Nine posts in one

By Felix Salmon
January 13, 2012

As my posts have been getting longer of late, I’ve ended up with a vast number of items that I meant to write but, well, haven’t. Since I’m not going to get to all of them, I’ll do some quick hits here.

Dave Crisanti, a high-frequency trader himself, makes a good case that at some point, “trading volumes begin to have zero marginal value”. All too often we treat stock-market liquidity as an obviously good thing, when in fact that isn’t the case at all. As a result, he’s in favor of a 0.25% financial-transactions tax, despite the fact that such a thing “would drive me out of business”.

Jessica Silver-Greenberg has the story of people who are being told that they qualify for a new credit card — but only if they use a large chunk of their new credit to start paying down written-off debt. Once a debt is more than seven years old, you’re no longer legally responsible to pay it, and in most cases the debt is past the statute of limitations. But, nastily, if you start paying one of those old debts again, then it becomes “re-aged”, and you are, again, legally responsible for it. So these credit cards are invidious things.

I asked FICO about this, too, to see whether paying off an expired debt might at least help your credit score a bit. The answer? No. “Assuming the expired debt is no longer appearing on someone’s credit report,” said FICO spokesman Anthony Sprauve, “it is not impacting their FICO credit score”. If you want to get a new credit card, make sure you’re only paying new debt when you do so, not old and expired debt as well.

Landon Thomas says that the French and German banks which held a lot of Greek debt have now sold it to “hedge funds and other independent investors” who aren’t as amenable to arm-twisting. Which means that the Greek restructuring is looking more and more likely to be coercive and non-voluntary, even if that means triggering credit default swaps. Thomas says that triggering CDS is “a move that Europe and Greece are desperately seeking to avoid”, but he doesn’t explain why.

In a related story, IFR reports that hedge funds have been trying to buy up “blocking stakes” in certain bonds, which would allow them to veto any “voluntary” restructuring. As Anna Gelpern says, the most likely outcome is that nobody wins.

Josh Brown has let the cat out of the bag: Druce Vertes’s Street Eye is a fantastic one-stop shop if you want to see what finance’s top tweeps are linking to. It’s a bit like an automated Counterparties, and I’m a huge fan. Because it’s automated, it can’t range too wide: it’s heavy on the mainstream-media stories. But it’s none the worse for that.

Cathy O’Neil has a great post on one of the central problems of quantitative finance: because the models being used aren’t public (indeed, they’re jealously guarded and highly secret), the results being thrown out by those models are almost certainly false. The problem applies to science more generally, too — scientists don’t like sharing their models, and science suffers as a result. The fight over public access to taxpayer-funded research is an important story, but published science nearly always omits a lot of important information which would allow the results to be replicated. We’ve got to fix this somehow.

¶ Is hunger becoming a middle-class problem? According to a new report, 32% of New York households earning between $50,000 and $75,000 a year are having difficulty affording food. For households earning more than $75,000 per year, the percentage has rose from 4% to 24% between 2003 and 2008; it has since fallen back a little bit to 16%. Similarly, 30% of New Yorkers with a college degree, and 21% of New Yorkers with a graduate degree, have difficulty affording food.

¶ At the same time, if food is getting more expensive, that’s not necessarily a bad thing. As Mark Bittman reports, America’s meat consumption has been falling quite dramatically, which is probably good for the nation’s health. And a large part of that is a function of it getting more expensive.

¶ And Matthew Wald has an intriguing story: motor fuel companies in the US will have to pay about $6.8 million in fines for not adding cellulosic biofuel to their product in 2011. Which isn’t really their fault: it simply doesn’t exist, outside a few labs. Wald seems to think this is very silly. But I don’t. These fines will help speed development of a commercially-viable cellulosic biofuel product. Science evolves in response to incentives: look at the way we abolished CFCs only after the government forced the matter.

¶ Finally, here’s a chart of Goldman Sachs’s popularity over the past two years. It seems to be pretty steady, around the -20 range — that’s very negative. It means that if you take the percentage of people who heard something good about the company lately, and subtract the percentage of people who have heard something bad, you’ll end up far underwater. But the good news, for Goldman, is that it has recovered from its all-time lows circa Abacus.


