Opinion

Felix Salmon

Perfidious Goldman

Felix Salmon
Mar 28, 2011 13:43 UTC

betrayal.tiffThe WSJ has a great article today about that most fickle and capricious of creatures, the Goldman Sachs investment banker. He’ll sidle smoothly up to you, buy you a drink at the bar, even get in to bed with you — but it’s not you he wants, he’s really only in it for the money. And if your rich uncle raises his eyebrow in a suggestive enough manner, your paramour is suited up and out the door faster than you can say “secrets of the boudoir.”

A few months ago, the spurned lover was J Crew. Goldman was dating J Crew if not quite going steady: “from time to time over the past several years,” the proxy statement says slightly wistfully, Goldman had “prepared various illustrative financial analyses for the Company.” Ah, those were the days. But sadly they came to an end: a commitment to J Crew would never last long, seeing as how the company was about to be sold. An engagement with the mighty Texas Pacific Group, by contrast, was likely to be a much more lucrative union over the long term. Especially when TPG didn’t just want Goldman’s confidential advice, but also wanted to delve deep into its debt-finance facilities.

But that was just a warm-up for Goldman’s latest show of caddishness. Last summer wireless networking company Clearwire tied the knot with Goldman in a formal ceremony which involved paying a substantial dowry. Yet mere months later, having gotten to know the most private and confidential secrets of Clearwire’s special board committee, Goldman formally transferred its affections to Clearwire’s more buxom step-sister, Sprint Nextel. Oh, the betrayal!

Clearwire’s directors, report Anupreeta Das and Gina Chon, are “upset” — and you can see why! Clearwire was what’s known as a “sell-side client” — one where investment-banking fees are pretty much guaranteed. No matter who ends up buying the company, its financial advisers end up getting paid. Buy-side mandates, by contrast, are much less certain affairs: if you lose the bidding, your client won’t pay you much. Or even anything at all, in many cases.

And like good-for-nothing scoundrels, Goldman’s has decided to go very quiet when called on its behavior. It declined to comment to the WSJ, but did let it be known that “Goldman lawyers reviewed the relationships” before signing off on the treachery.

As if that’s likely to make the Clearwire directors feel any better. And of course they can’t even get their own back. Goldman’s cunning that way: he’ll get you to confide all your deepest and most private secrets. But he’ll never reveal any of his own.

COMMENT

Are there any Goldman or Sachs family members still involved with the company? Any close relation to Jeffrey Sachs of the Earth Institute (Columbia?)

This is vaguely interesting: Samuel Sachs and Philip Lehman were buddies.

Stray factoids: Jamie Dimon (Papademetriou)’s family and Peter Peterson (Petropoulos) were/are very close to the Rockefeller family. Both have poor immigrant ancestor stories too — Dimon’s grandfather Panos was supposedly a disgruntled busboy who got a job at a branch of the Bank of Athens. Peterson’s father is said to have had a diner.

The Dimon family’s choice of americanized name is curious. There was a prominent Dimon family in the States at the time of the Civil war.

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Counterparties

Felix Salmon
Mar 28, 2011 06:09 UTC

Dana Vachon on Rebecca Black — Awl

Instead of giving public money directly to NPR and PBS, let’s just launder it through Goldman Sachs first — Twitpic

Take your iPad 2 or iPhone 4, go to this page, reload it, push it up to full screen, hold the screen up, turn around — Stefan Geens

Kathryn Schulz on Big Idea books: astute — NYMag

Oxford charges $3000 to put papers online for free, even though its authors can do that at SSRN for nothing — Oxford Journals

A speed camera which pays you when you observe the speed limit — NPR

The editorial search engine. An essay on Google, algorithms, and original reporting — Jonathan Stray

In case you were wondering who the judge was in the case Joe Nocera wrote about on Saturday, it’s Jerome B Friedman — Charlie Engle (who’s also on Twitter)

Ferris Bueller’s Day Off, directed by Sofia Coppola — YouTube

Michael Bierut reviews Helvetica and the New York City Subway System — WSJ (see also)

I can’t imagine that the city of Florence has much in the way of non-Italian assets — Alphaville

“It is unclear whether Cates actually understands that the money is real”: a fantastic portrait of a young poker pro — NYT

Excellent GiveWell update on Japan — GiveWell

COMMENT

@hsvkitty “Mozilo should be in jail. THAT is the bottom line.” -on that we agree fully.

