Felix Salmon

Everybody’s favorite transportation geek, Charles Komanoff, has a fascinating new paper out on the economics of New York’s new Tappan Zee Bridge. The old bridge is decrepit, and needs to be replaced — everybody agrees on that. And the replacement is now in the works, at a cost of $5.2 billion. But does it need to cost that much? Komanoff makes a strong case that it doesn’t.

I won’t try to summarize Komanoff’s paper here. Instead, I’ll just point to one fact which is buried there. The new bridge comes with a combined bike/pedestrian lane, 12 feet wide. And the cost of building that lane — the amount that the cost of the bridge would decrease if you simply built it without that lane — is an astonishing $400 million.

To put that number in perspective, Komanoff tells me it would cost roughly $40 million, in the same 2015 dollars, to build two bike/pedestrian lanes on the Verrazano Narrows bridge — lanes which would get vastly more traffic than the one lane on the new Tappan Zee.

As for the cost of the first three years of New York City’s ambitious bike program under transportation commissioner Janette Sadik-Khan, that was just $8.8 million, 80% of which was paid by the federal government.

In other words, for the $400 million which governor Andrew Cuomo is planning to spend on a white-elephant bike lane almost nobody is going to use, you could utterly transform the bicycling infrastructure for millions of New Yorkers in all five boroughs.

Oh, and I almost forgot — it looks as if the old Tappan Zee bridge is going to be converted into a bike/pedestrian walkway anyway, making such a facility on the new bridge even more superfluous.

But this is how big projects always work: it’s weirdly easier to raise billions for something huge than it is to add millions to an annual budget somewhere. “Gridlock” Sam Schwartz, for instance, in his clever new congestion-pricing plan, is proposing three new massive bike/pedestrian bridges: one from Jersey City and Hoboken, in New Jersey, would span the Hudson River and land just north of Chelsea Piers. A second would go from Long Island City and Hunter’s Point, in Queens, and would cross the East River to midtown Manhattan. And the third, and most ambitious, would start in Red Hook, in Brooklyn, head over to Governor’s Island, and then continue on to the Financial District.

These are utterly wonderful ideas. If beautiful new pedestrian bridges can be built by Santiago Calatrava in Venice or by Norman Foster in London, there’s no reason New York can’t follow suit. Still, it’s a bit depressing that we don’t seem to have the mechanisms to take the billions available for vanity projects, and use some small fraction of that money for things which would make a huge difference to the daily lives of millions of New Yorkers.

This phenomenon isn’t confined to government, of course: anybody working in a big corporation has seen some huge acquisition made, using money which was never available for smaller projects from existing teams which had much clearer benefits. And there are hundreds of museums around the world which never have money for important things like conservation, but which somehow manage to find enormous sums for glossy new starchitectural projects. Basically, people want to be able to see where their money is going, in the form of something large and grand and headline-grabbing. Even if there are much more sensible uses for it elsewhere.

The best bit about wine is drinking it; the worst bit about wine is buying it. You walk into a wine store, or a supermarket, and you see hundreds of different bottles, most of which you’ve never heard of. And you’re then expected to somehow pick exactly the right one, in the knowledge that if you get it wrong, both your meal and your wallet are likely to suffer the consequences. So it’s hardly surprising that most people go with what they know, and end up buying something adorned with a well-known brand.

My taste in wine has evolved enormously since I started buying it regularly when I was at university. What I like now I wouldn’t have liked then, and what I liked then I wouldn’t like now. But one thing has stayed constant: I’ve always had a gut-level prejudice against big wine brands. Once I see a wine advertised anywhere, I’m pretty much guaranteed never to buy it. The only brands I ever respect or seek out are importers — especially when it comes to French wine from outside Bordeaux, you can save yourself a lot of trouble by getting a feel for which importers are generally trustworthy and reliable when it comes to picking great wines.

My intuition about such things was always that if I bought a wine with a nationally-known brand, I was essentially paying for the branding campaign at least as much as I was paying for the wine. On top of that, I felt that a wine made in such volume could never really be the unique and wonderful living thing that I’m always looking for in a wine: that its character would have to be ironed out in the service of homogeneity and predictability.

Besides, the whole world of wine-branding is just incredibly distasteful.

And so, when I found myself having to buy a bottle of wine in a supermarket in Chesterfield, Missouri, I spent a long time walking up and down the vast selection of California wines, and much tinier selection of everything else, looking for anything which didn’t come from some huge and faceless international conglomerate. Let’s just say that the store’s (or the chain’s) wine buyer wasn’t buying with me in mind. Just like big brands like to be able to deal with as few media outlets as possible when they buy media for their advertising campaigns, so do supermarkets (with a few notable exceptions) like to deal with as few vendors as possible when they buy wine for their stores. And given the number of Americans who buy their wine wholly or solely in supermarkets, the result is that a large chunk of the country essentially lives in a world where wine is branded juice from some huge company.

At the same time, however, most of us do still have a choice as to what we buy. So long as we’re not in a supermarket or chain restaurant, there’s bound to be a little bit of character in the choices available to us. And going off-piste, as it were, is fun, even as it does carry obvious risks. As a basic rule of thumb, simply avoiding big brands works surprisingly well.

Importantly, this is true at every price point, not just at the supermarket level. A few days ago, the NYT ran an article headlined “Bulgari Family Tries to Become a Name in Wine”:

A new wine venture by two members of the Bulgari watch and jewelry dynasty, Paolo and Giovanni Bulgari, will release its first three wines this weekend…

“My father taught me how to handle stones, to hold them in my hands without looking at them to get a sense of their temperature, and then to observe how light plays off them,” he said. Wine also called for an intuitive perspective: “how it reacts to light, how the color moves in a glass.”

And as if that wasn’t gruesome enough, today brings even more egregiousness from Vinitaly:

“As soon as you say ‘Prada and brunello’, ‘Ferrari or Maserati and brunello’, it makes a very vital association, especially for consumers around the world that might not know the differences in the wine,” said Cristina Mariani-May, co-CEO of Banfi, makers of the full-body brunello red.

Happy to promote Italy’s image as a source of all types of quality goods, members of Italy’s luxury industry body Altagamma have agreed to accompany their shows and other high-profile events with Italian wines.

Banfi do indeed make brunello; they also make Riunite.

The fact is that high-end branded wine, from Tignanello to Opus One to Chateau Lafite, is generally about as good value for money as anything from Prada or Bulgari. If you’re the kind of person who would rather spend half as much money on a perfectly-fitting bespoke suit from a no-name tailor than buy something off the peg from Prada, you’re definitely the kind of person who should avoid expensive branded wines.

