Felix Salmon

Jack Shafer has an unforgiving take on l’affaire Kendra Marr:

The plagiarist defrauds readers by leading them to believe that he has come by the facts of his story first-hand–that he vouches for the accuracy of the facts and interpretations under his byline. But this is not the case. Generally, the plagiarist doesn’t know whether the copy he’s lifted has gotten the story right because he hasn’t really investigated the topic. (If he had, he could write the story himself.) In such cases he must attribute the material he borrows so that at the very least the reader can hold somebody accountable for the facts in a story.

Or to put it another way, a journalist who does original work essentially claims, this is true, according to me. The conscientious journalist who cites the work of others essentially makes the claim that this is true, according to somebody else. The plagiarist makes no such claims in his work. By having no sources of his own and failing to point to the source he stole from, he breaks the “chain of evidence” that allows readers to contest or verify facts. By doing so, he produces worthless copy that wastes the time of his readers. And that’s the crime.

This is all true. But Marr reminds me of Zack Kouwe more than anything else. And if Marr pulled a Kouwe, she isn’t guilty of the crime that Shafer is accusing her of.

Kouwe was never cut out to be a blogger. When he saw a good story on some other site, he would re-report it, rather than just link to it. And I suspect that what happened with Marr was similar.

Let’s say that Marr saw a NYT story about Senator X. She thinks it’s an important story, she phones up Senator X’s office, asks them if the story is true, and they say yes. The right thing to do, in that case, is to link to the NYT story, and say that you’ve confirmed it with your own sources. The wrong thing to do is to try to rewrite the story yourself, since you haven’t really reported it, and you don’t really know what you’re talking about. And the way you get caught doing the wrong thing is by using NYT copy wholesale, without attribution. Then you can get done for plagiarism.

But still, you did confirm the facts in the story; you can, with honesty, say this is true, according to me.

What we saw with Kouwe, and what I think we’re seeing with Marr, is a peculiar new form of plagiarism — one that exists only in a world of continuous news. In the olden days, if you saw a story in the NYT and wanted to copy it, you would have to wait a whole day until your own paper came out, and that would give you lots of time to do your own reporting and write your own story. These days, there’s a lot of pressure, at places like Dealbook and Politico, to match stories quickly — so quickly that it’s significantly easier to just copy-and-paste your rival’s material than it is to craft your own story when you’re not much of an expert on it in the first place.

In the age of the link, such activity should never need to happen. But there’s a reason that the plagiarist copies rather than linking. And the reason is that linking and aggregation is still not remotely as respected, in newsrooms, as reporting is. So some young reporters, wanting to make a name for themselves, plagiarize instead of linking, in an attempt to take credit for the work of others. It’s still — quite rightly — a firing offense. But it’s not quite — or not necessarily — the crime that Shafer hates so much. It can just be a horrible side-effect of link-phobia, which exists even at web-native publications like Politico.

Jon Stokes has a fascinating column making a credible case that the VC and tech bubble is hampering development of the cloud.

I recently had a sit-down chat with Ping Li, a venture capitalist at Accel Partners who does investments across the layers of the cloud stack… he explained that the talent shortage is stifling fundamental innovation in the cloud space.

To do really fundamental engineering innovation of the kind that was done, say, in the early days of Google and VMware, you need to hire and retain teams of talented engineers. But in today’s go-go funding environment, top engineers are being enticed with truckloads of money to break off and form two- and three-person startups. This phenomenon, explains Li, is why “many of the really big innovations happen in less frothy times.” He did go on to clarify that “some great companies do get created in these times (like Amazon in the last bubble). It’s just harder given talent shortage.”

I asked Jon if this meant that real innovation in the cloud requires pretty big teams, and can’t be done by smaller startups. And the answer there is absolutely yes — if you’re looking for something huge like Amazon’s AWS, which required the full focus of Amazon’s large technical staff over a multi-year timeframe. Scalable websites can, thanks to Amazon’s cloud, now be launched with a handful of employees. But to develop the cloud itself takes serious resources — to the point at which it’s now conventional wisdom that you need to be Amazon, Apple, Google, or Microsoft to even play in that game. And even they’re starving for talent.

There’s the email I got a few months ago from a friend of mine and product manager at Apple, who was wondering if I knew any cloud computing hackers that they could hire. When we get to the point where Apple product managers on the client side are reaching out to their personal networks in search of cloud coding talent for the world’s largest tech company, you know it’s bad out there.

Jon frames the problem as one of supply and demand:

The current crisis in the cloud is the product of too many dollars and transistors chasing too few coders and sysadmins. It will take a while for the latter to catch up with the former… unless, of course, another major downturn strikes. It seems ironic that less money could equal more innovation, but it wouldn’t be the first time that a wave of downsizing and tight money boosted productivity.

I asked him whether looser skilled-immigration policies might help, and he said probably not:

I think that the root problem isn’t one of geography–it’s that this stuff is happening so fast (i.e. Moore’s Law and my cheap transistors argument) that the hardware build-out is outstripping programmer education. And by “programmer education” I mean not only the number of programmers being trained in aggregate across the world, but also programming as a discipline’s ability to empower ordinary mortal to develop and deploy software on these massively parallel systems. The cloud has to be “de-ninjafied”, so to speak. Getting max productivity out of the cloud has to be brought within the grasp of non-ninjas, the way that, say, VisualBasic from MSFT brought building a relatively complex custom relational database application within the grasp of the average local technical college graduate.

