Felix Salmon

Real estate datapoint of the day, 115 Allen edition

Felix Salmon
May 22, 2011 20:38 UTC

Back in June 2004, the penthouse apartment at 115 Allen St, on a dingy corner of New York’s Lower East Side, was briefly listed at $2.85 million. But that didn’t last long: by September, that number had risen to $4.5 million, a number designed to scare off any potential buyers and ensure that Seth Tapper, the developer, could justify keeping it for himself.

Which he did: the NYT profiled Tapper and his apartment in January 2006, in inimitable NYT style:

When Ms. Kanaaneh and Mr. Tapper installed countertops, a Russian handyman looked out of a north-facing window and saw the statue of Lenin that sits atop the Red Square building on East Houston Street. The handyman wept…

For now, [Tapper] said, he is focused on enjoying his home with his family and never failing to appreciate that view – all those views, really.

His biggest goal, he said, is never to get tired of looking out the window.

Well, it seems that Tapper did tire of looking out the window after all: his apartment is back on the market, this time for $5.5 million. Broker Irene Lo might have moved from William B May to Corcoran, but her brokerbabble remains untouched: back in 2004 we were told that the apartment “resonates the rich texture of the neighborhood in a private sancutary setting”, while today a Miele dishwasher “spills into the sleek, stylish living area that awes you any time of day or night”.

In any case, as Curbed notes, if the apartment sells for anything near its asking price, I’ll have to eat a certain amount of crow: I said in 2004 that “if the penthouse does go for $4.5 million, I’ll just hop on one of those flying pigs and leave a bottle of fine Scotch on the new owners’ terrace.”

According to Case-Shiller, a New York apartment worth $4.5 million in September 2004 should be worth about $4.2 million today: prices are meant to have gone down since then, not up. And I thought the place was overpriced at $2.85 million.

But two things are going on here: massive price inflation at the very top of the market, fueled by record Wall Street profits; and the continuing gentrification of the Lower East Side. And so this apartment is now valued at 1X the new benchmark — Nouriel Roubini’s own penthouse apartment a few blocks north.

All of which means that I’m still waiting for the shoe to drop, and Manhattan prices to return to reality — but I know I might be waiting a long time. And in the meantime, if you have any leads on flying pigs, I’d be much obliged.

Why Lagarde needs a full term in office

Felix Salmon
May 20, 2011 16:00 UTC

Would Mohamed El-Erian have moved from Harvard to Pimco in 2007 if he was only offered the job for less than 18 months, at which point he would have to reapply for his job under a different system? Because that’s the offer that El-Erian thinks the IMF should make to Christine Lagarde:

Instead of a new five-year term, Lagarde should be appointed just to complete Strauss-Kahn’s term that runs until 2012. During this period, Lagarde would be charged to lead the IMF’s Executive Board to put in place a selection process that is open to all nationalities, transparent and merit-based — or the minimum standard of governance for an institution that is owned by 187 member countries and charged to serve them under the principle of “uniformity of treatment.”

Of course, come next year, Lagarde would be eligible to stand for a full term in an election that is open to all; and one that is based on merit rather than misplaced notions of national prestige and harmful political horse-trading. 

If my assessment of her qualifications is correct, she would be well placed to secure the necessary global support under a process that is credible and long, long overdue.

I can see where El-Erian is coming from here, but this idea would hobble Lagarde’s effectiveness from day one, making her something of a lame duck even before she formally started. Yes, there would be a good chance that she would get a proper five-year term starting in 2012. But right now the IMF needs all the leadership it can get, and having a managing director serving out a deliberately-truncated term, as though she was just filling in for DSK rather than taking over in her own right, would not help in that regard.

If Lagarde is like previous European IMF MDs, she’ll pay lip service to the idea of implementing a transparent and merit-based selection process, but won’t actually do anything about it. That’s why El-Erian wants to force the issue now. But realistically, change on this front can only come from the Europeans themselves, probably in conjunction with a US decision that it would be willing to give up the top job at the World Bank. That will take a lot of delicate jostling and international negotiation. It’s not something which can be pushed through in the space of a week or two while the IMF is leaderless.


