Felix Salmon

Bob Rubin’s legacy

Felix Salmon
Sep 20, 2012 14:44 UTC

Bill Cohan’s profile of Bob Rubin doesn’t have much if any new information in it, but is fascinating all the same, not least for the way that Rubin reacted to Cohan’s interview requests.

After an April event at the Council on Foreign Relations, Rubin appeared in the building’s Park Avenue lobby. His white Brooks Brothers shirt was fraying, and his gray suit looked rumpled enough that he might well have slept in it the night before. He was carrying an old-fashioned Redweld legal folder, filled with papers, when he pulled me aside. “I have been working hard to try to balance my work-life issues,” he said, explaining why he’d deliberated for months about whether to talk on the record. “I have been really busy, and I am not sure I have the right balance.” A few weeks later a representative conveyed that it was a close call, but Rubin would be heeding advisers who urged him not to speak. Instead, he dispatched his friends to speak for him.

This is weird on many levels. Firstly, why has the famously well-tailored Rubin suddenly started wandering around CFR in a rumpled suit and fraying store-bought shirt? (I have no idea what Cohan’s source is for the Brooks Brothers factoid, but well done to him for getting it.) Secondly, when did the hard-charging former Goldman executive start talking about the importance of work-life balance, as though he has to hold down a full-time job while bringing up a family? (In reality, he has no day job, and his kids — including Obama adviser James Rubin — have long since left the nest.) Thirdly, wouldn’t it just be easier to grant an interview, rather than spend months dithering? Rubin is many things, but he’s never been considered a ditherer. Finally, and most revealingly, who are the “friends” that Rubin felt comfortable dispatching to “speak for him”? Sheryl Sandberg, Peter Orszag, Larry Summers, Bill Clinton. Rubin might not have time to talk to Cohan, but he’s happy asking Sandberg and Clinton to carve chunks out of their diaries?

Given all this, it’s reasonable to assume that pretty much everybody that Cohan quotes — including these three — talked to Rubin beforehand, and said what Rubin wanted them to say. Including Summers, who explains, for instance, that the repeal of Glass-Steagal was no big deal, since “there were virtually no restrictions on the investment banking activities of the major banks after the Federal Reserve’s undertakings during the decade before Glass-Steagall was repealed”. Or, here’s Summers on the decision to quash Brooksley Born, then at the CFTC, when she had the temerity to propose regulating derivatives:

Summers thinks  he and Rubin were right to fight Born’s power grab. “Our concerns were not with respect to the desirability of derivatives regulation,” Summers says. “Career lawyers at the Fed, the SEC, and the Treasury insisted that the CFTC’s proposed approach would raise potentially grave questions about the enforceability of existing contracts.” Born, Summers adds, didn’t know what she was attempting to regulate.

This is astonishingly weak sauce, in both cases: basically saying that hey, there were some undesirable facts on the ground (commercial banks doing investment banking, in the first instance; existing derivatives contracts, in the second), and that Treasury had no business trying to change or regulate those facts, and that in fact it was pretty much Treasury’s job to fiddle with regulations to make it less onerous for Wall Street to do what it was doing already. But, of course, it’s entirely in line with what Rubin has said elsewhere: he told David Rothkopf, for instance, that the liberalizations of the 1990s were the right policies, and that he would argue the same things today.

I have my own long list of reasons why Rubin deserves more blame for the financial crisis than any other individual in the world. But Cohan adds a few more reasons to the list, mostly regarding Rubin’s actions — or lack thereof — during the crisis itself. “If Rubin disavowed any role in enfeebling Citigroup,” writes Cohan, “he was nearly invisible in the frantic year between November 2007, when Chuck Prince resigned in the wake of billions of dollars in Citigroup losses, and November 2008, when the federal government bailed out Citigroup.”

What’s more, the one thing that Rubin did do looks pretty craven:

There was one errand Rubin was asked to handle. On Nov. 19, 2008, as Citigroup’s prospects were deteriorating rapidly, Rubin called Treasury Secretary Hank Paulson. According to Paulson’s memoir, On the Brink, Rubin “put the public interest ahead of everything else” and “rarely called me,” so the “urgency in his voice that afternoon left me with no doubt that Citi was in grave danger.” Rubin told Paulson that “short sellers were attacking” Citigroup’s stock, which had closed the day before at $8.36 per share and was “sinking deeper into the single digits.”

