Felix Salmon


Nick Rizzo
Aug 18, 2011 05:25 UTC

In a blatant publicity bid, Abercrombie & Fitch has offered to pay a “Jersey Shore” cast member not to wear their apparel. Ouch. That organization is like a publicly traded organization of Mean Girls. At least it received its comeuppance, losing more than 8% of its value.

LA to S&P: “You’re fired.” Now no more ampersands in this post, I promise.

Dude, where’s my inflation?

Here’s a rather interesting, rigorous analysis of how the unemployed re-orient their time priorities. Read it, if you can spare the time.

Christine O’Donnell walks off the set of her interview with Piers Morgan. Perhaps she found out that his people came to this country to burn witches.

After wasting our time with two days of Media Power Bachelors and Bachelorettes, the New York Observer can at least claim credit for one new happy couple. (Created by this amusing app.)


Re: LA vs. S&P. That makes sense. Complain that they didn’t downgrade fast enough a couple years ago, then when they downgrade, fire them. Money talks. “The truth? You can’t handle the truth.”

Posted by Setty | Report as abusive

It doesn’t matter where your kid goes to school

Felix Salmon
Aug 17, 2011 20:31 UTC

“The Elite Illusion”, a new paper from Atila Abdulkadiroglu, Joshua Angrist, and Parag Pathak, is causing quite a stir in the blogosphere today. (An ungated version is here; see commentary from Mathews, Yglesias, and Salam.)

The main lesson of the paper — which doesn’t surprise me in the slightest — is that students at highly-selective schools, like Stuyvesant in New York or Boston Latin, don’t seem to perform any better than students who might well have gone to those schools but didn’t. In other words, the outperformance of such schools on tests is a function of how selective they are; it’s not a function of how good the teaching is.

A couple of points are worth making here. First is the difference between selective public exam schools, on the one hand, and selective private schools, on the other. The latter are much more expensive, both for parents and on a cost-per-student basis. Reihan Salam is also right that when it comes to hiring teachers, public schools have lots of bureaucratic nightmares that private schools can often avoid.

That said, the lesson of this paper is emphatically not that you’d be better off sending your kid to a private school than to a public exam school. You wouldn’t — as the exam results alone indicate. There aren’t a lot of studies of public vs private schools, but the ones which do exist generally show no difference at all in educational outcome, once you control for the socio-economic status of the kids being admitted. Essentially: middle-class kids who grow up with two well-educated parents and lots of books around the house will generally do very well in school no matter where they go.

This new paper shows that there’s not much difference between public schools, either — even though everybody “knows” that the highly-selective exam schools are better than the alternatives, and many parents will only send their kids to a public school if they get in to one of the very selective ones.

That said, Salam — who went to Stuyvesant — does make one good point which undercuts slightly the thrust of the paper:

The 100 most competitive students at Stuyvesant were indeed very competitive, with almost all attending selective schools, etc. The least competitive students fared less well… I was one of them, incidentally, and I clawed my way out with the help of a few people who continue to be my closest friends, all of whom have gone on to distinguished careers.*

He then quotes Jesse Anttila-Hughes, who teases out the implications of the study, which looked at the kids near the cut-off (she’s he’s one of them), not the brightest kids in the school. The study is essentially taking the experience of kids who are in the bottom 10% of Stuyvesant, and comparing them to kids who are in the top 10% elsewhere. If you’ve ever been a kid, you’ll know that massive difference in relative ability will have enormous repercussions when it comes to your educational outcomes.

Anttila-Hughes continues:

A major reason specialized schools exist is not to help marginal kids do better but to allow superstar kids to do extraordinarily well. Stuy is famously referred to as a “haven for nerds” and like many top schools succeeds by virtue of giving driven and talented kids the chance to do what they want and the resources to do so… I strongly suspect that the causal effect of going to the school is hugely nonlinear in ability.

This might be true — but on the other hand, it might not be. Nerds flourish in the most unlikely places (like Far Rockaway High School), and while there’s a high density of nerds at Stuyvesant, we’d need another study to show how they fare there compared to elsewhere.

