Felix Salmon

Bill Easterly has a wonderful riff at Foreign Policy today, entitled “How I Would Not Lead the World Bank”. He urges us all not to pick him as the next World Bank president, and concludes that he wouldn’t even hire himself. And he gives lots of reasons why he’d be rather bad at the job, all of which, in a kind of indirect way, actually help to bolster my idea that Indra Nooyi would be perfect for it.

I would not lead the World Bank by assembling an expert task force of my fellow social scientists, natural scientists, and random unemployed politicians. I would not ask such a well-qualified expert task force to answer the question “What must we do to end world poverty?” — especially if we forget to answer the question “Who put us in charge?”

I would not lead the World Bank to ever use the words “civil society.” I would not emulate my deservedly respected non-predecessor as World Bank president by giving a speech on the Arab Spring without using the word “democracy,” even in a purely descriptive sense. I could not possibly attain a remarkable record of five years of speeches without ever using the word d_m_cr_cy at all.

I would not appoint U.S.-educated elites vetted by their autocratic home governments to represent the underrepresented peoples of the world. I would not negotiate the contents of World Bank reports with governments in either the West or the Rest, except possibly for correcting typos.

I would not lead the World Bank by perpetuating the technocratic illusion that development is something “we” do to “them.” I would not ignore the rights of “them.” If the New York Times should happen to report on the front page that a World Bank-financed project torched the homes and crops of Ugandan farmers, I would not stonewall the investigation for the next 165 days, 4 hours, 37 minutes, and 20 seconds up to now.

The point here is that the president of the World Bank is hamstrung in all manner of ways, both obvious and non-. There’s a reason why Bob Zoellick has never used the word “democracy” in a speech — and that reason is Article IV, Section 10 of the Bank’s Articles of Agreement. “The Bank and its officers shall not interfere in the political affairs of any member,” it says; “nor shall they be influenced in their decisions by the political character of the member or members concerned.”

The political structure of the bank is similarly responsible for the fact that substantially everything the president says, even more than the president’s subordinates, is vetted by the political appointees on the Bank’s board. The World Bank is owned and run by sovereign governments, who will talk until they’re blue in the face about how they’re working for the world’s poorest, but who ultimately are not going to sign on to anything which they don’t perceive as being in their own best interest.

As a result, what’s needed at the World Bank is someone who knows development, but who isn’t deeply invested in their own normative ideas of what must be done. Running the Bank involves a delicate dance with extremely important and powerful shareholders who can effectively shut you down at any time. As Moisés Naím says, “In this case you have to know how to get a large, culturally heterogeneous, technically sophisticated and, at times, recalcitrant bureaucracy to move in the direction you set.”

Naím does a very good job of laying out who the US should not nominate, but is weaker when it comes to who it should be:

Mr Obama should look for a professional who already knows this field, its ideas, players and traps, who has a vision for the World Bank rooted in practical experience with development and who has already run successfully a global organisation.

He does say that picking the CEO of a large multinational corporation is not necessarily a good idea, on the grounds that “the skills needed to survive and thrive” in the Bank “are closer to those found in a well-run public sector than in the private sector”. But the fact is that if you’re looking for an American who has successfully run a global organisation in the public sector, you’re going to end up with a very short list of possible candidates. Americans don’t run big multilateral organizations: the World Bank is the exception to that rule. And maybe Unicef.

Pepsico is big enough — with more than 285,000 employees spread across pretty much every country of the world — that it resembles to some degree the sprawling bureaucracy of the World Bank. At the same time, Nooyi is blandly corporate enough that she’d be able to build a strategy around the art of the possible, rather than around her preconceived notions of how development can and must work. She has demonstrated that she knows development; she’s well versed in the art of diplomacy; and she’s clearly capable of running a large global organization. She’s not the only possible candidate; I for one would love to see Nancy Birdsall nominated. But Easterly’s piece shows how nominating any kind of ideologue is almost certain to end in tears.

On his media tour doing damage control for the quotes he gave to Bloomberg’s Max Abelson, Andrew Schiff rocked up at Tech Ticker last week, to talk to a sympathetic Aaron Task. “The salary you’re making now, you can’t live a middle-class lifestyle in New York City,” said Task. That salary, of course, is $350,000 per year — enough for Schiff to, among other things, pay $32,000 a year to send his 10-year-old daughter to Poly Prep Country Day School.

If you’re a connoisseur of rich people’s whines, you’ll be intimately familiar with the idea that they don’t have much money left after paying for expensive things in general and private school in particular. But sending your kids to private school is the epitome of upper-class snobbishness and elitism, and nobody who does it should ever be allowed to kvetch about their straitened circumstances. After all, they’ve already paid, with their taxes, to send their kids to public school. But their local public school isn’t good enough for little Muffy — in large part because all the rich parents in the neighborhood send their kids to private school instead, and therefore the local public schools aren’t getting the benefits of a significant cohort of affluent, educated, and engaged parents.

What’s more, if you send your kid to public school and augment her education with anything near $32,000 worth per year of books and travel and experiences and even private tutoring, she’ll end up extremely well educated. After all, when you look at studies which adjust for socio-economic status, there’s very little evidence at all that private schools provide a better education than public schools. Indeed, the evidence shows the opposite: that middle-class kids who grow up with two well-educated parents and lots of books around the house will generally do very well in school no matter where they go. Which means that the only real reason to send Muffy to private school is to ensure that she only hangs out with rich kids.

But let’s put aside for one minute Schiff’s complaints that once he’s spent $200,000 per year, not including health insurance, and saved a whole bunch more in his 401(k) plan, he doesn’t have any money left. His main point is that “living in New York is extremely expensive”. And that actually isn’t true. If you’re a financial professional, New York is arguably the cheapest of the world’s financial centers. And most major non-financial cities are more expensive than New York, too.

According to Mercer’s annual cost of living survey, New York lies somewhere between Brisbane and Brasilia, and is significantly cheaper than the likes of Milan, Tel Aviv, Melbourne, Seoul, and, of course, London. And it doesn’t even come close to Sydney, Rio, Hong Kong, Singapore, Geneva, Moscow, or Tokyo. Complaining about the cost of living in New York is the ultimate in parochialism: New York might be expensive by US standards, but it’s definitely cheap by global-city standards. Which is why it’s rather ironic to hear this plaint from Schiff, who’s the marketing director for a company which calls itself Euro Pacific Capital.

Most worryingly for Schiff’s clients, however, is the weakness of his logical reasoning. Worrying about his kids, Schiff tells Task that “I want them to grow up the way I grew up as a kid. I’m certainly of middle-class New York City origins. And that is becoming increasingly expensive. And that’s a function of the diminishing middle class and upper-middle class in the United States.”

Actually, Andrew, if a middle-class lifestyle is becoming increasingly expensive, that’s a function of the growing middle class and upper-middle class in the United States. Or Brooklyn, anyway. Why does the brownstone next door cost $1.5 million? Because there’s demand for housing at those prices from a large number of upper-middle-class families who want to live there. If you’re having difficulty raising a family on $350,000 a year, and you’re surrounded by people living the kind of lifestyle you can’t afford, that’s a sign that New York in general, and Cobble Hill in particular, is full of families making enormous sums of money.

