Felix Salmon

The UK press vs the FSA

Felix Salmon
Oct 12, 2010 02:14 UTC

Remember the FSA’s hilarious attempt to stop M&A leaks coming out of investment banks? Well, the UK press certainly does. The editors of the FT, Times, and Guardian, as well as Reuters’s very own David Schlesinger, have written a “we, the undersigned” letter to the FSA expressing “profound concerns” with its recommendations and asking the agency “to reconsider and revoke” them:

Regulated firms will find it much easier to hide behind bland press releases that conceal inconvenient corporate realities and there is a heightened risk that journalists will feel compelled to publish unconfirmed reports and rumours, increasing the flow of misinformation.

Journalists and the media play a key role in maintaining a level playing field in the market by unearthing and disseminating information – including information that companies seek to hide, obscure or spin. By adopting an overly prescriptive approach to preventing leaks, the recommendations would greatly restrict the capacity of the media to carry out investigations of regulated firms such as banks, asset managers and brokers…

It is also far from clear that the recommendations will even achieve their stated objective. Individuals who want to leak information will always be able to find a means of doing so and the plan fails to adequately address strategic leaks.

There’s no indication that the letter will have any more effect than the original newsletter. Indeed, when confronted with this level of rhetorical firepower from the very heights of the UK journalistic establishment, the FSA blithely dismissed it through a spokeswoman:

An FSA spokeswoman reiterated that its newsletter was in response to concern from companies and investors, and said obligations to keep inside information confidential had not changed.

“We have simply reminded firms of their existing obligations and provided best practice views around systems and controls,” the spokeswoman said.

To risk stating the blindingly obvious: all this high-level philosophizing on how companies should or shouldn’t work with journalists is not going to make any significant difference either way. If companies want to blandly obfuscate, they will do so regardless of what the FSA thinks, and if they want to leak, they will leak.

By far the silliest part of the FSA’s “best practice views around systems and controls” was the way in which they seemed to envisage a world where aggressive journalists would constantly call up investment bankers in the middle of the weekend, asking “I say, old chap, is there some M&A deal you’re working on?”, and the investment bankers would say “you know, funny you should mention that, it just so happens that LVMH is putting together a hostile bid for McDonald’s at $117 per share, payable in Swarovski crystals and vintage Champagne”.

In the real world, as the letter quite rightly points out, leaks happen for a reason, and the first contact is very likely to be in the other direction: the banker will send a text message to the reporter, say, or a trusted intermediary will ensure the information is passed along at a tactically-optimal point in negotiations.

It’s true that for less sensitive stories, reporters tend to hate being babysat by PR people, and the interviewees often don’t much appreciate it either. But that’s not the kind of issue worthy of what Reuters describes as “a rare joint letter” from otherwise highly competitive editors — one, no less, in which they all but come out and threaten “to publish unconfirmed reports and rumours” if the FSA’s recommendations are enacted.

Is there a subtext here I’m missing? My feeling is that all of this is a skirmish in a much larger war over the freedom of the press — a war in which government authorities and big corporations want reporters corralled and controlled, while newspaper editors and the reporters themselves want untrammeled freedom. That’s an important principle to fight for, and so the UK press is responding aggressively to any real or perceived incursion on their freedoms, no matter how silly it can seem to outside observers. In any case, if you want to read the letter yourself, I’ve embedded it here.

Letter for Hector Sants, FSA


“Is there a subtext here I’m missing? My feeling is that all of this is a skirmish in a much larger war over the freedom of the press — a war in which government authorities and big corporations want reporters corralled and controlled, while newspaper editors and the reporters themselves want untrammeled freedom.”

Of course it is. In the financial press, you live and die by the quality of your scoops. The FSA’s proposals threaten to kill genuine journalistic competition among financial newspapers (at least as far as UK regulated firms are concerned), turning them into nothing more than vehicles for marketing and tools for market abuse (no jokes please).

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Gasparino vs Roubini

Felix Salmon
Oct 11, 2010 19:49 UTC

Charlie Gasparino takes a swing at Nouriel Roubini today; I’m not sure why, beyond general unhappiness at the fact that Nouriel still gets a lot of respect both inside and outside Washington.