With El-Erian’s approach, it would be a lot more efficient to vet the IMF deputy to the chief position, rather than go through the entire process of nominating candidates for these short spells. Look at the recent history of the IMF leadership – the last 3 leaders did not fulfill their 5 year terms. If we had a system whereby the replacements merely filled in the old director’s shoes for the remainder of their term, we’d have ended up with a higher turnover, and consequently a less stable organization.

El-Erian’s proposal would only really be logical if the deputy was being promoted to the IMF leadership – that would provide the right balance of fairness and stability. It doesn’t make sense though given the existing election process.

Posted by sanchk | Report as abusive

Lagarde: it’s a lock

Felix Salmon
May 20, 2011 14:47 UTC

Christine Lagarde is going to be the next managing director of the IMF. European consensus is clearly coalescing around her: she has been endorsed by Germany, France, Italy, and the UK, not to mention Jean-Claude Juncker, who chairs the euro zone finance ministers. And the only other front-runner for the job, Kemal Dervis, has now ruled himself out after the NYT published an article about an extramarital affair he had many years ago. (The woman, I understand, still works at the IMF.)

The only thing standing in Lagarde’s way at this point is a French public prosecutor and the ongoing investigation into whether she abused her authority by pushing for an arbitration settlement in a case involving Bernard Tapie. We don’t yet know whether she will face a full inquiry — and we won’t know that until mid-June, which is far too late to decide on a nominee for the IMF job.

The past three IMF managing directors — Horst Köhler, Rodrigo de Rato, and Dominique Strauss-Kahn — have all failed to finish their five-year term in the job, leaving unexpectedly for various reasons. It’s pretty important that the next person in the role not suffer the same fate.

But it’s even more important, in the eyes of the Europeans, that they nominate a consensus candidate and push that person through. At this point Lagarde is the consensus candidate; it seems inconceivable that the consensus could shift to someone else in a short space of time. So while the Belgians and others might have misgivings about nominating someone who’s under a legal cloud, that’s not going to be enough to prevent Lagarde’s nomination.


You assume, unjustifiably, the candidate ultimately selected will be European.

Posted by Jablonski | Report as abusive

Adventures with CNBC anchors’ statistics

Felix Salmon
May 20, 2011 14:06 UTC

CNBC’s Joe Kernen reports the news in the morning in a fast-paced environment where it’s difficult to be 100% accurate. If you write a book, by contrast, you have the time to make sure you get things right. So it’s good to see that now Kernen is plugging his book, he has no time for baseless factoids. Oh, who am I kidding:

Q: Give us some examples of how you see business people portrayed in the media.

A: There was a study done of TV which looked at hundreds of hours of prime time. You were four times more likely to commit a crime if you were a CEO than if you were a drug dealer or a gang leader.

Does he mean this study, by Ray Surette, author of Media, Crime, and Criminal Justice: Images, Realities and Policies? Here’s what it found:


Hm, no, he can’t mean that study, because it doesn’t show anything like what Kernen is talking about. Businessmen only accounted for 24% of crimes on TV even when you include crimes which were ordered by businessmen but carried out by professional-criminal flunkies. Meanwhile, it stands to reason that 100% of drug dealers on TV commit a crime — since by definition they’re being portrayed as illegally dealing drugs.

So maybe Kernen’s not quoting a study at all, and instead is quoting a half-remembered 1979 polemic by — wait for it — Ben Stein. Cecil Greek summarizes:

Ben Stein wondered why prime time crime consisted almost exclusively of white upper-class violence. After watching thousands of hours of TV crime shows, he reported never to have seen a major crime committed by a poor, teenage, black, Mexican, or Puerto Rican youth, even though in reality they account for a high percentage of violent crime.

