Felix Salmon

Without further ado, the top ten lines from Ben Stein’s article on Dominique Strauss-Kahn:

1. If he is such a womanizer and violent guy with women, why didn’t he ever get charged until now?
2. This is a case about the hatred of the have-nots for the haves, and that’s what it’s all about.
3. So far, he’s innocent, and he’s being treated shamefully. If he’s found guilty, there will be plenty of time to criticize him.
4. Can anyone tell me any economists who have been convicted of violent sex crimes?
5. Maybe Mr. Strauss-Kahn is guilty but if so, he is one of a kind, and criminals are not usually one of a kind.
6. He is one of the most recognizable people on the planet. Did he really have to be put in Riker’s Island?
7. A man pays $3,000 a night for a hotel room? He’s got to be guilty of something. Bring out the guillotine.
8. Was Riker’s Island really the place to put him on the allegations of one human being? Hadn’t he earned slightly better treatment than that?
9. Can anyone tell me of any heads of nonprofit international economic entities who have ever been charged and convicted of violent sexual crimes?
10. People accuse other people of crimes all of the time. What do we know about the complainant besides that she is a hotel maid?

It takes Mohamed El-Erian until the very last paragraph of his FT op-ed to rule himself out of the running for managing director of the IMF: “I will not be part of this process,” he says, adding that “I already have a great job, here in California.”

But it’s clear what process he wants:

It is therefore critical that, in the coming weeks, the IMF Executive Board finalise and publicise a process that would be used, should Mr. Strauss-Kahn be forced to resign. Specifically, the post of Managing Director should be open to all nationalities, with candidates assessed on the basis of transparent job qualifications.

It should also involve an internationally balanced committee to evaluate applicants and put forward 2-3 finalists for Executive Board consideration, and the final choice should emerge from a fair vote of the Board.

The first problem with this is that Strauss-Kahn will and should resign much sooner than that. But that problem isn’t insurmountable: he should just say that Lipsky is the new interim managing director, and that one of Lipsky’s main jobs will be to put together a transparent, qualifications-based process for choosing his permanent successor.

More generally, the international community can no more ignore a candidate’s nationality when it comes to running the IMF than can FIFA when it comes to choosing a referee for the World Cup final. Since it’s the board and shareholders who are going to be choosing the IMF’s next managing director, it’s the board and shareholders who are going to be nominating candidates. And when a country nominates a candidate, that candidate is always going to be considered a partisan of that country.

Which is the main reason, in fact, why Christine Lagarde might not end up getting the job. Taimur Ahmad, the editor of Emerging Markets — the very magazine which helped cement Lagarde’s status as front-runner back in April — has an interesting theory on this front. Essentially, Lagarde is Sarkozy’s finance minister, and while she might make sense as IMF managing director with DSK as president, it seems a bit much to have her at the IMF when Sarkozy has a real chance of retaining the presidency.

If it’s not Lagarde, then, who will emerge as the consensus candidate of the EU? Lorenzo Bini Smaghi? It’s all, still, very murky.

Shahien Nasiripour had a very important scoop yesterday — a set of confidential federal audits has found a pattern of mortgage fraud at the nation’s five largest mortgage companies. The victim? Uncle Sam. The findings have been passed to the Justice department, which could prosecute the banks under the False Claims Act, which Shahien describes as “a Civil War-era law crafted as a weapon against firms that swindle the government”.

Shahien also brings us up to speed on where negotiations are with between the banks and the federal government:

The five giant mortgage servicers, which collectively handle about three of every five home loans, offered during a contentious round of negotiations last Tuesday to pay $5 billion to set up a fund to help distressed borrowers and settle the allegations.

That offer — also floated by the Office of the Comptroller of the Currency in February — was deemed much too low by state and federal officials. Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not “playing around,” one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said.

This is big news, so it’s hardly a surprise to see the mortgage-fraud story splashed across the front page of today’s NYT. Except, Gretchen Morgenson’s piece barely mentions the federal investigation. Instead, she concentrates on a much less important piece of news: that New York AG Eric Schneiderman has started asking much the same questions of Wall Street banks that his predecessor Andrew Cuomo was asking earlier on in the financial crisis. Morgenson also fails to talk about the one possible reason the story might be important: that it could mark a break between Schneiderman and the other AGs, and thereby derail that settlement.

And to make matters worse, the NYT put a stunningly stupid headline on the story: “New York Investigates Banks’ Role in Fiscal Crisis”. What fiscal crisis? New York State’s? The US fiscal crisis? Is there even a fiscal crisis? The NYT doesn’t say — because in fact the story has nothing to do with any fiscal crisis at all. What the paper means is the financial crisis, or just the crisis, but presumably on the grounds that “financial” didn’t fit, some front-page editor decided that “fiscal” was a synonym. Which of course it isn’t.

