Jeff Jarvis reprints the clip above, in an article dismissing the privacy concerns surrounding Google Glass. The Victorian attitudes of Newport’s cottagers, he clearly implies, were misguided and misplaced. “Rest assured,” he writes. “ I will ask you whether it’s OK to take a picture of you in private.”

The key words, here — words which weren’t even part of the cottagers’ vocabulary — are “in private”. We now live in a world where we have public lives and private lives — and for over a century now, since roughly the point at which the above article appeared, the portion of our lives considered “public” has been expanding, while the portion of our lives we can consider “private” has been contracting. What’s more, Jarvis himself is a prominent proponent of the idea that we should maximize the speed at which we move our lives into the public realm; he also equates a desire for privacy with being “scared of the public” .

Never before have we faced so many opportunities to turn the formerly-private into the newly-public. As those opportunities arise, many people adopt them, and turn “public” into the new norm for such activities. Eventually, the norms become societally entrenched, to the point at which it is now utterly unobjectionable for those who once would have been labeled “kodak fiends” to take photographs outside a Newport tennis tournament.

My point here is that technology has a tendency to create its own norms. The classic example is the automobile — a technology which kills more than 30,000 Americans every year. From the 1930s through the 1990s, societal norms about who roads belonged to, and what people should do on them, were turned on their head thanks to the new technology. The dangerous new activity allowed by the new technology became the privileged norm, to the point at which just about all other road-based activity — and roads have been around for thousands of years, remember, since long before the automobile — essentially ceased to exist. Eventually, we reached the point at which elected representatives were happy saying that if a bicyclist gets killed by a car, it’s the bicyclist’s fault for being on the road in the first place.

If Google Glass — and wearable computing more generally — takes off and fulfills its potential, it will change society’s norms about what is public and what is private. It is therefore entirely rational, whatever you think of the set of norms we have right now, to assume that they will end up moving towards something more well disposed towards the new technology.

Jeff Jarvis will welcome that move, and can come up with dozens of reasons why it would be a good thing rather than a bad thing. “There’s no need to panic,” he writes. “We’ll figure it out, just as we have with many technologies—from camera to cameraphone—that came before.” But let’s be clear here about how much weight is carried by that “we’ll figure it out”. Realistically, “figuring it out” means, in large part, changing norms: irrevocably moving the line between what is private and what is public. That might be a good thing, it might be a bad thing. But if you like the norms we have right now — or if you think they’ve already gone too far in terms of robbing individuals of their privacy — then you have every reason to worry about what the onset of wearable computing might portend.

Update: Noah Brier points me to a quote from Daniel Mendelsohn, who goes back further still than the Victorians:

I am amused by the fact our word idiot comes from the Greek word idiotes, which means a private person. It’s from the word idios, which means private as opposed to public. So the Athenians, or the Greeks in general who had such a highly developed sense of the radical distinction between what went on in public and what went on in private, thought that a person that brought his private life into public spaces, who confused public and private, was an idiote, was an idiot. Of course, now everybody does this. We are in a culture of idiots in the Greek sense.

Why might Yahoo want to buy Tumblr, as AllThingsD reported last night and Adweek confirmed this morning? Henry Blodget has a couple of ideas. For one thing, he says that “Yahoo wants to become hip and cool again, and Tumblr is hip and cool.” Tumblr also has a large following in the 18-29 demographic that Yahoo would like to capture (CFO Ken Goldman told a group of investors earlier this week that “One of our challenges is we have had an aging demographic.”) In that way, the move is similar to last year’s Facebook/Instagram deal, which Ryan McCarthy described as “a $1 billion way to make your parents’ status updates more interesting.”

Blodget also says that Yahoo is looking to become a content distributor, rather than a content producer: hosting a vast number of user-generated selfies, GIFs, and pornography is easier to scale than paying journalists, as Tumblr itself realized last month when it canned its in-house Storyboard journalism team. To Joshua Brustein, the purchase of the 108 million or so Tumblr blogs could be Yahoo’s “path back to cultural relevance”; it also may build on Mayer’s plan to move Yahoo toward stream-based advertising.

Because kids today don’t think Tumblr sucks (Techcrunch reports that “21% of its audience is under 18, 30% is 18 to 24, and 22% is 25 to 34”), other Silicon Valley companies with aging user demographics, like Facebook and Microsoft, are reported to be interested in bidding. However, Jeff Bercovici reports that the Yahoo talks are “likely to result in an offer as soon as Yahoo CEO Marissa Mayer can get her board’s approval”, and that it’s unlikely anyone else will be given an opportunity to bid.

What will Yahoo do for Tumblr? The site has a young and idealistic founder in 26-year-old David Karp, who has previously expressed resistance to being “absorbed into a behemoth of another company and raided for talent and traffic.” Unfortunately for Karp, Yahoo’s track record in that respect is abysmal. Sam Biddle has a good roundup of the Yahoo acquisition graveyard, including GeoCities ($3.6 billion in 1999), Flickr, and Delicious.

Back in 2011, Tumblr raised a $85 million at an $800 million valuation. Yahoo’s $1 billion offer isn’t a big premium over that, but Nicholas Carlson writes that Tumblr’s late-stage investors may have some deal sweeteners, ensuring they get a decent return. Karp may also see an upside to selling to Yahoo: Carlson writes that Mayer is likely to let Tumblr continue being relatively ad-free for the near future. — Shane Ferro and Ryan McCarthy

On to today’s links:

Scandals
Is there a price-fixing scandal brewing in the oil market? - Economist

JPMorgan
“The current Chairman of JP Morgan should be run out of town on a rail” – Epicurean Dealmaker

New Normal
Greek shipping magnates are not really feeling the whole economic depression thing – Time

Alpha
Morgan Stanley analyst reminds the world he only has a job because investors are dumb – Sam Ro
No, 2013 is not 1999 – Josh Brown
Bill Ackman is investing in a $90 million New York penthouse – WSJ

The Fed
Suggestion: “Let’s have more people setting monetary policy who understand how the financial system works” - Matthew Klein
Why the US and Europe need a tad more inflation – Ben Walsh

Legalese
Legally, Goldman can’t deny it misled an investor — even though a court just threw out claims that it did (Got that?) – Jonathan Weil
“Company that helped Goldman build terrible CDO loses lawsuit over the result” – Matt Levine

Oxpeckers
“Sponsored Content Pretty Fucking Awesome” – The Onion

New Normal
Why the housing market continues to disappoint: supply-side issues – Cardiff Garcia

Helpful Reminders
Americans say a family of four needs nearly $60,000 per year to get by - Gallup

Black Market
Argentina is considering amnesty for those who launder money through its banks – Quartz

Valuations
No one is sure if this mansion listed at $190 million is actually worth that much – WSJ

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

The story itself, by Nick Summers and Max Abelson, consists mainly of rich corporate insider types talking about how wonderful Jamie Dimon is, and how ridiculous it is that anybody might consider stripping him of the chairmanship of JP Morgan. Here’s a doozy:

Admiring rivals have been known to call Dimon “the sun god.” That cosmic aura has real use, says Kathryn Wylde, who served on the Federal Reserve Bank of New York’s board with Dimon until his term ended last year. “There’s no doubt that it helped the bank, because so much of that business is built on confidence.” The intrusion of shareholders, in the form of a vote on Dimon’s dual roles, she adds, is “indefensible if the company is performing well.”

