Felix Salmon

The total amount of gold in the world, according to Thomson Reuters, is 171,300 metric tonnes, or 5.5 billion troy ounces. What that means is that every time the price of gold falls by $100 an ounce, as it did on Friday and it has done again today, the value of the world’s gold falls by more than $500 billion.

That doesn’t mean investors have lost $1 trillion in the space of two trading days. Some gold is used in industry or jewelry, and there’s a huge amount in central banks, which don’t mark to market and therefore aren’t really investors as we normally understand the term. Still, with a “market capitalization” at the end of 2012 of about $9 trillion, the gold market is not much smaller than the NYSE, is twice the size of the Nasdaq, and is almost three times the size of the Tokyo and London stock exchanges.

As a result, the falling price of gold is more important than simply being an opportunity for schadenfreude around the likes of Glenn Beck or John Paulson or Zero Hedge. At the end of 2012, for instance, Paulson owned 21.8 million shares of GLD. Those have sunk some 19%, or $30 per share, since then — a total loss of more than $650 million, for Paulson and his investors. But that’s just a drop in the bucket compared to the $1.6 trillion wiped off the value of gold more generally during the same period.

To put that number in context, the NYSE has risen 6.6% since the end of 2012, a rise in value of some $930 billion. Which means that the value of gold has been falling faster than the value of stocks has been rising. But gold is held in much more concentrated hands: most people have very little exposure to it, while a relatively small number of investors have huge allocations. As a result, the wealth effect from the fall in gold prices is likely to be felt quite acutely.

Gold is the classic zero-coupon perpetual bond: an asset whose industrial value is a tiny fraction of its cash value, and which represents, as Joe Weisenthal says, a costly failure of markets to efficiently allocate capital to where it is best invested. Goldbugs are by their nature defeatist and pessimistic; get enough of them together at the same time and they become self-fulfilling. (That’s why they tend to be so evangelical about their beliefs.)

So what does the fall of the gold price mean for the rest of us? The first thing to worry about is the wealth effect: if people have suddenly lost a trillion dollars, does that mean they’re going to spend less, and hurt the broader economy as a result?

I doubt that, somehow. About 2,500 tonnes of gold is tied up in gold ETFs. That’s about 80 million ounces, which translates to investor losses of about $16 billion in the past couple of days. On top of that, there have probably been about $3 billion of losses in the futures market. Those numbers — a proxy for the gold positions which are marked to market regularly — are relatively modest: they’re much smaller than the $100 billion or so that has been wiped off the valuation of Apple this year alone.

What’s more, very few investors have leveraged positions in gold, and when asset bubbles burst, it’s normally the leverage, more than the bursting bubble itself, which does the most damage.

Still, there will be pain — pain which is necessary to break the gold fever. It’s important that goldbugs are seen to not only have silly beliefs, but also to have lost a substantial amount of money. Gold is a fear trade rather than a greed trade — it’s defensive, and defensive investors are always particularly loss-averse. If you lose money betting on high-flying tech stocks, that’s much more likely to be money you can afford to lose than if you lose money after putting your life savings into precious metals. (Silver, as befits its status as the “B” share of gold, is also being hit badly today.)

The biggest problem in the markets right now is that they’re still far too risk-averse. Fear-based assets like gold, Treasury bonds, and cash are in high demand, while there isn’t enough money flowing through greed-based assets like stocks and bank loans and into the economy as a whole. Even if the stock market is expensive, the number of primary and secondary offerings remains low; similarly, banks are not expanding their loan books nearly fast enough.

What the system needs, then, is a stark reminder that fear-based assets can be just as risky as greed-based assets. Rising interest rates can eat away the value of your bond portfolio, inflation can erode your cash, and as for gold (or bitcoins, for that matter), well, it can plunge in value literally overnight.

My hope is that the price of gold will continue to fall, that goldbugs will look increasingly silly, and that as a result Americans with savings will conclude that the best thing to do with those savings is to put them to work in a productive manner, rather than self-defeatingly trying to protect what they have.

At the end of the 1990s, and again in the mid-2000s, we had greed bubbles. Both those bubbles burst, and the weird result was a fear bubble, which manifested itself in negative risk-free real interest rates and a soaring price of gold. Let’s hope that what we’re seeing right now is the fear bubble bursting. It’s what the world needs.

Jay Rosen asks, reasonably, that people start drawing useful distinctions between buzzy terms like content marketing, sponsored content, native advertising, and even brand journalism. Here’s my stab at it:

None of these distinctions is hard and fast, of course, but at least it’s a start; basically, it all comes down to who writes the content in question.

Was the material written by a professional journalist, writing a piece for an editorial outlet? In that case, any advertising message embedded within it falls pretty squarely into the realm of public relations. But what happens when the publication in question syndicates that content for use on some brand’s website? In that event, it becomes content marketing: independently-produced material, repurposed by the brand in question.

On the other hand, was the material commissioned by the brand itself, rather than any editor? In that case, it’s sponsored content. It might be written by a group on the ad-sales side of the publisher; such groups have existed for as long as there have been advertorials. Or it might be written by some group within the brand’s ad agency. The distinction between sponsored content and native advertising is a bit squishy, but it you do need to make a distinction, then I’d say that sponsored content is material designed simply to convey information to the readership of the publication in question, while native content tends to aspire more to going viral, and being actively shared by that readership.

Of course, if a brand takes that sponsored content and simply puts it up on its own website, then it’s just marketing. But it doesn’t necessarily make sense to think of all brand-produced content, on brand-produced sites, as marketing. Look at Sun, for instance, which as far back as 2006 was encouraging all of its employees, up to and including the CEO, to blog. We’ve moved on from there: instead of blogging at their own websites, executives more commonly express themselves on Twitter or Facebook or LinkedIn. But however it’s done, if you’re not paying a publisher for the privilege of expressing your own opinion, I’ve put you in the bottom right-hand corner under the broad rubric of “blogging”.

Which leaves the top-right corner, probably the fuzziest part of the matrix. Sometimes, sponsored content is written by real executives, rather than by people in the marketing or PR departments, and when that happens it feels a little bloggier. And at other times, of course, executives manage to get op-eds published and don’t need to buy any kind of sponsorship product at all. If “brand journalism” means anything, it’s probably this: brand executives doing something which feels a lot like opinion journalism, whether they’re paying for the privilege or not.

And really, trying to draw these distinctions is always going to be a bit silly and futile. Ultimately, they’re all different flavors of the same thing: attempts by companies to get consumers to read things which the company in question, or its executives, wants those consumers to read. There are lots of different ways of trying to skin that particular cat, and none of them is easy. In fact, trying to get consumers to read anything at all, in a world where those consumers are faced with almost infinite choices, has never been harder.

