Felix Salmon

Bloomberg, yesterday, and the NYT, today, have come out with big news articles about the dangers and complications inherent in the JOBS Act. The NYT has found a Davis Polk note to clients saying that the JOBS Act represents “the most significant legislative loosening in memory of restrictions around the IPO process and public company reporting obligations”. As Ben Walsh documents, this is something which was well known to the opinion side of most news organizations weeks ago, but only seems to be dawning on the news side right now, after it’s too late.

The obvious conclusion to draw here is that lobbyists are better at influencing journalists than journalists are. When a bill is contested by powerful lobbyists, you can be quite sure that there will be a lot of coverage, in the press, of what the bill does and who opposes it and why. On the other hand, when a bill like the JOBS Act is opposed merely by regulators and op-ed journalists and a handful of politicians, its inherent problems can end up being ignored by the “straight” side of the news media until it’s already comfortably passed both houses of Congress.

Ben makes a geographical point, too, about the divide between New York journalists, who cover financial issues, and Washington journalists, who cover legislative issues; the former were probably more qualified to cover the JOBS Act than the latter, but they seem to have let Washington take care of things until now. I’d add that a lot of the impetus for the act actually came from Silicon Valley rather than anywhere on the east coast at all, and that journalists in San Francisco generally have very little experience of covering legislative issues, and even less ability to effectively insert themselves into such coverage. And that’s assuming that they would have the cynicism necessary to cover the act skeptically.

More generally, I think that there are certain stories which are simply easier to tell if the journalist writing them is allowed to have an opinion. Today’s NYT story is quite hard on the JOBS Act, if you read the whole thing, but you first need to get past five paragraphs of introductory scene-setting and a headline (“Wall Street Examines Fine Print in a Bill for Start-Ups”) which betrays nothing about how generous the act is or the degree to which it dismantles longstanding investor protections.

And of course, being impartial journalism, it has to be larded with on-the-other-hand quotes from people like the former head of the NASD, including this classic:

One Wall Street executive familiar with the JOBS Act but who declined to be named said the law would give firms “more flexibility” in covering emerging companies.

Is it now NYT policy to grant anonymity to sources who are simply asserting what seems to be a simple checkable fact?

Opinion journalists don’t need to worry about this kind of thing, and can come out and say what they mean, without having to ensure that any opinions in the piece are attributed to named or anonymous sources. And I fear that when opinion journalists are covering a story quite closely, as they did in this case, the news side sometimes feels that they don’t need to duplicate what the opinion side has already done. Until they can find some kind of new angle, even if it’s just the fact that Wall Street banks get lawyers to read a new law before they change their ways.

Matthew Bishop and I have a fundamental disagreement when it comes to gold. There’s a “canary in a gold mine,” says Matthew: when the price of gold goes up, “it tells you we should worry about why it’s going up, and what it tells you about the value of paper currency.”

Whereas I think it tells you no such thing.

Essentially, we’re looking at two different things. Here’s a chart of the gold price, in green, versus the 30-year bond yield, in orange, over the past five years.

The long bond currently yields just 3.36%, which is the clearest way that the market knows of saying that there’s not going to be any nasty inflation in the future. If you want, you can even get an exact number, by subtracting the 30-year TIPS yield of 0.94%: the market is saying that over the next 30 years, inflation is going to work out at just 2.42%, on average. Which is not anything to get worried about.

Now TIPS are not a foolproof guide to future inflation, but gold certainly isn’t. Indeed, the bond market does more than undermine the gold price as a guide to future inflation: it actually provides a much more credible explanation for the gold price than an inchoate fear of future price increases. After all, if you want to protect yourself against inflation, you buy assets which throw off income which goes up when prices go up, like TIPS, or companies, in the form of stocks. Gold, on the other hand, throws off no income at all, and its price is just as crazy and volatile in real terms as it is in nominal terms.

And if you think that prices in the Treasury market represent an idiosyncratic flight to quality rather than a reliable guide to future inflation, then you can look at an even broader market indicator. As Peter Rudegeair notes, if you look at the $1.246 trillion in the 100 largest US corporate pension funds, more of it is invested in bonds than in stocks. And retail investors, too, are moving their money out of stock funds and into bond funds. Essentially, everywhere you look, the market is showing that it trusts the dollar and that it has no fear of inflation.

Of course, the market might be wrong. But Bishop isn’t telling us to mistrust the market, he’s telling us to trust the market — albeit just one tiny slice of it, in the form of the gold market. That’s silly. If you’re going to trust market signals, you should trust the big market signals which are sending a clear message, rather than the noisy and volatile ones which mean whatever you want them to mean.

Why is the price of gold going up? Simple: when interest rates are this low, bonds are increasingly unattractive as a source of yield, so you might as well just buy stuff — call it SWAG — instead. SWAG doesn’t have any yield, but then again, neither does cash, really. And when there aren’t attractive investments out there, then it becomes more attractive to spend money rather than to invest it. As a result, people spend their money on SWAG, and some of them even kid themselves while doing so that by buying their SWAG they’re making some kind of investment. They’re not. And they’re certainly not producing a reliable guide to the future status of the US dollar.

Google’s announcement yesterday that it was buying a company called TxVia was a bit like Barack Obama’s announcement that he was nominating Jim Yong Kim as World Bank president: it caused a very large number of journalists to say “who?” and rush to find out what on earth TxVia was. It wasn’t easy: they were likely to find a lot of meaningless jargon about “platform as a service”. And the Google post certainly wasn’t much help.

So while we know that Google bought TxVia to beef up its Google Wallet offering, it’s less clear why TxVia would help on that front. Sean Sposito had a good attempt in American Banker, saying that Google was worried about the security of Google Wallet and that TxVia has a very secure platform. That’s true. But there’s more here than just a question of security.

Go back to one of the smartest things ever written about Google, Daniel Soar’s essay It knows in the LRB. Essentially, Google is insatiable in its desire for as much information as it can possibly get. TxVia is a company which powers roughly 100 million prepaid debit cards. And here’s the thing: the amount of data that TxVia collects from every single one of its prepaid debit cards simply dwarfs the amount of data that banks collect with normal debit cards linked directly to a bank account.

I learned this yesterday over the course of a fascinating conversation with Josh Reich and Shamir Karkal of Simple. When you open an account with Simple (if you open an account with Simple — there’s a monster waiting list, and right now it’s only working for people with iPhones, and it’s still pretty much in friends-and-family mode for the time being), the main thing you get is the Simple Visa card. And the Simple Visa card, it turns out, is actually a prepaid card built on TxVia.