In general I think that the obsession over the relative merits of different schools is a classic example of the narcissism of small differences. Some kids fit in much better at this school than at that one — and just as many would be better off at that one rather than this one. There’s no easy way of generalizing, no sense in which School A is in general a significantly “better school” than School B. When it comes to educational outcomes, by far the most important factors determining them are external to the school — the kid’s health, wealth, and home surroundings. And most important of all, of course, is the character and personality of the individual person being educated — something which is much more innate than subject to shaping.

So if your kid doesn’t get in to Stuyvesant, it’s no bad thing — in fact, it might well be a good thing, given that your kid would probably in that case have been near the bottom of the Stuyvesant class. And before you shell out on school fees, ask yourself whether the money wouldn’t be better spent on other forms of education — books, computers, travel, theater, and the like. School’s important. But it’s not nearly as important as most middle-class parents think it is.

*Update: Apologies to Reihan Salam: this is a misleading ellipsis. He was one of the bottom half of Stuyvesant students, not one of the least competitive students in the whole school. He emails to say that “unfortunately, I think it would’ve been far harder for me to get from, say, the tenth percentile to a stronger position than from the 50th percentile”.


Being a student that was probably in the bottom 10 percent of my class at Stuyvesant, my point of reference is different, but my conclusion the same: Though the vast majority of teachers were bad (ironically, the best teacher I had at Stuy was a Stuy alum himself), it was the student body that made the school special.

I’m sure most of the graduates from Stuyvesant would have fared just as well academically in other high schools (perhaps even better), however, the experience of being surrounded by peers who were just as “nerdy” as you, especially during your teenage years, really helped you develop in ways that this study couldn’t measure.

I had to attend my local high school for summer classes a few times and the difference between the two schools was startling. If I raised my hand to answer a question at my local high school, the kids would immediately ostracize me, which made me reluctant to participate. At Stuy, the same thing would immediately spark a discussion in class and, at worst, lead to a controlled argument. Most teachers just sat back and let the students teach themselves. Even us underachievers would sometimes spend free periods or times spent cutting classes talking about math, science, or politics. I’m sure I wouldn’t have the same luxury in my local high school.

Even as a bottom ten-percenter, I had no problem getting into college and doing well once I got there. If I had gone to my local high school, perhaps I would’ve gotten into a better college since it would’ve been easier to stand out and do well academically. But ultimately, I still managed to be just fine and ended up an engineer.
Again, the value of going to a specialized high school comes down to the student body – even the “bad kids” end up doing okay for themselves.

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Is the press to blame for pop-up restaurants?

Felix Salmon
Aug 17, 2011 16:25 UTC

My Gastronomics column today is about pop-up restaurants, and how they’re generally what Ryan Sutton would call a bad deal. Essentially, you take the amount of money you’d normally pay at a polished operation which spends a lot of money and effort on what the Zagat guide would call “decor and service”. And then you spend it on food alone, with little if any attention paid to the decor-and-service side of things.

The piece is inadvertently timely, coming as it does in the wake of GQ restaurant critic Alan Richman’s mea culpa when it comes to the important question of service:

Everyone takes poor service personally. Get a bad table and you’ll wonder if the hostess finds you unworthy. Find yourself with a disrespectful server and you’ll feel worse, because you’re expected to tip…

Critics like me deserve some blame for the current proliferation of impossibly low service standards in so many casual New York restaurants. We tend not to censure lackadaisical conduct, thinking this is what customers want and that we would appear out of touch if we disapproved…

I wish I had never been so forgiving in my reviews of New York restaurants. I should long ago have paid attention to this disastrous decline in service. Casualness in restaurants does not automatically make customers feel more relaxed. It often has the opposite effect…

I appreciate an atmosphere lacking formality. I love Momofuku Ssäm Bar in Manhattan and Schwa in Chicago, both unpretentious and unfussy—but also attentive. They employ people who know how to take orders, fill glasses, clear plates, drop checks. Neither neglects customers. These days, too many new restaurants do. Their motto might as well be Too Cool to Care.

