Felix Salmon

The NYT has erred in the past, but generally it’s good about reporting prices paid at auction: the amount that the winning bidder pays for the item in question is the amount that the item sold for. That amount is then split between the person consigning the item to auction; the auctioneer; and, of course, the taxman. In the case of that Chinese vase, the hammer price was £43 million, the auctioneer charged £8.6 million commission; and the buyer also had to pay 17.5 percent sales tax on the commission, for a total of £53,105,000, or $85.9 million.

Which is why it’s depressing to see the front page of the New York Times today, saying that the vase sold for $69.5 million. (The web story says $70 million in its headline, and leads with the $69.5 million figure; the Guardian, too, gets it wrong, saying the vase sold for £43 million, while the Sun almost gets it right, adding in the commission but forgetting the VAT.)

The point is that the buyer doesn’t care what the hammer price is, only what he has to pay at the end of the day. If you’re willing to pay $86 million for a vase, you’ll pay that regardless of how many different parties get the money, or how that money is divvied up. The auction is mechanism for determining a buyer and a price, it just happens to be full of psychological tricks designed to make the final price as high as possible.

One of those psychological tricks is the hammer price, which is substantially lower than the final price paid: it makes you feel like you’re bidding less than you actually are. There are many other tricks, too, like the flattery and urgency of the auctioneer, the generally feverish atmosphere of the auction room, and the art of getting multi-millionaires with enormous egos to compete with each other to see who has the bigger wad of cash. There’s also the endowment effect, as explained by Don Thompson:

Each bidder starts with a top price in mind. When he momentarily becomes the high bidder, there is an “endowment effect.” He will pay more not to give up the painting, not to lose. Amid the tension of the auction, his reference point has changed to “I should win, this painting should be mine.” He is aware of the regret he would feel at losing what has become “his”.

On top of that, there’s the psychological ratification that comes with the existence of the underbidder and the public nature of the auction price, which is universally considered a benchmark, and is never considered an aberrant rip-off.

In this case, I suspect that other factors conspired to drive up the price, such as the fact that the auction was taking place at a second-tier auction house in the small English town of Ruislip. When would-be Chinese buyers discovered what was being sold there, with an estimate of just £800,000, they thought they were in for a bargain, and they flew in to snap it up.  I’d wager that most of them, being very willing to pay many multiples of the estimate, reckoned that they had a very good chance of walking away with the vase, and got themselves into that psychological state of all but owning it before the auction had even started. Which, of course, is exactly the state that all auctioneers want their bidders to be in — at that point they’re bidding to retain the item, rather than to buy it. And the price they’re paying, psychologically, is their marginal cost — the difference between their new bid and their old bid — rather than the full amount, including that hidden commission.

In any case, when a newspaper reports a hammer prices as though it’s the actual sale price of the artwork in question, it’s giving its imprimatur to a cheap psychological trick. After all, the auctioneer could just as easily say that the bids were for the final price, and that it would then take a percentage of that final price as its own cut. But no auctioneer ever does that, because prices are higher when the total price is opaque.

It’s the job of newspapers, on the other hand, to be transparent, not opaque, about what they’re reporting. So less of this hammer-price nonsense, please. The price paid is the price paid. It’s not — it’s never — the hammer price.

I love the way that Michael Mundaca, the assistant Treasury secretary for tax policy, has taken to the blogs to help up some of the perennial confusion surrounding taxes. And yes, he tackles the biggest question of all, about those 1099s:

While businesses do not need to start filing information returns on the expanded set of payments until January of 2013, some groups have already raised concerns about the burden that this new provision may impose. As the President has said, it is important to look at whether this burden is too great for businesses to manage. Treasury and IRS are sensitive to these concerns and will look for opportunities to minimize burden and avoid duplicative reporting… Already, we have used our administrative authority to exempt from this new requirement business transactions conducted using payment cards such as credit and debit cards. So, whenever a business uses a credit or debit card, no information report will need to be filed, and there will thus be no new burden under the new law.

This is a start, even if it’s clearly insufficient; the good news, at least, is that there does seem to be a bit of time to fix things. If we can’t reach bipartisan consensus on this, then we’re never going to be able to pass anything in the next two years.

