Felix Salmon

Regulators to Hit Largest Mortgage Servicers with Enforcement Orders; Fines Likely — American Banker

Telling people to stay strong and keep their indexing faith is valuable advice, it’s not selling out — Trade Streaming

Flashback to Aug 09: Thom Yorke says there will be no more Radiohead albums — Guardian

A list of the dinner guests for Obama’s nerd dinner — NYT

Welcome, Anthony DeRosa, to the Reuters blogosphere — Reuters

When a $2 million minimum investment is far too small — CNBC

A fantastic post by John Powers on video art installation — Star Wars Modern

The Secret Weapon of the Rich: Money — Drum

It wasn’t much of a debate, sadly, when I talked the decline of the public markets with Andrew Ross Sorkin: he told me that he pretty much agrees with me. He did manage to drag an actual policy prescription out of me, though — the idea that some kind of Tobin tax might alleviate the problem a little. But truth be told, I’m still not sure just how big the problem is. Has anybody ever tried to quantify the societal benefit of public stock markets, or the social harm that might be done if Facebook just stays private? Where would you even begin?

Victoria Barret reports on the nice little deal that Dan Frommer has going on in Barcelona: “Samsung was generous enough to sponsor our trip”, in the words of Frommer himself.

Barret is reasonably sympathetic, and likes the fact that Frommer inserts a disclaimer about how he’s “feeling pretty warm and fuzzy about Samsung right now” into every post from Barcelona:

Let’s be clear, here. Samsung is buying influence. If they didn’t think they were, why would they bother buying journalists’ airplane tickets and putting them up in hotels? (Frommer, I’m told, is not the only one being “sponsored”.) …

SAI’s business model simply doesn’t pay for flights and hotel stays. Frommer will bring insight from Barcelona back to New York. That’s good for everyone…

Frommer’s earlier posts on Samsung don’t stand out as fawning… He deserves credit for disclosure, too.

I’m not nearly as sanguine as Barret about all this. For one thing, this is editorial, not advertising. It’s conceivable Frommer would have written exactly the same thing had he not been “sponsored” by Samsung, but we’ll never know. And since he is being sponsored by Samsung, this now looks highly dubious:

But it gets worse than that. For one thing, Frommer’s not just scrounging up whatever’s necessary to get him to the conference and report. He’s was flown over “in posh business class“, which almost certainly means posh hotels and expensive jamón iberico as well. Samsung is doing its utmost to buy his goodwill: why is he letting them get away with it?

On top of that, Samsung is loving the ubiquitous disclaimer — it provides fantastic free marketing for them in every post. Frommer might think he’s somehow neutralizing the junket by disclosing it; in fact he’s giving Samsung vast amounts of exactly what they want most.

Most tellingly of all, Samsung isn’t really “sponsoring” Frommer at all — especially not if, as seems logical and as Barret reports, other bloggers at the conference are getting the same deal and not disclosing it. Sponsorship involves a trade of some description: we give you money, you give us some kind of ad space or exposure. If Samsung is getting nothing explicit in return, then it must be getting something implicit instead.

Failure to disclose freebies like this is very bad; disclosing them, however, isn’t much better. So the best solution is to simply refuse to take them. But that’s hard for someone like Henry Blodget, the chap in charge of Business Insider, who writes:

Our policy is to take these opportunities case-by-case. If we think travel or an event partially paid for by a company will help us produce content that our readers love, we’ll be happy to consider it. If we think it will lead to us producing crap or fluff or be a waste of time, we won’t do it.

In this case, the Barcelona event is an excellent mobile conference, and I was confident Dan would produce great stuff while he was there. So we were happy to take Samsung up on its generous offer to airmail him over.

I think the honest conversation would go something like this:

Samsung: Henry, are you sending anybody to Barcelona this year?

Henry: No, we don’t have budget for that.

Samsung: Well, if you send someone, we’ll happily buy adspace alongside their content. Here’s a commitment for $10,000 if you do.

Henry: Thanks! We now have the money to send Dan to Barcelona on our own dime, and we’re more than happy for him to go over and generate the pageviews you’re buying ads against.

Samsung: You’re welcome.