Now you get a bank account too, with your name on it, insured up to $250,000 by the FDIC. Prepaid cards are clever things, but they can’t fully replace a bank account. But what they can do is provide Simple with vastly more information about transactions than any normal debit card.

The reason is basically just one of historical accident: when banks first introduced debit cards, they didn’t need any information beyond just the name of the merchant and the amount being debited, so they ignored and discarded everything else. More recently, when TxVia introduced a prepaid-card platform, data storage and manipulation was much cheaper, so they kept all the data they could find instead of throwing it away.

And more generally, prepaid-card operators think in real time, about money coming in and going out over the course of the day. Whereas banks, to this day, still batch-process most of their transactions: they accumulate a pile of them, and then put them all through at the end of the day. That transaction-oriented mindset makes gathering rich data — even really basic stuff like the zip code of the merchant — something no bank is set up to do.

At Simple, they’re taking the steps which have already been made by TxVia with its prepaid operators, and adding lots of custom special sauce on top, mostly around the mobile-banking functionality in their iPhone and Android apps. What’s more, the Simple card is in an important sense not a prepaid card: your account balance always remains in the bank, rather than on the card, and the card itself always has a zero balance. In that respect, it’s a bit like an old-fashioned American Express charge card, which gets paid off daily rather than monthly. And because all Simple customers will have gone through the process of opening a bank account, which is a lot more laborious than simply buying a prepaid debit card, Simple knows those customers well and can allow them to spend much more money on their cards than most prepaid cards allow.

What I’m not clear on is how much of the information about my Simple transactions will now be available to Google, if only in some kind of aggregated and anonymized form. It’s possible that if I somehow link my Simple account to my Google account — or if, as is certainly possible, Google ends up buying Simple — then Google will have access to a very great deal of my very private financial information. That could allow it to provide me with incredibly well personalized services — and would almost certainly cause a firestorm from privacy advocates at the same time.

But for the time being, I want my bank to know lots of information about me, because that enables the sophisticated and data-rich applications that Simple is rolling out. The difference between private banking and the service that the rest of us get is, at heart, simply personalization. If Simple, TxVia, and Google can provide that kind of personalization on a mass scale, that’s surely something to welcome.

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In the latest version of the Atlantic’s “What I Read,” Buzzfeed’s Ben Smith bemoans the end of The Great Blog Era of the Early Aughts:

“I still read some bloggers but it’s sort of a lost art. There aren’t new great bloggers. It’s not the next thing. But the generation of Choire Sicha, Micky Kaus, Andrew Sullivan and Josh Marshall are great and they never stopped being great. Andrew is no longer the conservative he once was but he and Josh are masters of the medium.”

It’s easy to understand why Smith would say “there aren’t new great bloggers.” The era defined by a few influential voice-heavy bloggers has been declared over by Nick Denton (“I’m out of blogs”), the New York Times (“Former bloggers said they were too busy to write lengthy posts…”) Jason Calcannis (“Blogging is largely dead”) and Felix (“…dying, even if it’s not quite dead”).

For a brief, heady few years blogs were supposed to be the future of media. What happened instead, besides book deals, was that, as Felix suggested last year, the tools bloggers use were co-opted by media companies.

Suddenly, Andrew Sullivan and Choire Sicha weren’t the only people who could pull out great quotes from otherwise dry news copy: everybody could, and did, on Twitter. Meanwhile, places like the Huffington Post and Business Insider moved the focus of blogging away from engaging with the blogosphere and towards the art of headline writing. And thus did the great blogging tradition of analysis and back-and-forth-argument get lost, amid a thousand rewriters, blockquoters and aggregators.

But the good old days argument of the Internet doesn’t completely hold up.The finance and econoblogosphere for one, is rich, varied, frequently contemptuous and not in any way dead.

Keeping in mind that the blogs-are-dead meme is largely an issue of semantics, here’s a list of new and not-so-new-ish bloggers that you should absolutely start reading.

Mathbabe
Sober Look
The Reformed Broker
The New York Fed
MuniLand
The Bonddad Blog
Derek Thompson
The Atlantic Cities
Josh Barro
Dan Alpert
Matt O’Brien
Neil Collins
Matt DeBord
ISDA Media Comment
Bloomberg View – The Ticker
And, definitely, Huffington Post Divorce.

What else are we missing? Email us suggestions at Counterparties.Reuters@gmail.com

And on to today’s links:

Be Afraid
Gooogle begins testing its new “augmented reality” glasses – NYTimes

Long Reads
Why exports will “resurrect the United States as a global economic power” – American Interest

Welcome to Adulthood
Student loan interest rates are set to double this summer unless Congress acts – Politico

Penalties
Regulators just penalized JPMorgan for actions tied to Lehman’s demise – NYT
JPMorgan, Citi, UBS move prop traders to asset management to skirt Volcker Rule – Reuters

EU Mess
Spain’s fate is the hands of the ECB, natch – WSJ
Spain, como se dice “contagion”? – MacroScope
Greece is now too broke to field a track and field team – AP

Alpha
“Winner” and “loser” hedge funds are more likely to stay that way – Sober Look

Investigations
Regulators proving “Hide Not Slide” HFT that could allow investors to game exchanges – WSJ
The U.K. trader known for a $300k bar tab has been arrested – CityAm

Marketing Costs
Buy your CEO a profile in Chinese Esquire for $20,000 a page – NYT

Cognitive Dissonance
China’s premier is now complaining about the banking monopolies his country owns – Reuters

Regulations
It will soon be easier for Wall Street analysts to talk up companies their employers do business with – Bloomberg

Tinker/Tailor/Curator/Spy
The CIA secretly promoted Pollock, de Kooning and Rothko for more than 20 years - The Independent
Annals of art world skullduggery, Larry Gagosian edition – Felix

Wonks
Laura Tyson: U.S. multinationals are not abandoning America - Project Syndicate

Indicators
CoreLogic: Home prices fell to a new post-bubble low in Feb. - Calculated Risk

Remuneration
Ex-Thomson Reuters CEO gets a pay package worth $20 million – Reuters

IPOs
Burger King is about to go public again – Bloomberg

Studies
Young Americans are money-crazed organ harvesting zombies – Reason

File under “unexpected societal benefits of high frequency trading”: it’s doing wonders for building IT infrastructure. Sebastian Anthony and Jeff Hecht both have good overviews of the three — count ‘em — fiber-optic cables being laid deep below the arctic sea floor, all in a $1.5 billion attempt to shave 60 milliseconds, or less, off the amount of time it takes to get digital information from London to Tokyo.