It’s depressing to see the NYT and the WSJ give much bigger play to a small story hand-delivered to them by Schneiderman’s office than they do to the important story broken by HuffPo, which they completely ignore. It’s the downside of journalistic competitiveness: if someone else got the story first, the NYT and WSJ aren’t interested in it, no matter how newsworthy it might be. And of course they also probably have a strong desire to refuse to admit that HuffPo ever beats them on anything.

But Morgenson’s story appears right below the famous box saying “All the News That’s Fit to Print”. There’s news out there, broken by HuffPo, which is more than fit to print. And then there’s Morgenson’s story, all of which, after the first three paragraphs, is a rehashing of stuff we already know. If the NYT really wanted to do the best by its readers, it would tell them about the big news, as well as Morgenson’s non-exclusive scooplet.

Update: After this post appeared, the NYT changed its headline from “Fiscal” to “Financial”.

BHL+DSK=BFF — TDB (original)

Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers — HuffPo

“Music for Dieter Rams” is a new album made entirely from the sounds of a Braun AB-30 alarm clock — Bandcamp

DSK gets the Taiwanese animation treatment — YouTube

I need to get out of the office and into a coffee shop — Atlantic

“The defendant engaged in oral sexual conduct and anal sexual conduct by forcible compulsion” — TBI

Is Portfolio Theory Harming Your Portfolio? — SSRN

As US Reaches Debt Limit, Geithner Implements Additional Extraordinary Measures — Treasury

Most of this video is reasonably serious: I genuinely do think that Christine Lagarde is going to be the next managing director of the IMF. And it probably won’t take long before she gets the job, either.

At the end, I throw out a very left-field name which almost nobody outside the world of sovereign-debt geeks has ever heard of. But there’s a serious point there: the single biggest job of the IMF managing director is going to be navigating and architecting a round of pretty much unprecedented sovereign-debt restructuring deals. Can Lagarde do that? I don’t know that she can. But there’s one man who undoubtedly can.

Thanks to Mohamed El-Erian for pointing this out in his latest Secular Outlook: the market risk spread on advanced economies now exceeds that on emerging economies.

Here’s Pimco’s explanation for what we’re seeing in this chart:

The difference in spreads shows the 5 year Markit CDX.EM.15 index minus the 5 year Markit iTraxx SovX G7 Index Spread. A positive number implies that Emerging Markets sovereign spreads are greater than Advanced Economy sovereign spreads. A negative number implies that Emerging Markets sovereign spreads are less than Advanced Economy sovereign spreads and therefore, the market implied credit risk for EM is lower when the spread is negative.

This is a very big deal, because the names in the EM.15 index are not exactly paragons of creditworthiness. Here’s the list: it starts with Argentina and Venezuela, and goes on from there, including countries like Panama, Russia, and Ukraine.

Meanwhile, the SovX G7 list is short and powerful: Germany, France, Japan, Italy, UK, and USA.

There are probably technical reasons why a group of AAA-rated sovereigns is trading wide of a group of much less creditworthy emerging markets in the CDS market. But the big message here is clear: the world is being turned upside-down. And most investors have yet to even start adjusting to these new realities.

Update: Turns out that the chart wasn’t measuring the G7 spread after all, but rather the Western Europe spread, which includes all the PIIGS.

With Dominique Strauss-Kahn being denied bail this morning, it’s clear he can no longer run the IMF, let alone run for president of France. No matter how the trial turns out — even if he’s fully exonerated of all charges — this arrest has effectively ended DSK’s career.

So when Mohamed El-Erian writes about the effect of the arrest if DSK’s career is over, we can take him as describing the state of the world as it is today: this news is bad for the IMF, bad for France, and bad for any Greek hopes of battling through without a debt restructuring.

The IMF first:

This would erode the confidence of an institution that, under the personal authority of DSK, has taken significant financial and reputational risk in making loans to countries whose medium-term debt viability is far from robust. It would undermine its effectiveness in responding to new challenges. And it would pull the rug from under initiatives aimed at enabling it to play a more effective role in global policy coordination and, more generally, in improving global economic governance and filling a damaging vacuum at the center of the international monetary system.

