Felix Salmon

Argentina’s desperate exchange proposal

Felix Salmon
Mar 30, 2013 06:23 UTC

Argentina has done as the Second Circuit Court of Appeals ordered, and has now formally put forward its proposal for paying off Elliott Associates and the other bondholders suing it in New York court.

You could be excused for not entirely understanding what Argentina is proposing, in this 22-page filing: it’s not particularly easy to understand. But the upshot is simple, and pretty much as everybody expected: Argentina is offering to give Elliott pretty much exactly the same deal as it gave all the other holders of its defaulted bonds. In practice, that means that Elliott would swap into new Discount bonds with a present market value of roughly $120 million; if settling the case in that way helped Argentina’s bonds to rally back to where they were trading in October, then the market value would rise to about $176 million.

Argentina is at pains to point out that “this proposal is a voluntary option”: they’re not proposing that the court force Elliott to accept the deal. But at the same time, Argentina knows full well that the chances of Elliott voluntarily accepting this deal are exactly zero. Elliott is suing for a total of $720 million, and while it might be willing to settle at a modest discount to that sum, there’s no way it’s going to accept the same kind of 70% haircut that it has consistently rejected all along.

Indeed, it’s entirely improbable that any of the current plaintiffs, having rejected two previous exchange offers and having spent many millions of dollars in legal fees, would be remotely inclined to accept this offer were it put to them. Which makes it really hard for the court to accept this proposal as a good-faith attempt to pay the plaintiffs what they’re owed.

The court specifically asked Argentina how it was going to make current the obligations of the original bonds; and/or how it might repay those original obligations going forwards. Argentina, in response, has proposed doing neither. Instead, it is proposing to give the plaintiffs the 70% haircut, on those original bonds, which they have consistently rejected.

The AP’s Michael Warren says that Argentina’s proposal is “creative”, but I don’t see much evidence of creativity here: instead, I see a lot of the failed rhetoric which helped bring Argentina to this fraught position in the first place. “Plaintiffs cannot use the pari passu clause,” writes Argentina’s lawyer, Jonathan Blackman, “to compel payment on terms better than those received by the vast majority of creditors who experienced precisely the same default as plaintiffs”. But of course they can do that, or at least they’re trying to, and so far, New York’s courts have ruled quite consistently that they have every right to do so.

There are signs of real desperation in Argentina’s filing: it spends a lot of time, for instance, talking about the price at which Elliott bought its debt, and the profit that Elliott would make if it got the full $720 million it’s asking for. It’s an incredibly weak argument: for one thing, there’s no law against making money in the markets, and for another, it ignores all the judgment debt that Elliott holds, and isn’t getting paid on, and isn’t litigating in this case.

Indeed, it’s far from obvious whether Argentina is extending this offer to judgment creditors, who make up the vast majority of the country’s holdouts. But one thing is clear: everything in this filing is entirely consistent with the behavior which has already been found to be “contumacious”. Argentina is a sovereign nation, and it’s staring down the court, here, daring it to go through with its dangerous plan. And frankly it’s very hard to imagine that at this point, because of this filing, the court is finally going to blink.

I’ve been largely sympathetic to Argentina’s position in this case all along, but in the wake of the various rulings which have already been handed down, Argentina doesn’t really have a legal leg to stand on any more. That’s why it’s resorting to desperate measures like saying that Elliott is going to make an unconscionable amount of money if it wins: where legal reasoning has failed, all that’s left is an attempt to bypass the law and attempt to scramble onto the moral high ground. The problem, of course, is that it’s really hard for the contumacious Argentines to occupy any kind of moral high ground at all, even when their opponent is a notorious vulture fund.

As far as I know, Argentina has not hired any kind of bankers to run this proposed exchange offer. Which is further evidence, if any were needed, that it will never see the light of day. You’ve heard of giving someone an offer they can’t refuse: this is an offer the plaintiffs can’t accept, and Argentina knows it. I find it extremely hard to believe that the New York courts, having come as far as they have, will consider it a remotely adequate remedy.