That kind of thing is entirely kosher, and yet Samsung doesn’t seem to like to operate that way. The fact that they don’t — and TBI doesn’t — implies a certain sleaziness. It’s not a huge deal, but it does mark TBI as being a little more ethically flexible than most reputable media outlets.

(Cross-posted at CJR)

David Roodman has some great comments on the video debate between me and Matthew Bishop.

He asks whether I’m “completely against the idea of pocketing a profit from serving the poor” — of course not. In principle, I’m all in favor of it. Matthew’s point at the end of the video is a very good one — if we want to get education or water or healthcare to the world’s poor, we’re going to have much more luck if we do so with a profit motive than if we rely on overstretched and underfunded governments to do it.

But as Roodman goes on to say later in his post, credit is special. Loans come with onerous future obligations in the way that water and education and healthcare do not. All borrowers have to pay back more money than they borrowed, which means that they come out behind on the deal — unless they can put the money to good productive use. Sometimes they can; a lot of the time they can’t.

I’m not saying that bankers shouldn’t profit from serving the poor; I’m just saying that the banks should be local institutions which reinvest their profits in the community. If a microfinance institution is set up so that a substantial flow of money is going out of poor neighborhoods and into the pockets of millionaires, there’s something wrong, and I’m going to be very skeptical that the poor are actually being helped at all. As Roodman says, giving poor people capital and asking them to pay it back with interest does not, in and of itself, help reduce poverty. Loans can help at the margin, especially when they’re used to fund small businesses, rather than their more common use of consumption smoothing. But the cheaper the loans are, the more effective they are — and microfinance loans are generally very expensive. Credit did help to build a lot of western democracies, but it was never remotely as expensive as the loans we’re seeing in places like Mexico.

Matthew has an almost religious faith in the power of microfinance to help poor communities; when I asked him what evidence he’d need to see before changing in mind, he said that he’d want to see lenders with so much capital they’d run out of people to lend to. My feeling, by contrast, is that if you give most people the chance to get over their heads in overpriced debt, a huge proportion of them will take it. And doing so can easily do them more harm than good.

Roodman goes on to tell me that it’s possible to make a profit even when you’re paying 45% interest. He uses the only example he can use: a woman using the loan to enter the labor force. In that specific case, interest rates can be very high indeed — a point I made back in 2006 after reading a great paper by Shahe Emran, Mahbub Morshed and Joseph Stiglitz. What we see in a lot of these loans is a little bit of credit acting as a catalyst for women outside the labor market, turning them into economically productive individuals. Once they become economically productive, they can pay back their small loans. But they’re not productive enough to pay back medium-sized loans.

When big for-profit microfinance institutions start expanding aggressively in urban areas, however, the dynamic of getting women into the labor force for the first time falls rapidly by the wayside. And without that, it’s very hard to see how these loans can really be economically productive for the borrowers.

Finally, Roodman wonders whether it would help to turn microlenders into deposit-taking banks. Yes! It would! But of course that business doesn’t scale nearly as aggressively, nor is it as profitable, because once you start taking deposits you have to submit to all manner of government regulation which slows everything down massively.

My core argument is and has been that for-profit microlenders who don’t take deposits can be bad for the borrowers and also pose a significant systemic risk. Which I think is the main point that Muhammad Yunus is making these days too. Matthew Bishop is much more bullish on such institutions. But to date, they’ve hardly covered themselves in glory.

It’s rare that prepared official testimony moves markets. But that’s what happened when MBIA CEO Jay Brown appeared in front of the New York State Assembly Standing Committee on Insurance yesterday — a body which, it’s fair to say, rarely appears in the news.

Brown’s testimony would be well worth reading even if it hadn’t moved prices on MBIA’s CDS substantially — they opened the session at about 45 points up front, which means you have to pay 45 cents to insure MBIA’s debt against default, and rapidly rallied to 38 points. The move is even more impressive when you note, as Zero Hedge does, that they’d already tightened in from 55 points a couple of weeks ago.

There are three things going on here, which it’s worth trying to separate: the news from MBIA, the effect that news has on MBIA’s creditworthiness, and the implications for markets.