In his testimony to the FCIC, Rubin disputed Paulson’s recollection. “I don’t think that mine was a Citi-specific call,” Rubin said. He claimed his intent was to represent all the bank stocks being pecked to death by short sellers, and to alert Paulson to the severity of the problem. “I think mine was a general call.”

These two accounts aren’t necessarily contradictory. Rubin might have kidded himself that he was making “a general call” about the banking system as a whole, on the grounds that if bad things were happening to Citi, they were surely happening to all the other banks as well. And Paulson, hearing the urgency in Rubin’s voice, would have immediately grown even more concerned about Citi — especially when Rubin started blaming short sellers. (As a general rule, there’s no greater indication that a company is in genuine fundamental distress than when its executives start pointing the finger at short sellers.)

Cohan’s biggest beef with Rubin is that he didn’t do more: “Nobody’s perfect,” he concludes. “But for $126 million, they ought to show up.” For me, that’s not such a big deal: by the time the crisis rolled around, it was genuinely too late for Rubin — or anybody else outside the government — to be of much help. And because he was so deeply enmeshed in Citigroup’s senior management, it would have been quite wrong for the government to seek his advice.

Still, Rubin has had an incredibly long career at the highest levels of finance and policymaking, and if he reflected honestly on his mistakes, his thoughts could be extremely valuable. Instead, he has retreated into a cone of silence, accepting interview requests only from people who can be trusted not to ask him any tough questions, and sending out the likes of Sandberg, Summers, and Clinton to act as emissaries on his behalf, defending a man whose only sign of regret or distress to date is that rumpled wardrobe.

It’s not too late for Rubin to come clean. His reputation will never recover, we know that — but if he really cares about America and its public, then he should be much more honest about the crisis, and his role in it. Instead, he’s in cowering self-preservation mode. It’s an improbably ignoble end to a storied and high-powered career.


Quote-check girl?

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Eli Broad’s inverted vision

Felix Salmon
Sep 20, 2012 05:42 UTC

Many years ago, Eli Broad was the very model of the modern enlightened art collector. In December 1988, he opened a 22,600-square-foot “lending library for art”, complete with soaring rhetoric:

Broad believes that the new facility is part of the solution to museums’ financial woes and a pointed example of how a collector can demonstrate social responsibility…

In the first place, he said, this center is not a museum. It’s a lending library. “We never wanted to have a building with our name on it that would compete with museums,” he said. “We loan works to museums and make them available to scholars.”

Broad explained that his foundation had already loaned art to more than 100 different museums, and that at any given point in time a good third of his collection was on loan somewhere. You don’t need to have your own museum for the public to see your art; in fact, if you do it the other way, by lending out your art to other museums, everybody wins. More of your collection can be shown at once; more of the global public can see your collection; and you get to support hundreds of great cultural institutions, rather than just your own.

The point here is that although museums lend out works too, it’s rarely a priority for them, and they never consider themselves a failure if they don’t lend out works. A foundation devoted to lending out works was a wonderful idea — and even 20 years later, when Broad decided that he would not donate art to his eponymous building at Lacma, it still seemed like it could be a good idea. As the NYT wrote at the time:

Whether this turns out to have been a good decision will ultimately depend on the character of the foundation. If they are stored and conserved properly, if scholars have ready access to them and if they’re made available for lending to museums, then nothing will be lost.

In offering to be a collaborator, not just a donor, he may be serving the public interest as well as his own.

I completely bought into this idea. In fact, in a column I wrote in April 2008, I suggested taking it one step further:

Broad’s new foundation will exist with the stated purpose of truly maximizing the public exposure that its art receives. That’s a proposition which could be very attractive to collectors wondering what to do with their legacy: they provide the art, and Broad will take care of all the paperwork and relationship management.

So if you’re buttering up a gallerist, maybe the best thing to do is no longer to hint that you’re thinking of donating your collection to a museum: better that you hint that you’re thinking of donating your collection to Eli Broad.