More interesting is the way that Mundaca defends the way in which dividend and capital-gains tax rates are lower than income-tax rates. I’ve never understood it, but Mundaca gives the best explanation I’ve yet seen:

The arguments in favor of taxing capital gains at a rate lower than that for ordinary income include offsetting the taxation of purely inflationary gains; reducing the tax on risky investment that would otherwise be disadvantaged by the tax system, especially because of the limits on deducting capital losses; and offsetting the “lock-in” effect where high capital gains rates can impede economically desirable asset and portfolio reallocations by imposing a tax on the sale of capital assets that can be deferred to the extent that the assets are not sold. With the exception of a few years following the Tax Reform Act of 1986, long-term capital gains generally have been taxed at preferential rates since 1921.

I’m not convinced, and I’d still love to see the tax rates brought into line with each other, if only because financial engineering makes it pretty easy to take income and convert it into capital gains, if you’re rich enough. (Don’t get paid yourself, just set up a company, then sell the company.) That’s what the private-equity honchos all did, and their low tax rates are unconscionable.

Still, the inflation argument is a good one: inflation is bad enough without having to pay taxes on it. The next argument, about encouraging risky investment, is weak—capital’s always going to flow to where it gets the best return. And as for “lock-ins”, I have some sympathy, but suspect that if it was really a problem then total return swaps would simply become a lot more popular.

In any event, let’s have more of these forums where Treasury technocrats talk directly to the public. Anything which disintermediates journalists has to be a good thing, right?

Update: Jimmy P reckons that far from raising capital gains taxes so that they’re the same as income taxes, they should instead be lowered to zero!

This is without a doubt the funniest video ever made about the Fed, quantitative easing, and Ben Bernanke. Make sure you’re in a place where you can laugh freely, and press play:

(Via Harrison)

Dan Kadlec is right to give short shrift to the horribly misconceived Kardashian Kard, a prepaid debit card aimed at teenagers. But I think he’s too kind about prepaid debit cards in general:

There is nothing wrong with a pre-paid debit card for young people. Pre-paid cards have a lot of advantages:

* Kids can use a pre-paid card to shop online.

* Parents get a detailed spending report.

* Over drafting is not a risk.

* Pre-paid cards are easy to re-load and thus are good vehicles for paying allowance, assuming no or low re-load fees.

* Kids become familiar with plastic in a controlled environment.

* In some cases, your child begins to build a credit score.

Dan links to a piece by Beverly Herzog explaining why debit cards can be a better idea than credit cards. Which is all well and good — but the thing I don’t understand is why no one seems to be screaming from the rooftops that no standalone card offers the flexibility and convenience of a good old-fashioned bank account.

Every kid should have a bank account, with a debit card, but without overdraft protection; something like the USAA Teen Checking account is perfect. Given that it’s just as easy to take out cash at an ATM with a prepaid debit card as it is with a normal debit card linked to a bank account, I can’t think of any good reason why a parent would opt for the prepaid debit card. Prepaid debit cards are expensive (although there are some which aren’t as expensive as the Kardashian Kard, it’s true); they don’t have branches; it’s hard to deposit checks from relatives into them; they don’t pay any interest on savings balances; and, most importantly, they don’t give teens a safe way to get used to how bank accounts work.

The main danger with a teen checking account is that the kid will bounce checks and run up NSF fees — but frankly there’s no reason why the kid should ever have a checkbook in the first place. Checks have about as much relevance to kids as do floppy disks, and the only people who might want to see them are nostalgic parents who associate financial literacy with the bizarre ritual known as “balancing your checkbook.”

We’ve already been greatly harmed, as a nation, by the move from personal loans to credit cards. Let’s be on the lookout for a similar move from checking accounts to prepaid debit cards. No good can come from that, beyond excessive fees and an uptick in egregious celebrity endorsements.

James Murdoch seems to have decided that free websites might not really cannibalize newspapers after all:

Sales of newspaper apps for devices like the Apple iPad are cannibalizing sales of physical newspapers, James Murdoch, head of News Corp’s operations in Europe and Asia, said Friday…

He said apps for mobile devices, with which readers typically engage far more than they do with computer websites, were more dangerous to print sales.

“The problem with the apps is that they are much more directly cannibalistic of the print products than the website,” he said. “People interact with it much more like they do with the traditional product.