None of this would be possible without global warming, of course:

Each cable will be laid by a pair of ships: an ice breaker that leads the way, and a cable ship. Until now it has been impossible to lay cables in the Arctic Ocean, but the retreat of the Arctic sea ice means that the Northwest Passage is now generally ice-free from August to October; a big enough window that cable can be laid fairly safely.

But global warming alone isn’t enough to make the economics make sense: standard cable ships aren’t rated for icy waters, so polar-rated ships have to be retrofitted for the job instead, at vast expense.

And yet three different companies have managed to make the economics work, even while offering only tiny decreases in latency: according to Arctic Fibre, the speed of the London-Tokyo connection is going to be reduced from 188ms to 168ms, a reduction of just 20ms.

Everybody will benefit from these cables, not least because they will bypass the current “choke points” in the Middle East and in the Luzon Strait between the Philippine and South China seas. But most of us are unwilling to pay for insurance against a ship dragging an anchor in an inopportune location. High-frequency traders, on the other hand, are willing to pay a lot.

The leaders of the project will need to persuade telecommunications companies to buy a piece of the capacity created by the cable. Telecom companies will make that decision largely based on demand from financial companies.

“What we’ve seen is just because you have a diverse path does not mean that you can necessarily sell that capacity for much more than the current market price,” Mauldin said.

I’m a little bit unclear on exactly how these cables are financed, and what the mechanism is whereby telecommunications companies sell ultra-fast connections to financial-services companies. But clearly it’s advanced and predictable enough that the economics make perfect sense for more than one player.

It’s lucky, then, that laying cable under the arctic makes a key financial connection noticeably faster. That cable would serve a very valuable purpose even if was a little bit slower than current connections — but in that event, no one would have any incentive to lay it. Are there any examples of people spending a lot of money to lay big fat pipes which are slower than what already exists but which simply expand the total amount of bandwidth available? I suspect the economics in that case would be much more difficult.

If you want to get a great feel for the difference between Jim Yong Kim and Ngozi Okonjo-Iweala, just check out what they’ve said in public about what they want to do with the presidency of the World Bank.

Here’s Kim:

We live in a time of historic opportunity… We can imagine a world in which billions of people in developing countries enjoy increases in their incomes and living standards… My own life and work have led me to believe that inclusive development – investing in human beings – is an economic and moral imperative… economic growth is vital to generate resources… for change to happen, we need partnerships between governments, the private sector and civil society to build systems that can deliver sustainable, scalable solutions… we must draw on ideas and experience from around the globe… A more responsive World Bank must meet the challenges of the moment but also foresee those of the future. The World Bank serves all countries… I will ensure that the World Bank provides a platform for the exchange of ideas.

And here’s just one of Ngozi’s answers, in a Q&A with Annie Lowrey:

We need to move faster. The bank has to be quick, nimble and responsive in this global environment. I would like it to be much faster to get aid on the ground, and faster giving policy advice and help to ministers looking for it. I’d look to do things in days and weeks rather than months and years, and I have the bureaucratic knowledge, the knowledge of the institution, to make that happen.

But the premier goal should be helping developing countries with the problem of job creation. In country after country, the single most important challenge is how to create good jobs – in developing countries as well as developed countries. And a big challenge is youth unemployment, which I want to tackle very fast because of the other problems it creates.

There is an opportunity for a demographic dividend for developing countries if they address this issue. In my country, about 70 percent of the citizens are 30 years old or younger, and there are similar demographics in many other developing countries. The rest of the developed world is looking at a gerontocracy, but we’re looking at a youth bulge.

The World Bank is the premier institution to support young people, with all of its instruments to create jobs, build infrastructure and invest in human infrastructure. Also, green growth and climate change – that’s another issue I see as an opportunity for investment. And the World Bank has the knowledge and financial resources to help.

Okonjo-Iweala knows what the Bank was set up to do, knows what it’s capable of, and has a real vision for how it billions can be used to create growth and prosperity around the world and specifically in Africa. Here’s how Jagdish Bhagwati puts it:

The Obama administration mistakenly believes that “development” consists of healthcare, microfinance and other such projects, and not the big high-pay-off “macro-level” policies such as trade. The insidious notion that the former constitutes “development economics” and the latter does not is both wrong and glorifies the less important at the expense of the more important…

Dr Okonjo-Iweala will do both “macro” and “micro” projects. But Dr Kim’s healthcare expertise comes with an uncritical embrace of the charges against “neoliberalism”, betraying susceptibility to the anti-reform, anti-growth rhetoric of the 1990s.

The fact is that Kim, if you take his FT op-ed at face value, seems to be utterly clueless, and mostly interested in distancing himself from the opinions in his book (which was blurbed by Noam Chomsky) on inequality and health. There’s certainly no indication that he understands exactly what it is that the Bank is uniquely capable of achieving.

What’s more, Kim seems to have no appetite for a contest. Okonjo-Iweala is perfectly willing to say, quite explicitly, why she’s a better candidate than Kim. She’s not a narrow expert on health, as Kim is; she’s expert in many subject areas, from education to agriculture to manufacturing, and also the differences between the world’s developing regions. And her experience as Nigeria’s economy minister is surely much more germane than Kim’s as president of Dartmouth College.

Meanwhile, I’ve done quite a lot of searching, and asked Treasury to help me out, and so far I’ve managed to come up with exactly zero endorsements of Kim which explicitly say that he’s a better candidate than Ngozi. Even Kim himself hasn’t said, as far as I can tell, that he’s a better candidate than Ngozi. And he has notably failed to RSVP to the Center for Global Development and the Washington Post, which are running public sessions where the candidates can explain their vision for the bank’s future and be questioned by the media and members of the international development community.

Yes, it’s true that Okonjo-Iweala is in many ways the “establishment choice” for the job. But that’s no reason not to give it to her — quite the opposite. When you’re talking about a massive bureaucracy like the World Bank, only an establishmentarian has a chance of being able to steer it, rather than simply being steered by it or completely marginalized.