The news is the most important thing. Brown explains in his testimony that MBIA, having guaranteed a number of mortgage bonds, has paid out substantial sums of money as those bonds have failed, including $2.5 billion on Countrywide-sponsored transactions and $1.3 billion on transactions sponsored by what is now Ally Bank. But Brown is not happy about this: he reckons he was lied to by the banks in question, and so he’s pursuing them to get his money back.

In a typical transaction with a bond insurer, the sponsor of a transaction would make a series of representations and warranties in the governing documents to provide assurance that the loans in the pool met certain criteria – and recourse in case they did not. These reps and warranties were critical to us, as these criteria were a key determinant of the quality of loans eligible to be included in the loan pool – and consequently, how the pool could be expected to perform…

MBIA accepted the risks that the collective pools of loans – having the characteristics represented and warranted by the sponsors – would not perform as anticipated and perhaps lead us to have to satisfy the trusts’ obligations to its note holders. MBIA insured only the risks for which we bargained and for which insurance was solicited. Notably, we did not accept the risk of loss on loans that should never have been in the transaction in the first place…

In the second half of 2007 we began to observe increased delinquency rates in some of our insured transactions. The delinquency rates were highly inconsistent with the purported quality of the loans, so we hired law firms and forensic diligence firms to investigate why this was happening. Their results were stunning. We learned that over 80% of the loans in the pools we insured were in fact not eligible to be included in the transactions, because they violated the guidelines and other terms of the contracts.

MBIA, then, is in a big fight with Countrywide (now owned by Bank of America), Ally Bank (now majority-owned by US taxpayers) and others. It’s trying to get those banks not only to reimburse MBIA’s losses on loans which violated the banks reps and warranties, but also to take back all loans which didn’t meet advertised standards, whether they’ve defaulted or not. If it succeeds, it will look much more creditworthy than it does right now.

Brown’s testimony is reasonably compelling: he explains that MBIA’s losses on prime mortgages are much bigger than its losses on subprime, which are actually zero to date. With subprime, he says, he knew what he was insuring; with prime, MBIA placed too much trust in those reps and warranties. And it’s fully entitled to hold the originating banks to the representations they made when the deals got done.

On top of that, rumor has it that MBIA is commuting deals, most recently with a UK fund called Protium. Essentially, Protium held about $4.5 billion of debt which was insured by MBIA, and on which MBIA was making occasional payments as and when they came due. It negotiated with MBIA and got the monoline to make one big payment, in return for wiping out any future obligations. The deal’s good for Protium, which gets lots of money up front and which no longer needs to worry that MBIA won’t be around to make the payments it’s obliged to make. And it’s good for MBIA, too, which pays out much less, in total, than it would if it left the agreement untouched. What’s more, if MBIA manages to put back bonds to the originating banks, it could actually make a substantial profit on the transaction, with the loss being transferred to the banks.

All of this is doing wonders for MBIA’s creditworthiness. At 39 points up front, the cost of insuring against an MBIA default is still high, and prices in a significant probability that the company will not be able to pay its obligations. But the price is much lower than it was just a couple of weeks ago, and anybody who had bought protection on MBIA is facing significant margin calls and mark-to-market losses. (Zero Hedge reckons Morgan Stanley might be one such player, and that the price on MBIA’s credit default swaps could go even lower if Morgan Stanley is forced to close its position.)

This is all a prime example of the kind of volatility that happens in the CDS markets. It’s called “jump risk”: credit derivatives are qualitatively different from, say, interest rate swaps, in that they can exhibit equity-like levels of price volatility. If you trade such things on margin — and pretty much everybody in the market does trade on margin — then you can be faced, overnight, with demands for very large amounts of collateral indeed. That’s one reason why exchanges don’t particularly want to try to implement central clearing of such instruments: if a big player finds itself unable to meet a large and sudden margin call, the exchange itself could lose billions of dollars.

I don’t know how much credit protection has been written on MBIA, but I suspect it’s a lot. Like much of the derivatives business, it’s a dangerous and volatile business to be in. And that’s one reason it’s important that government oversight of the derivatives market be beefed up — it simply can’t be allowed to continue on in an unregulated manner. There’s far too much tail risk in the market for that.

I love Binya Appelbaum’s NYT article on the various different values of a human life which are used by government agencies to justify regulations.