A year or so after writing that column, I met Broad for the first time, and I took the opportunity to ask him whether the Broad Foundation might be interested in accepting donations of art from other collectors who bought into its mission. He gave me one of those that’s-the-stupidest-question-I’ve-ever-heard-in-my-life looks, and basically ended the interview then and there.

With hindsight, it’s easy to know why: he’d already begun to sour on his own lending-library idea, and in truth the reason that he didn’t donate his collection to Lacma had nothing to do with the ideals of lending it out to other museums too. Instead, he was already planning what has now become what he likes to call The Broad — an edifice Christopher Knight aptly describes as “a $130-million vanity museum on Grand Avenue” in Los Angeles.

Why would anybody visit The Broad, or visit more than once? Broad’s collection is valuable to museums wanting specific works, but at heart it’s basically a list of trendy-and-expensive contemporary art, much if not most of it bought from a single dealer. (You know who.)

And so Broad has done something truly cunning: he’s taken his original, wonderful lending-library idea — and then he’s turned it inside out. On top of the $130 million he’s spending to build The Broad, he’s also pledged $30 million to MOCA, across the street. And boy did that donation come with strings attached. Here’s Knight:

The problem Broad faces is this: How can an inconsistent personal art collection, based almost entirely on judgments derived from a commercial market, get a desirable veneer of public stability and critical approval? Answer: For reinforcement, call in some revered Old Masters from across the street.

An exquisite 1949 Jackson Pollock drip-painting, a couple of landmark 1950s Robert Rauschenberg “combines,” a few of Mark Rothko’s greatest abstract fields of floating color — these and more are there for the borrowing from MOCA’s widely admired collection. Their reputations are settled.

Far from being a lender, Broad looks as though he’s going to be a borrower — of some of the greatest works in MOCA’s collection. Certainly MOCA’s director, hand-picked by Broad himself, isn’t going to stop him.

This is surely the ultimate dream for any self-made billionaire art collector: not to see your own works on the walls of a great museum, but to see the great museum’s works on your own walls.

Broad is still, in name, committed to the lending function of the Broad Foundation, but you don’t need a shiny Diller Scofidio edifice on Grand Avenue just to be a warehouse which lends out art. The problem with the lending library was that it didn’t glorify Eli Broad enough: it was too selfless to truly encompass the magnitude of Broad’s massive ego. And so The Broad was born, a permanent home for all that shiny Koons and Warhol. And a temporary home, it seems, for even greater works which can be borrowed from across the street.


Altruism, social responsibility, philanthropy. A collector also has to think about preserving his/her vision for generations to come. I do not see how Broad could be critisized for manipulating the press and sending out a decoy to the art community in order to preserve his legacy. No one would have done it for him. What bothers me is the fact that he has amassed a department store collection that lacks pluralism, and is a dull dialogue with what truly goes on in the world of contemporary art.

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Counterparties: Your very tentative housing recovery

Sep 19, 2012 22:17 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

Here’s the most recent round of housing data — including housing starts, existing home sales, and homebuilder confidence — in three quotes:

“Housing is clearly in recovery mode.”
“The U.S. housing recovery is for real.”
“The nascent housing recovery has deepened.”

Which isn’t to say today’s numbers are going to make your house suddenly jump in value. The Capital Spectator says the housing recovery is “perhaps downshifting a bit” and notes that newly issued building permits fell by 1% over the previous month. Bill McBride at Calculated Risk calls the existing home sales number “decent”, not because of housing starts but because of the market’s inventory dynamic.

Why should you care about the various measures of housing inventory? For one, they’re good ways of measuring how we’re recovering from the foreclosure crisis. Barclays recently estimated that the market’s “shadow inventory” — homes that are at or near foreclosure — includes some 3.25 million mortgages which are either in foreclosure or at least three months in default. McBride expects reluctant sellers to soon start returning to the market: “this new inventory will probably limit price increases.”

