Felix Salmon


Felix Salmon
Dec 20, 2010 07:18 UTC

Ngrams! John Updike,Tom Wolfe,Gore Vidal,Thomas Pynchon; Richard Rorty FTW; crazy,sane; pleasure,pain; http,www,web; Bart,Barthes; prophet,profit; swing,miss; newfangled,avant garde; Bordeaux,Burgundy,red wine; adults,kids; sex,lies,videotape; Jesus,Christ; philosophy,religion; Mom,mom,Dad,dad; god,dog; heaven, hell; happy; oyster,lobster; Israel, Palestine; Lenin,Stalin,Mao; Goethe,Beethoven,Mozart; Beatles,Beethoven; France,Germany,India; Kennedy,Roosevelt; global, universal; USA,USSR; win,lose,draw

Julian Assange’s lawyers complaining that Guardian published leaked police files about him — Australian

Lionel Barber: Not as attractive as you might think — Charity Buzz

Joe ‘n’ Bethany on the FCIC fiasco — NYT, Slate


Rorty is the man!

I sorely wish Mike Konczal hadn’t named his blog after Rorty. No doubt he did it to honor him, but “Rortybomb” comes off sounding like one of those tribute rock bands dedicated to playing Van Halen or Boston or Jethro Tull.

Kids, don’t name your blog “Rawlsbomb.”

And don’t mistake Mike Konczal’s ideas for Richard Rorty’s.

Posted by dedalus | Report as abusive

The Chevron poll

Felix Salmon
Dec 17, 2010 22:33 UTC

WaPo’s Paul Farhi has the story today of PFC Opinion Research, which is offering journalists $250 to talk on the phone for 25 minutes about their opinions of the oil and gas industry. News reporters might be supposed to keep their opinions out of their copy, but Farhi makes it very clear where he’s coming from on this front:

News reporters are supposed to keep their opinions out of their copy. They certainly aren’t supposed to sell them back to the people they cover.

Yet now there’s a hush-hush way for journalists to turn their innermost thoughts into cold hard cash. A New York research firm has been trolling Washington and other precincts in search of reporters willing to unburden themselves. For a price.

WaPo ran a poll alongside Farhi’s piece, which is currently running 64%-32% against Farhi, and in favor of those who see no ethical problem in journalists selling their opinions. My feeling is that if a journalist gets paid cash by a company they cover, that’s a conflict of interest. And many other journalists seem to think the same way:

[PFC director David] Leonard acknowledged that some would-be participants had turned down the offer on ethical grounds (and one said he would donate his fee to charity). As of Wednesday, six journalists had agreed to take part, leaving Leonard four short of his goal.

“It’s ironic that journalists depend on people to give them their opinions but aren’t as forthcoming with their own,” Leonard said. “It’s easier to get a congressman to participate.”

This is where the full-disclosure bit comes in: I was one of the people approached. In fact, I’m the journalist singled out as saying I would donate my fee to charity, which isn’t exactly right — I asked that the fee be sent directly to Doctors Without Borders, and not given to me at all. For one thing, I’m hardly shy with my opinions, and it doesn’t take $250 to get me to part with them: people can get them for free just by emailing me. So I felt that it would demonstrate an excess of self-regard to turn down the opportunity to raise $250 for Doctors Without Borders just by talking on the phone for 25 minutes. And it’s not like my opinions are secret, since, just like when I’m asked questions via email, I always reserve the right to blog them as well.

And so I got a phone call at 10:30 this morning from a chap named Mike Green, who said that we’d be talking about oil and gas, and that he would be recording the conversation and taking notes.

It rapidly became clear that this wasn’t some kind of push poll, like the one I got last year about Argentina: this was a genuine opinion poll, from people who wanted to know my opinion of the oil and gas industry in general, and of four companies in particular.

First I was asked to name a few oil and gas companies, and was asked, when I didn’t volunteer their names, whether I’d heard of Total and ConocoPhilips. Then the conversation moved on to BP: What’s the first thing you think of when you hear their name? Of course, I said the disaster in the Gulf.

Then the seven-point scale was introduced, which we’d use for most of the rest of the interview. On a seven-point scale, how well did I know BP as a company? How favorable is my opinion of it? And then the same questions for Chevron, ExxonMobil, and Shell.