Well I am heartily in agreement that there should be a rule of law in nations and so on and so forth. But the FACTS are that nations break laws if the incentive is great enough to do so, and default, and thumb their noses at foreign courts. The supposed punishment for this is to be cast into outer darkness and never be able to borrow again. But to my knowledge this punishment tends to be weak and quite soon the defaulter will find another lender reckless enough to take a chance. That was true of Philip II and also of many “bad credits” in the 20th century. Tell me how a New York court can COMPEL Argentina to pay up if it refuses to do so. Send in the Marines? Tell me how long Argentina, if it refuses, will be unable to borrow a dollar or whatever again.

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Could Cyprus go the way of Ecuador?

Felix Salmon
Mar 29, 2013 19:18 UTC

A small country which has adopted a major global currency finds itself with massive debts and insolvent banks. Its only real hope is that it controls areas rich in hydrocarbons; the problem is that it has neither the wealth nor the expertise to exploit those hydrocarbons on its own. The result: it ends up essentially selling itself to an omnivorous global superpower which is interested only in access to resources rather than in domestic economic growth and prosperity.

This is the narrative which might well end up playing out in Cyprus. The local population is so unhappy with the euro that they’re seriously looking to bitcoins as an alternative, despite the fact that there is no real bitcoin economy, and insofar as there is one, it’s inherently deflationary. Much of the country’s political, economic, and religious elite is seriously talking about leaving the euro. If they decided to do that, Cyprus would probably become even more controlled by Russia than it is already — especially given that Gazprom is by far the most obvious candidate when it comes to finding a partner which can exploit Cyprus’s natural gas reserves.

If you want to see an example of what this story looks like in practice, just take a look at Ecuador, which adopted the dollar as its national currency back in 2000. Since then, it has had a brutal debt restructuring, causing most foreigners to give up on putting their money into the country. Predictably, China stepped into the vacuum, and is now by far Ecuador’s largest source of funds.

The latest development is that Ecuador is probably going to sell about three million hectares of pristine Amazonian rainforest — that’s about 12% of the total area of Ecuador — to Chinese oil companies. Ecuador might not be drilling in Yasuni — yet — but this new parcel is right next door, and if the Chinese come in to drill for oil there, the effects on Yasuni can’t possibly be positive.

Ecuador’s indigenous population is up in arms, but is effectively powerless in the face of China’s tsunami of cash. For its part, China has no real interest in Ecuadorean economic growth or the wellbeing of its people; it just wants to control Ecuador’s natural resources, and is willing to pay many billions of dollars to do so.

If Cyprus once again restructures its debt and/or leaves the euro, could we end up in a world where Russia controls Cyprus to anywhere near the degree that China controls Ecuador? The answer to that has to be yes, given Russia’s imperial ambitions and the degree to which Russia’s wealth dwarfs anything in Cyprus right now. Cyprus has already announced that its harsh capital controls are going to be in place for at least a month; realistically, they’re likely to stay much longer than that. So long as they remain in place as the Cypriot economy suffers the deepest recession in the history of the eurozone, it’s going to be very difficult to persuade Cypriot voters to accept the status quo.

The EU, then, should be thinking very hard about how it can bring Cyprus back into the European fold. There are as many differences between Cyprus and Ecuador as there are similarities — but still, Ecuador is a sobering reminder that rich, resource-hungry powers really can end up essentially taking over a nominally sovereign democratic nation. For many years, the EU looked down at emerging-market countries suffering major crises, with an attitude of “it could never happen here”. Well, we’ve now learned, the hard way, that big crises can happen in the EU. The lesson must surely be that nothing is unthinkable.


Clearly, Mr. Salmon here has not done all his economic reasearch and it’s sensationalizing the real influence of the Chinese in the country. The US, continues to be the largest trading partner of the country, followed by South American countries (as a group). In this light, China’s influence is limited. Furthermore, the government is very aware of the potential of giving too much influence to China and has given preference to multilateral institutions credits. In the case of Cyprus, there is already not only economic, but also heavy political Russian influence in the country, much more so than the Chinese have in Ecuador. BTW – I’m NOT a Correa supporter.

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Counterparties: Easter links

Ben Walsh
Mar 29, 2013 16:55 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.