Well-run restaurants recognize that thoughtful service enhances an evening out, and that a bit of formality might be required in order to reach that goal. Customers these days tend to confuse discipline and manners with arrogance. Perhaps they are remembering the excess stuffiness of decades past. That hardly exists any longer. Arrogance today is exhibited by inconsiderate servers who do almost nothing for customers other than slap plates down in front of them and expect a generous tip. Arrogance is a restaurant believing it can prosper without looking after its customers.

I half-agree with Richman here: he’s right that restaurant critics are indeed to blame for much of the bad service we’re seeing. They nearly always concentrate on the food, with the rest of the dining experience something of an afterthought; what’s more, while they’ll say good things about good service, they do tend to soft-pedal complaints about bad service.

But in fact the food press more generally should shoulder an even greater part of the blame. Reviewers at least care about service — but outside of restaurant reviews it’s barely mentioned at all. Pop-up restaurants, in particular, get lots of buzz just before they open, when no one knows what the quality of service is like — and food reporters breathlessly detail their opening dates and their menus just because they’re new.

The desire of food bloggers and reporters to cover pop-ups is analogous to the desire of financial reporters to cover daily moves in the stock market: it’s happening now, it’s news, so therefore it must be reported — ideally as breathlessly as possible. And just as stock-market reporting is generally unhelpful when it comes to individual investment decisions, reporting about pop-ups is equally unhelpful when it comes to working out where to eat this evening. All that buzz makes the restaurant top of mind, even when you can almost certainly get a better meal for a lower price with better service and fewer kinks in the kitchen at just about any long-established place.

As a general rule, any food event is going to be a disappointment, compared to an old-fashioned meal at a polished restaurant — and pop-up restaurants count as food events. Leave ‘em to the hipsters: if you love your food and love your restaurants, best avoid pop-ups entirely.


High-end restaurants aggregate, because multiple people serve a table and management wants to incentivize everyone to pay attention to every customer. Most restaurants do not aggregate, because they are just hoping to incentivize at least one person to pay attention to each customer (with mixed results). That is the difference between your perspectives.

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Designing a national consumption tax

Felix Salmon
Aug 17, 2011 13:50 UTC

The US government, when it taxes individuals, taxes only what they earn, and not what they spend; this is one big reason why we have a gaping budget deficit. Every other developed country in the world has some kind of consumption tax, as indeed do many US cities and states. If the US is serious about getting its fiscal house in order, a consumption tax of some description is likely to be necessary.

Bloomberg has come out in favor of a value-added tax of the kind familiar to those of us from Europe. It’s a tried-and-tested solution, and it’s superior in just about every way imaginable to the flat sales taxes that Americans are used to right now. It’s spread along the supply chain instead of being back-loaded at retailers; it is much more adaptable to an economy based on services rather than goods; and it easily captures online activity from places like Amazon.com which current sales tax regimes find hard to deal with.

There would also be a reduction of tax-collecting bureaucracy: rather than having to operate their own sales-tax regimes, states and cities could simply use the national one instead.

Any sales tax, of course, is regressive, and would therefore need to be combined with some kind of income-tax credit. But if you take that as a given, then there are real advantages to consumption taxes: for one thing, they provide an incentive to save and invest rather than to spend. That might be bad for the economy in the short term, but it’s good in the long term: we need to get our national savings rate up. And there could even be a short-term benefit, as Bloomberg points out:

The time needed to implement a VAT — as much as two years — could even provide a much-needed economic stimulus. If people knew the tax was coming, they would probably make big purchases now.

Count me in with the idea of a national consumption tax, then. But there are other ways of implementing such a thing, and it’s also worth resuscitating the progressive consumption tax idea that Robert Frank laid out very clearly in 2007.

Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. A family’s annual consumption is simply the difference between its income and its annual savings. That amount, minus a standard deduction — say, $30,000 for a family of four — would be the family’s taxable consumption. Rates would start low, like 10 percent. A family that earned $50,000 and saved $5,000 would thus have taxable consumption of $15,000. It would pay only $1,500 in tax. Under the current system of federal income taxes, this family would pay about $3,000 a year.

As taxable consumption rises, the tax rate on additional consumption would also rise. With a progressive income tax, marginal tax rates cannot rise beyond a certain threshold without threatening incentives to save and invest. Under a progressive consumption tax, however, higher marginal tax rates actually strengthen those incentives.