Conventional wisdom has it that the NYT has endorsed Kim; it hasn’t. The editorial is here; while it says nice things about Kim, it concludes by saying that the best outcome for the bank would be a “truly competitive and fully transparent” process for choosing the next president — and everybody knows that in such a process, Okonjo-Iweala would win. Similarly, Todd Moss, in an op-ed headlined “Why Obama Should Keep Control of the World Bank”, says quite explicitly that Okonjo-Iweala is “the candidate most qualified for the job”; the main reason for choosing Kim instead is that he will have “access to the corridors of American power”.

Does Moss explain why he thinks that Kim will have more access to the corridors of American power than Okonjo-Iweala? Not as far as I can tell. And as an Ngozi observer of many years’ standing, I’m quite confident in saying that should she become president of the World Bank, she will have a surprisingly large degree of access to the White House.

It seems to me that it’s incumbent on the White House to at the very least attempt to explain why Kim would be better in the job than Okonjo-Iweala. If they can’t or won’t do that, then they should forfeit their anachronistic droit du seigneur, at least this time around when the alternative is so strong. Ngozi Okonjo-Iweala is the best candidate for the job, and Barack Obama knows it. He should meet with her, and then do the right thing by freeing up the Bank’s board to vote for whomever they think most qualified.

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Groupon’s first set of financial statements as a public company did not go well: The company is being examined by the SEC in the wake of its restatement of revenue. And Andrew Ross Sorkin is using the news to ask President Obama why he supports weaker protections for investors. The bill, Sorkin writes, could open the door for companies like Groupon to conceal information from investors. If you bought Groupon when it opened, he notes, you’d have already lost 41 percent of your investment in just five months:

Its goal is noble: start-ups and small businesses are the lifeblood of our economy, and it is hard to argue with helping entrepreneurs build businesses and hire employees.

However, the legislation, in the name of creating jobs, dismantles some of the most basic protections for the most susceptible investors apt to be drawn into get-rich-quick scams and too-good-to-be-true investment “opportunities.”

Henry Blodget said Sorkin was confusing investor protections with the investors’ well-established tendency to overvalue stocks. Investor emptor, in other words.

The Harvard Business Review‘s Justin Fox smartly triangulated between these positions:

Most of the money lost by individual investors in financial markets is lost to bad luck and poor decision-making, not inadequate accounting rules or financial regulation. Individual investors should be disabused of the notion that investing in IPOs like Groupon’s is a safe and responsible path to financial security. So is the way to do that with more rules and disclosure, or by offering fewer regulatory assurances and cultivating more of a caveat emptor attitude among investors?

So, depending on how you look at it, investor protections are either crucial to the public interest or a potentially misleading stamp of approval from regulators. Confused? There’s more here on the good and bad of the JOBS Act.

Beyond Groupon, today was the day the econoblogosphere got its version of a cute baby animal GIF: this encouraging entry for the Wolfson Economics Prize, made by an 11-year-old from the Netherlands, complete with a hand-drawn chart showing a pizza currency-exchange mechanism. If that doesn’t warm your heart, well…

On to today’s links.

Takedowns
Will Wilkinson tears into Weisenthal’s Romney-is-good-for-the-economy argument – The Economist

Wonks
Reinhart and Rogoff: The U.S. may not return to trend growth after the crisis – Bloomberg
“The cost of too little growth far outweighs the cost of too much” – Bloomberg

Cephalopods
I am quitting Goldman Sachs and despite what you have may heard, it was fantastic – Wall Street Oasis

Billionaire Whimsy
Jim Dolan accuses Mort Zuckerman of extortion – Forbes

Financial Arcana
Muni CDS now one step closer to being exchange-traded – WSJ

Old Normal
U.S. child miners from the 1900s – Retronaut

Eye of the Beholder
Meet the Utah man whose anti-Obama art is selling for six figures – Buzzfeed

Primary Sources
RBC charged in multi-hundred-million-dollar tax-evasion trading scheme – CFTC
Full FOMC minutes: Economy “a bit stronger overall,” unemployment still “elevated” – Federal Reserve

Firsthand Accounts
Quant prop trader: “I wouldn’t try to raise the price of rice and starve China” – The Guardian

Warnings
You absolutely do not want Carl Icahn to run your company – Harvard Business Review

New Normal
America has seen no increase in college graduation rates in the last 30 years – Middle Class Political Economist

Boondoggles
GSA chief resigns over Las Vegas conference that featured “a clown, a mind reader and a $31,208 reception” – WashPost

Long Reads
Why exports will “resurrect the United States as a dominant global economic power” – American Interest

Defenestrations
James Murdoch steps down as chairman of BSkyB – Reuters

Close Encounters
What happens when Joe Nocera meets Jamie Dimon in an elevator – NYT

Well done to Joe Nocera for giving some well-deserved publicity to Jeff Horwitz’s fantastic (and still ongoing) investigation into the way that banks encouraged debt collectors to sue Americans for credit-card debt they didn’t owe.

Nocera also raises the possibility that people might start, quite rationally, simply walking away from their credit-card debts in much the same way that they have been walking away from their mortgages.

Lawyers on the front lines say that credit card debt collection remains a horrific problem. “Most of the time, the borrower has no lawyer,” says Carolyn Coffey, of MFY Legal Services, who defends consumers being sued by debt collectors. “There are terrible problems with people not being served properly, so they don’t even know they have been sued. But if you do get to court and ask for documentation, the debt buyers drop the case. It is not worth it for them if they have to provide actual proof.”

There are very serious questions about the reliability with which debtors are actually served by the collection agencies who buy credit-card debts from the big banks for as little as $0.018 on the dollar. All too often, the debtor doesn’t even know that they’ve been “served”, and therefore default judgments get filed against them even when the underlying documentation is weak or nonexistent.

But if you do find out that a collections agency is suing you for unpaid credit-card debt, then you should absolutely turn up in court and ask for documentation. By that point, of course, any hit to your credit will already have happened, so you can’t damage your credit score by fighting the suit and refusing to pay.And the simple act of asking the plaintiff to prove that you owe what they say you owe will very often make the whole suit disappear.

So get the word out: if you, or anybody you know, gets sued for unpaid credit-card debt, the first thing you should do is simply ask the person suing you to prove that you owe what they say that you owe. The onus is not on you to provide documentation that you paid off the debt, or anything like that. The onus is on them to prove that the debt exists. Borrowers should not shy away from asking for this proof out the moralistic feeling that they should pay back what they owe. And it turns out that much of the time, the debt will have been sold to them by a bank refusing to make “any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever” about the accuracy or completeness of the debts’ records. If that kind of language is in the transfer documents, it’s very unlikely that the collections agency will be able to win a contested lawsuit.