The first thing to admire about the piece is that it doesn’t dwell on ethics or philosophy, as most such stories do — there are no rhetorical flights of fancy about the government trying to put a dollar value on love, or that kind of thing. Instead, Appelbaum goes on a tour of government agencies, looking at the numbers they’re using now, how those numbers differ from other agencies, and how they have changed over time:

The Food and Drug Administration declared that life was worth $7.9 million last year, up from $5 million in 2008, in proposing warning labels on cigarette packages featuring images of cancer victims…

The Bush administration rejected a plan in 2005 to make car companies double the roof strength of new vehicles, which it estimated might prevent 135 deaths in rollover accidents each year…

Last year, the Obama administration imposed the stricter and more expensive roof-strength standard, and it published a new set of calculations showing that the benefits outstripped the costs.

Most of the difference came from the increased value of human life. By raising that number to $6.1 million from a figure of $3.5 million in the original study, the Obama administration rendered those 135 lives — and hundreds of averted injuries — more valuable than the roofs…

Agencies are allowed to set their own numbers. The E.P.A. and the Transportation Department use numbers that are $3 million apart. The process generally involves experts, but the decisions ultimately are made by political appointees.

The Office of Management and Budget told agencies in 2004 that they should pick a number between $1 million and $10 million. That guidance remains in effect, although the office has more recently warned agencies that it would be difficult to justify the use of numbers under $5 million, two administration officials said.

This kind of behavior leaves the agencies open to charges of inconsistency and capriciousness: if at first you don’t succeed in making your cost-benefit calculation work, then just try again with an arbitrarily higher number for the benefits involved.

But I think that this is a case where the perfect is the enemy of the good. As Manchester University professor Robert Hahn notes in the article, “the reality is that politics frequently trumps economics”. That’s a fact of life. And in a world where political considerations are ultimately going to power many if not most decisions, using dollar values for lives saved is a good way of keeping such arguments grounded in reality.

Sure, businesses don’t like it when the FDA ups its value for a life saved by acetaminophen warning labels to $7 million from $5 million, and it’s entirely possible that the FDA changed the valuation only so that it could provide an official justification for a decision it had already made. The fact is, however, that these calculations are always messy at the best of times. It’s easy to point to the value-per-life part of the calculation, because that’s a hard number. But how on earth is the FDA meant to calculate the number of lives saved by adding a second warning label to acetaminophen bottles? The error bars there are going to be much bigger than the differences in value-per-life numbers.

In that context, a little bit of fuzziness in the $5 million to $10 million range seems entirely reasonable to me. It’s regulators’ job to make judgments, not to simply sit at a desk with a calculator and determine which of two numbers is larger. And at the same time it’s reasonable to ask regulators to justify their judgments using math. So sometimes they’ll use a slightly higher number, and sometimes it’ll be lower. Giving regulators a bit of wiggle room gives them the ability to do their jobs, while restricting that wiggle room allows a simple smell test to be applied.

None of this is exactly pretty, and it’s easy to see why Appelbaum couldn’t get straight answers out of the technocrats he talked to. But if anything the amount of wiggle room is smaller than I would think reasonable:

In December, the E.P.A. said it might set the value of preventing cancer deaths 50 percent higher than other deaths, because cancer kills slowly. A report last year financed by the Department of Homeland Security suggested that the value of preventing deaths from terrorism might be 100 percent higher than other deaths.

Both those numbers could and arguably should be significantly higher, I think. Dying of cancer is a particularly gruesome — and expensive — way to go. And the cost of the terrorist attacks of September 11 is well up in the trillions at this point — getting on for a billion dollars per initial life lost.

So color me impressed that the US government has found a way of getting things done and remaining empirical in an atmosphere which by its nature is always going to be highly political. It comes as no surprise that the Obama administration is using values higher than the Bush administration did — that’s part of what Obama meant when he promised to toughen up government regulation of corporations. I’m just happy that there’s a culture in Washington of basing these decisions on some kind of numerical argument.