“Financial reform has to come with enforcement. It ain’t meaningful unless enforced.” -again total agreement.

“I realize you belong to one of the “little” banks and are tired of bank bashing.” you got that right… I grew up dreaming of being Jimmy Stewart and in the current enviroment I feel like Al Capone.

While I will defend the profession of banking till my last breath as one of the most impactful positive forces in human history… I am shocked to see just how bad things got at banks like countrywide. The very idea of a no-doc loan is just foolish but it became standard at the peak of the bubble.

Every 20 years banks go a bit crazy… senior people at my bank say it’s because as soon as people who didn’t work through the last crisis start making Senior VP then diciplin goes out the window. I guess the key is learning from the last batch of mistakes. I do think that is happening with Basel III, and the FinReg package, and most imporntantly the elimination of the worst actors from the competitive enviroment.

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The NYT paywall goes live

Felix Salmon
Mar 28, 2011 06:00 UTC

Staci Kramer is absolutely right that the NYT has a tough battle ahead with the public perception of its paywall, which is going live today.

The public simply is not going to understand how the paywall works; I’m sure about this because over the past week I’ve come across a number of different NYT staffers — all of whom are involved in the NYT’s blogs, and therefore would you think be pretty attuned to such things — who don’t understand the paywall and believe untrue things about it. If the NYT can’t explain the paywall to its own staff, there’s no way it’s going to be able to explain it to its readers.

Part of the problem is that this paywall is not exactly the same as the paywall which was announced in January 2010. Back then, for instance, we were told this, in a Q&A with CEO Janet Robinson and digital chief Martin Nisenholtz:

If you are coming to NYTimes.com from another Web site and it brings you to our site to view an article, you will have access to that article and it will not count toward your allotment of free ones.

That’s no longer true, as the official FAQ explains:

We encourage links from Facebook, Twitter, search engines, blogs and social media. When you visit NYTimes.com through a link from one of these channels, that article (or video, slide show, etc.) will count toward your monthly limit of 20 free articles, but you will still be able to view it even if you’ve already read your 20 free articles.

If you spend over a year developing a paywall, then some of your original ideas are likely to evolve and change. But the new system, which I liken to the foul-ball rule in baseball, is certainly harder to understand than the original vision. “Twitter links don’t count” is easy; “Twitter links do count, but you’ll be able to follow them anyway” is much harder. (Twitter links, and links from blogs and Facebook and even the NYT email, all work like foul balls in baseball: if you’re below the strike-out limit, then they count towards your strikes. But you can’t strike out on one and end up hitting the wall.)

There’s confusion about the blogs, too: they are basically behind the paywall, although they do show a bit of leg outside it: the “blog fronts”, like this one, are free and do not count towards your monthly quota. But the minute you click on a “read more” link or otherwise find yourself at a blog entry, like this one, your quota gets increased by one.

This is all pretty confusing, especially to people who have better things to do than spend a lot of time worrying about the mechanics of the NYT paywall. Can you read that blog post? If you’re following my link, then yes, you can always read it. If you’re trying to get there by clicking on the “read more” link at nytimes.com, on the other hand, then at that point you may or may not be able to read it, depending on whether you’re a subscriber, and how many other paywalled items you’ve read that month.

There’s no doubt that this will change blogging at the NYT. Freakonomics has already left the building and is enjoying its new-found freedom by publishing short posts like this one. There’s all manner of reasons why that post wouldn’t ever make it onto nytimes.com, but one of the more invidious is that there’s now a good reason for blog posts to be long. Here’s the end of that post by Nate Silver:

I will work to ensure that any clicks you make to a FiveThirtyEight article will be “worth it.” I’ve always had a pretty high word count, but in recent months, I’ve been gravitating toward even longer and more substantive posts, as opposed to shorter but more frequent ones.

It goes against Blogging 101 principles, but I’ve had a lot of success in life in betting against the conventional wisdom.

This is not a welcome move, from the point of view of the vibrancy of the NYT’s blogs as a whole. My posts tend to the verbose too (although the NYT probably has the world champion in that department), but the fact is that mixing things up and having short posts along with the longer ones is always good form in blogging. The unit of quality for a blog is the blog itself, a living thing, rather than any individual blog entry or even series of entries. But when the NYT’s blogs get put behind a paywall, that changes: suddenly there’s pressure to make each individual post “worth it”. As a result, the blog becomes less bloggy and more like an irregularly-updated online column. This is unlikely to be an improvement.

