Felix Salmon

“Coke, Tostitos and Reese’s Peanut Butter Puffs — yum! — are all vegan. The truly healthy alternative to that chip is not a fake chip; it’s a carrot. Likewise, the alternative to sausage is not vegan sausage; it’s less sausage.” — NYT

Breaking the Web with hash-bangs: Why Gawker’s new architecture makes little sense — Isolani

The facts about oyster exinction. A great piece of sensible meta-journalism — In a Half-Shell

“Cast iron skillets and Michael Jordan are the best of all time in their respective fields” — Awl

Glaeser writes an ode to the skyscraper — Atlantic

Tina Rosenberg has a great pair of posts about microconsignment, which is a much more robust model than microfinance.

Let’s say you see a great small business in selling reading glasses, or solar-powered cellphone chargers, to villagers in poor communities. Microfinance can help you in one of two ways: it can lend money to the buyers, to help them buy what you’re selling, or else it can lend money to the sellers, giving them capital to buy inventory and then store it until it’s sold. Microlenders can even do both at once, charging high double-digit interest rates to both sides of the transaction.

Microconsignment, by contrast, avoids interest payments by taking most of the risk and putting it onto the manufacturer. The structure seems to have been dreamed up by Greg Van Kirk, who used to work in structured finance at UBS before deciding to help make the world a better place instead. Van Kirk started off with cooking stoves: families would pay for them in installments, using the money saved on fuel. The installments would go to a local mason named Augustín Corrio, who built the stove; he’d keep a cut, and send the rest on to the supplier.

Because it’s a consignment system, the supplier doesn’t actually carry all that much risk: it owns all the stoves until they’re sold, and then gets a steady income stream in payment for them. And although the buyers do commit to make a series of future payments, they don’t really have debt in the same way that microfinance borrowers do.

Stewart Paine makes the point that this system can grow much faster than microcredit, since it can be hard to increase loan size quickly in a fast-growing environment. On top of that, microconsignment poses little if any risk, and therefore needs little if any regulation.

Microconsignment require a pretty sophisticated information infrastructure, which is currently being provided on a not-for-profit basis by organizations like Van Kirk’s Community Enterprise Solutions. But that model seems to have scaled so far, and if it isn’t growing as fast as some of the more aggressive microlenders, well, that’s probably a good thing on balance.

Obviously microconsignment can’t replace microlending in most situations. And it’s not easy for governments or institutions like the World Bank to put in place mechanisms which could help it spread fast around the world. But insofar as it takes off, slowly, in one country after the next, it’s a model which I think is incredibly attractive — to consumers, to middlemen, and especially to suppliers looking to build profitable businesses around the bottom billion.

The muni-market hearings in Washington today might be a bit of a snore, but Michael Corkery’s long curtain-raiser for them in the WSJ is a good one, and serves to begin the slow yet necessary process of moving beyond loud and simplistic questions along the lines of “Meredith Whitney: threat or menace?”. Whitney is certainly a natural locus for debate, but the problems of the muni market are much bigger than one loudmouthed analyst trying to make a splash while at the same time keeping her report secret.

For one thing, as I said back in December, the question really isn’t whether Whitney is right or wrong. Chances are, there won’t be hundreds of billions of dollars in defaults. But so long as such a thing is possible, and the markets are having difficulty quantifying and pricing in the relevant probabilities, the muni market as a whole is going to remain in difficulties.

More immediately, munis have a very real liquidity problem, and no easy way to deal with it. Here’s Corkery:

If the $2.9 billion market continues to struggle, it will be because of the attitude of investors like Barry Fiske, an account manager for a Boston-area heating and air-conditioning contractor.

Mr. Fiske, 61 years old, had long considered muni-bonds a safe investment. But late last year, he says, he “just felt very uneasy” about the “threats [facing] certain states like Illinois, California, New Jersey and maybe New York.” He slashed his holdings in muni-bond funds to 5% of his investment portfolio, from 20%…

Individuals like Mr. Fiske own about two-thirds of U.S. municipal bonds, directly or through mutual funds. This was long seen as a positive, because individual investors tend to “set it and forget it,” says Ms. Fell. But individual investors have been sellers of shares in muni-bond mutual funds for 12 consecutive weeks. Since early November, individuals have pulled a net $23.6 billion out of these funds…

When individuals step away from the muni-bond market, there are a limited number of other investors to take their place. The tax-exempt returns that lure individuals aren’t as attractive to larger investors, such as hedge funds and investments banks.