I think this is right. There’s a tension, at the IMF, between the staffers, who don’t want to make loans which might not ever get repaid, and the shareholders, who want the IMF to be the lender of last resort and to bail them out whenever they run into difficulty. DSK’s job was to walk that fine line, and to imbue the Fund’s decisions with his own gravitas, authority, and consensus-building abilities. Here’s Wolfgang Münchau:

Mr Strauss-Kahn was respected by both Angela Merkel (whom he had planned to visit on the weekend when he was arraigned) and by George Papandreou, the Greek prime minister. He supported the view, also held by the European Central Bank, that a eurozone member should not rush into default. The eurozone clearly needed the IMF’s technical competences in dealing with its sovereign debt crises – a set of skills largely absent in the European institutions. It also needed the IMF’s co-financing. But the IMF’s single most important influence in eurozone crisis resolution has been political. In a situation marked by a lack of political leadership, the IMF filled a vacuum.

The problems for France are big, too:

France now faces the possibility of an even more complex, and a more polarizing presidential campaign. This would come at a time when the country heads both the G-8 and G-20, and when it plays a stabilizing role at the center of Europe now that the Merkel-led government in Germany, the other large economy at the core of the region, is facing growing political strains.

It’s never optimal to try to play a global leadership role in the middle of a presidential election campaign, and with this particular campaign now being thrown wide open, domestic politics are certain to trump international statesmanship for the foreseeable future. If politically difficult decisions need to be made with respect to Greece or anything else, don’t expect France to be brokering them.

And then there’s Greece:

Desperate to avoid a debt restructuring, Greece is heavily dependent on exceptional official assistance. Up to now, a DSK-led IMF has shown little hesitation in aligning itself with a controversial European approach that uses liquidity to address a solvency problem — essentially, piling new debt on top of Greece’s already excessive debt.

A possible DSK departure from the IMF would make the institution less enthusiastic for an approach that has already shown signs of slippage, ineffectiveness and overall fatigue.

Whether this is a good thing or not depends on whether you think that it behooves the IMF to help Greece kick the can down the road indefinitely. But if there is to be a Greek restructuring, it certainly helps to have a powerful IMF head shepherding it along. And frankly none of DSK’s possible successors have his degree of power and influence in the all-important European political circles.

The honorable thing for DSK to do, I think, is to announce his resignation now, saying that his arrest is an unhelpful distraction to the IMF, which will be ably run by John Lipsky until a permanent replacement can be found. He must surely realize that he can never return to the Fund. And if he’s going to leave, best he do so sooner rather than later.

Andrew Ross Sorkin gives credence — but doesn’t directly link to — Karen Hube’s rather offensive analysis of what it means to be “down and out on $250,000 a year.” Hube’s article comes up with a hypothetical two-earner family — Mr and Mrs Jones — who between them earn $250,000 a year, and who “end up in the red” at the end of the year.

How do they do this? Well, for one thing, they put $41,000 a year into savings; they also pay $9,069 per year on out-of-pocket medical expenses and going to the dentist. And check out those two cars, which add up to as much as $16,277 per year between them. Are these normal and reasonable expenses for the average family of four? Of course not: the average family of four earns roughly that much money ($66,346) in a year pre-tax — and then, first and foremost, has to buy or rent a house of some description.

In any case, the Jones’s lifestyle ($19,000 a year for daycare and after-school activities; $1,571 a year for the dog) is hardly that of a “down and out” family.

Meanwhile, Sorkin quotes Roberton Williams as saying that when it comes to the $250,00-a-year cut-off, “the very round nature of it suggests that it’s arbitrary.” Which is about as sensible as criticizing a 14% cut-off on pinot noir alcohol levels on the grounds that it’s arbitrary. Any cut-off is going to be arbitrary, but $250,000 seems like a good one to me: it’s low enough that tax hikes above that level can move the needle in terms of fiscal revenues, while being high enough as to affect only a tiny percentage of taxpayers.

And while $250,000 a year certainly isn’t don’t-need-to-ever-worry-about-money rich, both Sorkin and Hube completely miss the point about marginal tax rates, which is that they’re marginal. If the tax bracket over $250,000 a year were raised to 99% tomorrow, the effect on the Jones family would be zero: no one’s suggesting raising federal income taxes on the Joneses by a penny.

And in fact Hube’s analysis shows that federal income taxes are a very small part of the total Jones tax burden. Let’s say that they both got 15% raises, so that their household income rose to $287,500. And let’s say that the tax rate on income over $250,000 a year is raised to 39.6% from the current 33%.