But, there are exceptions to this rule, or at least there’s one big exception: Iberia. In Spain, at least in my experience, I often find that the bigger the company and the brand, the more delicious and characterful the wine — and the cheaper it is, to boot. If you want a great Rioja, for instance, you can never go wrong with one of the grandest brands of them all, Lopez de Heredia, which often costs much less than Parkerized cult wines from Spanish garagistes. Similarly, there’s no good reason not to go with the big names in sherry, or port, or madeira. The big old brands know what they’re doing, know how to take their time, and are continuing to do what they’ve always done, rather than trying to follow international taste. (The same is true of Chateau Musar, in Lebanon.)

As a general rule, however, mass-produced wine will always taste mass-produced, and if you’re looking at an expensive branded wine, you’ll nearly always find something better at the same price from a lesser-known vigneron. Which doesn’t, of course, alter the fact that the branded wine will still probably be the safer choice.

You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.

Of course, there are means of testing gold bars beyond just weight and XRF. If you can weigh the bar accurately, then you can test for purity by essentially dropping it in a bucket of water and seeing how much the water level rises: a gold-covered tungsten bar will displace more water than a pure gold bar. Alternatively, for $3,000 or so you can buy a micro ohm meter, which is easily sensitive enough to tell the difference in conductivity between a pure gold bar and one which is largely tungsten.

But as far as I know, these tests are not particularly commonplace among gold dealers, and in any case only a minuscule fraction of the gold bars in the world are physically traded, changing hands from one owner to the next — the obvious point at which tests like these would be conducted. If you own gold — if you’re a central bank, say, or a physical-gold ETF, or even if you’re just a Ron Paul or Glenn Beck type with your own personal stash — then there’s no realistic chance at all that you’re going to go bar by bar through your own holdings, testing each one.

In the case of gold, then, what JK Galbraith famously called “the bezzle” — the amount of wealth that people think they have, which in fact they don’t have — could be truly enormous. If there are 1.3 million salted 400 oz bars in existence, and each one is 75% tungsten, then that makes 390 million ounces of gold which in truth isn’t there. At $1,660 per ounce, that’s over $600 billion which people think they own but don’t. To put that number in context, it’s roughly half the total quantity of subprime mortgages which had been issued at the height of the housing bubble.

On the other hand, it’s also possible that the number of salted 400 oz bars is zero, that the 1 kg bar recently discovered was an amateurish aberration, and that there’s nothing to worry about at all. But the economic incentives here are so enormous, for people looking to make a fortune in the fake-gold-bar industry, that I very much doubt no one has tried. And statistically speaking, if a bunch of people have tried, then some subset of those people will have succeeded.

So what to make of the fact that no salted 400 oz bars have yet been found? On the one hand, it can be viewed as very worrying — as being an indication that the gold markets are very bad at uncovering such things. On the other hand, you’d think they’d be good enough at it that they would have uncovered at least a small percentage of the salted bars outstanding — and if they’ve uncovered no such bars at all, then that can be taken as an indication there aren’t any salted bars outstanding.

In any case, there’s clearly now serious tail risk for anybody in the physical-gold market. And like most tail risks, measuring and/or insuring against it is extremely difficult. Any store of value has problems, be it fiat currency or sovereign debt or bitcoins. This latest discovery just goes to show that the problems with gold aren’t just the obvious ones surrounding things like the risk that the price of gold might plunge. There are non-obvious ones, too, which have the potential to be even bigger.

Update: Thanks to smart comments from BronSuchecki and Tim Worstall. I forgot that gold is actually used, once in a while, to make things like jewels — which means that bars are melted down pretty frequently. If there was a significant number of salted bars out there, we’d know about it, since you’d notice when one of them got melted down. Which isn’t to say that there are no salted bars at all, but it certainly does seem to imply that there’s nowhere near 1.3 million of them.

Ed DeMarco, the regulator in charge of Fannie Mae and Freddie Mac, has many critics, myself included, who would love him to allow Frannie to do principal reductions where it makes sense. But now he’s managed to find a defender. In Gretchen Morgenson, of all people.

Morgenson’s column today is utterly bizarre. She starts off by painting DeMarco as a “career public servant”, “under fire” in a “thankless job”. This is a phrase she seems to reserve for DeMarco alone: she made sure to describe him as a “career public servant” in 2010, as well as in her book. And as far as I can tell, she’s described no one else that way. And there are many career public servants, up to and including Tim Geithner, who can’t stand DeMarco* and who think he is being deliberately obstructionist here.

Morgenson then defends DeMarco from critics like Barney Frank and Elijah Cummings:

What the proponents of principal reductions at Fannie and Freddie don’t talk about is what a transfer of wealth from taxpayers (again) to large banks such a program would represent.

Morgenson is actually serious about this: the headline on her column is “A Bailout by Another Name”. And when she says bailout, she doesn’t mean a bailout of deadbeat homeowners, who would see their net worth jump overnight as a bunch of their obligations were written off at a stroke. No, she means a bailout of banks.

On the face of it, this makes no sense. How can reducing homeowners’ principal end up as a bailout of banks? And not just any bailout, either: Morgenson goes on to tell us that such a program “would constitute a direct and sizable gift from taxpayers to the largest banks”, “another backdoor bailout for the banks that brought you the mortgage crisis”, and “another stealth bank bailout, courtesy of taxpayers”.

Don’t worry, Morgenson does actually spell out her thesis here. In her 1,170-word column, she spends a full 65 words explaining exactly how principal writedowns are in fact a “direct and sizable gift” to banks. So I may as well quote those words in full:

Many banks hold second liens on the same properties for which Fannie and Freddie either own the first mortgage or have guaranteed. If principal amounts on these first mortgages are reduced while leaving the second liens intact, those seconds become much more likely to be paid off over time. With no principal reduction, the banks would have to write off many of those second liens.

That’s it. I don’t know what your idea of a “direct gift” is, but I’m pretty sure it’s not this. Even if Morgenson’s argument here made sense, which it doesn’t, the gift would at best be indirect. And there’s nothing here at all indicating that it’s sizable.

More to the point, Morgenson’s whole argument, such as it is, is based on a classic straw man — that the holder of the first lien would be perfectly happy to write down a large chunk of what they were owed without any kind of write-down whatsoever on the part of second-lien holders. As far as I know, nobody advocating principal reductions is proposing this.*

It’s worth remembering here, that the whole point of principal reductions is that when people are underwater on their homes, they’re much more likely to default than when they have equity in their homes. If you reduce principal to the point at which the homeowner has positive equity again, then you’re more likely to get repaid, and you can end up with a more valuable loan than one with a higher face value.

But if there’s a second lien on the house in question, then even if the first lien is reduced to less than the value of the property, the homeowner would still be underwater, thanks to that second lien. Which would quite literally defeat the purpose of reducing the principal on the first lien.

Banks holding first mortgages negotiate with banks holding second mortgages all the time. If the homeowner is in default, then the owner of the first lien is in a strong negotiating position: they can foreclose on the home, sell it, and take all the proceeds, leaving nothing at all for the holder of the second lien. And because the second-lien holder is well aware that the first-lien holder has that nuclear option, they’re normally well disposed to negotiate: they’ll accept $5,000, say, to write off their debt.