If people start contesting these suits en masse, then that will surely reduce the attractiveness, to the banks, of selling written-off debt to sleazy collections agencies en masse. If banks want to sue borrowers for money those borrowers owe, let the banks do so themselves. At least it’s more honest that way.

The chart of the day comes from Thomson Reuters LPC, and shows total global volume of syndicated lending, on a quarterly basis, going back to 2003.

Syndicated lending is the big and boring part of the bank-loan market — the bit where huge corporations borrow so much money that they need to line up a consortium of banks to get the deal done. As you can see, in boom years syndicated lending can reach $1 trillion per quarter, so this is an enormous market. And as you can also see, very clearly, it seems to have fallen alarmingly this year — not the kind of thing you want to see in a global economy which is supposed to still be in the early stages of a recovery.

The big picture here is that in healthy years, the world does about $800 billion or more in syndicated lending per quarter; of that, somewhere north of $400 billion comes from the Americas. By that criterion, the global lending market has been healthy since the fourth quarter of 2010.

But it’s not any more. Total lending in the first quarter of 2012 was just $646 billion, down 20% from the first quarter of 2011, and down 29% from the previous quarter. The Americas also saw their lowest total since the third quarter of 2010, but there the really bad news is hidden elsewhere: a good 70% of total issuance in the Americas is refinancings, where companies roll over their existing debt. Just 30% of the total is represented by new money coming in to the market.

And if you think things are bad in the Americas, they’re much worse in Europe.

This all bodes ill for the global economy, as it’s a very clear sign that banks are putting the brakes on lending money to even their biggest and best corporate customers. And it also implies that the rebound in lending that we saw in 2010-2011 might have been a little bit artificial, comprising in large part a backlog of deals which simply couldn’t get done at the height of the financial crisis.

Now that the urgent refinancings are largely out of the way, banks are showing no real appetite to lend new money to anybody. They’re not lending here, and neither are they lending in the rest of the world. The quid pro quo of the global bank bailouts was always that in return for getting recapitalized, the banks would turn around and start lending again. That hasn’t happened. And insofar as it did happen, the era of revitalized bank lending already seems to have come to an end.

Scene: An upgraded and soundproofed "business plan" room, at the O'Hare Hyatt Regency Hotel. A hard-working Director of Bank of America is seated in an overstuffed sofa, picking absently at a plate of salted nuts. On the other side of a sleek coffee table sits his Compensation Consultant, there to report on a reasonable sum to pay Bank of America's star-crossed CEO, Brian Moynihan. The Director does not look happy; this might be a function of the fact that the company managed to lose $80 billion in market capitalization  in 2011 alone. We enter mid-conversation, with the Compensation Consultant somewhat on the back foot.

Compensation Consultant: Most of the time, when we are assigned to recommend compensation packages, we start with the assumption that there is going to be a compensation package.

Director: Well, if enough people say that all options are on the table, I figured that after a while somebody ought to mean it.

CC: Sure, of course. But, still...

D: What?

CC: You do want to pay him something, don't you?

D: Do I? Not really.

CC: You should. You need to show that full faith of the board is behind him.

D: Why? Things are so bad that we shouldn't support him. My mother-in-law complains to me about checking fees. The Countrywide people are complaining that it was us that acquired them. We can't even keep our website up.

CC: If you don't clearly back Moynihan, it will signal to the market that there's disagreement on the board about his future at the company.

D: There is!

CC: Yes, but without a clear successor in place...

D: We went through that before when Ken quit and it doesn't even come close to the level of the real problems we've had over the last year. The stock price, the fees fiasco, even Steve Schwarzman was making fun of us for being a non-profit. Besides, all a succession plan does is give the CEO enough time to decide how he'll undermine whoever comes next.

CC: But you're in a tough spot. Maybe you do need new leadership, but who's going to want to step into this mess?

D: And what does that say about the CEO who got us here and wants to stay? I don't want to fire him, but I want to come as close as possible. Did you see what Gorman said to his team at Morgan? He called out the whole prima donna show for what it is. And guess what? Most of them stayed. Shocker.

CC: But what if he does leave?

D: Then we'd be in a tough spot? Sure. But we might better off than we are now.

CC: You'd still need to find the right person to fill his shoes.

D: There is no right person! There was one CEO that everyone said was the only person who could run the company that he founded and then, when he died, the stock ripped up. Remember that? Right now we're in a huge structural hole. No one person is going to lead us out of it. And that's what I want to say. By paying Moynihan nothing above his salary and benefits for last year.

CC: You can't do that. The press, shareholders, analysts, employees, they'll all savage you. The stock is even up a bit in 2012. And if it doesn't work, it will all be on your head. No, what you need to do is pay him a number that says "don't leave but we don't love you." Make it respectable. Something he can feel proud of. But prudent. Not so much that Congress will lose it. Pay it mostly in stock. People love that. Incentives aligned, that whole thing. Trust me, you can explain it to Charlie Rose with a straight face. Geithner too.

D: What's the number?

CC: $6.1 million in stock, plus the million in cash and other million in random benefits you've already paid him. Then, if things get worse, you can fire him later, but only once you've got a replacement lined up.

D: $6.1 million in stock to get the chance to maybe do later what I should do now?

CC: Exactly. And if it happens, it will all be on him. You gave him his chance and nobody can say it wasn't by the book.

D: Until then, we'll continue to look oblivious.

CC: But at least that's not a unique problem.

It’s another bad day for Groupon: not only is Andrew Ross Sorkin using the company as Exhibit A in his opposition to the JOBS Act, but more worryingly the WSJ is now reporting that the SEC is examining the earnings revision which Groupon announced yesterday.

Vipal Monga has explained exactly what the problem is here, but his story is very hard to access online, so I’ll try to summarize. The issue at hand is that of refunds, and how they’re accounted for. Let’s say that Groupon has managed to sell 240 coupons for “cool sculpting”, at $500 apiece. That’s a total of $120,000. The coupons expire on September 19, in six months’ time.

Let’s also assume that, as per usual, Groupon keeps 50% of the proceeds, and gives the other 50% to the merchant. In this case, it would keep $60,000 for itself, and remit $60,000 to Dr. Aron Kressel. But Dr. Kressel wouldn’t get all the money up front. He gets one third, or $20,000, immediately. He gets another $20,000 after 30 days. And then he gets the final $20,000 after 60 days. That’s May 18.