Wylde is one of those great-and-good people who turn up on boards all over the place: not only the New York Fed, but also everything from the NYC Economic Development Corporation and the Manhattan Institute to the Lutheran Medical Center and the US Trust Advisory Committee. Her day job is serving as the president and CEO of the Partnership for New York City, a partnership made up exclusively of large companies and the rich people who lead them. JPMorgan is unshockingly among them. Her view of the role of shareholders in corporate governance is fascinating: it’s “indefensible” for them to care about such things so long as they’re getting paid.

But clearly shareholders do care about governance: both Institutional Investors Services and Glass Lewis, advisory firms paid to work out what is in the best interests of shareholders, have come to the entirely reasonable conclusion that Jamie Dimon should not keep his job as chairman of the board.

The battle line between princpals and agents has never been more clearly delineated than it is here. The shareholders of JP Morgan — the owners of the company — want a board which represents their interests, and which can control what the CEO does. The managers and captured professional board members, on the other hand — the CEO class — have rallied around Dimon in an impressive display of high-wattage solidarity. Bloomberg Businessweek quotes Bill Daley, John Mack, Jimmy Cayne, Phil Gramm, Dick Kovacevich, and “two dozen of Dimon’s peers and colleagues” in his defense; Andrew Ross Sorkin, for good measure, adds Barry Diller and Hank Paulson.

Will shareholders see this awesome display of PR firepower and decide that Jamie’s right, he should stay on as chairman after all? If they’re narrowly focused on the short-term future of the JP Morgan share price, then probably they will. After all, Dimon has petulantly threatened to quit if the motion goes through, which would be bad for the share price — and as all of these articles are at pains to point out, there’s not much evidence that splitting the chairman and CEO roles is likely to do any particular good for JP Morgan’s share price over the medium term. (It can help underperforming companies, but that effect disappears with respect to relatively strong ones.)

The cult of the CEO is still going strong: just look at the way Bloomberg has appointed the ex CEO of IBM to try to help the company recover from its recent data scandal. So maybe if you get enough CEOs supporting Dimon, their collective weight will help tip the balance. (Although it’s hard to believe that any shareholders particularly value the opinion of Jimmy Cayne on this issue.)

But the fact is that Dimon should not be chairman of JP Morgan, and shareholders can see exactly why just by looking right there at the cover of Bloomberg Businessweek. No one man should ever be indispensable, and it’s the job of the chairman to ensure that the company is in good solid health no matter what happens to the CEO.

A fuller, and quite wonderful, explanation has also been offered up by the Epicurean Dealmaker, who makes a few more salient points. He explains:

The entire point of separating the roles of Chairman of the Board and Chief Executive Officer is that they have different responsibilities and duties. They are different jobs. Now, perhaps at smaller companies with simple business models and uncomplicated objectives (grow revenues fast enough to meet payroll and pay the bank on time), there is no practical need to separate them. But the bigger a company gets—and I think we can all agree J.P. Morgan is about as big as a firm can get—the breadth and scope of duties each role properly possesses expands dramatically.

Even if Dimon is a great CEO, there’s really no evidence at all that he’s a great chairman, and JP Morgan’s shareholders have the right to install the best possible officeholder in each of those roles.

How do we know that Dimon is a bad chairman? Well, there’s the fact that there’s no good succession planning, for starters. And then there’s the board itself, which is basically a bunch of supine muppets, who do as they’re told rather than actually representing shareholders and holding the CEO to account.

Most intractably, there’s the question of shifting goalposts. As the Epicurean Dealmaker points out, Jamie Dimon is the very last person on the planet who should be in charge of judging whether Jamie Dimon is doing a good job as CEO. For instance: it’s impossible for a bank with $2.4 trillion in assets and 256,000 employees to stay out of regulatory trouble entirely. But how many fines is too many? As Businessweek points out, “the litigation section of the bank’s quarterly filings now runs to almost 9,000 words, or 18 single-spaced pages.” At what point does the litany of legal and ethical lapses become so long that the CEO has to take responsibility, and/or break up the company into small-enough-to-manage chunks? This is an important question, and Jamie Dimon cannot answer it. You need an independent board to do that — to set the goalposts — and JP Morgan’s board is not independent.

In theory, shareholders elect directors, who hire the CEO to run the company. In practice, the CEO picks the directors he wants, pays them a handsome stipend for doing nothing, and they in turn make no attempt to listen to what the company’s shareholders might desire. In fact, they’re quite offended when it’s suggested that they might want to do that at all.

The debate about this vote often seems as though it’s two groups of people talking at cross purposes to each other: the Dimon defenders are making it all about him personally, and what a good job he’s done running the company, while the good-governance types generally say nothing personally about Dimon at all, and instead insist that all they’re doing is standing on principle.

But in fact this is about Dimon personally: it’s about how much power one man can or should be allowed to have. Dimon has too much. It’s time to give him a boss.

Today something strange happened: a dreary, easily overlooked vote at the Commodity Futures Trading Commission ended up on Gawker.

Gawker, Bloomberg, the NYT and HuffPost agreed that the vote, which approved a watered-down reform to the the $633 trillion derivatives market, was a win for big banks.

The 2010 Dodd-Frank act included a provision to bring the opaque world of derivatives — including the kind of trades which nearly brought down AIG — into something like an open market. Over the last three years banks have held 80 meetings with the CFTC officials on how swaps should be brought into public exchanges. Along the way, a proposed rule got pared back: Buyers would have to solicit two prices quotes from banks before purchasing a swap, instead of the proposed five quotes. That requirement will eventually increase to three.

The resulting rule is a small reform, but also preserves much of the status quo. Ben Protess writes that the move “could effectively empower a few big banks to continue controlling the derivatives market, a main culprit in the financial crisis.” (Five big Wall Street banks dominate more than 90% of the derivatives market.)

Wallace Turbeville, formerly of Goldman Sachs, says the two-quote requirement is too easy to game and invites LIBOR-like collusion on swap pricing. CFTC commissioner Bart Chilton voted for the measure, but quoted Churchill to suggest it fell short of full transparency: “The English never draw a line without blurring it.” Republican CFTC commissioner Jill Sommers was the only of the CFTC’s five commissioners to vote against the proposal.

The story of swaps regulation is emblematic of the larger story of financial reform. As Haley Sweetland Edwards’s terrific April piece on Dodd-Frank implementation describes, reforming America’s financial system now hinges on minute details like whether bills contain the word “appropriate”. The financial industry has adopted a death-by-thousand-cuts strategy; as Better Markets’ Dennis Kelleher says, it is “consistently and methodically getting strong rules weakened bit-by-bit, often behind closed doors.”

Jesse Eisinger, reviewing a new book on Dodd-Frank, says that even though it was written by smart, informed people, it left far too much for regulators to hash out:

Smart legislative and regulatory solutions may embrace flexibility and exemptions that banks can later exploit. Regulations that create clear, bright lines may seem simplistic and dumb. But such rules tie regulators’ hands, freeing them from banking influence.