Gasparino apparently conducted an “informal survey”, in which, he says, he couldn’t find a single investor who regularly uses Roubini’s research. He tells us nothing about the participants in this survey — who they are, how many of them there are — and neither does he tell us what he would consider “regular use”. (Note what he doesn’t say: that his survey turned up no subscribers to Roubini’s research.)

It’s not entirely clear what the point of this “informal survey” was, since all he needed to do was phone up Nouriel’s spokesman, who was happy to tell him that Roubini has over 1,000 institutional clients. Maybe it was just an excuse to start bashing Nouriel’s research output:

Roubini’s record shows that while he was predicting doom and gloom for the US in 2004, his initial call had nothing to do with a runaway housing bubble…

It wasn’t until about August 2006 that Roubini began talking about a housing crisis, and he was hardly alone. Several economists and investors, from John Paulson to Stan Druckenmiller and around this time Goldman Sachs, were also predicting the housing decline…

Last year he predicted that the rising price of gold was in fact a bubble, just like the housing one a few years earlier, and like housing, it would burst as well. But as we all know gold prices remain strong.

Someday, Roubini might be right about gold’s demise, but what good does that do me as an investor now?

This doesn’t even make internal sense. Gasparino implies that Nouriel’s bearish prediction in 2004 would have had value if he had tied it to the housing bubble, even though the housing bubble didn’t burst for a good three years after that. But then he slams Nouriel for talking about the gold bubble last year, on the grounds that identifying a bubble more than a year in advance doesn’t do him good “as an investor now”.

If Gasparino spent time on the phone with Nouriel’s spokesman, he surely knows that there’s a great deal more to Nouriel’s research product than Nouriel’s own predictions. Those are highly publicized in any case: you don’t need to pay Roubini.com thousands of dollars to find out what Nouriel thinks about, say, Greece. Instead, his product gives you access to a large team of smart economists, who do a lot of very useful aggregation, analysis, and strategy. And if you pay enough, you also get access to Nouriel himself, which means he’ll answer your questions and have interesting and provocative conversations with you, which in turn will be informed by all the other interesting and provocative conversations that he’s constantly having with clients, policymakers, and other smart and important people.

Does Gasparino really believe that the reason to subscribe to Nouriel’s research product is so that you can find out where Nouriel thinks that asset classes are moving, place bets in those directions, and then make money when he turns out to be right? I can’t imagine that he does, but clearly he’s happy to pretend to believe that if doing so will give him anti-Roubini ammunition.

The truth is, of course, that Gasparino’s only real beef with Roubini is that he’s a successful liberal. But the secret of Nouriel’s success is only partially a function of his early and loud insistence that the collapsing housing bubble would prove catastrophic. If Gasparino considers himself a student of how to successfully navigate Wall Street, he should take a much more serious look at Roubini.

(Full disclosure: I was fired from Roubini’s shop in early 2007, but he did give me enough exposure as an econoblogger that I was soon hired by Portfolio.com.)

Update: Watch Gasparino stammeringly recapitulate his argument on air, adding for good measure that “the only person that has disagreed with my analysis so far is Felix Salmon of Reuters, who — besides that he has a screw loose — is maybe the worst reporter in the world”. He says all this while bashing Roubini and while sitting right next to Mike Norman of John Thomas Financial. About which you might want to learn more here or here.


Why do we care what is said on Fox News?

Honestly aren’t most segments as loud and inane as monster truck commercials at 3AM?


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Sifma’s unhelpful take on the foreclosure mess

Felix Salmon
Oct 11, 2010 17:37 UTC

Sifma CEO Tim Ryan released this statement today:

“It would be catastrophic to impose a system wide moratorium on all foreclosures and such actions could do damage to the housing market and the economy. It must be recognized that the mortgage market, investors and the health of the economy are all inter-related. Investors in the housing market—including American workers with pension funds, 401k plans, and mutual funds—would unjustly suffer losses in their savings from these actions. Increased uncertainty in the securitization market would further constrain consumer credit and spending, dampening our already unhealthy economic situation. If mistakes have been made in relation to foreclosure processing, SIFMA firmly believes such mistakes should be corrected. It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy.”

It’s worth going through this slowly to see just how bizarre it is.