This rings true to me. The cloud is not located in any particular country, and if there were great engineers who could be hired to work on it from Beijing or Bangalore, I’m sure that Apple and Amazon are more than capable of doing that. What needs to be done here is basically cloud-development grunt work: taking a young and complex technology, and building the tools which can bring it to the masses. There’s not a lot of glory in that — while companies which live in the cloud, like Airbnb, can find themselves worth billions, the engineers who work on the cloud are more like the utility workers of the internet. And it’s easy to see why they might be finding more attractive opportunities, right now, elsewhere.

Here’s how Jon puts it:

In order to move the cloud itself forward in a major way by solving large batches of related fundamental technical problems you need longer timeframes. You can fiddle around in the guts of the cloud, smoothing out this and optimizing that, and adding features and bells and whistles. But to do the big projects, you need time.

Now, there are shorter-term innovations that can and will get done in the cloud, so VCs have plenty to fund. But to shift the tectonic plates, you need time and resources.

This isn’t like sustainable energy — it’s not something that the government can or should be stepping in to fund. More money pouring into the tech space would only exacerbate the current problems.

There’s a case to be made that AWS is the result of what happened when Amazon, after the dot-com bust, found itself with an unusual degree of access to the time and talent of a large number of engineers. The cloud is young; it could do with a lot more development along those lines. But as Jon says, we’re unlikely to see such fundamental evolution in cloud architecture for a while. Because for the time being, smaller, lighter, and riskier projects look much more attractive.

A few links from Counterparties.com:

Greece’s bondholders are preparing for some pain — Bloomberg

The S&P cut Spain’s credit rating — Reuters

Credit Suisse will reportedly close its commercial-mortgage-backed securities desk — WSJ

The US labor market is becoming less dynamic — FT Alphaville

America might not enter a recession, because the economy’s already so weak — Washington Post

State and local pension shortfalls total $4.4 trillion — State Budget Solutions

Pepsico has dreams of becoming a “global dairy powerhouse” — WSJ

Spotify already has more than 250,000 US users – Reuters

With the enormity of the jobs crisis looming over the 2012 presidential election, it’s worth being reminded every so often that there’s a huge housing crisis in this country as well. And so it’s worth keeping an eye on new ideas there.

Martin Feldstein has one, which I don’t much like. He gets one thing right: we need massive principal reductions. But the way he’d like to do them is very flawed.

For one thing, he’s very keen on converting non-recourse mortgages to recourse mortgages: “in exchange for reduction in principal, the borrower would have to accept that the new mortgage had full recourse — in other words, the government could go after the borrower’s other assets if he defaulted on the home”.

In theory, I’m a fan of recourse mortgages, if they’re taken out voluntarily in a healthy housing market, and so long as they can be written down in bankruptcy proceedings. But I don’t like Feldstein’s idea here. It’s a bit like the Brady Plan: in exchange for a reduction of debts, the debtor is forced to switch from an easy-to-default-on instrument (a bank loan, or a non-recourse mortgage) to a harder-to-default-on instrument (a sovereign bond, or a recourse mortgage). That’s the kind of thing which should be done only when (a) the debtor has a seat at the negotiating table; and (b) when the debt reduction is a one-and-done deal which undoubtedly reduces the debt burden to a manageable, sustainable level.

In this case, however, the homeowner is just being given a take-it-or-leave-it choice; and the principal reduction only reduces the value of the mortgage to 110% of the value of the home, even as house prices continue to decline. The homeowner is still underwater — and, of course, is living in a very tough economy. Here’s Dean Baker:

There will be more questionable loans that will go into the program. Some of these people may be able to make their payments after the principle write-down. They will then get to live in their home until they move and in all probability never accumulate a dime in equity (but the bank got half of its loss picked up by the government).

Others will take the deal and then find themselves still unable to pay their mortgage — remember we still have 9.1 percent unemployment and most people in Washington don’t seem to give a damn. Under the Feldstein plan the debt will now become a recourse loan, which means that the bank can hound foreclosed homeowners until the day they die for any portion of the mortgage that is not repaid by the sale of the house.

The other big problem with the Feldstein plan is that if it works, it will involve the government writing hundreds of billions of dollars in checks to the banks. This is dreadful politics, and it’s not much better as policy. If there’s going to be a huge subsidy being paid into the housing market, better it go to homeowners — who can then use the money to pay down their mortgage — than that it go to the banks.

How about this, then: if the bank does a principal reduction so as to increase its chances of being repaid, the government will pay the homeowner 25% of that principal reduction, on condition that the money is used to pay down the new mortgage.

That would be cheaper for the government (depending on how transfers to Frannie are counted), and would also bring a significant number of homeowners back into positive-equity territory, which has to be a good thing.

Meanwhile, Alan Zibel has a trial balloon from the Obama administration which is reasonably smart but which is unlikely to make much substantive difference. Basically, Frannie should sell off an equity tranche of its mortgages, which is explicitly and credibly not guaranteed by the government.

Investors in this “first loss” position would take on an additional risk of absorbing losses, but would receive a higher interest rate. While investors would be taking on some risks because home prices are still falling in many areas, mortgage lenders have significantly tightened their standards in the aftermath of the housing bust.

Andrew Davidson, a mortgage-industry consultant in New York, said there is likely to be enough interest from investors to buy around $10 billion in securities issued as part of a pilot program.