After that, the questions got a bit weird and recondite. How likely would I be to support or recommend each of those four companies for an important project? To what extent does each one challenge conventional wisdom? Deliver practical solutions to industry issues? Minimize the impact of of its operations on the environment? Attract & develop talented employees? Recognize the importance of supporting local communities? Believe in and values people and their progress? Lead the industry in operational excellence? That sort of thing.

Green was unfazed when he asked me to rate on a seven-point scale the degree to which each of the four companies had a “collaborative and inclusive approach to solving challenges and issues”, and I told him that I couldn’t answer the question because it wasn’t in English and I had no idea what an “inclusive approach” might possibly mean.

Eventually, we got to the point at which the client became more obvious — the poll was coming from some kind of communications company, to help out with their communications strategy. Had I seen ads for oil and gas companies online? Outdoor posters or billboards? TV ads? Print ads? Which ads stood out the most?

Did I recognize any certain phrases? “Will you join us”. “Taking on the world’s toughest energy challenges”. “Let’s go”. “Beyond petroleum”. “Human energy”. Had I talked to these companies at conferences? Talked about them on blogs? Been to a gas station? Met with management? Had I heard of energybill.com? chevron.com? Willyoujoinus.com?

Finally, it became clear who the ultimate client was, with a series of questions about Chevron’s commnuications in particular. What did I think about those communications? Did they make me think that Chevron is a leader on energy issues? A straight talking company? Had they positively changed my opinion of Chevron? Made me think that Chevron is part of the solution? Did I recall seeing ads for Chevron?

After all that, it was just a matter of asking for my address — apparently the way that they’re proving that they’re sending the check is to make it out to Doctors Without Borders, but to send it to me at Reuters. Which is fine by me. The most annoying part of the whole thing was that it ended up taking more like 45 minutes than the promised 25 minutes.

As a general rule, my answers tended to be very low on the scale, across the board. I didn’t distinguish much between the four different oil companies, and I said that in the wake of the BP disaster, I strongly discount anything I hear from such companies. Before the disaster I guess I thought a bit more highly of BP than of its climate-change-denialist counterparts; now, I said, I just think that big oil companies are big oil companies.

I wasn’t very helpful on the communications front, although I did remember the “We Agree” prank. And since I’m a finance blogger and not an energy blogger, I didn’t know much about differences in the way the specific companies operate. I don’t know how useful my answers are going to turn out to be, but given how much time the interview took, I think the $250 payment is fair. God knows Chevron can afford it.

The biggest issue I have with all this is the secrecy involved If you talk to journalists, those conversations are likely to become public, so I can’t imagine they’ll be too upset about me revealing their identity. But now that I’ve done so, I doubt this project will really help Chevron’s public image: it just makes them look as though they’re trying to bribe journalists. And that can’t be a good thing.


Nonsense article. Real estate has gone up by 20 times over the past thirty years in many locations. Also where are you going to get a $5.5 million dollar apartment to rent for $25,000 per month? I suspect it would be twice as high in the real world.

Posted by worcester | Report as abusive

Rent-vs-buy calculation of the day, Nouriel Roubini edition

Felix Salmon
Dec 17, 2010 17:48 UTC

Back in May, Nouriel Roubini held his book party at DBGB. He obviously likes the location, since in September he paid $5.5 million for the triplex penthouse upstairs. (EV Grieve has the photos of what is now the most expensive apartment ever sold in the East Village.)

It’s an interesting move, given what Roubini said back in 2006:

I’m bearish on the city. I live in Tribeca in a nice loft, and in four years, it’s increased 150 percent in value. That price appreciation doesn’t make sense. Now there are maybe twenty developments under construction in my neighborhood that are going to come to market in the next year. There’s going to be a huge glut. I see demand falling and supply going sharply up. So you’re going to see some pretty nasty price action…

It’s not as if there’s infinite wealth. There are thousands of new luxury units coming on the market, and the question is, who will buy them? If people start losing jobs, who can afford to pay 2, 3, 4, 5 million dollars?

Before it was sold, the apartment was offered for rent at $25,000 a month, which means we can plug the various numbers into the great NYT rent-vs-buy calculator. Roubini put down $2.5 million and took out a $3 million mortgage; I’m assuming he got a mortgage rate of 4.5%, that he can get a long-term return of 4% on his investments, that long-term inflation is 2%, and that his marginal tax rate is 40%.

Let’s say that Roubini is neither bullish nor bearish, and reckons that neither the price of the apartment nor the cost to rent it will change, going forwards. In that case, he seems to have made a bad decision:


(Incidentally, this assumes that common charges are $1,240 a month, which seems cheap to me; I reckon that in reality they’re likely to rise over time.)