Peter Eavis, following up on a piece he had last month, points to another puzzling dynamic that could hold the housing recovery back. “Pricing in the mortgage market” Eavis writes, “appears to be have gotten stuck.” The spread between mortgage rates and mortgage bond yields, a rough shorthand for mortgage revenue, has jumped in the last year. Even as interest rates are at or near historic lows, Eavis writes, “banks aren’t fully passing on the low rates in the bond market to borrowers. Instead, they are taking bigger gains, and increasing the size of their cut.” — Ryan McCarthy

On to today’s links:

Bad News
Mortgage rates keep falling, and so does lending - WSJ

EU Mess
“Capital flight is leading to the disintegration of the euro zone” - Bloomberg

Will Goldman’s new CFO “chain-smoke and freak out about liquidity”? - Dealbreaker

New Normal
“The US has more than 100,000 janitors with college degrees and 16,000 degree-holding parking lot attendants” - Bloomberg Businessweek

Modest Proposals
Journalists should work for a Romney presidency — he’s their stimulus plan - Dana Milbank

Billionaire Whimsy
Wherein hedge fund billionaire Louis Bacon compares himself to Erin Brockovich and Henry David Thoreau - Forbes

Real Talk
Ezra: “the thing about not having much money is you have to take much more responsibility for your life” - Bloomberg View

Bailouts explain why it may be rational to participate in the last round of a Ponzi scheme - Science Direct

The Fed
Hawks “have not and will not have a significant impact on policy making” - Tim Duy

“We were born not to be a media company forever. We were born as a mission company forever.” - All Things D

Patent policy on the back of a napkin - Marginal Revolution

Behold, the ultra-rare fire tornado - Guardian

Grading on a Curve
Goldman is back! Or will be soon — or at least is doing better than its incompetent rivals - Dealbook

We tax income, but forget about the real meaning of class - Matt Yglesias

Dear America’s CFOs: Sell more bonds now - Distressed Debt Investing

Bold Moves
Google just bought its own Instagram - Wired

Judging Greg Smith’s book by its cover

Felix Salmon
Sep 19, 2012 19:49 UTC

We don’t know much about the new book by Greg Smith, Why I Left Goldman Sachs. But we do know what its cover looks like. And there’s no mistaking the fact that the font on the cover of the book is very similar to the font used in the Goldman logo:

The font in question is Bodoni. There are hundreds of different flavors of Bodoni, but I asked the lovely Josh Turk at Reuters to try to recreate both the book cover and the Goldman logo using Bodoni Bold Condensed. There’s no painstaking work here, just typing the words on a colored background. Here’s the cobbled-together logo, on the left, and the real one, on the right:


And here’s the cobbled-together book cover, on the left, and, again, the real one on the right.


Obviously Grand Central, the publishers of this book, didn’t use exactly the same kind of Bodoni: just look at the difference in the Ws. But what’s really striking to me, here, is how little Grand Central is really trying, given how high-profile this book is, and given the fact that it reportedly cost them a $1.5 million advance to acquire.

I was talking about this on Twitter last week, and Dealbook’s Peter Lattman pointed out that there isn’t just a resemblance to the Goldman logo, there’s also a resemblance to Neil Fujita’s legendary cover for In Cold Blood.


Now this cover, like the Goldman logo, is all hand-lettered. It’s based on Bodoni, or something very similar, but it’s condensed the right way — by hand, meticulously, rather than by simply selecting “condensed” from a drop-down menu in Illustrator. Look at the way the lower serif of the n connects with the upper serif of the l, for instance, or the lovely Tr ligature, or even the way the “Cap” runs together in “Capote”.

One thing you’d think would be quite easy to replicate is the very tight leading — the fact that there’s almost no space between the horizontal lines. You see that in the Goldman logo, to the point at which the G and the S end up mushed together. So it would have been quite natural for the designer of the Smith book to have done the same.

But that didn’t happen: while the Smith book designer happily copied the Goldman font, she ignored the tight leading, with the result that the cover seems a bit loose and jumbled. And although there’s one ligature on the cover — a standard ft ligature in “Left” — the rest of the letterspacing also seems a bit careless, especially between the h and the y in “Why”.

All of which is to say that Greg Smith’s relationship to Goldman Sachs, and even to Truman Capote, can be seen in typography alone.