The problem in brownstone Brooklyn isn’t that the middle class is diminishing. In fact, the whole reason why Andrew Schiff can’t move into the house he wants is that Brooklyn’s middle class is growing, to the point at which demand from middle-class families for comfortable housing significantly exceeds supply. The natural result is stratospheric prices. Wall Street bonuses might be down this year. But there’s still an enormous amount of money in New York — so much money, in fact, that Andrew Schiff feels unable to buy exactly the house he wants. I don’t think anybody is going to feel sorry for him — but the very fact that he’s in that position is proof that the rich are doing very well for themselves these days.

And in the mean time, if Andrew’s feeling stuck in his current digs, I have a suggestion for him. Buy a dishwasher. Trust me, you can afford it. And it’ll make your current life significantly easier.

Jonathan Binstock is the head of Citibank’s art advisory and finance operation — the shop which was famously founded by Jeffrey Deitch. Recently, he put out a four-page research report on Gerhard Richter. According to Binstock’s report, Richter “has recently emerged powerfully as the next great market force among the tradition of 20th century painters including Pablo Picasso, Willem de Kooning and Andy Warhol”. What’s more, “it is clear that he is in the process of being catapulted to a rare and illustrious realm of authority”. And he turns out to have been a great investment, as this chart from the report purports to demonstrate:

Binstock was kind enough to agree to come in to Reuters to talk about this report, which I’m not really a fan of. For one thing, I don’t think there’s much in the way of meaningful information in Binstock’s chart, and I think it’s incredibly dangerous to make it seem as though artists are investable assets which can be compared in some way to the S&P 500. Binstock says that he’s “trying to bring a level of financial professionalism to the project”, but I’m pretty sure that most of my readers would be able to come up with two or three ways off the top of their heads in which the above chart is unprofessional.

In any case, Binstock is very much part of the way in which the art world is turning individual artists, like Gerhard Richter, into asset classes. When I asked if his phrase about Richter “being catapulted” was a classic momentum-trade analysis, Binstock replied that “yes, he’s being catapulted, and I think that’s an imprimatur that comes now from the market”. In other words, Binstock is now lumping Richter in with Picasso, de Kooning, and Warhol just because Richter paintings are selling for large and ever-increasing sums at auction.

But here’s the thing: Picasso, de Kooning, and Warhol aren’t just good artists, they’re important artists — among the most important of the 20th Century. They permanently changed the way we look at and think about art: what it is, what it can do, what it should look like. Richter’s no slouch on that front, but he’s not in their league, and never will be. What’s more, there’s a very clear distinction between Richter’s important art, on the one hand — think fuzzy black-and-white paintings interrogating Germany’s attitudes to its own history — and his expensive art, on the other. Here’s how Binstock describes the expensive art:

A particularly desirable series of abstract paintings from the late 1980s and early 1990s provides an excellent case in point. The artist made a stunning array of these in a convenient easel size of roughly 48 x 40 in (122 x 102 cm) — domestically scaled objects with overwhelming wall power. Their beautiful rubbed surfaces are among the most delectable of all Richter’s abstract conceits. A red and blue example, sold at the same Sotheby’s sale mentioned earlier, brought $6.3 million, an extraordinary price for a painting that might have been $2 million in late 2007. Indeed, another painting from the series, primarily white and especially creamy, made $1.8 million in October of that year.

Check out the adjectives: “convenient”. “Domestically scaled”. “Wall power”. “Delectable”. “Especially creamy”. This isn’t art, it’s interior design for the private-jet crowd. Binstock is talking here about what he calls “the mid-market”, which he defines as paintings in the $1 million to $5 million range. (Yes, $5 million is now officially the new middle market.) The middle market is where you find apartment-sized, instantly-recognizable paintings which look nice above the fireplace.

Picasso, de Kooning, and Warhol all faced art-world opposition to what they were doing: they were breaking rules, creating something challenging and new. It took a long time for the art world to embrace them, and to this day their work still carries a frisson of transgression. Richter’s expensive art, by contrast — the colorful squeegee paintings, or the beautiful candles — is perfectly calibrated to middlebrow taste, and has never been remotely controversial.

Remember that when we’re looking at extremely expensive art, we’re looking, pretty much by definition, at the art which is most coveted by incredibly rich men. (That’s why paintings of women have always sold for much higher sums than paintings of men.) And while your typical incredibly rich man might well have a lot of sophistication when it comes to arbitraging the capital structure of potential takeover targets, his taste in art is most likely to run very much in line with Matisse’s famous quote about how a painting should be like a comfortable armchair. Richter’s “beautiful rubbed surfaces” sell at a premium for exactly the same reason that the apartments at 15 Central Park West sell at a premium: they’re modern yet timeless, incredibly easy to live in, and utterly inoffensive.

This didn’t make it into the video, but Binstock and I talked a bit about Richter’s mirror paintings, and he told me about a blood-red piece which sold at Sotheby’s in London a couple of weeks ago for about $750,000. He loves that work; I, too, am very partial to the Richter mirror paintings, especially the room devoted to them at Dia: Beacon. But the mirror paintings are very much at the highbrow end of the Richter spectrum, which means that they barely even count as “middle market” as far as the Richter money-scale is concerned.

I therefore had to ask Binstock about the famous declaration by Tobias Meyer of Sotheby’s that “the best art is the most expensive art because the market is so smart”. Binstock said that “in some cases”, Meyer is correct, but he then reversed himself, noting that “you can buy a Velásquez for a lot less than a Richter”. How does that make any sense? “It’s a question of supply and demand,” said Binstock. There might be a much greater supply of Richters than of Velásquezes, but, he said, “there’s much more demand”.

It’s worth quantifying this for a minute. I went on to Artnet to see how many works by Velásquez had sold for more than $100,000 in the history of its database: the answer is three. There’s the portrait which sold at Bonham’s in December for $4.6 million, and then there’s one other portrait, of Saint Rufina, which has sold twice: at Christie’s in New York in 1999 for $8.9 million, and then again at Sotheby’s in London in 2007 for $17 million.

Richter, by contrast, has no fewer than 545 works in the Artnet database which have sold at auction for more than $100,000. If you want a Richter, and you have the money, it’s trivially easy to buy one: you can get one directly from any number of art dealers, or you can just wait until the next round of art auctions, where I’m sure a lot will be available for sale. Even so, there have been 15 different Richters which have sold for more than $10 million since 2007; two of them beat the $17 million Velásquez figure in 2011 alone. There are so many Richters for sale these days that the tenth-most-expensive Richter to sell at auction in 2011 still managed to bring in $5.7 million; in total 108 Richters sold at auction in 2011, at an average sale price of $1.85 million apiece.

Is it really possible that demand for Richters is so much greater than demand for Velásquezes that Richters can flood the market and still sell for more than $20 million, while Velásquezes, which come along once a decade or so, fetch only $4.6 million? That’s what the market is telling us. But I don’t think that the laws of supply and demand are particularly useful here. In many ways, the high prices we’re seeing for Richter represent a liquidity premium, and also the way in which rich people are happier dropping enormous sums of money on art if those sums have already been ratified by dozens of other transactions at similar valuations.

