Felix Salmon

Expecting an early Greek default

Felix Salmon
Apr 20, 2011 17:21 UTC

Greece is going to restructure its debts — and it’s going to do so before mid-2013. That’s the clear message sent by the latest Reuters poll of 55 economists from across Europe: 46 of them saw a restructuring in the next two years, with four saying it would happen in the next three months.

This is a major development. The markets haven’t believed Greece for a while — but now they don’t believe the European Union, either. Remember that back in November, the EU put out a statement laying out a mechanism for restructuring a member’s debt “in the unexpected event that a country would appear to be insolvent”. It clearly says that “any private sector involvement based on these terms and conditions would not be effective before mid-2013″.

But almost nobody believes that Greece can last that long any more. Landon Thomas has the story:

All of which reflects an emerging view, although it has not yet been officially stated, that it makes little economic sense for the monetary fund and the European Union to keep lending money to Greece so that the government can pay back private investors at double-digit interest rates — especially as Greek citizens suffer the effects of a severe austerity program.

“Behind the curtains, they are looking for a smooth restructuring,” said Theodore Pelagidis, an economist in Athens and the author of recent book on the Greek economy’s collapse. “The basic reality is that we cannot service our debt.”

A smooth restructuring, however, is going to be all but impossible to achieve. For one thing, the EU’s preferred mechanism for such things — the use of standardized collective action clauses — isn’t going to be in place before 2013. And more generally, as Lee Buchheit and Mitu Gulati show, there’s no easy way of restructuring Greece’s debts.

Buchheit and Gulati reckon there are two ways that Greece could restructure before 2013; they call the two scenarios “A Light Dusting” and “The Full Monty”. The former option would be something along the lines of a reprofiling: Greece would extend its maturities, but keep its principal obligations untouched. The problem with this kind of deal is that it’s not worth the trouble: the EU would have to go back on its promise, and Greece would publicly default on its bonds, all in the service of a restructuring which would be clearly inadequate, and which wouldn’t actually decrease its debt-to-GDP ratios at all. There’s no possible way that a light dusting could bring Greece to a position of sustainability, so it’s hard to see why they would bother.

On the other hand, the “Full Monty” approach doesn’t look very likely either. Here’s Buchheit and Gulati:

Having spent billions of Euros of taxpayer money to stave off any restructuring of Eurozone sovereign debt, will the political class in Europe really be prepared now to careen to the other extreme of countenancing a savage debt restructuring?

A major tremor of this kind affecting the Greek debt would indeed be felt in Lisbon, Madrid and elsewhere in peripheral Europe.

So maybe Simon Nixon is right, and Europe’s economists are wrong, and Greece won’t restructure before 2013, since doing so “would be a recipe for chaos”. The question, I guess, is whether Europe’s politicians are capable of acting in concert to avert such chaos. The consensus right now seems to be that they’re not.


Beezer – great idea!

In the new spirit of co operation, why don’t you and I issue joint IOU’s? It would probably raise the interest rate I pay, but only to the degree that you wish to trash my credit rating with your borrowing. AND it would allow you to get out from the high rates you are currently paying, as you could well end up paying zero.

Posted by johnhhaskell | Report as abusive

Taxes, syndication, and web traffic

Felix Salmon
Apr 20, 2011 15:31 UTC

Last Wednesday, I picked up on the excellent taxation story which David Cay Johnston syndicated to a group of 40 alt-weeklies. It got a fair amount of attention — but then, five days later, on Monday, it exploded:

Our web site crashed today for about 3 hours. We are now back up and it appears that the culprit is the David Cay Johnston story on “9 Things The Rich Don’t Want You to Know about Taxes.” For a period of time, we were getting 12,000 page views request per minute!

What caused this massive firehose of traffic to the Willamette Week’s website? It wasn’t Drudge, or Yahoo, or any other big gun on the internet. Instead, as far as I can tell, it was old-fashioned old media — specifically, radio. Monday, you see, was tax day — the deadline for any American to file their tax return. And on tax day every year, radio stations around the country all decide to talk about taxes.

David’s story was perfectly pitched as a topic for discussion on such shows: well written, controversial, and timely. And it seems that millions of Americans, all thinking about taxes and listening to radio hosts talk about the article, were sufficient to crash the Willamette Week’s website.

