Felix Salmon

I’m sorry I missed Devin Riley’s excellent post when I was writing about ETFs on Friday. Here’s his chart:

What you’re seeing here is a y-axis ranking assets under management: the biggest funds are lower down. The x-axis ranks launch date: the earlier the fund launched, the further it is to the left. The correlation could hardly be more obvious. If you want to be a hugely successful ETF, by far the best thing you can do is to launch early.

Here’s Riley:

Launch rank explains up to 81 percent of an ETF’s rank in its segment. More to the point, in 71 percent of all segments, the first-mover had the most assets.

To me, that was surprising.

Given that ETF issuers compete fiercely on expense ratio, index tracking, and marketing materials to win investors, it’s a little disheartening to learn that so much of an ETF’s success is tied to its launch date.

This is surely good for consumers, at least so long as people continue to launch new ETFs. Because when they do so, they’re going to have to compete aggressively on fees, if only because that’s the only way that they’ll ever be able to gain any kind of market share. In turn, the new low-cost competitors will keep fees on the market leaders low and falling.

In theory, eventually, the supply of new ETFs will dry up, and the less successful competitors will drop out of the market. At that point, the market leaders might in theory be able to start raising their fees. But I’m not so worried about that: the best way to increase fee income is to keep your fees low and constant, while increasing your assets under management. Any hint of fees going up is only going to attract new competitors, or incentivize existing competitors to lower their own fees.

So for the time being it’s fine to just buy whatever the biggest ETF is in any given asset class, and sleep easily at night. There’s a small risk that in future you might end up invested in something suboptimal, but you’ll probably hear about it if that happens. Investing isn’t normally this easy, so let’s just celebrate the idea that this strategy seems to work so well, and concentrate entirely on asset allocation rather than spending lots of time second-guessing which of many ETFs to choose from.

The most exciting (but also, in a small way, slightly depressing) presentation at DLD this year came from Sebastian Thrun, of Stanford and Google. Or formerly of Stanford, anyway.

Thrun told the story of his Introduction to Artificial Intelligence class, which ran from October to December last year. It started as a way of putting his Stanford course online — he was going to teach the whole thing, for free, to anybody in the world who wanted it. With quizzes and grades and a final certificate, in parallel with the in-person course he was giving his Stanford undergrad students. He sent out one email to announce the class, and from that one email there was ultimately an enrollment of 160,000 students. Thrun scrambled to put together a website which could scale and support that enrollment, and succeeded spectacularly well.

Just a couple of datapoints from Thrun’s talk: there were more students in his course from Lithuania alone than there are students at Stanford altogether. There were students in Afghanistan, exfiltrating war zones to grab an hour of connectivity to finish the homework assignments. There were single mothers keeping the faith and staying with the course even as their families were being hit by tragedy. And when it finished, thousands of students around the world were educated and inspired. Some 248 of them, in total, got a perfect score: they never got a single question wrong, over the entire course of the class. All 248 took the course online; not one was enrolled at Stanford.

Thrun was eloquent on the subject of how he realized that he had been running “weeder” classes, designed to be tough and make students fail and make himself, the professor, look good. Going forwards, he said, he wanted to learn from Khan Academy and build courses designed to make as many students as possible succeed — by revisiting classes and tests as many times as necessary until they really master the material.

And I loved as well his story of the physical class at Stanford, which dwindled from 200 students to 30 students because the online course was more intimate and better at teaching than the real-world course on which it was based.

So what I was expecting was an announcement from Thrun that he was helping to reinvent university education: that he was moving all his Stanford courses online, that the physical class would be a space for students to get more personalized help. No more lecturing: instead, the classes would be taken on the students’ own time, and the job of the real-world professor would be to answer questions from kids paying $30,000 for their education.

But that’s not the announcement that Thrun gave. Instead, he said, he concluded that “I can’t teach at Stanford again.” He’s given up his tenure at Stanford, and he’s started a new online university called Udacity. He wants to enroll 500,000 students for his first course, on how to build a search engine — and of course it’s all going to be free.

Udacity looks great, and I can’t wait for it to be a revolutionary success, educating and empowering students around the world, especially in places like Africa and India, and, in those places, especially women.

But I have to say I’m a little sad that it’s happening away from, rather than being part of, Stanford. If any world-class university would embrace this idea, one would hope it would be the one at the heart of Silicon Valley. And surely Udacity would only benefit if it was part of Stanford and carried the Stanford brand name. Instead, Thrun is abandoning Stanford and creating Udacity on its own. (And I’m no great fan of the name, either.)

Stanford was willing to spend hundreds of millions of dollars building a new physical campus in New York City — but it isn’t willing, it seems, to help Thrun build a free virtual campus which could reach the whole world. That’s a dereliction of its educational duty. But where Stanford has failed, surely some other elite university will step in. Thrun is taking a bold step here. Let’s hope he soon gets the support, if not of Stanford, then of some other college. Like Harvard, or Yale, or Oxford, or Cambridge. They’re exclusive places now. But they don’t have to be, in the future.

