Wherein Brad DeLong changes his mind on the intelligence and ability of Alan Greenspan — BDL

Wherein Brad DeLong changes his mind on what happens to productivity in recessions — BDL

Awkward Metaphor of the Day goes to Jim Cramer “Bears Run Out of Ammo” — TSC

The unemployed face the same odds of getting a job as an applicant faces getting into Harvard — CNN

How not to deliver bad news to Wall Street — Matthews

“The Galleon gang is doing little justice to the term ‘white collar’ crime. Specifically, the collar part.” — NYM

Sorry, Kyle, you were second choice: Kushner wanted Sorkin for Observer job — NYM

Life among the business journalism watchdogs: Dean Starkman, CJR, thinks CAGW’s “obscure” — Stoll

7-11’s own-brand Yosemite Road wine is $3.99/bottle — Dallas Observer

Do you believe in IMF forecasts? If so, you’re a turkey! — Taleb/Huffpo

Mega-hedgie Julian Robertson has never checked his voicemail, ever — NYM

Banksy fever reaches Kurdistan — Meyer

Surprisingly, the median management expense for most asset classes was largely unchanged from 2008 levels; most exhibited changes of +/- a few tenths of a basis point.

Fees, on the other hand, are a different kettle of fish entirely:

70% of equity funds realized increases in total expense ratios from their most-recent annual report to their most recent semiannual report. Of those funds with increases, the average increase was +8.2 bps, while for the funds with expense decreases the average decrease was only -2.4 bps.

There’s even a helpful chart:

The reason for the fee hike becomes clear at the end: it’s being implemented in a desperate attempt to keep income from plunging along with the stock market.

Despite the increase in management fee ratios for many asset classes, the revenue derived from those fees has plummeted. We estimate that total revenue over the period examined by this report is down more than 40%…

The total dollar amount of fees collected by open-end funds appears to have declined by approximately 31% over the period examined by this report. This value is in spite of increases in realized expense ratios for many funds.

The lesson here is simple: Stop trying to beat the market, and move to index funds or ETFs instead. (Index funds weren’t included in the Lipper survey.) Mutual funds are moving away from being a mass-market product, and becoming more of a niche product aimed at elderly investors who don’t know any better and who don’t worry much about total expense ratios. The smart money’s moving out of mutual funds, to the extent that it was ever invested in those funds in the first place, and the dumb money that’s left over is largely price-insensitive. Expect these fees to continue to rise for years to come.

John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are people I love and care about. You could imagine emotionally it’s not easy to see what’s happened.”

Reed is a bit like Gerry Levin, looking back on a merger gone horribly wrong; it’s understandable that he has many regrets and might be more prone to apology. But still, it’s a start. Sandy? You’re up next!

It’s not as if Ken Lewis’s reputation needed to take another hit, but here it is anyway: he’s created a monster with no succession plan and no ability to hire a CEO. At least when Hugh McColl was building the monster it was always clear that Lewis would be there if he ever fell under a bus. Lewis, by contrast, made sure to throw any potential rivals out of their top-floor windows on a regular basis. And now the BofA board is struggling with the consequences of those decisions.

The problem is that very few people in DC are thinking of this as a structural challenge. Until they do, there is little basis for the sketch of a potential solution.

Here’s the issue: unemployment is at 10.2%, and broader underemployment is at 17.5%. For the foreseeable future, both of them are going to be extremely high — it doesn’t really make much difference, at the margin, whether they’re going up or down. Financial markets are used to looking at first derivatives, but in this case it’s the absolute level which is important.

When you’re unemployed, you don’t spend. So long as unemployment remains high consumer demand will be depressed. That’s going to be true even if the savings rate starts dropping, thanks largely to the enormous debt burden that US consumers have already placed upon themselves. That’s important for the US economy, and it’s also a major sea-change for the global economy. As El-Erian says in today’s FT:

There is one public good that needs to be replaced: the key role that the US has played as the engine of global growth. This role is now constrained by the debt of US households.

The implications of this are huge. If the US no longer drives the global economy, then the rest of the world will be much less inclined to fund its twin deficits to the tune of trillions of dollars per year. Meanwhile, the high unemployment rate means that the Fed is going to keep the Fed funds rate at or near zero, which bodes ill for the dollar. These are huge forces, acting in an extremely complex global financial system, and you don’t need to be Nassim Taleb to know that the end result of such a state of affairs is likely to be large, unpredictable, and potentially catastrophic.

Which brings me back to Washington. Here’s El-Erian again:

The best defence against these outcomes is early recognition and coordinated action. Key economic powers must shape their expectations and policy strategies to the changed contours of the global economy. They must also actively manage policy changes at the national and multilateral level in a way that broadens the provision of global public goods.

They must, yes. But will they? I fear — and clearly Mohamed fears too — that the answer is no. So far I’ve heard nothing out of Washington which says to me that the White House has a plan for addressing long-term structural problems in terms of unemployment, capital flows, and interest rates. A lot of these problems have been around for many years, and most of them have been diagnosed sharply at one point or another by Larry Summers. So it’s not like Washington is oblivious to what’s going on. But we’re at the limits of what monetary policy is able to achieve, and the nation cannot afford to repeat the monster hit to the US fisc which we’ve seen over the past couple of years.

Maybe, then, there simply isn’t a solution: the problem is just too big, too complex, and too intractable. It’s a depressing conclusion, but also a pretty compelling one.

In October, the number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.

Well, at least give the BLS credit for not trying to sugar-coat the data. This is truly awful, and makes it obvious why the Fed will keep rates at or near zero for the foreseeable future. You just can’t raise rates when unemployment is in double digits.