Why does Morgenson think that wouldn’t happen here? She doesn’t say — after all, her entire argument is just 65 words. But she does go on at some length about the loan modifications which we are seeing from Frannie — more than 1.1 million, to date, with an impressively low redefault rate. She writes:

This suggests that the types of loan modifications provided by Fannie and Freddie — reducing borrowers’ monthly payments — are working fairly well. Addressing borrowers’ ability to repay loans has been the focus, Mr. DeMarco said. At the same time, these changes in loan terms do not encourage people to default in spite of being able to pay.

What Morgenson doesn’t seem to realize, here, is that exactly the same argument that she’s marshaling against principal reductions could be used against loan modifications as well. If you reduce borrowers’ monthly payments, and increase their ability to repay their loans, then quite obviously you’re also increasing their ability to repay second liens as well. And if you do a loan modification rather than foreclose on the delinquent borrower, then the second lien holder isn’t wiped out and the homeowner can continue to pay off their second lien over time.

So how is it that principal reductions are a giveaway to banks, but loan modifications aren’t? Morgenson even says that loan modifications don’t encourage people to default on their original loans, which would seem to be an argument for principal reduction: the moral-hazard argument, that such things only serve to give people an incentive to default, seems already to have been disproven with the loan-modification program.

Remember, too, that Morgenson said in her 65-word argument that “with no principal reduction, the banks would have to write off many of those second liens”. Something doesn’t add up here. After all, banks will never voluntarily write off a second lien if the homeowner gets a loan modification which increases their ability to repay their debts. So if Frannie is great at loan mods, then they must also be great at forcing second-lien holders to write off their loans at the same time. But if they can do that with a loan mod, they should be able to do it with a principal reduction, too. And if they don’t do that with loan mods, then the banks wouldn’t otherwise be forced to write off those second liens.

And we haven’t even touched, yet, on the most obvious and silliest part of Morgenson’s case — which is that most of Frannie’s delinquent mortgages don’t have second liens attached. DeMarco doesn’t like the idea of doing principal reductions on homes with second liens? Fine, don’t do it, then. But that’s no reason not to do principal reductions on loans without second liens.

More generally, DeMarco is just the regulator, here — he’s not actually running Fannie and Freddie. If he lifted his injunction on principal reductions, then we wouldn’t suddenly see a huge influx of the things overnight. These agencies move slowly and deliberately, and they’d almost certainly start small, and only on homes where there weren’t second liens. If that program worked, then they’d expand it, taking just as much care in doing so.

Morgenson’s argument implies that were it not for DeMarco holding back the floodgates, Fannie and Freddie would be doing principal reductions on a massive and reckless scale, without even trying to involve banks holding second liens. She has no reason to believe this, because it isn’t true. The agencies might be philosophically inclined — for good reason — to do principal reductions, but only when and because they make financial sense. DeMarco, on the other hand, seems to have some kind of quasi-religious belief that principal reductions never make financial sense. And his arguments to that effect are extremely weak.

But not as weak, it must be said, as Morgenson’s effort today. If principal reductions really would be “a direct and sizable gift from taxpayers to the largest banks”, then the largest banks would surely be pushing loudly for their implementation. But they’re not. Because the principle beneficiaries of principal reductions are not banks, but rather homeowners — the people whom Gretchen Morgenson wants to see continuing to suffer under the weight of mortgages worth far more than their homes. And all because of some inchoate and irrational animus she has towards Fannie and Freddie.

*Update: Anthony Coley at Treasury emails to say that Geithner “has tremendous respect for Mr. DeMarco”, even as he thinks “there’s a pretty strong economic case for principal reduction as part of a strategy to limit the future losses of the GSEs. What Treasury is trying to do is encourage Mr. DeMarco, who is fully independent, to take another look at the evidence because we think there’s a place to do more in a way that is consistent with the mandate that Congress gave him.”

And Shahien Nasiripour, who’s been getting the same line from DeMarco, points out that there is at least one person who thinks that principal reductions should be done absent write-downs on second liens: NY Fed president William Dudley.

You need this, after a day like today, I think.

ZeroHedge has the chart of the day:

What you’re seeing here is the price of shares in BATS, at 11:14 this morning. The white spots are trades: there are 176 of them altogether. They start just below the IPO price of $16, and then just fall lower and lower and lower until the stock is trading for mere pennies. But the key number you want to look at here is not on the y-axis. Instead, it’s the chart report at the very top:

Elapsed Time: 900 Milliseconds

This is what happens when stocks are traded by algorithms rather than humans. The parabolic trajectory of the share price is downright elegant; indeed, if you’re going to crash from $16 to 4 cents within 900 milliseconds, you could hardly do so in a lower-volatility manner. The scary thing here is the sheer speed involved, and the fact that no human intelligence was stopping to think whether these prices made any sense at all.

Of course it’s too early to work out exactly what happened here; a formal statement from BATS talks vaguely about “a software bug”. But the big picture is clear. Most people think there are only two stock exchanges in the US — NYSE and Nasdaq. And indeed those are the only two exchanges where stocks are listed. But there are more than 50 venues, including two different BATS exchanges, where stocks are traded; they all communicate with each other to work out what the best global bid and offer in any stock is at any given time. (This is known as NBBO, for National Best Bid/Offer.)

This fragmentation of trading venues is good for competition, but, as we saw first in the Flash Crash of May 2010 and then again today, when one of those venues encounters problems, very nasty things can happen.

BATS was meant — if everything had gone according to plan — to be the first stock listed on the BATS exchange. They’re not going to try that stunt again in a hurry; as finance professor James Angel told Bloomberg, this was “like seeing an airplane crash on takeoff”. On the maiden flight of a new airline. You can imagine how much appetite anybody would have to fly that airline thereafter.

One obvious similarity between today’s events and what happened in the earlier flash crash is that both involved exchanges declaring “self help” — basically saying that the information coming from some other exchange was so delayed or otherwise unreliable that it couldn’t be used any more as part of the NBBO system. When that happens, you can find order flow sloshing violently around various different exchanges; such moves don’t need to be accompanied by extreme price action, but they make such action much more likely.

There is some good news here. The first bit of good news is that no one was really harmed today: the BATS IPO has been pulled, and the institutions which were trying to sell their shares — foremost among them the estate of Lehman Brothers — will just have to hold on to them for a while longer. And the second bit of good news is that we have a lot of valuable real-world information about exactly how markets fail in today’s high-frequency precincts. I just hope that we’re going to be able to learn from what happened today, and put in measures to prevent it from being much worse next time. Can anybody say Tobin Tax?

It’s been a long wait, but we’re finally getting around to sending out Counterparties by email every weekday afternoon. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. (See, you knew there was a reason you gave us your email address.) If you’re not registered, and don’t want to go through that process, email Counterparties.Reuters@gmail.com (which is also our tips line) and we’ll try to add you to the list manually. This is very much an experimental work in progress, so all feedback is greatly appreciated.