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Even allowing for the high cost of living in New York City, I cannot believe that 16% of NYC households making over $75k per year are having difficulty affording food. I can believe that, within the context of an overall budget, these people are deciding to economize by cooking at home instead of going to a restaurant, or buying generic products rather than branded products, or buying chicken instead of beef. That’s akin to me saying that I’m having difficulty affording food because eating at a high-end steakhouse every night is unaffordable.

I’d like to see the detailed breakdown of spending by these households, and in particular how much is spent on discretionary entertainment items, from cable subscriptions to vacations to bar tabs. I don’t know what a survey question like this tells us, other than that an advocacy group designed this question to obtain a high number of affirmative answers, and that people’s revealed preferences (through spending) vary from their stated preferences for a variety of reasons.

Posted by realist50 | Report as abusive

Food for a family of four costs perhaps $7k/year (including meat, fish, and plenty of vegetables, assuming a moderate effort to eat “in season”). Anything you spend beyond that is for convenience — not for the food itself.

“All too often we treat stock-market liquidity as an obviously good thing, when in fact that isn’t the case at all.”

Haven’t I been saying that for a couple years already? HFT trading provides worthless liquidity when it isn’t needed, and withdraws that liquidity when it WOULD be needed. Minimal societal value to that.

Posted by TFF | Report as abusive

Felix, why not eliminate all taxes and replace them with a tax on ALL financial transactions? From sales, to services, to Wall St. It seems that the value of the volumes traded on the stock exchanges, commodities exchanges, currency exchanges, etc. would permit the overall rate to be very low. This would have the added benefit of stripping Congress of much of its power.

Posted by boroo | Report as abusive

Europe and Greece don’t know why they are desperately trying to avoid triggering $4 bln of CDS in a $400 billion market. So how could they explain it to Landon Thomas?

Posted by johnhhaskell | Report as abusive

I guess the price of the crab salad at Zabar’s has finally reached the breaking point.

Posted by maynardGkeynes | Report as abusive

That article on “middle class hunger” bothers me, for so many reasons!

(1) It is poor research, poor writing. There is only the faintest hint of the methodology used to support those claims. Some of the charts (such as Figure IV) aren’t even labeled!

(2) The sponsoring agency has a clear agenda (to increase their influence). Unsurprisingly, the report supports that agenda. You might as well link to articles sponsored by Big Oil that deny global warming.

(3) Money is perfectly fungible. Thus any budgetary issue impacts ALL areas of the budget. There were years that a budget squeeze at my school left us short of paper by the end of the year. Would it make sense for me to write, “School struggles with the cost of paper?” (Just to be clear, the cost of paper was NOT the problem. It was a broader purchasing freeze, triggered by shortfalls elsewhere in the budget.) I don’t deny that many families, in NYC and elsewhere, are struggling with their finances. Yet this article appears to attribute this specifically to food — with no mention of their other costs. It would be equally accurate, if not quite as sympathetic, to write “Middle class would rather splurge on smartphones and cable TV than eat.”

(4) The article is rife with silly suggestions. Commenting on data that many families are cutting back on meat and dairy, they write “These figures are of immediate concern, because the protein contained in meat, poultry, and fish provides amino acids that assist in building and preserving body muscle and tissues.” Except there is a huge problem with drawing that connection — your typical American diet includes literally twice as much protein as is required for “building and preserving body muscle and tissues”. Cutting back on meat/dairy consumption will typically *improve* diet quality, not *reduce* it.

(5) According to this article, “In 2011, almost two in five New York City residents (38 percent) purchased less food in order to save food or money.” And apparently things were even worse in 2007. Has half the population been starving themselves for the past five years? Look around you on the subway some day and use your common sense! I’m not sure what these statistics mean — I’m sure they mean SOMETHING. But they clearly don’t mean what they pretend to mean.

Posted by TFF | Report as abusive

Felix, I love this multi-link post style. Please continue to do it.

Posted by Aesthete | Report as abusive

Goldman Sachs should be declared an enemy of the state. It truly is.

Posted by tmc | Report as abusive

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Posted by kaylabi | Report as abusive