This is intuitively true, but I’m not persuaded yet. For one thing, everybody thought that free websites were cannibalizing print newspapers, before we changed our minds. Rupert Murdoch, of course, was the loudest such person, saying that “an industry that gives away its content is simply cannibalizing its ability to produce good reporting.” And so long as such statements are based on gut feeling rather than any kind of quantitative analysis, they’re pretty worthless.

What’s more, News Corp is still putting enormous paywalls up around its UK newspaper websites, to no good effect. If James Murdoch is coming around to the idea that websites don’t cannibalize newspapers after all, what’s the point?

My feeling is that James Murdoch is probably half right here: there are some people who will directly replace a print subscription with a tablet subscription. Equally, however, there are surely also people who will find that a tablet subscription enhances the value they get from the physical newspaper, and increases their loyalty to it. Is the first group larger than the second? One thing we know for sure is that it’s far too early to tell.

The WSJ does none of its readers any favors with its silly headline attempting to sum up the effects of the deficit commissions tax proposals. “Top Earners May Face Big Hit”, it says—which would surely be more accurate if the “May” was replaced with “Won’t”.

The piece begins:

A presidential panel’s draft overhaul of the tax system could hit higher earners hard, largely by wiping out deductions and investment breaks that tend to especially benefit those who make enough money to itemize their taxes.

For one thing, the draft is coming from the panel chairmen, not from the panel itself. And more generally, while it’s true that most people who itemize their taxes are high earners, it doesn’t follow that most high earners itemize their taxes, or get a huge benefit from doing so. Some are better off with the standard deduction, especially if they don’t have a mortgage; others are subject to the phaseout rule, and others still get hit by the alternative minimum tax.

On top of that, the chairmen aren’t really suggesting that all these “tax expenditures,” as they’re known, actually be wiped out. They’re actually suggesting something quite reasonable: that you start with a very simple tax rate, and then, if you find a tax expenditure you really believe in—the earned income tax credit, say—you pay for it by raising some or all of those basic tax rates.

That’s a great way of making the cost of these deductions explicit: you want generous mortgage-interest tax relief? OK, but your income tax is going up a penny.

But putting that to one side, the big question is whether the higher tax burden from the loss of deductions would wipe out the tax savings from lower income tax. The WSJ seems sure that it would:

Deductions and investment breaks… increase after-tax income for the top 20% of earners… by more than 10%…

Higher earners could stand to recoup some of that loss through several other proposed changes, notably lower marginal income-tax rates. The plan… would cap the top tax rate as low as 23%, down from the current top rates of 33% and 35%.

Really? High earners would only recoup some of that loss? If you’re currently paying income tax of 35%, that means your after-tax income before deductions is 65 cents on the dollar. If that’s raised by 10%, it becomes 71.5 cents on the dollar. On the other hand, if you simply pay income tax of 23%, your after-tax income is significantly higher, at 77 cents on the dollar.

Paul Krugman, for one, is convinced that the rich are going to be winners, not losers, here:

What the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans — the deductibility of health benefits and mortgage interest — and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.

It will take time to crunch the numbers here, but this proposal clearly represents a major transfer of income upward, from the middle class to a small minority of wealthy Americans.

In fact the two aren’t completely contradictory; it’s just that what the WSJ considers “Top Earners” have a large overlap with what Krugman considers “the middle class.” (Think people earning between about $120,000 and $350,000 per year.)

And Krugman isn’t giving the whole picture either. One of the best parts of the chairmen’s plan is the way in which it raises the tax rate on capital gains and dividends so that they’re simply treated as ordinary income. The very wealthy, who often live off capital rather than labor, would definitely be hit hard by that move.

The WSJ does have one fact on its side when it sees taxes going up rather than down on the rich: “the draft proposal recommends overall that taxes go up by $751 billion by 2020,” it says. But that’s a cumulative figure, not an annual figure. Overall, taxes would be unchanged in 2012, go up on a net basis by a mere $20 billion in 2013, and rise as far as $160 billion in 2020. That’s substantially less than the $241 billion the chairmen want to cut in discretionary spending this year: their plan concentrates much more on spending cuts than it does on higher taxes to achieve deficit reduction.