The presumed next head of the World Bank is not a replica of Robert McNamara, Paul Wolfowitz, or even Robert Zoellick. He’s a South Korea-born, MacArthur “genius” award winner, the co-founder of a ground-breaking NGO and holds an M.D. and a PhD. He’s been on a host of magazine lists of influentials and is the first Asian-American head of an Ivy League college.

He’s also, arguably, a triple-threat (rapping, dancing, singing):

There’s more triple-threating from Jim Kim here.

It’s a surprise pick. Kim, Felix warns, has no experience navigating the Game of Thrones-like structures of world geopolitics. But, there’s reason for a kind of measured hope. And not only because Jeff Sachs is on board.

Fred Hiatt notes, “Kim will be the first bank leader who has dedicated most of his professional life to working with and for the world’s poor.” Hiatt adds that Partners in Health, the NGO Kim co-founded, took a unique approach to public health: “One of its key innovations was to enlist the poor themselves into the health system, training community workers to make sure, for example, that patients take their TB or AIDS medicines every day.”

This could be significant departure for the World Bank, which controls some $57 billion in aid dollars. And Kim says some very encouraging things in this talk at Boston University. It stands to reason that a doctor-anthropologist might at least attempt to take a wholly different approach to the World Bank’s mission than a technocrat.

So there’s some reason for optimism. We would certainly not want to hear Bob Zoellick sing.

Today’s links:

Rent-Seeking:
Bank of America will now rent you the home you just lost – WashPo
Principal reduction for struggling homeonwers could actually save Fannie, Freddie money – ProPublica
This was an idea Felix proposed 2.5 years ago – The Atlantic

Wonks
Stimulus spending can actually pay for itself – Economist
Related: The full Summers-DeLong paper – Brookings

MF Doom
John Corzine gave “direct instructions” to move $200 million customer funds – Bloomberg

Legalese
The Supreme’s Court decision on healthcare will have nothing to do with law, everything to do with “optics, politics and public opinion” – Slate
Related: Why Obama’s health care bill will survive — even if conservative justices hate it – Reuters

Morgan Stanley wants buy back all of Citi’s stake in its joint venture – Reuters

Compelling
An epic argument that Google is in very big trouble – Gizmodo

Fail
Bats Global Markets withdraws IPO on its own exchange after series of errors – Bloomberg

Wonks
Krugman: The Macro wars are not over – NYT

Investigations
The SEC is probing HFT, looking for unfair advantages – WSJ

Awesome
____ is the next ____ – Buzzfeed

Fine Print
JPMorgan is being sued for a typo that overstated a trader’s salary by $3 million – Bloomberg

Politicking
“We’ll fight this to the death” – Community banks and credit unions would rather fight than help each other – HuffPost

Tax Arcana
“The problem is not tax rates. The problem is the definition of income” – Aleph blog

It’s principal-writedown day today! Jesse Eisinger has uncovered a huge story: that internal analyses at both Fannie Mae and Freddie Mac show that reducing principal on troubled mortgages has a “positive net present value”. That of course directly contradicts the testimony of Frannie’s regulator, Ed DeMarco — but it’s now going to be much harder for DeMarco to maintain his position that principal reductions would never help Frannie’s finances.

Meanwhile, Bank of America has launched a pilot scheme which is a variation on the theme of principal reduction. Remember that by far the most common form of principal reduction is the short sale — and it’s also the most damaging form of principal reduction, since homeowners invariably have to leave their homes when they do one. Under BofA’s new scheme, however, that’s not the case: the bank would buy the property from the homeowner, but would then immediately turn around and rent it back at a market rate.

This idea is hardly a new one. It’s known under many names, including Right to Rent, and dates back at least as far as August 2007, when it was proposed by Dean Baker. I’ve been bashing away at it for years myself, but I’d pretty much resigned myself to the idea that it wasn’t going to gain traction.

So what changed? The markets did. The WSJ’s charts show how home prices have been falling even as rents have been rising:

The left hand chart, here, shows why banks don’t want to foreclose: prices are still very depressed, making homes extremely hard to sell. The right hand chart, on the other hand, shows why banks might find the rental market rather attractive. Banks have no particular interest in being landlords, but if they can do right-to-rent deals with a large number of homeowners, they can bundle those deals up into a big package, and sell it off to investors searching desperately for yield. And that could make the banks much more money than trying to sell the houses off one by one.

The WSJ explains how the BofA scheme works:

Borrowers would agree to a what is known as a “deed-in-lieu” of foreclosure, where they essentially sign over ownership of the property to the lender. This is less costly to the bank and also does less damage to a borrower’s credit than a foreclosure.

In exchange, former owners would be offered one-year leases with options to renew the leases in each of the following two years at rents that the bank determines are at or below the current market price. Borrowers would have to demonstrate an ability to pay the market rent.

For example, based on a sampling of home values and rental rates in Phoenix recently, a consumer with a $250,000 mortgage and monthly payments of $1,600 could swap the house for a lease, renting the home for $900, depending on the condition of the property and the neighborhood…

Borrowers selected for the program must be at least two months past due on their mortgage and face considerable risk of foreclosure. Bank of America is reaching out to borrowers who have exhausted other alternatives to foreclosure or who haven’t responded to earlier solicitations. Homeowners with second mortgages or other liens won’t be selected.

This is a far cry from a right to rent a home that has been foreclosed, of course. All of these self-imposed rules seem silly to me: I would much rather see a scheme where BofA simply declares that anybody facing foreclosure will have the right to rent back their home from the bank at a market rate once the home is owned by the bank. If they fail to make their rent payments, then they can be evicted just like any other delinquent renter.

I’d also love to see BofA extend this scheme to include renters in houses being foreclosed. Rental homes are homes too, and people shouldn’t get kicked out, especially not if they’ve been making all their rent payments on time, just because their landlord had mortgage problems.

The real reason for this pilot scheme, I suspect, is just that BofA is very worried about its legal ability to foreclose on houses. The difference between a foreclosure and a deed-in-lieu operation like this one is that a foreclosure is involuntary on the part of the homeowner, who retains lots of legal rights. A deed-in-lieu, by contrast, is something the homeowner must agree to, and therefore doesn’t present nearly as many legal obstacles.

In any case, let’s hope that the pilot works, and is copied by other banks around the country. It’s about time.

So that was unexpected: the next president of the World Bank is almost certain to be Jim Yong Kim, the co-founder of Partners in Health and the current president of Dartmouth University College.

The news of Kim’s nomination has gone down very well among the punditocracy, and Jeff Sachs already seems to have withdrawn his candidacy in Kim’s favor.

I’m not going to pretend that I’d ever heard of Kim before this morning. But everybody who has heard of Kim seems to think that the choice is a wonderful and inspired one. Kim is a physician by training; he’s a co-founder of Partners In Health, one of the world’s most respected medical NGOs. He’s also a bit of a big-data geek, which is likely to delight the Bank’s wonky employees.