That’s why Twitter and Facebook have multi-billion-dollar valuations: they’ve created an experience where people consume a stream of content, rather than looking for something in particular. And it’s much easier to drop your message into a stream which people are reading anyway than it is to try to persuade those people to stop what they’re doing elsewhere and read your message instead.

The term mainstream media, then, if it wants to compete in a world where ads are going increasingly native, is going to have to become the mainly streams media. (Sorry. I couldn’t resist.) Look at the best native ads out there, from 30-second TV narratives to long-copy print ads: they are native to the form, yes, but they also live within linearly-consumed streams. We sit back and watch the TV, watching ads along the way; we leaf through the newspaper from front to back, grazing as we go, and reading whatever catches our eye.

If native is really going to take off online, it’s going to do so by appearing in the streams we want to immerse ourselves into anyway, whether they’re the Facebook News Feed or the magazine-style format of Flipboard. It might even work for individual publishers, if they can build attractive enough streams of their own. But I’m not holding my breath.

The NYT and American Banker have both published detailed articles on Gene Ludwig and Promontory, with the former getting the most eyebrow-raising datapoint: never mind his $11.5 million Washington estate, Ludwig is paying himself “more than $30 million annually, making him better paid than top executives at many big banks”.

In fact, $30 million a year makes Gene Ludwig better paid than any executive at any bank: to put that number in context, JP Morgan’s Jamie Dimon was paid $11.5 million last year, down from $23 million in 2011, while Goldman Sachs’s Lloyd Blankfein made $21 million in 2012. Those men run huge international banks with tens of thousands of employees and balance sheets which are properly calculated in the trillions; Ludwig, by contrast, basically just runs an advisory shop with no balance sheet to speak of at all.

Promontory is proof positive, then, of just how lucrative the revolving-door business can be. The company is full of lavishly-paid former regulators, hiring themselves out at $1,500 an hour to banks desperate for advice on how to navigate Washington’s regulatory thicket.

But what really strikes me about Promontory is how unique it is. It’s carved out its bank-regulation niche and it dominates it to the exclusion of any other shop: you really don’t find McKinsey, say, doing this kind of work. Essentially, Promontory has a monopoly on what it does, and can charge anything it likes, in the knowledge that no big bank can risk missing out on the institutional knowledge of current regulatory policy that’s embedded there.

It’s not just Promontory’s regulatory-advice arm which has an effective monopoly. There’s also Promontory Interfinancial Network, which I wrote about in 2010; since then, the CDARS product has been augmented with something similar, called Insured Cash Sweep. Both of these are pure regulatory arbitrage, designed to circumvent the legal $250,000 limit on deposit insurance. And again, Promontory is the only company which offers such things.*

There’s no doubt that Promontory’s monopoly on such services is related to its unrivaled connections to the US regulatory apparatus. Banks hire Promontory for two main reasons. The first is that its staff of former regulators can tell banks, in a friendly rather than adversarial way, exactly what existing regulators are likely to do in certain situations. (And because Promontory sees regulatory responses much more frequently than any individual bank does, it is much more sensitive to which way the wind is blowing.) The second is that, as the NYT puts it, “the firm acts as an advocate for banks, helping draft letters that challenge crucial rules and discussing reforms with regulators”. Regulators are more likely to trust their former colleagues than they are the banks they’re trying to regulate, and by hiring Promontory, banks can co-opt those former regulators and use them to to effectively work the refs.

During the financial crisis, America’s former bank regulator in chief, Alan Greenspan, was shocked to discover that for-profit banks were actually very bad at regulating themselves. And one key lesson from the crisis, which was learned the world over, is that banks can’t be left to their own devices, as Greenspan and Rubin and Summers — the famous Committee to Save the World — thought in the 90s that they could be.

That’s why Promontory worries me: it represents the privatization of regulation, and the almost literal capture of regulators by the banks. Sure, those regulators are former regulators rather than current ones. But Promontory isn’t just relied upon by banks; it’s increasingly relied upon by regulators, too — it has become a trusted interlocutor for regulators in the way that the banks themselves never could be. Indeed, it’s probably fair to say that regulators have started to effectively outsource some part of their role to the private sector, here, in much the same way as the Department of Defense is outsourcing chunks of its own role to Blackwater. But at least Blackwater is paid by the DOD, rather than by the DOD’s adversaries.

The result is that the discourse around and between regulators and bankers is becoming less adversarial, at exactly the point at which it should be getting more adversarial. There is such a thing as too much regulation, and there is such a thing as an overly aggressive regulator. But our current system is nowhere near that point: instead, it continues to err on the side of leniency and toothlessness, egged on all the while by Promontory.

All of which is to say that Promontory itself, I think, is in need of regulation at this point. It has not registered as a lobbyist since 2009, but it is surely more influential than any lobbyist. When the man in charge of Promontory is making substantially more money than any banker, that’s a strong hint that Promontory is helping its clients to extract billions of dollars of value from somewhere. We should be asking ourselves exactly where that value is coming from. And who might be paying the cost.

*Update: Promontory is by far the biggest company in this space, but it’s not the only one. From a 2010 American Banker article:

Promontory is not the first company to come up with a private-sector solution for continuing the blanket coverage. At least four firms offer similar products: Anova Financial Corp. of North Carolina; Total Bank Solutions of Hackensack, N.J., which has partnered with Deutsche Bank on a service; Institutional Deposits Corp. of Miami; and Intrasweep of New York.

This is a chart of the value of bitcoin yesterday, Wednesday. It’s hardly a secret that bitcoins are a highly volatile asset class, so relatively few eyebrows were raised when the price soared from an opening level of $230 all the way to a high of $266. An intraday swing of more than 15% is pretty much par for the bitcoin course, these days. But then came the crash: within a few hours, bitcoins the world over had lost well over half their value, and were trading as low as $107 apiece. That’s not normal — and it just goes to underline how bad bitcoin is at doing everything it’s meant to do.

Bitcoin is clearly not an effective store of wealth — just look at how quickly that wealth can be evaporated. Neither is it a useful payments mechanism, given how fast its value can fluctuate. Currently, it can take an hour for a bitcoin transaction to clear, which means that the value of the transaction when it clears can be radically different from its value at inception. Bitcoin only works for payments if you can be reasonably sure that its value will remain reasonably steady for at least the next hour or so.

At the end of my big piece on bitcoin, I conclude that we need “a universal payments system with no friction or interchange costs”, which can learn from bitcoin’s mistakes. And this morning, the company responsible for one possible such system — OpenCoin, which is responsible for developing Ripple — announced that it has closed its angel funding round, with support from the likes of Andreessen Horowitz, Lightspeed, and Founders Fund.