It’s entirely possible that individuals like Nate — or even myself — can be successful with a combination of long-form blogging and short-form tweeting. But even long-form blogs are likely to be updated more than 20 times a month, which means that any regular reader of Nate’s posts, if they’re not a NYT subscriber, is essentially denying themselves the ability to navigate any of the NYT site at all. (Remember that even if you get to Nate’s posts via his Twitter feed, you’re still eating up your monthly quota of NYT articles every time you read one.) And more generally, it’s not a good idea for the NYT to put in place incentives to blog long rather than short. In fact, it rather undermines the purpose of having blogs in the first place.

Meanwhile, the NYT’s publisher, Arthur Sulzberger, is going out of his way to insult the people who want to read his website so much that they’re willing to put in place elaborate workarounds to do so.

“Can people go around the system?” Sulzberger, the Times’s publisher, asked at a roundtable discussion hosted by the Paley Center for Media this morning. “The answer is yes, just as if you run down Sixth Avenue right now and you pass a newsstand and you grab a newspaper and keep running, you can read the Times for free.”

“Is it going to be done by the kind of people who value the quality of the New York Times reporting and opinion and analysis? No,” he continued. “I don’t think so. It’ll be mostly high-school kids and people who are out of work.”

Sulzberger should be flattered by these people; instead, he’s likening them to common criminals who steal newspapers on Sixth Avenue. In doing so, he’s taking a leaf out of the music industry’s attitude to people who look for free content online: criminalize them, and set yourself up in an adversarial relationship to them. It didn’t work for the music industry, and it’s an equally bad idea for the NYT.

As the first US readers start hitting the NYT paywall this week, it will be met by varying degrees of confusion and anger. The NYT should be trying its hardest to minimize the ill will it’s likely to generate as people get blocked from reading stories they’re used to getting for free. The @NYTdigitalsubs Twitter account is a start, but it’s clearly not enough.

Meanwhile, here’s a question I’m not sure I want to see answered: if you get a Sunday-only subscription and then suspend delivery of the physical newspaper while you “go on vacation” for a month or two at a time, how long can you drag out your free access to the website before the NYT gets wise to what you’re doing?

COMMENT

I agree with Dave1968: I don’t mind paying, but $15/month is too much. They are offering a half-off-for-six-months deal now, at least to some people, and at $7.50/month it seems priced just right. I don’t know that they’d get twice as many paying customers if they cut the price in half, but they’d have a lot more happy customers.

That said, I have no problem paying for some journalism. Aside from contributing to NPR, I don’t pay for any other journalism right now.

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How will the AGs enforce the mortgage settlement?

Felix Salmon
Mar 27, 2011 17:55 UTC

Alex Ulam has a must-read article in American Banker which shows the biggest pitfall likely to face the mortgage servicers’ settlement with state attorneys general: enforcement.

AGs in general are much better at prosecutions and at negotiating settlements than they are at keeping close tabs on banks to make sure they’re doing what they agreed to do. On top of that, banks find it much easier and cheaper to simply deny allegations that they’re violating the terms of a settlement, and to fight those allegations in court, than they do to actually fix what’s broken.

The problem seems to be that banks are not entering into these settlements in good faith — as is evidenced by the banks’ behavior following a smaller settlement in 2008.

According to the settlement, a loan mod offer made by B of A in its role as servicer could be turned down if the investor or group of investors that actually owned the mortgage failed to approve the modification. But B of A was in charge of securing investor approval for the loan modifications.

Investor disapproval turned out to be one of the major reasons B of A gave when denying modifications to homeowners eligible for the National Homeownership Retention Program, according to the Arizona and Nevada suits. (Investor disapproval also has been a common reason that servicers have given for denying loan mods under Hamp.) But, according to the Nevada and Arizona AGs, while B of A refused to approve loan mod requests on the grounds that investors would not approve them, the bank, in fact, had in some instances received the delegated authority to make such decisions…

One investor in mortgage securities covered by the Countrywide settlement said that B of A never went through the procedures for obtaining approval or disapproval on loan modifications on the mortgages in the securities he owned.

“I know of absolutely no attempt by Bank of America to reach out to investors either through formal or informal channels,” said William Frey, the CEO of Greenwich Financial Services, a money management company.