Kim’s prowess when it comes to navigating Washington’s labyrinthine power structures is unknown; I hope he’s up to the job. But he’s going to bring passion and dedication to his task of poverty reduction, along with a welcome bias towards bottom-up rather than top-down solutions. And I suspect that the World Bank’s board will find it easy to rubber-stamp his nomination.

That said, I very much doubt that Kim would stand a remote chance of getting the job in an open and merit-based competition. He has little if any experience dealing with countries at the head-of-state level, and the Bank has historically not been an organization with a particular focus on health initiatives. Cast your mind back just a few days, to when François Bourguignon, Nicholas Stern and Joseph Stiglitz published a piece in the FT calling for the best-qualified candidate to get the job: here are the criteria they listed.

Criteria for shortlisting candidates could be similar to those listed by the IMF board in the procedure that led to the appointment of Christine Lagarde: distinguished record as an economic policymaker, outstanding professional background, familiarity with banking and finance, diplomatic and managerial skills. In the case of the World Bank, solid knowledge and experience of development policy should be added to this list.

Kim has the requisite development-policy background, and also an outstanding professional background, but he’s not a banker, an economist, or a diplomat. It’s also worth looking at his nomination in the light of the stated reason why the head of the World Bank should be an American:

What matters for the World Bank is resources. And keeping an American in charge helps protect those resources.

The United States is the World Bank’s largest donor. That’s been true under both Democratic and Republican administrations. And one of the reasons it’s held so steady, some think, is that the World Bank tends to be led by a high-ranking American official who is able to persuade the White House and Congress to continue supporting the body.

The outgoing World Bank president, for instance, is Bob Zoellick, a highly regarded Republican who served in key positions under both George W. Bush and his father. He was preceded by Paul Wolfowitz, another key Republican policymaker. Many believe the two men played an important role in keeping American financial support for the bank high in years when Republicans controlled the government.

Kim doesn’t strike me as the kind of person who’s particularly great at wrangling Republican votes in Congress. Maybe that doesn’t matter, and all that Congress cares about is that the Bank is run by an American. But this nomination is ultimately a little disappointing, if only because it perpetuates the US hegemony at the Bank at a time when Obama could be opening up the leadership of the institution to a fantastic developing-world candidate instead.

That said, there is one advantage to the convention that the president of the World Bank is nominated by the president of the United States, rather than being chosen in some kind of international beauty contest: it allows POTUS to nominate exactly someone like Kim, a dark-horse candidate who could be wonderful in the job but who doesn’t have a strong international power base. I’m hopeful that Kim will turn out in hindsight to be a wonderful World Bank president, even if (or maybe even because) he couldn’t win the job under the kind of system that most countries want.

Bloomberg and Fortune had weirdly competing stories Wednesday on the subject of Warren Buffett’s “million-dollar bet“. The bet’s duration is ten years from January 1, 2008; Buffett is betting a million dollars that the S&P 500 will outperform a fund of hedge funds.

Fortune’s Carol Loomis has unrivalled access to Buffett — she counts herself among his friends, and always helps him write his annual shareholder’s letter. So her report on the status of the bet, time stamped 8:30am, can be taken as definitive. Loomis doesn’t reveal the components of the fund-of-funds that Buffett is betting against, but she does reveal (“you are reading it here first”, she writes) the standings at the end of Year Four — that is, at the end of calendar 2011. The fund-of-funds has not done well over those four years: it’s down 5.89%. But Buffett’s index fund is doing even worse: it’s down 6.27%.

Loomis will always get these scoops, for as long as she’s close to Buffett. That’s fine. But then why did Bloomberg’s Katherine Burton decide to run a story on the exact same bet on the very same morning as Loomis’s scoop, under the headline “Buffett Seizes Lead in Bet on Stocks Beating Hedge Funds”?

The first effect of Burton’s story is simply to confuse everything. Fortune is saying that Buffett is behind; Bloomberg is saying that Buffett is ahead. If you read Fortune or the outlets which picked up Fortune, like the AP, then you’ll believe one thing; if you read Bloomberg or the outlets which picked up Bloomberg, like MSNBC, you’ll believe another thing. And if you read them both, you could be forgiven for thinking that someone is playing with your head.

A close reading of Burton’s story helps to reveal what’s going on here. For one thing, she’s reporting the status of the bet through February 29, rather than the status of the bet after four years. That is peculiar, not least because the fund-of-funds only reports annual results: Loomis was waiting to see what its 2011 returns were before she wrote her story. Burton, by contrast, despite being 25 minutes behind Loomis with her story, only knows what the fund-of-funds returned through the end of 2010. Here’s her explanation for how she calculates the performance of the fund-of-funds:

The hedge funds fell about 4.5 percent, based on Protégé’s index returns for the first three years and results since then for the Dow Jones Credit Suisse Hedge Fund Index, which has roughly tracked the group of unidentified funds when adjustments are made for extra fees.

In other words, when Burton’s story hit the web at 8:55am, it was already out of date: she extrapolated 14 months forwards from Loomis’s 2010 figures, rather than waiting for Loomis’s story to arrive and then extrapolating a mere 2 months forwards from the 2011 figures.

But in any event, Loomis was reporting the facts of the bet; Burton is just taking an educated guess. Hedge funds are by their nature unpredictable things. The fund-of-funds in this bet might have “roughly tracked” some hedge fund index for its first three years, but it can veer far off-index at any time, depending on how it’s put together. Which means that an unambiguous “Buffett Seizes Lead” headline is quite misleading.

That said, Buffett might well have seized the lead at the end of February, if Burton is right about the fund-of-funds tracking the Dow Jones Credit Suisse Hedge Fund Index. That index rose from 92.6 at end-2011 to 95.93 at end-Feb, a rise of 3.6%. We know from Loomis that at end-2011, the fund-of-funds was down 5.89%, which means that it stood at 94.11% of its initial value. If it grew from there by 3.6% in two months, it would have ended February at 97.5% of its initial value, for a loss of 2.5% overall.

The S&P 500, by contrast, rose from 1,257.6 at the end of 2011 to 1,365.7 at the end of February. That’s an increase of 8.6%, fully five percentage points greater than the rise in the hedge-fund index. We know from Loomis that Buffett was down 6.27% at the end of 2011; if his fund rose 8.6% from that level, it would have ended February at 101.8% of its initial level, for an overall gain of 1.8%.

It turns out, however, that even the Buffett side of the bet isn’t particularly easy to calculate: Burton reckons he was up 2.2% as of end-Feb, not 1.8%. But the 40bp difference there pales in comparison to what she’s estimating for the fund-of-funds: she says that it’s down 4.5%, rather than being down 2.5%. That difference, of 200bp, is really substantial.

