Felix Salmon

I like the headline that the WSJ has put on the Michael Arrington story: “TechCrunch Editor Resigns”. While there’s an understandable amount of interest in the fact that Arrington is now officially a venture capitalist, the fact is that his $20 million CrunchFund is tiny, and the news has yet to be reported on TechCrunch itself. (For his part, Arrington has said little more than a short and snarky tweet.)

In many ways, then, the bigger story here is the fact that AOL has lost its highest-profile journalist — the biggest brand name in the company, with the single exception of Arianna Huffington herself. Arrington’s TechCrunch has tweaked AOL many times since its acquisition; to take just the most recent of many examples, Arrington unloaded a few weeks ago on AOL’s insane expenses-reimbursement bureaucracy.

I’ve said this before, but working at AOL is my first experience working at a “big” company. I’ve watched, mostly with amusement, as a Dilbert cartoon has come to life around me…

I have an envelope I keep business expenses in. There was a hotel bill for a trip when my AOL issued credit card was turned off for the day. Some taxi expenses and a restaurant bill. I looked at them, thought about the process for turning those expenses in… I did the rational thing. I shredded those receipts – around $1,500 – because it wasn’t worth the pain.

So I can imagine that senior executives are not entirely unhappy that Arrington will no longer have any editorial oversight at the site. But at the same time, his departure from the editorial side of things only serves to underscore how talent-unfriendly AOL really is. Can you name a single journalist who works there? I can name a couple of high-profile editors poached from the NYT, but neither of them actually writes* — by all accounts they’re swamped with management duties, and are spending most of their time working on the ill-starred Patch.

When AOL bought HuffPo and discarded the notorious AOL way, there was hope that the combination of Tim Armstrong’s millions with Arianna’s journalistic vision would usher in an era of journalistic greatness. But it hasn’t worked out that way. Instead, the money seems to have bought little more than bureaucracy and a steady stream of departures, especially from Engadget. People aren’t leaving because they can make more money elsewhere; they’re leaving because they hate the work they’re being asked to do, and they see no respect in their future if they continue working for AOL.

Arrington, I think it’s fair to assume, was not being told what to do editorially, by Arianna or by anybody else. But he still clearly hated working for the company he’d sold himself to, and he’s now managed to find a way to exit. He won’t be the last to leave. And at this point, unless HuffPo has an absolutely spectacular 2012 election, it seems as though Tim Armstrong’s dreams of turning an old dialup ISP into a journalistic powerhouse are going to wither fast. Financially speaking, the best course of action is pretty clear. Sell the content sites to someone who wants them, and extract as much money as possible from the dialup business before it dies. That’s got to make more sense than the Sisyphean task of trying to attract journalistic talent to a company where the existing talent is desperate to leave.

Update: Arianna confirms to Henry Blodget that Arrington no longer works for TechCrunch, or for her.

*Update 2: In the case of Peter Goodman, let me take that back: he’s actually upping his game on the writing front, and has posted four pieces in the past week. Here’s hoping he keeps it up.

So here’s an interesting wrinkle in the mortgage-settlement talks: according to Nelson Schwartz, the Federal Housing Finance Agency is going to file lawsuits against a dozen or so big banks some time before Wednesday, claiming fraud in their mortgage-securitization departments.

This smells very much like the mortgage bond scandal that I was writing about last fall; finally, that shoe might be dropping. And more importantly, it would be a major securitization-related lawsuit being filed by one arm of the federal government, just as another arm is trying to put a big settlement together which might (or might not) give the big banks immunity against precisely such suits.

According to Schwartz, the timing of the suit has nothing to do with the settlement talks, and everything to do with the statute of limitations. But once the suits have been filed, it’ll be hard to persuade the FHFA to drop them quietly — especially if it doesn’t get a large check as part of the settlement. So count this as one more thing which mitigates against any settlement from happening. The banks won’t agree to anything unless they get immunity from securitization-related suits, and the government won’t give them that immunity, not least because it’s a plaintiff in a lot of those suits itself. Expect this saga to drag on indefinitely, rather than being brought to some kind of artificial end through the settlement talks.