Firstly, it’s Sifma’s own members — with Bank of America taking the lead — who are imposing “a system wide moratorium on all foreclosures”. No one’s suggesting that the government could or should do such a thing: a foreclosure is, after all, a legal action brought by one private entity against another. It makes sense, if you’re going to sue somebody, that you make sure in advance that you have the your legal ducks in a row. Right now it’s abundantly clear that most loan servicers don’t have their legal ducks in a row, so it makes sense for them to stop foreclosing on homeowners, at least for the time being. (In Bank of America’s case, it has even tried to foreclose on houses which don’t have a mortgage at all.)

Secondly, it’s not foreclosure moratoriums which damage the housing market, it’s badly-documented mortgages. A healthy market is one in which title and ownership are clear and legally watertight; in which assets change hands at market-clearing prices; and in which value and market price are generally understood to be one and the same thing. Using these criteria, it’s pretty obvious that the housing market is not healthy now, and that the longer this foreclosure crisis drags on, the less healthy it’s going to be.

Crucially, you can’t judge the health of the market by house prices alone, especially when home sales are plunging and foreclosure sales often take place a good 35% below market values. And what goes for the housing market also goes, mutatis mutandis, for the mortgage market. It’s entirely possible that secondary-market RMBS prices will fall if housing prices drop. But in the medium to long term, what’s really necessary is for investors in mortgage-backed securities to have faith that they really own what they think they own. And the only way to do that is to bite the bullet and fix the mortgage mess.

In any case, it’s far from clear that a foreclosure moratorium would hurt house prices — or even RMBS prices — at all; indeed, it’s pretty hard to see exactly what Ryan and Sifma are worried about. They say that they firmly believe that the mistakes made in relation to foreclosure processing should be corrected, but they don’t bother to tell us how that’s meant to happen.

It would be great if Sifma were to take the lead on this issue, and come up with constructive solutions to a serious problem. Instead, they’re just delivering an inchoate and unhelpful blast of opposition. Sad.


Classic case of one hand not knowing what the other is up to. Though it shouldn’t coe as a surprise to see this kind of uncoordinated behavior by the banking sector. After all it’s exactly what got us into this mess. Someone didn’t get the memo.


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Gawker’s numbers

Felix Salmon
Oct 11, 2010 15:02 UTC

Ben McGrath’s long-awaited New Yorker profile of Nick Denton is out, and it has (unsourced) numbers:

Given the thin margins of online publishing, Denton’s cultural impact greatly exceeds his revenues, which are somewhere on the order of fifteen to twenty million dollars a year. His ownership stake in the company is around sixty to seventy per cent, and every so often he attempts to consolidate by buying back shares that he has given to current and former employees. The rate he offered earlier this year would have put the company’s value at only thirty million dollars, or a fraction of what most analysts have estimated. (“Owning Gawker stock is like having an undiversified portfolio,” one shareholder said, explaining the potential appeal of such a lowball offer.)

All of these numbers are lower than I would have expected. The Gawker Media Network gets 447 million pageviews per month, of which 320 million are in the U.S. Even if you assume that Denton has no ability to sell ads outside the U.S., then that means Denton is bringing in about $5 per thousand pageviews, on average, with two ads per page. And these aren’t boring old banner ads, either: Gawker Media has long done innovative things with site sponsorships, like the Intel buy at Gizmodo today.

That number, in turn, helps to put another part of the story in some perspective:

At the outset, he had assumed that, in order to be viable, each individual site would need to achieve a million monthly page views; that threshold, he believes, is now twenty million.

At $5 per thousand pageviews, a site getting 20 million pageviews per month would have revenue of $100,000 a month, or $1.2 million per year. What we’re seeing here is Denton’s evolution towards moguldom: at the outset, he would have been utterly delighted with a blog making seven-figure annual revenues. Today, by contrast, that’s the absolute minimum he’ll accept.

Part of the reason is that payrolls per blog have been expanding substantially: where Gawker started with a single staffer making $2,000 a month, Denton’s blogs now tend to have a good dozen or more people on their editorial masthead. McGrath doesn’t give any numbers for Gawker’s payroll, but it’s surely very high at this point.

Which maybe explains why Denton’s stake in Gawker Media is lower than I would have expected — if you have that many staffers, even giving them a tiny bit of equity tends to add up over time. That said, it’s worth remembering that founding editor Pete Rojas left Gizmodo to start Engadget precisely because Denton would not give him any equity in the company.