Right now, the Jones family pays somewhere between $29,909 and $34,317 in federal income taxes, depending on where they live. Let’s split the difference and call it $32,113. That’s just 12.8% of their total income. With their pay rise, they’d pay an extra $14,850, bringing their total federal income tax burden to 16.3% of their total income. (Update: As several commenters point out, that’s the gross extra tax they’d pay. Even if taxes didn’t go up at all, they’d still pay an extra $12,375 in taxes.) They would probably pay extra state income tax too, depending on where they lived — but they would still end up with an extra $20,000 a year or so in post-tax income to spend on fancy vacations or flashier cars. That kind of money is a real windfall for the vast majority of families in America; for the Joneses it would be a nice benefit at the margin.

The thing which really annoys me about all these pieces is that they seem to be based on the idea that a sensible fiscal policy would only raise taxes on people who are so rich that they never need to worry about money. Which of course is ridiculous. And when Sorkin says that “tax brackets could be added for the wealthiest,” he starts talking about tax brackets at the very highest levels of the income distribution — which look more punitive than useful. Instead, why not implement a wealth tax? Ask anybody with a net worth north of, say, $5 million to pay 1% of it per year in taxes. Then you’re certainly taxing the rich. Even Karen Hube would have to admit that people with $5 million in the bank count as rich. Wouldn’t she?

This chart comes from a presentation on commodity ETFs by my Reuters colleague Andy Home:

QE, of course, only happens when interest rates hit the zero bound, so it’s impossible to disentangle the effects of QE from the effects of G3 interest rates all coming down to 1% or lower. But the effect of all these investment flows is clear: if you look at commodities as an asset class, total commodity assets under management have risen from just over $150 billion at the end of 2008 to over $400 billion today.

The impossible-to-answer question is how much of that investment is leveraged, in one way or another. The lesson of the commodities crash is ultimately a hopeful one: it didn’t set off any panic, and Main Street didn’t suffer much in the way of visible losses. And I don’t think that Wall Street has a leveraged long position in commodities in the same way that it had a leveraged long position in subprime in 2008. So the systemic risks posed by any commodities bubble are probably small.

Still, this is clearly now a speculators’ market, and that’s bad news for commodity-reliant industries. They’re up against finance types, now, which is never a pleasant position to be in. The crash will come — but only after real-world end-users have hedged their needs at very high prices.

The disgraceful interrogation of LA school librarians — LAT

Great photo of DSK — Coveritlive

A couple of notes about that hotel suite — Tumblr

David Carr’s piece on a Pew study about Drudge has links to neither the study nor the Drudge Report — NYT

Ben Stein, Arabist. Is there no beginning to his talents? — CBS News

LVaR + ETFs = volatility and flash crashes — Reuters

When piracy helps the original: How PDFs Of A Bedtime Book Exploded The Old Publishing Model — Fast Company

As far as you know, what is Reuters? — Tumblr

“Covering conflict is thrilling. Addictively so.” — CLP

How to make wifi work at tech conferences: “Calculate 2.3 devices per attendee” — Nonblocking

“Part of Intellectual Ventures business model is to sell its patents or patent rights to aggressive patent trolls” — Tumblr

The Lilac Continuous Uniform Distribution is my favorite. Formula on the back! — Tumblr

Warhol accounted for $168.7m of the $579.4m raked in at the NYC evening sales this week — Artinfo

“Not all psychopaths are violent! We’ve gotten a bad rap by Hollywood…” — Ronson

Norris on the Friend Finder IPO: “Its largest asset, by far, is good will. Even counting that, it has a negative net worth.” — NYT

UK Judge issues gag order for Twitter — Reuters

Arianna on why people will blog for free: “The truth is, self-expression has become the new entertainment.” — WWD

With almost five million out of work, Spain’s unemployment crisis rages on — Iberosphere

Britain’s government plans to sell off some of its stock of fine wines to pay for cheaper bottles — Reuters

It now seems more likely that Dominique Strauss-Kahn will end up in a prison cell than that he will be elected president of France. Either way, his career at the IMF is over, which means that the race to succeed him is on.

Gordon Brown would love the job, but he’s not going to get it, which is great. The front-runner is Christine Lagarde, who would be better than Brown. But France has held the top job at the IMF for 26 of the past 33 years. It’s time for a change, on that front.

Historically, the IMF managing director has always come from Europe; if Lagarde doesn’t get the nod and the tradition is continued, then the obvious name is Italy’s Mario Draghi. But there are very good reasons why the head of the IMF, at least this time round, should not be a European — not least that Strauss-Kahn himself, along with various European finance ministers, said when he was nominated in 2007 that this was the last time Europe would get to railroad its own candidate into the job.