The idea here is to bring private money back into the MBS market slowly — by having Frannie sell off more and more of its bonds in the form of these first-loss bonds. They would reduce the amount that the government is on the hook for housing-market losses, and they would also insulate the government from some of those losses.

But the market in these new securities would only evolve slowly, and it would have very little effect on the housing market.

If Feldstein’s plan is too generous to banks, then, the Obama administration’s plan is just too ineffective. But maybe something small and ineffective is the best we can hope for right now, given political realities. Certainly Feldstein’s plan, even if it were any good, is a political non-starter.

Housing debt is going to come down, somehow, over time. That can happen with government help, or it can happen messily, through continued foreclosures for years to come. The former would be better. But the latter is what we’re going to get.

More than two-thirds of big EU banks would fail revised stress tests — Bloomberg

The Euro voting process explained — The Reformed Broker

Loan sharking in China amounts to 10% of its GDP — NYT

What high-yield bond spreads are telling us — Credit Writedowns

Another explanation for late-day market volatility: FT articles — FT Alphaville

Dimon: “All things considered” our Q3 earnings were “reasonable” — Reuters

Let’s revisit the perverse accounting where banks record bond losses as gains — Bloomberg

Economists predict US median incomes won’t bounce back until 2021 — WSJ

Raj will be spending up to the next eleven years in the pokey — Dealbook

Have start-ups seen funding dry up? — TechCrunch

This is a small sample of the full smorgasbord of links available on Countparties.com

Wouldn’t it be ironic if Occupy Wall Street — the soi-disant “99%” — were being secretly funded by billionaire Davos Man George Soros, exemplar of the 1%? Well, no, it wouldn’t, actually. As Noreen Malone points out, lots of the 1% have, like Soros, expressed sympathy with OWS, including Bill Clinton, Ben Bernanke, and at least one member of the Buffett family. And when you’re sympathetic to a cause, and have lots of money, often you donate money to that cause.

But in this case it looks very much as though there’s no connection at all between Soros and OWS. That makes sense: for one thing, Soros is a creature of Wall Street himself, and for another, he tends to fund well-organized groups with specific goals. Which, clearly, OWS isn’t.

Which is why today’s Reuters story about the connection between Soros and OWS has elicited so much derision around the blogosphere. Beyond allowing us to shoehorn the #ows and #soros hashtags into a single tweet, there’s no real substance to it at all:

There has been much speculation over who is financing the disparate protest, which has spread to cities across America and lasted nearly four weeks. One name that keeps coming up is investor George Soros, who in September debuted in the top 10 list of wealthiest Americans. Conservative critics contend the movement is a Trojan horse for a secret Soros agenda.

Soros and the protesters deny any connection. But Reuters did find indirect financial links between Soros and Adbusters, an anti-capitalist group in Canada which started the protests with an inventive marketing campaign aimed at sparking an Arab Spring type uprising against Wall Street. Moreover, Soros and the protesters share some ideological ground.

Yes, there are people — led, it would seem, by Rush Limbaugh — who are loudly speculating that Soros is funding OWS. There might conceivably be a story in their rabble-rousing, which could point out that Soros’s agenda is hardly secret — it’s right there on his website for all to see.

Alternatively, as John Carney points out, there’s an interesting story in the way that OWS has raised money, through crowdsourced means like Kickstarter.

But the angle we went with is not a story, especially since Soros says he’s never even heard of Adbusters.

According to disclosure documents from 2007-2009, Soros’ Open Society gave grants of $3.5 million to the Tides Center, a San Francisco-based group that acts almost like a clearing house for other donors, directing their contributions to liberal non-profit groups. Among others the Tides Center has partnered with are the Ford Foundation and the Gates Foundation.

Disclosure documents also show Tides, which declined comment, gave Adbusters grants of $185,000 from 2001-2010, including nearly $26,000 between 2007-2009.

The Tides Center is not some great sloshing pool of money which takes in money and hands it out. Yes, one of the many things that it offers foundations is the opportunity to create collective action funds, enabling a group of donors to channel their money in a collaborative manner. The fact that Soros gave money to Tides and that Tides gave money to Adbusters in no way means that there’s an “indirect financial link” between the two. That’s like saying that there’s an “indirect financial link” between me and Mitt Romney, because I lend money to Citigroup (I’m a depositor at Citibank), and Citigroup has given money to Romney.

Besides, OWS wasn’t even dreamed of back in 2009. If somehow some Soros money did make it to Adbusters between 2007 and 2009 — despite Adbusters co-founder Kalle Lasn’s clear statement that “he’s never given us a penny” — then that’s still a good two years away from any connection to OWS.

The article is particularly problematic from my perspective because I’m incredibly proud of Reuters’s long tradition of impartial journalism. I’m on the opinion side, not bound by such things, and if you think I’m biased you’re right. (I should mention here explicitly that this post, just like everything else on this blog, is my personal opinion. It may or may not be shared by others within the organization. But it should emphatically not be taken as representing the views of Thomson Reuters.)

Reuters news stories like the one about OWS are held to a very high standard of integrity, independence, and freedom from bias. And there’s lots in this article which tilts hard to the right.

There’s the idea that Rush Limbaugh is a good place to look if you want someone to “sum up the speculation” and provide the news hook for the entire story. The idea that the Council on Foreign Relations is a “liberal cause”. The idea that the protests were “triggered” by a campaign poster featuring a “battle-ready mob” of people “dressed in anarchist black”. The description of OWS as “the so-called occupation”. And then there’s this:

Since its obscure beginnings, the campaign has drawn global media attention in places as far-flung as Iran and China. The Times of London, however, was not alone when it called the protests “Passionate but Pointless.”

