Felix Salmon

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.

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.

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?

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.

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.

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

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.

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.

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.

Jonathan Weil has a great column on Bank of America, noting that it’s trading at a price-to-book ratio of just 0.54. That’s not because it’s losing money, but rather because no one believes the bank’s numbers. And it’s easy to see why that might be, when BofA insists that its Countrywide goodwill — all $4.4 billion of it — remains unimpaired, even as the brand name has been dropped.

Bank of America releases a new number for its book value every quarter; here’s a graph that the fabulous Frank Tantillo put together showing how the ratio of BofA’s market cap to its book value each quarter.

Clearly there’s been a rebound from the worst days of the financial crisis, but back then there was no end in sight to BofA’s losses. Today, one would imagine that with a steep yield curve (banks love steep yield curves, since they mean that their core business of maturity transformation becomes very profitable) and too-big-to-fail status, BofA should be insanely profitable.

If a bank is profitable, and if it’s not lying about the value of its assets, then it should trade above book value. But BofA hasn’t come close to that level in over two years. Something is wrong, and Weil puts his finger on exactly what it is:

The only certainty is there is none, aside from the knowledge that Bank of America’s top executives have no idea what goes on inside the bowels of their company.

BofA isn’t just too big to fail, it’s also too big to manage. And the stock market is punishing it for that fact. Unless and until that price-to-book ratio goes back above 1, the market simply doesn’t trust what BofA is saying.

Gawker’s John Cook asks me a question about how the Fed’s quantitative easing is supposed to work:

So the Fed is going to by $600 billion in U.S. Treasuries. It will presumably buy these Treasuries from private investors and institutions who had already purchased them–in other words, it won’t be handing $600 billion to the U.S. Treasury in exchange for bonds.

The purchases will be in increments of $1 million. Now, the kind of people who own $1 million and more in U.S. Treasuries tend to be people with a lot of money. And that money was kind of sitting there, and for some reason or another they decided to put it into treasuries, right?

So now along comes the Fed and says to those private investors and institutions, “Hey, I’d be happy to convert those treasuries into cash for you!” And they negotiate over price or there’s an auction or whatever, and the investors get their cash and the Fed gets its treasuries.

And so then these private institutions and investors are sitting there with a pile of cash. So why wouldn’t they just buy treasuries with it, which is what they had previously decided would be the wisest thing to do with that money?

The idea is to get those people to spend that cash in stimulative ways, right? But shouldn’t we assume that people who are sitting on large quantities of treasuries are sitting on them for a reason, and would likely continue to sit on them, even if they suddenly came into some cash?

John has a few of the details wrong, but at heart he’s absolutely right. The way that QE works is that the Fed will publish a schedule of how many Treasury bonds it intends to buy and when. It will then go out and buy those bonds from “the Federal Reserve’s primary dealers through a series of competitive auctions operated through the Desk’s FedTrade system.”

In English, what that means is that the New York Fed has a direct line to the biggest banks in the world (Goldman Sachs, Morgan Stanley, Deutsche Bank, etc — 18 in all). And it gets all those banks to compete with each other, either directly or on behalf of their clients, for who will sell the Fed the Treasury bonds it wants at the lowest price. The winners of the auction get the Fed’s newly-printed cash*, and give up Treasury bonds that they own in return.

The people selling Treasury bonds to the Fed, then, are big banks, who are told in advance exactly how many Treasury bonds the Fed wants to buy. As a result, they’re likely to buy Treasuries ahead of the auction, with the intent of selling them to the Fed at a profit. This is pretty much what John said would be going on, only they buy the bonds before the auction, rather than afterwards. Once the banks have made that profit, it’ll get paid out in bonuses to the people on the bank’s Treasury desk, with the rest going to their shareholders. We’re not exactly helping the unemployed here.

More generally, the Fed isn’t going to be buying any more bonds than the Treasury is issuing — so it’s not going to be lifting a lot of holders of Treasury bonds out of their long-term investments. But insofar as the Fed is forced to offer such high prices that investors simply can’t say no, those investors are probably just going to take the proceeds and invest them in agency debt instead from Fannie Mae and Freddie Mac. That debt is just as safe as Treasuries, and it even yields more than Treasuries, to boot.

What’s emphatically not going to happen is that the people who used to own Treasury bonds will take the Fed’s billions and suddenly turn around and spend them buying croissants at their local family-owned bakery. We’re talking about monetary policy here, not fiscal policy: the aim here is to bid up the price of Treasury bonds, which means that the yield on Treasuries will fall, and that those lower interest rates will somehow feed through into greater economic activity. The aim is not to take $600 billion and spend it on stuff in the real economy. That would be a second stimulus, and the chances of a second stimulus right now are hovering around zero.

Which is why Brad DeLong puts the value of buying $600 billion in Treasury bonds at about $7 billion in total, rather than anything near the headline $600 billion figure. The Fed is playing around with interest rates here — that’s its job. It’s not trying to directly stimulate demand.