– Ryan McCarthy

On to today’s links:

EU Mess
It’s banks that are killing Europe, not simply austerity – Pawel Morski
Europe’s Central Bank now even wronger on inflation – Simone Foxman

Growth Industries
The US government expects to make $51 billion from student loans this year – Shahien Nasiripour

Bubbly
There may or may not be a housing bubble in places like Brooklyn and Menlo Park, CA – Bloomberg

JPMorgan
JPMorgan’s shareholders have suddenly been denied access to the results of their own votes – DealBook
Jamie Dimon will decide who’s on Jamie Dimon’s board, thank you very much – Reuters

Liebor
The wife of a UBS trader accused of manipulating Libor is venting about justice on Twitter – WSJ

TBTF
The idea that you can wind down a failing megabank in some orderly fashion is probably a myth – Simon Johnson

The Oracle
S&P has downgraded Warren Buffett’s Berkshire Hathaway – BI

Fiscally Speaking
The CBO is still likely overestimating future deficits – Karl Smith

Oxpeckers
The New Yorker welcomes your anonymous leaks – New Yorker

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

Europe is in the midst of its longest recession since it began keeping records in 1995 — even surpassing the calamity that hit the region in the financial crisis of 2008-2009. While the German economy grew 0.1% from the fourth quarter of 2012 to the first quarter of this year, just about everyone else in the eurozone is shrinking.

France’s economy shrank 0.2% quarter on quarter, and is now officially back in recession after just one quarter of positive growth. It’s not alone: Cyprus, Finland, Italy, Greece, the Netherlands, Portugal, and Spain are all in recession right now. And while the UK managed to just barely avoid a triple-dip recession by growing 0.3% in the first quarter, its economy is still 2.6% smaller than it was 5 years ago.

Yesterday, Pew’s latest eurozone survey confirmed that the continent’s sentiment matches its dour economic data. The survey’s disconcerting conclusion:

The European Union is the new sick man of Europe. The effort over the past half century to create a more united Europe is now the principal casualty of the euro crisis… The prolonged economic crisis has created centrifugal forces that are pulling European public opinion apart, separating the French from the Germans and the Germans from everyone else.

Median support for the EU stands at 45%, down 15 percentage points in just the last year. Across the eight surveyed countries, only 26% think the economic integration has strengthened their national economy, a 6 point decline from last year.

The data shows that as Europe’s division and disillusion grows, a familiar, and politically worrying, trend is emerging. Joshua Tucker says that the Germans aren’t just living, as Pew puts it, on another continent, they “appear to be living on a different planet.” 75% of surveyed Germans think their domestic economy is good, compared to a median of just 9% in the other countries surveyed who said the same about their domestic economy. 77% of Germans said their personal economic situation is good. Barely more than half said the same elsewhere.

An economically ascendant and politically isolated Germany was precisely what the euro was meant to prevent. Instead, George Soros says the “euro is in the process of destroying the European Union.” — Ben Walsh

On to today’s links:

Must Read
Inside the massive drug company that fabricated test results for AIDS medication and generics – Fortune

New Markets
Buyouts are so 2009: Blackstone is building dams in Uganda now – WSJ

Politicking
Hedge funds bet on their ability to change the government’s mind on Fannie and Freddie – WSJ

MOOCs
Harvard professors are not huge fans of free online courses – Bloomberg

Kids Today
“The Pentagon estimates that only one in four of today’s youth are fit for military service” – CNN

Leaders
Lloyd Blankfein, willing listener to Jamie Dimon’s problems – DealBook

Second Acts
Sallie Krawkcheck buys 85 Broads – DealBook

Hilarious
The 21 Fiercest Things Richard Nixon ever did – Alex Pareene

New Normal
The world is in a bond drought – Reuters

Layoffs
HSBC will cut another 14,000 jobs – Reuters

Bitcoin
Homeland Security shuts down major Bitcoin payment system – BetaBeat

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

Ezra Klein has a good summary of the latest CBO budget projections, which show that the national debt really isn’t going to be a problem at any point in the foreseeable future. The deficit isn’t going away, of course: the smallest it’s likely to get, according to the CBO, is $378 billion, or 2.1% of GDP, in 2015. But that’s entirely manageable, and puts the national debt-to-GDP ratio on a pretty flat trajectory over the medium term.

Of course, in the real world, none of this is actually going to happen as forecast. It’s hard enough to forecast what’s going to happen in 2013, let alone what’s going to happen in 2023: the CBO projection for this year’s deficit has fallen from $845 billion to $642 billion just in the past three months, so it’s worth taking all future forecasts with a large pinch of salt — especially since the one thing that’s certain is that there will be substantial changes to US fiscal policy between now and 2023.

This chart contrasts quite dramatically with the bipartisan consensus that America’s national debt — and especially the way that it is built up by the entitlement programs of Medicare, Medicaid, and Social Security — are serious problems. As Paul Krugman explains wonderfully in his latest essay for the NYRB, America’s social safety net was actually a key channel through which countercyclical government stimulus entered the economy in the wake of the financial crisis. And given how difficult it is to legislate expansionary fiscal policy on the fly, there’s a strong purely economic case for keeping such programs.

With any luck, then, this chart will help us to stop bellyaching about the debt, and create a bit of space where we can try to work out how to really get the debt-to-GDP ratio down over the long term, by concentrating on increasing the denominator rather than decreasing the numerator. But don’t hold your breath. Even the CBO takes pains to warn of debt problems in the future, saying that a debt-to-GDP ratio around 75% “would have serious negative consequences” in terms of interest expenses, lower wages, and worse:

A large debt increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.

In the USA, this risk is de minimis, barely even worth mentioning: not only do we print our own currency, but in general US government bonds are universally considered the safest assets on the planet. So what’s the CBO playing at, here?

Krugman has a fascinating explanation for what might be going on:

Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.

I’d argue that Keynes was overwhelmingly right in his approach, but there’s no question that it’s an approach many people find deeply unsatisfying as an emotional matter. And so we shouldn’t find it surprising that many popular interpretations of our current troubles return, whether the authors know it or not, to the instinctive, pre-Keynesian style of dwelling on the excesses of the boom rather than on the failures of the slump.

My opinion is that it’s even simpler than that. Krugman naturally sees macroeconomic problems in terms of cycles: there are booms and busts, and there are emotional reasons why economists prefer to concentrate on the problems with booms, and apply the solutions to those problems (spend less money) even during busts where they are contraindicated.

But I think the general view of the public, and of our mainstream elected representatives, is even simpler. These people aren’t economists, and don’t think in terms of cycles; they certainly can’t clearly articulate the difference between a financial crisis and a fiscal crisis. Everything just reduces to “we spent too much, we should spend less”, which makes intuitive sense: the biggest problem with Keynes is that, just like Ricardo, a lot of what he discovered is deeply counterintuitive.

In which case, Krugman’s cyclical arguments are not going to carry the day politically: it’s hard to explain that the right thing to do changes according to various measures of resource utilization. Instead, it might be best, on a tactical political level, just to point at the CBO’s debt-to-GDP chart and say look, we’ve solved this problem now. Even if the CBO wouldn’t really agree with that interpretation.

No CEO relishes being on the receiving end of a Dan Loeb letter. Today’s unfortunate addressee is Sony’s Kazuo Hirai, who woke up to find Loeb urging a partial breakup of the Japanese conglomerate.