This goes back to my conversation with Michael Barr back in November. He was fully cognizant of the issue, saying that “institutions are resistant to change and have difficulty implementing”; I was skeptical that the government had the ability to force these huge organizations to change. (In fact, I’m increasingly of the view that huge organizations simply can’t change that radically and that quickly, no matter how many incentives there might be to get them to do so.)

In any case, if and when any settlement is announced, the first order of business will be to look very closely at the enforcement mechanisms built in to it. If there’s anything less than a dedicated watchdog devoted to holding banks’ feet to the fire in such matters — and which is able to take complaints directly from the public — then I fear that nothing much will happen in reality, and Barr’s dreams of having real change by the end of this year will end up being dashed.

COMMENT

If investors or their Trustee get involved in the negotiating of a loan modification won’t that affect the REMIC status of the Trust and possibly cause them to lose their tax-exempt status?

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Bill Keller vs openness and transparency

Felix Salmon
Mar 26, 2011 17:39 UTC

Bill Keller has now written two three columns for Hugo Lindgren’s NYT Magazine, and both of them the last two have taken aim at the Huffington Post.

The first one didn’t go so well: not only did it have an opening paragraph of astonishing braggadocio, but it also elicited a blistering response from Arianna which made him look decidedly petty. He then replied to Arianna on the magazine’s blog — except he violated the first rule of blogging, and failed to link to the argument he was engaging. So when he talked about “the reaction” to his column, or “clueless commentary”, the lack of any link was a CYA move, giving him the opportunity to say “oh no, I didn’t mean you“.

Keller did however say a couple of nice things about Arianna:

I think she’s a shrewd entrepreneur and a charming woman. Also, we seem to share a belief in hiring professional journalists; she’s hired some good ones from The Times.

This, too, was presented without a hyperlink. But it was clearly a reference to the way in which Arianna poached first Peter Goodman and then Tim O’Brien to help beef up HuffPo’s news coverage. Both were NYT stars, and Keller was quite right to call them good journalists.

Which brings me to Keller’s second column, where we he tries to talk about “the essentials that set us apart from agenda-driven journalists of the right and the left”, and explains that NYT journalists “are expected to set aside their own politics in the performance of their duties”:

This does not mean — as one writer recently scoffed — that we “poll people at both extremes of any issue, then paint a line down the middle and point to it as reality.” It does not mean according equal weight to every point of view, no matter how far-fetched. (Sorry, birthers, but President Obama is an American citizen.) Impartiality is, for us, not just a matter of pretending to be neutral; it is a healthful, intellectual discipline. Once you proclaim an opinion, you may feel an urge to defend it, and that creates a temptation to overlook inconvenient facts when you should be searching them out.

Wow, who is this dreadful scoffer — this person who just pretends to be neutral — who dares to imply that the NYT gives credence to birthers? Again, Keller provides no link. But he does provide a direct quote, which makes it very easy to identify his unnamed critic as none other than… Peter Goodman, who was talking in general, and not about the NYT in particular, in a 2,000-word HuffPo essay titled “Beyond Left And Right: It’s About Reality”.

Keller’s failure to link to or otherwise identify Goodman is simple intellectual dishonesty — it’s a way of giving the truth but not the whole truth, a way of hiding his agenda and making the meaning of his column opaque to most readers while still transparent to the insidery few. (Chris Anderson has a less polite way of putting it.)

And that’s not the only piece of intellectual dishonesty in the passage. If he were being honest, Keller would admit that some of the NYT’s most highly-paid journalists run directly into the issue he’s talking about — that “once you proclaim an opinion, you may feel an urge to defend it, and that creates a temptation to overlook inconvenient facts when you should be searching them out”. This happens with sports columnists (yawn); it also, however, happens on the business pages, where Andrew Ross Sorkin and Gretchen Morgenson are both charged with pulling off the double act of being reporters and columnists at the same time.

On top of that, dozens more NYT reporters proclaim their opinions in other venues — in radio interviews, in books, in their Twitter feeds. It’s hard to see why those proclaimed opinions should have any less of a deleterious effect on the reporting of facts.

