Felix Salmon

Why can’t HP’s board get over Hurd?

Felix Salmon
Nov 6, 2010 16:27 UTC

Are HP’s directors physically incapable of letting l’affaire Mark Hurd drop? Not only are their fingerprints all over the huge WSJ article on the subject today and Adam Lashinsky’s less exhaustive article in Fortune, but they’ve also decided to give the original letter accusing Hurd of impropriety to a San Diego law firm representing HP shareholders, making it certain that the letter will eventually become public. And it stands to reason that someone on the HP board was responsible for the bizarre NY Post story a couple of weeks ago claiming that Hurd had an affair with a Sun executive.

There are clearly multiple board sources, too: Fortune refers to the woman who hired Jodie Fisher as Caprice Fimbres, describing her as Hurd’s “program manager”, while the WSJ calls her Caprice McIlvaine, and calls her Hurd’s “unofficial chief of staff”. (On her LinkedIn page, she says that she was Hurd’s chief of staff.) It seems that she was ultimately responsible not only for filing Hurd’s fatally inaccurate expense accounts, but also for deciding that the best place to find a gatekeeper for Hurd was from the group of “cougars” on a reality TV show called “Age of Love”. She also flew Fisher to the Grove Hotel in Boise, where Fisher dined with Hurd and watched the Minnesota Vikings play the Green Bay Packers in his hotel room, but didn’t do any work for HP.

All of these revelations — including the unproved accusation that Hurd told Fisher about his bid for EDS — might well harm Hurd, but they also make the HP board seem leaky and defensive, rather than being concentrated on its main job, which is representing shareholders and overseeing the strategic direction of the company. What’s clear is that the arrival of Ray Lane as chairman hasn’t stopped the leaks or made the board seem any more grownup than it was before; quite the opposite, in fact. If I were an HP shareholder, I’d be worried about that: the company clearly needs leadership and strategic direction, but instead the board seems to be more interested in slinging mud at its former chairman. Depressing.


“Lets review HP under Hurd… Sales up sharply… costs slashed… stock price DOUBLED during a period of truly poor performance for U.S. large cap equities.”

They say that a bubble is visible only in retrospect. One could say that about bad judgment as well.

The Wall Street view of Hurd is based on chronic “short termism”, but it is worse than that. It is a inability to make good judgments about research and development in a highly technical field that Wall Street analysts are simply not qualified to evaluate. HP has “slashed costs” to the point of scattering its seed corn to the winds.

I stand by my comment that Wall Street’s love of Hurd is basically slobber. It would be pathetic if it didn’t have the effect of undermining good judgment in the technology industry.

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Welcoming Argentina back

Felix Salmon
Nov 5, 2010 22:28 UTC

I spent a large chunk of this afternoon at a fascinating discussion about Argentina, keyed off a paper from veteran Latam economist Arturo Porzecanski, entitled “Should Argentina be Welcomed Back?”

Arturo does a good job of explaining why Argentine debt looks attractive right now: the surging exports and international reserves, the rising incomes, the falling unemployment rate, the shrinking debt ratios. This chart, for instance, includes debt on which Argentina is still in arrears, to bondholders and the Paris Club:


He then explains in great detail why none of this really matters. Argentina might have the ability to pay its debts, but it doesn’t have the willingness to do so. It has been lying about domestic inflation for years, and refuses even to tell the IMF what its financial situation is. Arturo’s own personal estimate is that it’s running at roughly 30% a year — a far cry from the official numbers, which are in single digits. As Arturo notes, ” in the IMF’s leading publication, the World Economic Outlook, Argentina is the only country in the world whose inflation and GDP statistics are accompanied by a footnote explaining that the numbers cited have been challenged by private analysts”. He continues:

High-inflation countries are usually characterized by imprudent fiscal and monetary policies, feature unsustainable exchange rates, and tend to engender social and political unrest – sooner or later.

So far, the leftist government has managed to avoid that unrest — largely, says Arturo, by paying off the unions. But government spending is now out of control: it quadrupled, in nominal terms, between 2002 and 2009, and there’s literally no accounting for where it has all gone — because of the number of aggressive holdout creditors looking to attach Argentine assets, a lot of money transfers are very secret, and often in cash.

And the government is so blasé about paying its debts that it’s in arrears not only to old bondholders but also to fellow sovereigns in the Paris Club, as well as refusing to pay current and future judgments against it from the World Bank’s ICSID — judgments which carry the status of treaty obligations. If and when the Paris Club debt is ever resolved, says Arturo, that could well harm anybody buying the long-rumored new Argentine bond, since the Paris Club is likely to require that unrestructured private-sector creditors also do some kind of restructuring themselves, under its principle of comparability of treatment.