The competition was tougher in 2004, when two serious heavyweights were nominated to contest the election of a European — Stanley Fischer and Mohamed El-Erian. I suspect that El-Erian’s far too happy at Pimco (and in California) to throw his hat in the ring this time round, but he’s been so vocal on public-policy issues of late that it’s just conceivable he could allow his arm to be twisted. Fischer is still a contender, but he’s 67 years old now — as is Montek Singh Ahluwalia, another potential nominee. The age limit on IMF managing directors is 65 for a reason, and although it can be changed by a vote of the Fund’s member countries, that extra hurdle is likely to be enough to prevent either of those two men from getting the job. And Fischer has other counts against him — he was vice chairman of Citigroup during the bubble years of 2002-2005, for starters.

What’s more, there would be something a bit weird about the first African managing director of the IMF being a white Jew — culturally, Fischer is closer to Strauss-Kahn than he is to, say Trevor Manuel, whose elevation to IMF managing director would be a very visible and welcome change in the way the international financial architecture is run. Manuel is pretty light-skinned, but he grew up on the wrong side of the color line in apartheid South Africa, and has the years in South African detention during the 1980s to prove it. The men who have run the IMF to date are the heirs to Europe’s colonizers; Manuel very much counts as one of the colonized.

If the IMF is looking for an international technocrat, rather than a politician, then Mexico’s Agustín Carstens is likely to be in contention — but I very much doubt that he’ll get the job, if only because the head of the World Bank is (as ever) an American, and the rest of the world would not stand for both institutions being run by North Americans.

South Americans, by contrast, would be fine: one dark-horse candidate might be Brazil’s Arminio Fraga.

The top name on Alan Beattie’s list, however, and the most likely non-EU head of the IMF, is Turkey’s Kemal Derviş. Richard Adams says that he “ticks all the boxes”, but the IMF has more power than ever these days, and is going to be called on to make incredibly important decisions with respect to troubled European sovereigns over the course of the next managing director’s tenure. Whether Derviş is up to such a task is very much open to question:

Dervis carries limited political weight. He was his country’s economic affairs minister for just two years and his career has been spent mostly with the World Bank (20 years) and five years as head of the UN Development Program — not an organization that inspires achievement.

Add it all up, and my guess is that the French are going to do it again: Christine Lagarde will become the first female managing director of the IMF. She has the political skills and the economic credentials to get the job, and Europe will feel much more comfortable with a European in the role over the next few turbulent years. The US won’t object, and the Asians will go along with the choice since they don’t really have a candidate of their own. As ever, there will be some pro-forma gnashing of teeth about how a non-European should really get the job next time. But I’m not holding my breath.

It’s a #slatepitch custom-made to warm the cockles of Jacob Weisberg’s heart: In Defense of High-Alcohol Pinot Noir. And Mike Steinberger has delivered it. First, he explains the problem, as he sees it:

Critics of higher-alcohol wines tend to frame the issue as a question of balance, the implication being that wines above a certain threshold are inherently out of whack. But balance is a wholly subjective—one might even say amorphous—concept; alcohol is merely one component that contributes to a sense of harmony or lack thereof; and some wines can deceive you. Setting arbitrary cut-off points, as some sommeliers and at least one retailer have done, strikes me as an especially bad idea.

Check out Steinberger’s modifiers here: cut-off points are “arbitrary”, and the very idea of them is “especially bad”. But all cut-off points are arbitrary; that doesn’t make them all bad. Does Steinberger think that speed limits should be abolished just because they’re arbitrary and some people can drive safely at faster speeds?

Beyond being arbitrary, it’s not at all clear why Steinberger hates cut-off points so much. Any wine store or restaurant, no matter how big its list, is going to offer only a tiny fraction of the great wines out there. And so it makes sense, in some circumstances, to specialize. In my neighborhood, I have one store which sells only Spanish wines; another which specializes in Italy. Would Steinberger shun those, too? California has no shortage of restaurants and wine stores selling big, fruity, high-alcohol wine. What harm is done by one or two which shun it?

Besides, there’s a lot more to criticism of high-alcohol wine than simply moaning about “balance”. Alcohol is a way of hiding sins, of turning unpleasant juice into something big and sweet enough to enjoy. (I dislike grapefruit juice, for example, but I’m happy to drink a Greyhound.) There’s a certain purity to lower-alcohol wines: they’re better at expressing terroir, and they better at revealing subtlety and beauty than their high-alcohol cousins, in the way that you can appreciate the complex structure of a string quartet more easily than you can a loud rock group. And, they don’t give you nearly as bad a hangover.

In any case, Steinberger has proof of his thesis!