Update: Thrun posts, on his personal site:

I did on my own volition resign from my full tenured position, effective April 1, 2011. However, this was primarily to continue my employment with Google, and it predates my online classes.

I’m at DLD in Munich, where David Karp of Tumblr and Samir Arora of Glam Media helped me understand the way that media and publishing are evolving these days, and the way in which creating, editing, and publishing are increasingly separate things which interact with each other in fertile and unpredictable ways.

There are lots of ways of publishing content onto the web, and if you look at the relative popularity of, say, WordPress vs Tumblr vs Twitter, then it’s easy to come to the conclusion that the easier you make it to publish, the more popular you’re going to be. But at Tumblr, at least, there’s something else very interesting going on: according to Karp, there are 9 curators for every creator on his site.

Reblogging, on Tumblr, is so easy that the vast majority of Tumblr sites actually create little or no original content: they just republish content from other people. That’s a wonderful thing, for two reasons. Firstly, it takes people who are shy about (or just not very good at) creating their own content, and gives them a great way to express themselves online. (As Arianna Huffington says, “self-expression is the new entertainment”.) And secondly, it acts as a natural amplifier for the people who do create original content — the average post on Tumblr gets reblogged nine times, and therefore reaches vastly more people than if it just sat on its original site waiting to be discovered by people visiting it directly.

Indeed, you don’t even need original content at all to become a reblogging monster. Pinterest is in many ways Tumblr without the original creators, just the curators, finding stuff online and reblogging it at incredibly high velocity. And it’s huge. Meanwhile, a lot of the impetus behind the way that Twitter is pushing its proprietary retweet functionality is the idea that it too might be able to build a community of retweeters, in much the way that Tumblr and Pinterest have built communities of rebloggers.

Journalists, I find, tend to come quite late to sites like Tumblr and Pinterest. For one thing, those sites are overwhelmingly visual: images nearly always do much better than words. And more generally, journalists are much better at writing than they are at reading — which means that they’re really bad at seeing the value added by curating and reblogging.

Technologists, on the other hand, intuitively understand the idea of “the stack”, which is the nerd version of “the platform” that all entrepreneurs and media gurus love to talk about incessantly. Essentially, they have spent their entire careers building things on other things. That happens in legacy media, too, sometimes: cable channels, for instance, live on a distribution platform owned by someone else. But print media in the US has historically been highly vertically integrated: the same company would create the content, edit it, print it, and distribute it directly to its customers’ front doors. Far from building things on other things, it owns everything from the copyright on the original content to the printing plants and even newspaper carriers.

Facebook and Google have become two of the biggest media companies in the world in extremely short amounts of time, precisely because they don’t have much interest in owning any content. Rupert Murdoch looks at Google and sees a pirate because he does everything: he both creates content (think 20th Century Fox), and also distributes it (think Sky TV). It’s a world of iron-clad contracts and tight control. While the social, digital world is one where the biggest media companies have a much lighter touch, and where the content creators with the broadest reach will be the ones who care the least about protecting their copyrights.

I suspect that we’re only in the very early days of seeing how this is going to disrupt just about every media organization built on the idea of hosting a website and selling ads, including highly socially-attuned ones like the Huffington Post. HuffPo is built on the idea that when stories are shared on Twitter or Facebook, that will drive traffic back to huffingtonpost.com, where it can then monetize that traffic by selling it to advertisers. But in future, the most viral stories are going to have a life of their own, being shared across many different platforms and being read by people who will never visit the original site on which they were published.

That was actually the original idea behind Buzzfeed — it would help brands create viral content which would then spread across the web. And then, somehow, buzzfeed.com became a destination site in its own right, which can and will make a lot of money by hosting and selling advertising. The old models still work. But the new, more distributed models are I think much more powerful. They’re great for brands, which just want to reach consumers directly, whatever the best way of doing that might be. But for content creators like Rupert Murdoch, they’re much scarier. Because when something goes viral, you don’t own it any more — it belongs to everyone, and no one.

Jason Zweig has managed to get one of the weirdest quotes ever from a would-be investment guru:

In a news release issued in March 2007, Mr. Grimaldi said one of his newsletters had “been ranked #1 by Hulbert Financial Digest” for the five years through 2006… Mr. Grimaldi’s other newsletters, although not the Money Navigator, have featured the claim “Ranked #1 & Recommended by Hulbert Financial Digest!”

Mark Hulbert, editor of the digest, says his publication “doesn’t make recommendations” and that “no matter how I slice and dice the data, I cannot support [Mr. Grimaldi's] claim of being No. 1 for that five-year period.” According to Mr. Hulbert, Mr. Grimaldi’s highest rank from the digest over that period was 25th out of 110.

Mr. Grimaldi says he ranked No. 1 over that period: “I’ll say that to my grave.”

Memo to Mark Grimaldi: whether or not you were ranked and/or recommended by Mark Hulbert is not a matter of belief, it’s a matter of fact. And Hulbert is on the record saying very clearly that he did neither. If you say that he ranked and/or recommended you, to your grave or in any other context, you are lying.