Arturo concludes that “the government’s attitude toward official and private creditors, as well as toward court judgments and arbitral awards, remains one of contempt”, and that as a result it should not “be welcomed back by the international capital markets”.

The problem with this is that it’s a fundamentally moralistic argument: Argentina, with its corruption and contempt for international institutions like FATF, doesn’t deserve to be a part of the international capital markets. But of course markets have few moral scruples, and indeed all of these problems with Argentina’s institutions only serve to increase the upside for people buying the country’s debt, should the Argentines get their collective act together under some future government.

“For us, the medium to long-term prospects for Argentina are extraordinarily good,” said Greylock’s Hans Humes in response to Porzecanski. Argentina’s corporate sector has somehow managed to survive and even thrive despite a complete lack of credit; just imagine what they could do once an Argentine yield curve emerges and they can start borrowing money again. Already, Argentine companies are going public, with most of the shares sold internationally: there’s clearly both demand for capital and global investors willing to supply it.

What’s more, I’m not convinced that the Paris Club would force Argentina to restructure a brand-new bond just out of fealty to a principle which has always had a certain amount of flexibility built in to it.

That said, I’m also not convinced that Argentina really needs to issue a global bond. The legal fees would be stratospheric, given the attempts that holdout creditors will certainly make to attach the proceeds. And Argentina already has lots of access to international investors who are more than happy to invest in its local bonds. Yes, many of Argentina’s corporates would love the sovereign to have an international yield curve in dollars, and they could probably issue longer-dated dollar debt internationally than they can domestically. But these things are all marginal, they’re not necessary.

The fact is that the distinction between foreign and local debt is rapidly becoming one that very few people care about any more, and Argentina had demonstrated that it’s perfectly willing to wait as long as it takes — which means as long as it takes to come to some kind of settlement with its holdout creditors — before braving the international capital markets. If the country’s bankers and lawyers can persuade the government that they have a workable solution before then, the country will probably go for it. But there’s no urgency. And I, for one, am not holding my breath.

Observers like Arturo might not like it if Argentina returns, but there are always slightly smelly debtors out there, and Argentina certainly isn’t as smelly as Venezuela. The fact is that the timing of Argentina’s return will be determined by boring legal concerns, not by highfaluting questions about how robust its institutions are.


Well, well, well. Argentina is growing and the president is doing her work nice – no doubt she could do it better. But the USA is our natural allied. 1-The commitment of both countries to fight against terrorism an to the pacific use of nuclear energy and technologies, 2- the support they gave us to our fair claim over Malvinas, 3- the recent support that USA have given to the Argentinian strategy of bypass the IMF negotiating the payment of the Paris Club’s debt, and 4- the USA support back to Argentinian against the hedge founds operating in New York, are all very good examples of the friendly agenda between Argentina and the USA. No doubt Argentina and USA are involved in a honeymoon GOOD NEWS !

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The Volcker Rule under threat

Felix Salmon
Nov 5, 2010 14:52 UTC

Kevin Drawbaugh has obtained a letter from Spencer Bachus, the probable new chair of the Financial Services Committee, to Tim Geithner. And it turns out that Bachus is no fan of the Volcker Rule:

If the Volcker Rule’s prohibitions are expansively interpreted and rigidly implemented against U.S. institutions while other nations refuse to adopt them, the damage to U.S. competitiveness and job creation could be substantial…

I strongly recommend that your study of the Volcker Rule take account of how trading activities fit into the core business plan of global banks, as well as the consequences for U.S. banks and the banks’ clients of prohibiting those activities in the U.S. while they continue to be permitted everywhere else in the world.

This might well presage a significant weakening of the Volcker Rule, which curtails banks’ proprietary trading and tries to limit their growth, and was introduced into Dodd-Frank very late in the game, reportedly over the objections of the more technocratic members of the White House economic team, including Geithner himself. You might recall Geithner standing well off to the side, with a miserable expression on his face, the day that Barack Obama announced the rule.

You might also recall a letter that Geithner sent to Rep. Keith Ellison in January:

Finally, preserving the flexibility of the Federal Reserve and the other U.S. banking agencies to design and calibrate a leverage constraint for U.S. financial firms is essential to enable the agencies to successfully negotiate a robust international leverage ratio that works in all the major jurisdictions and does not leave U.S. firms at a competitive disadvantage to their foreign peers.