*I should also take this opportunity to answer a question from CJR’s Dean Starkman, who asks where the money is coming from. The answer is that in a fiat-money system such as ours, the central bank can simply print as much money as it likes. If it wanted, it could literally go down to the local printing press, print out a bunch of $100 bills, put them in armored trucks, and send them over to JP Morgan or whoever sold them those Treasury bonds.** But that would be silly. So instead it simply increases the amount registered as on deposit at JP Morgan’s bank account at the New York Fed.

If JP Morgan had $100 billion in that bank account before, and then sells the Fed another $50 billion of Treasury bonds, then the Fed will just credit that $50 billion to JP Morgan, and the new balance in JPM’s account is $150 billion. Central banks can do that, which is why they’re so powerful. The amount of money in the system has just increased by $50 billion, and the Fed hopes that somehow that increase will feed through into higher inflation. Whether it will or not, however, depends on the degree to which JP Morgan can take that $50 billion and lend it out into the real economy. So far, banks have been bad at boosting their lending. And there’s not a lot of evidence that they’re getting any better.

**Update: Alea tells me I’m wrong on this: it’s the Mint which prints paper money, not the Fed, and all paper money is backed by Treasury-bond collateral.

Mark Thoma sends me a very clear explanation of the economics of paywalls from Kellogg’s Shane Greenstein:

Two fundamentally different models have competed in information markets.

In one model, an information provider formats the presentation of information, selling advertising space to another party. These sites want search engines to find them. This model involves little gatekeeping of the user. Much of the open commercial Web operates this way.

In the other model, an information provider sells passwords to users…

Vendors can charge serious subscription fees for password when the information is unique enough that users are not tempted to go to the free advertising-supported alternatives…

The Wall Street Journal has had a bit of success providing unique coverage of financial matters… Similarly, many sports teams have started gatekeeping for deep coverage of team matters…

In most other news markets, in contrast, gatekeeping had a hard time surviving because it was not valuable. This outcome should be blamed on competition between many news outlets with similar material. If one vendor tried to restrict access with gatekeeping activity, another vendor could offer the same information for free, thereby attracting another eyeball for their advertisers. Users tended to go to the latter, undercutting the former.

This outcome arose because the cost of sending files to one more reader is nearly zero, which makes it tempting for competitors to charge nothing and sell advertising. If that attracts large numbers of users from the gatekeeping site, it renders any gatekeeping strategy unprofitable.

There’s a couple of important things to add to this analysis, I think. Firstly, there isn’t some lumpen mass of “users” who are in search of information and go to where they find the most value. Every major newspaper in the world has vastly more readers today than when the only way of reading it was to pick up a physical copy. And the daily readership of an inside-the-beltway publication like Politico dwarfs the print circulation of the largest newspapers in the world — Bild, or The Sun, or USA Today.

When online publications go free, they’re not just competing for users; they’re creating new readers in a way that pay sites have enormous difficulty doing. That’s one of my big problems with paywalls: even if they’re the most effective way of monetizing existing readers, there’s an enormous opportunity cost of implementing them, in terms of the new readers who will in future never read the site because they’re put off by the paywall.

Sites with paywalls understand this, of course, which is why they make selected content free, or allow readers some quota of free articles before they reach the wall. But there is always a downside: such approaches require registration, which many people find too burdensome; and they also mean that the site develops a reputation as somewhere to be avoided unless there’s an article you really want to read. Certainly it becomes very difficult to search such sites for specific information.

More generally, Greenstein sees the economics of content as a competition between providers, where the lowest-cost providers win. But he misses something, I think. It’s not just that readers don’t see the value in paying for content when something “similar” can be found elsewhere. It’s also that there is positive extra value in reading free content, since it becomes much easier to share that content via email or blogs or Facebook or Twitter, you don’t need to worry about following links or running into paywalls, and in general you know that the site will play well with others on the open web.

The point here is that giving away content for free doesn’t have to be a regrettable necessity; it can actually be an exciting way of maximizing the value of your content.

And meanwhile, the richness of the web does not mean that news sites, say, are competing mainly with each other. If Newsday puts up a paywall and it fails, is that because readers can find content similar to Newsday’s elsewhere for free? Yes, in part. But it’s also because the people who would otherwise visit Newsday.com have lots of other things they also like to do. They like to spend time in Farmville, or they want to watch a video of a dog skateboarding, or they want to see their house on Google Earth, or they want to go walk their dog. These aren’t people who need certain information and are going to seek it out at the lowest cost; they’re just people who would visit Newsday’s website if it was free, but won’t if it isn’t.

That’s why gateways and paywalls are such problematic things, online: they’re a bit like that crappy VIP room in the back of the nightclub which is much less pleasant than the big main space. You might wander in there from time to time if it’s free, but if you need to buy an expensive bottle of Champagne to do so, forget it. There’s lots of other stuff to do, both online and off. And so the walled-off areas of the internet simply get ignored.