Because even algorithms need a break, markets are closed today. We’re cutting straight to the good stuff: today’s somewhat truncated collection of links. We trust you’ll find additional ways to enjoy your Easter weekend. — Counterparties

Steve Cohen’s week gets worse: SAC fund manager arrested by the FBI – Bloomberg
SAC fund manager pleads not guilty; will be released on $3 million bond – WSJ
Did the SEC and the DOJ allow Steve Cohen to “buy off the US government”? – John Cassidy

Time magazine’s terrible and terribly cover on cancer – Seth Mnookin

New Normal
“The future that the bond market sees for America: a slack and depressed economy” – Brad DeLong

Long Reads
How Samsung became the biggest smartphone maker in the world – Businessweek

“Westeros Playbook: Mike Allyn’s must-read briefing on what’s driving the day in King’s Landing” – Free Beacon

A great, in-depth look at the intrinsic value of the US stock market – Aswath Damodaran

Interest rates for subsidized student loans are set to double unless Congress acts – AP

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

Counterparties: Breaking up is hard to do

Mar 28, 2013 21:46 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.

Simon Johnson has a rather startling claim in his NYT column today: “the decision to cap the size of the largest banks has been made. All that remains is to work out the details.”

It’s worth reading the entire piece, but Johnson makes a few key points about why the conversation about America’s big banks has changed. First, the world is beginning to learn from Cyprus, which, Peter Gumbel says, proves that Europe has entered a “brave new world where nobody is too big to fail.” This should have come as little surprise: the European Commission last year all but declared that taxpayers wouldn’t be put on the hook for bank rescues. In other words, Gumbel writes, European officials have made it clear that nothing like this will ever happen again:

The Commission has calculated that between October 2008 and October 2011, it approved a staggering $5.75 trillion, the equivalent of 37% of the EU’s GDP, in state aid measures to financial institutions. Of that, about $2.05 trillion was actually used between 2008 and 2010, as banks in countries from Ireland to Greece teetered on the brink of collapse and had to be rescued.

In America, Johnson says, a similar change is happening: “Opinion on Capitol Hill has now moved in a way that will continue to reinforce itself.” Ben Bernanke told Congress earlier this month that too big to fail is “still here” — though Bernanke also said policy on this is “moving in the right direction”. The break-up-the-big-banks crowd now includes liberals, conservativesex-bankers, and Mormons. Last week, the Senate unanimously passed a non-binding (and possibly entirely symbolic) amendment that would end any market subsidy for banks with over $500 billion assets. A bipartisan too-big-to-fail bill from Senators Sherrod Brown and David Vitter is currently being written, Johnson says.

So what could actually happen in Congress? Not much, says Ben White: “There is virtually no chance any significant piece of legislation will pass Congress that would meaningfully reduce the size of the nation’s biggest banks or restrict their activities.” But, as one industry source told the American Banker, it may not take a single bill to break up America’s banking giants: “I just think they will make it so damn hard, burdensome and expensive to be big, eventually some may decide it’s not worth it.” — Ryan McCarthy

On to today’s links:

EU Mess
Cypriot banks gorged on Greek bonds yet somehow passed EU stress tests – WSJ
“The last thing the Eurozone needs right now is uninsured depositors thinking hard about the prudence of their investments” – Pawel Morski
Austerity is threatening Europe’s envied infrastructure – Reuters
Pictures of lonely, expectant journalists waiting for a Cypriot bank run that isn’t happening – New Statesman

New Normal
What the “sharing economy” means to Wal-Mart: you work for them, for free – Reuters
How the food-stamp program evolved to become a “more permanent feature” of the US economic landscape – WSJ
Is job polarization holding back the labor market? – Liberty Street Economics
Student loan default rates are so high, the Department of Education’s collection system can’t keep up – CNBC

Gamblers bet twice as much money on the NCAA Tournament as the Super Bowl – NYT
It costs more to live near a stadium of an elite Major League Baseball team – Trulia
The top four zip codes for credit card complaints are on the Upper West Side and South Florida – Bloomberg

The internet apocalypse, a story manufactured by an internet security company – Sam Biddle

“Access to clean drinking water and sanitation”, and 9 other tips to improve your startup success – Anil Dash

Real Talk
The biggest threat to national security: wars – Spencer Ackerman

Says Science
Like journalists, gang members’ main online activities are “self-promotion and braggadocio” – BetaBeat

The Yale Model of endowment investing is past its prime – Pragmatic Capitalism

Missed Opportunities
Salman Rushdie, Julian Schnabel, and Lou Reed were asked to appear together in Talladega Nights – The Talks