Some states and cities have cut back on borrowing in the face of diminished demand for their bonds, which creates higher costs for borrowers. A New Jersey agency trimmed a refinancing by 40% last month.

But states don’t always have that option.

If the individual bid continues to go away, there’s a real problem here for the muni market — at some point, the amount of bonds that states need to issue might well exceed the amount of demand in the market. At that point, bad things happen. 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.

So what happens? Bonds designed to finance infrastructure investment would probably not get issued at all: that means layoffs in big construction projects, and a big overhang of unissued debt which would make it that much harder for the muni-bond window to open again. More generally, states would have to start becoming much more attractive to institutional, as opposed to retail, investors. But because institutional investors don’t get the same tax benefits that individuals do, yields would have to rise — and prices would surely fall.

In other words, there are lots of very good reasons why we might see substantial price decreases on muni bonds, even without any fears of default. All you need is the retail bid to go away, which happens for all manner of reasons: fewer bonds are being insured, for one thing, and also individual investors are generally smart enough to know that they’re not remotely sophisticated enough to judge creditworthiness on their own. Muni bonds have always been a safe investment with tax advantages; now, they’re something else. They’re much more volatile (ie, less safe), and the market is showing that there’s substantial credit risk where none was really considered to exist in the past. In other words, there’s risk in these things, and muni investors tend to be extremely risk-averse.

It makes sense, then, that there’s a lot of interest in shorting the muni market, even among people who don’t take Meredith Whitney seriously at all:

“There is a lot of blood in the water in the municipal space. Hedge funds smell that blood and are trying to figure out the best way to make money in the marketplace,” says Rob Novembre, head of municipals at Arbor Research and Trading…

Citigroup, for example, is studying a structured bond which would be directly linked to the performance of the municipal bond index, called MCDX.

This is clearly bad news for municipal issuers: investors wanting to buy the muni market on dips will now have a more liquid alternative to buying actual bonds, and can buy Citi’s synthetic instrument instead. Already the rise of muni ETFs has exacerbated volatility in the market. Expect the muni market to become more financially sophisticated in coming months, with a corresponding uptick in volatility. This is going to be a very bumpy ride for anybody issuing general-obligation bonds, even if there isn’t any signifiant default risk. Just because you’ll pay the money back, doesn’t mean you can borrow the money.

Looks like Arianna personally made about $20M yesterday — Forbes

Daily Mail leases 5,200 square feet in SoHo (a/k/a HuffPoVille) — Crain’s

“We are pleased to honor Anthony Scaramucci of Skybridge Capital with the Hedge Funds Care Award for Caring” — HFC

French vin de table labels were only allowed to state their vintage and grape variety for the first time in 2010 — Dr Vino

Stephanie Simon’s WSJ article on the rise of jobs needing a license of some description has resulted in a predictable rash of approving comments, especially from Matt Yglesias, for whom the issue is something of a hobby-horse.

There’s no doubt that a lot of the criticism of licensing laws is entirely justified. There’s no good reason why Louisiana florists need to be licensed, or why it takes 1,500 hours to learn to be a barber in California. When a licensing regime is tough, that results in higher prices to consumers, as well as lower employment in the industry in question. And of course journalists love the anecdotes, which come complete with built-in farce:

In Kentucky, the Board of Hairdressers and Cosmetologists has eight full-time inspectors who spend much of their time responding to anonymous tips about unlicensed manicurists. The inspectors rarely catch the alleged offenders, says Charles Lykins, the board’s administrator, because “they take off running.”

These stories almost write themselves: Frank Cerabino of the Palm Beach Post, for instance, got a classic quote from a West Palm Beach hairdresser saying that “even with the standards we have, you see a lot of dry hair and wrong color. Imagine what we’d have without these regulations.” But that’s my problem with them: they’re all very long on anecdote and very short on quantitative substance.