This last point was convincingly demonstrated at an event in March called the World of Pinot Noir. The weekend-long gathering included a panel discussion on the subject of alcohol and balance. Participants included winemaker Adam Lee of Siduri Wines, which produces pinots in California and Oregon, and Rajat Parr, a San Francisco sommelier who has a policy of not serving pinots that are above 14 percent alcohol at one of his restaurants. Unbeknownst to the other panelists, Lee had switched the labels on the two wines that he served. One had 13.6 percent alcohol, the other 15.2 percent. You probably know where this is going: Parr, a formidable taster, liked one of the wines so much he asked Lee to buy some, and it turned out the wine he liked was the 15.2 percent. Parr was gracious about the ruse, and I think Lee’s stunt underscored the perils of litmus tests when it comes to the alcohol issue.

That Steinberger considers this stunt to be a convincing demonstration of anything at all says much more about Steinberger than it does about high-alcohol pinot. This wasn’t a blind tasting, with all of the problems associated with those things — it was worse. Parr knew exactly what he was tasting, but he was deceived by Lee. If you’re told that the wine you’re drinking is 13.6%, and it says that on the label, why would you ever think that the wine was 15.2%?

Lee is perfectly happy with high-alcohol wines, to the point at which he serves them at his restaurants — including at the Mina steakhouses for which he wanted to buy that wine. Steak is one of the few foods which goes well with high-alcohol reds, including high-alcohol pinots. And if you can get some of that power in a wine with 13.6% alcohol, so much the better.

There’s no “peril” here. It’s worth going back to how Parr described his policy at RN74 when it was his turn to speak on the panel:

It’s the old name of the road through Burgundy, and it’s my dream restaurant. I was going to leave Michael Mina to start it, but Michael asked me to do it within the fold. I decided that since the restaurant was going to be an homage to Burgundy, I decided I would only list wines that were made in a style of Burgundy. For me that means balance. I picked Pinot Noir or Chardonnay only 14% or below. The reason I picked that was, if you don’t know, that Burgundy actually has a maximum alcohol that is legislated at no more than 14.5%. So I did that and there was a lot of criticism, mostly from producers. I was surprised. We’re this is one little restaurant, it’s not going to change the world. The rest of our restaurants don’t have this rule.

RN74 has many wines over 14.5%, just not pinot, since pinot over that level isn’t Burgundian, and the restaurant is an homage to Burgundy. Yet somehow Steinberger takes this fetching idea and turns it into a “litmus test” of quality — something it isn’t, and was never intended to be.

Steinberger’s on a roll now:

There’s another thing to consider: A lot of people enjoy buxom wines, a fact that has largely been ignored in all the frothing over alcohol levels. One of the gripes about full-throttle wines is that they can be difficult to pair with food, which is true: The flip side of all that alcohol is that the wines are low in palate-cleansing acidity. But for many wine enthusiasts, this apparently isn’t a problem: A recent survey found that most of the wine consumed in the United States is not drunk with meals.

Well, the survey actually found that just 25% of wine was drunk without food; 56% was drunk either at dinner or while preparing it. At weekends, when most wine is drunk, 89% of wine was drunk before, during, or after a meal.

None of this means that there aren’t people who enjoy hot wines, or that winemakers shouldn’t make them if they’re so inclined. But the fact is that no one’s making that case: Steinberger is tilting at straw men here. Those of us who like lower alcohol and more acidity aren’t trying to deny the fact that if you drink those wines without food, or in a blind tasting, they’re likely to taste less good than their fuller-bodied counterparts. You want to drink a glass full of overripe drunken blackberries? Go right ahead, be my guest. But it would be great if I had the choice of a few more lighter options.

Which brings us to Steinberger’s grand finale:

What kind of pinot drinker are you? Here’s one way to find out. Go to your local wine store and buy two pinots with significantly different alcohol levels—say, 13 percent and 14.5 percent. Next, find someone who can open and pour the wines and serve them to you blind. Taste the two wines, pick a favorite and then ask your designated pourer to reveal which was which. Although I’m a paid-up member of the anti-flavor wine elite, I recently put my palate to the test with two California pinots. One was from the aforementioned Adam Lee; I tried his 2009 Siduri Santa Lucia Highlands Pinot Noir ($26), which clocked in at 14.5 percent exactly. The other was the 2008 Au Bon Climat Santa Barbara County Pinot Noir ($21), which was 13.5 percent.

This is astoundingly silly. For one thing, the difference between 13.5% and 14.5% is not all that great: it’s within the margin of error for reporting the alcohol content in the first place. Try comparing a 12.5% wine with a 15.5% wine instead.

Secondly, if you’re tasting these wines blind, without food, you’ll probably prefer the heavier, sweeter one. That proves nothing. There’s really no reason to believe that the kind of wines which you like in artificial, food-free blind tastings are the kind of wines you’re likely to prefer when sitting down to a nice meal with friends and family.