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

How helium is like mortgages

Felix Salmon
Mar 28, 2013 21:32 UTC

John Kemp might just have delivered the perfect John Kemp column yesterday: 1,700 words on an obscure commodity you probably didn’t even realize was a commodity. In this case, it’s a noble gas: the Federal Helium Reserve (yes, there’s a Federal Helium Reserve) is at risk of imminent shutdown, which in turn threatens everything from the semiconductor industry to MRI scanners. Already, at least one particle accelerator had to delay operations “because of problems obtaining fresh supplies of helium.”

Kemp’s column is based in large part on a 17-page GAO report which includes this chart, showing the seemingly inexorable rise in the price of refined helium. (Another thing you didn’t know: helium comes in both “crude” and “grade A refined” versions.)


As you can see from the chart, the problem here isn’t finding crude helium, so much as it is refining the stuff into something usable. Reports Kemp:

Problems at helium refineries in Texas, Oklahoma and Kansas, as well as start up delays with new refining facilities in Qatar in 2006, led to shortages and rationing, as well as price spikes for some customers.

Reliable and affordable supplies are essential. But around half of the helium used in the United States, and roughly a third of the gas consumed worldwide, is sourced from a stockpile in northern Texas left over from the Cold War.

At the moment, the only way that helium can be sold from that stockpile is in order to pay down the debt which was run up in 1960 building the Texas facility. But thanks in large part to the soaring helium price, there’s virtually none of that debt left — and when it’s all gone, the government can’t sell any helium any more. As a result, it’s pretty urgent that Congress put in place some kind of mechanism to keep the sales going. The alternative would be devastating to many industries including the medical profession.

It also turns out that the US government’s role in the helium market is not dissimilar, in some ways, from its role in the mortgage market. Here’s Kemp:

The cost-recovery pricing formula ensured BLM was originally charging much more for its helium than other suppliers, minimizing the market impact.

But BLM has become such an enormous seller, in a market with few other competitors and substantial barriers to entry, that other suppliers have taken it as a benchmark, and moved their own prices higher to match it.

Essentially, when you’re the US government and you’re a major participant in a market, you can’t help but become the marginal price-setter. Whatever Frannie pays for mortgages becomes the market price for mortgages; whatever the government asks for helium becomes the market price for helium.

In both markets, the government wants out and wants the private sector to take over. But in both markets, the process of disentangling the government from the market is extremely difficult, because it can’t just shut down its operations and leave the market to its own devices.

Because Congress has left the helium problem to the last possible minute, it’s unlikely they’re going to be able to come up with an elegant solution here. Instead, they’ll just kick the can down the road by allowing the stockpile to continue to sell helium for another year or so. But over that time, someone is going to have to work out how to extricate the US government from the global helium market. If and when that happens, I hope that mortgage-minded legislators are paying attention. Because it’s long past time that the government stopped underwriting the vast majority of home loans in this country, and they could use all the ideas they can find.


This article is wrong (in a nice way to Mr. Salmon). The price for Grade A helium is FAR ABOVE what is shown on Figure 2. The obscure nature of the VALUE of helium makes it easy for companies to shroud the actual price they’re getting. The U.S. Government is literally giving away helium to the refiners along the BLM pipeline and they, in turn, are making a veritable fortune.

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Counterparties: Cyprus births controls

Ben Walsh
Mar 27, 2013 22:46 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.

Today, Cyprus announced it will impose capital controls restricting where, when, and how depositors can access and use their money. Here are some of the things depositors won’t be able to do when the banks open in Cyprus tomorrow:

  • cash a check
  • withdraw more than €300 a day
  • take more than €3000 in cash per person in any currency out of the country
  • purchase more than €5000 in foreign goods and services with a credit card each month
  • Make non-cash payments outside Cyprus without documentation showing they are paying for imports

These restrictions are intended to last for seven days, but Hugo Dixon doubts they’ll be that short-lived. In Iceland, capital controls have been in effect for seven years, and will stay in place for at least another two.

We’ll know for sure what an economy under these restrictions looks like when banks open tomorrow for the first time in ten days, but it’s pretty far from a modern, functioning economy. As far as the euro goes, David Keohane says the clear-headed thing: capital controls obviously “make a mockery of the idea of a currency union”.