If you look down Wikipedia’s list of the world’s most expensive paintings, there’s certainly a fair few pieces by artists who come up for sale only rarely — Klimt, van Gogh, Titian, Pontormo. But they’re very much outnumbered by Picassos and Warhols with quasi-commodity status. And if you want to be charitable to Binstock, that’s really all he’s saying in his research note: that Richter is becoming a commodity just like Picasso and Warhol, and that the commodification of an artist is generally accompanied by a significant increase in that artist’s valuations.

I would never encourage speculating on the art market: it’s a rigged game, which you’re almost certain to lose. But if you really want to do it, here’s a tip: buy work which (a) is instantly recognizable as coming from the artist in question; (b) looks great when hung on the wall of an expensive apartment, and (c) comes from a fecund artist with a massive output. Oh, and if you can, get a painting with lots of red in it. And remember, you’re not buying great art, or art you particularly love. You’re second-guessing, buying the kind of art you hope that billionaires are going to covet in the future. It’s a pretty soul-destroying exercise, with a low probability of success. But if you’re the kind of person who marks your art collection to market, you probably don’t have much of a soul to begin with.

Farhad Manjoo has an interesting profile of Cheryl Malone’s Article One Partners, a company which crowdsources the discovery of prior art for use in patent suits. These “amateur sleuths are stamping out patent trolls,” according to the title of the page; the headline is “How To Kill Patent Trolls.”

Which is why it’s surprising that there’s no indication in the article whatsoever that patent trolls are even being harmed, let alone killed, by the actions of Article One. Instead, the whole piece is based on a rather rocky syllogism. If you can find prior art, goes the argument, you can kill a patent troll. Article One finds prior art. Therefore, Article One kills patent trolls. Here’s Manjoo:

Patent trolls should be easy to defeat. Say a company tries to enforce some ridiculous claim, as in the recent case over a 1994 patent covering the entire “interactive Web.” It doesn’t seem hard to invalidate a patent that broad. All you need to do is find descriptions of that invention that date back to before the patent was filed.

The problem is that searching for old inventions is really difficult.

Does Manjoo really believe that “all you need to do” is find prior art, and the court case automagically disappears in a puff of smoke? It would be wonderful were that the case. But the real world, sadly, behaves differently.

Probably the most famous patent-troll case in recent years was the one where a troll named NTP managed to extract $612.5 million from Research in Motion. That case covered five different patents: of the five, the U.S. Patent Office had given “non-final” rejections to all of them, and had issued a final rejection to one, when the case was settled.

RIM had discovered prior art for all of the patents that NTP was suing over — but that didn’t really help them at all. The problem was that the patents had already been awarded to NTP, which meant that NTP was within its rights to sue RIM for as long as it held those patents. Once RIM found out what NTP was up to, it could and did challenge the patents at the U.S. Patent Office, which has a procedure for such things. But the U.S. Patent Office is an entirely separate entity from the U.S. District Court, where judge James Spencer made it very clear that his job was to rule only on whether RIM was violating NTP’s patents, and not on whether NTP’s patents were properly granted. Had RIM not settled the case, the court could and probably would have shut down the entire BlackBerry service.

RIM, of course, offered to post a substantially greater settlement if it could get the money back were NTP’s patents deemed invalid; NTP, naturally, rejected that offer. And challenging patents at the U.S. Patent Office takes time; if you’ve already been sued by a patent troll in U.S. District Court or just about anywhere else, it’s almost certainly too late at that point to look for prior art, take it to the USPTO, get the patent invalidated, and win the case that way. Meanwhile, it’s pretty much impossible to keep tabs on every patent awarded to a possible troll, and try to challenge those patents at the USPTO on the off chance that if you don’t, those patents might be used against you.

So while Article One is surely doing God’s work out there, I think it’s massively overoptimistic to believe that they will make so much as a dent in the patent-troll industry. What they’re doing might well be necessary to kill patent trolls. But it’s very, very far from sufficient.

Update: As commenter rootless_e points out, the jury in the NTP vs RIM case did find against RIM’s claims of prior art. Largely because RIM’s courtroom strategy was unbelievably boneheaded. But the fact remains that RIM was forced to settle the claim before the USPTO could invalidate NTP’s patents.

When it comes to the World Bank presidency, pretty much everybody agrees on two things: (1) it shouldn’t be an American; (2) it will be an American. We can and probably should get hung up on (1), but given political realities, it makes sense to ask: if it’s going to be an American, then who should it be? It shouldn’t be Larry Summers, that’s for sure, and it shouldn’t be Jeff Sachs, either. But there’s another name floating around which is a much better idea than either of those two men: Indra Nooyi.

Nooyi, the chairman and CEO of Pepsico, has a lot of things going for her. Firstly, she’s a woman — and it’s generally understood that the Obama administration would love to nominate a woman to the job if it possibly can. Here’s Alan Beattie:

Bank policymakers say that the US proposing a female candidate – who would be the first woman to lead the institution – could help neutralise the charge that the appointment process was “business as usual”. Although administration officials have been cagey about likely contenders, candidates that have been discussed include Susan Rice, US ambassador to the UN, Lael Brainard, top international economics official at the Treasury, and Indra Nooyi, chief executive of PepsiCo. Laura d’Andrea Tyson, who was White House chief economic adviser to former president Bill Clinton, is also a possible contender.

Nooyi definitely stands out in that crowd. Rice, Brainard, and even Tyson are smart and capable technocrats — but they’re not leaders in the way that Nooyi is. One of the problems with US nominees to the Bank presidency is that they tend to be the kind of people who have risen to positions of importance (but never quite the very top) within their own organizations, without having ever had much visibility or power in the world more broadly.

The list of potential nominees from non-US countries is full of heavy hitters with serious global reputations, including quite a lot of former heads of state. The US nominee should be of that general caliber, if only to make it clear that the US takes the Bank seriously and isn’t steamrolling a number of extremely high-profile foreign candidates, only to install in their rightful place the Under Secretary of the Treasury for International Affairs. That’s an important job, to be sure, but it’s also a technocratic job where you always do what you’re told. It’s more fixer than leader.

Nooyi, by contrast, has led one of the world’s biggest multinational companies for five years, and has been in Pepsico’s C-suite for over a decade. During that time she has made a real and credible commitment to sustainability; she even managed to funnel $6 million to Sachs’s Earth Institute.

On top of that, she’s Indian. Born in Chennai, she didn’t arrive in the US until 1978, when she was 23. Nooyi’s an American now, and she’s certainly American enough to lead the World Bank, given the precedent of Jim Wolfensohn. But she wouldn’t only be the first woman to lead the Bank; she’d also be the first non-white person to lead the Bank. And that, of course, is something which is long overdue.