How did they all end up going to the same place, rather than to, say, the more central version at altweeklies.com? It probably helps that the editor of the Willamette Week is also the president of the Association of Alternative Newsweeklies, and was one of the key driving forces behind the article. The Willamette Week version was also the one that David himself linked to when he told his friends about the piece.

But thanks to Google’s search-ranking algorithm, someone was always going to end up with the lion’s share of the traffic for the article. Links like mine might not have generated a lot of traffic in and of themselves, but Google noticed them. So come Monday, when radio listeners were searching for the article, Google sent them to the version which had inbound links from places like Reuters — rather than to any other version.

I’ve been thinking a bit of late about what happens when the same piece appears in multiple different places online. Historically, publishers haven’t liked it when that happens, because they fear that the other websites might end up with traffic which is rightfully theirs. They also worry about SEO: that someone searching for an article will end up elsewhere, or that search engines will consider the content to be spammy on the grounds that it’s appearing in lots of different places.

But my feeling is that syndication — publishing the same article in many different places — is normally a good thing. If everybody’s asked to link back to the original version of the piece, that’s ideal: it’s a clear sign to search engines which version they should prioritize. But even if they don’t, there’s a very good chance that the winner of the Google lottery will end up being entirely deserving, as the Willamette Week was in this case — none of the other alt-weeklies which published the piece had a stronger claim to the traffic than the Willamette Week did, and there’s no way to spread the traffic around evenly.

And more generally, if you want influence, it’s a good idea to go to where readers are, rather than to force them to come to you. That’s why I’m happy for Seeking Alpha to republish my posts — the overwhelming majority of my readers there would never read my pieces if they weren’t there, but many of them, after discovering me on Seeking Alpha, become regular readers of my Reuters blog. Reuters probably gets precious little direct traffic from Seeking Alpha, but it does get mindshare and influence — and those will ultimately show up in a larger number of loyal visitors.

This is why I think that publishers are misguided when they complain about sites like the Huffington Post aggregating their content and linking back to them. It’s true that most readers of a HuffPo piece won’t follow the link to the original source — but that’s fine. They probably wouldn’t have read the original story anyway. Instead, HuffPo readers are getting exposure to that news source in a place and in a style that suits them. And HuffPo is giving that news source valuable Google juice, to boot. Which means that next time there’s a surge in Google searches on a given topic, the news source is likely to get more traffic. Everybody wins — unless, of course, the web servers end up crashing.


I agree. I have been learning the powers of the net for the last several years. In the process I’ve been exposed to an amazing array of publications, writers, ideas, etc.. Much of this I would not have read, seen, or heard, when print, radio, and television were the only media. The advantage to myself is the broadening of my horizons. The advantage to
publishers, writers, and advertisers is my exposure to them. What does it matter if I click an ad, go to a post, or use a link from site A. to site B.? I gain tremendous amounts of information and they gain a much wider audience.

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Beer-drinking charts of the day

Felix Salmon
Apr 20, 2011 13:34 UTC

How do we know that the world is getting happier? It’s drinking more beer! Here’s the chart, from a new paper by Liesbeth Colen and Johan Swinnen:


What we’re seeing here is largely the China effect — and, more generally, a world where poor people, once they reach a certain minimum income, start hitting the hops.


By all indications, we’re still in the early days of this trend, whereby countries slowly converge in terms of per-capita beer consumption. For while China and Russia are soaring, the main beer-drinking nations of the world are all in decline:

In middle and low income countries which experience growth, such as China, Russia, Poland and India, beer consumption grows. In rich countries, however, further growth has led to a reduction in beer consumption per capita.

This is an economics paper, so of course there has to be some kind of regression analysis — in this case OLS, or ordinary least squares:

Our first important result is that we do indeed find an inverted-U shaped relation between income and per capita beer consumption in all pooled OLS and fixed effects specifications. From the pooled OLS regressions (Table 3), we find that countries with higher levels of income initially consume more beer. Yet, the second order coefficient on income is negative, indicating that from a certain income level onwards, higher incomes lead to lower per capita beer consumption. The first and second order effects for income are strongly significant and the coefficients are quite robust across the different specifications.

The fixed effects regression results confirm this (Table 4), so the non-linear relationship for income holds not only between countries, but also within individual countries over time. As a country becomes richer, beer consumption rises, but when incomes continue to grow, beer consumption starts to decline at some income level. We calculated the turning point, i.e. the point where beer consumption starts declining with growing incomes, to be approximately 22,000 U.S. dollars per capita.