Cardiff Garcia looks at at a meta-study on capital controls and finds that only once — in Malaysia — were they effective. In that case, the controls were “accompanied by aggressive counter-cyclical spending, bans on short-selling the currency and trading it offshore, and defending the ringgit against speculators by fixing it to the dollar”. Those things aren’t happening in Cyprus and won’t be.

Paul Krugman thinks the only way forward for Cyprus is a euro exit. Unfortunately for its citizens and economy, he doesn’t think it will come anytime soon.

All of which means that in Cyprus, a cash-stuffed mattress is once again the ultimate safety net. — Ben Walsh

On to today’s links:

EU Mess
Cyprus’s economy could shrink by as much as 20% from 2013-2015 – Institute for International Finance
Greece’s growth forecasts are again looking too rosy – FT Alphaville

Real Talk
Why a country is not a household: “The fed is much better off when it is short on cash” – Helaine Olen

At least eight federal agencies are investigating JP Morgan – DealBook

How the London Whale trade could have been stopped: Liquidity provisions – Rhymes With Cars & Girls
Global banking’s post-crisis legal tab will soon surpass $100 billion – WSJ

Talking Your Book
High-speed trading totally fine, says Columbia researcher financed by high-speed trading firm – HuffPo

Long Reads
“What are foundations for?” – Rob Reich

Tough Choices
Faster smartphones, or better battery life? – Farhad Manjoo

For the Record
Wells Fargo: The Harlem Shake is inconsistent with our image – Channel 11, Atlanta

Fiscally Speaking
Gay marriage could save the Federal government $450 million a year – Josh Barro

Says Science
Organic food extends the lifespan and fertility of the fruit flies – Atlantic

Negative Indicators
Companies that favor bullish analysts on earnings calls are more likely to restate earnings – WSJ

“Syncing to paper is no more complicated than it sounds” – Robert Grerner

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


in Italy from this year on banks will report to fiscal authorities every year for every client all bank account and title deposit movements and also the number and date of accessess to safety-deposit boxes. I’d say everything is in place for the next step.

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Paywalls rise

Felix Salmon
Mar 27, 2013 15:56 UTC

It’s paywall season right now: the Washington Post, the San Francisco Chronicle, the Telegraph, the Sun — all have recently announced plans to erect paywalls in an attempt to extract subscription revenues from their most loyal online readers. And other paywalls are being tweaked: the NYT paywall is getting less porous, while Andrew Sullivan’s is being tightened up, with a new $2/month option to complement the existing $20/year price point.

The trend here is clear. There is now only one major US newspaper without a paywall of some description, although others have free spin-off sites, like Boston.com or SFGate.com, which act a bit like the outside-the-paywall content on other sites.

There are three big drivers of these decisions. The first is that there’s no hope that online ad revenues will ever grow to replace print ad revenues. They’re barely growing any more, even as they’re still only a small fraction of total ad revenues. The second is that for various reasons, newspapers need to “cling to the mantle of quality at near insane costs”, as Sarah Lacy puts it. If costs are stubbornly high while revenues are shrinking, then the only possible solution is to try to raise new revenues by any means necessary — or go bust.

Finally, there’s the behavioral aspect: newspapers in general, and the NYT in particular, are quite deliberately habituating readers to the idea of paying for content. This was an obvious strategy even before most of the paywalls launched, back in 2010: first get people used to the idea of paying at all, and then, slowly, raise the amount that you ask them to pay over time.

There are an infinite number of points on the spectrum between tip jar and paywall, but there does seem to be a clear move to the right over time, towards less porous and more expensive paywalls. Some paywalls, like the FT’s, are what you might call Metropolitan Museum paywalls, porous in name only. While in theory the FT works on a meter system, giving people a certain number of free articles before asking them to pay, in practice if you want to read an FT article you’re going to be asked to pay — even, annoyingly, if you’re already a subscriber. (I would dearly love a subscription which authenticates based on device rather than on an easy-to-forget and hard-to-enter username/password combo: can’t the FT just see that it’s my phone accessing the site, and let me read anything I want if I’m a subscriber?)