I’ve been playing around a bit with Ripple, and I think it’s extremely promising. It’s very early days yet, but Ripple already has clear advantages over bitcoin, and if various merchants and developers start to converge on the Ripple ecosystem — which, like bitcoin, is all open-source — then I think it could genuinely become the first real way for anybody in the world to pay anybody else in the world, immediately and about as frictionlessly as possible.

Ripple was founded by geeks, including Prosper founder Chris Larsen and Mt Gox’s Jed McCaleb. As a result, right now it has a bit too much functionality with too little ease of use. It supports an effectively infinite number of different currencies, for instance, including bitcoin; and although it’s easier to use than bitcoin, it’s still not particularly user-friendly. But that will come, with time — and in fact I would be happier if the people developing the easy-to-use front ends for Ripple were not OpenCoin. OpenCoin is a for-profit company, which will make good money if Ripple takes off; I’ll come to that bit in a minute. So it’s very important that a lot of the rest of the Ripple ecosystem not be built by OpenCoin: so long as OpenCoin is the only company to really buy into Ripple, the whole scheme will go nowhere.

Ripple has a lot of resources on its website which explain how it works in various levels of detail; I won’t attempt to duplicate that effort. But the end result feels a bit like bitcoin in many ways. Users are anonymous (or, technically, pseudonymous), for instance: if you want to send me money via Ripple, right now you have to pay racoLWuh2GtC72i1gV7ib14Jqgx3SLmwKc rather than just Felix, or my email address, or my Twitter handle. It’s all open-source, too: OpenCoin has no privileged access to the way in which people pay each other. The fees are de minimis, just enough to prevent DDoS attacks and the like. There’s even a built-in crypto-currency, the Ripple, with a fixed money supply. But the great thing about the Ripple system is that individuals don’t have to pay each other in Ripples. Instead, they can pay each other in pretty much any currency in the world: Ripples, yes, or dollars, or yen, or euros, or even bitcoins.

Here, for instance, is a screenshot of my Ripple wallet: it shows that I own, 3,052 Ripples, 13 dollars, and 0.0284 bitcoins. If I want to send a payment in any one of those three currencies, I can do so pretty much cost-free; if I want to send a payment in some other currency, then the system will select for me the best exchange rate, based on various companies which are offering currency-conversion services on the Ripple platform.

Any time you deal in currencies other than Ripples — which, in practice, is going to be all of the time — you have to go through “gateways” to the Ripple system. Eventually, those gateways could be PayPal, or Citibank, or Western Union, but that might take a while; for the time being, they’re smaller institutions, and you probably don’t want to be moving large amounts of money through them.

Everybody using a Ripple account will have some Ripples in their account, just to get them on the system, and there will always be people making a market, converting Ripples to real currency and back again. The good news, however, is that Ripples are not (fingers crossed) going to become speculative investment vehicles, in the way that bitcoins are. That’s because all the Ripples in existence — 100 billion of them — have already been created, and, to a first approximation, they’re all owned by OpenCoin, which is essentially the central bank of the Ripple economy. OpenCoin is going to be giving away billions of Ripples for free, to anybody opening an account, just to get the system seeded and get people transacting with each other. There’s little reason to hoard a few thousand Ripples if there are 100 billion of them just waiting to flood the market at any time.

It’s in OpenCoin’s interest, then, to carefully calibrate the rate at which it’s introducing Ripples into the active money supply, and to keep the value of a Ripple relatively stable. Right now, there are about 750 Ripples to the dollar, which means that theoretically OpenCoin’s 100 billion Ripples are worth something over $100 million. OpenCoin is going to want to see that number rise, slowly, as Ripple becomes more popular — but it doesn’t want to encourage hoarding: quite the opposite. It wants as many transactions to happen over its network as possible, so that it can really become, in Larsen’s words, “http for money”.

Given the Andreessen Horowitz connection, and a lot of shared interests between the two companies, the first place I’ll be looking for third-party ratification of the Ripple idea is the hot payments startup Stripe. I’ve had long conversations with Stripe CEO Patrick Collison about bitcoin and international payments and frictionlessness, and in theory there’s no reason why he shouldn’t build a pay-with-Ripple option into Stripe alongside its more conventional credit-card and debit-card payments.

As with all such things, there’s a first-mover problem here: there’s no point in building Ripple-based infrastructure if no one is using Ripple, and no one’s going to use Ripple if there isn’t any infrastructure. OpenCoin’s solution to the problem, which I like a lot, is to simply give away billions of Ripples for free, all of which are worth real money, thereby giving people an incentive to use it. I hope it works, and I hope that the number of gateways into the system will soon expand from the current list of relatively obscure sites like Bitstamp. Ripple hasn’t succeeded yet. But at least — unlike bitcoin — it has a genuine hope of doing so.

Megan Greene has a great column on Cyprus and the euro today. In short, there are costs and benefits to leaving the euro — but the costs are going to be borne anyway, which means that at the margin, devaluation is likely to be good for the country.

Among the greatest costs of any euro-area exit would be bank defaults on their liabilities, capital controls and a sovereign default. Cyprus has already experienced the first two and will most likely see the latter in the next year or two if it stays in the euro area.

So if Cyprus is going to incur some of the worst costs of abandoning the euro anyhow, it might as well print its own currency and benefit from a devaluation and the immediate boost in competitiveness that would follow.

This is perfectly logical. But — you knew there was going to be a but — there are two big complications.

Firstly, leaving the euro is an expensive proposition, and Cyprus doesn’t have any money: it’s already selling off its gold reserves to help recapitalize its banks. Cyprus would be insolvent, with massive new debts to the ECB; it would also have massive liquidity problems, with no obvious way of paying for the enormous quantities of foreign imports all island nations require. As a result, there’s only one way for Cyprus to exit and devalue without risking power cuts, food shortages, and general chaos: it would need to borrow even more money than it has done already. Which is not going to be easy, given that the rest of the world has made it very clear that it’s pretty much maxed out, in terms of loans to Cyprus.

How could Cyprus persuade the EU and the IMF to lend it the extra money it would need for a semi-orderly devaluation? Threatening default wouldn’t work, since it’s basically impossible for Cyprus to devalue without defaulting. Alternatively it could threaten to run into the arms of Russia, but that would be a very high-risk strategy indeed.

And then there’s the other big complication: while a Cypriot exit would probably be good for Cyprus, it would be very bad for the rest of the eurozone, since it would be a clear precedent showing that exiting the euro is possible after all. The result would be further capital flight from the eurozone periphery towards the center, and a general feeling that the multi-year project of trying to remove tail risk from the euro had failed spectacularly. There’s no way that any country leaving the euro could possibly be good for the rest of the currency union — even if that country were as small as Cyprus.