It’s worth pondering who owns the 30 percent-40 percent of Gawker Media that Denton doesn’t own. The bulk of it, I suspect, belongs to the three colleagues named on the Gawker Media masthead: sales director Chris Batty, ad-sales chief Gabriela Giacoman, and general in-charge-of-everything person Gaby Darbyshire. Beyond that, CTO Tom Plunkett surely has equity, as does Scott Kidder. I’m sure that Curbed’s Lockhart Steele is sitting on some as well, dating back to his tenure as editorial director in the days when Gawker Media’s monthly pageviews totaled less than 2 million, and then there’s Steele’s predecessor, Choire Sicha, as well, and possibly some of their successors in that stressful position.

In any case, I’m sure that Gawker Media is very closely held, which means that at least some of Gawker’s shareholders must own between 5 percent and 10 percent of the company. Even at Denton’s lowball $30 million valuation, his company is now big enough that it has created millionaire employees. (One thing missing from the McGrath profile is the way in which Denton was very good at hiring a small number of top-quality professionals early on; they don’t get much publicity, but they deserve a huge amount of the credit for Gawker Media’s success.)

I certainly wouldn’t advise that those employees sell. For one thing, standard valuations in the blog space tend to be around 6X revenues, which would make Gawker Media worth $100 million or so. But the really big money for minority shareholders comes if Denton ever allows in a minority strategic investor. Right now, in the tiny secondary market for Gawker shares, Denton is the only buyer. But if a deep-pocketed strategic investor comes along, that investor will happily buy up other shareholders’ stakes at valuations well north of $100 million.

Meanwhile, shareholders are at least getting some kind of dividend on their Gawker Media shares. So unless they’re really desperate for the cash, I doubt that Denton’s getting many takers at his $30 million valuation. Even if that means he’s offering a seven-figure sum to some of his shareholder-employees.


Not accurate. He is probably averaging an eCPM of $2 (average CPM including direct ads and non-paying house ads) and an RPM of $6-9 (RPM = value of ads combined. 3 ads per page at $2-3 each)

So 320 million US pageviews X RPM of $6 would be $1,920,000 per month. And I am estimating that is on the LOW end. He is likely selling Canadian, UK and Australian inventory as well (english speaking countries) and at higher CPM rates than U.S.

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The Congressional insider-trading non-story

Felix Salmon
Oct 11, 2010 13:37 UTC

inside.jpg The WSJ splashes the results of a major investigation on its front page today — so major, indeed, that it has its own ominous “On The Inside” logo. Clearly, a lot of work went into this:

At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.

I’m glad that the WSJ is keeping Congress accountable, here — but I’m much less impressed by the way in which the newspaper is over-egging its findings.

The WSJ story is shot through with the implication that there’s a big scandal here, but I don’t see it. Instead, I see a lot of subtle rhetorical tricks, like the way in which the paper leads with a single profitable trade by a single staffer.

The fact is that if you took two years of trading data from 1,700 upper-middle-class American households, you’d certainly find a handful of profitable trades in there. And there’s no indication in the WSJ story that what they found was anything more than you’d expect from chance alone.

For instance, the WSJ says that just 72 of those 1,700 Congressional staffers “traded shares of companies that their bosses help oversee”. That’s about 4%. And the WSJ doesn’t say how many other stocks those 72 staffers traded — there’s no indication that any of them traded disproportionately in stocks that might be considered to lie in an ethical grey area. My feeling is that if you took 1,700 upper-middle-class American households and assigned them randomly to various Congressional representatives, you’d find 72 of them trading companies those representatives oversee.

There’s also no indication of how those 72 staffers fared in their trading activities overall — did they even beat the market? What’s more, after examining trading records spanning the biggest stock-market decline in living memory, the WSJ has found exactly zero suspicious trades on the short side. Even the trades in Fannie and Freddie were long-only day-trades made by the husband of a staffer for Nancy Pelosi.

The story talks about a going-nowhere piece of legislation which would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. It’s a good piece of legislation, and its passage would strengthen civil society. But as far as I can see, there’s nothing in this story which implies that the bill needs to be passed in order to solve a clear and present problem.

If there were Congressional staffers who were making lots of money by taking advantage of nonpublic information, then the case for the bill would be even stronger. The WSJ went digging in an attempt to make that case. But ultimately what they came up with, I think, was pretty thin stuff. Which is good news: it’s not like anybody wants Congressional staffers to be doing such things. But let’s not try to gin up a scandal where none exists.