Loeb was more cordial, today, than he has been in the past; he even delivered his message by hand in Tokyo. And he certainly didn’t tell Hirai to “bend over the hedge funds have something special for you” as he wrote of Fairfax’s Prem Watsa in 2006. Nevertheless, he packs a punch: Loeb’s hedge fund, Third Point, has a $1.1 billion stake in Sony, and he’s fresh off the success of installing Marissa Mayer as the CEO of Yahoo.

Loeb’s Sony plan is twofold. First, he wants the company to spin out a 15-20% stake in Sony Entertainment, the company’s movie, TV, music and cable division. That move would raise up to $2 billion which in turn would finance the second part of Loeb’s plan: a revamp of the company’s once-vaunted but now-diminished electronics division. Loeb reckons that his scheme could boost Sony shares by 60%.

For all his boldness, Loeb is strategically vague at the same time, with language such as “our plan shifts that paradigm” and a notable lack of specificity about what in particular he’d like to see Sony Electronics do with $2 billion from Sony Entertainment. He likes Sony’s Playstation, smartphones and cameras, but Sony has a lot of catching up to do in these areas: Samsung’s smartphones outsold Sony’s 7-to-1 last year.

Loeb thinks Sony’s woes stem from a lack of focus, but what’s really troubling the company at present is that it “long ago stopped dreaming up game-changing products,” William Pesek writes. After all, in 2010 the company had a focus – 3-D TVs — but it couldn’t attract the customers. It’s unclear how an additional $2 billion will produce a breakthrough gadget given that a lack of resources doesn’t explain Sony’s innovation failures. The company spent $5.5 billion on research and development in fiscal year 2011 while Apple spent only $2.4 billion.

Then again, maybe this whole scheme is a huge bet that Japanese macro policy will continue to drive the Japanese yen down and benefit Sony’s bottom line. — Peter Rudegeair

On to today’s links:

Energy
The price of oil may finally start declining – Quartz

EU Mess
The ECB pushes for a full banking union as Germany stalls - Reuters
The euro is leading to the demise of the EU – George Soros

Life Is Not Fair
An undead Lehman tries to grab millions from non-profits for its bankruptcy creditors – Bloomberg

Welcome To Adulthood
It’s probably time to start talking about global youth underemployment - Shane Ferro

New Normal
The US could return to pre-crisis employment in the middle of next year – Calculated Risk
A new type of growth is coming from the new collaborative sharing economy – FT

Crisis Retro
Nearly six years after the crisis, ratings shopping is very much alive and well – Bloomberg

Good News
The CBO says the deficit problem is solved for the next 10 years – Ezra Klein

Felix
Why dedecimalization is a bad idea – Reuters

Remuneration
University presidents get paid a lot – Pacific Standard

Strange Bloomberg Headlines
“Brokers Go Gray as Youth Unsustainable Without Cold Calls” – Bloomberg

Ugh
Rich moms are hiring the handicapped to pose as family members to cut lines at Disney World – NY Post

Oligarchy
Family offices are the new private equity firms – Reuters

Protectionism
France may tax smartphones to protect its culture from foreign competition – BBC

Possibly Useless Data
Europeans hate the EU (and the Germans), but can’t quite let go of the euro – FT Alphaville

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

The more centralized and controlling a social network is, and the less that it’s run on a peer-to-peer basis, the more likely it is to run into this kind of trouble. So it probably should come as little surprise to learn that Bloomberg, the highly-centralized and highly-controlling social networking company, has now run headfirst into its very own privacy scandal. (Bloomberg is a competitor of Thomson Reuters, which is my employer and owns Reuters News.)

The Bloomberg terminal is a take-it-or-leave-it proposition, as far as its users are concerned: they either sign on the dotted line, pay their $20,000 per year, and get their terminal — or they don’t. Just as with Facebook, the Terms of Use are non-negotiable: unless you agree to them, you don’t get to use the service. And as everybody who’s ever tried to put a naughty word into a Bloomberg message knows, once you’re signed into the Bloomberg system, Bloomberg is watching you.

Zach Seward‘s sources say that Bloomberg logs every keystroke of every customer; Bloomberg declined to comment to Seward and declined to comment to me, so it’s hard to know what the truth is. But it’s well known that Bloomberg accumulates a truly enormous amount of information; right now, for instance, it says it is hiring big data architects in an attempt to manage it all. That dataset is one of Bloomberg’s great competitive advantages.

Indeed, Bloomberg’s clients in many cases may want it to implement Panopticon-style monitoring of everything their employees do. As Seward says, “at Bloomberg, omniscience is a feature not a bug”: even if the individual employees aren’t enthusiastic about losing all their privacy, their employers, institutionally, see a lot of upside, in terms of compliance and risk management, in keeping a record of everything that their workers do online. If Bloomberg will help do that work for them, included in a terminal subscription they’re going to pay anyway, then so much the better.

Besides, both Bloomberg and its clients have an aligned incentive when it comes to making the terminal as excellent as possible in terms of giving subscribers the information they want as quickly and comprehensively as possible. You can’t do that unless you know how clients are using the terminal — what they’re looking up, where they’re getting frustrated, where they spend most of their time. By sharing usage data and trusting Bloomberg to keep it confidential, subscribers can help make the product even better.

But journalists are a special case. As Bloomberg editor in chief Matthew Winkler says, Bloomberg’s “reporters should not have access to any data considered proprietary” — and it is “inexcusable” that they did. The problem derives from Bloomberg’s in-house news organization priding itself, at least at the outset, on being deeply embedded into the broader company, and making the maximum use of the information on the Bloomberg terminal.

Bloomberg News’s Kevin Reynolds, for instance, talking to Brill’s Content in 2001, boasted that “as a reporter here, you have knowledge going into the interview that your competitors don’t even have at the end,” thanks to the information in the terminal. And in case there was any doubt that, as Amy Chozick writes, “the news operation was assembled in the 1990s primarily as a way to sell more terminals,” it was laid to rest by Mike Bloomberg himself, in his autobiography. “Most news organizations never connect reporters and commerce,” he wrote in Bloomberg by Bloomberg. “At Bloomberg, they’re as close to seamless as it can get. That’s our system.”

In that context, it was absolutely natural for journalists to have access to the same data being seen by the sales staff: at Bloomberg, the reporters were deliberately tied as closely as possible into the commercial terminal-sales function. Too closely, it turns out. As times changed, and, in Winkler’s words, “as data privacy has become a central concern to our clients,” it became necessary for Bloomberg’s journalists to be completely removed from client data. They weren’t, and, as Bloomberg CEO Daniel Doctoroff writes, “although we have long made limited customer relationship data available to our journalists, we realize this was a mistake.”

So, Bloomberg says it made a mistake, it has apologized, and it is not going to happen again. End of story? Not entirely. For one thing, the Europeans have pretty strict privacy laws, and are talking to Bloomberg about what happened; no one knows how those talks could conclude. On top of that, for all that Winkler’s apology runs under the headline “Holding Ourselves Accountable,” so far there have been no reports that anyone at Bloomberg is being held accountable. A Bloomberg spokeswoman declined to comment.