Clearly, Geithner is sympathetic to arguments which worry about putting US banks at “a competitive disadvantage” globally: he’s made them himself. And equally clearly, the Volcker Rule is little more than an expression of intent at this point: if Geithner and Bachus decide to render it toothless, they almost certainly can.

But of course the explicit thinking behind the Volcker Rule is that there are good and bad ways for a bank to become globally competitive. The bad ways involve taking unnecessary risks with taxpayer money. The point of the Fed’s discount window is to provide a funding source for banks to make loans into the broad economy, not to provide a near-zero cost of funds for proprietary bets. And no bank in the world will deliberately cross-subsidize its lending operations with its prop-trading profits.

Shuttering prop desks, writes Bachus, “will cause these firms to be less profitable”. Well, yes. That’s a feature, not a bug. We don’t want financial institutions to be profitable: they’re middlemen, and their job is to help capital flow to where it can best be put to work, rather than to retain as much of that capital as possible for themselves, in the form of profits and bonuses.

But I fear that Geithner is sympathetic to Bachus’s points. Could this be the beginning of the end of the Volcker Rule?


#1. Increased capital requirements are very needed and positive.

#2. Ditto increased liquidity requirements

#3. Also a pretty good idea to move derivitive trading to some kind of exchange. Transparency makes problems easier to spot sooner rather than later (as was the case with AIG)

Beyond that why on earth would you want to limit the financial activities of “banks.” Citi use to be in the business of speculating in the oil markets to the extent that at one point it had dozens of super-tankers chartered and filled with oil waiting for the price to rise. That made them a profit and when private sector demand for oil increased there were additional barrels to sell (presumabley lowering the market price at the time of the sales.) That strikes me as a valuable servivce to the broader economy. Others may disagree.

Private equity, venture capital, hedge funds… these all serve a function or they would not exist. Why stop banks from offering services in these areas if adaquite capital is held in reserve?

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The good-news/bad-news employment report

Felix Salmon
Nov 5, 2010 13:01 UTC

The mathematics of the monthly payroll report don’t always make sense, since it’s actually two reports: the household report, covering employment and unemployment status, and the establishment report, showing the number of people being paid in various sectors of the economy.

The November report released this morning shows a clear divergence between the two: while the establishment report did well, with a healthy rise of 151,000 in total payrolls and upward revisions to previous months, the household report went nowhere, with the unemployment rate stubbornly unchanged at 9.6% and other key indicators, like the labor force participation rate and the employment-population ratio, actually heading in the wrong direction.

Overall, the private sector has now added more than a million new jobs over the past year — a good start, in the wake of the 8 million job losses we saw over the course of the recession. And 400,000 of those new jobs have come in the past three months. For people with jobs, wages and hours are rising, too. Over the past 12 months, average hourly earnings are up 1.7%, while average hours worked are up 1.8%, resulting in a rise in average weekly earnings from $753.20 to $779.64. That’s a raise of $1,375 per year — pretty healthy, given the state of the economy and the large number of people out of work.

But government employment is down, and the extra hiring simply isn’t making any kind of a dent on the unemployment figures. After all, the economy needs to add 100,000 jobs a month or so just to keep up with population growth. Today, just 64.5% of the people in the labor force — a mere 58.3% of the total population — actually have a job. Both of those figures represent a new all-time low. And that now-famous U6 measure — the number of people who want more work than they have — is still insanely high at 17%.

Overall, it’s the same story we’ve been seeing for a while: good news for the employed, bad news for the unemployed. That’s what happens when you’re reliant on monetary policy rather than fiscal policy to boost the economy.


Another thought…

The unemployment rate has been “stubbornly high”, partly because many employers reduced hours instead of laying off employees. The U6 captures some of this, but I’m not sure it captures all. (For example it might leave out employees who are given “half day” pay on Fridays.)

The 1.8% increase in hours worked is truly an increase in employment. And once the workforce is back to full-time capacity, employers will necessarily increase hiring. I know that my own business has gone from 2/3 capacity last year to full capacity this year. For the first time in three years I am turning away prospective clients (hard to expand capacity in a personal-services business).

So while an increase in hours worked doesn’t immediately help the unemployed, it does suggest the possibility of new hiring in the near future.

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The car-loan interest rate lottery

Felix Salmon
Nov 5, 2010 11:55 UTC

Remember Anacott Financial, the scam credit card website which would spit out a completely random number when you asked it for your credit score? It seems that Capital One has taken a leaf out of their book when it comes to offering car-loan rates. Go ahead and visit this page using various different browsers: I got rates as low as 2.3% in Firefox, 2.7% in Safari, and 3.1% in Safari for iPad. J-Walk has found minimum rates as high as 3.5% using Explorer, which corresponds with what Devin found — he was the guy originally shopping for a car loan, who wrote up his experiences at the Capital One website and sent them in to Consumerist.

