for president she’d have my vote.

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Americans get more sensible about housing

Felix Salmon
Sep 16, 2010 16:31 UTC

Remember Fannie Mae’s National Housing Survey? Well, Fannie has repeated the exercise, just six months later, and chief economist Doug Duncan tells me it might even become more frequent than that, in future.

The general upshot is that Americans might still be delusional when it comes to housing, but they’re less delusional than they were six months ago, which is a good sign.

Although 67% of Americans think buying a house is a safe investment, this is down 3 points from January 2010 and 16 points from 2003 – the largest declines among all tracked alternatives over both timeframes.

It’s also good news that 80% of renters think they would have to make a financial sacrifice in order to own a home, and that fully 90% of owners think that they’re making a financial sacrifice to own their home. Given that expectations for house-price appreciation are realistically modest, one can conclude that people buying houses today are doing so for pretty good reasons.

There are weirdnesses in the survey: 91% of underwater borrowers, for instance, say they’re satisfied with their current mortgage.

And in the Fannie Mae survey, underwater homeowners are significantly less tolerant of the idea of walking away from a mortgage than their more solvent peers: just 6% of them say it’s OK to stop paying their mortgage, compared to 10% of the population as a whole. That’s in contrast to the latest Pew survey, in which 18% of underwater borrowers — and 19% of the general population — say that walking away is acceptable.

That said, half of the population think that mortgage lenders are likely to pursue other assets, rather than just the home in question, if the borrower walks away. Americans think they’re living in a recourse world, and they’re wrong about that: statistically speaking, lenders almost never chase personal assets in such situations. This attitude is good news for lenders, since it gives borrowers more of a reason to keep on making their mortgage payments. But if borrowers ever waken up to reality, the consequences for banks could be brutal.

There are also interesting divergences between buyers and renters. The proportion of buyers who think that homeownership is important to the overall economy, for instance, rose two points to 82% in this survey, while the proportion of renters thinking the same thing fell a full five points to 72%. And more generally, says Duncan, there’s a divide between renters and delinquent homeowners, on the one hand — who are more pessimistic than the general population, and becoming more pessimistic still — and owners who not delinquent. They are not only optimistic, but becoming more so.

Duncan reckons, after spending a lot of time with the survey results, that a lot of people are putting off buying a home because they’re worried about the future direction of the economy. It’s not so much that they think house prices are going to fall, but rather that they don’t want to take on the huge commitment of making mortgage payments every month for the next 30 years, given the uncertainty surrounding their own personal financial situation.

That bespeaks a lot more financial common sense and responsibility than we saw during the housing market. And so while America is by no means a nation of would-be renters, it’s moving in the right direction.


Agreed, Curmudgeon. There are many people who stretched a LITTLE to purchase their home (as SusaninChicago decribes) but got hurt badly when they lost income in the recession. They weren’t being greedy, they just didn’t anticipate the turn in their financial situation. I sympathize with those families.

The 30% figure is aggressive, though. I would personally be uncomfortable with anything over 25%, and a keeping a 12-month emergency fund is more important than maxing out the downpayment. But of course these more conservative rules seriously limit what you can theoretically afford, making it likely that you’ll end up in a neighborhood with people making less money.

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The problem with investing in hedge funds

Felix Salmon
Sep 16, 2010 15:08 UTC

I had a fun time last night sparring with Cathleen Rittereiser, who brought along a couple of copies of her new book, “Top Hedge Fund Investors.” (Wiley, $60, but only $37.80 at Amazon.) Her elevator pitch was a good one: a lot of books have been written about top hedge fund managers, but this is the first to be written about the people who actually invest in hedge funds.

It turns out, however, that fund-of-funds managers and their ilk are even more secretive than hedgies. Even Rittereiser, who wrote this book in between stints working for various hedge funds herself, didn’t manage to extract any quantitative information about their performance: her criterion for being considered a Top Hedge Fund Investor is simply having been around a long time, or being responsible for lots of money. Or, I suspect, just being willing to talk at all.

This is my biggest problem with alternative investments in general, and hedge funds in particular. Think about the situation with mutual funds: people don’t feel qualified to pick stocks, which is reasonable, and so they get a mutual fund manager to pick stocks for them. Except there are just as many mutual funds as there are stocks, and it’s actually harder to pick a good mutual fund than it is to pick a good stock.