A new report suggests that we’ve now put too much of our junk in space. But there will soon be less junk on Netflix streaming: Starz, Netflix streaming’s largest provider, has announced that they won’t be renewing their deal with Netflix in February, 2012. (Not a huge surprise; they were getting hosed.)  I’m still angry at Starz for cancelling Party Down.

Steve Jobs was against the tablet before he was for it.

B-School admissions are getting even more gimmicky. Meanwhile this UCLA math major had a bizarre idea for an end-of-summer-break lark: joining the Libyan rebels.

There really was a lot of news in August this year, the WSJ‘s Speakeasy blog reports. Meanwhile, Spiegel breaks down how Wikileaks managed to lose 250,000 diplomatic cables.

The Other Felix has a good profile of British PR maven Matthew Freud (yes, those Freuds), who is the husband of Elisabeth Murdoch. (Yes, those Murdochs.) In other rich people news, the wealthy are apparently now selling gold, and buying art. Haven’t they generally done that pretty much forever?

A former Bill Clinton aide is expected to be the new Prime Minister of Haiti. Huh.

And a pickup truck carrying large bags of marijuana overturned in San Jose, California. “Passers-by took care of much of the cleanup, police said.”

American Banker’s Kate Berry has a fantastic piece of reporting today, under the headline “Robo-Signing Redux: Servicers Still Fabricating Foreclosure Documents”. Among her discoveries is this document, dated August 3, 2011, wherein Tonya Hopkins signed over a mortgage in her capacity as Assistant Secretary of Sand Canyon Corporation. The problem with this? Sand Canyon hasn’t been in the mortgage business since 2009, and Tonya Hopkins doesn’t work for Sand Canyon: she works for American Home Mortgage Servicing Inc.

This, naturally, causes problems.

North Carolina consumer bankruptcy lawyer O. Max Gardner III says servicers and trustees often submit promissory notes in court without proper endorsements, which show the chain of title from one lender to another. Then, after the fact, there will be “a magically appearing note with a stamped endorsement,” Gardner said.

When plaintiff’s lawyers then try to depose the person whose name is stamped on the endorsement, “we’re being told the person is no longer employed by the servicer or by the party for whom they signed,” Gardner says.

There’s a case to be made that banks need to be able to reconstruct chains of title long after the events took place, because paperwork just wasn’t done properly during the subprime bubble. But even if you buy that argument, they should do so honestly and transparently. Their gut instinct, all too often, even today, is to simply fudge or forge the paperwork they need. And the fact that they’re still doing this, even as they’re supposedly in good-faith negotiations with state attorneys general on a big mortgage settlement, is a very good reason to believe that no such settlement will actually be effective. What we need isn’t a settlement; it’s enforcement. And there’s no sign we’re going to get it.

Craig Silverman emails with some questions about the proposed economists’ code of ethics, which I think is an excellent idea. He has an interesting angle: how does this affect journalists? Here are his questions, with my answers.

I’m first of all wondering if you knew there wasn’t a code of ethics from the American Economists Association? If it’s new to you, I’d like to hear your thoughts on the lack of a code.

Absolutely. I’ve been writing about this for a while, and a lot of credit has to go to Charles Ferguson, who made the issue a central part of his Oscar-winning documentary, Inside Job, from which the above clip is taken.

There are lots of good reasons why there isn’t a code, with the main one being obvious to any economist: economists make more money when there isn’t a code than they would if such a code existed. And economists, even more than normal people, tend to act to maximize their own income.

Mostly, economists delude themselves that what they publish is exactly what they think, and is not tweaked so that the conclusion is what the people paying them want it to be. This isn’t true.

If you were aware of it, I’m wondering if you have thoughts on whether this presents a problem for journalists interviewing economists?

There’s definitely a problem here. For instance, Ric Mishkin was a natural interview on the subject of Iceland, seeing as how he’d written an in-depth study of the country. The study didn’t mention that he was paid a six-figure sum to write it, however — and journalists talking to him could easily be excused for not knowing that fact. What’s more, journalists shouldn’t feel the need to ask about conflicts and payments every time they talk to an economist — it makes interviews unnecessarily adversarial.