(On which matter I have one quibble with Appelbaum’s piece. He says that if companies must pay lumberjacks an additional $1,000 a year to perform work that generally kills one in 1,000 workers, that would impute a $1 million value on a human life. I don’t think that’s true: you should take the present value of $1,000 per year before you multiply by 1,000. So the imputed value of human life here would be much higher than $1 million, depending on how long the average lumberjack works at his job.)

“I wonder what a company would look like if you optimized around creating as many jobs as possible, instead of as few” — Noah Brier

“Keller added that if the experiment proved successful, the Times might create a section for moms in Brooklyn” — Onion

My bet with Marian Gibbon. If Facebook is still private in a year’s time, I win the value of one Facebook share — TweetDeck

Cricket-mad Jain inks Deutsche Bank ire — Indian Express

On female foreign correspondents and sexual assault — CJR

A loyal reader on the sell side emails to object in strenuous terms to my contention that, when it comes to saving for retirement, “by far the most important number is the total sum of dollars that you’ve put into your retirement funds over time; the annualized rate of return on those dollars is secondary”.

Being a sell-sider, he attached an Excel spreadsheet. He assumes you start saving $6,000 a year every year from age 25 to age 60 and calculates that such a person would end up with $575,000 at a 5% return and $1.12 million at an 8% return.

But of course nobody does that. Saving is lumpy; very few of us diligently start socking away $6,000 a year at age 25. (Well, maybe those of us who go on to become investment bankers do. But no one’s worried about them.) In any case, of course if you keep savings constant, then the rate of return makes all the difference. That’s a tautology.

But much more common is the person who struggles through their 20s, brings up kids in their 30s and then wakes up in a cold sweat one morning in their mid-40s, worrying about what they’re going to live on when they retire. By that point they’ve had enough pay raises that they’re going to need an enormous sum in order to maintain the style to which they’ve become accustomed. But at the same time they’re spending everything they’re earning already. So they put away what they can and count on 8% or 10% annualized returns — or even more, if they’re investing in dot-com stocks or Miami condos — to get them where they want to be.

This, needless to say, is a strategy which is likely to end in tears. And it’s not just individuals thinking this way, either — municipalities do, too, and they really ought to know better.

My point is that the range of remotely sensible investment strategies for a working person is actually pretty narrow. You can’t just wave a magic asset-allocation wand and change your annualized return over a period of 35 years by 300 basis points. Frankly, you’d be doing well if you could improve it by 30 basis points. The market will return whatever the market will return and you will do a little bit worse than that, most likely.

So the way to have a comfortable retirement is not to think that by making a clever choice when it comes to stock-picking or investment strategy that you can somehow make up for the money you’re spending rather than saving. Instead, it’s to diligently save as much as you can, from as early an age as possible and simply invest it in a non-idiotic manner. The more you save, especially in your 20s and 30s, the more you’ll end up with in retirement.

Wall Street would love us to believe that the magic of compound interest gives us a free lunch; that a small amount of savings, if compounded at a high enough rate, can set us up for life. That might be true mathematically, but saving doesn’t work that way in the real world. Interest rates are low, now, and wages are growing sluggishly.

The three big drivers of big retirement accounts — sharply rising salaries, sharply rising house prices and a sharply rising stock market — are all looking very uncertain these days. So let’s not perpetuate this pipe dream that if only we can get an 8% return on our funds, everything will be fine. Because chances are we won’t. Absent that 8% return, the only way of getting to where we want to be is to simply spend less and save more.

In which Matthew Bishop of the Economist schools me on the benefits of for-profit microfinance. For background, start with my post on why you shouldn’t invest in microfinance, and then my more recent post on what’s going on in Andhra Pradesh. Then check out Matthew’s post defending for-profit microfinance, my reply to Matthew, and — if you want more still — his reply to my reply. Matthew hasn’t succeeded in changing my mind, but he does give the best argument against my position that I’ve heard.

When I was worrying about munis last week, I said that “the amounts here are far too big for states to go to the loan market instead: if investors won’t buy bonds, banks won’t lend the states the money they need.”

Which might be narrowly true, when it comes to state borrowers in particular. But other borrowers are finding the banks quite eager to lend to them:

J.P. Morgan Chase & Co. is devoting billions of dollars to direct loans this year to both refinance deals and for new projects, according to a bank official. Last year, the bank made a few hundred million dollars of direct loans to municipalities. Now, the bank would consider making a single loan for hundreds of millions of dollars, the official said. It also is dispatching teams to explain the concept to wary public borrowers.