Bloomberg’s reporters use the Bloomberg terminal for everything they do: they’re an inextricable and central part of the Bloomberg social network. And while the newsroom has now lost its access to certain functions, the company would not comment on the degree to which the changes are affecting the vast majority of Bloomberg employees who don’t work in the newsroom. For the time being, it seems, thousands of Bloomberg employees around the world have retained their access to key information about employees of Goldman Sachs, the Federal Reserve, the ECB, the US Treasury, and countless other organizations — information which, in many cases, is fiercely protected even within the organizations themselves. (If an employee has been quietly suspended and is no longer actively working for the organization in question, that’s not going to be common internal knowledge, but it’s easy to see if you can see when they last logged in to their Bloomberg.)

Many of Bloomberg’s clients, especially the Europeans, are likely to be unhappy about the fact that such sensitive information could continue to be widely available within the company. But, just like participants in other social networks, they don’t have a lot of choice in the matter. The more time you spend on your Bloomberg, the more value you get out of it — and the more that Bloomberg staffers are going to know about when and how you work. That’s been the bargain from the beginning, whether you liked it or not.

Small-cap stocks are trapped in a cycle of arrested development. They are small, so they are ignored by analysts and market-makers. And because they are ignored by analysts and market-makers, they remain small.

The first part of this is surely true: analysts and market-makers do tend to ignore small-cap stocks. But from there on in, things start getting very sketchy. For one thing, there’s no evidence that if you’re ignored by market-makers, your company finds it harder to grow. Even today, in order for a company to grow, it needs more than just a fluffy stock price: it also needs things like increasing profits, or revenues. And while higher profits can feed quite easily into a higher share price, the causality is much harder the other way around — having a high share price doesn’t particularly* help you grow, especially if you’re not interested in acquisitions.

So the premise here is pretty unconvincing to start with: the idea that if we get more analysts and market-makers to cover a particular stock, that will help publicly-listed small-cap companies grow. But there’s a hidden premise here as well, which is even less convincing: that if we allow stocks to be quoted in increments of 5 cents or 10 cents, that will improve the quantity and quality of the market support those companies receive.

One of the good things about the world is that the world of stockbrokers is in secular decline. Americans are — finally — beginning to realize that discount brokers and ETFs and index funds are much more sensible ways to invest than the old method, where a friendly sales guy from Merrill Lynch would chatter away about this stock and that stock and eventually charge you an enormous commission for the privilege of buying or selling at what was invariably exactly the wrong time.

Congressman David Schweikert, who is putting forward the new bill and who represents Scottsdale, Arizona, is puzzled that the SEC has done nothing on tick sizes, despite “overwhelming evidence that wider ticks for small-cap companies will stimulate liquidity, encourage capital formation, and grow jobs”. But I for one haven’t been overwhelmed by any such evidence, and the people pushing it seem to be exactly the industry insiders who would make lots of money from it.

The Schweikert bill is particularly interesting because it doesn’t actually decimalize the small-cap stocks in question. Instead, it quite explicitly just funnels money from small investors to bigger investors and brokerages. Here’s the key bit, with my emphasis added:

The Spread Pricing Liquidity Act allows companies with public float of less than $500 million and average daily trading volume under 500,000 shares to select to have their securities quoted at increments of either 5 or 10 cents, while maintaining trading between the quoted ticks.

Essentially, what this does is disembowel the wonderful NBBO system which has done more to protect small investors than anybody else. NBBO, which stands for National Best Bid/Offer, is the system whereby all of the stock quotes on all of America’s exchanges are aggregated, so that all investors can at any time see the very best bid and the very best offer for any stock. If you’re a small investor, these days, you can pretty much always get immediate execution at NBBO, the best price in the market. The combination of decimalization and high-frequency trading has, in the words of former SEC commissioner Arthur Levitt, “transferred billions of dollars from the pockets of brokers into the pockets of investors;” for the first time ever, small investors get the best execution in the market, rather than the worst.

(This, incidentally, is one of the reasons why it’s hard to write about the problems with high-frequency trading for a generalist audience — there’s no Wall-Street-is-ripping-off-the-little-guy angle, for all that everybody would love to find one.)

Under the Schweikert bill, however, all that goes away. While the brokers and the algobots will still continue to trade in penny increments, smaller investors — and quite possibly bigger investors, too — will only see prices quoted in multiples of 5 cents or 10 cents. For instance, say a stock is quoted at $13.35/$13.40. If you put in a buy order, you’re going to pay $13.40. But the real trading will be going on inside the spread, and your broker can go into the market and snap it up at $13.38, while you still pay the higher price. There’s no way that small investors can possibly benefit from this.

Will brokers take the rents they extract from small investors and reinvest them in deeper coverage of small-cap companies? That’s the hope, but I’m not holding my breath. In a shrinking market, they’re much more likely to hold on to their profits as much as they can. And besides, it’s not like companies need David Schweikert to come to the rescue if what they want is a wider bid-offer spread: all they need to do is have a stock split.

Schweikert was one of the prime movers behind the problematic JOBS Act, where the SEC has done a good job of stalling on various silly yet Congressionally-mandated reforms. This bill seems like a replay: Schweikert wants to force the SEC’s hand on dedecimalization, since the agency is being sensible and dragging its feet. I hope he fails.

*Update: Primack points out that a higher share price can be helpful if companies want to raise subsequent equity rounds, after they’ve gone public.

Two of the world’s largest retailers say they have a plan to stop tragedies like the Bangladesh collapse from ever happening again. H&M, along with Inditex, which owns the Zara brand and is the world’s largest clothing retailer, has agreed to work with the International Labour Organization on building and fire safety standards. Walmart hasn’t signed on, but is working on a separate safety program.

With more than 1,100 dead, this is, James Surowiecki notes, the deadliest disaster in the history of the garment industry and one of the worst industrial catastrophes ever. The Bangladesh story is also, he says, about how Western consumption habits have shaped the global supply chains:

Most of us have a sense that low prices in Dubuque have something to do with low wages in Dhaka, but that’s just one aspect of the pressure that we as consumers exert on global supply chains. Our insatiable demand for variety and novelty has led to ever-shorter product life cycles. In consumer electronics, the average product is replaced in just eight months. The rise of fast fashion means that clothing stores get new products almost every week.

Americans have become all-too accustomed to this kind of “fast fashion” (read: cheap) clothing. The WSJ reports that clothing prices are up just 10% since 1990, while food prices are up 82%. Global competition has put tremendous pressure on Bangladesh’s $18 billion garment industry to keep its already low costs from rising. “Average monthly pay in 2009 for workers in Dhaka was $47, vs. $235 in Shenzhen and $100 in Hanoi”, Bloomberg Businessweek reports. Already at the bottom of the global wage-scale, workers are quite literally prevented from bargaining by force: 40% of the industry’s workers, which are predominantly female, report being beaten by bosses.

As Olga Khazan points out, retailers have long dragged their feet on safety measures that would have added just a few cents to the cost of clothing. H&M, Gap and Walmart refused tougher safety standards after a November fire killed 112 Bangladeshi workers.