Which brings me to Grimaldi’s strongest defender:

Ms. Orman declined to address specific questions about the newsletter or Mr. Grimaldi’s background. “Mark Grimaldi is my trusted partner in The Money Navigator,” she said in an emailed statement. “He is ethical, honest and achieves stellar results that consistently outperform the market. I’m proud to be able to provide our newsletter to people who are looking for solid financial advice.”

Lying about being ranked by Hulbert Financial Digest is, needless to say, neither ethical nor honest. Which means, on an unsympathetic reading of Suze Orman, that she’s lying too.

When I spoke to Orman last week, she made it very clear that her relationship with Grimaldi’s newsletter was no different than her relationship with the Approved Card — she’s an owner of both of them, thinks that both of them are very good products, and is proud of them both. (The same goes for her FICO package, too.)

Orman also told me twice that the newsletter was rated number one — she was adamant about that. And now it turns out that it isn’t. I spoke to Orman on Tuesday; maybe Zweig hadn’t contacted her with his questions yet at that point. But at best Orman is extremely incurious about the “fabulous” newsletter that she is so keen to hawk and defend. And at worst she’s happy lying about it being ranked highly by Hulbert.

And that’s not the end of the Grimaldi/Orman sins, either. Check out this table — which is still up on Grimaldi’s website:

It shows that the S&P 500 rose by 19.79% in 2009. Which, as Zweig points out, isn’t true: the S&P 500 actually rose by 26.46% that year. And that’s no isolated mistake, either:

In nine of the 10 years cited, the newsletter understated the performance of the S&P 500. “I’m not perfect,” Mr. Grimaldi says. “We don’t claim to be.”

Getting the performance of the S&P 500 right isn’t something only perfect people do — it’s a basic prerequisite for anybody claiming to beat the index, and it’s pretty easy to find. And given that Grimaldi can’t get the performance of the index right, I have no faith whatsoever in the numbers he’s putting forward for the performance of his portfolios — numbers which are very hard, if not impossible, to check.

This week, the newsletter carried a note saying that the 2009 performance return was a “typographical error”. And indeed the same table on Suze Orman’s site has been fixed:

The 2009 figure has been corrected to the right number. But 2004, 2005, 2007, 2008 and 2010 are still too low, while 2006 is too high — 2009 is the only year which is exactly right!

Here’s something else which is weird: check out the total return for the S&P 500 in each of the two tables. While the 2009 return has gone up, the value of a $100,000 investment on 1/1/2001 has gone down! Only by a little bit, of course. But it’s hard to see what calculation could possibly have resulted in that small decrease.

Meanwhile, as Mick Weinstein points out, the portfolio recommended by Grimaldi’s newsletter prominently features Grimaldi’s own Sector Rotation Fund — and Grimaldi’s Sector Rotation Fund is the kind of thing that no sensible long-term investor should touch with a bargepole. When Weinstein wrote his post, the single largest holding of the Sector Rotation Fund was the ProShares Ultra S&P 500 leveraged ETF — and, if you look today, it’s still the top holding.

But levered ETFs, as we all know, are short-term investments, which to a first approximation should never be held for a period of longer than one day. They have no place at all in a long-term retirement fund. And the fact that Grimaldi is investing in a leveraged ETF at all is all the information any investor — including Suze Orman — needs to steer well clear of him.

Orman and Grimaldi defended their newsletter, both to Zweig and to me, by saying that it doesn’t really cost $63 per year: Orman is always out there with offer codes allowing you to get a trial issue for free, without even handing over your credit card information. But a free newsletter is no good at all if it gives bad advice — and any newsletter which thinks you should buy Grimaldi’s Sector Rotation Fund as part of a long-term retirement strategy — or at all, really — is giving bad advice.

I’m disappointed in Orman for telling her readers that they can beat the market. I’m disappointed in Orman for implying to readers that if they spend $63 per year on her newsletter, then they are likely to beat the market. And I’m extremely disappointed in Orman for getting into bed with Grimaldi in particular, who charges a management fee of 1.65% for investing in his Sector Rotation Fund, despite the fact that all he’s doing is buying ETFs.

And of course all of this rubs off onto Orman’s other products, too: the tar of the Money Navigator newsletter is going to wind up getting brushed onto the Approved Card, whether it deserves it or not. Which is yet another reason why we need a new personal-finance guru — someone who can replace Orman and judge her products impartially.

Conceptually, it makes sense that ETFs would be a winner-takes-all phenomenon. Expenses rise much more slowly than assets, which means that the bigger a fund gets, the cheaper it can be. And given that ETFs compete first and foremost on expense ratio, money is likely to pour into the cheapest-and-biggest funds, which allows them to get even cheaper. And so on.

So this chart, from Lipper, comes as little surprise.

In many ETF categories, it turns out, one ETF has the lion’s share of the market — Vanguard in total stock market ETFs, Market Vectors in precious metals, iShares in TIPS and investment-grade bonds.