In his urge to place himself in opposition to everything that HuffPo stands for, it seems, Bill Keller has dug himself into a nasty hole. The NYT is urging its reporters onto Twitter, has set up its own imprint to publish their books, and is even publishing magazine editors’ email addresses along with those of the writers. (Although for some reason that rule doesn’t apply to Keller’s column.) The NYT needs to make its mind up: is it going to stand up for openness and transparency and human reporters who dare to have opinions, or is its beef with HuffPo going to force a retreat to some unobtainable halcyon past where reporters handed down the news from Mount Olympus to a grateful public which had no means to effectively respond? Keller might talk the talk when it comes to social openness and transparency. But his heart clearly isn’t in it.

Swedish inequality datapoint of the day

Felix Salmon
Mar 25, 2011 23:07 UTC

Thanks largely to the NYT, the wealth-inequality survey by Michael Norton and Dan Ariely is back in the news. You might remember it from back in September. Here’s how it was reported in HufPo:

The respondents were presented with unlabeled pie charts representing the wealth distributions of the U.S., where the richest 20 percent controlled about 84 percent of wealth, and Sweden, where the top 20 percent only controlled 36 percent of wealth. Without knowing which country they were picking, 92 percent of respondents said they’d rather live in a country with Sweden’s wealth distribution.

Similarly, Tim Noah, in Slate, said the survey showed respondents favoring “a wealth distribution resembling that in Sweden”. And Chrystia Freeland has the same idea: “Americans actually live in Russia, although they think they live in Sweden”, she writes.

The Norton and Ariely paper is easy to misread in this way. Americans Prefer Sweden is one heading; the text does little to dispel that idea.

As can be seen in Figure 1, the (unlabeled) United States distribution was far less desirable than both the (unlabeled) Sweden distribution and the equal distribution, with some 92% of Americans preferring the Sweden distribution to the United States. In addition, this overwhelming preference for the Sweden distribution over the United States distribution was robust across gender, preferred candidate in the 2004 election and income.

If you look at the referenced Figure 1, it labels three different charts as “Sweden (upper left), an equal distribution (upper right), and the United States (bottom)”. It also comes with a note:

Pie charts depict the percentage of wealth possessed by each quintile; for instance, in the United States, the top wealth quintile owns 84% of the total wealth, the second highest 11%, and so on.

The clear implication is that in Sweden, the top wealth quintile owns 36% of the total wealth, as demonstrated in the “Sweden” pie chart. But that’s not true. Go back to footnote 2 (yes, a footnote), and you find this:

We used Sweden’s income rather than wealth distribution because it provided a clearer contrast to the equal and United States wealth distributions; while more equal than the United States’ wealth distribution, Sweden’s wealth distribution is still extremely top heavy.

This is an important point, which nearly all the discussion of the paper has missed. Mark Gimein has put together the charts showing what the truth of the matter is. The first two charts are reality, while the third is the fictional “Sweden” of the Norton-Ariely paper:

usa_wealth_charts.jpg

sweden_wealth_charts.jpg

sweden1_charts.jpg

The point here is that wealth inequality is ever and always enormous. The US and Sweden are very far apart, when it comes to inequality, but if you look at wealth inequality rather than income inequality — which is the subject of the Norton and Ariely paper — then countries tend to look more alike than different. A huge part of the population of just about every country is going to have zero wealth — if you live paycheck to paycheck, for instance, or if you’re young and haven’t been earning money for long, or if you just spend a lot. That doesn’t mean you’re poor.

In countries like Sweden, indeed, the social safety net is strong enough that you don’t need to build wealth in the same way you do if you’re Chinese, say. Wealth is a form of insurance, and when insurance is nationalized, you need less wealth. As a result, people can enjoy the fruits of their money, instead of saving it up for emergencies or for retirement — and only a small percentage of the population really spends a lot of effort in a successful attempt at accumulating more.

Indeed, Sweden and the US are even closer together, in terms of wealth inequality, than the charts above suggest: as Gimein notes, the Swedish data exclude money held offshore, the value of family owned firms, and the considerable wealth of super-rich Swedes like Ikea founder Ingvar Kamprad, who left the country to avoid taxes.

Ariely told Gimein that “we created a more equal society than the most equal society in the world,” while calling it “Sweden”. Which might be interesting as an academic exercise, but the message was lost on most of the people who read the paper, and who thought that there really was a society where the lowest quintile owns 11% of the wealth.

Wealth inequality is a problem — but it’s one of those things, like homeownership rates, where public policy only makes a very small difference to some very large numbers. Norton told Gimein that he and his colleagues are now exploring “whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality.” Well, it might. But it’s important not to mislead people about what’s possible.