Frank laid out his tax as an alternative to the income tax; my feeling is that given how-do-we-get-there-from-here problems and also diversification benefits, it’s worth keeping them both at some level. We should keep the income tax, at a lower level than it is now, and increase Frank’s standard deduction to say $40,000 a year. Anybody spending less than that pays no consumption tax at all, while consumption of hundreds of thousands of dollars a year could be taxed at say 20% and consumption in the millions could be taxed at a higher rate still.

All of this could conceivably be done in a revenue-neutral way, with income taxes falling to make up for the new consumption taxes. But that would defeat a large part of the purpose, which is to get US incomes and expenditures roughly in line with each other. Up until now, the federal government has essentially been taxing with one arm tied behind its back. If we want to get serious about the deficit, then it’s time to free up as many new sources of tax revenue as we can find — including such things as a carbon tax, a wealth tax, a financial-transactions tax, and, yes, a consumption tax.


It saddens me that Americans seem to have completely forgotten Henry George. That said I think I know why, see this, http://homepage.ntlworld.com/janusg/coe/  !index.htm (Mason Gaffney – Corruption of Economics).

Maybe the consumption tax, at least in theory, has advantages over an income tax, however it suffers from most of the same problems of definition (what is and isn’t consumption, what are and are not savings etc – a lawyers and tax accountants charter just like the present system). It also suffers from continuing to be an attempt to tax mobile individuals and ephemeral companies(unless companies are exempt in which case there is a gaping loophole). The system will be just as complex and just as big a drain on our human resource (all those tax lawyers and accountants that might otherwise do something useful) as the present one. It may provide marginally better incentives than the present system but only to the extent that it can be effectively implemented, and, as I say, I doubt that.

Americans need to remember Henry George.

As for a VAT, well if Henry is right, maybe we don’t need sales taxes at all.

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Nick Rizzo
Aug 17, 2011 07:39 UTC

Lots of good news today! Regulators still have no particular way to unwind big banks, while Bruce Bartlett argues that aggregate demand isn’t changing any time soon. The German economy, Europe’s best hope, is starting to get echt scheisse. And Texas governor Rick Perry thinks Ben Bernanke is “almost treasonous.” Thanks, Rick.

Meanwhile, Manchester United is considering raising $1 billion in an IPO in Singapore. Is Man U being short sighted? Perhaps they’ll apply corrective vision to the back end of the deal. I always preferred the Red Rebels, anyway.

Here’s a possible explanation for why people bought T-bills after the downgrade: Is money a Giffen good? The troubled NY City Opera must be hoping that its subscriptions are Giffen goods: minimum subscription price is UP 400%.

In New York City, a judge tosses the lawsuit against the Prospect Park West bike lane, while GQ critic Alan Richman ravages hot new restaurant M. Wells.

Police in Santa Cruz, California are using a computer program to predict when and where crimes will occur and stop them before they start. No word on what happens if only two of the three pre-cogs agree.

Reuters’ own Anthony De Rosa is a New York Observer Media Power Bachelor. Congratulations, Soup. While Felix wasn’t eligible for that list, you are eligible to win a very handsome signed drawing of everyone’s favorite British finance blogger by becoming a fan of Reuters on Facebook. You’ll also win my undying enmity, as that print was supposed to be mine.


Another reason people might have bought T-bills is because they were not downgraded. Just throwing it out there.

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The dual-taxation meme

Felix Salmon
Aug 17, 2011 04:07 UTC

Warren Buffett’s op-ed on Monday calling for higher taxes for the very rich clearly touched a national nerve. Which is one reason there’s been a steady stream of arguments from the right explaining that in fact he’s wrong when he says that he pays much lower taxes than anybody who actually earns money from a job. And there’s one argument in particular which seems to be very popular.

Here’s Daniel Indiviglio:

The income that a corporation makes is first taxed at 35%. Then, a dividend is paid out — after taxes. If you obtain that dividend, should it be taxed? Well, it already was — at 35%. For this reason, it makes sense to tax it at 0%. If you tax it more, then you are taxing the income it produced twice.