Goldman Sachs and Truman Capote sweat the details, and present their name in a carefully hand-drawn and fastidious way, calling on very talented and expensive designers to do so. Smith, by contrast, and/or his publisher, is happy with a rough-and-ready approximation: something which seems similar or good enough at first glance.

The designers of the Greg Smith book could have had real fun with this, if they really wanted to play on the Goldman logo. They could have used a white-on-blue color scheme, they could have chopped the serifs off the bottom of the letters, and — most obviously — they could have brought the “Smith” up so close to the “Greg” that the G and the S ended up smooshed together. Instead, the only connotation of sophistication in this cover comes from taking the words “I Left” and putting them in gold.

So if you want access to some of the smartest bankers in the world, go to Goldman Sachs. If you want to read a classic piece of book-length nonfiction, pick up In Cold Blood. Greg Smith, by contrast, never seems to have got very far at Goldman, and — despite the fact that I haven’t read it — I doubt very much that his book will still be in print in 47 years’ time, either.


This posting make you seem very superficial.

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The decline of credit cards

Felix Salmon
Sep 19, 2012 14:19 UTC

Remember when credit-card companies started cutting back on credit lines because delinquencies were going up and people weren’t paying off their debts? Well, pull out your hankies and prepare to dry your eyes: now they have the opposite problem. Harry Terris at American Banker has a classic headline today, “Card Payment Rates Stymie Lending”.

The problem for credit-card issuers, explains Terris, is that those of us with credit cards are doing a much better job of paying off our balances. Here’s the chart, showing the percentage of outstanding principal balance that cardholders are paying off every month:


Well done, America! You’re paying off your credit-card debt at unprecedented rates! And the result is that the total amount of credit card debt in America is going nowhere. Here’s the chart:


After falling sharply during the financial crisis, revolving debt has been flat since the beginning of 2011. And in real terms, of course, that means it’s falling. Here’s the same chart in billions of constant 1982 dollars:


And here’s that same chart, zoomed in to the past 10 years.


The lesson here, for credit-card issuers, is “be careful what you wish for”. They worried about credit-card balances being too high during the recession, and cut off a lot of credit just when people needed it most. And then balances just fell, and fell, and never recovered.

For consumers, this is excellent news. It almost never makes sense to borrow on a credit card: the rates are insanely high, most of the time. Using credit cards can be perfectly sensible: they’re very handy payment mechanisms. But running a balance on your credit card is the first no-no of personal finance, especially if you have any liquid savings at all.

So even as America worries about the rising level of student loan debt, here’s some good news: the level of credit-card debt is going nowhere, and is actually falling in real terms. Let’s keep that up. It will mean lower profits for the big banks, who issue the lion’s share of all credit cards, and it will mean lower interest payments for consumers.

Of course, people still need loans. So once we’ve weaned ourselves off credit cards as a source of credit, the next task is to find an easy and cheap way for individuals to borrow relatively short-term funds. Banks hate personal loans, because they’re not nearly as profitable as credit cards. And peer-to-peer lending isn’t going to work when it comes to supplying broadly-available credit lines. Still, I’m beginning to dare to hope that the credit-card scam — sell convenience, and then make billions of dollars from overinflated interest rates — is beginning to come to an end.


Great topic. Well a smart person doesn’t have a credit card at all, or had one they use only in extremis.

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Chart of the day, housing bubble edition

Felix Salmon
Sep 19, 2012 00:46 UTC


This chart comes from a new paper by Karl Case and Robert Shiller, looking at the results of a survey they’ve been handing out to homebuyers annually since 2003. The idea is a very smart one: if you want to get an idea of the behavioral economics of homebuyers, the best way to understand what they’re thinking is to simply ask them.

And this chart, in particular, is both very elegant and very informative. It’s elegant because you have a very close maturity match: the average duration of a US mortgage, before it’s refinanced or the house is sold, is about 7.5 years, which is close to the ten-year horizon in this question, which Case and Shiller ask every year:

On average over the next 10 years, how much do you expect the value of your property to change each year?