Reuters cannot — must not — get a reputation as a right-wing media outlet. We have to report the news as impartially as we can. In this case, there was no story, and nothing to report. Inventing a tenuous and intellectually-dishonest link between Soros and OWS might get us traffic from Matt Drudge — but that’s traffic which, frankly, we don’t particularly value or care for. Much more importantly, it serves to undermine the heart of what Reuters stands for. And we can never afford to do that.

Update: After a rather confusing series of events, the old version of the story is still online, while a recast version is here. Both of them now carry the headline “Soros: not a funder of Wall Street protests”. Which is an improvement.

It never even made it to its first birthday. FT Tilt, the high-priced emerging-markets blog launched with some fanfare in January, has now quietly died.

This is a sad day: Tilt was run by the FT’s two most innovative journalists, Paul Murphy and Stacy-Marie Ishmael, and was a bold attempt to view the developing world from a novel perspective. The FT could and should learn a lot from Tilt’s innovations, not least the rich and various forms of engagement it had with its readers.

The FT should also learn from Tilt’s failures, which are to be found in the business model rather than in the journalism. Tilt was a blog run by a small team of smart young journalists — but it was priced at thousands of dollars a year, and I could never understand where the value was meant to lie. Those journalists had amazing sources and language skills in countries around the world, but they were ring-fenced from the FT itself, and didn’t really contribute noticeably to the newspaper. Ironically, they might actually contribute more now, going forwards, in the wake of Tilt’s execution: FT spokeswoman Darcy Keller tells me that the newspaper is trying to find jobs for them. I hope it does; as Stacy says, they have done tremendous work, and deserve to be rewarded for it.

The model of charging very large amounts of money for information about global markets which is relatively cheap to collate just doesn’t seem to work — Tilt is now dead, and Roubini.com is up for sale. The fact is that smart, economically-literate people are never going to be that cheap — so you need to have some kind of decently-sized market for what they do. And both Tilt and Roubini.com have been priced way too high to reach even a four-digit subscriber base. What’s more, these kind of services get better as their audience grows — they learn from their audience. Keeping the audience artificially tiny by implementing a massive paywall is self-defeating.

No startup ever achieves success in less than one year, so the FT’s decision with respect to Tilt does seem hasty. What they should have done is make Tilt free to all FT subscribers, and see if it took off that way. FT Alphaville has proved that bloggy brand extensions can be extremely successful, if done right, and Tilt’s material was certainly of great interest to a very important part of the FT’s global audience.

It’s good for media companies to experiment, and it’s necessary that some of those experiments fail. But I don’t think that FT Tilt failed, in terms of its core journalistic output. I think that the FT got greedy for subscription revenues from day one, and never let Tilt grow and thrive as it could and should have done. I absolutely blame the overlords for this one, not the people who did the real work.

Update: Richard Desai-Green, Roubini’s CFO, responds:

We have 1,000 clients.

You seem to be treating info published in the media as fact but in fact the CNBC journalist had his numbers wrong.

We are cash flow positive.

We’re well capitalized.

We are continuing to hire people.

We just opened an office in India and hired 9 people.

We’re continuing to grow our business.

We can never say we won’t sell the company but I can say at this time we don’t have any offers and the executive team of our company is as committed as ever.

September was a record sales month for us and we’ve started October really well and expect our growth to continue.

I’m late to Ezra Klein’s big article about whether the Obama administration could have avoided our current economic woes, because I was having dinner last night with the head of the Bureau of Economic Analysis, and I wanted to see what he had to say first. And I’m glad I did!

In any case, here’s Ezra, who looks at the famous chart projecting falling unemployment with the stimulus plan — something which, obviously, never happened.

To understand how the administration got it so wrong, we need to look at the data it was looking at.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

This is an argument I’m very sympathetic to. There’s a counter-argument, which Ezra goes into at some length, which says that even if we’d known how bad the economy was at the end of 2008, it simply wasn’t politically possible to get a bigger stimulus than the one we got. But how far off were we, really? I talked to the director of the BEA, Steve Landefeld, last night, and he made the case that we weren’t all that far off. If he’s right, the Romer and Bernstein projections wouldn’t have been all that different even if we’d known the exact figure.

One thing it’s important to remember, here, is that the numbers Ezra’s quoting are quarterly figures which are then annualized by raising them to the fourth power. So what we’re actually talking about, for the fourth quarter of 2008, was en estimate that the economy had shrunk by 0.9% that quarter, which was ultimately revised to say that the economy had in fact shrunk by 2.2%. That’s a big difference, of 1.3% of GDP in one quarter alone. So how come, if you look at the size of the recession as a whole, the revision actually seems to shrink, to just 1%?

The revised estimates show that for the period of contraction from 2007:Q4 to 2009:Q2, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased at a rate of 2.8 percent. The cumulative decrease over the six quarters of contraction is now estimated as 5.1 percent, compared with 4.1 percent in the previously published estimates.

The problem here is that the “previously published estimates” were the ones which came out a few months after the Romer-Bernstein graph, showing the economy shrinking by 6.3% in the fourth quarter of 2008. Here’s the BEA’s chart; note that it simply doesn’t show the 3.8% estimate.