So one would expect that those big dominant funds would be significantly cheaper than their competition — that would explain their dominance. And, one would be right — if you just look at precious metals. But elsewhere, that’s not the case.

Among total stock market ETFs, the Vanguard VTI fund is extremely cheap, charging just 0.06%, but the Schwab US Broad Market ETF charges exactly the same, and has just 0.46% of the assets in the class.

The cheapest investment-grade bond ETF is the Vanguard Long-Term Corporate Bond ETF, with an expense ratio of 0.14% — but it has only 2.3% of the purple pie. The iShares is only 1bp more, but has 90% of the assets.

And when it comes to TIPS funds, all of the big ETFs — iShares, Pimco, and SPDR — charge the exact same 0.20%. But iShares gets nearly all the business.

Now we’re not talking, here, about the kind of small, illiquid ETFs which can easily underperform. All of these funds are big enough that, to a first approximation, they’re all as safe as each other.

But still, at the margin, a big ETF is always going to be safer than a smaller one. And I suspect that most of these funds have a first-mover advantage, and that their competitors might well be losing money in their attempt to stay competitive with the giants in the space.

Is there any reason, for an individual investor, to choose one of the smaller ETFs rather than the big ones here? I don’t think so. Big mutual funds can be lumbering and dangerous, but big ETFs just have that much more clout in things like the repo market. And all ETFs get front-run by algorithmic high-frequency traders in exactly the same way: I don’t think big ones suffer more on that front.

My feeling is that if you choose the big fund, the fees might come down as it gets bigger; if you choose something small like the Schwab broad market fund, by contrast, the fees might well go up if its managers give up trying to compete with Vanguard. So if you’re going to buy one of these ETFs, you might as well follow the crowd. This is one area where contrarian investing will likely get you nowhere.

Remember the sharp rise in taxi medallion prices over the past few years? I thought that the price was pretty justifiable back then, in October, although I did have my concerns:

Any time you see a chart like the ones above, you have to worry that there’s a bubble. Plus, there’s political risk: the mayor can print new medallions, making the existing ones worth a little less (but not a lot less, given that the income from medallions is largely fixed).

Since then, however, two things have happened. First, New York City agreed to print 2,000 new medallions — that’s a very large increase. And secondly, Charles Komanoff — you remember him — has done the hard math of what this means for congestion and taxi incomes.

The first thing to understand is that while 2,000 cars might not seem very much in the context of a city which sees 800,000 cars per day, in fact it’s huge. Taxis spend 40 times as much time driving in congested areas as private cars do, so 2,000 medallions is the equivalent of 80,000 private cars. And when you impact the amount of traffic that much in an area which is already highly congested, the effects can be enormous:

The bottom line, here, is not just significantly more congestion, with travel speeds dropping on average from 9.5 mph to 8.4 mph. That inconveniences everybody, of course, not least the cab drivers themselves, who will take a whole extra minute, on average, to get to where their passenger wants to go. That decreases the number of fares they can pick up per day, and hurts their income.

And at the same time, the number of people wanting to take a taxi is likely to go down, when traffic speeds fall, rather than up. If you have fewer people hailing a greater number of cabs, then it’s simple math that the number of fares per cab shift is likely to fall. According to Charles’s calculations, it will fall in total a good 19%.

If taxi fares stay constant, that means a 19% drop in taxi-fare income, per cab. Fares won’t rise enough to cover that fall. And of course the income for the driver is going to fall more than 19%, because the medallion owners are going to be very reluctant to drop the amount they charge the drivers per shift.

All of which implies to me that if there’s a medallion-price bubble, then the introduction of 2,000 new medallions is likely to prick that bubble. And conversely, if medallions keep on changing hands for a million dollars a pop even after those 2,000 new cars are on the road, then we can be pretty sure that there’s no bubble here at all.

Stephen Fidler makes a good point today: the difference between a “voluntary” exchange and a “coercive” exchange, when Greece finally puts an offer to its creditors, is largely semantic. Or, to put it another way, the only real difference is that in a voluntary exchange, you have the IIF’s Charles Dallara saying nice things about the Greeks, while in a coercive exchange, you have the IIF’s Charles Dallara saying nasty things about the Greeks. But the fact is that precious few bondholders who are going to change their vote based on what Charles Dallara thinks.

Most of the bondholders are European banks, and as Fidler says, European banks are subject to “moral suasion” — having their arms twisted by their national governments — which is much more likely to affect their final decision than the official judgment of Dallara. Meanwhile, an increasing proportion of the bondholder base is made up of hedge funds, who certainly don’t care what Dallara thinks.

Landon Thomas reports that the two sides are getting closer to agreement; the sticking point seems to be the coupon on the new bonds, and the likely outcome, on that front, is likely to be just below 4%. No word on the governing law of the new bonds, though I suspect that Greece will go along with doing the market-friendly thing of issuing its new debt in London.

The reason why none of the negotiations really matter very much is, as Fidler says, that “if they don’t agree, the holdouts will have the ‘voluntary’ deal forced down their throats”. Greece is going to bolt collective action clauses onto its outstanding bonds — and use those clauses in what’s known as a “cram down”: the minority has to do whatever the majority wants.