Now, Kressel might not get all of his $60,000. Let’s say that some of the people who bought a coupon turn up for their initial consultation before May 18, and are told that they’re not medically suitable for the treatment and therefore can’t have it. Those people — let’s say there are 20 of them — are eligible for a full refund from Groupon. So Groupon gives those people back their money, $10,000 in all, and holds back from Kressel his $5,000 share of that money. As a result, Kressel’s final payment is not $20,000 but rather $15,000, and he ends up getting paid $55,000 in total by Groupon.

And at the same time, of course, Groupon’s own revenues from the deal are also reduced to $55,000: the economics of selling 240 coupons and refunding 20 of them before May 18 are basically the same as the economics of selling 220 coupons and refunding none of them.

After May 18, however, things change. At that point, Kressel is paid out, but Groupon still has the Groupon Promise. As a result, if anybody gets turned away from Kressel’s office after May 18, Groupon eats the whole refund. Let’s say that appointments become easier to come by after May 18, and a further 50 people end up being told that they’re not eligible for the procedure after that point. Remember that Kressel has already been paid $250 by each of those people, and doesn’t need to repay the money if he finds them ineligible.

Those 50 people still get their refunds from Groupon — a total of $25,000. But in this case, all of that $25,000 comes out of Groupon’s share of the revenues, and none of it comes out of Kressel’s cut.

So what’s the situation on September 19, when the deal expires? 240 coupons will have been sold, for an up-front total of $120,000. 70 of those coupons will have been refunded, bringing total revenues down by $35,000 to $85,000. And of those revenues, Kressel will have received $55,000, while Groupon will have received just $30,000 — a 65/35 split in favor of the merchant, rather than the 50/50 split originally envisioned.

And in fact it’s possible for Groupon to lose money on the deal, if there are enough refunds after May 18.

How is all this accounted for?

The way that Groupon does its accounting, it adds up its share of the gross revenues — that would be $60,000 in the cool sculpting example — and books it as revenue immediately, minus the quantity of refunds it expects to have to issue after applying a model which tries to predict such things. If you look at Groupon’s new 10-K, you’ll find this chart (click on “Notes to Financial Statements” and then “Accrued Expenses”):

The line you want to look at here is “refunds reserve” — the number which was $13.9 million in 2010, and $67.5 million in 2011. If you add up all of the deals that Groupon issued in 2010 — that’s some $745 million in total — Groupon reckons that it’s going to have to refund $13.9 million, or 1.87%.

Then, in 2011, a lot of things changed at Groupon. It sold a lot more deals than in 2010, for starters. It also moved into higher-priced deals, things like cool sculpting, which are more likely to be refunded. And it started selling travel deals, too, which are also more likely to get people asking for refunds, especially if they turn out not to be able to book travel on the days they want.

So in 2011, out of $3.985 billion in total revenues, Groupon reserved $67.452 million for refunds. Now note these are the revised figures, which were released after Groupon realized that its initial estimates for refunds were too low.

But do the math, and it turns out that $67.452 million is just 1.69% of $3.985 billion — the anticipated refund rate actually fell from 2010 to 2011. This does not make much sense, since by all accounts — including Groupon’s — it should by rights have gone up, quite substantially.

Now there’s an easy way of dealing with this problem, which doesn’t involve any predictive algorithms at all. Here’s Monga:

Forensic accountant Howard Schilit told CFO Journal that the mistake reflects a misapplication of accounting rules, in particular those outlined in financial accounting standard 48, as set by the Financial Accounting Standards Board. The standard dictates how companies are allowed to estimate revenue for refundable products.

Under the rule, companies are allowed to set aside reserves against potential refunds based on reasonable estimates. But Schilit argued that Groupon couldn’t “reasonably” estimate the refunds because it is so young and follows a relatively new business model. Lacking that historical perspective, the company shouldn’t have recognized any revenue until after the end of their refund period.

“Everything would have to be deferred revenue until the end of the refund period,” he said. “Either [Groupon's executives] didn’t know they had to defer, or they wanted to continue to show as much revenue as they could.”

This, then, is probably what the SEC is investigating at Groupon. If it sells 240 coupons for cool sculpting, should it book $60,000 in revenue? Or $50,000? Or $30,000? The fact is that Groupon doesn’t know how much if any money it’s going to end up making from that deal until the deal expires in September. So there’s a case to be made that the company shouldn’t book any revenue at all until September, just to be on the safe side.

What happened with the earnings restatement is that Groupon discovered that the refund reserve it had been using was too low; when it increased that reserve, it ended up losing more money than it had originally reported. But should it have booked any revenue at all, so long as that revenue was subject to potential refund? I have a feeling that the SEC is going to be asking Groupon that question in quite a pointed manner.

Back on March 23, Christopher Whittall explained why we don’t have a good go-to measure of Greece’s creditworthiness, in the wake of its big bond exchange: Greece’s credit default swaps can’t trade yet. There’s something called a 60-day look-back clause in the standard CDS documentation, which means that if a country has defaulted in the past 60 days, somebody who owns credit protection can claim that there has been an event of default and ask to be paid out. Since we’re still well within 60 days of the default event on March 9, anybody buying Greek credit default swaps now could trigger them immediately.

But after today’s news, it’s far from clear that Greek CDS will even start trading after the 60 days are up. It turns out that while Greece managed to swap its old domestic debt into new bonds quite seamlessly and easily, the same’s not true of Greece’s foreign bonds.

In a statement, the Public Debt Management Agency said investors holding 20 of the 36 bonds in question either voted down or otherwise failed to approve key changes to the bond contracts…

Last week euro-zone finance ministers issued a statement which hinted strongly that they would back Greece if it didn’t make the payments on foreign law bonds.

On May 15, Greece must redeem one of those foreign law notes worth €450 million.

Basically, there are now roughly €9 billion of bonds outstanding which are still old bonds which haven’t been swapped. And those bonds are likely to be a real headache for Greece. The obvious thing for Greece to do would be to simply refuse to pay anybody who holds those bonds and didn’t tender into the exchange. I would certainly follow that course, if I were in Greece’s shoes.

But that would mean that there would be a second Greek default — and that going forwards, there would be a semi-permanent stock of defaulted Greek debt out there. In turn, that would make it difficult to trade Greek CDS, since Greece is likely to be in default, on billions of dollars of foreign debt, for as far as the eye can see.