Greene’s conclusion, then, is absolutely right: if the troika won’t help Cyprus exit the euro — and there’s absolutely no indication that it will — then “Cypriots really are stuck”. The government would have no recourse, at that point. Individual citizens, on the other hand, could still take advantage of the relatively free labor mobility within the EU, and move to another European country where prospects are brighter.

Is that likely? Even within countries, people in poorer areas (the north of England, the south of Italy, the east of Germany) rarely move en masse to richer areas with greater potential; big movements between countries are rarer still. But the bigger the osmotic gradient between two economies, the greater the flow of human resources into the wealthier nation. And Cyprus has more than its fair share of the most mobile population in Europe: relatively young and well-educated people with good language skills. If their future is brighter in the UK than it is in Cyprus, they’ll move there.

Cyprus can implement capital controls, but it can’t implement emigration controls. Even if it does leave the euro, a lot of its most talented professionals will leave; if it doesn’t, and falls instead into what Greene calls “an endless spiral of austerity and recession”, the brain drain will make Latvia’s look modest. The cost of joining the euro, for Cyprus, will be no less than a hollowing out of its population, along with its economic and demographic future. Let’s hope that it manages to find a way to exit, somehow.

Andrew Rice delivers 6,000 words on BuzzFeed in the latest NY Mag, which means he has the space to tell a number of different stories. The one I’m interested in is the way that BuzzFeed CEO Jonah Peretti wants native advertising to disrupt banner advertising. I apologize for the long blockquote, but it’s a lot shorter than the article:

Peretti has talked of building “the agency of the future for a social world.” …

Watts and Peretti first set forth their theory in a co-authored 2007 Harvard Business Review article, “Viral Marketing for the Real World,” partly basing it on data from an experimental ad campaign at the Huffington Post. Watts has since continued to refine his research. His standard is that for every ten views an advertiser pays for when it buys a viral ad, it should get two shares. (“There is no free lunch,” Watts likes to say, “but maybe you can have a cheap snack.”) Peretti is convinced he can engineer a higher reproduction rate. “You can make money with that,” Watts says. “If they are predicting 20 percent of the variance and the competition is predicting 10 percent of the variance, they’re kicking ass.”

Peretti’s formula for virality really adds up to a more mundane sales pitch: Buy lots of ad impressions and realize a modest, if unpredictable, viral bonus…

BuzzFeed has released some selective data about the fractional proportion of sharing it achieves—its so-called “lift”—and claims that for the median advertising post, ten paid views yield around three shares. Peretti adds that the brands that have embraced the format most enthusiastically have better results. Virgin Mobile’s ratio of shares to paid views is better than one to one…

Virgin Mobile’s posts received around 1.1 million views for the last week in March. Other campaigns running on the site during that period, however, showed smaller results: Geico, 140,000 views; GE, 65,000 views; Pepsi Next, 44,000 views. These numbers don’t quite match the hype around native advertising, which might be why ad agencies sound much less enthusiastic about the medium’s transformative potential than publishers do.

Peretti complains about “obstructionist agencies,” and when he looks at advertising—with its four dominant holding companies, rococo bureaucracies, and reliance on a lucrative television medium now threatened by ad-skipping technologies—he sees an industry ripe for disruption.

I think that Rice is missing a couple of very important points here. For one thing, he’s wrong that that native advertising is fundamentally “mundane”, and provides just a “modest” uplift to whatever you can achieve through more traditional channels. Native pageviews might hard to come by — but any smart brand would absolutely prefer a single native pageview to a dozen banner-ad impressions. The difference between the two isn’t something marginal, on the order of 20% or 30%: it’s huge — a good order of magnitude, at least.

That’s because a native ad is something that consumers read, interact with, even share — it fills up their attention space, for a certain period of time, in a way that banner ads never do. Rice does mention that the advertising industry is dominated by the television-ad market, but he doesn’t seem to understand why. Yes, TV ads have the kind of reach that no other medium can match. But they also have duration, and a storytelling arc: if you’re not ignoring them, they command attention, in the way that, well, TV shows do.

In that sense, TV ads are truly native; the way you consume a TV ad is the same as the way you consume a TV show. Similarly, long copy print ads are native, for the same reason. And the ultimate native ads are the glossy fashion ads in Vogue: in most cases, they’re better than the editorial, and as a result, readers spend as much time with the ads — if not more — as they do with the edit.

On the web, by contrast, the vast majority of ads are not native. Instead, they’re intrusive, annoying, unpleasant, and — in most cases — completely ignored. We’ve now been consuming content on the internet for 15 years; we all know how to do it, and we know what we like, and publishers, including BuzzFeed, have become very good at delivering exactly what we want.

In stark contrast to the increasing sophistication of web publishing, however, the overwhelming majority of web advertising is still based on standard IAB ad units which were introduced in 1996 and haven’t changed much since. We’ve all learned how to tune such things out, either mentally or technologically, with ad-blocker software. Banner ads are never engrossing, they’re never shareable, and insofar as they attract your attention they do so in an evil way, by animating or blinking or otherwise distracting you from whatever it is you are trying to read.

When someone reads a BuzzFeed ad from Virgin Mobile or Geico or GE, they might “only” have a 20% or 30% chance of sharing it. But that’s not really the point. The point is that they read it, and they liked reading it. The “social uplift” is an indication that the ad is connecting with consumers — it’s like clickthrough rates, but real. Native advertising (as well as content marketing, insofar as there’s a distinction) is a way of communicating with web readers in a language they’re receptive to. And it turns out that when you do that, they actually listen.

In terms of disruptive force, then, native has a huge advantage over banners in that it is much more effective in connecting with consumers. And there’s another way that it’s disruptive, too: it utterly upends the standard ad-agency business model. This is the real reason that ad agencies are less than enthusiastic about native — they can’t make money at it. Banner ads are a lovely income stream for agencies, and ad-sales networks, and the whole crazy ecosystem of display-advertising companies. Every time there’s an impression, lots of intermediaries are sure to take their cut.

Native, by contrast, works on a very different model: you spend a certain amount of money putting it together, and then it lives online forever, generating marginal views at zero marginal cost. The agencies can still charge for their creative work, but they can’t charge for media buying any more — which is where the real money is.

As a result, most native campaigns tend to be worked out between publishers and brands directly, with ad agencies helping out but not driving the decision-making. It’s the beginning of the disintermediation of the agencies, and so it’s hardly surprising that they’re unenthusiastic about the trend. This is real digital disruption: native shops like BuzzFeed or Barbarian Group will never be as profitable as the huge ad agencies, but they can still cause those agencies to suffer very large drops in their digital revenues.