Citibank also is courting municipal borrowers with direct loans, according to several bond issuers. A spokesman for the Citigroup Inc. unit declined to comment.

“This used to be unheard of,” says Eric Friedland, managing director of public finance at Fitch Ratings…

For banks, this is a potentially lucrative business at a time when they are sitting on cash that isn’t earning huge interest and are reluctant to make loans for mortgages and other areas they see as risky…

When word got out that Riverside, Calif., was floating a bond recently, several bankers called offering direct loans.

This is a welcome development, I think. It brings a whole new investor class to the muni market, as well as a lot more serious underwriting in an area where the amount of diligent credit analysis has always been much lower than it should be given the size of the market.

That said, if banks start picking off the most attractive borrowers in the muni market, that might only serve to reduce the overall quality of outstanding municipal bonds. Every time a municipality issues a bond from now on, potential investors will start asking themselves whether they’re being offered the sloppy seconds which various banks have all passed on. Direct loans might be very attractive, on a case-by-case basis, to both borrowers and lenders. But if people continue to look for reasons to mistrust the municipal bond markets, this isn’t going to help.

Back when we last checked in on Kabulbank, no one really knew how big the hole there was, and the government was still saying that it was solvent. But now Dexter Filkins has some concrete numbers, and they’re insanely huge:

The money that has apparently been doled out by Kabul Bank to Afghan officials is part of an estimated nine hundred million dollars that is lost or missing from the bank. That amount far exceeds the three hundred million dollars in losses that emerged after the Central Bank’s takeover. Investigators said that the nine hundred million dollars includes failed loans and loans to apparently fictitious corporations. The chairman of the Central Bank said that it has recovered some of the loans, but a Western official told me that much of the money is gone: “They can’t find it.” …

The loss of nine hundred million dollars or more at the bank represents a significant percentage of Afghanistan’s gross domestic product, which is only about twelve billion dollars.

$900 million is 7.5% of $12 billion. A hole that size in the US would be over $1 trillion. That’s roughly the grand total of all subprime loans made from 2005 to 2007, all added together. Only the recovery rate on Kabulbank’s loans is going to be much lower than the recoveries on subprime.

The only conceivable silver lining here is that a lot of the money just came straight in from the US, and straight out to a well-connected elite: in a way, Afghanistan has lost only what it never really had. But that doesn’t stop the fact that the weak Afghan government and central bank now have to deal with a major banking crisis along with all their other problems. And I don’t know anybody who’s optimistic about their ability to do so.

Wherein Chris Harris burns his bridges with Ferrari in a most entertaining manner — Jalopnik

Nouriel Roubini sits on the board of “a company for carrying out an undertaking of great advantage, but nobody to know what it is” — Alphaville

Gibson Dunn is representing pro bono a bunch of millionaires fighting against the safety of their neighbors — Streetsblog

The Credit Suisse CoCo issue was placed with shareholders, not bondholders — NYT

This chart comes from the official news release on US bankruptcy filings in 2010:

There’s no financial crisis, in this chart, and no sign of any let-up in the rate of increase of bankruptcies. That’s consistent with what the news release says:

Bankruptcy filings in the federal courts rose 8 percent in calendar year 2010, according to data released today by the Administrative Office of the U.S. Courts. Total filings remain at a five-year high.

But look a bit more closely and you see something very odd. Check out the x-axis: there’s a column every three months from December 2006 through December 2009. And then there’s a sudden jump to December 2010: three bars have been left out.

What’s more, the chart starts immediately after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. The act caused a huge spike in bankruptcy filings before the Act went into law, and therefore an artificial drop afterwards — as a result, we have no indication of what’s remotely normal when it comes to these figures.

So let’s have a look at the same chart, presented a bit more honestly:

What we have here is the rate of filings not only slowing down but even falling a little in the final period, from 1.595 million filings to 1.593 million. And clearly we seem to be topping out — there’s much less of a sense, here, that there’s no end in sight to the growth in bankruptcy filings.