The WSJ includes the chart at left, but I get the feeling here that I’m being served a numerator without the denominator needed to understand it. A very large part of what we’re seeing in this chart is simply the way in which the US economy has moved from manufacturing to services over the past 50 years. It’s entirely possible — we’re not given any data which would shed any light on this — that the number of workers needing a state license to do their jobs has risen more slowly than the total number of workers moving into the kind of service-industry jobs which have historically required licensing. In other words, let’s see the number of workers with licenses as a percentage of all service-industry workers.

As my editor Jim Ledbetter says, state licensing is part of what a post-industrial economy looks like: post-industrial employment is, in the aggregate, more highly skilled and more consumer-facing. And that requires a different regulatory apparatus than an economy that largely takes place on a factory floor. So it should come as no surprise that more and more workers require a license these days; it should also come as no surprise that as the licensed economy expands, the number of ludicrous anecdotes about licensing requirements will expand as well.

On top of that, the rise of licensing also coincides, over the past few decades, with the decline of unions. Licensing requirements are more hypocritical, in many cases, than unions: unions are explicitly designed to make the workers richer and happier, while licensing requirements are ostensibly a product of consumer-protection concerns.

Meanwhile, a much older licensed cartel — the world of high-priced lawyers — is seeing its ancient and cozy architecture threatened by rising inequality at the top of the ranks. Today’s WSJ has a great story explaining how top law-firm partners can now make nine or ten times as much money as other partners in the same firm — a ratio which has moved up sharply in just the past few years, and which Larry Ribstein reckons is the “death rattle” for biglaw.

This is germane, because, broadly speaking, the more constraints you have on a profession, the less likely you are to see massive inequality within that profession. If you got rid of licensing for profession X, you’d see many more low-paid Xs than you do right now, and you’d also see a significant uptick in earnings at the very top of the X profession. It’s a second-order effect, to be sure, but I’m pretty sure that at the margin, licensing helps to reduce inequality.

I’m in favor of reducing the number of gratuitous licensing laws; I’m also a fan of motherhood and apple pie. But at the same time I think they are, in a sense, a form of worker protection which is acceptable to Republicans — think of them as unions for people who hate unions. And that’s not entirely a bad thing.

Update: Adam Ozimek responds, while Matt Yglesias says that licensing does not reduce wage dispersion within professions.

Tom McGeveran asks an important question, in his analysis of the AOL-HuffPo deal:

What is it about the environment of traditional journalism that makes it so that readers are more likely to interact with the Huffington Post reblog of a New York Times article than they are with the article itself?

The answer to this question, I think, is also a key part of the reason why the NYT paywall is a bad idea.

It’s worth using a specific example here, so let’s take Dave Pell’s suggestion and look at the NYT’s Olbermann scoop last night, and HuffPo’s reblog of it. When Pell first tweeted the comparison, the NYT blog had no comments, while the HuffPo blog had “hundreds of comments/likes.” Now, the NYT post is up to 93 comments, but the HuffPo post is still miles ahead: 2,088 comments, 1,392 likes on Facebook, 340 Facebook shares, 89 tweets, and 52 emails. All of which figures are easily visible in a colorful box at the top of the story.

The NYT, by contrast, keeps such numbers to itself: you can see the number of posted comments, but you can’t see the number of comments which have been submitted and have yet to make it through moderation. (Which is why Pell saw zero comments when he tweeted last night.)

Both the NYT and HufPo stories are blog posts, but there the similarities end. It’s worth just looking at the two, side by side:

McGeveran says the NYT doesn’t look more like HuffPo because “their very existence is justified by their obligation to readers to vouch for the content they produce,” including widgets from Twitter and Facebook and the like, if the content from those widgets appears on the NYT website. And I daresay that the NYT sells that Killington ad at a much higher rate, per thousand pageviews, than HuffPo is getting for its ProFlowers and Lufthansa ads and its Bing tie-in. But the HuffPo page is clearly generating lots of pageviews, and has more ads on the page. (The second ad unit on the NYT page is a house ad for its own iPad app; HuffPo also has a house ad, for its Blackberry app, but runs it separately in a blue bar along the top of the page.) And of course HuffPo doesn’t need to pay for the expensive original reporting of Bill Carter and Brian Stelter.