The big unanswered question, then, is not whether native has disruptive potential — it clearly does. Rather, it’s whether native will ever be able to truly scale. Native is growth-constrained on two fronts, and that means that if you’re betting on industry-changing disruption, you’re making a risky bet. The first constraint is creative. Native is hard work. Rice talks about how Virgin Mobile has to come up with “several posts a week” when its running a BuzzFeed campaign, and his article is illustrated with a photo of a “creative strategy meeting” where I count 19 people in frame, plus untold others out of it. The amount of human time and effort that goes into a native campaign is enormous, continuous, and it doesn’t decrease much once the campaign is up and running. You can’t just run the same banner a billion times: the marginal daily cost of native campaigns is vastly greater than the marginal daily cost of buying banners.

And then there’s the second constraint, which Rice mentions: all of that effort is going into reaching a relatively small number of people. This is another way in which native ads are like long copy print ads: they reach a small audience, rather than a mass audience. As a result, any brand wanting to reach a mass market is going to have to use native as just one part of a much bigger strategy, and that in turn is going to keep the native-averse ad agencies in the driver’s seat.

My guess is that BuzzFeed’s investors will do OK for themselves, in the end. But a healthy exit for BuzzFeed is not the same as a genuine disruption of the digital advertising space. Although native ads have the potential to be incredibly disruptive, I’m far from convinced that their larger potential is going to be realized any time soon.

Alice Gregory, in the NYT, has been reading her Austen: “It is a truth universally acknowledged,” she writes, “that a young technologist in possession of a good fortune must be in want of a high-end art collection”. Well, maybe she doesn’t put it exactly like that. But that’s her clear message:

Considering their net worths, technology innovators and the venture capitalists who back them are not collecting much art, according to people in both the tech and art worlds.

For the latter, this is a big problem.

Actually, it really isn’t. Gregory manages to find one alarming quote from someone called Sima Familant, who worries that “we’re going to have a really big problem at some point” if “our wealthy American elite” isn’t “supporting institutions and the arts”. But of course the wealthy American elite, in general, is supporting such institutions. Even the tech elite, in particular, is doing so: the WSJ’s Ellen Gamerman had a long article about “The New High-Tech Patrons” back in February.

Gregory, by contrast, is talking about something different: “the problem”, as she puts it, of successful technology executives somehow failing to buy expensive art by living artists at New York galleries and at art fairs. This is a problem which can be solved with the diligent ministrations of art advisers, as Gregory demonstrates through the uplifting example of venture capitalist Mike Brown:

Mr. Brown’s art adviser, Sarah Jane Bruce, affirmed that “the general assumption is that people in tech will collect street art.” Ms. Bruce, 35, can be credited for Mr. Brown’s evolving taste. The two met in 2011 through a mutual friend just before Art Basel in Miami Beach. She took him there, and he bought his first fine-art pieces.

Firstly: yes, this appeared in the NYT in 2013, more than 30 years after street artists Keith Haring and Jean-Michel Basquiat first took the New York fine-art world by storm. And secondly, it’s entirely rational for anyone, regardless of whether they’re in the tech industry, to recoil at the multiple layers of snobbery and elitism baked in to such tales. Tech types might not be able to tell the difference between a Jacob Kassay and a Gerhard Richter, but they can still smell the mercenary instinct here. (There’s no meaning to the term “fine art”, in this context, beyond simply “expensive art”.)

There’s certainly no richesse oblige to the activity of buying art at art fairs. The act of building up an expensive private collection of contemporary art falls somewhere between consumption and conspicuous consumption. As a result, no one should ever be bullied or guilt-tripped into doing such a thing by some jumped-up art adviser: if you don’t love the art you’re buying, or have some personal reason for wanting to support the artist or gallery in question, then there’s no good reason to buy anything at all.

Take Jonah Peretti, for instance, who’s featured in the article as a collector of digitally-savvy artists. While Gregory mentions his jobs at HuffPo and Buzzfeed, she doesn’t mention that he spent five years working at art/tech shop Eyebeam as their director of R&D. That’s where he got to know the artists he collects; like me, he sees buying art as one way that people can help support their talented friends. The two pieces behind Peretti in the photo accompanying Gregory’s article are by Cory Arcangel; their titles are the instructions for making them for free. You need to get the joke — and, probably, want to support the artist too — in order to spend thousands of dollars on such things. Especially since Arcangel wouldn’t begrudge anybody who just made their own.

Actually, there is one other reason to buy an original Cory Arcangel print. That’s speculation: the idea that it’s an investment, which might be worth more in the future than you’re spending on it today. Any regular reader of my blog knows that speculation is an incredibly bad reason to buy art — but it’s an especially bad reason for technologists, who see much better speculative opportunities every week.

Which brings me to one of the weirder themes in Gregory’s article: the idea that the opacity of the art world contrasts starkly with the openness of the tech world.

To those used to start-up culture, with its utopian transparency and meritocratic ideals, the art world’s barriers to entry are discouraging and confusing. Parties are exclusive. Works are not always sold to those with the most money. Images are often not online. Invoicing can take months. There is, to borrow a term from the lexicon of tech culture, a preponderance of inconvenient “friction.”

This is just bizarre. Talking about the utopian transparency of start-up culture makes about as much sense as talking about the constructive deliberations of Congressional debates: start-up culture is in fact one of the very few areas which is less transparent than the art world. You need to be invited to a tech party; gallery openings, by contrast, you just turn up to. If you want to buy the work of a certain artist, then with a little bit of diligence and persistence you can probably manage to do so somehow. And it’s downright easy to phone up the gallery and at least find out how much that artist’s works cost. If you want to invest in a certain start-up, by contrast, doing so is pretty much impossible unless you know the right people. And valuations aren’t kept quiet so much as they’re kept absolutely secret.

The kind of people that Gregory talked to for her piece are all members of the select group of tech insiders who can and do invest in their friends’ startups, much as people in the art world will buy their friends’ art. Take anybody in Silicon Valley who has made a lot of money in the tech industry and ask him (it’s still nearly always going to be a him) what he wants to do with his money, and you can be sure that “angel investing” will be at or near the very top of the list. That’s because, in order to be an angel investor, you need both money and tech-world bona fides.

This, for me, is the real reason that tech types don’t buy art: they’re busy investing in each other’s startups instead. Being an early-stage investor is in many ways just like being a contemporary art collector: you’re very unlikely to make money at it, even though the potential and anecdotal returns can be enormous; and it’s used in large part as a way of supporting your friends and being seen as being important within a very small world. Wealthy technologists are defined by their Crunchbase profiles in much the same way as art collectors are defined by their art collections.

The weird thing is that the technologists themselves just can’t see it.