The fact is that a net increase of $160 billion in 2020 is so small, compared to the overall tax base, and so far away in time, that it’s impossible to tell with any certainty at all who would be the winners and who would be the losers. Some taxes will go down, some deductions will go away, and other taxes will go up: it’s a complicated plan and the effect on various income strata is likely to depend enormously on how much any given taxpayer currently itemizes, and how much tax they currently pay on capital gains and dividends.

And the big picture is that the chairmen do not propose to reduce the deficit by raising taxes: indeed, they propose a hard cap on how much the government can get in tax revenue. This is a cost-cutting proposal, rather than a tax-hiking one. It also has zero chance of ever making it into law. But as an idea of where some kind of hypothetical bipartisan consensus might exist, the message is clear: no one’s interested in innovative new taxes, least of all a carbon tax. If the deficit’s going to come down, the technocratic elite wants to see that happen from spending cuts instead.

The courtship is over. Daily Beast, Newsweek to Wed — TDB

“This is the ‘Human 8-bit Video’. We wanted to make something cheap and awesome” — YouTube

Porpoises rescue Dick Van Dyke — Guardian

Banks Don’t Understand How Social Media Works — Lending Club

Arsenio Hall gets into bed with an online payday lender — My Money Partner

“We need to ensure that, given the impact of climate change, SABMiller has the capability to deploy future breweries” — Guardian

Netflix Helps Win Video-on-Demand Bet from 2002 — Hacking Netflix

How the rich live: they dangle rocks from pulleys when trying to sell their $14 million apartments — Curbed

Italian film producer De Laurentiis dies at 91 — Reuters

No sooner do I have lots of good things to say about Google’s pay policies than Mike Arrington breaks the news that Google is keeping one engineer, who was threatening to decamp to Facebook, by paying him $3.5 million in restricted stock.

I suspect and hope, though, that the big across-the-board pay rise came after — and possibly as a result of — the $3.5 million deal. Because giving in to that kind of threat — “pay me or I leave” — is a horrible way to run a company.

Ben Horowitz explains why:

The other ambitious members of your staff will immediately agitate for raises as well… You will now spend time dealing with the political issues rather than actual performance issues. Importantly, if you have a competent board, you will not be able to give them all out-of-cycle raises, so your company executive raises will occur on a first-come, first-serve basis.

The less aggressive (but perhaps more competent) members of your team will be denied off-cycle raises simply by being apolitical.

The object lesson for your staff and the company will be the squeaky wheel gets the grease and the political employee gets the raise. Get ready for a whole lot of squeaky wheels.

Certain companies have reputations as places where loyalty isn’t rewarded, and where people only ever get small annual raises unless and until they go off and find themselves a more lucrative job offer elsewhere. At that point, the company suddenly realizes how valuable they are, and ups their pay substantially. Needless to say, employees at those companies have perverse incentives to spend their time looking for job offers, since that’s the best way to get a big raise.

Maybe, after waking up the morning after signing off on a $3.5 million retention bonus, Eric Schmidt saw the kind of company that Google was becoming and acted pre-emptively to put an end to such things. But his action would have been much more credible if he had explicitly said that Google was not going to get involved in bidding wars henceforth: if you want to defect to Facebook, then defect, but don’t expect Google to bend over backwards to retain someone exhibiting that kind of disloyalty.

The risk, then, is that the 10% pay rise notwithstanding, Google is still going to cave, on a case-by-case basis, to star engineers waving job offers elsewhere. In any given case, the decision might make sense. But as a general principle, it’s poisonous.

If a gaffe is when somebody accidentally tells the truth, then Gerry Marzorati’s latest comments probably count:

During a panel discussion at the Digital Hollywood New York conference, Gerald Marzorati, the Times’s assistant managing editor for new media and strategic initiatives, explained why the paper’s print business is still robust. “We have north of 800,000 subscribers paying north of $700 a year for home delivery,” Marzorati said. “Of course, they don’t seem to know that.”

Marzorati went on to become positively disingenuous:

“I think a lot of it has to do with the fact that they’re literally not understanding what they’re paying,” he said. “That’s the beauty of the credit card.”

Well, no. When I pay for most things by credit card, I know exactly what I’m paying. But the NYT deliberately makes it impossible to work out what the cost of a subscription is — and even if you look at your monthly credit card bill for a clue you’re likely to underestimate the true cost, since the charges come not every month but rather every four weeks.