Still, the difference between the two pages is much starker than it needs to be: the NYT page is like walking into a library, while the HuffPo page is like walking through Times Square. The HuffPo page is full of links to interesting stories elsewhere on the site — about Egypt, or the kid in the Superbowl Darth Vader ad, or the stories my Facebook friends are reading. And there are lot of links to media stories, too; each one has a photo attached.

The NYT page, by contrast, feels like it’s at a site-map dead end. It’s part of the Media Decoder blog, and almost every NYT story linked to on the page is also part of that blog. There are almost no photos; there is almost no color.

Most importantly, the HuffPo page is genuinely, compellingly, interactive — it’s almost impossible to visit it without finding something you want to click on. Like! Comment! Tweet! Go here! Try this! Visit that! There’s site navigation, yes, but that’s just one layer of a very rich and complex page architecture. At the NYT page, by contrast, to get out of the Media Decoder blog you either have to click on a generic navigation button like “Sports,” or else you’ll just leave the page and the site completely.

At this point, it’s worth remembering that the NYT paywall is really, at heart, a navigation fee. The side door is always open: if you get to the NYT website from, say, the HuffPo story, then you’ll be able to read that story no matter how many other stories you’ve read that month. The NYT has said that 80% of its visitors don’t read enough pages per month that they’d have any need to subscribe at all. But it’s pretty obvious why that is: the NYT is making precious little effort to encourage people to want to click around the site and view more pages.

The fact is that readers come to the NYT — or any website — because they want to read its stories. They don’t much care about branded sections, or deciphering the difference between a news story and a blog entry. (The Olbermann story is a blog post, for reasons which even I don’t fully understand.) But the NYT site architecture seems built around the peculiar way that the news is produced inside 620 8th Avenue, rather than around showing the NYT’s readers the exact stories they’re most likely to want to read.

One the paywall goes up, it’s certain that non-subscribers — the vast majority of the NYT readership — will read fewer pages per month than they did before. The NYT’s navigation was never very sticky, as we’ve seen, but from here on in there will actually be a substantial economic incentive not to explore the site, and to save up your precious quota of pageviews for when you need them most.

One of the paradoxes of news media is that most of the time, the more you’re paying to use it, the harder it is to navigate. Sites like HuffPo make navigation effortless, while it can take weeks or months to learn how to properly use a Bloomberg or Westlaw terminal. Once the NYT implements its paywall, it’s locking itself into that broken system: it will be providing an expensive service to a self-selecting rich elite who are willing to put in the time to learn how to use it. Meanwhile, most Americans will happily get their news from friendlier and much more approachable free services like HuffPo.

Rather than learning from or trying to emulate HuffPo’s hugely valuable editorial technology, then, the NYT is sticking its head in the sand and retreating to a defensive stance of trying to make as much money as possible from its core loyal readers. There’s no growth in such a strategy. Indeed, the opposite is true: the NYT is making it both hard and expensive to become a core loyal reader. Meanwhile, the open web will become ever more accessible and social, with friends pointing friends to news in a site-agnostic manner. The NYT is distancing itself from that conversation, standing proud and aloof. It’s a strategy which is doomed to fail.

What New Twitter Employees Do For The First Week — Quora

The NYT review arrives, with the show still in previews: “Spider-Man is not only the most expensive musical ever to hit Broadway; it may also rank among the worst.” — NYT

US wants Mubarak to travel to Baden Baden for a “prolonged health check” — Spiegel

Probably the worst review the Economist has ever given to a non-executive director of Barclays — Economist

Many thanks to Roddy Boyd for sending me over e-galleys of his new book on the implosion of AIG, Fatal Risk. (If you want me to read a book — I’m looking at you, publishers — then sending it over in electronic form makes it much more likely I’ll do so. I would never have read Zero-Sum Game, for instance, Erika Olson’s insider account of the CME-CBOT merger, had she not sent it to my Kindle. But she did, and I did, and I’m happy I got to read it.)

Boyd’s book is as in-depth as any autopsy of AIG will ever be and it does presume a reasonably sophisticated grasp of finance on the part of the reader. That’s smart, on Boyd’s part: he knows who his audience is for this book.