But what this chart does show is that the really big miss, as far as GDP statistics are concerned, was in the fourth quarter; the other quarters weren’t nearly as bad. And I just don’t believe that a single datapoint for advance GDP would have thrown off the unemployment estimates of some of the world’s smartest economists by that much. Would Romer and Bernstein have projected slightly higher unemployment numbers if they’d known the truth about GDP? Probably. But I doubt they’d have been substantially higher. And there’s no way that their “with stimulus plan” estimates would have gotten anywhere near 10%.

Ezra does a very good job of explaining why that is. Romer and Bernstein were basically treating the recession as though it were a common-or-garden cyclical downturn. Which was a big mistake, and one which was pointed out in March 2009 by Carmen Reinhart and Ken Rogoff. “The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage,” they wrote, adding that “so far the U.S. experience has mirrored past deep banking crises around the world to a remarkable extent”. And economies simply do not recover quickly from deep banking crises — financial crises, as a rule, cause L-shaped recessions rather than V-shaped ones.

The fiscal prescription for an L-shaped recession is very different from the fiscal prescription for a V-shaped recession. And what we got was a prescription for something which would accelerate the pace at which we recovered. It was not something which would try to fix the fundamental problem of overleverage, which both caused the crisis and which now threatens to hold back the economy for a decade or more.

Here’s Ezra:

In late 2008, when the economy was cratering, Holtz-Eakin convinced McCain that the way out of a housing crisis was to tackle housing debt directly. “What we proposed at the time was to buy up the troubled mortgages, pay them off and let people refinance at the lower rates,” he recalls. “That would have filled up the negative equity and healed bank balance sheets.”

To this day, Holtz-Eakin thinks the proposal made sense. There was one problem. “No one liked that plan,” he says. “In fact, they hated it. The politics on housing are hideous.”

The Obama administration, perhaps cognizant of the politics, was not nearly so bold. It focused on stimulus rather than housing debt. The idea was that if people could keep their jobs and pay their bills, they could pay their mortgages. But today, few on the Obama team will mount much of a defense of its housing policy.

Overall, I’m still unhappy with the state of macroeconomic statistics. I’m not necessarily unhappy with the BEA itself, which basically just has the job of cobbling together GDP data from a very disparate set of inputs, many of which — especially when it comes to the financial sector — are of surprisingly low quality. But I do think that we’d be much better off with a coherent, unified, and well-funded system of data-gathering, rather than outsourcing it to dozens of different public and private sources.

And I’m definitely (albeit with hindsight) unhappy with the way in which the Obama administration hasn’t even tried to fundamentally tackle the enormous amount of debt in the US economy, and the way in which that debt overhang is likely to hold back economic growth for the foreseeable future. We’re turning Japanese, here, and we’re not doing a damn thing about it.

The latest shenanigans at News Corp are particularly shocking because they took place at the Wall Street Journal — the flagship publication which was meant to be insulated, at least in part, from Murdoch sleaziness. But this is really bad: the WSJ Europe was telling its advertisers that it had a circulation of 75,000 — but in fact fully 31,000 of those copies were bought for as little as 1 cent apiece by companies which never saw them, and pawned them off onto random students.

And when one of those companies decided that even 1 cent per copy was too much to pay, the WSJ decided to simply buy up the papers itself, with its own money.

Oh, and the WSJ also demolished the wall between editorial and advertising, promising — and delivering — editorial coverage to the companies it was doing business with.

There was a whistleblower, too, who wound up with the sack:

European human resources executive Carol Bosack emailed the whistleblower: “You are expected to keep details and your reaction or beliefs about the recent events confidential and not shared with anyone external or internal to the business. This matter is to be kept between us, Andrew [Langhoff], Internal Audit and Corporate Legal.” No action was apparently taken at that time on the whistleblower’s allegations. The whistleblower, who had worked for Dow Jones for 9 years, was made redundant in January.

Only after the Guardian started asking questions was Langhoff finally forced to resign.

Jack Shafer makes some very good points about all this — among them, that the suspect news stories were in “special sections” which nobody reads, and that the real scandal about the WSJE’s circulation was that even padded it only managed to reach 75,000. Rupert Murdoch is probably dying to kill off this paper as he did the News of the World; it surely loses him a fortune.

But the thing which jumps out at me is that News Corp is still keeping true to its strategy of covering up anything embarrassing until Nick Davies uncovers it, at which point an executive or two is thrown under the bus. As crisis management goes, it’s a disaster — and now it’s claimed the scalp of senior Dow Jones employee number two. (The first, of course, was Les Hinton.)

As a result, the rest of the world is simply going to assume the worst — that anything rumored or imagined is probably true and has just been successfully covered up for the time being. That’s really bad for News Corp. The only silver lining is that for the time being, all of the wrongdoing has been confined to the newspaper businesses. If anything gets uncovered at Fox or Sky or HarperCollins, it’s surely all over for Rupert — the culture of corruption will have been shown to have infected the entire organization. News Corp has kept things quiet until now, in those organizations. But how long can it continue to do so?

Nick Denton lost his bet with Rex Sorgatz by the narrowest of margins — just 10 million pageviews, or alternatively just four days. But he handed over a check for $100 with a smile, and even threw us a huge party into the bargain! Hence, obvs, my not-entirely-sober status by the time we’d waited for Lockhart Steele to finish his eleven-course dinner and make his way up to the Gawker Media rooftop.