It seems there are four possible permutations here — 2.3%, 2.7%, 3.1%, and 3.5% — which get served up randomly when you visit that page. I’m all in favor of A/B tests, but this is meant to be serving up a simple statement of fact, and when the public discovers these things it hardly increases our level of trust in financial institutions. Someone at Capital One clearly put quite a lot of effort into this ostensibly-simple web page; I’d love to be a fly on the wall when that person gets asked questions by the new Consumer Financial Protection Bureau.


Perhaps if you use NSCA Mosaic, you can get a negative interest rate. For what it is worth, I used Lynx, a text-only browser, and got an offer for 3.1%. It is not clear how that would figure into a risk-based model at all.

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Felix Salmon
Nov 5, 2010 03:51 UTC

Turmoil in microfinance continues — Humanosphere

Shaq’s Halloween Costume — Twitvid

Never get an overdraft. Even payday loans are cheaper — Nerdwallet

Coke from McDonalds contained nearly 30 percent more sugar than advertised — Wired

Liz Phair’s review of Keef’s book — NYT

The total cost to rescue and overhaul Fannie Mae and Freddie Mac could reach $685 billion — WSJ

Crazy and clever data visualization of ProPublica CDO data — Orgnet

American Airlines pilots revolt against the TSA — Atlantic

Ellen-Johnson Sirleaf fires entire cabinet — AP

Guardian Flips iPhone App To Subscription Model, Except In U.S. — paidContent


$685B to repair Fannie and Freddie? That’s better than I had feared… When you mix politics and business, you shouldn’t be surprised when you end up with a very large bill.

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America’s failing monetary policy

Felix Salmon
Nov 5, 2010 03:07 UTC

Shahien Nasiripour has delivered a massive 4,000-word article on the Fed’s monetary policy, laying out with great clarity just who’s benefiting (big banks, corporations, and the U.S. Treasury) and who’s losing (the public at large, and especially retired savers and the unemployed).

To some extent, monetary policy always works like that: savers get hit when interest rates fall, while banks love it. But this time it’s even worse than usual, since businesses aren’t borrowing or investing — and insofar as they are borrowing, they’re using the proceeds to buy back their stock, rather than to employ more people.

The net result is that the banks — whose collective cost of funds is now less than 1% — are now lending overwhelmingly to just one borrower:

U.S. banks now own more than $1.5 trillion in Treasuries and taxpayer-backed debt issued by mortgage giants Fannie Mae and Freddie Mac, according to the latest weekly data provided by the Fed. It’s a 30 percent increase from the week prior to the Fed’s Dec. 16, 2008, announcement that it was lowering the main interest rate to 0-0.25 percent.

Outstanding commercial and industrial loans at U.S. banks have fallen from $1.6 trillion in October 2008 to $1.2 trillion this past September, Fed data show. The $390 billion drop is equivalent to a 24 percent reduction in credit to businesses.

It’s truly outrageous that banks are lending more money to the U.S. government than they are to all commercial and industrial borrowers combined; well done to Nasiripour for connecting these dots and for providing a much-needed dose of outrage at the way in which Bernanke’s monetary policy simply isn’t helping the broad mass of the U.S. population.

Is there something else that Bernanke could be doing, and isn’t? Nasiripour doesn’t address that question in this piece. But simply framing the problem is important enough: with fiscal policy in gridlocked Washington a non-starter, monetary policy is all that we have. And it clearly isn’t having the desired effect.


It is always there as rate of interest falls, savers used to get a problem and bank used to get increase. Monetary policy is also one of the system of Central bank, so it is highly affected by it.

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Forbes’s labeled and unlabeled ad blogs

Felix Salmon
Nov 4, 2010 21:29 UTC

When I accused Forbes’s Lewis DVorkin of selling out his blogging platform, his lieutenant Andrea Spiegel responded in the comments, saying that the new adblogs would be “clearly labeled and transparent to all.” She added:

Hopefully the criticism will wait until after we actually launch an AdVoice, when everyone can see it and judge for themselves.

Well, that day has come: the first AdVoice — SAP — has now launched, and it’s pretty much identical to all the other blogs on the Forbes platform, including DVorkin’s own. The differences are that SAP gets to include a banner ad for itself, and that there’s a little squib above that banner saying “Forbes AdVoice”.