Most likely, Kernen’s just quoting something somebody told him at dinner one evening, and which sounded too good to fact-check. After all, that’s the way that CNBC works. You just put a lot of shouty people on the TV saying things of dubious coherence, sit back, and enjoy the cacophony.

Kernen works in a world where ratings are more important than accuracy, and he’s just carrying that philosophy over to the book-publishing business. I doubt that his publishers, the “dedicated conservative imprint” Sentinel, mind in the slightest.


“Related to the disproportionate emphasis on the most serious end of the crime spectrum is the portrayal of the demographic characteristics of offenders and victims presented by crime fiction. Offenders in fiction are primarily higher-status, white,
middle-aged males (Pandiani 1978: 442–7; Garofalo 1981: 326; Lichter et al. 1994: 290–5; Reiner et al. 2000a and 2000b). … Apart from gender, the demographic profile of offenders and victims in fiction is the polar opposite of criminal justice statistics (Surette 1998: 47 calls this ‘the law of opposites’). (See also Pandiani ibid.; Garofalo ibid.; Lichter et al. ibid.; Barclay and Tavares 1999: chapters 2 and 3. Sparks 1992: 140–45 offers a qualitative analysis.)”

Posted by Nameless | Report as abusive


Felix Salmon
May 20, 2011 07:02 UTC

DSK and the Rikers Redemption — FT

Jon Stewart Takes Down Ben Stein — Gawker

The astonishing story of the Tokelau teenagers — GQ

Aid Watch, RIP. A sad day — Aid Watch

SecondMarket has now released LinkedIn’s price history. So why wasn’t this information in the S1? — All Things D


“So why wasn’t this information in the S1?”

A very good question, and an auspicious start to the new “Internet as Social Media” bubble.

Posted by klhoughton | Report as abusive

Should the Fed be worried about wage inflation?

Felix Salmon
May 19, 2011 22:37 UTC

Kathleen Madigan blogs — without linking to — the latest FOMC minutes, and picks up on an important point: the Fed is keeping rates low largely because it sees little risk of wage inflation. If and when wages pick up, the Fed isn’t particularly worried about inflation. “But if wages pick up,” she writes, “the Fed may step in.”

Mark Thoma is unimpressed by this: “We are much too worried about a wage-price inflation cycle breaking out and causing problems,” he says. “If the Fed is too trigger happy, it could snuff out the recovery it is hoping to bring about.”

There’s a good reason to be sanguine about rising wages, and that’s rising food and energy prices. The Fed prefers to look at core inflation when setting monetary policy, on the grounds that food and energy prices are too volatile for it to be able to control, or tend to be cyclical. But they loom large for Americans when it comes to the cost of living, and wage increases are needed to pay for higher grocery bills and more-expensive tanks of gas.

John Kemp does a good job of explaining why the Fed should look at headline rather than core inflation. But at the same time, it probably should keep an eye on wages as well. After all, wages are pretty much the one thing which wasn’t hurt by the recession:


To put this in terms even a politician can understand, the average weekly paycheck is now $787.19. That’s $59.78, or 8.2%, higher than it was at this point four years ago — and the rate of increase in wages is not slowing down. If you have a job at the next election day, you’ll likely be earning between 8% and 10% more than you were when Barack Obama was elected. This country has many problems, unemployment first and foremost among them, but stagnant wages and employees being underpaid are pretty low down the list, if they’re on it at all.

I do think that productivity gains should go more to labor and less to capital, but in the first instance that should take the form of increased hiring, rather than wage increases for the already-employed. Those of us with jobs are the fortunate ones — and yes, if we’re paid more, we’ll spend more, and that in turn is likely to show up in higher prices. The Fed is probably right to be worried about wage inflation. But that just means that it should look for ways to divert that money into new hiring, rather than raising rates to choke it off altogether.


That Kemp article is just crazy wrong.

“The Fed is focusing on the wrong “output gap”. It should be looking at the output gap globally and in commodity markets, rather than in the United States and the labour market and manufacturing.”

The United States Federal Reserve should target a price level determined by global commodity markets. That is just an insane idea.