Here’s to next year — when Denton will have to achieve 700 million pageviews in order to avoid writing a second check. I promise to film the outcome, whoever the winner might be.

Just a few of our favorite story links today on Counterparties.com

People don’t really trust banks right now — Pro Publica

UK unemployment is at a 17-year high — BBC

Pennsylvania capital city Harrisburg files for Chapter 9 bankruptcy — Bloomberg

A Teach For America for startups in struggling cities — NYT You’re the Boss Blog

Economic policy as culture war – The Economist

41% of WSJ Europe’s circulation was completely bogus; the publisher has resigned — Guardian

Groupon and Zynga’s accounting crises are self-induced — Dealbook

Siri on the iPhone 4S is a “life changer” — Wired

This chart was put together by Jialan Wang, and it shows the degree to which companies’ reported assets and revenues deviate from a Benford’s Law prediction over time. (If you want some good background on Benford’s Law and how it can uncover dodgy numbers from eg the Greek government, Tim Harford had a great column last month on the subject.)

Writes Wang:

Deviations from Benford’s law have increased substantially over time, such that today the empirical distribution of each digit is about 3 percentage points off from what Benford’s law would predict. The deviation increased sharply between 1982-1986 before leveling off, then zoomed up again from 1998 to 2002. Notably, the deviation from Benford dropped off very slightly in 2003-2004 after the enactment of Sarbanes-Oxley accounting reform act in 2002, but this was very tiny and the deviation resumed its increase up to an all-time peak in 2009.

So according to Benford’s law, accounting statements are getting less and less representative of what’s really going on inside of companies. The major reform that was passed after Enron and other major accounting standards barely made a dent.

This doesn’t necessarily mean fraud, per se; it could just be a chart of the degree to which companies are managing and massaging their quarterly figures over time. The kind of fraud that’s so respectable, Jack Welch got lionized for it. Once you start down that road, it’s easy to go further and further forwards, while it’s almost impossible to reverse course. So I can easily see how the natural tendency in this chart would be up and to the right.

Still, it’s worrying; all the more so because I can’t think of any way of reversing the trend. If Sarbox can’t do it, nothing will.

I have a column at Grub Street today looking at some check-by-check level data for five New York restaurants. I got the data from the good people at Bundle, and NY Mag turned it into pretty charts, complete with a red line marking the median amount spent at each place.

But of course there’s much more to these charts than could be fit into a Grub Street column. So here they are again; this time I’ve added two more datapoints to each one. The blue line — which is always to the right of the red line — marks the mean cost of a restaurant meal. That’s the number you’ll see if you visit the Bundle website. And the blue Z marks the amount that Zagat thinks a diner is likely to spend, with tax, tip, and one drink. At Per Se, for instance, the mean cost is $878, while the Zagat cost is $303. (This is a slight apples-to-oranges comparison, since the Zagat price is for one person, while the Bundle data is not per person but rather per credit card or debit card. But both are intended to give an idea of how much the restaurant is going to cost, and the Bundle data is surely  much more accurate on that front.)

Zagat reckons that the “cost” of a meal at Megu is $87 — which is surely meant to mean something. But few people pay much attention to Zagat cost estimates, for good reason — in many cases, it’s actually impossible to get out of a restaurant for the amount of money listed in the Zagat guide. At Per Se, for instance, even with no drink at all, the $295 prix-fixe menu, plus tax, will run you $320.

So how much does Megu cost, in reality? It turns out that question is pretty much impossible to answer. On the Bundle page for Megu, we can see that the average amount of money charged per credit card is “about $200 to $210”; that’s based on a mean expenditure per card of $198.82. But if you look at other kinds of average expenditure at Megu, they look very different.

The mean expenditure, $198.82, is basically the total amount spent there divided by the number of cards used to pay for it all. So if someone pays for a massive blow-out party there, that’ll raise the mean expenditure for everybody else. The median expenditure at Megu is substantially lower than the mean — it’s $126.87. Finally, there’s the mode. If you put all the charges at Megu into $10 buckets, instead of the $25 buckets in these charts, then the mode charge at Megu is between $70 and $80. More than 7% of charges at Megu fall in that range, which means that if you charge your card at Megu, there’s a 1-in-14 chance that you’ll spend seventy-something dollars on that card. That doesn’t make it exactly probable, but it’s more likely than any other amount.

But why try to reduce everything to a single number? This is one of those cases where a picture — or a histogram, rather — is worth a thousand words.

The Megu chart is actually about as simple as Bundle’s restaurant histograms get. Megu was not picked at random. It was picked because it gets lots of customers, and therefore generates a lot of datapoints in the Bundle database; because it is open only for dinner, which means that the numbers aren’t complicated by mixing up a relatively low-spending lunch crowd with a higher-spending dinner crowd; and because it doesn’t have much of a bar scene — if you drink there, you’re likely to eat there too.

But even so, the range of expenditures at Megu is enormous. More than 4% — one in 25 — of the card charges at Megu are for less than $20. And at the other end of the spectrum, more than 1.5% of the card charges are for more than $800; in fact, according to the Bundle data, you’re just as likely to spend over $800 at Megu than you are to spend between $600 and $800. What’s more, if you look just at the people spending more than $800 at Megu, their average expenditure is a whopping $1,894. The tails, in other words, are long.