The dynamic that allowed the companies rejection of new standards to fly somewhat under the radar may be changing, and some retailers are making the origin of their clothing more transparent. However, there is also research that indicates that even a tragedy on the scale of Dhaka may not shift apparel buying behavior — aesthetics easily sweep the moral consequences of decisions from the consumer mind. Muhammad Yunus believes the solution lies in part in an international minimum wage. – Ryan McCarthy and Ben Walsh

On to today’s links:

Tax Arcana
Europe is talking tough on corporate tax-dodging — while helping big companies cut their tax bills – Jesse Drucker

Ugh
How austerity killls - NYT

JPMorgan
Exxon’s former CEO may decide Dimon’s future as JPMorgan’s chairman – DealBook

Oxpeckers
Bloomberg’s editor-in-chief apologies for reporters’ “inexcusable” snooping on clients - Matthew Winkler

Alpha
“Some of the world’s leading hedge funds are pouring money into the Greek banking sector” – FT

Taxmaggeddon
“There will be no shortage of witnesses” in the investigation of the IRS’s targeting of conservative groups – NYT
Pro-Israel groups are also claiming they have been targeted – BuzzFeed

Data Points
“1.65 million U.S. households fell below the $2 a day per person threshold” – Dylan Matthews

Servicey
Treat your first job like a first date, and other graduation advice from economists – Planet Money

New Normal
America’s Rust Belt is practically begging for new immigrants – WSJ
Young people are propelling the growth of the sandwich industry – AdAge

Financial Arcana
How Fannie Mae made its record profit – James Hamilton

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

Stewart chides Michaelson for his reliance on hedge funds, which have not served the Cooper endowment well. In the 2012 fiscal year, for instance, Cooper’s returns on its managed endowment were negative: they were down 5%, in a period where a standard mix of 60% stocks and 40% bonds would have returned a positive 8%. And with more than $100 million in hedge fund investments in 2008, Cooper was paying more than $2 million a year in hedge fund management fees alone, never mind performance fees. That’s the kind of money the college desperately needs for operational expenses.

Still, overall, Stewart is far too gentle on Michaelson, who was pictured grinning next to former president George Campbell in a highly-mendacious 2009 WSJ article extolling the performance of the Cooper endowment. Here’s how Stewart characterizes the endowment’s performance:

Compared with many universities, Cooper Union did a good job managing its endowment through the recent financial crisis. As recently as 2009, the school maintains, it ranked first among all American universities for endowment performance.

In reality, as Stewart never really explains, that “endowment performance” was entirely fictional — it was magicked out of thin air when Michaelson revalued the land under the Chrysler building upwards in order to mask a torrid performance from the rest of the endowment.

On top of that, Cooper levered up its endowment at exactly the wrong time, borrowing $34 million at an interest rate of 5.875% and investing it in the endowment, where it promptly evaporated during the financial crisis. Michaelson tries to explain this away by saying that the borrowed money was kept in cash, while it was the rest of the endowment which lost money. But if you look at the endowment that way, then, as Stewart points out, hedge funds accounted for more than 60% of the funds Michaelson was managing. That’s an insane ratio, especially given that Michaelson was quoted in the WSJ as being “especially critical” of the Yale Model of investing in illiquid alternative asset classes.

Stewart also goes easy on the trustees — Michaelson foremost among them — for making their single biggest mistake: borrowing $166 million to build the grandiose New Academic Building. “Hardly anyone disputes Cooper Union’s need for new engineering facilities,” he writes — and he’s hilariously, egregiously wrong about that. Virtually everyone outside the Board of Trustees disputed Cooper’s need for new engineering facilities — even a large chunk of the engineering faculty, which had the most to gain from the new building. The “need”, it’s now abundantly clear, was not a real need at all; instead, it was a device, an excuse to make the decision to construct the new building seem reasonable, even necessary.

Stewart essentially says that Cooper did need to build something new, it just didn’t need to build something quite as grand and expensive as it ended up with. But he’s deeply and importantly wrong about that. Here’s the thing about mortgages: they’re not just free money, they’re something you need to pay off, over time. And in order to do that, you need income. When Cooper Union’s trustees, including Michaelson, took out a $175 million 30-year fixed-rate mortgage at 5.875%, they knew exactly how much money Cooper would need to repay that mortgage every year.

And they had no idea where that money was going to come from.

This — much more than any endowment mismanagement — was the colossal, fatal error made by Cooper’s trustees. There are generally two ways of paying down a mortgage: either you go to work and earn money you then use to pay the mortgage, or else you rent out the building itself and use the income it generates to cover the mortgage payments. Neither route was available to Cooper: all of its income, and then some, was needed to run the school, which meant that there was nothing left over to pay the mortgage. And with the exception of a tiny coffee shop on the ground floor, Cooper isn’t renting out any of the new building.

At the end of Stewart’s piece, Michaelson makes a very important admission:

Mr. Michaelson conceded that the school could have continued to invade the endowment to cover deficits and would have survived until 2018, when the higher payments from the Chrysler lease kick in. “But what kind of school would you have had by then?”

The answer, of course, is a free one; if this really was an option, then the trustees owe the Cooper community a serious, detailed explanation of how and why they ended up making the decision to charge.

But the real answer is that while the higher payments from the Chrysler lease would be enough to cover the operating costs of a small, excellent college, they would not be enough to cover Cooper’s operating costs and the mortgage payments on the new building. Michaelson is making it sound, here, as though he decided to charge tuition for the sake of the school. In fact, he decided to charge tuition because that’s the only way that the school can pay off the monster loan he took out with no conception of how he could ever pay it off.

What’s Michaelson’s explanation of where he thought the money for the mortgage payments was going to come from? He doesn’t seem to have one, but the closest thing that Stewart finds is a deluded “if you build it, they will come” mindset:

Trustees told me that the college’s development consultants told them that a signature building with a marquee architect — in this case, Thom Mayne of Morphosis Architects — would attract a large donor eager to have his or her name on a trophy building.

But no such donor materialized, and experts I consulted said Cooper Union had it backward — the first step is to attract the donor, who then is involved in choosing the architect and designing the building. “I’ve never heard of a case where you build the building first and hope a donor comes along,” said Kenneth E. Redd, director of research and policy analysis for the National Association of College and University Business Officers.

Passing the buck like this to anonymous “development consultants” is just despicable. It was the board which borrowed $175 million without being able to pay it back, not the development consultants. And what’s more, it was the board which locked in a fixed 5.875% interest rate for the next 30 years, which isn’t the kind of thing you do if you’re basically just borrowing money on a short-term basis before a deep-pocketed donor comes along to pay off the mortgage in full.

And in any case, according to what we now know, once the building had been constructed and no beneficient billionaire had materialized to pay for it, Cooper was financially doomed: it had no ability to pay off the monster mortgage. If that was the case, then why on earth was Michaelson telling the WSJ — after the New Academic Building was finished — that Cooper’s financial condition was positively rosy?

All of this, however, is stuff we already knew, pretty much. The scariest part of Stewart’s article comes with another quote from Michaelson, where he grumbles about the fact that most of Cooper’s income comes from the Chrysler Building. (The land under the Chrysler Building was bequeathed to the college by Peter Cooper.)

Stewart quotes Michaelson as saying that having 84% of the endowment in a single asset “is against everything I stand for”. He then does a lot of back-of-the-envelope calculations designed to show that maybe Cooper should sell the land under the Chrysler Building, and intimates that the main reason Cooper hasn’t done so is the board’s “nostalgic attachment” to the asset.