Nooyi is very comfortable among the upper reaches of global VVIPs, and, like Wolfensohn, she also has the significant advantage, for a World Bank president, of being rich enough to afford her own private jet. What’s more, the Bank job would allow her to turn even the criticisms of her tenure at Pepsico to her advantage. Consider this:

“It’s a very enticing vision to be more focused on health and wellness, to be focused on global hunger and all of those things,” says Ali Dibadj, an analyst with Sanford C. Bernstein & Co. “The problem is, you have to remember where three quarters of the company comes from: sugary, salty, fatty” foods.

Nooyi has at this point made more money than she could possibly ever spend; she’s clearly committed to making a difference in the world. And she’d be more able to do that at the helm of the World Bank than she would be staying on at Pepsico with restive shareholders pressuring her to sell more soda. Nooyi and the Bank need each other; her nomination makes perfect sense.

In 2002, Jeff Sachs took the top job at one of the most ambitious university departments in the world: the Earth Institute at Columbia University. And he’s done that job very well, judging by the main metric that universities care about. When he re-upped his contract last April, the press release gushed about all the multi-million-dollar donations that the Earth Institute has received, including $20 million from the Gates Foundation and $28 million from the Lenfest Foundation to endow climate change research.

Now, however, Sachs wants to leave: he’s got his eye on a job where the sums of money involved make those numbers seem positively puny.

My quest to help end poverty has taken me to more than 125 countries, from mega-city capitals to mountaintop villages, from rain forest settlements to nomadic desert camps. Now I hope it will take me to 18th and Pennsylvania, to the presidency of the World Bank. I am eager for this challenge.

To a certain extent, Sachs’s job application reads almost like self-parody: “the president of the World Bank spends a lot of time travelling in first class to poor countries. I have been doing that for years, so I’m obviously highly qualified for the job.”

And of course Sachs has one crucial thing going for him: he’s American. The next World Bank president will, sadly, be an American, a fact which takes a lot of highly-qualified potential candidates, including many former heads of state, out of the running.

But even if the next president of the World Bank is an American, we can still do better than Sachs. The reason that Sachs shouldn’t get the job is basically the same as the reason why Larry Summers shouldn’t get the job: he’s an arrogant economist who nearly always thinks he’s the smartest guy in the room. The presidency of the World Bank is a diplomatic position: if you want to do it effectively, you need to be able to wrangle not only the vast staff working for you, but also the various executive directors who are your superiors and who have a tendency to want to micromanage your decisions. Insofar as Jim Wolfensohn, say, was a successful World Bank president, he was successful because he was a smooth-talking investment banker who was expert at schmoozing important people.

Sachs, by contrast, is angry; he’s one of life’s natural campaigners. That’s great when you’re hanging out with Bono, or even Bill Gates. But it’s less likely to get you very far when you’re trying to persuade the Nigerian president to revolutionize his domestic policy.

Which is one reason why Hillary Clinton would be much better than Sachs for the job: she knows the international diplomatic back-channels, while also knowing how to tactically assert power when necessary.

Besides, Sachs has two big strikes against him. One is the “shock therapy” he administered to Eastern European countries, especially Russia, in the wake of the fall of the Berlin Wall. It was a complete disaster, and Sachs has never accepted his share of the blame for it. He still thinks, as far as I know, that his ideas were good ones, and were just poorly implemented. But they weren’t good ideas, not least because the political institutions in the countries he was dealing with were obviously not up to the task of effectively and honestly implementing his drastic prescriptions.

More recently, Sachs has been investing an enormous amount of personal and financial capital in his Millennium Villages project — a well-intentioned project which attempts to demonstrate the power of investment to turn around poor villages, but which virtually nobody outside the project thinks is capable of demonstrating any such thing. Before even thinking about nominating Sachs to the World Bank, Obama should take a straw poll of Bank employees. Most of them have pretty strong opinions about the Millennium Villages, and it would be very useful to know if he would be entering an institution whose employees in large part consider him to be much better at public relations than at wrestling with messy empirical truths.

Sachs’s worldview, boiled down, is that development is easy, we know how to do it, and that given enough money, it’s relatively trivial to spend that money in an effective way to reduce poverty around the world. When World Bank presidents come in with that attitude, the results can be wasteful at best and downright counterproductive at worst. I’m not, in general, a fan of politicians. But in this case, we’d be better off with a smart politician in charge of the Bank — someone able to build consensus and approach tough problems with modesty — than we would with an arrogant economist.

Harry Wilson today outs Allen & Overy’s David Benton as the legal mastermind behind the mess that is sovereign CDS documentation. Benton’s certainly coming under a lot of criticism these days, and not just on the ultra-wonky end of the spectrum from people like me. Even Pimco’s Bill Gross seems to have a beef with these rules — and Pimco’s on the Determinations Committee!

“If I were a buyer of protection on Greece and have seen the result this morning in terms of no protection, then I would be upset,” Gross, manager of the world’s largest bond fund, said on CNBC television of the ISDA’s decision.

So when Wilson says that ISDA’s decision not yet to declare default was “controversial”, he’s not wrong. Here, for instance, is Barry Ritholtz:

Here is a question for the crowd: Exactly how brain damaged, foolish and stupid must a trader be to ever buy one of these embarrassingly laughable instruments called derivatives?

The claim that Greece has not defaulted — despite refusing to make good on their obligations in full or on time — is utterly laughable.

And Peter Eavis is back with more CDS criticism, too:

One of the decisions of the swaps association on Thursday underscored how swaps can be disconnected from actions that harm investors’ economic interests. As part of the Greek debt deal, the European Central Bank will be shielded against losses on the Greek bonds it holds, a move that relegates, or subordinates, the claims of private creditors who hold the same bonds.

But the swaps association said the plans to subordinate private creditors do not meet the definition of subordination in the swaps contracts, so they do not have to pay out.

All of which says to me that ISDA and Greece have done an incredibly bad communications job here. Because ISDA’s decision was, clearly, the correct one.

The point here, which is easy to miss, is that credit default swaps only get triggered when there’s a real-world event of default. Yes, the deal with the ECB is indeed going to subordinate private-sector bondholders. And yes, Greece is indeed going to fail to make good on its obligations come March 20. There will be an event of default in Greece. But swaps don’t pay out on future events. They pay out on past events. And Greece hasn’t actually defaulted yet: every payment it has promised to make has, to date, been made in full and on time.

Now there are exceptions to this rule. If a government explicitly repudiates its outstanding debt, then that can count as an event of default even before a payment is missed. But Greece hasn’t actually done that. And most of the time, default swaps only pay out when there’s a default. Which is as it should be.

Is that reason for bondholders to be upset, pace Gross? Absolutely not. If you own a credit default swap on Greece, you own a piece of paper worth about 75 cents on the dollar. If you want to realize that 75 cents right now, you can: you can just sell your CDS. If and when the CDS is officially triggered, there will be an auction, and the CDS will be found to be worth roughly 75 cents on the dollar. In that case, you will wind up with 75 cents whether you like it or not.

In other words, when Greece finally defaults, owners of credit protection will be forced to get a payout. Whereas those owners right now have the option: they can take the payout if they want it, or they can hold on to their CDS position if they would rather do that. I don’t see why having that option would make anybody upset.