Now with most collective action clauses, this would be non-trivial. Often these clauses require a large supermajority of bondholders to agree before the CAC is triggered — 85%, say. And they’re generally done on a bond-by-bond basis, making it much easier for a hedge fund to build up a blocking stake in one bond.

But Greece is in the very nice position of being able to craft its CACs now, rather than at the time the bonds were issued. As a result, it can set the CAC threshold very low, if it wants, and it can also draft them so that the percentage which matters is the percentage of all bonds tendered into the exchange, rather than the percentage of any individual bond.

All it needs to do then is have a quiet word with the technocrats at the EU, who have a very good idea how much moral suasion they can wield. Greece has a pretty good idea what the minimum take-up of any exchange offer is likely to be. And it just needs to set its CAC level at or just below that minimum take-up level.

Of course, the lower the CAC level, the more coercive the Greece exchange will be considered. If the CACs are set at 85%, the deal will be “voluntary”; if they’re set at 51%, it will be highly coercive. But either way, the deal will get done. And Greece has absolutely nothing to worry about with respect to hedge funds threatening to sue the country in the European Court of Human Rights. Good luck with that one, guys, you’re going to need it.

The only real risk for Greece, as I see it, is that its offer is so bad that less than 51% of bondholders tender into the exchange: you can’t set a CAC below 50%. But I doubt we’ll see that. Banks hate holding defaulted debt. Greece is going to offer them a choice, between holding defaulted debt and holding new instruments which are paying in a timely fashion. When push comes to shove, the banks are going to take the new instruments. Whether Charles Dallara likes it or not.

Many thanks to Amy King at Artnet, who put this league table together for me, showing the artists who have grossed the most money at auction before their 30th birthday. (Technically, it’s total auction revenue up to and including the full year in which they turn 30.)

In first place, and vastly ahead of anybody else, is Jean-Michel Basquiat, who of course died in 1988 at the age of 27. The overwhelming majority of his $16.6 million was posthumous: $15.3 million came in 1989 and 1990. And dying young is not a career strategy I’d necessarily recommend to any artist.

Basquiat aside, there’s an impressively Asian tinge to this list, with 5 of the other 9 artists coming from China, Korea, or Japan. Notably, the appositely-named Choi So Young saw more than $2 million of her work sold at auction before she was 30 — an achievement which, historically, neither female artists nor Korean artists would ever dream of.

This does not mean that Asian artists have more success at a younger age than their US and European counterparts; it probably just means that hot young US and European artists have galleries which are better at keeping close tabs on their work and preventing it from coming up for auction. But still, it’s a glimpse at just how incredibly successful young artists can be, these days.

I was hoping someone would do this — and now The Daily Stag Hunt has come to the rescue. All I can say is, thank you. It turns out that if you’re on the FOMC, then being in a credit bubble is really funny!

(h/t Elfenbein)

The wheels of justice grind slowly — it’s well over a year since Jeff Horwitz’s stunning report on the force-placed insurance scandal, and only now does it seem like the other shoe might be beginning to drop, with the enormous monetary settlements that probably implies.

In his latest update, Horwitz fills us in on what’s going on: there’s not only a big investigation by New York State’s Department of Financial Services, but there’s also a separate investigation by the broad coalition of state attorneys general, as part of the mortgage-servicing settlement which never seems to get anywhere. On top of that, the Consumer Financial Protection Bureau might be getting involved as well.

And then there’s private litigation, led by a four-firm, ten-lawyer class action effort in Florida. As Horwitz writes, it’s too early to know how all these suits will turn out, but what precedent we have is not looking good for the banks:

The suits are generally in their early stages. But the only one to have advanced past class certification, Hofstetter v. Chase Home Finance LLC, suggests serious trouble for banks.

In depositions made public following the defense’s failure to properly request confidentiality from the court, Chase employees described a system in which Chase collects hefty commissions on force-placed insurance — yet does no work in relation to the policies.

“What function does Chase Insurance Agency, Inc. perform with respect to flood insurance?” the plaintiffs’ attorney asked in a deposition.

“I would say no function,” Chase’s employee responded…

One Chase employee testified that, despite Chase Insurance Agency Inc.’s name, the division employs absolutely no insurance agents.

Chase settled that one case for an eight-figure sum; there will certainly be more where that came from. I only wonder whether the banks might not be hoping that a big umbrella deal with the state attorneys general might give them some kind of immunity against these class actions.

In many ways, the banks don’t want to settle: they’d rather fight, and keep their money while doing so, even if fighting ends up costing them more over the long term. Better to push off losses onto your successor than be responsible for them yourself. And probably the expected losses on class actions related to force-placed insurance won’t make the difference between the banks making or rejecting any proposed offer. But Horwitz’s story is an important reminder that banks’ contingent litigation liabilities are enormous, and largely unknown. Which is one reason, surely, why they’re all trading at such low ratios these days.