Ultimately, the only thing we know for sure is that for four years in a row, the fund-of-funds has been in the lead, thanks to substantially outperforming the S&P 500 in 2008, the first year of the bet. At the end of five years, that might have changed: Buffett could well be back in the lead. And it’s even possible that someone with detailed knowledge of how the fund-of-funds is made up could trace the point at which Buffett took the lead back to February 2012. But no one has that information right now, or if they do have it, they’re not telling. The exact make-up of the fund-of-funds is a closely guarded secret.

In any case, the whole point of long bets is that they’re long-dated. This one has a ten-year maturity, and what happens even from year to year is not particularly important, let alone what happens from month to month. Yes, the S&P 500 had a very healthy run in January and February of 2012, and probably outperformed many hedge funds. But there are always going to be two-month periods where hedge funds underperform the index, and obviously the S&P 500 can’t rise by 4.3% a month for any sustained length of time.

So I’m a fan of the way that Loomis is reporting this, deliberately, using hard year-end numbers from the fund-of-funds, even if she has to wait 11 weeks from the end of the year before she gets them. Burton’s piece is significantly less informative even if it’s a couple months more up to date, and it’s also much less in sync with the underlying philosophy of the bet.

As for the decision to release Burton’s story on the exact same day that Loomis’s semi-official report came out, that just looks childish. It’s no secret that Loomis is very close to Buffett; let her have her scoop. It’s a perfectly good story, which in no way requires a Bloomberg spoiler.

Remember Krishnan Guru-Murthy’s interview with Larry Summers in January? He asked about Inside Job‘s allegations that Summers was a clear beneficiary of the revolving door. Now see if you can spot a recurring phrase in Larry’s answer:

Whatever I did or did not do, right or wrong, in the Clinton administration, I had earned no significant sum of money prior to working in the Clinton administration, or, in association with the financial sector, for more than five years after I left the Clinton administration. And so any suggestion that what I did in the Clinton administration had to do with loyalty to the financial sector — I think is a bit absurd.

That’s four mentions of “the Clinton administration” in the space of two sentences. The idea, it seems, is that if you wait a few years before availing yourself of that revolving door, then that means you can’t have been conflicted in office.

This interview has new salience right now, not only because Summers is arguably the favorite candidate to be the next head of the World Bank, but also because John Cassidy has now confirmed what many of us predicted well in advance: Summers is back working at DE Shaw, and presumably making many millions of dollars per year for doing so. This time, he didn’t wait five years; he didn’t even wait one.

Now according to Larry’s own logic in the answer he gave to Guru-Murthy, it’s perfectly reasonable, given the alacrity with which he accepted DE Shaw’s millions, to ascribe his actions in the Obama administration to loyalty to the financial sector. We now know that when Summers was giving this interview, he was already back at work for DE Shaw. Which is why he was so careful to confine his answer only to his activities during the Clinton years. If accused of being a creature of the revolving door during the Obama years, he could adduce no such defense: he literally left DE Shaw to join the Obama administration, and then revolved straight back into that job when his temporary government gig was over.

Cassidy is right to point out that Wall Street ties are hardly unprecedented in World Bank presidents. But there’s still something opportunistic and sleazy here: Summers isn’t a banker, so much as he’s just selling the fruits of his government experience to the highest bidder, even as one of his rivals for the World Bank job, Jeff Sachs, is taking to twitter to remind anybody who will listen of even sleazier episodes in Summers’s past.

Sachs isn’t helping his cause with that kind of tweeting. But the truth is Summers can’t relish a contest between himself and Ngozi Okonjo-Iweala. Summers paid $31 million (Harvard’s money, of course, not his own) to settle a lawsuit over Andrei Shleifer’s disgraceful behavior in Russia, while keeping Shleifer at Harvard as a faculty member in good standing. Ngozi Okonjo-Iweala, by contrast, well, I’ll let her tell the story:

From 1967 to ’70, Nigeria fought a war: the Nigeria-Biafra war. And in the middle of that war, I was 14 years old… We were on the Biafran side. And we were down to eating one meal a day, running from place to place, but wherever we could help we did. At a certain point in time, in 1969, things were really bad. We were down to almost nothing in terms of a meal a day. People, children were dying of kwashiorkor. I’m sure some of you who are not so young will remember those pictures. Well, I was in the middle of it. In the midst of all this, my mother fell ill with a stomach ailment for two or three days. We thought she was going to die. My father was not there. He was in the army. So I was the oldest person in the house. My sister fell very ill with malaria. She was three years old and I was 15. And she had such a high fever. We tried everything. It didn’t look like it was going to work.

Until we heard that 10 kilometers away there was a doctor, who was able … who was giving … looking at people and giving them meds. Now I put my sister on my back, burning, and I walked 10 kilometers with her strapped on my back. It was really hot. I was very hungry. I was scared because I knew her life depended on my getting to this woman. We heard there was a woman doctor who was treating people. I walked 10 kilometers, putting one foot in front of the other. I got there and I saw huge crowds. Almost a thousand people were there, trying to break down the door. She was doing this in a church. How was I going to get in? I had to crawl in between the legs of these people with my sister strapped on my back, find a way to a window. And while they were trying to break down the door, I climbed in through the window, and jumped in. This woman told me it was in the nick of time. By the time we jumped into that hall, she was barely moving. She gave a shot of her chloroquine, what I learned was the chloroquine, then gave her some, it must have been a re-hydration, and some other therapies, and put us in a corner. In about two to three hours, she started to move. And then, they toweled her down because she started sweating, which was a good sign. And then my sister woke up. And about five or six hours later, she said we could go home. I strapped her on my back. I walked the 10 kilometers back and it was the shortest walk I ever had. I was so happy that my sister was alive. Today, she’s 41 years old, a mother of three, and she’s a physician saving other lives.

It’s almost inconceivable to me that Barack Obama, the proud African-American who wrote Dreams from My Father, could ever with a straight face claim that Larry would be a better choice to run the World Bank than Ngozi. Larry has made it abundantly clear that the only thing he values more than money is power. His decision to rejoin DE Shaw is what economists would call a “revealed preference”. And what it has revealed, as if there was any doubt, is that Summers is not the right person for the World Bank job. He wants to work for DE Shaw? Fine. Let him stay there.

It’s been a long wait, but we’re finally getting around to sending out Counterparties by email every weekday afternoon. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. (See, you knew there was a reason you gave us your email address.) If you’re not registered, and don’t want to go through that process, email Counterparties.Reuters@gmail.com (which is also our tips line) and we’ll try to add you to the list manually. This is very much an experimental work in progress, so all feedback is greatly appreciated.

Wall Street’s pre-approved, 100% compliant social media presence (managed by committee):

IMPORTANT WALL STREET COMPLIANCE NOTE: This email does not contain any mention of furry animal characters commonly known by a name that combines “M” and “uppets,” nor should this email be interpreted as the an endorsement of the aforementioned term as a rhetorical signifier of anything other than a furry, arguably adorable and/or hilarious group of animal characters.