This is why the CDS market has been so successful: it’s a liquid, market instrument, which prices in expectations of future default. Ritholtz is right that Greece has refused to make good on its future obligations. And as a result, default protection on Greece is extremely valuable. When that future date comes and goes without a bond payment, the CDS will get triggered, and holders of protection will get a lot of money. There’s nothing broken there.

The subordination question is a bit messier, but it’s fundamentally the same idea. Greece has now created two classes of bonds: the ones held by the ECB, and the ones held by private bondholders. There’s nothing in the documentation of those bonds which might indicate the ECB’s bonds are senior to the private sector’s bonds. Right now, they’re all, legally, pari passu.

Again, in future, that’s not going to be the case. Greece is going to privilege the principal and coupon payments to the ECB, while imposing a massive haircut on the payments due private bondholders. That’s both subordination and an event of default. And when it happens, the CDS will get triggered. And that trigger is priced in to the CDS market.

In many ways it’s the genius of the CDS market — at least in theory — that there’s no rush to trigger CDS, because if you know that the instrument is going to get triggered very soon anyway, it’s going to be worth pretty much the same today as it will be when it’s triggered.

That’s my problem with the way ISDA rules cover bonds covered by CACs. Because of technical issues surrounding the availability of deliverables, it’s possible that if you wait for the default to happen, you’ll be too late to get what by rights should be your payout on the bonds. But this is a separate issue from what Gross and Ritholtz and Eavis are worrying about. They seem to think one of two things: either that Greece has already defaulted, and that therefore the CDS should have been triggered by now, or else that a Greek default is so certain at this point that the CDS should have been triggered by now. The first isn’t true. And the second is silly.

Eavis has another point, which is that default swaps are used for a purpose, and that purpose is to hedge against falling bond valuations. (That’s what he means by “investors’ economic interests”.) He is worried that the payout on the bonds might not be entirely in line with the loss of value on the bonds. And that’s a reasonable worry. But it’s also, right now, a pretty theoretical worry. Because in practice, the value of Greek CDS has tracked the value of Greek bonds extremely closely. In other words, even if there are possible problems with them in theory, they seem to have worked OK in practice.

I’ve got a few questions for ISDA about the way that CDS documentation works in the sovereign context in particular, and I’ll be wonking out about this issue further going forward. Because I think that the combination of CACs and CDSs is potentially extremely dangerous. But what I’m emphatically not worried about is ISDA’s decision not to trigger the CDS just yet. That decision was exactly correct. Even Pimco voted for it.

In August 2004, Gothamist publisher Jake Dobkin applied for working-press credentials from the NYPD. An avid and ubiquitous news photographer, he clearly qualified for the credentials on any common-sense grounds. But the NYPD denied his request on the grounds that Gothamist was a website, and the NYPD didn’t consider anybody working for a website to be a journalist. (Seriously.) Thus did the saga of Gothamist’s press pass begin.

Eventually, in 2009, the NYPD was forced, thanks to a lawsuit, to start issuing credentials to bloggers. But it still clearly didn’t want to. And Gothamist still had zero press passes.

The story from then on in is a long one: Gothamist editor Chris Robbins’s post from last December on the subject runs to more than 2,700 words. But basically there are a few things you officially need a press pass for, including getting the NYPD’s “press wire” emails. And there are even more things that you unofficially need a press pass for, including being considered a journalist by the Mayor’s press secretary.

I’m with Dobkin on this one: the whole system of the NYPD making highly-secretive determinations as to who is and who isn’t press is broken, and the best outcome here would be to simply abolish the things altogether. But given that they do exist, Gothamist should clearly qualify for them: as Dobkin says, they’re a legitimate media organization with over 25 employees and more than 2.5 million unique readers in New York City. This isn’t some guy in his pajamas. “Next time someone accuses a blog of aggregating,” Dobkin tweeted the last time he was rejected, “ask yourself, how can they avoid aggregating without all the tools required to produce original posts?”

This story has a happy ending, of sorts. On February 28 — some 90 months after his initial application — Dobkin was told that his latest application had been approved. The pass arrived today.

Still, Dobkin’s fight is a timely reminder, as we remember one of the most influential online-media innovators of all time, that the real world can move astonishingly slowly by internet standards. Print still has a cachet that most online publications struggle to achieve, and uncontroversial news outlets like Gothamist get lumped in with provocateurs like Andrew Breitbart in the mind of information officers and PR people in New York and across the country. Breitbart and Dobkin both, in their own ways, made significant advances in terms of expanding the possibilities of online news. But Breitbart made a much bigger splash. And, in doing so, didn’t help Dobkin’s cause in the slightest.

First, apologies for how Greece-heavy this blog is these days. There are other things going on out there, I’m sure. But we’re going through the largest sovereign default in the history of the world, and surprisingly few people — including senior European policymakers and journalists who are covering it professionally — really seem to understand what’s going on.

At the WSJ, for instance, the news story on today’s official ISDA determination (“Greek Deal Won’t Trigger CDS Payouts, Panel Says”) is bad; the blog post about it by Charles Forelle (“ISDA’s Greek Ruling Not the Last Word”) is very good.

And in Europe, the range of sophistication within policymaking circles is even greater. At the lowest, most basic level, one finds a feeling that it’s a Bad Thing if a European sovereign nation were ever to default, and so therefore it would be a good thing if the bond exchange was organized so that there was no official market determination of default. (Never mind that Greece is already in selective default on its bonds, according to S&P.)

At a slightly higher level of sophistication one finds the short-sellers-are-bad crowd, who don’t like CDS because they allow hedge funds to easily bet against countries. If the messy Greek CDS situation helps to reduce the amount of trust that the markets have in sovereign CDS generally, then so much the better, on this view.

And then, finally, there’s Peter Eavis’s conspiracy theory: if the Greek bond exchange goes really smoothly, and the sun rises in the morning and Italian bond yields stay below 5%, then maybe that’s the most worrying outcome of all. Because at that point Greece will have managed to wipe out, at a stroke, debt amounting to some 54% of GDP. You can see how Portugal and Ireland might be a little jealous. You don’t want to make sovereign default too easy — not least because it would do extremely nasty things to European banks’ balance sheets.

That said, Greece has now broken the sovereign-default taboo; many countries both inside and outside Europe have way too much debt; and now that debt relief is an option for politicians to seriously consider, it’s pretty much certain that at some point another European government will end up choosing that option.

So it’s extremely important for European politicians and voters generally to really understand what’s going on here, rather than just a relative handful of financial-market sophisticates. Greece’s default was a drastic move, and Europe has semi-officially said that it was a mistake: once we’re done with Greece, they’ve said, we’re not going to ask any other European country to similarly write down its private debt.

But the cat’s out of the bag now. Greece had no choice but to default. Portugal and Ireland do now have the choice. And while the cost of default is large, so is the cost of carrying a whopping great debt load. It’s up to the leaders and voters of those countries to determine which is the least bad option.

Alea today posts the timeline for physical settlement of credit default swaps, once a credit event has been declared. He doesn’t say why he’s posting it, but the main thing to note is that it’s likely to take a couple of months between (a) the credit event being declared in Greece, and (b) the final settlement of all credit default swaps on Greece.