And here’s Tim Worstall:

In the U.S. system from our $100 first we take $35 at the corporate level. Then we take another $15, or the dividend tax rate of 15%, from the recipient. Giving us a tax rate of 50% on dividends. We’ve taken $50 from the total amount that was to be used to pay dividends.

And here’s the WSJ:

Much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%.

Amazingly, the WSJ editorial page is the most honest of the lot here, insofar as it admits that U.S. corporations don’t actually pay 35% tax on their corporate earnings. In fact, U.S. corporate taxes account for just 1.8% of GDP, the lowest number in the OECD, far behind, say, Switzerland (3.3%), Britain (3.6%), Japan (3.9%), or Australia (5.9%). We could literally impose that tax burden twice over and still only come up to the OECD average of 3.5%. So much for the WSJ’s idea that “this onerous tax on capital is a U.S. competitive disadvantage in the global economy”.

But there’s a deeper conceptual problem with the double-taxation argument. Money sloshes around the economy, and it’s taxed at various points along its journey. If I pay sales tax, for instance, I do so with my post-tax income: you can’t deduct the sales tax you pay when you file your taxes every year. Follow a dollar on its way around the economy, and you’ll find it being taxed at city, state, and federal levels; as income and as capital gains; and in many other ways besides. If it’s used to pay for a plane ticket or a cellphone bill or a hotel room, for instance, there are likely to be all manner of taxes imposed on it.

In fact, I’m a fan of the idea that one great way to simplify the tax code is to get rid of the deductibility of tax payments altogether; in particular, state and local income taxes should not be deductible. That deduction costs the federal government some $50 billion a year, for no good reason. By definition, all of that money goes to people who itemize their taxes, who are generally rich: 16% of it, in 2004, went to people earning over $1 million per year, and the number has probably risen since then.

All money has been taxed at some point along the line, many times over. Indeed, given the extremely modest rate of growth of the money supply, the government basically just taxes the same monetary base over and over again in order to generate its revenues. If we didn’t impose taxes on money which had already been taxed, then we wouldn’t have any taxes at all.

So enough, please, of this idea that if corporate profits are taxed once, at the corporate level, then that means they should never be taxed again when they show up as individual income. That income is unearned: if anything, it should be taxed at a higher rate than earned income, because we want to encourage people to create value by working, rather than just living parasitically on the labor of others. If you want to make an argument that unearned income should be taxed at a lower rate, go right ahead. But don’t give me the dual-taxation argument. Because the same argument can be applied to just about any tax you like.

Update: A group called Citizens for Tax Justice has more reasons (PDF) why the dual-taxation meme is silly. A few:

First, about two thirds of personal dividends paid by taxable corporations go to tax-exempt entities such as retirement plans and university endowments. In all likelihood, a similar percentage of capital gains on corporate stock are also tax-exempt.

Second, taxes on capital gains earned outside of tax-exempt plans are not imposed until shareholders sell their corporate stock at a profit. This means that those taxes can be deferred indefinitely. And even if individual shareholders do report taxable capital gains, they often will offset such gains with capital losses (by selling stocks that did poorly at the same time).

Third, even personal dividends and capital gains that show up on tax returns are not subject to the Social Security tax of 12.4 percent that applies to the earnings that make up most or all of the income of middle-class taxpayers.


Any taxes paid by any business are passed along to their customers. They become indirect taxes which inflate every product and/or service sold by an average of 15%. The business or corporation may pay the tax directly but they pass the bill for the cost of that tax along to their customers. Why do they complain so much when we end up paying the their bills anyway. These taxes should be progressive too so smaller businesses would have tax advantage which would allow them to grow instead of all the advantage going to those that have already made it.

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How New York’s opera companies treat their fans

Felix Salmon
Aug 16, 2011 20:53 UTC

There’s an opera to be written here somewhere: a man devotes 15 years of of his life to an unpaid labor of love, and when he finally gets noticed by the object of his affections it’s when he’s told to go away and stop what he’s doing forthwith.