Cracking down on would-be pretzel monopolists — WSJ

The right way to eat sushi. Don’t dip it rice-side-down into the soy sauce! — Snippets

Tkacik on Gladwell. Warning: 7,719 words! — The Nation

Want to kill bankers? There’s an app for that — American Banker

The curveball illusion — Illusion Contest

Japanese bike-parking technology — Guardian

Pandit didn’t work at Citi. Thain didn’t work at Merrill. Corzine wouldn’t work at BofA — The Deal

Jon Chait fact-checks error-riddled WSJ op-ed piece. Don’t hold your breath waiting for correction — TNR

“Mono-urbanity is so 20th century.” — Hyperallergic

Is BlackBerry the new AOL? If it can’t beef up its web browser sharpish, then yes — WSJ

Even if you’re paying the WSJ $600 a year, you still can’t get stories more than 2 years old. Yikes. — Newsbreaks

Block-by-block election results in NYC — NYT

Performance reviews actually damage the receiver’s performance, by underlining the alpha status of the giver — Reuters

Fortune to cut 30% of its editorial staff. And, one hopes, Ben Stein — NYP

Might BofA move its HQ to NYC? Makes sense to me, it has the city’s second-tallest building — Crain’s

Legal immigrants to the US who are resident for five years (or three years for those who marry a US citizen) can apply for US citizenship. Currently, citizenship application and processing fees in the US are $675 per person, up from $60 two decades ago. These fees, which exclude the costs of individual legal assistance or private citizenship classes, were increased by 69% in July 2007…

The number of US citizenship applications from legal residents dropped by 50 percent in the two years after the price increase. As a result, the Federal agency handling citizenship applications still runs a budget deficit, suggesting to some bureaucrats that the price needs to be raised again!

Quelch then disappears into some weird fantasty world where citizenship costs $30,000, minus “an income tax deduction of value-based citizenship fees over five years,” whatever that’s supposed to be. But the fact is that we’re talking about the marginal value of citizenship over permanent residence here, and that marginal value is very low indeed.

Quelch has the upside right, and it’s limited:

New citizens get to vote, apply for federal jobs, and bring their families to the US.

For some people, the last of these is very valuable indeed. For most people, none of them is worth much at all. For one of my relations, there were tax reasons for becoming a US citizen, which I never really understood. For me, the biggest upside to becoming a US citizen would simply be the reduction in airport risk. Dahlia Lithwick explains:

I am in this country on a green card. You should also know that over my almost 20-year residence in this country, I have been told by more than one INS official that I have absolutely no rights here and that, visa or no visa, my residence here can be terminated at their discretion.

On the other hand, Quelch doesn’t mention the downsides of citizenship at all. The most obvious is jury service: if you’re not a citizen, you get an automatic get-out-of-jury-service-free card, and it’s valid for life. Nice. And then there’s taxes. If a permanent resident leaves the country and stops being a US resident for tax purposes, she doesn’t need to pay any US taxes at all. A US citizen, by contrast, needs to pay US taxes on her global income for her entire life, no matter where she lives. On top of that, many countries require that if you become a US citizen, you need to give up your initial citizenship. Which is a major decision indeed. Finally, there’s the fact that if you travel on your US passport, you run a slightly greater chance of being hated on by the people in whose lands you’re travelling.

So it comes as little surprise that as the price of citizenship increases, the demand for it falls, to the point at which the overwhelming majority of citizenship-eligible permanent residents already decline to apply for it.

The thing which confuses me is why the US would encourage a system which creates a weird not-quite-citizen class of permanent residents who don’t get to vote but who otherwise walk and quack like any other first-generation American. If my American wife wanted to live and work in the UK, we’d simply apply for her to get a UK passport. Why doesn’t the US system work the same way?

…

The point here is that the risk to the taxpayer associated with any given bank grows exponentially with that bank’s size. Ceteris paribus, a bank with $500 billion in assets is a lot riskier than a bank with $400 billion in assets, not only 25% riskier.

Treasury seems to consider too-big-to-fail to be a binary thing: either you are, or you’re not, and if you are, then you’ll have to get by with higher capital requirements. But if that kind of a scheme is implemented, then it automatically creates a strong incentive for any too-big-to-fail bank to grow, and grow fast. The bigger that a TBTF bank gets, the more moral hazard can be palmed off onto the taxpayer, while the bank’s own capital ratios don’t have to rise at all.

Treasury I think should consider a scheme where capital ratios rise steadily with the size, risk, and interconnectedness of financial institutions, rather than simply falling into one of two buckets. And there should be no cap on how high those capital ratios can get. If such a cap is put in place, then every big bank will simply be given an incentive to blow straight past it.

What’s more interesting to me is the list of 12 “also-rans” for the title: Larry Page, Sergey Brin, Warren Buffett, Bernie Madoff, Carlos Slim, Ken Lay, Jeff Skilling, Andy Fastow, Bill Gates, Oprah Winfrey, Alan Greenspan, and Martha Stewart. Five of the 12 aren’t CEOs at all (Page, Brin, Skilling, Fastow, Greenspan); and not a single one of the 12 is a CEO who was hired to run a company by its board of directors.

Jobs, by contrast, is such a CEO, in a manner of speaking: although he did found Apple, he sold all his shares when he was ousted in the 80s, and was hired back by Apple’s board. (As a result, he’s made more money from Pixar than he has from Apple.)

It’s natural for company founders to give themselves the CEO job. But how come all of Fortune’s top CEOs seem to be founders, and none of them are in the much more common position of having been hired, by the board, to run the company?