Now the number of homebuyers in America vastly exceeds the number of people who understand the mechanics of compound interest. If you asked instead “how much do you think your home will be worth in ten years”, and then presented that answer as an annualized percentage increase, I suspect that the answers — especially in the peak years of 2004 and 2005 — would be substantially lower. (Put it this way: if you bought a $260,000 home in 2004 and expected its value to rise at 12% a year for 10 years, then by 2014, you’re saying, it would be worth more than $1 million. I suspect the number of people answering 12% or more is going to be greater than the number of people who think the value of their home will quadruple in ten years.)

Still, that’s not particularly important, especially since the question has remained the same for the past decade: the trend here is real. And what’s fascinating is that the big fall in expected long-term home-price appreciation happened before the financial crisis, and that the crisis is actually completely invisible in this chart: expectations continued to deteriorate long after it was over.

And even given the fact that homeowners tend to overestimate annualized percentage returns over 10-year horizons, we’re now at the point at which the expected rise in home values barely exceeds today’s record-low mortgage rates. Over the long term, homebuyers still think it’s a good idea to buy a house. And they might be right about that. But they’re not buying because they think they’ll make a handy profit in ten years’ time.

Which brings me to one of the central themes of the Case-Shiller paper: the idea of a “speculative bubble”. If you look at the situation in the chart circa 2004-5, there was a huge gap between the cost of funds and the long-term expected return. And if people really believed house prices were going to rise that much in future, it made all the sense in the world to lever up, get the biggest mortgage they could find, and buy lots and lots of house. After all, the more levered you are, and the more house you buy, the more money you make.

Case and Shiller have a handy definition of a speculative bubble, in this paper: it’s a bubble with “prices driven up by greed and excessive speculation”. But here’s the thing: people don’t speculate on a ten-year time horizon, and the producers of “Flip This House” weren’t waiting around to see what properties would end up being worth once the kids had gone off to college. A truly speculative bubble, it seems to me, is a function much more of short-term house-price expectations than it is of long-term expectations. If you think you can buy a house today, sell it in a few months’ time, and make tens of thousands of dollars doing so, and if you intend to do precisely that, then you’re clearly part of a speculative bubble. But it turns out that home buyers were actually surprisingly modest in their expectations of one-year price increases — they expected prices to rise less than they ended up rising in reality.

On the other hand, if you buy a house now in the expectation that it’s going to increase in value substantially over the next decade, you might be a buy-and-hold investor, but it’s hard to characterize what you’re doing as speculation.

I’ve been disagreeing with Shiller on the subject of speculative bubbles for five years now, but I think this is important: just because you have a bubble, doesn’t mean you have a speculative bubble. The dot-com bubble was speculative; the rise in house prices in 2000 was not. There was a speculative bubble in Miami condos; there was not a speculative bubble in Manhattan co-ops. If you buy because prices are rising, that might be because you want to flip your property and make money — or it might equally be because you worry that if you don’t buy now, prices are going to run away from you, and you’ll be forced to move out of the neighborhood you love because you can’t afford it any more. It’s still a bubble, but it’s more of a fear bubble than a greed bubble.

Still, bubbles are bad things, and they’re liable to burst either way. And so I take solace in this chart, because it shows me that people are buying, these days, for the right reason — which has nothing to do with expectations of future house prices, and everything to do with simply paying a fair price for the shelter they’re consuming. House prices might not rise much over the next decade. But if they fail to rise, today’s house buyers aren’t going to be disappointed: they will still have lived in their homes while paying a perfectly reasonable sum to do so. Which is a much better state of affairs than bubble-and-bust.


QCIC, by some metrics the US housing market remains overpriced by about 20%. Calculate cumulative inflation over the next decade (or wage inflation, if you believe that is the stronger driver of real estate prices) and subtract 20% — Harpstein’s figure seems realistic.

Not that free markets are known for being predictable and orderly…

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Counterparties: Revenge of the lucky dukies

Ben Walsh
Sep 18, 2012 22:47 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

Mitt Romney is defending his comments in an anonymously sourced video, taken surreptitiously at a Florida fundraiser, that “there are 47 percent of the people who will vote for the president no matter what… These are people who pay no income tax”. Which is odd, because Romney’s take on “the 47%” was factually wrong and politically daft.