If home prices have the “nasty fall” that Roubini predicted in 2006, things get much worse, of course. Let’s say they go down by 2% a year on average. In that case, even if the rent goes up by 1% a year, it’s still better to rent than to buy.


Basically, in order to make buying this place make economic sense over a 5-10 year time horizon, you need to be pretty bullish over the long term:


Of course, I’m sure that non-economic considerations came into play here. But if Roubini thought that the very idea of $5 million apartments is ludicrous and unsustainable, and that the value of this place is likely to fall by a seven-figure sum over the medium term, I can’t imagine that he would have made the decision to pay $5.5 million for it.


If you believe that the dollar will implode soon, what is a better investment then buying the most expensive house you can buy and take the largest mortgage you can get. In five years five million dollars will be just enough to buy a new car.

Posted by worcester | Report as abusive

What did hedge funds know about the Picower negotiations?

Felix Salmon
Dec 17, 2010 16:22 UTC

Is there such a thing as insider trading in things which aren’t remotely securities? On Monday, the NYT had a report headlined “Speculators Are Eager to Bet on Madoff Claims”, saying that hedge funds were bidding somewhere around 30 cents on the dollar. Meanwhile, Barbara Picower was coming to the end of months-long negotiations which culminated this morning in the announcement that she would return $7.2 billion for the benefit of those defrauded by Madoff.

The trustee has already recovered nearly $2 billion, and total investor losses are probably somewhere in the $20 billion range, which means we’re already up to 46 cents on the dollar, before any number of other suits are settled — $9 billion from HSBC, $6.5 billion from JP Morgan, $3.6 billion from Fairfield Greenwich, $2.5 billion from UBS, and so on. Those suits alone, if settled near par (as the Picower suit was), would bring recovery up to 154 cents on the dollar. Which would more than recover the money that investors put in to Madoff, even if it doesn’t come close to recovering the kind of money that they trusted they had.

But here’s the thing: what if Barbara Picower was talking to friends about the status of her negotiations with Irving Picard? There’s no reason why she shouldn’t do so — but if those conversations made their way to hedge funds interested in buying claims, that information could be very valuable. Given the new-found focus on prosecuting insider dealing, I wonder whether any trades made as a result of finding out that information might be suspect.


Nazi`s and Fascist`s were overjoyed when they discovered that Bernie victimized thousands of Liberal`s and Zionist`s. They would have awarded him the Iron Cross but Bernie only accepts cash.

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Felix Salmon
Dec 17, 2010 06:30 UTC

The Books Ngram Viewer is amazing, see eg this or thisGoogle Labs

Tyler Cowen’s advice for planning a wedding — MR

“From the standpoint of publicly funded art, the censors have won.” — NYRBlog

“The Corporation’s primary goal with respect to this transaction is to accelerate de-risking” — BusinessWire

Is it not possible that Citigroup hired Orszag to recover the Raifuku Maru, or become an international ghost hunter? — HuffPo

If you’re still eating industrially raised pork (or chicken or beef or fish for that matter) – get real — Bittman

Primack on Zipcar — Fortune



The Ngrams tool is case-sensitive. Run the NYC/Washington search with the terms both capitalized, and you’ll find that New York has maintained a steady dominance. What’s risen over the last two decades is merely the relative frequency with which people fail to properly capitalize the name of the capitol.

Posted by Cynic | Report as abusive

The cost of bailing out Frannie

Felix Salmon
Dec 16, 2010 21:32 UTC

Let’s say I buy a $3,000 pair of handmade shoes but don’t have that kind of cash to hand, so I put them on my credit card. I then rack up another $2,000 in penalties and interest before I’ve paid them off. Then the total cost associated with my poor investment in footwear is $5,000. The credit card company bailed me out but charged through a lot of money for doing so, and the money is absolutely part of the total sum I end up paying for those shoes.

Weirdly, Jeffrey Goldstein, the under secretary for domestic finance at Treasury, doesn’t seem to think that way. Fannie and Freddie have already borrowed $151 billion from Treasury, and they’re set to borrow another $90 billion by the end of 2013. That’s hardly chump change. Yet Goldstein says, with a straight face, that “the GSEs have already absorbed the vast majority of costs associated with the poor investments they made during the housing boom”. His argument:

Under the baseline scenario, FHFA projects that $90 billion in additional draws will be necessary through 2013. But this is why accounting for dividends is important – $71 billion of those additional draws will be used to pay dividends back to Treasury. This means that nearly 90 percent of total GSE losses have already been absorbed, since these future draws will primarily be returned through dividend payments.