On top of that, there’s a lot of smoothing going on here due to the use of overlapping 12-month periods. If you look at the raw quarterly data, you get something more like this:

Here, bankruptcy filings peaked at 422,000 in the second quarter of 2010, and have subsequently fallen by more than 12% to 370,000 in the final quarter. Far from rising, as the official chart suggests, the actual number of bankruptcy filings in the fourth quarter of 2010 was lower than it was in the fourth quarter of 2009.

What’s more, in both of my charts it’s clear that the number of filings is more or less “back to normal” after the artificial interruption of BAPCPA. The act was meant to decrease the rate of filings; it doesn’t seem to have worked very well in that regard, although admittedly we’re still painfully emerging from a particularly nasty recession. But in any case adding the historical data does make the official chart much less scary.

None of this is remotely obvious from the press release, which unhelpfully provides the underlying data in an eight-column grid with the numbers running from left to right and bottom to top. If I didn’t know any better, I would say that someone at the press office was trying to make the bankruptcy situation look worse than it actually is. But I have to say I have no idea why they’d do that.

Update: Apologies, my charts somehow disappeared from this post when it was first posted. They should be there now!

Update 2: A quick show of hands, if anybody’s still reading this. My charts here are clever embedded things where you can mouse over the columns and see the actual figures. On the other hand, they don’t seem to show up in RSS feeds. So, should I continue with smart interactive charts, or should I go back to dumb pictures? Any opinions?

NYSE CEO Duncan Niederauer doesn’t speak German, despite the fact that he was a Grand Marshal in the 2008 German-American Steuben Parade of New York. So we at Reuters (with many thanks a certain very senior editor who shall remain nameless) thought we’d help him out with a few phrases which might come in handy:

English: Dick Grasso? Before my time, sorry.
German: Dick Grasso? Sorry, der war vor meiner Zeit.

English: Daimler-Chrysler? I don’t see any comparisons there.
German: Daimler Chrysler? Also den Vergleich kann ich wirklich nicht verstehen.

English: The New York Stock Exchange is the cradle of American capitalism. It is a national treasure.
German: Die New Yorker Börse ist die Wiege des amerikanischen Kapitalismus — ein nationales Heiligtum.

English: Just because we’re German doesn’t mean we’re intent on world domination.
German: Nur weil wir deutsch sind, heisst das noch lange nicht, dass wir die Welt dominieren wollen!

English: I, for one, welcome my new overlords.
German: Also ich, fuer meinen Teil, heisse meine neuen Chefs herzlich willkommen!

Further phrases are left as an exercise for the reader. A few to get you started: “This is a merger of equals, not a takeover”, “Chuck Schumer? He’s just a passing acquaintance”, “Flying commercial hurts productivity and is a major security risk”, “Greed, for lack of a better word, is good”, “Co-located algorithmic high-frequency traders are important liquidity providers and are fundamental to the efficient allocation of capital on modern electronic exchanges”.

I sat down last week with Noah Horowitz and Marion Maneker to talk about art as an investable asset class.

It might be a bit hard to follow some of the subtext here, so let me try to spell it out. Essentially, if you look at the risk-adjusted returns on art, even taking at face value the improbable returns suggested by the biggest art indices, they’re not all that hot. Art is a negative-carry investment which pays no dividends, and as such it’s very risky. Its historical returns, on their own, don’t make up for that risk. So the people pushing art funds have tried a different tack, looking at the Capital Asset Pricing Model to come up with a way of saying that the risk-adjusted returns on art might not be all that great, but they’re uncorrelated, and that therefore they have a place in any efficient portfolio.

The problem with this argument is that the current art-market bubble, especially in contemporary art, has attracted so many hedge-fund managers and other financial types that art is now correlated, quite strongly, with various financial assets. The art market dried up very quickly during the crisis, and has come roaring back alongside the stock market as Ben Bernanke has continued to drop money from helicopters. The return of the art market and art values is great news for the art world and for art collectors, but it does rather put the lie to the idea that art supplies precious uncorrelated returns.

As such, it still doesn’t make any sense to invest in art as an asset class. Buy art because you love it, by all means. But don’t kid yourself that you’re making a sensible financial investment, because you’re not.