Adam Lashinsky, in an excerpt from his new book, says that Apple employees aren’t paid particularly well:

If they don’t join for a good time, they also don’t join Apple for the money. Sure, Apple has spawned its share of stock-options millionaires — particularly those who had the good timing to join in the first five or so years after Jobs returned. “You can get paid a lot of money at most places here in the Valley,” said Frederick Van Johnson, a former Apple marketing employee. “Money is not the metric.”

By reputation, Apple pays salaries that are competitive with the marketplace — but no better. A senior director might make an annual salary of $200,000, with bonuses in good years amounting to 50% of the base. Talking about money is frowned upon at Apple. “I think working at a company like that, and actually being passionate about making cool things, is cool,” said Johnson, summarizing the ethos. “Sitting in a bar and seeing that 90% of the people there are using devices that your company made — there is something cool about that, and you can’t put a dollar value on it.”

This is interesting — but I think it understates the importance of stock options and restricted stock units. Apple is that rarest of beasts, a fast-growing company with a low stock price. And you don’t need many RSUs at $430 a pop before you’re talking real money. A job offer from Apple is certainly a treasured thing and most people aren’t going to turn it down just because the salary isn’t north of $300,000. But money’s still important and Apple employees have actually been much better paid than Lashinsky implies.

We can do some very basic back-of-the-envelope math here. When Apple went public in 1980, it had 61 million shares outstanding. It has since split three times, so those original 61 million shares have now become 490 million shares. Today, however, Apple, has 929 million shares outstanding. Which means that over the years, Apple has issued 439 million shares.

Where did those shares go? There haven’t been any secondary offerings, so none of them went to investors. And Apple is not particularly acquisitive, so few of them went to buy companies, either. Apple does buy some companies with stock, but those deals are rare and don’t account for all that many shares: even the NeXT acquisition, which brought Steve Jobs back to the fold, was paid for with $429 million in cash and only 1.5 million shares of stock.

So it’s fair to assume that the lion’s share of the newly-issued shares — let’s say 400 million, to keep numbers round — have gone to employees. And 400 million shares, at $430 each, is $172 billion.

To put that in perspective, Apple now has 60,400 employees. 36,000 of those work in the retail segment; we can assume they don’t get options or RSUs. So excluding retail, Apple has about 24,400 employees. Let’s double that number, to include all the employees who have left over the years — call it 50,000 in all. $172 billion divided by 50,000 employees is $3.4 million per employee.

Now I’m not saying that the average Apple employee has made $3.4 million in stock options and RSUs. Most of those options and RSUs will have been exercised, at prices well below $430 per share. (On the other hand, most current employees have options and RSUs which haven’t yet vested and therefore aren’t included in the 929 million number of total outstanding shares.) But the fact is that Apple has been generous in terms of handing out equity to its employees, and there’s no reason to believe it won’t be just as generous going forwards. And the most recent datapoint we have — the 1 million RSUs given to Tim Cook when he became CEO “as a promotion and retention award” — certainly doesn’t make it seem as though Apple is stingy with its equity-based pay.

I’m sure that Apple doesn’t pay more than it needs to and I’m also sure that demand for Apple jobs significantly exceeds the supply of those jobs. But if you properly account for options and RSUs, I suspect that Apple turns out to be a pretty generous employer — more so, in any case, than Lashinsky implies.

Today is a very big day at Goldman Sachs.

It’s bonus season on Wall Street and Goldman’s employees are about to learn their “number,” the annual object of obsession that makes up the bonus portion of their compensation. Depending on the number of zeros attached to that number, Wall Streeters will rejoice, buy big homes or quit in a huff.

In turn, many of us will be instantly disgusted by Wall Street’s pay.

There’s a problem, though, with anger about Wall Streeters’ paychecks: we know almost nothing useful about the way the industry rewards its employees. We know that Wall Street pay is high, and certainly far higher than the median American income, which is a serious problem. A battery of studies have linked Wall Street’s pay practices to skewed incentives, outsized risks and short-termism.

Beyond that, though, talking about Wall Street pay becomes an exercise in gossip.

Here’s a sample of recent reports: Bloomberg, relying on bank sources and pay experts, reports junior bankers won’t see annual guaranteed salary increases this year. The NYT reports executive compensation experts charge $11,000 for an annual report which helps banks determine how much to pay top traders. Andrew Ross Sorkin posited that pay on the Street will actually be higher this year if you compare it to revenue.

But, by far, the most common figure you’ll hear during bonus season is average pay per employee. The WSJ declares: “Average pay at Goldman Sachs: $367,057”. It’s a figure that nearly every news organization bandies about, often without caveats.

Unfortunately, using averages to describe Wall Street pay is a bit like writing about baseball salaries if you included A-Rod in the same data set as peanut vendors. Average Wall Street bonus figures come from compensation set-asides that include support staff and IT workers along with, as the Epicurean Dealmaker points out, workers who generate real revenue.