Ben Bernanke might not be giving Trichet-style press conferences, but he is at least taking to the op-ed page of the Washington Post to explain yesterday’s decision. Here’s what he’s trying to achieve with his quantitative easing:

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

I don’t think that lower mortgage rates are going to make housing more affordable: there’s no evidence that I can see that rents fall when interest rates drop. If anything, the opposite is true. And in the wake of being stung by predatory adjustable-rate mortgages in the past, most homeowners now have fixed-rate mortgages, which don’t get any cheaper when rates fall. Or, of course, they have no mortgage at all.

So there really only two groups of people who are affected by the lower mortgage rates. One is homebuyers. Their numbers have shrunk to historic lows. And the other, as Bernanke explicitly says, is people refinancing their mortgages. But this round of QE isn’t going to bring mortgage rates down to levels significantly lower than they’ve been in the recent past: anybody liable to refinance on lower mortgage rates is likely to have done so already. So the rolls of potential refinancers are pretty thin as well.

Bernanke lists two other positive effects of QE, though. The first is that “lower corporate bond rates will encourage investment” — a statement contingent on the idea that there are firms out there who would love to borrow money to invest, but they find the interest rate they would have to pay to issue bonds too damn high. I can’t think of any companies like that, and so this effect, too, is going to be decidedly marginal.

Finally, Bernanke gets into very dangerous territory indeed: he explicitly says that he’s trying to boost stock prices. Surely if we’ve learned anything from Greenspan’s mistakes it’s that the Fed shouldn’t be trying to support stock prices, and that attempts to do so are liable to end in tears.

Meanwhile, although Bernanke says that “the FOMC has been cautious, balancing the costs and benefits before acting”, he only mentions one cost, inflation — and that cost he mentions three times. He doesn’t even hint at other costs, such as increased market uncertainty and volatility, or increased currency-related difficulties as investors pile in to the global carry trade.

It’s also odd that Bernanke is talking down the risk of higher inflation given that, as Brad DeLong says, the only way that QE is going to work is if it results in higher inflation expectations. In a piece of clever math, DeLong calculates the value to the market of the Fed’s interventions at just $7 billion a year, which clearly isn’t enough to move an economy the size of the US. “Unless this moves inflation expectations in a serious way, it is hard to see why they came out here,” he concludes.

So while I welcome Bernanke trying to explain his actions in the form of an op-ed, I’d be much happier if he did so in the form of a press conference, or some other place where people could ask him questions. He’s good at communicating; why doesn’t he use those skills better?

Federal Reserve Rains Money On Corporate America — But Main Street Left High And Dry — HuffPo

The sophisticated understanding that 5-year-olds have of gender — Nerdy Apple Bottom

The Fed’s $600 Billion Statement, Translated Into Plain English — NPR

Annals of unambitious forgery: the case of the fake Rodolphe-Théophile Bosshard — SwissInfo

The Underbelly Project — NYT

Why on earth would Jeff Koons want a 21,500 sqft single-family home? — Curbed

In some ways, this is actually the most depressing news of the day — CNN

Kanye West was the only critic who really got to George W. Bush? — Atlantic

Only 0.1% of Dutch bikers wear helmets — WSJ

Bloomberg not only should know better; it does know better. And it says as much, in paragraph 21 of its story. But that doesn’t stop it from leading the story with this:

The world’s biggest bank isn’t in the U.S., where regulators banned lenders from proprietary trading, nor in Switzerland, which is doubling capital requirements. BNP Paribas SA is in France, which is doing neither.

BNP Paribas’s assets rose 34 percent in the three years through June, reaching 2.24 trillion euros ($3.2 trillion), equal to the size of Bank of America Corp., the largest U.S. bank, and Morgan Stanley combined.

At the end of the piece, there’s even a league table of what Bloomberg calls “the world’s 15 biggest banks by assets”, with BNP Paribas in first place and BofA in 5th.

But here’s that 21st paragraph, which pretty much entirely negates the entire premise of the story:

European and U.S. banks use different accounting standards, making a direct comparison of their size difficult. In particular, U.S. generally accepted accounting principles net out the banks’ derivatives positions, unlike the international financial reporting standards used in Europe. This results in higher reported assets under IFRS. The comparison also excludes assets held by banks off their balance sheets.

And here’s a chart, via Alea, showing that Deutsche Bank’s assets, as of end-2008, were more than twice as high under European rules as they were under US rules:

Basically, it all comes down to those derivatives books: in the chart above, Deutsche Bank’s derivatives assets alone, at €1.2 billion trillion, are significantly larger than its total size under US GAAP.

I’m quite sure that if JP Morgan had to report its assets under IFRS, it would be significantly larger than BNP Paribas. And I’m pretty sure that if anybody at Bloomberg stopped to think about it, they would come to exactly the same conclusion. So why on earth are they running headlines saying that “BNP Paribas Grows to World’s No. 1 Bank”? Anybody?