Felix, your focus on the numbers associated with the article precludes you from seeing the overarching message that people are responding to in this article – that insider trading laws do not apply to Congressional members or their staffs. In America we have the equal protection clause based on the premise that all men are created equally. The STOCK Act will close this loophole and ensure fairness (or perceived fairness) in the marketplace – the same reason insider trading laws were created in the first place.

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Felix Salmon
Oct 11, 2010 04:58 UTC

More than two thirds of state attorneys general plan to launch a joint probe into fraudulent mortgage paperwork — Reuters

The New Yorker profiles Nick Denton — TNY

Peter Thiel on how college is like a subprime mortgage: both involve lots of debt, selling it as an “investment” — WSJ

Paladino Attacks Gays in Brooklyn Speech — NYT

How to Make Visa Obey Your Every Desire: The Credit Card Concierge Experiment — 4HWW

The schizophrenia of the art world, booming and suffering at the same time — Artnet

AO Scott on Inside Job — NYT

Ask your lender to produce a copy of the original note on your mortgage — Where’s the Note

“If we can’t do even this — if we can’t follow through on a project so obviously needed, so clearly in the interests of the state and the nation — what hope is there for America?” — Krugman

The bumpy New Normal

Felix Salmon
Oct 11, 2010 04:41 UTC

Mohamed El-Erian delivered this year’s Per Jacobsson lecture at the IMF annual meetings, and was very clear that the international community has failed in its job over the past year or so:

The impressive degree of global coordination highlighted by the April 2009 G-20 meeting did not last long. It only took a few months for that moment of extraordinary collaboration to give way to solely domestic agendas.

The result of that, he says, is going to be ugly indeed:

Having won the war, industrial country societies are in the process of losing the peace. Indeed, absent some important mid-course corrections, industrial countries confront the prospects of low growth; high unemployment that is increasingly structural in nature; welfare losses, including a growing number of citizens falling through the large gaps created by overly stretched safety nets; and a rising risk of protectionism.

El-Erian is characteristically vague on exactly what those corrections should be, beyond saying, unhelpfully, that “structural reforms are key”. But the question’s probably moot in any case: countries are moving further apart, and tail risks are higher than ever.

El-Erian gave his speech on the same day that the ECB’s Lorenzo Bini Smaghi said that “if Greece restructures it would have a total collapse of the economy” — exactly the tail risk which is preventing Greece’s spreads from coming down to a sustainable level.

But if you want a clear visual of what the new world of higher tail risk looks like, you could do a lot worse than this chart, from the Bank of England’s latest inflation report, pointed to by El-Erian:


This is most emphatically not your typical bell curve, with the most likely outcome being represented by a peak in the middle. In fact, it’s inverted: the chances of inflation being outside the central 1.5% to 2.5% range are significantly higher than the chances of inflation falling within that sweet spot. And the UK’s central bank is, if anything, even more pessimistic:

The Committee judges that, given the scale of the risks in both directions, at both the two and three-year horizons there is only around a one-in-four chance that inflation will be within 0.5 percentage points of the 2% target.

This is a world which is out of the control of governments and central banks, where everybody is getting used to expecting the unexpected, and where uncertainty breeds a high degree of risk aversion even as monetary policy tries to push companies and investors to take ever-greater risks with their capital.

I’m inclined to agree with the message of El-Erian’s lecture: infighting between the world’s governments has failed the global economy, and we’re all going to be buffeted by unpleasant and unforeseeable consequences as a result. Fasten your seatbelts: the New Normal is going to be very bumpy.


Felix, try the following link:
http://www.bankofengland.co.uk/publicati ons/inflationreport/ir10aug5.ppt

Look at charts 5.6-5.10 (the one you show is 5.11). At least to a first approximation, these projections ARE normally distributed. They are simply normally distributed with a very wide spread.

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Horowitz defends HP

Felix Salmon
Oct 9, 2010 23:48 UTC

Ben Horowitz has published his first Siwoti post! That’s where you read something on the internet that is so wrong and misguided, you have no choice but to sit down and set the record straight.

The first rule of the Siwoti post, however, is that you have to link to that which angers you. Horowitz is perfectly capable of linking out — he’s even linked to me, in the past — but in this case, an attempted defense of the HP board, he just waves his hand in our general direction:

Recently, my old company Hewlett-Packard has been in the news—and not in a good way. I’ve been watching the coverage from the sidelines up to this point, but felt increasingly compelled to join the conversation and share my point of view. So here goes.