Nothing has changed since I first wrote about this four years ago: even when you’re a subscriber, there’s nowhere on the website telling you what your subscription rate is*. There’s a FAQ, but the most obvious question of all — “how much does home delivery cost?” — isn’t on it.

Once upon a time, the NYT would actually publish its home delivery rates: in 1989 they rose from $4.25 a week to $4.50 a week, for instance, and in 2001 they rose from $7.20 to $8 for subscribers in New York, with rates as high as $10.25 elsewhere.

Today, I can tell you — but the NYT nowhere reports — that home delivery costs $11.70 per week in New York, and $14.80 per week nationally.

In other words, the price of home delivery has been rising faster than inflation for at least 20 years, and for most of that time the NYT has done its darnedest to make sure that as many subscribers are possible are ignorant of how much they’re paying. After all, it stands to reason that many subscribers would be shocked and upset to learn that they are paying $769.60 per year for their subscription. And the NYT doesn’t want to shock or upset its subscribers.

Still, the fact is that they’re not shocked or upset. Jeff Bercovici writes:

Stealthily hiking rates on the assumption that customers are too dim to catch on and/or too lazy to do anything about it is the kind of thing that gives banks, credit card companies and cell phone providers such a bad reputation.

That’s true — but the NYT has been stealthily hiking rates for decades now, and has signally failed to get a bad reputation for doing so. Clearly, it’s going to continue doing this: it’s one of the few successful business strategies in the newspaper publishing industry, so it’s obvious that the NYT should adopt it.

The downside to the strategy, insofar as there is one, is that the higher the delivery price, the harder it becomes to attract new subscribers under the age of, say, 30. But it’s always going to be hard to persuade those people to read the newspaper in print, no matter how low the price. It makes sense, in that situation, to take advantage instead of the price inelasticity of the present subscriber base.

I suspect that the NYT might attempt a similar strategy with its online paywall. If I was charged with maximizing paywall revenue, I’d start with a very low fee indeed — maybe just a buck or two a month, to attract as many subscribers as possible and to get them used to the idea of paying for content online. Once the subscriber base hit a critical mass, then I’d start raising the rate, as quietly as possible. (Much as they’ve started doing with the Kindle subscription.) It would take a few years, but the end result would be many more people paying for their online subcription than if you started off with a rate remotely comparable to the price of the print subscription.

*Update: Thanks to john_456 in the comments, there is actually somewhere on the site showing your own personal weekly delivery rate: it’s on the “My Account” page which you may or may not be able to find here.

Is Vikram Pandit going to go back to Davos in January? He certainly seems to enjoy himself at well-meaning technocratic gabfests:

“I kind of feel like I’m living in parallel universes,” Mr. Pandit said in a forum that included Peter Sands of Standard Chartered Bank and Stephen A. Schwarzman of the Blackstone Group. “I’m here in Korea and I feel this warmth and need and the sense of trying to have a dialogue with each other, but then when I get back to my real universe, it’s cold in that universe.”

Well yes, Vikram, places like the G-20 Business Summit can credibly be described as a parallel universe. But not in a good way. They’re little bubbles of hubris and self-regard, where everybody is admirable, no one ever asks tough personal questions, and the enemy is a faceless mass of populists who just don’t know what’s good for them. I’m sure you feel all manner of warmth when you enter that particular universe, but don’t let it distract you from cold reality.

It’s good that Pandit is cognizant of the disconnect, and is willing to call such conferences out for being divorced from reality. But still, it’s so tempting to give in to their charms. Who doesn’t love to be loved?

The most clear-eyed view of the silliness of the deficit commission report comes from Kevin Drum, who points out that at heart it says much less about reducing the size of the deficit than it does about reducing the size of the government. The distinction is a crucial one, since the mathematics of the deficit are simple, and overwhelmingly a function of Medicare expenditures. “Medicare, and healthcare in general, is a huge problem,” says Drum: “It is, in fact, our only real long-term spending problem.”

Medicare is a true fiscal nightmare. The population of the US is aging: the current Medicare enrollment of 47 million will soar to 71 million by 2025. Those people will be living longer, too, and their healthcare costs are certain to continue to rise not only faster than inflation, but also faster than the growth of the economy as a whole. So long as the U.S. commits to pay the healthcare costs of substantially everybody over the age of 65, nothing else really matters, in terms of the long-term fiscal deficit.