On its face, this is completely crazy. The land under the Chrysler Building is worth substantially more to Cooper Union than it is to anybody else, because under a deal that Cooper Union struck with New York City, the college receives more than $18 million per year in something called payments in lieu of taxes, or PILOTs. That’s the amount of money that the building would normally generate in property-tax payments for the city; instead, those payments end up going straight to Cooper Union, and New York City gets no property tax revenues at all from the iconic skyscraper.

If Cooper sold the land under the Chrysler Building, all those property tax payments would revert to New York City, rather than the new owner, and a substantial revenue stream would be effectively destroyed, rather than sold. I don’t know what the net present value is of the Chrysler Building’s PILOTs, but it’s got to be somewhere in the region of half a billion dollars, if not more. It makes no sense whatsoever to give that up for nothing.

So why is Stewart taking this cockamamie talk seriously, and why is Michaelson talking with a straight face about selling the land under the Chrysler Building? The answer, I fear, is that Cooper Union, in deciding to charge tuition, has given New York City more than enough ammunition to tear up the deal whereby Cooper gets the Chrysler Building’s PILOTs.

Cooper Union says that the current occupation of the president’s office “has created a poisonous and dangerous atmosphere that can potentially destroy the school forever”. No one in the administration is going to come out and say explicitly what that means, so let me translate it into English for you: they’re saying that the more noise Cooper’s students make in protest at the tuition decision, the more likely it is that New York City is going to decide that it wants its property-tax revenues back, and that Cooper Union, without free tuition, is not a worthy enough cause to justify an effective $18 million per year public subsidy.

If Cooper loses its PILOT payments, then that really would be financially devastating for the college, and it would at that point be effectively forced to liquidate the Chrysler asset, whether it wanted to or not. It seems to me that Michaelson is using Stewart to help lay the groundwork for such an eventuality, and is trying to make the case that selling the Chrysler Building land is not such a dreadful thing to do after all.

I don’t buy it. But looking at what Michaelson says in Stewart’s piece, I can’t help but wonder whether maybe there is a solution here after all. The problem, remember, is that Cooper can’t sell the Chrysler Building land because if it were to do so, the new buyer wouldn’t receive those massive PILOT payments. But what if the purchaser of the land were another important civic institution? Could Cooper Union, working with the Bloomberg administration, work out a deal whereby the Chrysler Building land — with its PILOTs intact — could get sold to Trinity Church, or one of New York’s big non-profit hospitals, or even possibly the Bloomberg Foundation? New York has no shortage of massively-endowed foundations and non-profit organizations which have the wherewithal to buy such an asset; many of them might be interested in it.

It’s not clear why New York City would have any particular desire to go along with such a deal, unless they could by doing so claim to have managed to preserve Cooper Union as a tuition-free college embodying Peter Cooper’s founding principles. In other words, Cooper’s board of trustees would have to go back on their decision to start charging tuition. But the proceeds from selling the Chrysler Building land would be more than enough to pay off the mortgage on the New Academic Building; and at that point, the trustees would just have to work out how many students they could afford to teach on the income from the money left over. Cooper Union would continue to exist, it would continue to be free, and Mike Bloomberg would end up capping his tenure as mayor by saving a noble institution from the brink of disaster. I think Jamshed Bharucha should put in a call, even if he has to do so from his home phone.

At a conference in Chicago today, Ben Bernanke seemed like he was talking directly to his critics. In a speech on monitoring the financial system, Bernanke’s message was, essentially: we’re keeping an eye on things. (Shadow banking, in particular, is still a risk, he warned.)

Bernanke’s speech comes on the heels of this year’s Ira Sohn conference in New York, where, as Joe Weisenthal and Reuters both noted, one of the major themes among hedge fund bigwigs was “Bernanke hate”. Stanley Druckenmiller, a former protege of George Soros, told the crowd that the Fed “is running the most inappropriate monetary policy in the history of the developed world”. Paul Singer worries that the “cessation of money printing will cause an instant Depression” and says the Fed’s much-discussed end of quantitative easing will be difficult to impossible. And prominent economist Martin Feldstein, a former Reagan econ adviser, wrote Thursday that the Fed’s quantitative easing program has loaded up the Fed’s balance sheet but hasn’t helped the economy in any significant way.

Why all the anti-Bernanke comments and talk of Fed-induced bubbles? Ryan Avent cites a few factors, including recent (nominal) stock market highs and a February speech, in which new Fed governor Jeremy Stein warned of a number of possible financial market bubbles. Paul Krugman thinks the Fed bashing may be just be self-interest — hedge fund managers are paid as a percentage of their overall profits, and the industry certainly has been terrible in that regard of late. Weisenthal says “anti-inflation is kind of a nostalgia trip” for old American hedge fund managers stuck in the mentality of the 1980s.

Pawel Morski looks at lending, the shadow banking sector and the bond market and sees little evidence that the Fed is pushing the financial sector into anything resembling pre-crisis behavior. Still, the anti-Bernanke crowd may have some new ammunition: junk bond yields fell below 5% this week for the first time ever, IFR notes. As the Fed has kept interest rates at historic lows, investors looking for higher returns have piled into the junk-rated corporate debt. Even if that 5% record is effectively meaningless, these milestones can have an effect. “Asset bubbles now rank as the number one concern on credit investors’ minds,” Bank of America Merrill Lynch analysts said. - Ryan McCarthy

On to today’s links

Interesting
What nail salons tell us about the benefits of low-skilled immigration – Tim Fernholz

Right On
Abenomics might be working in Japan – NYT

Legalese
California sues JPMorgan Chase for flooding the courts with credit card debt cases – NYT

Deals
Carl Icahn gets serious about a Dell buyout alternative – WSJ

The Fed
How the Fed is monitoring the financial system – Ben Bernanke

Educational
Maybe college isn’t for everyone. But it’s probably for you – Dylan Matthews
In other news, the employment-to-population ratio for college graduates is declining – Business Insider

Good Luck With That
In Asia, “property trusts are the new gold” – Reuters
Meanwhile, in London, half of all new home purchasers are foreign – Bloomberg

Wonks
A defense of the wonk bloggers – Mike Konczal

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

For now, many analysts consider the Mail Online a growth source for a strait-laced media company. The parent company’s total annual revenue is about $2.7 billion and its net income is $466 million. It depends on newspapers for about 20 percent of its profits, according to Mr. Reynolds.

Alex DeGroote, a media analyst with Panmure, Gordon & Company, said that while Mail Online was still not profitable, its growth had helped its broader company’s stock price grow roughly 80 percent in the last year.

This is crazy. For one thing, as we’ve seen, the Mail Online isn’t really growing: on the internet, 2.4% growth in 15 months is decidedly weak. For another thing, as DeGroote points out, it isn’t making any money. But more to the point, DMGT, the parent company, is so enormous that Mail Online can’t possibly account for the rise in its share price.

DMGT’s market capitalization is $2.84 billion; it has risen some $1.26 billion in the past year. If DeGroote really thinks that Mail Online accounts for a significant chunk of that growth, he would have to think that the rise in the value of Mail Online, just in the past 12 months, has been the best part of a billion dollars. By that logic, given that the site was already extremely popular a year ago, the overall value of Mail Online would probably have to be more than the entire value of its parent company.