It is true, according to the Tax Policy Center, that 46% of American taxpayers pay no federal income taxes — the so-called lucky duckies. They do, however, pay taxes like “federal payroll and excise taxes as well as state and local income, sales, and property taxes”. A combination of poverty and tax breaks for children, the elderly and the working poor account for 87.2% of cases where zero federal income taxes are paid, something Ronald Reagan bragged about. Awkwardly for Romney, there’s also a small slice of high-earning taxpayers who pay no federal income tax due to the treatment of capital gains and dividends. NPR’s Planet Money has a great graph that simplifies the breakdown. The reality is that America’s tax system is barely progressive and in effect approaches a flat tax.

Politically, the Atlantic‘s David Graham shows the non-federal taxpayers live largely in Southern and Western states Romney must win. And Graham’s colleague Derek Thompson notes that Obama won a huge share of low-income voters in those states, the president was less successful with elderly Southerners. Romney will need their support in November.

Dismissing nearly half of Americans as unreachable and unworthy struck Jonathan Chait as exactly what we’d been waiting to see: the real Mitt Romney. He turned out to be a “sneering plutocrat” who thinks of the “lowest-earning half of the population as implacably hostile parasites”. As the Huffington Post’s Ryan Grim and Matt Sledge put it in cataloging the wide-ranging negative reaction to Romney’s comments — which also disgusted David Brooks — that’s a stance that “offends liberals and conservatives alike”. — Ben Walsh

On to today’s links:

The Einhorn Effect: A mere mention can send a stock down 13% in a month - WSJ

New Normal
Debt collectors are now using district attorneys’ stationery to threaten you with jail time - NYT

Paul Ryan’s probably not telling the truth about having the same body fat levels as world-class sprinters - Slate

The importance of Occupy: It changed the conversation (among other things) - Felix
“Rarely can a movement have been so hastily obituarised as Occupy Wall Street” - Guardian

EU Mess
Europe’s too-big-to-fail banks now even too-big-to-fail-ier - Bloomberg
Berlin’s 168 billion euro problem with the EU bailout fund - Der Spiegel
The head of Germany’s central bank says the ECB kinda reminds him of the devil in FaustTelegraph

“Letter to Rupert Murdoch regarding burglary”: Absolutely scathing note from MP Tom Watson - Tom Watson

Long Reads
The giant medical company that ran illegal, deadly bone-cement tests on humans - Fortune

There’s a 15% chance that the US goes off the fiscal cliff and wrecks the economy - Moody’s

Ramesh Ponnuru on why the GOP has the entitlement issue all wrong - Bloomberg

“Hot Money”
Becoming a less-effective tax shelter will cost Switzerland $65 billion in deposits - FT

Financial Arcana
Russia agrees to a 90% haircut on $11 billion in Soviet-era loans to North Korea - WSJ

Math explains why you’re less popular than your friends - Scientific American


@Curmudgeon, I’m largely self-employed. I’m confused about whether you are denying the reality of my tax return, or denying that a tax is a tax? Either way, you are confused.

In any case, Romney’s quote goes well beyond the question of whether the 47% figure is or isn’t accurate. He sees the fact that they do not pay income tax as EVIDENCE that they are irresponsible, dependent, and entitled. That leap of logic ought to leave you scratching your head. I don’t see how you or anybody (except perhaps those who are wearing partisan blinders) can possibly defend the statement.

I would also like to see more Americans pay income tax. My biggest complaint with George Bush was his repeated irresponsible tax cuts that got us into this situation. Same complaint I have with Obama (the payroll tax cut was poorly considered). We need higher taxes across the board, as well as greater fiscal responsibility. Might be difficult to implement in the middle of a recession, but waiting for the recession to end first might be too late.

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Animated chart of the day, Apple vs Microsoft edition

Felix Salmon
Sep 18, 2012 18:19 UTC

Back when this blog was on hiatus, I put a chart of Microsoft and Apple valuations up over at felixsalmon.com. People liked it, and so I decided to take the obvious next step, and animate it. The result is the video above, and this gif.