Boyd’s definitely done his homework here: he seems to have talked to almost everybody who matters, with the possible exception of Martin Sullivan, the hapless AIG CEO who ends up bearing the lion’s share of the blame for what ultimately went wrong. Sullivan’s predecessor, Hank Greenberg, is deeply flawed, of course, in part because he insisted on singlehandedly and personally being the key risk-control mechanism for an enormous company which no one man could possibly oversee in detail and in part because the company he so assiduously built managed to fail so devastatingly the minute he left. (On top of that, of course, there’s the question of his various prosecutions; Boyd is sympathetic to Greenberg on that front and very harsh on Eliot Spitzer.)

Boyd’s case that the AIG implosion would never have happened had Greenberg stayed on as CEO can never be proven one way or the other. My suspicion is that AIG was so big and Greenberg was stretched so thin, that ultimately AIG was certain to fail in any case. But the incompetence of Greenberg’s lieutenants is quite astonishing: Boyd writes at one point that neither Stasia Kelly, the general counsel, nor CFO Steven Bensinger, nor CEO Martin Sullivan had ever even heard of the “credit support annex” which proved fatal to company, by forcing AIG to put up billions of dollars in collateral when the CDOs it insured fell in value. And at a later point, Sullivan is astonished by numbers which had been carefully explained to him the previous day by the notorious Joe Cassano.

Cassano is certainly a very large part of the reason why AIG failed — his headlong rush into mortgages was a move which was explicitly ruled out by both of his predecessors at AIGFP, for good reasons, and he took full advantage of the fact that his boss, Martin Sullivan, lacked any ability to understand what he was doing or to rein in his excesses.

But in reality it was Win Neuger, with his idiotic and devastating securities-lending transactions, who probably did more harm to AIG than any other individual. Matt Taibbi told the Neuger story in his own inimitable style in Griftopia, but Boyd provides chapter and verse for anybody who really wants to understand the details.

When AIG failed along with various monoline insurers, the lesson that many of us drew was that no company should ever use its triple-A rating as a business model. If your triple-A is necessary for you to continue to make money, then you shouldn’t really have a triple-A in the first place: it’s a rating which should be reserved only for companies which don’t need it.

What happened at AIG, along with the other monolines, is pretty simple: they started taking their triple-A for granted, like it was some kind of fact of nature rather than a hard-won award which could be removed at any minute. Whatever else you might say about Hank Greenberg, he always jealously guarded his triple-A. But when he went, so did that culture.

There are no corporates any more, which rely on their triple-A rating for profits: even Berkshire Hathaway has been downgraded. That’s good. But there are still sovereigns. The UK strikes me as a little Greenbergian: it’s making deep fiscal cuts now, in an attempt to ensure its triple-A is never taken away. The U.S., by contrast, is more reckless, a bit like AIG after Greenberg left — it’s going after growth, first and foremost, rather than concentrating on its debt ratios. That might well be the right decision to make — especially if the U.S. could live with its bonds carrying a little bit of credit risk. But it’s a decision which should very much be made consciously and I don’t think that anybody has really done that.

As I thought he would, Lending Club CEO Renaud Laplanche replied to yesterday’s post with exactly the numbers I asked for. The loss rate for loans where Lending Club has verified the borrower’s income is 2.8%; the loss rate for loans where Lending Club hasn’t verified the borrower’s income is lower, at 2.7%. So Ron Lieber’s worries do indeed seem to be misplaced.*

Laplanche explains why Lending Club doesn’t verify income on all its loans:

The main reason why we do not perform income verification on 100% of the loans is to avoid adverse selection: the borrowers who have perfect credit history and do not exhibit any particular risk factors (who fall into the 40% we do not verify) are also those who have the least tolerance for a cumbersome income verification process, and are most likely to abandon that process and seek funding elsewhere. They are, however, the exact kind of borrowers we want to retain.

The point here is that Lending Club needs to be just as attractive to borrowers as it is to lenders. Just like any financial institution, Lending Club will treat its best borrowers — the most creditworthy ones — very well indeed. After all, those borrowers are reliably profitable customers — they should be treated well.

Laplanche also points out that you can’t assume that people who fail the income-verification process were lying about their income in the first place. There’s a lot of credit to go around, these days, and as he says, “these individuals represent the top 10% of applicants in the first place, and that they have other options which include credit cards that do not require any income verification at all”. Often it’s easier for them to just find their money elsewhere, and they drop out of the Lending Club system — it’s not necessary to assume any mendacity on their part.