COMMENT

This is only the start of the problems with this survey. O blogged about it. http://lennartregebro.wordpress.com/2011  /04/15/does-americans-really-want-swede ns-wealth-distribution/

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VIX datapoint of the day

Felix Salmon
Mar 25, 2011 18:12 UTC

Gillian Tett takes a look at the VIX today:

Last week, for example, a record 1m Vix options contracts changed hands on one day after a spate of bad news from Japan and the Middle East. This beats the previous daily record of 715,000 contracts recorded in December 2009 and is several times the level of anything seen even during the crisis of 2008…

In theory, this could potentially be very beneficial for the market. After all, the more liquidity that exists in any product, the more accurate prices are likely to be and the smoother any adjustments. And the Vix certainly does provide a powerful barometer of sentiment that can be quickly grasped by investors (or journalists) alike…

But as sociologist Donald Mackenzie points out in his book An Engine Not a Camera, when new financial measures and models emerge, they do not simply offer a “snapshot” of activity, they can drive behaviour and change it too.

If 1 million contracts changed hands with the VIX at 30, that’s a total contract volume of $30 billion in one week. (One contract is $1000 times the VIX.) Annualize that, and you get to over $1 trillion a year — we’re talking real money here.

(Update: As gbojangles points out in the comments, Tett was talking about VIX options contracts, not the VIX futures contract. My bad. The options contract is $100 times the VIX, not $1000, so total volume is nowhere near the $1 trillion-a-year level.)

Tett concludes that “creating the Vix has been beneficial,” on the grounds that “more transparency is good.” But I’m not sure I buy this argument: trading volumes don’t increase transparency, and it was always possible to measure the implied volatility of the stock market long before it became a futures contract. The prices of the VIX are always accurate, and not particularly interesting: they’re just the implied volatility of the S&P 500.

(Update: Since we’re talking options not futures here, the options price does actually have new information: it’s an indication of the volatility of volatility. Why this is something we need to know, I’m not entirely sure.)

I suppose it’s true that with the VIX turned first into a futures contract and now into various ETFs, it’s become much easier to see at a glance just how volatile the S&P 500 is. Stock prices, after all, are much easier to find than implied probabilities. Maybe one of the reasons that nobody much looks at the TED spread any more is that it never got turned into a product.

On the other hand, I don’t really buy Tett’s point about reflexivity, either — the idea that the VIX tail could end up wagging the S&P 500 dog. Her examples from the CDS market aren’t especially relevant, because CDS-based indices were based on highly opaque underlyings — contracts and credit spreads which were pretty much impossible to find in public. The VIX, by contract, is based on one of the most liquid underlyings in the world, and it’s highly unlikely that a lot of VIX trading activity — even in the trillion-dollar range — would actually affect stock prices.

My feeling is that the rise in VIX volumes is dangerous mainly to the people trading the VIX, especially in ETF form. From a systemic perspective, there isn’t much to worry about. But neither is there anything to celebrate. Individual investors and the financial media have a distressing tendency to concentrate mainly on ticker symbols when looking at the markets, and to ignore indicators which can’t be expressed in that form. Now that the VIX is a ticker symbol, it’s getting a lot of attention. But the problem isn’t with the CBOE’s futures contract. Instead, it’s with a mindset which discounts indicators which aren’t easily tradable. And that mindset, I’m afraid, is here to stay.

COMMENT

Also, the price of an option is not going to be the notional strike price of the VIX but a much lower figure, unless it’s deeply in the money. So the actual cash value of these options is much lower than even a revised estimate of $100B from your assumptions. Probably something on the order of $10B.

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Counterparties

Felix Salmon
Mar 25, 2011 03:12 UTC

NY Fed’s Bill Dudley visits Queens. It doesn’t go well — NYPost

Intriguing thesis: NYT is deliberately nudging people away from the iPad app & towards the browser, to cut out Apple — Poynter

Wherein mobile payments are described as “pretty much a goat rodeo until someone works it out” — NYT

COMMENT

hsvkitty, it appears they have finally caught (and convicted!) the man responsible for the financial crisis!

http://www.nytimes.com/2011/03/26/busine ss/26nocera.html

Now that he is behind bars, we are all safe.