Then there are the outliers at big banks, whom we know nothing about. Goldman Sachs is about to lose two of the four heads of its largest division, but you’d be hard-pressed to find detailed information on their compensation. Most banks, unfortunately, don’t give headcounts for their various divisions, so getting a sense of pay-per-person in specific bank divisions is usually impossible.

Remember Andrew Hall, the former Citigroup trader whose Phibro unit pulled in 10 percent of the bank’s net income in 2007? (Hall, famously, demanded a $100 million payday in the middle of the financial crisis). You won’t find full information on Hall’s pay in Citi’s U.S. SEC disclosures, even though he was known to out-earn some of the bank’s top executives, including Citi’s CEO; his compensation was first sussed out by the Wall Street Journal.

There’s vital information in these pay practices: We didn’t learn that Joseph Cassano’s pay from AIG peaked at $44 million until the Financial Crisis Inquiry Commission released its findings, some two years after his unit nearly took down the economy.

And we also don’t know how much of Wall Street’s pay is relatively unobjectionable. Investment banking can be, as the Epicurean Dealmaker suggests, about moving relatively safe products that people want:

Business like M&A, where you earn a fee for helping a client buy or sell a company, or security underwriting, where you earn a fee for placing client securities with outside investors, or securities market making, where you earn a spread for standing between buy- and sell-side investors as a middleman and temporary warehouser. None of these businesses entailed any material amount of persistent or hidden financial risk to investment banks: we did the deal, we got paid, and we moved on. There are no meaningful, dangerous “tail” exposures from such activities.

In any given year, we have no real idea how much Wall Street pays for its more socially redeeming functions, compared to how much it pays the Joseph Cassanos of the world.

Even a simple tally of the number of six, seven or eight-figure earners in any big bank, broken down by division, would give us a clearer picture of compensation. And it would be great if banks were forced to reveal how much they paid their highest earners every year, and what divisions those earners worked in. Shareholders and regulators might then form useful observations about risk, talent and reward.

But for now, all we can do is guess about what Wall Street banks really value.

Here’s my infographic on the badges at Davos, put together with the invaluable help of Alex Leo and Juno Lee.

I actually snapped a photo of the white-with-hologram badge — pretty much the top badge you can get at Davos — a couple of years ago, although I didn’t know what it meant at the time. Technically, the purpose of the hologram is to let the Davos security people know who’s allowed into IGWEL meetings. But the real purpose is to make everybody who doesn’t have a hologram feel a little bit left out.

Wonderfully, in his piece on why he isn’t going to Davos, Mohamed El-Erian calls for even more layers of exclusivity: “To be more productive, and more useful,” he writes, Davos meetings “need to be much less inclusive at some key moments. Very difficult (and highly delicate) decisions have to be made about who to involve in certain meetings and who to exclude. This would require additional (and closely monitored) status levels for participants.”

I can assure Mohamed that the WEF already spends a mind-boggling amount of time making difficult and delicate decisions about who to involve in certain meetings — none more so than IGWEL. And one of the wonders of Davos is the way that every time you go back, you discover a whole new level of secret and exclusive meetings and dinners and get-togethers which you had no idea even existed: the badge-color layers are only the beginning. Maybe Mohamed should actually go, next year. But only if he gets a hologram.

Greek prime minister Lucas Papademos gave an important interview to the NYT on Monday night. Think for a minute about the natural fractiousness of bondholders, and then read this:

Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greece’s unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.

“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” Mr. Papademos said. “It cannot be excluded. It is contingent on the percentage.”

This is a pretty clear message: if the bondholders don’t agree to Greece’s terms, then Greece can simply force them to join the exchange. Greece’s bonds are issued under Greek law, and Greece can change its own domestic law any time it wants.

My guess is that this is exactly what’s going to end up happening. Papademos has two sets of advisors: its bankers, Lazard, and its lawyers, Cleary Gottlieb. Lazard’s Greece team is headed by includes Mark Walker, the former managing partner at Cleary Gottlieb, and Cleary’s Greece team is headed by the dean of sovereign debt advisors, Lee Buchheit. Bondholders, in general, have a lot of experience going up against Walker, Buchheit, and Cleary generally. And whenever that’s happened, the sovereigns have won, and the bondholders have lost. Just ask anybody who held Russian domestic debt in 1998: Russia’s lawyer, back then, was Mark Walker.

Meanwhile, the lead negotiator on the creditor side is the IIF’s Charles Dallara, an amiable buffoon whose main purpose in life is to try to make sure that everybody likes him and thinks that he’s important. When faced with hard-nosed and single-minded Cleary types, he’ll be useless — especially given that the banks have already cut him off at the knees by refusing to let him negotiate on their behalf. He can wave his hands around and agree in principle to a deal, but he can’t actually commit any bondholders to participating. Which means that the “negotiations” are really just an opportunity for Dallara to talk a lot (he likes doing that), and for Greece to flatter him into “agreeing” to whatever it is they’re going to do in any case.