I would imagine that this relationship could also be found within the U.S. — that states increase their beer consumption as they grow to an income of about $22,000 per capita, and thereafter see their beer consumption drop as their wine consumption increases.

I can also imagine that we’re going to see a China-driven surge in global wine consumption when the middle class population there starts earning that kind of money. In the first instance, most Chinese wine consumption will probably be domestic, but over the long term it’s surely inevitable that wine imports into China will stop being concentrated at the high end of the market and will start lubricating China’s middle classes on an everyday basis. But that’s probably not going to happen for a decade or two yet.

(Via Florida)


Get over yourself @BBERDUDE; firstly I am not a vegetarian (although I admit to eating very little to be more ethically responsible, save money and keep weight off) and had just read the information relayed to you as it was in the headlines. Sadly I could not find the same headlines but managed to get some data for you.

meat and food consumption
http://tywkiwdbi.blogspot.com/2011/03/am erican-meat-consumption.html


http://www.guardian.co.uk/environment/20 11/mar/10/world-food-prices-climbing

The more wealthy a nation becomes, the more meat consumption
http://nextbigfuture.com/2011/01/mckinse y-has-six-predictions-for-china.html

It takes up to 16 pounds of grain to produce just 1 pound of edible animal meat. According to the USDA and the United Nations, using an acre of land to raise cattle for slaughter yields 20 pounds of usable protein. That same acre would yield 356 pounds of protein if soybeans were grown instead.

http://www.berkeleycollege.edu/GreenPath  /Newsletter/July_09_2.htm

Food consumption charts
http://www.fao.org/DOCREP/005/AC911E/ac9 11e05.htm

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Felix Salmon
Apr 20, 2011 05:28 UTC

2D Glasses — Gizmodo

The Animated S&P Downgrade Warning — ZH

Brokers/scalpers won’t like this: Ticketmaster moving to flexible ticket pricing — LAT

Only 16 percent of Americans want the debt ceiling raised — WaPo


Thank you very much. I spent the time I usually write here writing about my dad for the family memory table so you might say my loss was your gain.

I know some of you think I trump up foreclosuregate info, but it is staggeringly real. Should you care to look at this post, it gives a whole new meaning to the judges rubber stamping and the rocket dockets. [to save time the judge hands his stamps to the banks lawyers]

http://mattweidnerlaw.com/blog/2011/04/o utrage-of-the-day-exactly-who-runs-the-c ourtroom/

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Why Gordon Brown can’t run the IMF

Felix Salmon
Apr 19, 2011 14:11 UTC

Gordon Brown is very comfortable at the IMF. He chaired its most important committee, the IMFC, for many years, and he would love to take the top job of managing director. There might be a vacancy soon, if the incumbent, Dominique Strauss Kahn, steps down to run for president of France. But it won’t be filled by Brown, now that UK prime minister David Cameron has made his opinions crystal clear.

Mr. Cameron told BBC Radio 4′s Today program: “I haven’t spent a huge amount of time thinking about this. But it does seem to me that, if you have someone who didn’t think we had a debt problem in the UK, when we self-evidently do, they might not be the best person to work out whether other countries around the world have a debt and deficit problem”.

He added: “Above all what matters is the person running the IMF someone who understands the dangers of excessive debt, excessive deficit, and it really must be someone who gets that rather than someone who says that they don’t see a problem.”

Mr. Cameron also said: “I certainly don’t want a washed-up politician from another country. It’s important that the IMF is led by someone extraordinarily competent.”

He suggested that the next IMF head could come from “another part of the world”, such as China or India. By convention they are usually chosen from European countries.

All of this is exactly right. Brown comes with way too much baggage: he’ll never be able to admit that enormous chunks of what he did as Chancellor turned out, in hindsight, to be disastrous.

The head of the IMF has to deliver tough news about debt and deficits to heads of state around the world — and Brown simply has no credibility on that front. And his diplomatic skills leave something to be desired as well.

More generally, it would be crazy to appoint a European to head the IMF right now, just as the biggest sovereign crises in the world look set to take place in Europe. If the IMF itself wants credibility, it must appoint a non-European to provide independent leadership in an era when the IMF will surely be asked to help bail out troubled European sovereigns.

It long since time that the head of the IMF stopped being a European. If and when DSK leaves, let’s replace him with someone highly qualified — someone who wasn’t a partial cause of the last financial crisis — from elsewhere in the world. It doesn’t really matter where, just so long as it’s not Europe or the U.S. Gordon Brown should be disqualified on both counts.