*In case you were wondering what exactly these figures represent: take all the income-verified loans which are at least one year old. Add up the principal amount for all of them, call it P. Then look at the subset of those loans which ended up being charged off. Take the charged-off amount, and call it C. And then also note the amount of interest that those charged-off loans managed to generate before they were charged off. Call it I. Then then loss rate is (C-I)/P. Not that the details of the calculation really matter: the main thing is that we’re performing an apples-to-apples comparison between the two sets. And the loans without verified income are performing better, in terms of delinquency, than the ones with verified income.

A brash and charismatic household name is brought in to apply magical fairy dust to a struggling media franchise with declining relevance and revenues. Tina Brown has done it successfully three times — with Tatler, Vanity Fair, and The New Yorker – and is now trying again with Newsweek. Arianna Huffington is newer to this game, but Tim Armstrong is surely willing to throw even more money at Arianna than Si Newhouse threw at Tina. Armstrong needs this bet to succeed — he’s placed Arianna in charge of all his media properties, while telling everybody that AOL is a media company first and foremost. And that’s why Arianna is so happy today.

Zach Seward made a very smart point this morning: Arianna, with this deal, is not only massively expanding the reach of her eponymous baby — the Huffington Post is now just one part of the massive Huffington Post Media Group — but is also regaining control of it. The Huffington Post, like any company funded by venture capitalists, always had to be moving towards a hefty exit for its shareholders: Dan Lyons reports today that one of the key backers, Softbank, was “impatient for a return” as long ago as June 2009.

Arianna never had free rein at her company: a large part of the CEO’s job was to manage her flights of fancy (free buses to the Stewart/Colbert rally in Washington!) and to make the tensions between her and co-founder Kenny Lerer as productive as possible.

Now, by contrast, the constraints on Huffington are much fewer. Lyons frets that “all those bright young things with the glamorous job of writing for the Huffington Post are being sent down into the belly of the AOL galleyship and assigned to an oar” — but the fact is that Armstrong bought HuffPo, and TechCrunch before it, precisely because his galleyship model of managing writers was a signal failure. Arianna gets much more bang for her buck — and has happier and more loyal employees.

From the point of view of editorial-side employees at HuffPo and AOL, there’s no doubt that this merger is going to be wrenching — all mergers are. But I don’t think it’s going to be as bad as many think, certainly when it comes to layoffs. Both Armstrong and Huffington have a vision for Huffington Post Media Group that is much bigger than what currently exists, so it should be possible to take any redundancies/synergies/overlaps between HuffPo and existing AOL properties and refocus that extra talent on growth. Arianna’s a den mother when it comes to her own employees: she won’t stand for any harm befalling them. And the AOL employees will finally get to work for someone whose nose for what works editorially has been far more lucrative than the numbers-based management at AOL.

Best of all, from Arianna’s point of view, is that all the extra investment she wants to make in editorial, starting with HuffPost Brazil, is going to be paid for not by rapacious venture capitalists looking for monster returns on their investment, but rather by befuddled and elderly AOL subscribers with broadband connections who don’t understand that they can cancel their $20-a-month subscriptions and still keep their AOL email address. That stream of cash won’t last forever, but it’s never going to interfere with Arianna’s editorial decision-making.

Meanwhile, Kenny Lerer has now achieved his exit, albeit at the low end of the $300 million to $450 million range being mooted back in December. As far as his media properties are concerned, his next big order of business is to manage another profitable exit from The Business Insider, where’s he’s a significant investor. This post is instructive: when one of TBI’s employees said something rude about AOL, getting more than 50,000 pageviews in the process, he was rewarded with a very public smackdown and told that he “did not go through the proper editing process”; Henry Blodget then served up a grovelling public apology of the type I’ve never seen on TBI stories written about companies which aren’t potential acquirers.

As Huffington and Lerer go their separate ways, then, both of them will surely be very happy at how it all worked out — with lots of money for both of them, and no more fights over money or strategy. Lerer might have wanted a bit of a higher sale price, but once Arianna decided she wanted to sell, it was all over: it is her name on the door, after all. And now she has more control of her empire than ever — not to mention a substantially bigger empire than she had yesterday.