Goldman Sachs employees will now find it impossible to discuss their favorite children’s television show over company email, thanks to the linguistic scrubbing Reuters’ Lauren Tara LaCapra reports on today. The bank’s metaphor crackdown — no using colorful language for your own account — makes a certain amount of sense. After all, when Goldman attempted a private offering for Facebook stock last year, it had to give staffers a private tutorial in how to explain it to older clients, since they’re prevented from viewing the site at work. Due diligence was done in coffee shops, we suppose. Which brings us to Wall Street’s latest halting, mind-numbingly boring attempts to use social media. One Morgan Stanley Smith Barney account, @InvestFayMSSB, has now been deleted, after putting out immortal tweets like “Next stop Dow 57,757? Don’t count on it but Tuesday’s bullish session is in the books.”)

This, as the NYT’s William Alden describes, is Wall Street’s pre-approved, 100% compliant social media presence (managed by committee). If you’re a financial professional, do not expect to have your market-making insights unleashed upon the Twitter-sphere any time soon. Alden notes that Deutsche managing director Ted Tobiason has been allowed to tweet by the company’s corporate brand police, but he seems to mostly read out data to his followers:

This is the kind of twitter user to which we’d politely suggest “You’re doing it wrong.” It’s unclear, given the regulatory concerns of having financial advisers tweet, what Wall Street’s “value-add” is in social media.

Or, it could be, as Felix suggests, that the social media conversation has just become “less of a wunderkammer, and more of a regrettable necessity.” Which actually sounds like a pretty apt description for today’s Wall Street banks.

And now for today’s links:

Cut the Check
Meet the conservative Texas billionaire who’s the election’s biggest campaign donor by far. He wears $3,000 Brioni suits and Wal-Mart underwear. And he’s given $18 million to date – WSJ
Related: Obama’s largest campaign donors include Goldman, JPM employees – Bloomberg

Outsourcing
Nannies who earn $180,000 per year — the economics of childcare by the super wealthy – NYT Mag
Related: Don’t forget the opportunity cost of staying at home to look after your kids – Forbes

Here’s Adam Davidson, in the NYT:

Alas, it seems that there just aren’t enough “good” nannies, always on call, to go around. Especially since a wealthy family’s demands can be pretty specific. According to Pavillion’s vice president, Seth Norman Greenberg, a nanny increases her market value if she speaks fluent French (or, increasingly, Mandarin); can cook a four-course meal (and, occasionally, macrobiotic dishes); and ride, wash and groom a horse. Greenberg has also known families to prize nannies who can steer a 32-foot boat, help manage an art collection or, in one case, drive a Zamboni to clean a private ice rink.

Politcking
How payday lenders hide their Super PAC contributions by creating shell companies – Bloomberg

Wonks
The academic argument that the good times are not coming back – NYT
And the academic argument that fiscal stimulus pays for itself — Economist

Regulations
Deutsche Bank dodges Dodd-Frank by “de-banking” itself – WSJ

Your Hours Are Not Wasted
The Reddit comment that landed its writer a gig writing a major motion picture – Wired

Politicking
A handy guide to the highly flawed JOBS Act which Congress just passed – Fortune

Must Read
“The White Savior Industrial Complex”  – @TejuCole on Kony2012 – Atlantic Wire
How income inequality undermines our democracy – NYT

Defenestrations
Why Larry Summers lost the presidency of Harvard – Mathbabe
Related: ForgetLarry.org

EU Mess
The euro zone may already be in a technical recession – FT Alphaville

Indicators
Consumer credit is growing faster than any time in the last decade – Daniel Alpert

It’s About Time
Chrome is overtaking IE as the most popular browser in the world – The Register

The Oracle
The Buffett Rule would raise about $31 billion over 10 years – Reuters

Economics Everywhere
Cold-brewed coffee is “no longer a trend. It’s mandatory” – NYMag

Wonks
The war on universal grammar — and Chomsky’s research – The Chronicle

And, of course, there are many more links at Counterparties.

The Epicurean Dealmaker has been watching global equity markets metastasize:

Over the past few decades, the public equity markets have evolved from a relatively staid and selective backwater, a playground for pension funds, insurance companies, and the idiot sons of wealthy men, into a gigantic global pool of capital, driven and supported by huge amounts of money from literally everybody… I will leave it to an enterprising PhD student to research the data, but I suspect the aggregate amount of equity market capitalization as a percentage of GDP has swelled tremendously over the past three decades. Equities have gone mainstream, and as they did, the size of equity markets ballooned.

To illustrate his point, TED talks of a fund manager who invests in no more than 100 stocks at a time. When he was managing $100 million in the 1980s, he could easily invest $1 million in a company; by the time his portfolio had grown to $10 billion in the 1990s, his average investment was north of $100 million per stock. That, in turn, makes it very hard for institutional investors to buy small-cap stocks, and helps to explain why small companies can’t IPO any more.

But that’s just anecdote; I wanted data. So I found an enterprising PhD student Ben Walsh, and asked him what’s happened to equity market capitalization as a percentage of GDP. And he, in turn, found Google:

There’s definitely an up-and-to-the-right trend here, but it’s very noisy, and we’re not talking orders of magnitude: global equity capitalization is probably about 50% higher now, relative to the size of the global economy, than it was in the 1980s. That’s an interesting trend, and a welcome one. But I don’t think it explains much about the IPO market. After all, the effective minimum size for IPOs has gone up much more than 50% since the 1980s.

I do think that maybe the distribution arms of the big sell-side equity underwriters have reached the point at which it just isn’t worth it any more for them to deal with any but the biggest accounts; I have a feeling that retail investors had much more access to IPOs in the 1980s and even during the dot-com bubble of the 1990s than they do now. But this is much more a function of the consolidation of the investment-banking industry than it is a function of the size of the equity markets as a whole.

Which opens up an intriguing possibility: is there some way in which the internet might be able to spawn a small, light broker-dealer which could underwrite IPOs aimed at retail, rather than institutional, investors? Think of it as fully SEC-compliant crowdfunding, without any need for a JOBS act. And if not, why not?

Now things are getting interesting. Lesley Wroughton has the wonderful news: two very highly qualified non-American candidates — Ngozi Okonjo-Iweala and  Jose Antonio Ocampo — are going to be nominated to be president of the World Bank. This really puts the pressure on the White House to knock it out of the park with their nomination, because Ngozi, in particular, is broadly regarded both within and outside the Bank as being pretty much perfect for the job. She’s a whip-smart economist, she’s honest, she’s imaginative, she’s dedicated, she’s expert at navigating the Bank’s labyrinthine bureaucracy and politics, and she’s passionate about the way that the Bank can really make the world a better place.

In 2008, I “interviewed” Ngozi for Portfolio magazine. Which means that I went down to Washington and got escorted in to her office. She then arrived, I asked her one short question, she gave me a fluent and wonderful 2,000-word answer while barely pausing for breath, and then she left for a meeting with Bob Zoellick.