After firing their CEO, Mark Hurd, the HP board has been accused of everything from incompetence to being prudes. The criticism comes from credible, important journalists and bloggers such as Joe Nocera from the New York Times, prominent economics blogger Felix Salmon, and former GE CEO Jack Welch.

Horowitz then proceeds to argue that these named critics are wrong, and that Hewlett-Packard’s board was right to fire Mark Hurd. To read his blog entry, you’d be forgiven for thinking that our entire argument was, essentially, “HP’s board fired Mark Hurd. That was a stupid decision. Therefore, HP’s board is teh stupid.”

But from the very beginning it was clear that the board was full of weak and incompetent bunglers whether or not they were right to fire Hurd; there were numerous commentators saying that the board was wrong even though the decision to fire Hurd was the right one. Or, to be more precise about things, there were numerous commentators saying that the board should have fired Hurd, but it didn’t: instead, the board allowed Hurd to resign, collecting something over $30 million in severance along the way.

Take Nell Minow, for instance:

Some people are complaining that this was an over-reaction. They say it could have been handled privately, with reimbursement and a stern talking to. These people have clearly not consulted a lawyer lately…

The actual (not just apparent) tone at the top is the board’s responsibility. They cannot keep in place an executive who has demonstrated such a failure of judgment and responsibility. They cannot keep in place an executive they cannot trust. It is hard not to conclude that the culture that created a $50 million liability to settle fraud charges needs a new leader.

Many people are objecting to Hurd’s severance package, which may be worth as much as $30 million. This is indeed appalling…

The HP board has been a serial corporate governance offender, so we should not be surprised that they have bungled this one. This contract that fails to state what “cause” means is the one that famously — and outrageously — provided that all of Hurd’s first year performance goals were deemed to have been met. This is the board that mis-handled the hiring, direction, and firing of Carly Fiorina and then mis-managed the “pretexting” scandal following the investigation of a leak from the boardroom. This is the board that TCL has rated as high-risk for its inability to manage incentive compensation. And now, this is the board that is paying the CEO who essentially embezzled corporate funds by submitting his expenses for reimbursement $30 million to go away.

Or Michael Schrage:

HP’s directors may have been absolutely right to force Hurd’s departure. But the firm’s fiduciaries wrongly missed a world-class opportunity to simultaneously respect the best interests of its stakeholders and expand the boundaries of good governance…

This was an opportunity lost. Let’s hope other boards will learn from HP’s mistake.

In my first post on the subject, I was harsh on the board while being very careful not to make a determination one way or the other about whether the decision to oust Hurd was correct. And my second post had nothing to do with that decision at all — rather, it was about the entirely separate decision to sue Hurd for hiring Hurd.

Similarly, Nocera’s criticism of HP’s board is much broader than you’d guess from reading Horowitz’s post. He started off with this:

H.P. says its board should be applauded for not letting Mr. Hurd off the hook. But this is just after-the-fact spin. In fact, the directors should be called out for acting like the cowards they are. Mr. Hurd’s supposed peccadilloes were a smoke screen for the real reason they got rid of an executive they didn’t trust and employees didn’t like.

The stand-up thing would have been to fire Mr. Hurd on the altogether legitimate grounds that the directors didn’t have faith in his leadership. But of course Wall Street would have had a conniption if the board had taken such a step. So instead, it ginned up a tabloid-ready scandal that only serves to bring shame, once again, on the H.P. board.

He then followed up with a column which, again, had nothing to do with the decision to fire Hurd:

The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot. By filing an embarrassing lawsuit against the company’s former chief executive, Mark V. Hurd, this week — a suit that unwittingly highlights the mistakes it made in the way it let Mr. Hurd go — the H.P. board can now lay claim, officially, to the title of the Most Inept Board in America. It’s going to take a yeoman effort to dethrone these guys.

Today, Nocera’s third column bashing the HP board very little to do with Hurd at all; instead, it criticizes them for their choice of Léo Apotheker as Hurd’s replacement.

It takes your breath away, really: the same board that viewed Mr. Hurd’s minor expense account shenanigans as intolerable has chosen as its new C.E.O. someone involved — however tangentially — with the most serious business crime you can commit.

If it were anybody besides the H.P. directors, the situation would be unbelievable. With these guys, though, it’s all too believable.