Mo Koyfman, a venture capitalist at Spark Capital, which has provide funding for companies including Twitter and Foursquare, is of the same opinion.

“For technologists, it’s all about leveling the playing field, and the art world is a very structured, hierarchical system,” he said. “There is a conflict there, and it’s probably a good bit of the reason why technology entrepreneurs struggle with the art world.”

The world of funding companies like Twitter and Foursquare can be described in many ways, but it’s ridiculous on its face to call it a level playing field. It’s not, and it doesn’t aspire to be. Instead, it’s — let me see if I can find the right language here — a very structured, hierarchical system, where certain companies and individuals can fund anything they like, and most of us are excluded entirely, with various gradations in between.

Gregory, I think, has asked an interesting question, but she got the answer exactly wrong. Techies aren’t abjuring the art world because the art world is more exclusive than the technology world. Quite the opposite. They’re abjuring the art world because the tech world is one of the few places which is more exclusive than the art world. If you’re a socially-awkard technologist with amazing access to anybody you like in the tech world, you’re in a place that most art-world types can only dream of. As a result, you have no reason whatsoever to want to start all over again at the bottom of an entirely different ladder, especially when the whole art scene is so incredibly mercenary and pretentious.

The news of the day in the media world is that Jeff Bezos has led a $5 million Series E funding round for Business Insider. Here’s the story, according to CEO Henry Blodget:

Jeff’s investment grew out of a dinner he and I had about a year ago. We talked about the business, and he was excited about it. (He sees some parallels with Amazon). A few months later, he expressed an interest in investing. My reaction was basically “Hell, yeah!”

Blodget has now articulated a simple public goal: “to become the best digital business publication on the planet”. It’s a conscious echo of Bloomberg’s stated aim to be “the world’s most influential news organization”. If he needs to invest millions of dollars of other people’s money to get there, that’s fine.

Blodget goes on to say that he’s obsessed with his customers — both readers and advertisers — and that his customer focus is the main thing he shares with Bezos. (Well, that and his famous Amazon call, of course.) He also says that Bezos’s money “will allow us to continue to invest in our editorial, technology, and client teams” — which almost certainly means that there’s no chance, now, of Business Insider being profitable in 2013. Six years after it was launched, the site is still in growth mode.

And frankly, there are quite a lot of things that Blodget could use the money for, if he is really focused on the reader experience — indeed, there are so many things that he could probably spend all that money quite a few times over, if he wanted. The site could use a redesign, for starters, to make stories pop more for readers and to provide more attractive opportunities for advertisers. On top of that, the architecture of the site should reflect the way that stories are covered. Here’s how BI’s editorial chiefs see the way that they work:

“We don’t really think of things we put up as ‘an article,’” said Carlson. “It’s a bit of information conveyed to people. One of my old colleagues used to say that the last sentence of your last post is the first sentence of your next post. Because by the time you reach the end you sort of come to a cliff, ‘Oh I have another thought on this and I’m just going to put it in the next post.’ In a way, it does sort of become a narrative. For sure, I think [that's] the attraction of reading something at Business Insider … It’s a live medium where the narrative is always coming out with the next thing.”

Weisenthal is often reminded how differently digital outlets such as BI work when it comes time to submit content for awards.

“They have the journalism competitions where they invite people to apply and they always say, ‘Submit your top three posts for consideration that you’re most proud of’ or something like that,” he said. “And I can never come up with the stuff. I don’t think I have a single great post last year that I’m really proud of. Everything I write is part of this bigger stream.”

He pointed to his real-time blanket coverage of the monthly U.S. jobs report as an example. “If you follow me on Jobs Day, within like 20 minutes of the report coming out, I have a summary posted,” he said. “Then I have another post singling out one detail I thought was interesting. I have another post saying what it might mean for interest rates and fed policy. I have another post talking about the political dimensions and so forth. I’m proud of the fact that it’s this whole suite of stories.”

I’m an admirer of this form of journalism, and I think that many media organizations, including Reuters, are going to move in this direction. But right now, if you go to one of Joe’s payrolls posts, it’s not easy to find all the other ones — to have them all in one place, together giving the bigger picture. In order to be able to allow that, Blodget will need to make some serious technology investments.

What’s more, a re-engineered website might well result in a website with significantly fewer pageviews. If you can see all of Joe’s payrolls posts on one page, then that means fewer pageviews for BI than if you call up all ten of them individually. For most of its existence, BI has been in an uncomfortable race, trying to increase the number of pageviews it serves up faster than its CPMs are falling. Investors are generally OK with losses, which reportedly reached $3 million last year, only so long as revenues are growing. And they are growing: Blodget tells me they were more than $10 million in 2012, up from about $7.5 million in 2011 and $4.7 million in 2010.

The problem is that in the chase for revenue growth, Blodget is sacrificing a pleasant user experience. He installs ugly automatic links under certain phrases, for instance, which when you mouse over them start playing video ads. Or he sells a lot of interstitial ads which force you to click another time before reaching the story you want to read. Quartz points out that there’s a good chance Business Insider is worth less than the much younger BuzzFeed, where CEO Jonah Peretti is adamant that he’ll never run a BI-style slideshow, or even “crappy display ads”, just because readers clearly prefer everything on one page and don’t get value from those ads.

The problem is that if Blodget decides to pare back on artificial revenue juicers which readers dislike, that hurts revenue growth as well as profits — even as BI is saying that it intends to accelerate revenues this year to something in the $15 million range. In order to keep revenues growing even as he re-engineers his site to make it sleeker and less optimized towards pageview maximization, Blodget would have to invest not only in technology, but also in sales — paying big money for expensive staffers to build relationships with brands. BI gets too much of its revenue from banner ads right now: it needs to diversify its ad revenue, and start finding more ways for brands to reach BI’s coveted readership. One of those new channels is conference sponsorship, and I expect that BI will use a bunch of its new money to invest aggressively in conferences. But one of the big hidden costs behind building a new kind of website is the fact that you need to build a new kind of sales team, too, selling the kind of products which are often referred to as “native”, whatever that’s supposed to mean.

Business Insider has always been run on something of a shoestring; it made the entirely understandable decision, for instance, to hold onto a large chunk of the capital it raised in the past, rather than blowing through it and then suddenly being forced to cut back for the sake of profitability. This new round allows BI to increase the amount it’s investing while still retaining a reassuring cushion. But $5 million is not remotely enough money to allow Blodget to pivot to a very different business model, even if he wanted to do so, which he probably doesn’t. For better or for worse, he’s stuck in a world of banner ads and CPMs, and although he’s done well in that world to date, the future of that world looks pretty bleak.