It’s been five years since I first said that Ngozi would make an excellent World Bank president, and this nomination is long overdue. What’s more, she will have a lot of support within the World Bank’s board — the body which ultimately will make the decision as to whom to choose.

Of course, the board members do what they’re told to do by the bank’s shareholders — the world’s countries. And if the Europeans and the Americans all vote for the US candidate, then the US candidate will win. That’s the simple truth. But here’s the thing: everybody on the board pays at least a modicum of lip service to the idea that the job will go to the best candidate. When Christine Lagarde took over at the IMF, she got the job because she was European, and the European candidate always gets the job. But at the same time, everybody voting for her could say with a straight face that she was, in fact, the best candidate as well.

Now that Ngozi’s in the running, the US is going to find it incredibly difficult to nominate a relatively low-profile person like Susan Rice, because it’s almost impossible to make a credible case that Rice is a superior candidate to Ngozi on the merits. And other big names seem to be falling away:

U.S. Senator John Kerry and PepsiCo’s Indian-born CEO Indra Nooyi also made an Obama administration shortlist, according to a source, although Kerry has publicly ruled out the job and Nooyi is no longer in contention, according to another source.

This is really bad news, because by a process of elimination it more or less forces Obama to go with Larry Summers. Larry would be a dreadful nominee, and a worse president, in a job whose primary prerequisite is diplomacy. And before he’s even nominated, there’s already a website up, ForgetLarry.org, devoted to campaigning against him for the job. It covers pretty much all the bases, although it weirdly misses the Russia/Shleifer scandal: for that, check out Cathy O’Neil’s post from a couple of weeks ago.

I’ve talked to a fair number of people about this position, including a few who are quite sympathetic to Larry, and not one of them thinks that he would be good in the post. If the US forced the world to choose between Larry and Ngozi, it would have to expend an astonishing amount of diplomatic capital to twist the requisite number of arms to get him the job, just because no one would actually want to vote for him. Their hearts would be with Ngozi.

Remember that Larry has never held elective office: it’s pretty much inconceivable he ever could. And yet, in its own way, the president of the World Bank is indeed an elected office. The electorate is tiny and extremely elite, to be sure. But the board is still going to want to meet with him, and he’s going to give them his insincere I’m-just-humoring-you-because-I’m-smarter-than-you smile, and even the Europeans are going to start wondering whether they really have to give Larry the job, just because they want to retain their own grip on the IMF.

It’s entirely conceivable, in fact, that an anti-Larry faction might vote instead for Jeff Sachs, who has already been formally nominated by some very small countries, on the grounds that convention holds that the president of the World Bank has to be an American, rather than that it has to be the US nominee. Up until now, the US nominee has always been the only American nominee: this is the first time that isn’t the case. Which means that we might yet see Larry and Jeff split the status-quo votes, allowing unstoppable momentum to gather behind Ngozi.

So here’s one clever idea: Joe Stiglitz and Stan Fischer should throw their hats in the ring as well; I think that both of them would be able to find a country willing to nominate them. There would then be no fewer than four American nominees for the Bank’s board to choose from. Stiglitz is on the record saying that the most qualified candidate is likely to come from a developing country; his candidacy would be a way of providing the greatest possible range of candidates for anybody who feels like they have to vote for an American candidate but who doesn’t want to vote for Larry.

More realistically, Obama is going to have to come up with a real knock-out of a nominee, someone who would waltz into the job no matter who she was up against. Which is to say, Obama is going to have to nominate Hillary. Hillary has, we’re credibly told, ruled herself out for the job. Well, she might have to change her mind.

If Hillary is nominated, the job is hers: it’s as simple as that. And she would be very good at it, too. She wouldn’t even need to serve out a full term. While she had the job, she might even be able to engineer a way in which she could be succeeded by Ngozi, or some other highly-qualified candidate without a US passport. Which alone would make her one of the most important and revolutionary presidents in the Bank’s history.

Hillary is 64 years old — easily young enough to have one more big job before she retires. Does she want the job? Probably not. But she’d be great at it anyway. And she might have to accept the nomination, if only to ensure what she will be certainly working behind the scenes to achieve in any case — US continuity at the Bank at least through the 2012 elections. After that, I’m sure she can find a way to ease herself out if she really wants.

Happy sixth birthday, Twitter! You’re the service which started off as a way for groups of friends to keep in touch with each other via text messages, and you’ve grown into a revolutionary platform for connecting and sharing with millions of people around the world.

And you’ve become more annoying, too.

For most of its history, Twitter was disliked overwhelmingly by people who weren’t on it, rather than people who were. It wasn’t enough not to join; if you weren’t on it, you had to kvetch incessantly about how you weren’t interested in what other people were eating for breakfast.

I’ve noticed a change, though, in the past year. The people who used to complain the most about Twitter have either capitulated and joined, or else they’ve quietened down — at least they know, now, how infrequently anybody tweets about what they are eating for breakfast. And now the primary source of complaints about Twitter is coming from people on Twitter, rather than off it.

During SXSW, for instance, there was a steady drumbeat of people on my timeline complaining about all the tweets from SXSW. (I was there, and even I got annoyed by the endless banal SXSW tweets; I’m sympathetic to their plight.)

We’re going to have to live with many more annoying tweets going forwards, if things like Amex’s “tweet your way to savings” campaign take off. The VentureBeat headline is “American Express transforms Twitter hashtags into savings for cardholders,” but another way to put it is that American Express is trying to make money by getting people to spam their friends with hashtags like #AmexWholeFoods which have no value to the reader whatsoever.

And then there are people like Porter Versfelt III, who will get annoyed if I dare to express a personal opinion on Twitter. For Mr Versfelt, I have a “core purpose” on Twitter, which is to provide him with financial news, and anything I do outside that purpose is annoying.

Going forwards, all of us are going to find Twitter increasingly annoying. The company has been in hyper-growth mode up until now, getting to its current astonishing scale. But it’s now getting serious about making money, which means selling us, the users, to people willing to pay lots of money to work their way into our timelines one way or another.

On top of that, Twitter is increasingly going to be a medium for following people you don’t know, rather than people you do. When that happens, it’s much easier to get annoyed at what they’re tweeting, especially when those tweets are somewhat personal in nature (check-ins, photographs, that kind of thing). We neither can nor should try to stop people from tweeting whatever they want — the way that Twitter works, if you don’t want to read someone’s tweets, that’s easy, just stop following them. But at the same time, nearly everybody’s follower count is rising steadily, and as one’s follower count goes up, the more that Twitter becomes a broadcast medium rather than a medium of conversation. And when you become a broadcaster, you have to be more careful about what you say, or risk annoying a large number of people.

Twitter’s still in its honeymoon period, but that won’t last forever. At some point, it’s going to be less of a wunderkammer, and more of a regrettable necessity. Which is probably the point at which it’s going to finally start making some real money.