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James Murphy’s role in the LCD Soundsystem ticket fiasco

Felix Salmon
Mar 24, 2011 21:14 UTC

James Murphy, of LCD Soundsystem, is not on Twitter a lot. In the past month, he’s tweeted precisely eight times. But when he was trying to sell tickets to his final show at Madison Square Garden back in February, he was very active. He started on Tuesday February 8, with two tweets to announcements of a ticket presale on February 9. And then after the presale released tickets onto the market, he started getting angry, with a series of eleven tweets expressing violent and profane anger towards scalpers in general and StubHub in particular. It seems his ire was raised by someone selling a single ticket for $1,500.

But there’s something very interesting going on here. I talked to Glenn Lehrmann of StubHub today — himself the subject of an irate Murphy tweet — and he said that when Murphy started sending his tweets out, there were roughly 1,000 tickets for the LCD Soundsystem show available on StubHub. Most of them were priced at about $130 to $140, with about 90% under $200. The tweets, however, “significantly raised demand” and the perceived value of the tickets. By the time that tickets officially went on sale to the public on the morning of Friday February 11, fewer than 30 tickets had asking prices of less than $200, and the average price was around $500.

When the tickets went on sale, no one got any. And so the demand moved naturally to StubHub — of the 1,915 tickets to LCD Soundsystem’s MSG show that StubHub has sold to date, roughly one third were sold on February 11, when prices were at their peak. Right now, prices are much lower; the average is $212, and the lowest-priced tickets are about $100.

Lehrmann confirmed to me that StubHub saw no increase in the number of tickets available for sale after 11am on Friday. The official James Murphy theory — that scalpers with bots had bought up all the tickets and were flipping them with StubHub — is simply not true: substantially all of the tickets which sold on StubHub that day came from the American Express pre-sale on the 9th.

“It’s not humanly possible to sell 9,000 tickets in one minute,” Lehrmann told me, adding that if MSG or Bowery Presents (the promoter) or Murphy himself simply published the manifest for the show, that would clear everything up, by showing to the public just how many tickets were sold on February 11 when the bulk of the tickets ostensibly hit the market. “The artists and promoter aren’t going to share the ticketing manifest, so they hide behind the bots theory,” says Lehrmann. “But if the bot theory was true, wouldn’t you be waving the manifest from the tallest mountain?”

The fact is that the number of LCD Soundsystem tickets sold on StubHub is entirely normal for the venue — the Lady Gaga show in February, for instance, saw more than twice as much activity on the site.

So what’s going on here? “I’m not revealing any huge industry secret,” says Lehrmann, “when I say that the majority of tickets are held back, and are sold either to local brokers or directly resold on a secondary site.”

Essentially, what happens is that bands set the face value of the tickets artificially low, so as not to look as though they’re ripping off their fans. But they only release a fraction of tickets to the public at face value. Lehrmann told me that a Taylor Swift show at National Arena last year sold just 13% of its tickets to the general public, with another 30% going to American Express and to the fan club. Fully 57% of the tickets were sold through some kind of back channel, presumably at a substantial mark-up from face value. In the case of MSG, it’s clear that’s going on: “at $40 face value,” says Lehrmann, “the promoter probably isn’t even paying the rent on the building.”

Between them, the band and their promoter build up long-standing relationships with ticket brokers, who then sell on their wares in a variety of ways. Some appear on StubHub and other secondary-market sites; others are sold directly to clients; others still are hawked on the street on the evening of the show. The risk is borne entirely by the brokers: the promoter has sold its inventory to them, and then leaves it up to the brokers to determine how, where, and when those tickets might appear for sale.

In the case of LCD Soundsystem, it looks very much as though the overwhelming majority of tickets went to brokers, and few if any were sold at face value on the public on-sale date. Murphy can rage against the scalpers as much and as loudly as he likes. But looking at the numbers from StubHub, it seems that Murphy himself — and/or his promoters at Bowery Presents — are exactly the people putting those tickets into the scalpers’ hands. If Murphy wants to go around blaming people, he should first come clean on how much his own behavior caused the very problem he’s complaining about.

COMMENT

Your math is wrong – 1,915 is about 9.5% of the capacity.

And to echo what was said above, using Lehrmann as your only source, not talking to Murphy and apparently not contacting Bowery Presents either: all of this looks like sloppy journalism.

Posted by MarcBrubaker | Report as abusive
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