And that, in turn, reveals a significant weakness in the architecture of CDS documentation. It may or may not be a big deal, this time round. But market participants have already been spooked by the possibility that Greece might be able to default without triggering its CDS at all. Now they can add to that another worry: that Greece might be able to default in such a manner as to leave the ultimate value of the CDS largely a matter of luck.

The way that CDS auctions work, you start with a credit event. Then, using an auction mechanism, the market works out what the cheapest bond of the defaulting issuer is worth. If it’s worth, say, 25 cents on the dollar, then people who wrote credit protection end up paying 75 cents to the people who bought protection: that’s equivalent to the people who bought protection getting 100 cents on the dollar, and handing their bonds over in return.

With Greece, however, the bond exchange is going to complicate things — a lot. Remember that it has a natural deadline: March 20, when a €14 billion principal payment comes due. If Greece’s old bonds haven’t been exchanged for new bonds by that point, then things will get even uglier, and even more chaotic, than anybody’s expecting right now. So it’s very much in Greece’s interest, and Europe’s more generally, to have everything wrapped up by March 20. Bondholders too, truth be told — they hate uncertainty.

But then there’s the CDS holders. In the best-case scenario for Greece and Europe and bondholders, every €1,000 of old Greek bonds will get converted to new bonds with a face value of just €315. Those bonds will probably trade at about 30% of face value, which means the new-Greek-bond component of the exchange will be worth about 10 cents for every dollar in face value of old Greek bonds that you might currently hold. Add in another 15 cents of EFSF bonds, and the total value of the exchange will be about 25 cents on the dollar, which is why people are talking about a 75% “present value haircut”.

The important thing, here, is that Greece is issuing new bonds worth around 10 cents on the dollar, while the EFSF is issuing new bonds worth around 15 cents on the dollar. The structure of the new Greek bonds is secondary: these ones involve a nominal haircut of 68.5%, and a market price of about 30 cents on the dollar. But theoretically, Greece could have constructed bonds with a significantly higher coupon and a bigger nominal haircut — maybe the haircut would be 85%, with the bonds trading at 67 cents on the dollar. Bondholders would still receive about €100 worth of new Greek bonds for every €1,000 of old Greek bonds they hold. But instead of the new Greek bonds trading at 30 cents, they’d trade at 67 cents.

Why does it matter what the nominal price of the new Greek bonds is, so long as the total package, including EFSF bonds, is worth about 25 cents on the dollar? Economically speaking, it doesn’t. But for the purposes of the CDS auction, it matters a great deal.

The reason is that the key number in the auction is the nominal value of the cheapest-to-deliver Greek bond — that’s the price at which the auction clears. And here’s the rub: this auction is going to take place after March 20, after the old Greek bonds have been exchanged into new securities. Because Greece intends to use collective action clauses to change the terms of all its outstanding bonds, even if they’re not tendered into the exchange, there effectively won’t be any old bonds in existence by the time the CDS auction happens. The only outstanding reference securities will be new bonds.

In the auction, market participants will not be bidding on the value of the package that is being offered in return for every old bond. The new EFSF bonds are obligations of the EFSF, for instance: they’re not obligations of Greece, and they have no place in a Greek CDS auction.

The way that CDS auctions are meant to work is that once a borrower defaults on its debt, that defaulted debt continues to be traded in the market, and its value then determines the amount that credit default swaps need to pay out. But in this case, Greece’s defaulted debt might well not continue to be traded in the market. In which case, when traders need to find a cheapest-to-deliver bond to bid on in the CDS auction, they’re going to have to use one of the new bonds, rather than one of the old ones.

And now you can see why the nominal price of the new Greek bonds is so important. Right now, it seems that they’ll be trading at a nominal price of about 30 cents on the dollar, which is close (ish) to the current market price of the old Greek debt. But there’s no particular reason why that should be the case. If Greece had gone for an 85% nominal haircut rather than a 68.5% nominal haircut, then the nominal price of the new Greek bonds would be 67 cents on the dollar — and anybody who wrote credit protection on Greece would only have to pay out 33 cents on the dollar rather than 70 cents on the dollar.

In other words, Greece’s CDS really aren’t protecting holders of Greek bonds at all — or if they do, it’s more a matter of luck than of law. When they get paid out on their CDS holdings, people owning protection against a Greek default won’t get paid according to how much money they lost on their old bonds. Instead, they’ll get paid according to the nominal price of the new bonds.

What this means is that the CDS architecture is broken, and can’t cope with collective action clauses. And as a result, according to the hedge fund manager who tipped me off to the whole problem, “this Greece CDS imbroglio might be the final blow for sovereign CDS as a product.”

Now there is a possible solution here: ISDA could try to decree, somehow, that the total package bondholders receive in return for their old bonds will count as a deliverable security for the purposes of the CDS auction. Bundle up the new bonds, the EFSF bonds, the GDP warrants, everything — and that bundle can be bid on in the auction, to determine where the CDS pays out. That would be fair and right. But the problem is, it might not be legal. There’s really nothing in the ISDA CDS documentation which explicitly allows that to happen.

The whole point about credit default swaps is that they’re meant to behave in a predictable manner in the event of default; one thing we know for sure about Greece is that the behavior of its CDS is going to be anything but predictable. We don’t even know for sure whether they’ll be triggered, let alone what they’ll be worth if and when they are.

Now there are a lot of people, among them European policymakers, who would actually be quite happy if the Greek default killed off the sovereign CDS market as a side effect. But I actually believe that sovereign CDS, when they work, are rather useful things. It’s just that Greece is having the effect of showing that they don’t necessarily work. And if you can’t be sure that they’ll work when triggered, there’s really no point in buying them at all.

Peter Eavis is too smart, and knows too much, to be writing disingenuous stuff like this, about Greece’s credit default swaps:

If parties have to make good on the credit-default swaps, the situation could send shivers through the market. An important and long-planned measure that aims to strengthen the derivatives market is not yet in place, raising questions about how the financial system will react if the credit-default swaps have to pay out.

In the financial crisis of 2008, banks feared that their trading partners might not be able to meet such obligations on derivatives and other financial arrangements. The situation set off a chain reaction that paralyzed global markets until governments and central banks provided enormous financial support.

To prevent a similar disaster from happening again, finance ministers in the United States and Europe committed in 2009 to move derivatives like credit-default swaps onto clearinghouses. These organizations, if they work properly, can sharply reduce the chances that a large bank will not make good on such contracts.

There are lots of very good reasons why credit derivatives should be moved to exchanges — even though such a move is no panacea. But it’s silly to think that Greece in particular “could send shivers through the market” with respect to counterparty risk. Counterparty risk in the CDS market is highly correlated to jump risk — the risk that a seemingly-healthy company suddenly defaults on its obligations, causing a massive unexpected payout by anybody who had written protection on that name. In a case like Greece, where default is already priced in to the CDS market, there’s no jump risk at all, and anybody who has written protection has already posted enough margin that there shouldn’t be any problems at all.