That said, the branding is clear: the blog is clearly written by SAP, giving the SAP view on various topics. What’s still unclear, because the SAP blog is so new, is how links to the SAP blog from the rest of the Forbes.com site are going to work: will SAP posts be treated the same way as posts on other blogs, or will links to those posts be labeled as links to paid-for advertising content?

DVorkin himself hails the launch of the SAP blog with a post of his own, which talks about how marketers have become “respected content providers in an increasingly information-obsessed society.” He continues:

Everyone can be a creator or curator of content. What was yesterday’s audience is today’s cadre of potential experts who can report what they know or filter information for distribution to friends who trust their judgments.

Advertisers can do the same…

At Forbes, we’re beginning to open up our print and digital platforms so many more knowledgeable and credible content creators can provide information and perspective and connect with one another. In doing so, we will be totally transparent. All participants will be clearly identified, delineated and labeled.

I don’t actually find myself objecting very much to this, if only because the Forbes blogs didn’t have a good enough reputation in the first place that it matters much when they start getting mixed up with overt advertising.

But while I was on the site, I clicked around a little bit, and soon stumbled across this post. “The Best Rewards Credit Cards For Your Lifestyle” is the headline, but look closely at those hyperlinks. Common search-engine phrases like “rewards credit card”, “airline credit card”, “hotel credit card” and others are linked to just one site, cardhub.com. Altogether the post contains seven links, and all of them point to Cardhub.

Nowhere on the post is there any indication that the author of the post, Odysseas Papadimitriou, is the CEO of Cardhub. But he’s managed to convert an editorial blog — not an AdVoice blog — into a massive advertisement for his own company, complete with lots of highly valuable SEO links.

That’s not “knowledgeable and credible content creators can providing information and perspective and connecting with one another,” it’s advertising and marketing. And it emphatically is not “totally transparent,” nor is the marketer in question “clearly identified, delineated and labeled.”

Even if the AdVoice blogs are acceptable, then, Forbes.com as a whole seems to be very comfortable transgressing ethical lines with its blogs. I wouldn’t trust anything there to be what it seems.

Update: DVorkin responds in the the comments, saying that he “learned a lot from the post on credit cards”, where the byline has been quietly changed from Odysseas Papadimitriou to Card Hub. The SEO links remain, however, without any kind of nofollow tags.


Don’t agree with the one halfway positive thing you say on the sponsored blogs – that ‘the branding is clear.’ Compare it to ZDNet’s editorial blog covering SAP
http://www.zdnet.com/topics/sap+ag?tag=h eader;header-sec

Niche beat blogs like ZDNet’s are pretty widespread these days. Is it clear graphically that Forbes’ is fundamentally different than them, written *by* SAP as opposed to *about* SAP? Not to me.

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Navigating Treasury’s dreadful website

Felix Salmon
Nov 4, 2010 19:15 UTC

Bloomberg’s news reporters still haven’t worked out how to link to external websites, even the US Treasury: they say that “Geithner’s appointments calendar, updated through August on Treasury’s website,” shows an off-the-record meeting with Jon Stewart, but they don’t link to it.

That’s sad, because finding the link is non-trivial. First, you go to the Treasury homepage. Then you ignore all of the links and navigation, and go straight down to the footer at the very bottom of the page, where there’s a link saying FOIA. Click on that, and then on the link saying Electronic Reading Room. Once you’re there, you want Other Records. Where, finally, you can see Secretary Geithner’s Calendar April – August 2010.

Be careful clicking on that last link, because it’s a 31.5 MB file, comprising Geithner’s scanned diary. Search for “Stewart” and you won’t find anything, because what we’re looking at is just a picture of his name as it’s printed out on a piece of paper.

In other words, these diaries, posted for transparency, are about as opaque as it can get. Finding the file is very hard, and then once you’ve found it, it’s even harder to, say, count up the number of phone calls between Geithner and Rahm Emanuel. You can’t just search for Rahm’s name; you have to go through each of the 52 pages yourself, counting every appearance manually.

Is this really how Obama’s web-savvy administration wants to behave? The Treasury website is still functionally identical to the dreadful one we had under Bush, and we’ve passed the midterm elections already. I realize that Treasury’s had a lot on its plate these past two years, but much more transparent and usable website is long overdue.

Update: Tom Lee explains that the horrid format of the calendar might well be a function of the fact that there still isn’t decent electronic redaction technology.

Update 2: ProPublica puts up the calendar in searchable form! Rahm appears on 49 of the 52 pages.


Acrobat Professional’s OCR function is useful, but for these Treasury docs you have to first go into Illustrator and delete the various insertions of “(b)(2)” as they screw up the OCR software.

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