Zachary Woolfe has the backstory. Brad Wilber’s Met Futures was a regular destination for opera lovers around the world, including those who worked at the Met: it aggregated all the information available about who was going to be appearing in future productions at America’s greatest opera house. And then, suddenly, it didn’t:

In May, Mr. Wilber was contacted by the Met for the first time. He received a phone call from Sharon Grubin, the company’s general counsel, who asked Mr. Wilber to take down Met Futures…

Mr. Wilber agreed to remove the list, which he did early last week. “I’m not by nature an especially subversive person,” he said. “And I always told myself that if it got to the point where the Met expressed concern I would take it down.”

Representatives from the Met’s communications department offered him some CDs, which he accepted, and they spoke with him about the tone and content of his farewell post.

This is the best-case scenario as far as what the Met thinks it wants is concerned: Grubin clearly gauged her approach to Wilber perfectly, and couldn’t be happier with the outcome.

Whether the Met was right to try to take down Met Futures is another question entirely. Whether you’re making books or music or films or musicals or Broadway shows or operas, you’re generally going to have a substantial staff of people, armed with a large budget, devoted to trying to create advance buzz for your product. Brad Wilber, singlehandedly, and at no cost to the Met, did a better job in the advance-buzz stakes than most Met staffers. They should have been showering him with love and attention — and given the accuracy of his listings, it’s entirely plausible to believe that he had a few back-channels open for much of Met Futures’s existence.

There are two stated reasons why the Met wanted Met Futures taken down: that sometimes there were errors; and that it “muddied negotiations with artists”. Given the large disclaimers on the site, which in no way looked officially affiliated with the Met, I can’t believe that either was a particularly big deal. But organizations like the Met tend to attract control freaks, and it was probably inevitable that if Met Futures caused even a little bit of trouble for someone senior enough in the organization, that this day would arrive. A small but salient immediate problem is a lot more noticeable than a significant long-term benefit which is hard to notice or quantify.

And so Grubin was charged with approaching Wilber with the intent of getting the site taken down. As Woolfe says, she had no legal leg to stand on — but when the general counsel of the Met talks to someone with no legal training, her position alone gives her a lot of authority. My guess is she didn’t belabor any legal points; she just introduced herself and asked nicely. In my experience that’s by far the most effective tactic to take if you want someone to take something down. Nastygram cease-and-desist letters can work, but people don’t like bullies and if the letter gets made public it can be highly embarrassing for the company which sent it out.

The Metropolitan Opera, then, has proved itself surprisingly adept at taking down one of the most effective promotional mechanisms it had. Very silly. But at least that’s better than moving out of your home and then socking subscribers with a 400% hike in subscription prices when you ask them to travel all over New York City to see your productions, as New York City Opera seems to have done, even as it seeks to turn its orchestra into a freelance band with no vacation pay, tenure, leave, health insurance or instrument insurance.

All in all, it’s hard to get excited about New York opera these days; the last opera I went to was actually in Philadelphia. The creaky subscription-based ticketing architecture at these companies is so old that it can’t even encourage people to go to smaller or more experimental pieces by lowering the prices for them. And although the new-music scene in New York feels extremely vibrant, none of that excitement ever seems to spill over into the opera world. If the Met is actively shutting down expressions of fandom by devoted opera lovers like Brad Wilber, I don’t see that changing any time soon.


Sooner or later the fat lady always sings ..

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Annals of anonymous analysts, NYC real-estate edition

Felix Salmon
Aug 16, 2011 14:17 UTC

Back in April of 2010, Elizabeth Dwoskin of the Village Voice, with the help of two reporter/translators, put together an excellent 4,700-word article on the complex dynamics at 55 and 61 Delancey Street, in downtown Manhattan. There was a new landlord, Madison Capital, which was better than the old landlord, but was still harassing rent-controlled tenants. There was a lot of mutual incomprehension between the mostly-Chinese old tenants and the mostly-white new tenants paying market rate. And nobody really had a full grasp of the facts.

So it’s a bit weird, 16 months later, to find the NYT’s Michael Powell put together something much less nuanced and much more one-sided on the same issue — with one of the worst abuses of the “analysts say” construction I’ve seen in a long time:

Madison Capital bought these two tenements, at 55 and 61 Delancey, in 2008 for $20 million total. (The same buildings sold for $6 million in 2003.) The tenants of the 45 apartments, predominantly Chinese and Dominican, generally pay $1,000 or so each a month. Newer arrivals, N.Y.U. students and post-college kids, pay $3,000 or so. To turn a profit, analysts say, Madison needs a minimum of $6,500 per apartment.