This just doesn’t make any sense to me. Every business has money coming in, from various sources, and money going out, to various sources. If at the end of the day you end up having to borrow $90 billion from Treasury, then that means the money going out exceeds the money coming in by $90 billion. Most of us would consider that a “loss”. But not Goldstein. The way he sees it, if $71 billion of the money-going-out is going to Treasury, then it doesn’t count towards the GSEs’ total loss. But why is Treasury special in that way? If the interest payments were going to anybody else, then they would count towards Frannie’s losses.

Goldstein is right that from Treasury’s point of view, the net amount of money being pumped in to the GSEs is decelerating, even if the total cost of the GSE bailout is still going up rather than down. And it’s probably nice to be getting $71 billion in dividend payments from the agencies, even if that money has to be turned around and sent straight back again. What’s more, to be fair to Treasury, if it just reduced the interest rate on its bailout funds, it could reduce the headline cost substantially, even if the actual net cost to taxpayers went up.

But in the context of a world where all the other bailouts — even AIG, amazingly — look set to be paid back in full, the fact that we’re still pumping billions of new dollars into Frannie only serves to underline how massive and disastrous the agencies’ failure was. I’m glad they’re still around to make their interest payments. But the only reason they’re still around is because Treasury has promised them unlimited funds — a promise which means they can never go bust, no matter how much money they end up losing.


Nameless, really? Honestly? Seriously? Are you really that stupid? BSC manage to roll their paper? Did LEH? How exactly is the cost to the taxpayer negative? You do realise that if the 90bn they are expected to draw is drawn and they pay back 71bn in dividends that is a cost to the taxpayer? If you are having difficulty understanding 90 > 71 then I suggest you learn to count. Under the the most benign conditions, they are not expected to pay that money back, despite being able to borrow at US treasury rates and having an unlimited tap to draw from the US taxpayer. 80bips is what UNSECURED CP was trading at when they were taken in conservatorship. This was ABCP and with an implicit guarantee from the US government. That “very low levels of concern”? What would constitute “high levels” to you then?

Seeing as you appear to be utterly utterly clueless, I think I will leave you to wallow in your belief that Frannie are fantastic never had any issues and are a superb investment unlike GS or MS who merely paid back their debts in a few months at a rate twice what Frannie are paying.

Posted by Danny_Black | Report as abusive

The Fed’s bold move on debit interchange

Felix Salmon
Dec 16, 2010 20:29 UTC

The Fed’s swipe-fee proposals are out, and the market action in Visa and Mastercard — both of them are down more than 10 percent today — tells you everything you need to know. Basically, big card issuers won’t be able to charge more than 12 cents per transaction for debit-card purchases, and under one alternative their fees might be kept as low as 7 cents per transaction. That’s a massive reduction from the levels we’re seeing right now, which can range as high as 2 percent.

This is a victory for Dodd-Frank, a victory for consumers, and above all a victory for merchants over the financial-services industry. Assuming, that is, that the banks don’t find some way of killing, avoiding, or repealing it. Well done, Fed.


With interchange set at $.07 (or $.12 if issuers can rationalize it), the Fed has in essence killed Debit Cards. The cost of processing and fraud losses are collectively over $.12 per transaction, so DICK Durbin got his literal wish of pricing commensurate with the cost of processing. The only problem is…why would a bank continue to offer an unprofitable product? Prepare yourself to change the way you think about prepaid cards; the major loophole in the amendment. You’ll be receiving one from your bank by July 2011…

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Rating structured bonds is impossible

Felix Salmon
Dec 16, 2010 19:50 UTC

Re-remics are a regulatory arbitrage with negative economic value — you take a bunch of bonds , and then spend lots of money on bankers and lawyers and ratings agencies in order to transform them into other bonds. The financial-services industry gets lots of lovely fee income, which ultimately comes out of the pockets of the beneficial owners of those bonds. And no one makes out more handsomely than the ratings agencies, without whom none of this would be possible: it’s their precious triple-A ratings which make the arbitrage attractive in the first place.