There are many sites, Gawker Media’s foremost among them, which have gone to great lengths to wean themselves off their addiction to banner ads. And in general it seems to me self-evident that “the best digital business publication on the planet” is not going to be one which aggressively chases pageviews and ad revenues at the expense of the user experience. By thinking of stories as streams, Joe Weisenthal found a great way of juicing pageviews, since every element of that stream, under the current architecture, is a new story and a new page. But he’s also stumbled upon a powerful and addictive new form of journalism, which is Blodget’s best hope for achieving his ambition. The question is: will Blodget be willing to give up his current business model, in order to let Weisenthal follow his editorial vision to its logical conclusion?

Last week, I hypothesized that the publishing industry was going to informally settle on a single management-consultancy company to ask for paywall advice from. That consultancy, having seen everybody’s internal figures, could then tell everybody else what “industry best practice” was. It’s the time-honored management-consultancy m.o., reselling other clients’ confidential information, suitably anonymized, of course, so that everybody learns from everybody else’s successes and failures.

This is a winner-takes-all business: it works best if everybody hires the same consultancy. And now it’s pretty clear which consultancy is going to win: Mather Economics. They say they’ve worked for pretty much everybody, at some point, and that they directly manage some $2 billion of subscription revenues for their clients. And today, fresh off a $1.75 million funding round, the paywall provider MediaPass has announced that it’s going to bake all that Mather knowledge into its own product. Given all the data being generated and analyzed by Mather and MediaPass, it looks like they have a pretty unassailable position in this particular niche.*

So, what do Mather and MediaPass see as the future of paywalls? What is best practice in the industry? Interestingly, as Anthony Ha reports, they’re not particularly enamored with the meter system, despite its high-profile successes at the FT and the NYT.

Although MediaPass supports “metered” systems, [MediaPass president Matt] Mitchell says he sees more potential in creating a specific mix of free and paywalled content, although that mix will differ from site-to-site.

Publishers should think of their free readers as leads who might eventually become paying subscriptions, he says. For example, for a long time Mitchell read ESPN.com for free, but a year ago, he stumbled on a paywalled article that he really wanted to see, and since then he’s been a subscriber.

“What a meter does is give you 10 views free, and on the eleventh you’re asked to subscribe,” Mitchell says. “That’s rolling the dice and gambling that the article I see on the eleventh view is the one I’m willing to pay for.”

It’s worth noting, here, that even the FT and the NYT don’t have “pure” metered systems, where every pageview counts towards the meter. In the early days of paywalls, some content was free, while other content you needed to pay for; the meter, in theory, replaced that system with one where the determination as to whether an article was free or not was a function of how many other articles the reader had read, rather than being a function of the content of the article itself.

There’s always a trade-off, however, and there are certain areas of the FT and NYT websites which are always free and don’t count towards the meter. Finance, interestingly, is one: you can read as much Dealbook and Alphaville as you like without a subscription. And Mather’s Matt Lindsay said that the NYT quietly does the same thing for its entertainment section, during peak season in the fall: there’s a huge amount of advertising demand, and it doesn’t want to put any obstacles in the way of tourists looking to the NYT to work out what shows they want to see.

Talking to Mather and MediaPass, it’s clear that their idea of “best practice” doesn’t rely much on meters at all. They have the numbers, remember: they know what kind of walls are best at maximizing revenues, and what kind of walls just end up turning readers away. And crucially, one of the biggest lessons they’ve learned is that it’s a mistake — at least from a purely financial perspective — to treat all readers equally. Some readers have a much greater propensity to pay than others; ideally, you want to extract a lot of money from those readers, while also allowing the vast majority of your visitors — the ones who will never pay you anything — to still consume your content and view the associated ads.

For instance, it’s often easier to persuade people to subscribe to sports content than to entertainment content, even as it’s easier to sell ads against entertainment content than it is against sports content. So it does make sense to keep entertainment free, and put some kind of paywall around sports.

And although readers hate the kind of extreme opacity practiced by the FT, where there’s basically no rack rate and nobody knows what anybody else is paying, from a revenue prospective it makes a lot of sense. The FT knows quite a lot about its registered readers, so it can be quite effective at charging the highest prices to people with the greatest willingness to pay, while charging much lower rates to readers in, say, India.

That kind of thing can be dangerous, from a PR perspective. Amazon, for instance, got into trouble when it was caught selling the same products at different prices to different customers. But there are other ways of achieving much the same end: you can set a relatively high official price, for instance, and then start showing various special offers to people whom you think might be willing to subscribe if you offer them a discount. No one really minds that.

And certainly it seems to be a good idea to offer a range of subscription lengths, priced so that there’s a strong incentive to go for the longer-dated annual subscription, even if again that means a substantially lower rate on a per-month basis.

I’s not all that hard to tell who’s likely to be willing to subscribe, and who isn’t. Print subscribers, for instance, are much more likely to be willing to pay for a digital subscription than a reader who doesn’t already pay for the print version. And people who visit frequently, and who read a lot of local news, or sports news, are also more likely to subscribe.

In general, the trick is to get as many subscribers as you can — because once a person subscribes, they generally turn out to be surprisingly loyal and price-inelastic. You can keep on charging their credit card, even at steadily-rising rates, and they’re not going to unsubscribe. And then, for the 90% of readers who don’t subscribe, it’s a good idea to find content for them, too. The paywall shouldn’t just be a “pay here or get nothing” option: the “no thanks” button should take you to valuable free content.

That’s why, as NYT spokeswoman Eileen Murphy confirmed to me, the NYT is looking at rolling out a new digital subscription product, priced below the current cheapest option of $3.75 per week. Most NYT readers are understandably reluctant to spend $195 a year on access to a single site, so the NYT might well offer something cheaper, without the full unlimited range of content that subscribers get with the current digital package.

What’s impossible to calculate, of course, is the long-term opportunity cost of driving away people who want to read your content but aren’t willing to pay. MediaPass’s Mitchell told me that in most cases, the act of putting up a paywall is the act of “essentially harvesting revenue from a loyal long-term audience” — people who have been reading the publication for years, and have turned it into a habit they don’t want to give up. That’s fine, as a short-term means of maximizing revenues. But it’s dangerous in terms of getting new loyal readers. Which is one reason why online media startups almost never have paywalls: they want as many people as possible to discover them.

My expectation, then, is that newspaper paywalls will become both increasingly sophisticated and increasingly expensive over time — but that paywalls are not going to migrate very quickly out of the newspaper world and onto the rest of the internet. In a dying industry, the sensible thing to do is to maximize your revenues before you die. Paywalls might well make money for newspapers. But that doesn’t mean that newspapers aren’t dying. Quite the opposite.