The data are a little bit out of date at this point, and so you can’t see Apple soaring to its latest $650 billion valuation* — but it’s easy to see where it’s going. And the big picture is still very clear: Apple basically curves up with market cap being an inverse function of p/e, as you’d expect; when Microsoft, by contrast, reached its highest valuation, it had a whopping great p/e ratio.

Today, for the record, Apple has a market cap of $650 billion and a p/e ratio of 16.4; Microsoft has a market cap of $260 billion and a p/e ratio of 15.6. As far as their earnings ratios are concerned, both are very much in line with the S&P 500, which is currently trading at a p/e of 16.5. Wherever excess earnings growth is going to come from, the market isn’t expecting it from either of these tech giants.

*Yes, I said $700 billion in the video. I meant $700 per share. Oops.

The importance of Occupy

Felix Salmon
Sep 18, 2012 13:45 UTC

On September 7, Occupy the SEC followed up its fantastic comment letter of last February with an equally perspicacious and detailed update. At 15 pages, the new letter is much shorter than the 325-page original, but it still packs a heavy punch, and it arrives at exactly the right time: just as the SEC and other regulatory agencies are trying to work out how the Volcker Rule should look, especially in the wake of the JP Morgan London Whale fiasco. (All of which was, embarrassingly, entirely Volcker-compliant.)

Meanwhile, the Occupy Bank Working Group, which got a flurry of publicity back in March, is still going strong, working on something which has the potential to be much more far-reaching than any letter. It takes time to build a new kind of bank, which is their ultimate ambition, and they’re not there yet. But they’re moving in that direction, and if Andrew Ross Sorkin had talked to any of them before filing his column today, he might not have been so dismissive with respect to the legacy of Occupy. (“It will be an asterisk in the history books, if it gets a mention at all.”)

In fact, Occupy was hugely important: it provided an overarching frame, and context, which could then be applied in a myriad of different situations and geographies. When Mitt Romney dismisses 47% of America as “victims, who believe the government has a responsibility to care for them”, it’s impossible not to think of Occupy, the self-described 99%, and the fact that it was emphatically not a call for government handouts. In reality, it was much closer to a call for a genuine equality of opportunity — something that Romney should be supporting, rather than opposing.

But Sorkin isn’t interested in the effects that Occupy has had on political discourse, or even on regulatory rule-making. He’s looking for some very narrow things indeed:

Has the debate over breaking up the banks that were too big to fail, save for a change of heart by the former chairman of Citigroup, Sanford I. Weill, really changed or picked up steam as a result of Occupy Wall Street? No. Have any new regulations for banks or businesses been enacted as a result of Occupy Wall Street? No. Has there been any new meaningful push to put Wall Street executives behind bars as a result of Occupy Wall Street? No.

And even on the issues of economic inequality and upward mobility — perhaps Occupy Wall Street’s strongest themes — has the movement changed the debate over executive compensation or education reform? It is not even a close call.

Actually, I think that Occupy the SEC did change the debate over breaking up the banks. Certainly its letter was very widely read in Washington, where Congressional staffers are constantly inundated with lobbyists’ position papers but see very little from, well, the 99%. But more generally, Occupy was clearly opposed to the entire Washington system, and so it’s rather silly to point to the fact that the Washington system hasn’t done much in the past year, and use that as evidence that Occupy was a dud.

Speaking personally, I find it impossible to read the unemployment numbers on the first Friday of every month without thinking about the protestors at Occupy; if nothing else, they did a fantastic job at putting a face on otherwise dry statistics.

But what Occupy has really given us is something much more important than that. It’s a new way of looking at the world we live in — a viewpoint characterized by equality and respect for all, combined with an unapologetic anger at where we’re at. That’s a viewpoint it’s pretty much impossible to find on Wall Street, or among Andrew Ross Sorkin’s sources. But it’s also a viewpoint held by millions of people around the country and the world. It’s probably too much to hope that Sorkin might start taking it seriously at some point.


So Occupy is about supporting our ‘safety nets”? I thought, just saying, I thought they were representing outrage at the careless and utmost greedy way in which Wall Street and its investors behave, and act like accountability is out of the questions. OK I am wrong.

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