The problem is even worse with hedge funds, because they’re so secretive. If you want to invest in hedge funds, how can you get a good impression of what your options are and which is best? It’s very, very difficult. And so you turn to a fund-of-funds manager. But how do you pick them? It’s even harder.

As far as I can tell, the main way that people end up investing in hedge funds is that their private bank is also a prime broker for various funds. And so the two arms shake hands, as it were: the private-bank clients get introduced to the prime-brokerage clients, and money ends up flowing from the former to the latter.

That’s all well and good, but in an era when prime brokerages compete for hedge funds by extolling the depth and wealth of their private-banking client base, said client base might want a bit more objective advice as to who they should be investing with. Including, of course, unaffiliated funds.

It’s easy to go wrong in hedge-fund investing, either by putting money into a fund which blows up, or by diversifying into so many different funds and strategies that you end up diversifying away all your alpha as well. And paying a management fee to a fund-of-funds investor only makes it even harder to get any financial benefit out of investing in hedge funds.

My feeling is that most individuals who have done very well out of investing in hedge funds have done so mainly by luck: by knowing the right person at the right time. A few top endowment heads and the like know the lay of the land quite well, and have access to just about any fund they want. But unless you’re running a multi-billion-dollar endowment, and being paid a lot of money to do so, it’s hard for me to see how you can successfully invest in hedge funds through anything other than luck.


So will you trust Willie Aames the actor twice bankrupt who is just starting, or Clinton’s daughter who is also just starting but has a name to trust (tongue in cheek there) and a husband who is a banker?

Or will you trust the husband of a colleague who was a reformed drug dealer thug with links to organized crime turned Bay street wheeler dealer and presently a hedge fund manager (and soon after also got a law degree) who did pick them in the past?

All three have the same credentials, so whom do you trust to tie up your money and take exorbitant fees to make that fortune? Dan Ariely says it may be that if two look similar, the manager who is the least ugly when you speak to them in person. Or, perhaps if one is investing in Telecom and you did well prior investing there, you could choose there for that reason.

In actuality none sound like sound choices, but people do it anyway because they want to make mo money

Hedge fund manager turned entrepreneur with OPM locked in to fund his ventures.
http://www.reuters.com/article/idUSTRE67 P22J20100826

@mjfitz9 who said: “It is by desire of the funds to avoid regulatory problems.” And I would say it is normally the design of the funds to avoid/skirt regulation.

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Felix Salmon
Sep 16, 2010 13:29 UTC

The Chase online-banking fiasco is continuing into this morning, at least according to Twitter chatter. The bank’s website went down on Monday night, was completely offline until Wednesday, and has been unreliable since then. And the response from the bank has been laughable:

Bank spokesman Joseph Evangelisti said that it did not want to post updates until it had a full understanding of the problem.

Have these people learned nothing from corporate cock-ups from Eurostar to BP? You get out in front of the issue, you apologize and make good to your customers even before you know what went wrong, and, crucially, you communicate frequently on Twitter, which is the first place that people look, these days, for updates relating to rapidly-evolving situations.

Except — get this — Chase isn’t on Twitter. There’s an @chase account, but it belongs to a guy who describes himself as “just some punk kid with a camera”. Similarly, @jpmorgan belongs to Josh Morgan.There’s an @jpmorganchase account, but it’s empty. And at one point there was an @chasebank account, but that has now been suspended, for reasons which are unclear.

The results are predictable enough:

“From this customer’s point of view, management doesn’t seem to care one bit,” said Mike Underhill, a J.P. Morgan Chase customer in West Chester, Ohio…

J.P. Morgan said it expects to issue an apology to consumers, but it had said little on Tuesday about why more than 16 million online customers lost electronic access to their accounts…

“There is a brand and reputational risk here,” said Jacob Jegher, an online banking analyst for financial-services consultancy Celent, citing a flurry of Twitter posts on Wednesday critical of the bank. ‘There is a backlash going on in social circles that is out of control.”

One of the biggest issues that customers have with their banks is that of communication: banks are incredibly bad at telling their customers what’s going on.

What’s more, this whole episode underlines the way in which it’s silly to assume that bigger banks have more robust websites. In fact, the opposite is true, especially in the case of banks like Chase which are the result of many mergers and therefore have to cobble together all manner of disparate legacy systems.