Two news articles from Friday afternoon I’m just getting around to now. First up, Michael Aneiro:

Aleris International on Friday sold $500 million of notes to pay a dividend to its owners in a deal that analysts say pushes the envelope for weak bondholder protections, even by the typically looser standards of private-equity-sponsored actions….

Most of the proceeds are earmarked for a dividend payment to its owners, Oaktree Capital Management and affiliates of Apollo Management and Sankaty Advisors…

Covenant analysts at both Moody’s Investors Service and credit research firm Covenant Review said the Aleris deal offers some of the weakest bondholder protections of any deal to come to market recently. In particular, they cite provisions that give Aleris an unusual degree of flexibility to issue additional debt and make future dividend payments…

“[These covenants] give them the ability to have a lot of leverage going forward,” said Matthew Musicaro, an analyst in the corporate finance group at Moody’s. “There’s very little to prevent them from incurring more debt and taking more money out to give to sponsors in the future.”

In addition, Covenant Review described the deal’s restricted-payments covenant–a common clause in bond offerings that limits dividends and other payments to equity holders–as “seriously deficient.” Covenant Review said a combination of loopholes, carve-outs and other exceptions would allow Aleris to move an unlimited amount of its assets into entities that are not subject to the restrictive covenants.

Now see Azam Ahmed, on Oaktree’s Howard Marks:

While his firm jumped into the aftermath of the credit crisis ready to scoop up deals, he’s currently taking a more moderate approach. He thinks today’s environment requires “prudence.”

“I’m not ringing the bell,” he told the audience. But “I think it’s time to act cautiously.”…. “Today, if all you have is capital and nerve, you’re going to get in trouble.”

The smart money, here, is selling into fixed-income investors with capital and nerve, in a bet that those buyers are going to get in trouble. If the markets really want to throw half a billion dollars at Aleris’s cov-lite issue, Howard Marks is more than happy to take them up on their offer and trouser the proceeds. But he’s laughing at them while doing so.

The re-emergence of cov-lite notes, like a phoenix from the ashes, is a depressing sign that we really have learned nothing from the financial crisis. I know that memories are short, in financial markets. But this short? It’s depressing.

The $315 million that AOL is paying for the Huffington Post is roughly 3X the valuation seen at its last capital raise two years ago, is 10X its 2010 revenues and is roughly 5X estimated forward 2011 revenues. Those are all big numbers, but not insanely so, for what is clearly a big strategic move on the part of AOL. After all, AOL has a market cap of $2.3 billion: right now it still dwarfs HuffPo. That might not be true in a few years’ time, if HuffPo continues growing at its current rate and AOL continues to lose subscribers and revenues.

My feeling, then, is that this deal is a good one for both sides. AOL gets something it desperately needs: a voice and a clear editorial vision. It’s smart, and bold, to put Arianna in charge of all AOL’s editorial content, since she is one of the precious few people who has managed to create a mass-market general-interest online publication which isn’t bland and which has an instantly identifiable personality. That’s a rare skill and one which AOL desperately needs to apply to its broad yet inchoate suite of websites.

As for HuffPo, it gets lots of money, great tech content from Engadget and TechCrunch, hugely valuable video-production abilities, a local infrastructure in Patch, lots of money, a public stock-market listing with which to make fill-in acquisitions and incentivize employees with options, a massive leg up in terms of reaching the older and more conservative Web 1.0 audience and did I mention the lots of money? Last year at SXSW I was talking about how ambitious New York entrepreneurs in the dot-com space have often done very well for themselves in the tech space, but have signally failed to engineer massive exits in the content space. With this sale, Jonah Peretti changes all that; his minority stake in HuffPo is probably worth more than the amount of money Jason Calacanis got when he sold Weblogs Inc to AOL.

And then, of course, there’s Arianna, who is now officially the Empress of the Internet with both power and her own self-made dynastic wealth. She’s already started raiding big names from mainstream media, like Howard Fineman and Tim O’Brien; expect that trend to accelerate now that she’s on a much firmer financial footing.