And in general, the more you’re asking for, the more coercive you need to be. At a buck or two a month, loyal readers are happy to support you. At $15 or $20 per month, you need to break out the sticks as well as the carrots.

One of the problems with paywalls is that everybody wants their paywall to be simple and transparent and easy for everybody to understand. But if you do that, you can’t A/B test; you can’t work out empirically what the optimum price is or what the best place to set the meter is. Which is where the raft of different paywalls out there comes in handy.

Here’s my prediction: At some point, the industry is going to informally settle on a single management-consultancy company to ask for paywall advice from. Everybody’s going to use the same company, with the result that the consultancy in question is going to see real internal figures from lots of different newspaper publishers, with lots of different models. The consultancy will then — for a price — tell its clients what “best practice” is in the industry, which is code for “this is the way that the most successful newspapers are doing it”. No one site can easily do A/B testing on its own. But put them all together in the head of a well-connected management consultant, and it becomes much easier to see what’s working and what isn’t.

But all of the paywalls and consultants in the world won’t change the fact that the amount of information freely available on the internet continues to grow very fast, and that the number of people willing to pay for any kind of news online is always going to be a small fraction of the total online news-reading population. As Lacy says, there’s an exciting future for online news — even if the prospects for legacy-burdened newspapers are dim. The paywalls might help with newspapers’ finances. But they’re certainly not going to help make them any more relevant.


The internet is the world’s library, and soon every word ever written and every image ever captured will be within a few keystrokes of everyone’s grasp.

Businesses that wish to build pay to watch peepshows in the dark corners and little used hallways of this library are welcome to try, but I’ll wager a thousand to one on those that will vote against that plan with a simple click of the back button.

Don’t go behind a paywall Felix, or if you do we’ll miss you.

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Counterparties: Kicking the kickback habit

Mar 26, 2013 22:23 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.

The FHFA today announced that it might finally do something about the force-placed insurance industry, a particularly lucrative — and scandalous — corner of the mortgage industry.

Jeff Horwitz, who has been leading on this story since 2010, says that the long-overdue move is a “blow to banks and other mortgage servicers.”

Horwitz’s original report explains what the problem is: mortgage servicers foist overly expensive and unnecessary insurance policy on homeowners. When a homeowner lets their property’s insurance policy expire, the mortgage servicer can step in and buy a policy on the homeowner’s behalf. This is meant to protect both homeowner and the lender, but it quickly becomes egregious: homeowners were often stuck with insurance that cost 10 times more than their previous policies. In turn, mortgage companies made millions for referring homeowners toward specific insurance companies.

FHFA’s proposal is pretty simple: it bans the kind of payments between insurance companies and mortgage servicers that Horwitz likened to “simple kickbacks”. Not surprisingly, pushing homeowners into pricy policies they didn’t need was very profitable. JP Morgan reportedly made $600 million since 2006 through its relationship with Assurant, one of the largest force-placed insurance companies. One report found that 15% of force-placed premiums go straight back to banks.

The crackdown on kickbacks is also a long time coming. FHFA, the Fannie Mae and Freddie Mac regulator run by the widely criticized Ed DeMarco, privately announced to industry execs in February that the agency had killed a force-placed insurance reform that would have saved taxpayers at least $145 million annually.

As Karen Weise notes, FHFA is also lagging states. Last week New York announced a $14 million penalty and settlement with Assurant. This follows actions by a handful of state actions, including by Florida and California.

Assurant, meanwhile, told the WSJ it’s premature to speculate about the effect of FHFA’s proposals. In some sense, Assurant is right: its stock was actually up today — to a new post-crisis high — and the public is now free to comment on the proposal, as are Assurant’s lobbyists. The industry that has received many millions in kickbacks for overcharging homeowners will now have 60 days to comment on how it feels about losing out on those kickbacks. — Ryan McCarthy

On to today’s links:

TurboTax is fighting to keep simple, free tax filing from becoming a reality – Liz Day

Data Points
A majority of Americans, and 70% born after 1981, support gay marriage – Ezra Klein

Nasdaq is paying $62 million to market makers who lost $500 million in Facebook’s IPO – Reuters

Welcome to Adulthood
Almost half of all college grads are underemployed — and likely to stay that way – WSJ

Tax Arcana
Tax havens are the biggest source of foreign investment in the BRICS – Quartz