I’ll admit that I was hoping to see some humps in Bundle’s histograms — what statisticians call a bimodal distribution. If Babbo’s histogram, say, has one spike at $100 and another spike at $200, then that would be a pretty good indication that eating at Babbo is likely to cost you about $100 per head. The $100 spike would be people paying for themselves; the $200 spike would be people paying for someone else as well. And then maybe we’d see another spike at $400, too, where people picked up the check for a party of 4.

But I had no luck on that front. If you squint and hope and delude yourself a little, maybe you can find those spikes at $100 and $200 and maybe even $400. But what about that spike at $250?

The main message I get from the Babbo chart is just that there’s an extraordinarily large range of checks at Babbo — you have a pretty good chance of coming up just about anywhere between $60 and $270. Which is not particularly helpful if you’re someone trying to anticipate how much the restaurant is likely to cost.

In many ways, though, the most interesting of all these histograms is the one for Per Se. Here, everything is set: the menu is a fixed price, the service is included, and while some people are sure to push the boat out when it comes to wine, you can pretty much expect that most checks there are going to be much of a muchness. Can’t you? Actually, no, you can’t.

One in every 35 visitors to Per Se spends less than $75 there — how is that even possible? The mean, median, and mode are relatively close together — $878, $768, and $800 respectively — which implies to me that if you take one other person there for dinner, it’s very easy to end up spending about $750 to $800 altogether. Except, that seems to be very much on the low side. Food alone can run you as much as $610 per person, and most people will spend hundreds more on wine.

At the far ends of the spectrum, fully 18% of the people spending money at Per Se are spending less than $325, which barely seems possible, even if you take into account the 3-days-a-week lunch menu at $185 per person. And that spike at the end representing people spending more than $3,000 is pretty substantial — those checks account for less than 2% of the payments run by the restaurant, but fully 10% of all its dining revenues.

In between, there’s all manner of activity going on. There are two spikes at $600 and $800 — people like to put round numbers on their cards. 44% of all spending takes place in the range between $575 and $1,100 — but that just means that 56% doesn’t.

All of which leads me to conclude that the very idea of a typical meal at a restaurant — or the idea of what a restaurant “costs” — just doesn’t stand up to scrutiny. At Mr Chow of Tribeca, Zagat — which we can use as a guide to the minimum price — says a typical meal will run you $77. Bundle says the “real price range” is $200 to $210. The median amount charged to a card there is $145. And 2.1% of customers spend more than $800, while 17% spend less than $70. What will you spend if you go there? Pick a point on the chart and guess. One thing’s for sure, though: you’re wrong if you think that the diners at Mr Chow Tribeca are some kind of homogenous and interchangeable mass. They might look like that from the outside, but in fact there’s a lot of variety there.

It would be nice indeed, then, if there were some neat formula where you could take the price of the average entree, say, multiply it by three, and get a typical all-in price per person. Sadly, there isn’t. Some restaurants make most of their money on cocktails; others concentrate more on the food. Some allow diners to eat cheaply, others don’t. But the big picture is that the differences between restaurants pale in comparison to the differences between diners. Some people are just going to spend a lot, others are going to get away with spending much less.

The next best thing, at least for people like me, would be a look at these histograms. If we had that, along with the ability to easily drill into the data, it would be an invaluable addition to Bundle’s service. Bundle’s $200-$210 number for Mr Chow of Tribeca, for instance, is interesting, but fully two in three people picking up a check spend less than $200 there.

If Bundle doesn’t want to show histograms, then at least they should switch from mean to median. But in any case, their service is really exciting, since it’s the first opportunity we’ve ever had to be able to make like-for-like comparisons between restaurants when to comes to the question of how much you’re likely to spend. It’s early days yet. But this could be the most important step in years when it comes to helping people know just how much different restaurants cost.

The suits and investigations into BNY Mellon’s dodgy FX trading just got a lot more cloak-and-dagger: apparently all of them can be traced back, in one way or another, to a secret plan hatched by none other than Harry Markopolos.

Mr. Wilson’s decision to become a whistleblower started with Mr. Markopolos, the fraud investigator, who had the 2006 hunch about currency-transaction costs. Over the past four years, he and his legal team contacted Mr. Wilson and two former State Street employees, Peter Cera and Ryan Gagne, to secretly help build cases against the two banks…

Working with the legal team, Mr. Markopolos arranged clandestine meetings with the whistleblowers at a shopping center and hotel restaurants…

Mr. Markopolos’s hunch came from a book by Yale University’s chief investment officer, in which a description of currency transactions stuck out: “Foreign exchange translations may influence returns in a substantial, unpredictable manner.” Mr. Markopolos also noticed that pension funds using outside money managers reported slightly lower returns than the money managers themselves.

He asked a friend who had worked at State Street, who told him that custody banks typically charge pension funds unfavorable foreign-exchange, or FX, prices. The friend told Mr. Markopolos, “No one ever checks FX.”

He strategized about how to find bank insiders who could help him look into his suspicions. A key tactic: Looking for traders who might be sympathetic, then cold-calling them and saying, “I have a better job for you.”

The source for this account is clearly Markopolos himself; I do wonder why Markopolos has chosen this time to out his co-conspirators and to boast about his perspicacity and his whistleblower-recruitment technique.