Here’s Drum:

Any serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare. Any proposal that doesn’t maintain approximately that ratio shouldn’t be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That’s not serious.

And here’s Matt Steinglass, commenting on Drum:

Mr Drum writes for a liberal magazine. And here he is saying that the main thing we need to do in order to restrain growth in the deficit and in government spending, which will otherwise bankrupt us, is to cut the biggest government entitlement programme, Medicare. Indeed, this is a bog-standard consensus position among American liberals… Shouldn’t this be shocking? Shouldn’t this be big news for our contrarian press? “Liberals Call for Cuts to Entitlements!” Aren’t we amazed that supposedly big-government liberals want to slash the projected Medicare budget?

The point here is that the deficit commission chairmen are doing everything in their power to perpetuate the intellectually dishonest meme that if we just pare enough excess from the government’s discretionary budget, that can somehow solve the problem of the soaring deficit. It can’t. Liberals like Drum recognize the problem, and can work out the mathematics of Medicare in public. The deficit commission, it seems, can’t.

Elizabeth Warren has been doing the rounds in recent days, extolling the virtues of small community banks and talking about how tough it is for them to compete with the big guys. It certainly seems that way over at the FDIC, where the list of bank failures in 2010 is up to 143 and counting—already more than the 140 banks that failed in 2009.

And then there’s BankUnited, which was bought from the FDIC by a bunch of private-equity honchos in May 2009 and which has already filed to go public with a valuation of $2.7 billion or thereabouts.

Rob Cox has a great column on the deal, concentrating on the instant riches accruing to BankUnited’s CEO, John Kanas. Cox has found a smoking-gun quote from Kanas when he sold North Fork, making $185 million for himself: “It’s not like I flew in here on a private jet three years ago and prettied up the company and then booted it out of here.”

In the case of BankUnited, by contrast, Kanas seems to have found himself with a $68 million stake in the bank, plus millions more in salary, bonus, pension, and the like, in the course of just 18 months.

How is this possible, when banks elsewhere are dropping like flies? The simple answer is that Kanas and the other BankUnited investors are taking money straight from US taxpayers*: the FDIC lost $4.9 billion when it sold BankUnited, it’s guaranteeing more than 80% of the bank’s assets, and the future income stream from the FDIC to the bank is worth a whopping $800 million.

As Cox says, “for the FDIC and its chairman, Sheila Bair, it won’t look good.”

It’s possible to attempt a positive spin on all this—in fact, Cox himself made the case, a couple of weeks ago, that the BankUnited deal was so gloriously profitable for its investors that it sparked a broader resurgence of interest in buying banks, saving billions for the FDIC over the long term. And what’s more, the FDIC cracked down on the ability of private equity players to buy banks shortly after the BankUnited deal closed: this story isn’t going to have many sequels.

But if BankUnited’s clever financiers have made billions of dollars with their clever financing, you can be sure that the equally clever financiers at JPMorgan and other FDIC counterparties are also sitting very pretty. They’re just not making their FDIC profits so obvious.

The big point here is that smaller banks in the real world, forced to try to make money from banking their real customers, are continuing to fail at a depressingly high rate. Meanwhile, huge financial profits can be made by swooping in and buying distressed assets from the FDIC, which has become an engine for consolidating assets and profits in a handful of highly profitable financial institutions.

It certainly looks as though the FDIC is selling dimes for a nickel to its highly exclusive group of qualified buyers, and that purchases from the FDIC have invariably turned out to be fabulous deals. That’s not the boring banking that the US wants to see: instead, it’s the kind of high-stakes dealmaking which makes Wall Street so resented in the heartland, and which, clearly, is never going to die.

*Update: The FDIC’s Andrew Gray emails to say that FDIC losses are borne by the banking industry’s deposit fund rather than taxpayers, which is a fair point, although ultimately those FDIC funds come from people with bank accounts, and that’s more or less the same thing as taxpayers. And the FDIC is of course a part of the US government. He adds that the FDIC took the least costly bid for BankUnited, as required by law. But did the FDIC have to sell that quickly?