Steinberger’s a wine writer who is fully invested in the idea that if you simply taste a wine, raw, in the glass, and then spit it out into a bucket, that’s all you need to know in order to make a concrete determination as to its quality. He’s wrong about that. Wine is a living, organic thing, and it’s highly context-specific. It flowers best with great company and great food, in a setting where no one is trying to trick anybody else or think too hard about which of two wines they might prefer.

So here’s my test: live your life. Go to restaurants. Cook dinner. Have meals with friends. Enjoy yourself. And at some point in the evening, glance at the alcohol level of the wine you’re drinking. When you find a wine which really makes the whole experience sing — which enriches the evening in ways subtle and profound — my guess is it’s going to be lower in alcohol. And when you find a wine which bullies its way onto your palette, by contrast, and shouts rather than sings, it’s going to be higher in alcohol. But don’t take my word for it, work it out for yourself. And then start buying more of the wine that you love, for the contexts that you love it in.

My method isn’t as simple as Steinberger’s, and it’s a lot more time-consuming. But it’s less artificial, and much more reliable. Just remember: it’s only the high-alcohol partisans who retreat to the world of blind tastings to make their point. And no one, in the real world, tastes wine blind for pleasure.

Ezra Klein wonders what the intellectual justification is for hating on taxes; my question to Ezra is why there needs to be one in the first place. Sure, it’s always nice if a politician can point to an economist or two to provide some pointy-headed backup for his policies. But it’s hardly necessary. Remember that Hilary Clinton, one of the more intelligent and sophisticated politicians in the country, was happy to say that “I’m not going to put my lot in with economists” when she was challenged on the fact that none of them were buying in to her silly idea to suspend the gasoline tax.

Ezra’s fixated on economic growth as the goal which politicians are aiming for. But that’s not the goal at all. The real goal is the same as it’s always been: to get re-elected. And if you want to get re-elected in America, a hard-line stance against any kind of tax hike looks entirely rational.

This doesn’t mean that people like John Boehner are lying when they say that it’s better to risk a federal default than it is to raise taxes even a little bit. It’s just that incentives matter. And the kind of people who believe those things tend to do quite well in today’s Republican Party — especially since the Tea Party became a serious political force.

Americans, in voting for politicians who run on a hard-line anti-tax-hike policy, are not acting in their own best interests. But the politicians, on the other hand, are.

Steve Waldman wrote a great post examining this situation back in January — the Republicans are much better at surfing the tide of public opinion than are the Democrats, who are more likely to push the kind of policies which they think make the most intellectual sense.

The only thing you need to understand the Republican position on the debt ceiling is this number: 47% of Americans oppose raising the debt ceiling, while only 19% support it. Republicans will vote no on this for the same reason that they voted no on TARP — politically speaking, doing so makes all the sense in the world.

When asked why they’re voting as they are, they could simply cite the will of the people, which is quite a good reason in a democracy. Others will attempt some kind of economic justification. But an appeal to economists was never particularly compelling even before the crisis; now, it’s pretty much worthless. A political party trying to win election on the basis of “economists love us” is never going to get very far.

Still, this debate does make me chuckle a little, coming as I do from an emerging-markets background where one of the most common complaints of economists is that taxes are far too low. Look at Mexico, or even Greece for that matter: the fact that most people don’t pay taxes is extremely corrosive to both civil society and the public fisc. Politicians who try to drive us towards that state of affairs are being highly irresponsible. But highly irresponsible politicians can do very well, from time to time.

More levered ETF performance simulators — Symmetric Info

Seniors, Guns and Money — Krugman

I wonder how much money various trustees, lawyers, and fund managers have extracted from this fortune over 92 years — Daily

Yunus Resigns — Tumblr

Big Joshua Yaffa profile of Tufte — Washington Monthly

Fun With Charts: Making the Rich Look Poor — Drum

Has anybody used data search tool Zanran? Looks like it could be very useful — Zanran

Heidi Moore has found the owner of the Gaussian copula function tattoo — it’s advertising copywriter Jared Elms.

Jared’s professional work is great stuff — I particularly like his idea of pitting the Chrome browser against a potato gun in a speed test. His body art, by contrast, is more emo grad student: his first four tattoos were inspired by Samuel Beckett, Jean-Michel Basquiat, Ludwig Wittgenstein, and the Uruguayan-born French surrealist Comte de Lautréamont.

And now, to that list, you can add David X Li.