More generally, the 2008 credit crunch was never related to worries over traded derivatives; it was — like all credit crunches — related to much more general worries over bank solvency and the quality of banks’ balance sheets. And in any case, the size of a bank’s derivatives obligations is unrelated to whether those obligations are settled bilaterally or centrally. If a bank has written so much credit protection that it becomes insolvent, then there’s significant systemic counterparty risk regardless of how its derivatives trades are cleared. Moving to an exchange might make its CDS counter parties more likely to get paid out in full, but it wouldn’t prevent other banks from refusing to do business with the insolvent bank, pulling their repo lines, and generally moving back in the direction of another credit crunch.

So the move to central clearing was never — could never have been — designed to prevent counterparty risk leading to a credit crunch. I welcome all wonky Peter Eavis articles about central clearing and why it hasn’t happened yet. But I’m very disappointed by this attempt to tie the issue into the Greek default in particular, which is entirely unrelated to the central-clearing issue. More generally, I think it’s a bad idea to sell central clearing as a potential means of preventing another disastrous credit crunch: it could never live up to that billing. It’s a perfectly good thing even if it doesn’t have such mythical abilities.

Andrew Ross Sorkin today asks why Treasury is letting AIG keep billions of dollars in net operating losses, rather than forcing it to pay income tax. I’ll hazard a guess at one part of the answer, as informed by my conversation with Jim Millstein in October 2010: if you want to have a high value for your insurance company, you want it to have a rock-solid credit rating. And so you boost the value of the equity cushion in the company by padding it with net operating loss carryovers and the like, even if that means you lose a certain amount of corporate income tax in the meantime.

But there’s something else going on here too, which is the optics of the AIG bailout. The New York Fed today announced that it had finally exited its Maiden Lane II portfolio — the toxic securities bought at a discount from AIG in the 2008 bailout — at a healthy profit of $2.8 billion. It held on to those securities in May 2011, when AIG itself offered to buy them back at a much more modest profit for the Fed. And when forced to choose sides between AIG and the Fed in 2011, Treasury sided with AIG. At all times, Treasury wants what’s best for AIG’s share price, so that it can, hopefully sooner rather than later, sell off its entire 77% stake in the company at some kind of profit.

It’s already taken longer than Treasury would have liked: there was a feeling when I spoke to Millstein that the sale of AIG might be reasonably imminent, and yet here we are, more than 16 months later, and we don’t seem to be all that much closer to such an event. So unless and until AIG gets sold, expect Treasury to continue to shower it with as much regulatory forbearance as it can possibly corral.

I’m sure there are a lot of people at Treasury who would dearly love the company to be fully privatized before the election, and there’s essentially no chance that’ll happen if the share price is much below the break-even point of $29 per share. We’re close, now, and I’m sure that Treasury wishes that AIG had managed to buy back those Maiden Lane II assets on the cheap so that the share price could have been even higher. There’s still time to privatize AIG while Tim Geithner is still Treasury secretary. And Treasury will do everything it can to make that happen, if it can do so without exiting at a loss.

Back on February 17, the European Central Bank sprinkled its magical pixie dust on its Greek sovereign bonds, with the effect that they effectively ended up exempt from the restructuring and haircut being inflicted on everybody else. I wasn’t very excited about this development at the time:

On a conceptual level, it makes sense that the Troika — of which the ECB is a third — might be granted immunity from haircuts, in return for providing new money to Greece. On a legal and practical level, however, this is ugly — and you can be quite sure that it’s only going to get uglier from here on in.

Today, we’re beginning to get a hint of the messiness that this decision caused.

First, there’s a formal question which has been put to ISDA’s Determinations Committee, asking whether the ECB magical pixie dust, combined with the passage of the Greek law to allow the haircut, doesn’t in itself constitute a credit event under ISDA rules.

The question takes the form of a single 179-word sentence, which some lawyer somewhere probably thinks is very clever. But here’s the idea: the two events together have effectively cleaved the stock of Greek bonds into two parts, with one part (the bonds owned by the ECB) being effectively senior to the other part (the bonds owned by everybody else). This is known as Subordination, and Subordination is a credit event under ISDA rules.

Now there’s no doubt that the private sector’s Greek bonds are de facto subordinate to the ECB’s Greek bonds now, and that they weren’t subordinate a couple of weeks ago. But so far there’s nothing de jure about this subordination — there’s no intrinsic reason why bonds with CACs, for instance, should be subordinate to bonds without CACs. So my guess is that this request is going to go nowhere, and/or get overtaken by events.

But now there’s news that another European institution has managed to get its hands on the ECB’s magical pixie dust.

The European Investment Bank, owned by the 27-member bloc, is getting exemptions from Greek debt writedowns in the same way as the euro area’s central bank, according to two regional officials familiar with the matter.

The European Central Bank negotiated a deal to avoid the 53.5 percent loss on principal that’s costing private investors as much as 106 billion euros ($143 billion). The EIB, which unlike its Frankfurt-based counterpart represents the entire European Union, also owns Greece’s debt and is sidestepping the so-called haircut in the same way, said the officials, who declined to be identified because the plan isn’t public.

While the ECB exemption was understandable, on the grounds that the ECB was part of the Troika and the Troika is putting up new money here, an EIB exemption is less so. The EIB is not putting money into this latest Greece bailout. Indeed, it represents countries like the UK which are quite explicitly removing themselves from any such thing.

Now, admittedly, the European Commission is a member of the Troika, and the European Commission is the executive body of the European Union, and the European Union collectively owns the European Investment Bank. So this decision is, as the lawyers would say, colorable. But if the decision to exempt the ECB from the Greece haircut was ugly, then the decision to exempt the EIB is, at the margin, even uglier. I’m not saying it’s the wrong decision, necessarily. After all, sovereign restructurings necessarily have an ad hoc, make-it-up-as-you-go-along element to them.

Indeed, if the ECB’s magical pixie dust means that there’s substantially more EU support for this deal, then it might well be worth spreading it around a bit. But at the same time, predictability and consistency are important as well. And both of those seem to have gone out the window at this point. I wouldn’t be at all surprised if ISDA’s Determinations Committee just said “enough already” and declared an event of default. Because in recent weeks private-sector bondholders have been treated in an extremely cavalier manner. And those decisions have consequences.

The WSJ has an interesting if unsurprising article today, showing that expensive homes are less likely to be foreclosed on than cheaper homes.

This stands to reason, of course. For all the talk of strawberry pickers buying McMansions at the height of the subprime bubble, expensive homes are much more likely to be owned by rich people than cheap homes are. And if a rich person owes a bank somewhere north of a million dollars, the bank is likely to be quite aggressive in attempting to get all of the money it’s owed, rather than simply letting the borrower walk away from their house. For a $200,000 house, by contrast, the cost of aggressively pursuing the homeowner is much less likely to be worth the marginal benefit.

On top of that, there’s a reasonably liquid market for smaller homes — if you put them on the market in a fire sale, there’s a good chance that they will sell, quickly, for within $25,000 or so of their fair market price. In the million-dollar-plus range, however, homes stay on the market much longer, the discounts for fire sales are larger, there’s no real rental market, and the cost of maintaining the home while it’s unsold can be substantial.