*Update: So this is embarrassing. The public press release notwithstanding, it seems that Mather got cold feet about the deal with MediaPass, and is not going to go ahead with it after all. I think Mather still has its longstanding relationship with Press+, the newspaper paywall company, but I’ll look into it and find out.

Update 2: This seems at heart to be a spat between Press+ and MediaPass, with Mather being enjoined from working with both.

I’ve posted a very long piece on bitcoin over at Medium. Obviously, I’d love for you to go over there and read the whole thing — or at least save it somehow for reading later. But here’s the heart of the article:

Volatility is a serious problem, if you’re trying to put together a currency, rather than a vehicle for financial speculation. If the currency of a country ever fluctuated as much as bitcoins did, it would never be taken seriously as a medium of exchange: how are you meant to do business in a place where an item costing one unit of currency is worth $10 one day and $20 the next? Currencies need a modicum of stability; indeed, one of the main selling points of bitcoin was that it couldn’t be destabilized by government institutions. But that comes as scant comfort to people watching the value of a bitcoin behave like some kind of demented internet stock during the dot-com bubble.

In reality, then, bitcoin doesn’t really behave like a currency at all. In terms of its market value, it looks much more like a highly-volatile commodity. That’s by design: bitcoins were created to be the most fungible commodity the world had ever seen – to the point at which they would effectively erase the distinction between a commodity and a currency.

But is that a good idea?

The answer, of course, is no. It’s a bad idea to turn a currency into a commodity, because if the price of the commodity goes up, then everybody using the currency suffers from enormous deflation. Imagine a sucker who took out a loan in bitcoins a few weeks ago — she’d never be able to pay it back today. That’s a pretty good sign that bitcoins don’t work as a currency.

More profoundly, it’s incredibly corrosive to try to build a currency on mistrust, as bitcoin has attempted.

It’s because we place so much trust in banks, after all, that they are forced to take on a great deal of responsibility. Banks and central banks are given an important job to do, are regulated and scrutinized, and can be held responsible for their actions. The population of the entire country, as represented by the government, stands behind bank deposits and promises to honor them even if the bank goes bust. Money, in other words, is a key ingredient in the glue which keeps the social compact together. (What we’re seeing in Cyprus is in large part a demonstration of what happens when that compact starts becoming unglued.)

Bitcoin, in that sense, is anti democratic. It’s based on mistrust rather than trust, it refuses to take any responsibility onto itself – indeed, it doesn’t even have a self to take responsibility onto. It’s nihilistic.

It’s fun to watch the bitcoin bubble, but it’s also important to understand that almost no one actually wants to live in the kind of world that bitcoin enthusiasts are looking forward to. Thankfully, the rising price of bitcoins is not some kind of market signal telling us that we’re closer to that world. But at the same time, it’s certainly not something to celebrate.

Over the past three years or so, Pimco has been making a concerted effort with respect to gender equality and women’s empowerment. And this effort is being led from the very top: check out CEO Mohamed El-Erian’s speech to USAID last year, or his more recent rave review of Sheryl Sandberg’s book. El-Erian is clearly committed to overcoming institutional biases at Pimco and to ensuring that his company “employs, enables, develops, stimulates, and retains” the very best workforce it can — including, of course, the very best women.

So, how’s that working out for him? Google “Pimco leadership”, and you end up at this page, which lists the firm’s “Global Executive Leadership” as well as all of its managing directors. The former list has six names on it; all of them are men. The latter list is longer — some 58 names. And if you look closely, you should be able to find 7 women there, alongside 51 men.

This is the face that Pimco shows to the rest of the world, and it’s incredibly male-dominated. Internally, the numbers aren’t much better. The two most important committees at Pimco are the investment committee and the executive committee; neither of them has more than one woman. And if you look at Pimco’s professionals more generally, everybody with a job title of “vice president” or above, the total proportion of women is 23% — which is exactly the same as it was three years ago, when the current diversity exercise began.

This doesn’t, in and of itself, mean that Pimco hasn’t changed. But if you look at the literature, the tipping point seems to come when make up more than 25% to 30% of senior management — that’s when the culture really changes, with all the attendant benefits for all employees and for the business as a whole.

I’ve obtained the numbers, however, and the proportion of women at Pimco shrinks, unhelpfully, the higher up you draw the line. They’re 35% of Pimco as a whole, including administrative and support staff. They’re 23% of VPs and above; 19% of SVPs; 17% of EVPs; 12% of MDs; and 0% of the executive leadership.*

It’s easy to come up with reasons for this. In the wake of the financial crisis, for instance, business-school graduates in general have been much less inclined to go into finance — but the decline has been significantly greater among women than among men, which means that it’s harder for Pimco to find female applicants for its new jobs. And once people arrive in a senior position at Pimco, they tend to stay there: turnover is low, which means relatively few opportunities for women to advance into the senior executive ranks.

But at some point, stasis has to become unacceptable, and someone has to be held responsible for ending it. El-Erian is genuinely committed to creating a more woman-friendly work environment. Doing so is good for its own sake, it’s good for his daughter’s future, and it’s good for Pimco — not least because women tend to make better investors, and are much less likely to blow up than men are. El-Erian might even have succeeded in changing parts of the internal Pimco culture, although such things are incredibly hard to measure or disprove.

But at the same time, there’s a demonstrated syndrome where companies with a small number of women in senior management get stuck at that small number. A recent study shows something quite surprising:

We theorize that the presence of a woman on a top management team may reduce rather than increase the probability that another top management position in the same firm will be occupied by a woman. Using twenty years of panel data on the top management teams of S&P 1,500 firms, we find robust evidence for such negative spillovers, which are especially strong for women chief executive officers and within similar job categories.

Pimco has a very high-profile hire to make right now: the departure of Neel Kashkari means that El-Erian is soon going to announce a new global head of equities. The opportunity to appoint a woman to such a senior position doesn’t come along very often. Kashkari did very well in the position, but he’s also as macho as they come. Pimco doesn’t answer to any public shareholders, and cares less about optics than most public companies do. But as El-Erian continues to preach the equality gospel, people are increasingly going to start looking for hard evidence that his noble rhetoric is being matched by quantifiable real-world change.

*Update: I tweaked the numbers a bit, in light of more granular information; also, I got the progression wrong. At Pimco, SVPs are lower down the totem pole than EVPs.

And talking of SVPs, it turns out that CasualSophist, in the comments, is spot-on here: “I’d hazard to guess that the majority of the women with VP titles are client facing and not actively involved in investment selection / strategy.” While 19% of Pimco’s SVPs are women, only 11% of SVP portfolio managers are women.

Finally, I’m assured that while right now only one woman (Wendy Cupps) is a member of the Executive Committee, there was a point in the past during which there were two female MDs on the committee.

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.

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.

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.

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.