Now it’s possible to ring-fence that debt and say that it doesn’t count towards a CDS trigger. Non-trivial, but possible. The question is whether anybody really has the appetite to do that. Or whether Greece, and the Eurocrats paying its bills, would actually be quite happy if Greek CDS didn’t trade at all from here on in.

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The Old People are coming – and they won’t stop until they take up an increasingly large portion of America’s economic resources.

In “The War Against Youth,” a new piece for Esquire, Stephen Marche makes the case that the American economy offers “unaffordable Greek-style socialism for the old, virulently purified capitalism for the young.” The War versus The Olds has a zero-sum logic:

The federal government spends $480 billion on Medicare and $68 billion on education. Prescription drugs: $62 billion. Head Start: $8 billion. Across the board, the money flows not to helping the young grow up, but helping the old die comfortably.

Marche calls this “the predictable outcome of thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.” Judging by voter turnout, you could also call this democracy.

It’s true that young people’s prospects are disturbingly bleak. But youth is cheap, while heart transplants are expensive. And as Dean Baker explains, a lot of the substance of Marche’s article is simply false.

The Boomers-as-resource-sucking-vampires argument would be a lot more persuasive if there were great evidence of the “comfort and largesse” Marche says older Americans enjoy. Americans 65 and over suffer from the longest of long-term unemployment, older Americans still owe some $36 billion in student loans and pension funds are simultaneously becoming riskier while delivering lower returns.

Which is to say, ignore the warnings of a scourge of aging Boomers stealing away the hard-earned fruits of your youthful and vigorous labor. This isn’t the Hunger Games.

And on today’s links.

Regulations
Congress just made it easier for startups to conceal accounting regularities from the public – WSJ

Quotable
The entire global financial in one single, infinite run-on sentence – Housing Story
Americans 60 and older still owe $36 billion in student loans – WashPost

Alpha
Your pension fund is now riskier, with lower returns – NYT

EU Mess
EU banks searching for novel ways to kick the can – including lending to bullfighting fans – WSJ

…earlier this year, a Seville bullfight company, Empresa Pagés, struck an unorthodox deal with its lender, Banca Civica, soon to be part of national giant Caixabank SA. The bank agreed to lend money to cash-strapped bullfight fans to help them buy season tickets, which cost several hundred euros apiece. Empresa Pagés gets the ticket revenue upfront. The fans generally need to repay the loans, with interest, within a year.

Related: Euro zone PMI tanks, unemployment hits 14-year high – FT Alphaville
Holders of Greek debt are still fighting a bond swap – WSJ

Rational Markets
We challenge you to make sense of these bizarre emergency room charges – LAT

Debbie Cassettari had outpatient foot surgery to remove a bone spur. She arrived at the surgery center at 8 a.m., left at 12:30 p.m., and the bill came to $37,000, not counting doctor fees. In recovery now from sticker shock, she’s waiting for her insurance company to do the tango with the clinic and figure out who owes what to whom.

Crisis Retro
AIG wants back in to the mortgage market – FT

Cephalopods
The crisis-era $1.3 billion bond deal that’s haunting Goldman – Fortune
Goldman sells investment in company that owns a sex-trafficking site – Reuters

Takedowns
Dan Loeb creates an entire website dedicated to bashing Yahoo’s leadership – Value Yahoo

Ugh
Ashton Kutcher to play Steve Jobs – Variety

Alternative Currencies
Traders are maybe, possibly buying Bitcons – Reuters

Big Brother Inc.
How playground casinos get you to gamble more – Wired

Old Timey
Charles Merrill wanted brokers to be called “service representatives” – Bloomberg

Charts
Don’t. Ever. Bet. Against. Bernanke – Market Montage
The most valuable committees in Congress – NPR

Reuters Opinion
The recession killed journalism – and saved it – Paul Smalera
The euro zone should beware the “F” word – Hugo Dixon
Politicians placing bets – David Cay Johnston
Manufacturing redux – Chrystia Freeland
The hope and beauty of an Iran stalemate – Ian Bremmer

Wonks
Kickstart a meta-analysis of the question: Does aid work? – Kickstarter

Politcking
Fourteen lawmakers voted against every single budget plan that was under consideration last week – The Hill

Oxpeckers
Judge says he never intended to imply that bloggers can’t be journalists – NYT

Rebuttals
Mohamed El-Erian: Kim is a “second best” nominee – Project Syndicate

Mohamed El-Erian comes out in favor of Ngozi Okonjo-Iweala today, while at the same time explaining the fraught international political calculus involved in working out who is going to vote for whom.

Here’s how it works: Europe is looking to the IMF to beef up the amount of money that it’s going to make available to the continent. In order for that to happen, the US is going to have to support the increase in IMF funding. And so the outlines of a quid pro quo begin to emerge: the US votes for greater IMF funding for Europe, and in return Europe votes to elect the US candidate as president of the World Bank.

El-Erian is absolutely right about this:

When judged by the Bank’s own criteria for the job, the highly respected Okonjo-Iweala dominates the other two candidates. On that basis, she has already gained the endorsement of influential observers and opinion-forming media outlets. Moreover, her appointment would speak to other important initiatives with which Obama has aligned himself, including efforts to fight corruption, strengthen meritocracy, and support gender equality.

I suspect that, in their hearts, US officials know that Kim, while an inspired nominee, is not the best candidate. Yet their historical attachment to a harmful nationality-based entitlement stops them from opting for the best.

All of which mitigates in favor of Kim getting the job. But El-Erian hasn’t given up hope entirely: if the world’s emerging countries unite behind Ngozi, he says, with Jose Antonio Ocampo being persuaded to step aside, then it will be much harder for the developed world to force Kim onto the Bank. What’s more, they can themselves threaten to oppose the IMF funding increase unless they have a real voice at the table.

Such a move would involve going up, quite explicitly, against the expressed wishes of the US — a move that many countries are understandably reluctant to make. Here, for instance, is Bob Hormats, the US Undersecretary of State, telling Chrystia Freeland that although Ngozi would be “terrific” in the job, Kim is also “very good”, and that “we think he will get support from a lot of countries”. He says that emerging economies should have “a big voice” in the World Bank, just not necessarily when it comes to filling its presidency.

Notably, even Hormats, representing the US, falls short of asserting that Kim is a superior candidate to Ngozi. And it’s worth noting that, at least so far, support for Kim from anybody who isn’t a serving member of the US government is conspicuous by its absence.*

When Christine Lagarde was elected the head of the IMF, there was a credible case to be made that she was the best candidate for the job. And of course all previous “elections” to the World Bank presidency have been uncontested. So if Kim gets the World Bank job, it will be the first time that it has gone to someone who was clearly not the best candidate. Is that really what Obama wants?