Why is Li’s ill-fated formula tattooed across Elms’s forearm? Here’s how Elms explains it:

All my tattoos are all concepts that are smarter than me that I’ll be chasing my entire life. It’s how I know I will never regret getting them, because these are concepts I never want to forget…

It’s pretty corrupt. It’s been hitting me pretty hard what happened just a few years ago. Then you see Carl Levin and the Senate looking to bring criminal charges against Blankfein. There are some key learnings that came out of that period in history, and it felt like it was a really appropriate thing to eulogize on my body…

To me this represents the recipe for human greed. It was severely misappropriated by traders, the way it was oversimplified and reduced it to a single gamma number – and they couldn’t stop using it even knowing the inherent fallibility in it…

I’m only now learning what was taking place and how it happened, because there are all these amazing books and documentaries, like David Harvey’s Enigma of Capitalism. And obviously Inside Job did an amazing job of articulating what happened, how it could all ripple and global…

I was just reading The Violence of Financial Capitalism, and that book got really deep into what was going on [during the crisis] from a trading standpoint. It’s a world I have very little knowledge about, how trading occurs and what those guys are doing. I wondered: Was there something they were all paying attention to, what were the tools they were referencing?

I remembered googling it and coming across that Wired article. It was an amazing article. I was really thankful for pieces like that. It was such a powerful concept to me, and when you realize how much [the Gaussian copula] embodies the potential for human greed, it ends up being a pretty powerful and poignant lesson. [The way companies communicate financially is] all predicated in obfuscation, like if we don’t understand, we don’t question. We should be vigilant and not forget, and this is the way I do not forget it.

The tattoo, then, is the work of a guy who very much buys the argument of David Harvey, who wants a Communist revolution which will overthrow the current capitalist regime. Elms is also a fan of this book, which as befits a Semiotext(e) publication includes lots of writing along these lines:

Crowdsourcing technologies, based on what Alexander Galloway called “protocological control,” represent the new organic composition of capital, i.e., the relationship between constant capital (as the totality of “linguistic machines”) dispersed in society and variable capital (as the totality of sociality, emotions, desires, relational capacity, and… “free labor”) deterriotorialized, despatialized, despersed in the sphere of reproduction, consumption, forms of life and individual and collective imagination.

Ellipsis, needless to say, in the original.

As someone who doesn’t want to overthrow capitalism and who has never read more than a few paragraphs of a Semiotext(e) book without needing to lie down and recuperate slowly, it’s natural for me to treat Elms with some prejudice — even though he does describe my Wired article as “amazing”, which is very nice of him.

But I do think Elms is onto something here. The financial crisis was a major event which was caused by Wall Street’s shortsighted greed — a greed which is epitomized in the way that the copula function became ubiquitous even though risk managers and even Li himself knew full well that it was extremely limited in how it should be used. If we want to “be vigilant and not forget” the destructive potential of Wall Street, then the Gaussian copula function is actually a really good thing to get as a tattoo.

There’s an irony here too. Elms got this tattoo, in part, because of its very incomprehensibility — the way it epitomizes the way that Wall Street is “predicated in obfuscation”. But Wall Street embraced Li’s formula for the opposite reason — that it was very tractable and easy to understand, at least if you were a quant with a degree in finance.

Elms’s tattoo is the version of the formula which I used in the Wired article — but it’s not, actually, the version of the formula which was used day-to-day on Wall Street. In fact, it took me a long time to find the formula written down in a manner which looked like an old-fashioned formula, and which I could annotate graphically — here’s the gamma, here’s the copula, here are the distribution functions. Most representations of the copula look nothing like that, and are much harder to understand.

All of which shows that Elms is absolutely right, at heart, about the copula function and what it represents. To Wall Street, it’s simple and easy — disastrously so. To the rest of us, however, it makes a Semiotext(e) book look like a Sesame Street lyric. And that, I think, is why Levin and Elms are going to be disappointed, and Blankfein is going to remain out of jail.

Back in 1933, when Ferdinand Pecora uncovered huge scandals on Wall Street, they were easy for all Americans to understand, and easy to protect against. This time around, Wall Street’s activities are incomprehensible not only to the lay person but even to senior bankers: a big part of the reason why the crisis was so big and so bad is precisely that people like Stan O’Neal and Bob Rubin failed at their job of understanding the risks their banks were taking. They were knavishly foolish, but still more fools than knaves — which means that it’s extremely hard to make a strong case in front of a jury that what they did was criminal.

And so maybe it makes sense to get a tattoo of the copula function — it’s a way of remembering not only the financial crisis, but also the dangers of believing other people who claim to have found a clever and simple way of improving the world. Such claims have a tendency to be entirely true, until they’re not.