Markopolos can be a little bit crazy — he said recently, for instance, that law enforcement agencies should treat the board of BNY Mellon “like Seal Team 6 treated Osama Bin Laden”. And the story about reading a book by David Swensen just doesn’t ring true to me. If you look at the passage in question (try searching on “unpredictable”, it’s on page 103), Swensen is talking about the optimal number of asset classes to have, and is saying that foreign bonds don’t constitute a particularly sensible asset class. Here’s a bit more of the passage:

Investors cannot know how foreign bonds might respond to a domestic financial crisis, since conditions overseas may differ from the environment at home. Moreover, foreign exchange translations may influence returns in a substantial, unpredictable manner. As a separate asset class, high-quality foreign bonds hold little interest. The combination of low, bondlike expected returns and foreign exchange exposure negate any positive attributes associated with nondomestic fixed income.

In this context, it’s clear that Swensen is talking about the way that fluctuations in foreign-exchange rates affect returns; he’s not talking about the difficulty of getting good FX execution. Or maybe Markopolos is a bit like Matt Zames: someone who, when reading public documents, can see ideas which are invisible to most people’s eyes.

More likely, there’s quite a lot that Markopolos is not telling Carrick Mollenkamp about the genesis of this operation. Enormous sums are at stake here — Markopolos and his team stand to get up to 25% of the amount recovered by the states, and the suits in total are asking for more than $2 billion.

Essentially, Markpolos and his whistleblowers are trying as hard as they can to extract hundreds of millions of dollars from State Street and BNY Mellon, and trouser it for themselves. You can see how Markpolos’s “better job” might have been attractive to someone like Grant Wilson — especially when it involved him staying in his existing job. And it’s certainly a pitch unavailable to journalists looking for this kind of story.

If this tactic ends up paying huge dividends for Markopolos, Wilson, and their team, I also wonder whether the whistleblower space might not start getting a bit more crowded: it’s easy to imagine that in cases like this one, whistleblowing profits could end up being much bigger, and involve much less up-front investment, than short-selling profits. Should short-sellers start thinking about recruiting whistleblowers instead? And also, has anybody asked Markopolos whether he’s short BNY Mellon? He’s on the record saying that it’s “going to go down”. Is there some kind of rule which says that whistleblowers can’t or shouldn’t short the company they’re shopping to the government?

Last week, we saw how the Federal Housing Finance Agency was above the law, with the government seemingly having no ability to tell it what to do. This week, it’s the FDIC. In the wake of its obstreporous obstructionism upon receipt of FOIA requests, the FDIC’s smug above-the-law impunity is now coming to light:

JunketSleuth worked for months with an attorney from the Office of Governmental Information Services, which mediates disputes between federal agencies and people requesting public records under FOIA.

The attorney was able to help persuade a number of other agencies to provide JunketSleuth with electronic and paper travel records. But she was unable to get the FDIC to provide the exact same types of records…

Federal agencies routinely violate FOIA, as they’ve done since the law was created decades ago. Still, few agencies have rejected requests identical to those that others have granted, especially when the government’s own attorneys (in this case at OGIS) have worked with the agencies to secure access to the records.

This letter, in particular, from the FDIC simply drips with contempt and condescension for anybody daring to file a FOIA from the FDIC. And the long history of correspondence in this case clearly exhibits an utter lack of goodwill at the FDIC, or any desire at all to comply with the spirit of the FOIA law.

In general, it’s the financial agencies within the government — the FHFA, the FDIC, the Federal Reserve (especially the NY Fed, which considers itself not to be a public entity at all), and of course Treasury — which are by far the worst when it comes to transparency and disclosure. We’re constantly told that certain information is commercially sensitive, for example, only to discover when it finally does get disclosed that there’s nothing commercially sensitive about it.

I’m not sure how to fix this. The White House doesn’t seem to be able to change anything: Barack Obama, for instance, released an executive memo on his inauguration day, making it clear that the Freedom of Information Act “should be administered with a clear presumption: In the face of doubt, openness prevails.” The financial arms of government barely blinked, and continued in their secretive ways.

But in this one particular case, at least, I think it might help if a sympathetic journalist started asking for the FDIC’s travel records independently from JunketSleuth. The FDIC doesn’t consider JunketSleuth a legitimate news organization, and seems to be treating it with especial prejudice. Would they send these kind of letters to an established mainstream news outlet which asked for the exact same information? There’s only one way to find out.

Update: Andrew Gray of the FDIC responds by email:

I’m regretting not getting involved the first time that this was raised but wanted to commit to you that I will personally look into it to see what the issues are.  From my experience, the FDIC is strongly in favor of the transparency required in both the letter and spirit of FOIA.  I know of at least two recent sensitive requests from your Reuters colleagues that were handled to their full satisfaction and have worked with numerous other news outlets and other outside individuals to ensure that their requests are handled appropriately and expeditiously.  While I still need to learn more about the facts in this specific request, I would submit that it is a bit of a stretch to cast a sweeping generalization about our commitment to FOIA based on this one case.

Particularly during the last few years, the FDIC has consistently demonstrated is commitment to openness and transparency.  We make public extremely detailed data about the banking industry, our P&A agreements from failed banks, structured sales and other programs.  During the crisis, we led the development, implementation and management of the Temporary Liquidity Guarantee Program, including posting public monthly reporting on debt issuances.  As an agency, we have led an unprecedented and voluntary transparency initiative throughout the implementation of Dodd/Frank, including posting the names and affiliations in all meetings with outside groups.  Our mission is public confidence – and our reputation as an agency has been enhanced by our willingness to be forthcoming with the public about our actions and views.