That said, there is a problem here, and it’s not that people in expensive houses get to live rent-free for 792 days on average. Rather, it’s that people in normal-sized homes are treated unnecessarily badly by Fannie and Freddie.

Smaller mortgages are more likely to be bundled into securities and later resold to investors with backing from Fannie Mae and Freddie Mac. Fannie and Freddie, the government-controlled mortgage giants, have set strict foreclosure timelines and will fine mortgage servicers that are found to be needlessly delaying the foreclosure process.

There’s no reason why mortgage workouts should be long, drawn-out affairs. Indeed, if you’re going to do some kind of restructuring, it’s always better to do it sooner rather than later. But the fact is that the big banks in America are pretty incompetent when it comes to these things: they lose paperwork all the time, they don’t provide a single point of contact for homeowners, their left hand doesn’t know what their right hand is doing, etc etc. But here’s the problem: as all those obstacles and delays get thrown up, the banks get ever closer to the Frannie-imposed deadline, and are effectively forced to foreclose even if they have good workout options. Freddie Mac tells the WSJ that it requires mortgage servicers to “explore every possible avenue to help a struggling borrower avoid foreclosure” — but if at first that servicer messes things up, Freddie’s far from sympathetic about giving them time to try to rectify the error.

It gets worse. The WSJ piece includes the story of Virgilio Wani and his wife, who became delinquent on their mortgage when they both lost their jobs. As soon as Mr Wani got a part-time job, he tried to start making payments again, but the bank refused those payments and foreclosed instead, handing title to Freddie Mac. What did Freddie Mac do with the house once it had title? First, it evicted the Wanis. Then, it started talking to them about a loan modification. Not to put too fine a point on it, this is the wrong way round.

It’s entirely possible that Freddie Mac and the Wanis will find a solution which allows the Wanis to get back the title to their home. So long as that’s a possibility, the Wanis should absolutely remain in their home: evicting them does nobody any good at all.

It’s a perennial frustration to me that foreclosure always and everywhere seems to be followed immediately by eviction. That’s just stupid, for all concerned. Kicking people out of their home creates a lot of deadweight losses which can’t ever be recovered. In a case like this one, where there’s a good chance that the original homeowner will regain title, the best solution is clearly for that family to remain in the home until the situation is resolved one way or the other.

But even when there’s no chance of the former homeowner being able to buy their home back, it still makes sense to keep that family in their home. These days, many if not most of the people buying homes out of foreclosure are buying those homes to rent out, rather than to live in. And it makes perfect sense to rent the home to the family which has been living there for years, if you can. It’s always worth a try.

So for me the important thing isn’t the amount of time between delinquency and foreclosure, but rather the amount of time between delinquency and eviction. Let’s allow families to stay in their homes even after they’ve been foreclosed upon, unless and until the home is sold to someone who doesn’t want to keep that family on as renters. It would improve the quality of life for millions of people, and would create economic value at the same time. What’s not to love?

I’m a big user of OpenTable — I’ve used it to reserve three lunches just this week, and I’d use it to book dinner on Wednesday, too, if it wasn’t for the fact that the restaurant I want to go to doesn’t take any reservations at all. I like its reliability: I’ve been using it for over a decade now (my first reservation, according to the site, was in June 2001), and so far I’ve never had a reservation be lost. OpenTable’s particularly good for business lunches with someone you’ve never met before: you just give the name on the reservation at the front desk, you’re shown to your table, and there’s none of that weird shuffling around trying to work out who it is you’re supposed to be meeting.

All the same, for a hot San Francisco technology company, OpenTable does seem to be changing diners’ habits at a veritable snail’s pace. Even at restaurants with the OpenTable system installed, a large majority of diners still prefer to make their reservation by phone. And at reservation-accepting restaurants in general, just 12% of reservations are made online.

Using the telephone really doesn’t make much sense, most of the time, if you have the choice; Bret Easton Ellis once crafted an entire comic set-piece in American Psycho using nothing but restaurant reservations and call waiting. Maybe it’s just my natural misanthropy coming through, but I don’t like calling restaurants on the phone, and it seems to me that the only people who could credibly claim to prefer it are the elite who can drop the right names and make empty tables magically appear when they do.

So what’s preventing online reservation services from being more popular? Why do they still have such low market share? I think that OpenTable CEO Matt Roberts is more right than he thinks when he says that it’s a function of his service having to be sold, essentially, door-to-door, one restaurant at a time.

There’s a slogan online that “if you are not paying for it, you’re not the customer; you’re the product being sold” — and this, to me, is probably the main issue facing OpenTable. The company sees itself as selling reservations systems to restaurants, much more than it sees itself as selling convenience to diners. And as a result, OpenTable is having difficulty gaining traction in a world where social media is doing most of the heavy lifting when it comes to connecting our online and offline worlds.

For instance, it still insists that you use your unique OpenTable username and password to log in. It should, of course, be asking you to log in using Facebook, instead. Indeed, OpenTable should more or less live on Facebook, much as Farmville does, most of the time. And even when you go to a restaurant’s website, or to opentable.com, it should take just a couple of clicks to invite any of your Facebook friends to lunch or dinner. When they accept, that reservation should then turn up in their OpenTable account, as well as yours. Similarly, when you’re searching for a place to eat, and looking at the reviews from OpenTable diners, the site should show you where your friends eat and what they’ve said about the restaurants you’re looking at. Foursquare is miles ahead of OpenTable on this front, which is crazy; if OpenTable wants to encourage people to leave reviews, then a really good way of doing so is for those people to know that their reviews will be seen by, and useful to, their own Facebook friends.

For most of 2010 and the beginning of 2011, OpenTable’s stock went on an absolute tear, rising from $25 to over $115. A lot of that was misplaced excitement about OpenTable entering the deals space, I think, but the company absolutely should have used the currency of its highly-valued equity to make a big investment in consumer-facing communication generally, and social in particular. If OpenTable could make restaurant reservations fun and easy enough that people actually started eating out more, then the pushback from restaurants in terms of OpenTable’s cost would surely dissipate overnight.

Instead, OpenTable decided to double down on its restaurateur-facing strategy, wheeling out new software which makes it easier for the computer to combine tables on the fly, to create say a 4-top from two 2-tops, and also a new iPad app for owners giving them detailed analytics on their restaurants.

All that new flashy software is great, I’m sure. But as far as a consumer like me is concerned, I still get asked, the tenth time I’m making a reservation at one of my regular lunch spots — and after I’m logged in to the site — whether or not I’ve ever eaten at this restaurant before.

I’m not asking, here, for sophisticated Netflix-style algorithms which look at where I eat, and where my friends eat, and how I rate restaurants, and which then make personalized recommendations for me and which will give me hints as to where I might like to take a certain person for dinner. (That might be a bit creepy, actually.) I’m just asking for a level of polish and customer service from OpenTable which matches the service I get from OpenTable’s participating restaurants. Because it seems to me that if OpenTable wants more people to make use of its product, then it should probably work on getting more people to like that product. Right now, it’s a clunky utility, albeit one which is much better than the telephone alternative. It can, and should, do a lot better.