From Obama, the Tax Cut Nobody Heard Of — NYT

MIT Media Lab looking for a new director — MIT

Apple = cheap? — Daring Fireball

Wherein Andrew Ross Sorkin calls Dealbook a “real-time SWAT team”, while driving his car to Fort Wayne — TBN

The Onion’s “Shirtless Biden Washes Trans Am in White House Driveway” story now has over 500,000 pageviews — NYT

Jesse Eisinger’s first Dealbook column — ProPublica

Are the risks worth it for war correspondents, asks Reuters Editor-in-Chief David Schlesinger — Reuters

Irish 10yr bonds yielding 8.5% — FT

Ritholtz now writing for Bloomberg — Bloomberg

Goldman Sachs has fired its head of European block trading — FT

The pair of deficit commission reports (draft here, list of illustrative cuts here) is depressing on both the big-picture and the little-picture level.

The big picture is in this chart — the proposal gets most of its juice after 2020. Which just happens to be the point at which growth in health-care costs automagically is brought down to GDP + 1% “by establishing a process to regularly evaluate cost growth, and take additional steps as needed if projected savings do not materialize”. But healthcare inflation is a gruesomely difficult nut to crack, and if the CBO simply assumed that it could be solved so easily in 2020, its projections would look much rosier too.

Beyond that, the biggest savings proposed by the commission are in various parts of the federal payroll. Nothing else remotely moves the needle: the next biggest saving, beyond the punt of the “cut-and-invest committee”, comes from a reduction in the rate of growth of foreign aid. (You’d think that one could find pretty substantial non-personnel costs in the defense budget, but evidently not: a few cuts like the V-22 Osprey don’t even begin to generate savings until 2015.)

Meanwhile, some of the small savings have to be seen to be believed. The deficit commission, charged with coming up with a bold plan to bring the nation’s finances into order, really does propose:

• Increasing the amount of time spent on instant messenger, to reduce travel costs;
• “Reduce copying use by putting the default option on copiers to double-sided”;
• Merging the Commerce Department with the Small Business Administration;
• Charging a fee to Smithsonian visitors.
• Etc.

There are some good ideas in this report, and it’s definitely good that people are talking openly in public about raising the retirement age (very slowly: it only hits 69 in 2075) and phasing out mortgage interest tax relief.

On the other hand, bold ideas in terms of new taxes — carbon taxes, wealth taxes, Tobin taxes, consumption taxes, you name it — are nowhere to be seen: as Jonathan Chait says, this is “a plan that’s tilted, overwhelmingly, toward Republican priorities”. Which means a large dash of wishful thinking, a bunch of tax cuts (!), and even a cap on the amount of tax revenues that the government can bring in. How that’s meant to help reduce the deficit I have no idea.

Mark Thoma has a depressing column at the Fiscal Times today, saying that the Obama administration’s failed fiscal stimulus threatens the entire idea that the government has a role to play in smoothing economic shocks and protecting the vulnerable from the vagaries of unconstrained capitalism:

We will be much less likely to use fiscal policy in the future, particularly government spending – much to the detriment of any future generations caught in a large downturn. As for the Fed, it still has considerable independence and a job to do in managing the economy, and it will continue to do that job. But the Fed will be far less willing to take bold steps to try to alter the direction of the economy, and far less likely to get the support from Congress it needs for another bailout to prevent a financial meltdown. And if the degree of independence the Fed currently enjoys is reduced through Congressional action, a very real possibility with people like Texas Rep. Ron Paul , a libertarian, as potential members of key oversight committees, even the routine management of the economy by the Fed could be affected.

On this view, Obama’s fiscal policy has been disastrous: not only did it fail to achieve its own stated aims, but it also resulted in “an unmistakable rejection of the government’s more muscular economic and regulatory policies.” As a consequence, we’re backsliding into a laissez-faire world, where calling Obama a Keynesian is if anything even more damaging than calling him a Kenyan.

Thoma concludes:

People should not be left to fend for themselves when they are hit by large negative economic shocks they had no hand in creating, and let’s hope that somehow, despite the emerging trend toward a more hands-off approach and pressures from rising national debt levels, that outcome can be avoided.

I suspect that he will get his wish. Politics is even more cyclical than macroeconomics, and what goes around in midterms tends to come around two years later. So long as an “it’s the economy, stupid” message can win elections, politicians will continue to push fiscal policies aimed at fixing what’s broken. Some of those policies will work better than others, but it’s stretching credulity to believe that the message of the midterms is that no such policies will ever be attempted again.