The second-largest pension fund in the US may switch entirely to passive investing – Investment News
“Don’t do it CalPERS! If you’re not allocating capital to its most productive uses, who is?” – Matt Levine
Steve Cohen bought a Picasso for $155 million “as a gift to himself” – NY Post

Another great housing report: Home prices up 8.1% over last year, Phoenix up 23% – S&P
“All 20 cities posted annual increases in January, as New York ended a string of annual declines” – WSJ

“It’s not a question of whether these things should or shouldn’t be traded… It’s simply that they cannot be” Noah Smith

“Money has always been whatever society agrees on” – Armstrong Economics

Sad Declines
My tweets! The hashtags do nothing! – Nieman Lab

Almost half of surveyed US workers haven’t noticed the higher taxes they’re paying – WSJ

Real Talk
Repeat after me: “A country is not a company” – HBR

Buzz Bissinger spent $587,412.97 on clothes in three years – GQ

Crisis Retro
FYI: Hiring Dick Fuld “might attract negative publicity” – WSJ

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


Why do you link to WSJ stories behind its paywall? The last thing I’m going to do is contribute to Murdoch’s revenue stream (particularly after what he’s done to THAT paper).

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Counterparties: Dude, you’re getting a bidding war

Mar 25, 2013 21:27 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.

Dell might not be Michael Dell’s much longer. Dell has teamed with private-equity firm Silver Lake to buy the company he founded for $13.65 per share, or $24.4 billion — but now Blackstone and Carl Icahn have each submitted rival bids. Those bids are both worth slightly less than $15 a share, the WSJ reports. If either is successful, Michael Dell is likely to find himself far less powerful at his own company — or even out of a job entirely.

The WSJ’s David Benoit has a great side-by-side comparison of the three competing offers, and breaks out six different scenarios for a deal to be done.

Under a “go-shop” provision in the initial deal, Dell’s board was allowed to freely seek competing offers; in fact, the board owes a fiduciary duty to Dell shareholders to get the best deal possible. Steven Davidoff notes the Dell board can only keep talking to the rival bidders if they “conclude after consultation with outside counsel and its financial advisers that one offer, or both, could reasonably be expected to result in a superior proposal”.

According to Reuters’ Jessica Toonkel and Greg Roumeliotis, Dell’s board thinks the new bids might indeed be superior to Michael Dell’s. It’s unclear whether leaking that view to the media was intended to provoke an improved bid from the founder.

When it comes to putting a price on Dell, Roben Farzad points out one wild card: the company’s 3,449 patents (with another 1,660 pending). Those patents are surely worth something, but as patent expert David Pratt says, their value “is often misunderstood and difficult to price”. Which is surely catnip to the hundreds of bankers and lawyers advising three private equity firms, a corporate board, and Michael Dell himself. – Ben Walsh

On to today’s links:

Who wants to break up big banks? The Senate apparently – Suzy Khimm

EU Mess
Why the Cyprus crisis isn’t over yet – Felix
“I call this Cyprus leaving the euro but keeping the word “euro” to save face” – Tyler Cowen
After Cyprus, the “unrestricted movement of capital is looking more and more like a failed experiment” – Krugman
“Do capital controls make a mockery of the concept of a currency union? Yes, obviously” – Joseph Coterill
The Dutch financial minister commits a Kinsley gaffe about Cyprus – Tim Fernholz
“As soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too” – FT

Cash buyers (read: mostly investors) account for about one-third of all U.S. homes sales – WSJ
The connection between single-family housing starts and the unemployment rate – Calculated Risk

Popular Myths
Why meritocracy is a terrible idea – Matt Yglesias
Please remember that the benefits of college aren’t entirely economic – Evan Soltas

The Fed
Bernanke: Don’t worry about currency wars – Calculated Risk

The sell-side research industry is maybe, possibly worrying about Twitter – Joe Weisenthal

Right On
A blacklist of business jargon – Bryan Garner

New Normal
One of the fastest growing unions in the US doesn’t negotiate wages, but it does provide healthcare – NYT

Punditry in financial media, in one hilarious screenshot – Floating Path

Crisis Retro
Employees at Bear Stearns and Lehman also made really bad personal mortgage decisions – WSJ

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