Yeap, it is all politics. Brown left a fantastic legacy of no boom and bust, very low debt, strong currency, great record of GDP growth and a bullet-proof financial system. I didn’t even need “A whole slew of major economists” to tell me that. And he clearly is not responsible for any of the issues that the UK that the UK doesn’t have anyway. After all he was merely in charge of the economy for 13 years, not nearly enough time to have any impact whatsoever, apart from the positive impact which is all due to him whilst clearly the non-existent negative impact, that only lying political opponents that can’t grasp his innate genuius claim exist, are all down to everyone else.

Just goes to show you can fool some of the people all of the time.

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Regulatory arbitrage of the day, Citigroup edition

Felix Salmon
Apr 19, 2011 13:34 UTC

Well done to Tracy Alloway for calling it as it is, in a post headlined “Citi’s Basel-dodging, capital-avoiding, accounting switch”. At issue is a pool of $12.7 billion in assets, which is housed at Citi’s “bad bank”, Citi Holdings.

In 2008, Citi decided that these assets were not available for sale, and rather were going to be held to maturity. Presto — the bank no longer had to mark the assets to market, and could hold them on its books at par instead. And the difference between par value and market value went straight to Citi’s precious capital, helping it look stronger.

Now, in the wake of a massive bond rally. Citi has decided to switch the assets back. No longer are they held to maturity; instead, they’re available for sale. At a stroke, Citi has to recognize all the gains and losses in the portfolio immediately — that’s $1.7 billion in losses, and $946 million in gains. But the losses can be applied against profits elsewhere in the bank, to reduce the total tax burden. Which is nice, because we wouldn’t want too much money flowing from Citigroup to the taxpayers which bailed it out.

Of course, banks can’t just oscillate back and forth between classifying assets as being held-to-maturity or marked-to-market at whim, depending on how such a classification makes them look in their quarterly report. That defeats the whole point of classing assets as being held to maturity in the first place. If you say an asset is going to be held to maturity, it should be held to maturity, not held to the point at which it’s no longer held to maturity.

And so Citigroup had to explain to regulators what excellent reason it had for changing the classification. And you’re going to love the reason it came up with. The authors of the new Basel III capital adequacy rules, it turns out, managed to notice that assets being held at par and held to maturity are naturally riskier than assets which the bank can sell at any time and is marking to market on a daily basis. And so the capital requirements on held-to-maturity assets are higher than the capital requirements on assets which are marked to market.

So far so reasonable. But Citi’s brainwave was to cite the new Basel III requirements as the fundamental change which would give them an excuse to switch classifications now that the bond market is looking frothy again. Basically, Citi went along to its regulators, and said hey, the capital requirements on these held-to-maturity assets are rather onerous, would you mind if we reclassified them so that we don’t need to hold as much capital against them? And the regulators said by all means, go ahead!

Of course, the assets themselves haven’t changed at all — they’re the same assets, being held at the same bad bank. But now the bad bank has a lower capital requirement, since the assets have been reclassified.

All that remains is to wait until the bond market goes down again, and see what new reason the bright sparks at Citi will be able to come up with to explain that actually, they want to go back to classifying the assets as being held to maturity. It’s all very simple, really: when bond prices are low, assets are held to maturity, and can sit on your balance sheet at par. When bond prices are high, they’re available for sale, and your capital requirements go down. The bank wins either way, while the regulators look like schmucks. And if Citi’s doing this, you can be sure everybody else worked it out long ago.


Beer_Numbers, me neither, but I thought the point of this transfer is that the assets are no longer in the investment bucket, but in the trading inventory. In any case, as the first commenter pointed out, Citi is saying they have sold most of these assets, so the discussion may be moot :)

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Felix Salmon
Apr 19, 2011 04:31 UTC

What does the filler text “lorem ipsum” mean? Only a masochist wouldn’t want to know — Straight Dope

Spurious market causality of the day, CNBC edition — TBI

Hitchens on the royals: “There are so many of them! And things always have to be found for them to do” — Slate

“It’s unclear why News Corp was paying for security guards to tail former staffers for Ailes’ vanity projects” — Gawker

More on Florida’s rocket dockets, from Abigail Field — Fortune


It’s good to see Hitchens still firing live ammunition.

http://www.guardian.co.uk/books/2010/nov  /14/christopher-hitchens-cancer-intervi ew

Whatever happened to the book he was supposedly writing about Proust? I want to read it.