The problem is that the ratings agencies, as we saw in the crisis, have no idea how to rate structured debt. And they also have no idea how to learn their lesson: the first big re-remic downgrades happened almost immediately, and then they just kept on trickling out — there were 224 in September, and another 129 have just arrived.

S&P is the big villain in this story, both rating and downgrading many more re-remics than anybody else. They emailed their press release to the FT, where Tracy Alloway reprints large chunks of it, but if you Google the headline on the release, the only way you can find it is by paying $100 to Alacra. Just because you’re releasing something to the press doesn’t mean you want it to be public, I guess, and neither does it mean that you want to talk about it:

“Our written statements are what we are providing,” Ed Sweeney, a spokesman for S&P, said in an e-mail. He declined to comment further and didn’t answer an e-mailed question about the principal balances of the securities under review.

The business of structured-finance ratings broke so badly during the financial crisis that it cannot easily be put back together again. The ratings agencies have no business rating structured bonds: they’ve proved that many, many times, and there’s zero indication that they’re any better at it now than they were before the crisis. Indeed, it might well be something which is impossible to do — these things are just too complex to be able to assign a risk-free rating to. Somebody should stop the ratings agencies from even trying.


The ratings agencies really should be limited to corporate ratings and traditional debt they issue. That is their core competency, such as it is and they are out of their depth in other arenas. Not just structured – look at ratings on banks, insurance and other FIs. It is almost a binary situation, because of the confidence necessary to operate those businesses. Lehman had an A+ S&P rating the day it filed. Bear was still investment grade (same as Enron) the day it filed. They can’t get their arms around trading and derivatives – you can’t imagine how behind the curve they are in these arenas.

Next shoe to drop? Public finance. Muni, sovereign and state ratings are a backwater in the agencies. The slowest of the slow and dimmest of the dim are sent to these pastures and the amount of analysis that goes into the munis is close to zero. Every state in the country is investment grade and all but one are in the A category or above – yet many states sit on the precipice of default. Ireland was in the double-A category as recently as last month. Just as with the intricacies of complicated CDOs and the like, the agencies don’t know how to handle debtlike obligations such as pensions – the very things that are dragging cities and whole states under.

Posted by Debt_Whisperer | Report as abusive

Veblen good of the day, Julie Mehretu edition

Felix Salmon
Dec 16, 2010 16:56 UTC

Do finance types pay millions of dollars for art because of how good it is — or do they pay millions of dollars for art precisely because it costs millions of dollars? If there was any doubt before, you only need to listen to Lloyd Blankfein, talking about the art in his lobby:

Lloyd was overheard bragging to one extremely powerful hedge fund manager and renowned contemporary art collector (Richard Prince, Cindy Sherman, Andy Warhol among his acquisitions) to the penny what the canvas costs.

“Guess how much?” “Three?” “No.” “Four?” “No.” Blankfein flashes five fingers, says “Five….Five!” and breaks into a big wide grin.

You can only imagine how this went down with Julie Mehretu, the artist. “It took me a long time — six months or so — to decide I wanted to do this,” she told Calvin Tomkins earlier this year. “What would be the reason to make a painting for a financial institution?” The reason, in the end — or at least the stated reason — was the sheer acreage of space that Goldman was offering her: “I could never make a painting on this scale anywhere else”. Left unsaid was the obvious reason not to do it — that the painting would be reduced, just like everything else at Goldman Sachs, to a dollar amount.

Goldman, it’s clear, buys artists as much as it buys art (or buys regulators): remember how they coopted Ric Burns to make a puffy marketing documentary over which Goldman has editorial control. You can do that, when you have as much money as Goldman does. But increasingly I feel that when I buy art I want to buy unlimited editions or other work with no resale value. Because the art-as-luxury-object game has become completely disconnected, at this point, from the art-as-art game, and has become nothing but a pissing match between oligarchs to see who has the largest bankroll.


Felix wrote:
“But increasingly I feel that when I buy art I want to buy unlimited editions or other work with no resale value.”


I hear you. One of my favorite original paintings hanging in my apartment, I bought from an artist who’d had a bunch of his works arrayed on a sidewalk outside a clothing boutique on Walnut Street. I think I paid $40 or something for it, and it is a galvanically moving work.

The week that New Yorker issue arrived in my post box, I recall reading that article and thinking, “Okay, either the Eighties are truly back, or they never went away.” Because that artist… well, there’s no accounting for taste, but there’s no doubt Lloyd’s $5MIL could have netted him something to be a lot more proud of than that ‘thing.’

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