And it also says a lot about redundancy within big corporations, or the lack thereof. The damage from this outage is many orders of magnitude less severe than the damage from the BP oil spill, but both of them are cases where any attempt at back-up plans or redundancy failed. Chase tried to update its website, but didn’t have a backup system in case the update failed; BP tried to put in a blowout preventer, but it didn’t work.

Evangelisti told the NYT’s Eric Dash that the outage “would not have a material effect on the bank’s earnings”, and I daresay he’s right about that. But investors should still care. Chase is one of the biggest consumer banks in the world, and it has proved, this week, that it’s incapable of communicating with those consumers. Insofar as it still has customers inherited from more outgoing banks like WaMu, this episode is likely to accelerate the rate at which they leave for somewhere smaller, simpler, and more reliable. If and when such banks finally arrive.


Twitter response?!? Surely you are joking, or maybe the bubble of bloggers you are living in is running out of oxygen. Anyway, what they need to do is to frequently update the website with this information, and redirect it to an updated information page, rather than expose anyone to error pages or timeouts that would be associated with web application issues. That appears to be what’s going on now, so you are attempting make something out of nothing.

Sad, because your piece on Trillium was really good, but then you do this faux consumer advocacy whining and look like a fool.

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Felix Salmon
Sep 16, 2010 04:21 UTC

Obama to name critic Warren to consumer job — Reuters

The razors and blades myth — SSRN

Not going to Eleven Madison for my anniversary this year — Black Von

US 10-year returns by asset class. Sobering — TBI

James Kelleher profiles a long-term unemployed worker who’s voting Republican and doesn’t want his benefits extended — Reuters

Hiding Losses, Via the Calendar — NYT

“When we first opened the John Dory, we spun it as British. This time we got our story straight, it’s Mediterranean.” — Eater

Japan, with a 99% conviction rate, sentenced 112 people to death and executed 46 from 2000-2009 — NYT

“Franzen has little interest in the world of work. (The same applies, incidentally, to whoever edited the novel.)” — Atlantic

Can someone work out what kind of leverage Barnegat must have to get these returns from this trade? — FT

The Portland (Maine) Press Herald “sincerely apologizes” for running a photo of peaceful, observant Muslims on Sep 11 — TBI


Agreed, ckbryant. Worst time to buy an investment is at the end of a bull run. Best time is after a decade or two of underperformance. Like so much else, these things go in cycles.

I’ve seen some decent arguments why bonds aren’t likely to crash. With an aging and risk-averse population, demand might easily remain high for a long time. Unfortunately that could translate to decades of low (below-inflation?) returns from the bond market.

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Blogonomics: moving markets

Felix Salmon
Sep 15, 2010 21:34 UTC

What’s the best way to monetize a blog? I don’t know how much John Hempton has made off this blog entry, but it’s surely up there in the annals of the most lucrative posts of all time.

Hempton found an obscure Chinese travel company which somehow managed to get itself a listing on the NYSE: Universal Travel Group. He tried to book travel through Universal Travel’s website, and failed. And after 5,500 words of explaining exactly why he was doing it, he shorted Universal Travel’s stock. Which turned out to be a great trade: the stock plunged by 20% today, entirely because of Hempton’s blog post.

Universal Travel put out a press release at the close of trade today saying that it “categorically denies all the allegations contained in the blog”, but not getting into specifics; there’s vague but ominous language about “aggressively pursuing all legal remedies against Bronte Capital and John Hempton”, but I very much doubt they’ll come to much.

Historically, short-sellers have been shadowy types; they like to publicize their findings, but they tend to do so behind the scenes, giving journalists information and having very long conversations off the record.

Hempton’s different in that he’s happy, on occasion, to make his allegations in public, under his own name. He doesn’t always publicize his shorts, even when he suspects outright fraud, but his blog does have enough of a following now that he knows he’ll be widely read if and when he chooses to do so. After today’s big payday, I reckon he might try the tactic more often.

The story of Universal Travel is far from over: if Hempton’s right about the company, and I think that he is, then the SEC and the NYSE are both going to have to answer some very pointed questions about how and why they allowed the company to get this prestigious New York listing in the first place.

But I do love the way that the blogosphere is moving markets. Reading a blog entry from someone with real skin in the game is often a lot more fun than ploughing through “objective” journalism from someone who isn’t allowed to invest in or short what they’re writing about.


Great tips about moving market. Thanks


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