Most interestingly of all, however, is the way that AOL is creating a new entity, the Huffington Post Media Group, to run all of its content business. Given that AOL CEO Tim Armstrong has repeatedly talked about how he wants to be a content company, one has to wonder what that means for the rest of AOL — a group of businesses which still throw off the vast majority of the company’s revenues but are strategically non-core. The question now has to be asked: is AOL really the right parent for the unique and very valuable HPMG? My guess is that as AOL continues to divest itself of non-core assets, HPMG will make it increasingly attractive as a takeover target itself. HuffPo was definitively sold off today. But it might wind up getting sold again in the none too distant future.

Failure to Pay US Soldiers is Not Default — Modeled Behavior

Centralized clearing could make synthetic ETFs uneconomic. Is that a feature or a bug? — Index Universe

Chart of the day: listed firms as a percentage of all firms — Guan

Starbucks Trenta cup holds an entire bottle of wine — Tumblr

A new law, aimed at people like Ben Stein’s sleazy paymasters Vertrue, intends to cut off their major source of funding by making it much harder for them to quietly charge people modest amounts of money every month without them noticing. I’ll believe it when I see it. After all, it’s now over ten months since a similar law went into effect aimed at free-credit-report services like the one shilled by Stein. According to that law, the top of this page — and this page, and this page –should be filled with a large box directing visitors to the official FTC.gov page on credit reports. But none of those pages have such a box. Maybe the CFPB can step in and make something happen, now it’s getting up and running.

Nick Denton uses Facebook as his news delivery mechanism of choice:

I consume most of my news in email and (more recently) Facebook. I think Zuckerberg has created the personalized news engine we always dreamed of. My friends are a pretty good proxy for my tastes. And it’s a lot easier to enter and prune a friend list than it is to define one’s tastes by keyword.

I find this fascinating, and surprising. I share news items on Twitter, but not on Facebook, and very few of my Facebook friends seem remotely inclined to post news links — the news to non-news ratio on Facebook is much higher lower, at least for me, than it is on Twitter. Then again, I don’t have Nick’s friends, and I don’t have nearly as many friends as Nick, who’s up to 1,319 at last count, and rising.

Facebook does an OK job at filtering: stories are more likely to show up in your Top News feed if they’ve been liked or commented on a lot. But when I turn to Flipboard for my personalized news, I’ll find much more interesting and relevant material in the Twitter section than in the Facebook section. And the counts aren’t that far apart: I follow 775 people on Twitter, and have 498 Facebook friends. It’s just that Facebook is much better at providing conversations, and photos from my friends’ lives, while Twitter seems better at pointing me to news. Which makes it all the more interesting to me how Denton’s mileage varies — it’s an important lesson in the limits of extrapolation. What works for me, online, might well not work for you.

Denton continues with a great smackdown on much of the news industry:

Q: What irritates you in the print and online media world?

Denton: Fake news. I don’t mean fake news in the Fox News sense. I mean the fake news that clogs up most newspapers and most news websites, for that matter. The new initiative will go nowhere. The new policy isn’t new at all. The state won’t go bankrupt. The product isn’t revolutionary. And journalists pretend that these official statements and company press releases actually constitute news…

To follow the daily or hourly news cycle is the media equivalent of day-trading: it’s frenzied, pointless and usually unprofitable. I’d much rather read an item which just showed me the photos or documents. And if you’re going to write some text, take a position or explain something to me. Give me opinion or reference; just don’t pretend you’re providing news. That’s not news.

This is one of the reasons why personal blogs still feel so fresh and useful in the face of professional operations which update dozens of times per day. And I suspect it’s also one of the factors behind the Gawker redesign — Denton knows full well that much of what appears in the Gawker Media network falls broadly under his category of “fake news”, which is why he spends his morning firing off “irritable emails about headlines, photos, lame press releases masquerading as stories”. He doesn’t want that stuff to be the first material that a visitor to one of his websites sees, and so he’s redesigned things to be able to always feature a genuinely strong story rather than what happens to be the most recent thing posted.

The one thing you can say about both Twitter and Facebook as news-filtering mechanisms is that they do a very good job of filtering out the fake news. But I still think there can and will be better solutions. A friend of mine told me a few months ago that filtering could be the new search, and I think he might be right; I personally have plans to try to do something fun and powerful with filtering, which with any luck you’ll be able to see quite soon. Facebook’s good, in the fight against fake news. But we can definitely do better.