Which leaves Jack Welch. What did he say?

“The Hewlett-Packard board has committed sins over the last 10 years,” said Mr. Welch. “They have not done one of the primary jobs of a board, which is to prepare the next generation of leadership.”…

The tech giant is on its third CEO in about 11 years… Mr. Welch blamed the turnover on the board…

“They end up blowing up the CEO’s and don’t have anyone else in mind to come in. Where the hell was the leadership development? Who are these board members?”

Mr. Murray asked if Mr. Welch knows any of the board members.

“I wouldn’t admit it if I did,” said Mr. Welch.

In other words, it’s pretty clear why Horowitz didn’t link to the criticism from Nocera, or me, or Welch: we simply didn’t say what he likes to think that we said. So instead of responding to us, he comes up with bizarre arguments like this:

HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience.

This simply isn’t true. How much did HP pay Fisher? Let’s go to the tape:

Ms. Fisher worked at a dozen or so events including at least one in Europe and one in Asia, according to people familiar with the matter. Ms. Fisher was typically paid between $1,000 to $5,000 per event, these people said.

12 events at an average of $3,000 per event comes to a total of $36,000; I’m quite sure that HP pays Harvard graduates with 20 years of industry experience more than that.

And of course Horowitz completely fails to mention things like the fact that HP’s board has had no chairman for most of the past three months; it’s now chosen former Oracle president Ray Lane to fill the position, in a move which looks like some kind of attempted revenge for Oracle hiring Hurd. And then there’s the fact that the board’s front man, Hororwitz’s partner Marc Andreessen, owns essentially no stock in HP at all; this despite the fact that Horowitz and Andreessen sold their company, Opsware, to HP for $1.6 billion.

HP’s board is literally not invested in the company, and it shows. It’s weird that Horowitz, with all his conflicts, has stepped up to the plate to try to defend them; but it’s understandable that no one within the company has attempted a similar argument. Because this argument, at least, is weak, and it’s reliant upon the flimsiest of straw men for whatever little strength it has.


Shareholders need to start a rebellion. Every time someone at HP opens his mouth, the stock falls. Focus on the business, fellas.

Posted by samlevy1958 | Report as abusive

The solution to the mortgage mess

Felix Salmon
Oct 8, 2010 22:16 UTC

As people like Mike Konczal and Annie Lowery try and explain the foreclosure mess, it’s worth stopping to think about a possible long-term solution to the crisis. And given the sheer quantity of insufficiently-documented loans, the only sensible and scalable solution I can think of is to swap out those bad loans for good new ones.

There are three main ways this can be done. The first is to refinance the current loan, possibly through HAMP. The second is for the banks and the homeowners to negotiate a principal reduction. And the third is to allow a short sale of the house.

So long as the banks make sure they get their paperwork right this time, any one of those three actions would solve the problem at a stroke. Even better, any one of those three actions should actually be preferable, from the bank’s point of view, to a foreclosure in any event. As RealtyTrac’s Rick Sharga told Chris Isidore, short sales typically take place at a 15% discount to the value of the mortgage, while foreclosure sales normally take place at a 35% discount. That’s a big difference.

For homes which are in the foreclosure process right now, it’s probably too late to attempt a HAMP modification, so the banks will have to switch to either a principal reduction or a short sale. But for performing loans, or those which are delinquent but not yet in foreclosure, all three options should be aggressively pursued. The good news is that mortgage rates are very low right now, so a refinance is generally in the homeowner’s interest anyway.

Logistically, replacing all those old mortgages with new mortgages will be expensive and time-consuming; certainly the loans in or near foreclosure should get priority. But it seems to me a market-based and transparent solution to a very large problem for which there is no legislative fix. (Or rather, the one legislative fix that’s needed has already happened, and will remain in force through 2012.) And if it ends up hurting banks’ balance sheets, well, that’s condign punishment for their failure to keep their paperwork in order during the boom.


I’m just throwing this out to the cloud. I am a responsible individual who has never missed a payment on anything until September 1. Because of my divorce, I can no longer afford my mortgage payment. I’ve owned four homes and have never been one day late on any payment. I’ve engaged Wells Fargo from the outset and have gotten exactly nowhere. You can follow my saga at http://jkb0808.wordpress.com/

Posted by Jeff.Baldwin | Report as abusive