As a result of the calls to adopt a code, the AEA created an ad hoc committee to examine whether one should be created. What would you like to see in a code for economists?

Ideally, a code of ethics would say that economists can’t write papers about people and institutions they’re receiving money from. A disclosure rule is a poor alternative, but it’s better than nothing. Such a rule could be really simple: if you’re an economist with an academic affiliation, then you have to disclose all sources of outside income; such disclosure would include exactly how much you’re being paid. After all, the degree of conflict clearly increases with the amount of money involved: a million-dollar payday is going to have more effect on what an economist is likely to say than a hundred-dollar check.

As a financial journalist, I’m wondering if you have advice for other journalists in terms of using economists as sources. For example, do you ask if they have any conflicts of interest related to the issue you’re talking about? If they’re with a university, do you check their academic CV to see who they’ve consulted for?

As a rule, I don’t. And academic CVs, as a rule, tend not to include precisely the consultancy and speaking gigs which raise the most conflicts. This is one reason why the absence of any code of ethics is such a problem: there’s almost no way to find the necessary disclosures any other way. As a result, it’s all too easy to end up in situations like this one, where a story needs to be updated/corrected when a conflict is pointed out.

In general, do you think a professional code of ethics can have an impact on the way someone — economist or otherwise — conducts themselves with a journalist?

I’d like to hope so. All too often economists and other professionals feel comfortable with lies of omission when talking to journalists, simply not mentioning a fact that they know is germane. A good code of ethics should address this: even if there’s a disclosure somewhere about a conflict, the onus should not be on the journalist to find it, but rather on the economist to proactively mention that conflict to the journalist.

Finally, I’m wondering if you see any parallels with the Ben Stein story and this issue? (I realize he is not a professional economist, but he does identify himself as one…)

There are a couple of parallels: Ben Stein had a public gig at a respected institution (the New York Times), and he had to give up that gig when he started accepting money from the evil FreeScore.com. Similarly, if economists want to take lots of money from big corporations like banks or hedge funds or oil companies, then they should first consider the ethics of doing so, and how they will reflect on their academic institutions. There are similar conflicts in the life sciences, but it seems to me that the debates there are more out in the open. Economists don’t even seem to like to talk about ethics, let alone actually adopt a formal code. Which is sad, but, given the incentives involved, understandable.

Our fabulous social media guru, Anthony DeRosa, doesn’t use Groupon, and neither do I, and neither do any of the people in our social circles, that we know of. Now we’re guys, while Groupon skews female. And most likely we do know people who use Groupon; we just don’t know who they are. But the fact is that at heart it’s pretty uncool. That’s fine — many hugely successful companies are uncool and based on saving people money, up to and including Walmart. But here’s the problem: Groupon can’t afford to be uncool just yet, because it needs to do one last big capital-raising round at a high valuation in order to get the cash it’s going to burn through in the coming year or two.

Henry Blodget has some smart analysis today, concluding that “if Groupon raises a boatload of money in an IPO, the company will be able to keep spending aggressively on marketing and not have to worry about running out of money or dealing with slower growth for a while.” So it’s important that Groupon is able to tell its high-growth, high-intrinsic-profitability story at least through its IPO.

But Groupon’s web traffic looks like it might be falling, and Connie Loizos has been talking to analysts, including PrivCo’s Sam Hamadeh, who increasingly, don’t buy it:

Groupon’s model simply doesn’t make sense, say the number crunchers. While the company’s early success was premised on customers spending an average of $15 per month — and being affordable to acquire — these days customers cost Groupon in the double-digit dollars to acquire, says Hamadeh, and they’re spending closer to $3 a month, with “every indication” that even that figure is declining, says Hamadeh.

The monthly spend per customer is a key number to look at. There doesn’t seem to be any doubt that it’s going down; the big question is whether it’s going to level off with Groupon becoming a big and sustainably profitable business, or whether it’s just going to approach zero.

Or, to put it another way, can Groupon make the transition from being a fun fad to being a basic part of the way people spend money on a monthly basis? I think it can. But in order to do that, it’s going to have to concentrate increasingly on targeting and on the quality of the merchants it chooses to feature.