Posted by AASH | Report as abusive

No change in how the IMF picks its leader

Felix Salmon
May 19, 2011 20:07 UTC

The IMF has released a one-page factsheet on the selection process for its top job, which is not very easy to understand. But the main message is reasonably clear: we have a process for choosing the managing director which we’ve followed in the past, and we’re not going to make any indication that the process will be any different this time around.

There are basically two ways that the managing director can be chosen. There’s the smoke-filled-room approach which has always been used in the past, and which will, it seems, be used this time too. Here’s how the IMF describes it:

An Executive Director may submit a nomination for the position. When more than one candidate is nominated, as has been the case in recent years, the Executive Board aims to reach a decision by consensus.

Alternatively, there could be a more qualifications-driven approach, as suggested by Mohamed El-Erian, with “an internationally balanced committee” evaluating applicants based on qualifications alone (rather than nationality), and putting forward two or three finalists for the board to vote on, based on the same criteria.

The official criteria make no mention of nationality, of course — but they don’t need to. Since we’re now officially using the same process that was in place in 2007, it’s reasonable to assume that the same kind of candidate is going to win. In other words, Christine Lagarde — who has all of DSK’s qualifications, plus the added bonus of being a woman. Maybe next time we’ll have a transparent selection process. This time it’ll be business as usual.

The LinkedIn pop

Felix Salmon
May 19, 2011 16:27 UTC

Why is LinkedIn doing so well on the stock exchange today? At $100 per share, by one measure it’s the most expensive stock in America. Evan Newmark has one theory: it’s because the IPO price was raised, by Morgan Stanley, by $10 per share shortly before the offering was launched. By doing that, he says, they increased the size of the pop:

Strangely, jacking the price by 30% made the offering even more enticing for lots of prospective IPO buyers.

The laws of supply and demand may say the higher the price, the less the demand. But again, that’s common sense and this is Wall Street, where a higher price equals more demand, where if the other guy wants something, then you want it even more.

Does this explain why the shares rose as high as $122 apiece this morning? No: that’s mainly just a function of the fact that it’s all in the hands of the day traders and the speculators right now. And the fact that if you buy the right hot internet stock even at the very top tick of the day, you can still make a fortune over the long term.

Take Baidu, for instance, the post-bubble record holder when it comes to first-day pops. It went public in 2005 at $27 per share, and closed that day at $122.54 — a gain of more than 350%. Today, it’s trading at $134 per share. Which might not seem like much of a gain, until you realize that there was a ten-for-one stock split last year: it’s up more than ten times from that IPO-day high point.

My feeling is that LinkedIn is going to remain hot until Facebook goes public and it’s no longer the only way for most investors to buy shares in a social network. I’ve had two conversations with LinkedIn fans over the past couple of days, and I still don’t really understand what they see in the company, or the website, beyond the fact that it’s a good way of finding and vetting possible employees or business partners. Which, admittedly, is a great niche to be in, if you can monetize it somehow.

And even at a capitalization of $10 billion, LinkedIn could still be acquired quite easily by Facebook, especially after Facebook goes public. And that is going to be a hot IPO. Maybe if they price it at a $70 billion valuation, it’ll be worth $150 billion by the time the day is out.


uh – tiger4 – work on your game….very obvious.

Posted by emilymerkle | Report as abusive

How Rajat Gupta corrupted McKinsey

Felix Salmon
May 19, 2011 15:00 UTC

Just how corrupted was the culture of Rajat Gupta’s McKinsey? Suzanna Andrews reports:

McKinsey had a culture of superiority, says one longtime client, who declined to be identified, adding that consultants at the firm really seemed to think they were better than anyone else in the business world. This CEO is still shocked recalling an incident in the late 1980s, when a McKinsey team offered to provide him with a road map of what his competitors were doing. When asked how they could produce such information, he was told that McKinsey also worked with his competitors, but he could trust McKinsey to know what was confidential information and what was to be kept private. He says arrogance permeated the firm. The usual rules seemed not to apply. When this CEO listened to a wiretapped phone call from July 2008, in which Gupta relayed to Rajaratnam the details of the Goldman board’s discussions about buying a commercial bank, it sounded to him just like Gupta consulting a client.