*Update: It’s not true that Kim has failed to get endorsements from outside the US government. Treasury has helpfully compiled a list of people who say that Kim is great for the job, which includes the presidents of Rwanda and South Korea; Amartya Sen; and the Washington Post’s editorial board. It also includes Bill Clinton and Paul Farmer, but their conflicts are a bit too obvious. On the other hand, the list does not include link to the endorsements when the endorsements are online, which makes it hard to double-check them. And the FT is included in the list, even though it has actually endorsed Ngozi. So it’s not at all obvious how many of these people really think that Kim is a better choice than Ngozi.

I bought Rocky Agrawal brunch on Saturday, at a cost to myself somewhat smaller than the amount I’m going to have to shell out if I lose my bet with him. Which is looking increasingly likely. I lose the bet if Groupon’s market capitalization on October 31 is less than 30% of the market capitalization of Priceline. When Groupon went public, the ratio was 72%, which gave me a very healthy cushion. But as of today, I’m underwater: the ratio is now just 24%, thanks in large part to an astonishing and quite unexpected run-up in Priceline’s stock, which is now comfortably over $700 per share.

Still, the proximate cause of the ratio dropping below 30% came from Groupon, not Priceline: it revised its 2011 results downwards, in a pretty opaque manner. “The revisions are primarily related to an increase to the Company’s refund reserve accrual to reflect a shift in the Company’s fourth quarter deal mix and higher price point offers, which have higher refund rates,” says the press release, in a marked departure from Groupon’s normal habit of communicating in plain English.

The official SEC filing is a tiny bit clearer:

At the time revenue is recorded, we record an allowance for estimated customer refunds. We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets. The cost of refunds where the amount payable to the merchant is recoverable is recorded in the consolidated statements of operations as a reduction to revenue. The cost of refunds when there is no amount recoverable from the merchant are presented as a cost of revenue.

To determine the amount of our refund reserve, we track refund patterns of prior deals, use that data to build a model and apply that model to current deals. Further analysis of our refund activity into 2012 indicated deviations from modeled refund behavior for deals featured in late 2011, particularly due to a shift in our fourth quarter deal mix and higher price point offers. Accordingly, we updated our refund model to reflect changes in the deal mix and price point of our deals over time and we believe this updated model will enable us to more accurately track and anticipate refund behavior.

Groupon is explaining how it accounts for the money it sets aside to cover customer refunds.

Groupon basically has two business models: the US model, and the European model. In the US, Groupon sells a bunch of deals for a given merchant, gets lots of revenue as a result, keeps roughly half that revenue for itself, and then passes on the other half to the merchant in question. In Europe, by contrast, Groupon keeps the merchant’s share of the revenue until such time as the buyer redeems the Groupon.

Obviously, the US model is much more attractive to merchants than the European model is. But it also creates much bigger dangers for Groupon, thanks to Groupon’s refund policy. “If the experience using your Groupon ever lets you down, we’ll make it right or return your purchase. Simple as that.”

That policy is good business for Groupon: it gives people a lot of confidence to buy a Groupon for merchants who might otherwise seem a bit sketchy. But it also creates dangers, because if Groupon does a deal with a sketchy merchant, then Groupon can be on the hook for a lot of refunds. And even if the merchant is entirely legitimate, if for good reason a lot of people end up being disappointed with their deal, Groupon can still end up massively out of pocket.

What happened in 2011 is that the price of Groupons started going up — and it turns out that Groupon ends up issuing refunds on a significantly higher percentage of high-ticket Groupons than it has historically done on low-ticket Groupons. I’ll let Rocky explain why:

Groupon is selling bigger and bigger deals and many of these have requirements for use. Some deals have medical qualifications. The former salesperson told me about Groupons for a procedure called “cool sculpting”. In this procedure, fat is frozen off the body. In order to get the treatment, patients must be medically qualified. But Groupon has no way of medically qualifying purchasers and will sell it to anyone. When they go to the doctor and find out that they aren’t eligible, they call Groupon for a refund. If this is several months later, after Groupon has paid out the entirety of what it owes the provider, this can mean a refund loss for Groupon.

Travel is another risky category for Groupon. Unlike Expedia, Travelocity, Priceline, Jetsetter and nearly every other major travel provider, Groupon does not require consumers to pick their dates and confirm availability at the time of purchase. When a consumer finds he can’t use his Groupon months later, he calls for a refund. Groupon also hides material restrictions on travel deals, something I pointed out in September and Groupon still hasn’t rectified.

Because these are higher ticket items that cost hundreds or thousands of dollars, consumers are more likely to ask for a refund than on lower ticket items. In the short term, it means a revenue boost to Groupon, which the company needs as its once torrid growth cools. In the long term, it means refund losses.

Pretty much all of these problems could be addressed quite simply if Groupon simply moved its high-ticket US sales to a European-style system where it paid the merchant only after the deal was successfully redeemed. If Groupon hasn’t done that, then that implies that there might be less merchant demand to run Groupon deals than Groupon likes to imply — and that Groupon needs to be able to promise a large amount of cash up front in order to be able to sign up the merchants it needs.

Groupon, as an intermediary, is in the business of balancing the interests of merchants and consumers. The problem with the high-value tickets is that it’s trying to have it both ways: giving merchants a lot of money up front, while also giving very strong consumer protections to the people buying the deals. The result is enormous contingent liabilities for the middleman — Agrawal estimates that Groupon has more than half a billion dollars in liabilities which aren’t showing up on its balance sheet.

I suspect that what’s going to happen is that Groupon will start tightening up its standard contract with high-ticket-price merchants, to make it easier for Groupon to have recourse to the merchant when it needs to issue a refund. Will that scare away the merchants Groupon wants? If it does, then there are much deeper problems at Groupon than simply refund issues. Because a Groupon without a steady supply of merchants wanting to do deals would surely be a company in very big trouble.

Update: Groupon’s Mike Buckley calls to say that only about a third of the money payable to the merchant is paid up front, and that “a significant portion” is held back until the customer actually redeems. And that as a result, Groupon never loses money on a deal, it just ends up selling fewer than it originally thought. But there are still some question marks over when exactly the merchant gets the last payment, and whether it’s before the Groupon expires — I’m hoping to nail those down shortly.