Which leads suspicious souls — I plead guilty — to suspect Madison’s real long-term play is to demolish the tenements and build one of those blue-glass condos where no one ever thinks of putting up a curtain.

Powell doesn’t mention that the buildings come with eight retail units, housing glamorous market-rate tenants like the Berkli Parc cafe and James Fuentes gallery. I’m no expert on retail rents on Delancey Street, but let’s be conservative and put them at $5,000 each, for a total of $40,000 a month. On top of that add $6,500 per apartment in residential rents — the “minimum” that Powell thinks Madison needs to make a profit on the buildings. The total comes to a nice round $4 million per year.

I really don’t think you need to be making $4 million a year in order to turn a profit on a $20 million investment. Let’s say that Madison took out an 80% mortgage at 5% interest: then its annual interest payments would be about $800,000. Add on a couple of hundred thousand dollars in management costs, and you’re still talking about costs in the $1 million range for the two buildings. That’s a quarter of the kind of money that Powell thinks Madison needs to turn a profit.

And frankly it’s pretty silly to think that Madison wants to tear down two perfectly good old tenements and replace them with glass condos — especially since it would be much easier and cheaper to take the existing buildings and convert them to condos over time. At a purchase price per apartment in the $400,000 range in what is now one of the most overheated property markets in America, there’s definitely potential profit there — and it’s a lot easier to sell apartments to their existing tenants than it is to try to vacate two huge buildings with 53 different tenants so that you can tear them down and build something else.

I would dearly love to know the identity of the “analysts” Powell talked to in order to get his crazy $6,500-per-apartment estimate. What’s the minimum qualification needed to be considered an “analyst” for the purposes of the NYT? On the basis of this article, simple numeracy would seem to be lacking.


Also, the existing stabilized tenants are almost assuredly not buyers of the condos. After a conversion, assuming the developer could get enough sales among the market-rate renters for the plan to be effective, they would continue to be stabilized renters for as long as they cared to, serving as an ongoing drain on the building’s finances. On the other hand, it is legally permissible (I don’t do residential development, so I don’t know how high the bar is in practice) to evict rent-regulated tenants for a demolition if you relocate them appropriately.

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Nick Rizzo
Aug 16, 2011 00:00 UTC

Warren Buffett called on Congress to tax the rich more heavily, which would include fellow richie Carl Icahn’s potential half-billion dollar capital gain in the Google-Motorola deal. Kudos to Staska for predicting that deal, by the way, though he low-balled how much the Goog was willing to shell out.

An analyst estimates that AOL is spending $160 million a year–half the cost of buying the Huffington Post–on its local news network Patch.

Record labels, apparently not screwed enough at the moment, are facing the threat of losing much of their backlist to artists and songwriters such as Bruce Springsteen and Billy Joel.

Presumably as some mysterious element of their plot to take over the world, Carlyle Group is reportedly selling America’s ninth-largest cable operator for about $3 billion while also paying over $4 billion for clinical research company Pharmaceutical Product Development, Inc.

And there are fewer Freemasons than there have been in a long, long time.



Lets start with the largest public company in the world Exxon. Yahoo finance says they paid 21 billion in tax on pretax income of 53 billion. Sounds like Exxon pays taxes ABOVE the maximum federal rate… perhaps they need some better accountants and lawyers eh?

http://finance.yahoo.com/q/is?s=XOM+Inco me+Statement&annual

I think yahoo finance is picking up royalties paid to governments the world over as part of taxes Exxon supposedly paid… but still I think big companies might be pulling more weight than given credit for.

In my twisted world Exxon did not and cannot pay any tax of any kind. Exxon is owned by people and other legal entities like insurance funds, endowments, ect. Part of Exxon’s 21 billion dollar contribution to the public good comes from the few shares I own in my “tax free” ROTH IRA. Taxation at the corporate level is a pleasant fiction… but it plays well to the masses so it will probably always exist.

Posted by y2kurtus | Report as abusive