In her interview with Papademos, Rachel Donadio says that “European leaders are set against” the idea that Greece’s credit default swaps should be triggered, on the grounds that it “could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system”. She’s wrong about that: it couldn’t. The only thing a CDS trigger does is make sure that people who bought insurance on a Greek default get paid when Greece defaults. It would mean that the people doing the insuring lose money, of course. But anybody writing an insurance policy has to be willing to pay out on it — especially when you’re insuring a credit as risky as Greece. A CDS trigger would not be catastrophic at all, and there’s really no reason to try to avoid one.

The real negotiations are the ones which are certainly going on behind the scenes, between the troika (the EU, the ECB, and the IMF) and the Greeks. The one thing which Greece needs is for the troika to keep on funding Greece’s deficits. And so it’s the troika — the organizations who are actually providing money, here — which holds all the cards. As in any bankruptcy, if you put up cash, you call the tune.

So the only thing that needs to happen here is for Greece to quietly find out from the troika what kind of bond-restructuring terms would be acceptable to them. Greece then puts those terms into a formal offer, and makes acceptance of that offer effectively compulsory for bondholders. The troika declares a successful bond exchange — because it happened on exactly the terms that they wanted — and continues to lend Greece the money it needs to function as a viable sovereign. Game over, at least for the time being.

Now politically, the EU would very much like to have a bunch of smiling bankers going around saying that they’re happy with the bond exchange, rather than a group of extremely irate creditors who feel railroaded into a dreadful deal. So everybody’s going to try to be as nice to the bankers and Dallara as they possibly can be, to try to get as much good PR for the deal as possible. And maybe, at the margin, the banks can extract some concessions in return for their smiles — perhaps the new bonds will be issued under London law rather than Greek law, for instance.

But the big-picture game plan is clear. Greece is going to default, on March 20, and there’s really nothing the banks can do to stop it. If you’re not willing to accept whatever deal Greece comes up with, you probably shouldn’t be holding Greek bonds at all.

Update: Lazard informs me that its team leader in Greece is Matthieu Pigasse, the head of the bank’s sovereign advisory team, not Mark Walker. They also say he didn’t work on Russia.

Please, Barack, don’t do it! Hans Nichols is reporting today that Larry Summers wants to be the next head of the World Bank — no surprise there — and that Barack Obama is thinking of nominating him. It’s a dreadful idea.

For one thing, Summers wouldn’t actually be very good at the job, since he doesn’t have any of the required qualifications.

The only way to be an effective World Bank president is to be an effective diplomat. Like all CEOs, the head of the Bank reports to a board of directors — but at the World Bank, the board of directors meets twice a week. And they’re not friendly hand-picked board members, either — they’re political appointees who fight their geographical corners, who live full-time in Washington, and who work full-time out of offices within the Bank itself. If you want to get anything done at the Bank, you need to persuade the board to leave you alone and not micromanage every decision you make.

You also need to be an almost superhuman manager. The World Bank has more than 10,000 employees from over 160 countries, with offices in more than 100 countries around the world. The range of cultural expectations they bring to their jobs is truly enormous, and the amount of political jostling and mutual incomprehension which results is entirely predictable. In order to manage this rabble, you need a very high level of cultural and interpersonal sensitivity.

And then there’s leadership: “the vision thing”, as Geoge HW Bush would put it, and the ability to get your organization to line up behind how you think the Bank — and, for that matter, the World — should work. Summers is not known for his work on global poverty reduction, and his previous tenure at the World Bank is remembered mainly for the pollution memo — an “ironic” proposal to increase pollution in poor countries, which resulted in the label “perfectly logical but totally insane” being attached to Summers for many years thereafter.

Summers, of course, lives in a world of ideas and debate — a world in which, it must be said, he invariably and loudly considers his own opinion to be correct. If he became president of the World Bank, it’s only reasonable to expect Cornel West-syle fiascos on a regular basis — with a concomitant steady erosion of the amount of faith the board has in the president.

And even Summers himself is the first to admit that he’s no diplomat: he prides himself on speaking the truth as he sees it. Which is fine if you’re making millions of dollars advising DE Shaw on their investments. But it’s not going to help you run the World Bank — or run anything larger than the Treasury Department, really. Even Harvard was too much for him to run; giving him the World Bank job would be a disaster.

On top of that, giving the job to any American is a bad idea. We’re long past the point at which it makes any sense at all that the president of the World Bank should always be an American, and I was quite heartened, back in 2009, when a trial balloon was floated suggesting that Obama might appoint Lula, or Manmohan Singh, to the job. My own favored candidate would be Ngozi Okonjo-Iweala — she should ideally have got the job back in 2007, but better late than never. And accepting it would give her a gracious way of departing her current gig, which doesn’t seem to be going so well.

Obama is the most multilateral president the US has ever had, and as such it makes perfect sense for him to show a bit of modesty with respect to the World Bank. An American has run it since 1946; it’s about time some other nationality got a chance. (And yes, Jim Wolfensohn counts as an American.) If Obama must appoint an American, it should probably be a Clinton — either Hillary or Bill, with Hillary being the much more likely of the two. But ideally he shouldn’t nominate an American at all. And if he does, it certainly shouldn’t be Summers.