Gupta seems to have been directly violating internal McKinsey rules for years:

As the managing director and then as senior partner of McKinsey for four more years before he retired, he ran his own consulting business on the side — a violation of McKinsey rules…

While Gupta was devoted to his philanthropy in India, his quest to amass great wealth led him to lapses in judgment, says Bala Balachandran, dean of the Great Lakes Institute of Management in Chennai, India, and a friend for almost three decades.

“He wanted a billionaire’s life and the question for him was how could he become a billionaire in a short time,” Balachandran says.

If Andrews’s CEO was shocked by what a presumably-representative McKinsey team would do in the course of normal business, one can only imagine what Rajat Gupta and Anil Kumar got up to at Mindspirit, the company set up by their wives (!) to consult for InfoGroup CEO Vin Gupta — or what services Gupta provided to Genpact which resulted in him getting 81,405 stock options at a strike price of less than a buck apiece. Genpact, whose sole client is GE, another McKinsey client, is currently trading at $16.88 per share, which means that Gupta’s options in the company are worth well over a million dollars.*

And Andrews does put forward one explanation of why Gupta might have been giving such valuable information to Raj Rajaratnam. It’s not because he was being paid for it directly, but rather because he had much bigger ambitions: he was negotiating with Rajaratnam for a 10 percent to 15 percent stake in the Galleon International Fund in exchange for attracting investors and becoming the fund’s chairman. And the wiretaps don’t end there:

Listening to the pleading tone in Gupta’s voice as he pitches himself to Rajaratnam is almost painful. “I can be helpful in Galleon International, by the way—not Galleon International, Galleon Group,” he says, apparently angling for a bigger job. “I mean you’ve given [me] a position in Galleon International, that’s good enough. I, I … ,” he breaks off.

It seems clear that Gupta had various personal crises and issues which obviously aren’t reflective of McKinsey as a whole. But at the same time, this quiet man who described himself as a servant to McKinsey’s partners was clearly never going to crack down on any of them if and when they started pushing the envelope in terms of fishing for clients by trading in confidential information. Unless and until some heads start rolling within McKinsey, it’s fair to assume that many of the most successful Gupta-era partners remain. And we’ve been given precious little reason to trust in their integrity.

Update: Gail Marold of Genpact responds in the comments, saying that Gupta provided no consulting services beyond his capacity as a director. And although Genpact did start life as a division of GE, it now gets 62% of its revenue from non-GE clients.


Felix, on behalf of Genpact, I must clarify the inaccuracies in your post. First, I have provided the following statement to Bloomberg Markets and Businessweek, the originators of these feature stories on Mr. Gupta:

“Rajat Gupta was a non-voting advisory director for Genpact from 2005-2007 and a voting director and chairman of our board from March 2007 to March 2011. Contrary to what is stated in these recent articles, Mr. Gupta was not at any time engaged by Genpact to provide consulting services in his individual capacity. Mr. Gupta’s association with Genpact has always been public information and all compensation paid to Mr. Gupta by Genpact for his services as a director has been fully disclosed as required by the rules of the US Securities and Exchange Commission. “

Further, the options that Mr. Gupta received from Genpact during his time as an advisory director were designed to not vest until he became a full-time director, as he did in 2007.

Second, as background, Genpact (NYSE: G) is a $1.2B global business services company that was founded as a division of GE in 1997, now with more than 400 clients around the world and more than 48,000 employees now that we recently made a $550 acquisition of Headstrong. Per our year-end 2010 financials, revenues from GE businesses comprised 38% with 62% coming from other global clients. We continue to increase our revenues from both GE businesses and global clients.

It is important that the facts are reported correctly. Thank you very much.

Gail Marold
Genpact Public Relations

Posted by gailmarold | Report as abusive