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How to support investigative journalism

Felix Salmon
Apr 19, 2011 04:19 UTC

Paul Steiger is rightly proud of his latest Pulitzer — the second for ProPublica in as many years. He’s right, too, that such things don’t come cheap:

One last point: to do this, it takes money. ProPublica is a non-profit, and contributions are tax deductible. We had more than 1300 donors last year and almost 500 so far this year. The median donation is $50, but whatever you can give will be greatly appreciated, and will truly help us make a difference. I invite you to celebrate with us by making a contribution by clicking here.

Sadly, individual donations — certainly not individual donations of $50 — won’t make a difference. According to ProPublica’s Form 990, Paul Steiger and his managing editor, Stephen Engelberg, made $959,811 between them in 2009 — $585,117 for Steiger and $374,694 for Engelberg. Senior reporter Dafna Linzer made $225,876. The total wage bill for 47 people for the year came to $5,267,678, or an average of $112,000 per person, not including things like pension contributions, other benefits, freelance costs, and payroll taxes.

It’s entirely within ProPublica’s rights to pay such salaries, but Steiger’s 1,300 donors, each pitching in $50, will generate a total of $65,000 — enough to pay Steiger’s wages for almost six weeks. If they all doubled their donation, he’d raise $130,000 — enough to pay ProPublica’s total wage bill for just over one week.

The fact is that ProPublica is funded, generously, by Herb and Marion Sandler; they, and a handful of other big-name funders, are the only donors who actually make a difference. According to ProPublica’s 2010 annual report, online donations for $86,000 were rather less than 1% of ProPublica’s total fundraising haul of $9,832,000 — the bulk of which came from board members. (For which, read the Sandlers.) ProPublica is not reliant on donations from the public, and if you’re prioritizing your charitable contributions, it makes sense to target your money at organizations which really do rely on such things.

In principle, I like the idea of a non-profit news organization which is funded by its readers. But ProPublica is not that organization. If you want to make a difference by funding investigative journalism, you’ll get more bang for your buck by giving money to the Investigative Fund at the Nation Institute, which doesn’t have a highly-paid permanent staff. Instead, it gives out grants of between $500 and $10,000 to reporters working on important stories like Kai Wright’s recent examination of the payday lending industry.

As ever, giving anywhere is better than giving nowhere — so if you are impressed by the Pulitzer-winning work of Jesse Eisinger and Jake Bernstein and want to support it with a donation to ProPublica, that will do some amount of good and no harm whatsoever. But if you’re going to donate that money to the cause of investigative journalism, you might want to look at other places too. Which might need it more than ProPublica does.


How about This American Life? They also do exceptional investigative work (sometimes in co-operation with ProPublica) and I’m under the impression they rely heavily on public support.

Posted by MarkPalko | Report as abusive

The year of business Pulitzers

Felix Salmon
Apr 18, 2011 21:30 UTC

The Pulitzers are notorious for ignoring business journalism. But they made up for it this year: just about anything which could go to business journalism, did.

The Public Service award went to the LA Times for its investigation of corruption in the small municipality of Bell, California. The Investigative Reporting award went to Paige St John of the Sarasota Herald-Tribune for her great work covering Florida’s murky property-insurance system. The National Reporting award went to Jesse Eisinger and Jake Bernstein of Propublica for their big story on the Magnetar trade. The Commentary award went to the NYT’s wonderful economics columnist David Leonhardt. And even the Editorial Writing award went to Joseph Rago of the WSJ, who wrote even more about healthcare than Leonhardt did, from a very different perspective.

I wouldn’t care to hazard a guess as to why the 2011 Pulitzers, in particular, were so friendly to business journalism — but it’s certainly a gratifying development, especially for this year’s winners. Many congratulations to them all — and especially to ProPublica, which wins the first-ever Pulitzer award for a piece which never appeared in print. It surely won’t be the last.


Jesse Eisinger’s pulitzer must be up there with Walter Durranty’s in terms of deserving. Not only does he regularly get the story wrong – in fact I have never read an article of his that was not clearly BS – but he wasn’t even the first person to “break the story”, Yves Smith was. But of course she is a blogger not a cut and paste “journalist”. When one looks at the other dross that gets Pulitzers, one sees clearly what a mutual back-patting society there is.

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