In reality, the value of DMGT has almost nothing to do with Mail Online. The site might be a traffic powerhouse, but the internet is full of high-traffic sites which are worth very little. Traffic, in and of itself, is worth very little, and there’s no indication that readers are willing to pay for Mail Online, or that advertisers are willing to pay much for those readers. (The site’s revenue of $7.2 million is about 0.25% of DMGT’s $2.7 billion total revenue.)

DeGroote, here, is falling victim to the visibility fallacy: Mail Online is by far the most visible part of DMGT’s business, and so he thinks that it must account for most of the change in its share price. In reality, however, if DMGT decided to shut down the entire site tomorrow, its value would probably barely be affected. If you want to find a reason for why DMGT’s share price has performed so well of late, you’re going to have to look elsewhere.

Partly as a result, almost nobody buys and sells stakes in hedge funds as an investment. (As Peter Lattman recalls, Anthony Scaramucci tried to do that, and failed, before he became a fund-of-funds manager.) Indeed, there are precious few hedge funds where such stakes are even traded. If you want exposure to a certain manager’s alpha-generating abilities, then you’re better off just investing with her and paying 2-and-20.

This is bad news for banks forced to get rid of their hedge fund arms as a result of the Volcker Rule. If they just close them down, then they’ll lose money. But there also aren’t willing buyers for such things out there in the world. So Citi, for one, is doing the only thing it can. It spun off Citi Capital Advisors at the beginning of March; the firm is now called Napier Park Global Capital. It’s mostly owned by its managers, but Citi has retained a Volcker-compliant 25% stake, so if Napier Park does well on its own, Citi should be able to make something out of the deal.

Bloomberg’s Donal Griffin is not happy about this — not happy at all. He first wrote about the spin-off in January, when he found a hedge fund consultant, with the wonderful name of Ezra Zask, who was willing to say that Citi Capital Advisors was worth $100 million. Griffin managed to obtain “unaudited, internal CCA performance data” from the company, but he didn’t reveal the contents of that data — only that it had somehow managed to get extrapolated into the $100 million price tag.

Griffin’s story appeared under the headline “The Great Citigroup Hedge Fund Giveaway”, and quoted a professor at George Mason University asking why Citi wasn’t selling the unit. (Griffin didn’t bother to ask whether anybody on the planet would be willing to buy it, in such a deal.)

Griffin has now returned with another story on the same subject, and once again he has obtained confidential documents — this time “internal projections” of the fees it might make in future. Those fees are incredibly uncertain, of course: they rely on the company being able to raise new money from investors, as well as outperform the markets. But guess what, here’s Ezra Zask again, right at the top of the article:

Jonathan Dorfman and James O’Brien are among executives who got 75 percent of the investment firm for free when it broke off from Citigroup earlier this year. The business may be worth $360 million, according to hedge-fund consultant Ezra Zask.

Zask evinces no sheepishness about more than trebling his valuation for the company over the space of four months, and Griffin doesn’t explain why Napier Park is worth so much more today than he thought it was worth in January. He does, however, go get a few more estimates for how much the company might be worth: one said it “could be worth as much as $300 million by 2016 if the firm replaces Citigroup’s money with outside investment and attracts extra cash”, while another gave a range of somewhere between $61 million and $251 million. But those estimates are much lower down in the article: Zask’s highball estimate comes at the very top. And again, Griffin never bothers to explain who on earth would be willing to pay any such sum for a stake in the company.

There’s a reason that you don’t often see estimates for hedge funds’ valuations, as opposed to their assets under management: such numbers are generally hypothetical to the point of meaninglessness. But Griffin is convinced that since Citi has given away something very valuable, something smelly must be going on here.

It’s true that if Napier Park’s principals manage to turn the company into a success, then they will do very well for themselves. That’s the way that hedge funds work. But what I don’t see is what kind of choice Citi had in the matter. It can’t own the company any more, and it is being forced to withdraw the money it has invested there. So it really only had two choices: it could spin out the company, retain a minority stake, and hope that it manages to do well in the future — or it could just close it down entirely, and suffer a substantial loss. The former is clearly the more attractive option.

If Griffin is going to write a series of articles talking about Napier Park’s value, then it really does behoove him to explain what exactly he means by that. Was there a third option on the table? Could Citi have found a buyer for the business, who would have paid the bank some nine-figure sum for the privilege of owning it? If so, who might that buyer have been? And if not, in what sense do all these valuation figures mean anything at all?

Not all cash flows are created equal: an asset is worth, in the real world, only what someone else is willing to pay for it. Absent such a bidder, it seems to me that anybody talking about Napier Park’s valuation should start at zero, rather than with some academic discounted-cash-flow analysis.

It’s been a big week for Tesla: The electric car maker announced yesterday that the company turned a profit last quarter for the first time in its history, while saying it would stop regularly releasing the number of reservations it has taken for its cars. That means the market will lose the data it had be using as a metric for measuring electric car demand.

Tesla’s results came as Consumer Reports gave the Model S a rating of 99/100 – the first time a car has achieved that rating since 2007. The company’s stock shot up 24% overnight.

Tesla’s surging share price might not have all that much to do with its quarterly results. Rather, it looks like a classic short squeeze: in early April a whopping 60% of all tradeable Tesla shares had been sold short. Those shorts are in a world of pain right now, and the stock will probably just continue to rise until they capitulate and cover at a massive loss. It’s beginning to look a lot like the Porsche/Volkswagen short squeeze back in 2008. Here’s the Tesla stock chart, since its IPO:

There is more to the Tesla story than just stock-market fun and games. Being environmentally friendly is an incredibly lucrative business right now in the auto industry. According to the LA Times, “Tesla’s earnings were enhanced by sales of environmental credits to other automakers; these credits are awarded to clean vehicle makers as part of California’s efforts to reduce air pollution. Sales of the Zero Emission Vehicle credits generated $68 million in revenue for Tesla in the quarter.”

The company is also profiting on its renewable fuel credits, according to Izabella Kaminska, because of a US law that requires refiners to blend more biofuel into their gas each year, or buy what are known as RIN credits. Because older car models don’t run well enough on the amount of biofuel that will soon be required in gasoline by law, all American refiners and fuel importers have to buy RIN credits, which Tesla is happy to sell them. – Shane Ferro

On to today’s links:

Yikes
China is running out of ways to grow  - Quartz

Crisis Retro
With a $59 billion dividend, Fannie Mae will help the US avoid the debt ceiling (for a few months) – WSJ

UGH
100,000 homeowners received national mortgage settlement checks for the wrong amount – NYT

Crime And/Or Punishment
Phil Falcone has agreed to a loophole-ridden 2-year ban from the financial industry – DealBook

Alpha
If hedge fund managers are so smart, how come they can’t beat a basic index of stocks and bonds? – Matthew O’Brien

Wow
Most nights, Netflix accounts for one third of all web traffic in North America – Businessweek

Austerity Bites
Without austerity measures, US unemployment would be 1% lower and growth would be 2% higher – NYT

Oxpeckers
Politico is testing a pay wall – Michael Calderone

Data Points
The problem with the latest bull market: just 52% of Americans own stocks - NYT

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