Felix Salmon

Do online business models matter?

Felix Salmon
Aug 31, 2013 06:24 UTC

Nick Bilton has an odd column up about Business Insider and NSFWCorp — two publications which he has picked to represent the “reliant on ad revenue” and “reliant on subscription revenue” business models, respectively. He’s particularly interested in the way in which Business Insider published Nicholas Carlson’s 22,500-word opus on Marissa Mayer:

When the piece was published on Sunday, many readers asked why Mr. Carlson did not publish it as an e-book, or even as a physical book, and charge people to read it, rather than simply place it online free as a very long blog post.

Actually, the piece was published on Saturday. But Bilton misses two important points here. Firstly, publishing the Mayer piece as an e-book would in no way preclude Business Insider from putting it online for free as a very long blog post. The classic example of ultra-longform blog journalism is the John Siracusa review of OS X which Ars Technica publishes every time a new version comes out. The review can be read online, for free — or it can be bought as an e-book, for $5. Creating and selling the e-book is non-trivial, but it’s worth it, given that thousands of people buy it.

So when people asked why Carlson’s biography wasn’t available as an e-book, they weren’t implying that publishing as an e-book was an alternative to publishing online. It’s just that a lot of people like to read very long pieces in book format, and are willing to pay to do so. As a result, offering such things as an e-book can make good sense, even as most readers will continue to find the piece online, in its free version.

On top of that, it’s telling that Bilton simply picks the longest article that Business Insider has run, and then asks whether that article should be singled out for what you might consider a story-specific paywall. Read anything else on Business Insider you like, for free — hell read everything else on Business Insider, if you can — but for this particular piece, he seems to think, BI might decide that it was going to charge you money. That’s not even the model of NSFWCorp, which charges subscribers, in Bilton’s words, “a hefty $3 per month” — charging for access to the whole site, not on a per-article basis. (The charge to subscribe to the NYT online starts at more than that per week.)

One of the great strengths of Business Insider is that it is extremely good at providing fast, punchy news. It generally keeps its items short, because that’s what its readers want. Working with the speed and attitude of BI is not easy, but it’s what the site specializes in, and it’s where the site’s value lies. Having the demonstrated the real value of short and fast, it would be decidedly weird for BI to then turn around and charge a premium for long and slow — exactly the kind of thing where it doesn’t have comparative advantage.

If BI were to ever think about charging readers for content — beyond its niche analysis product, that is — then the only model which really makes sense is the monthly subscription, rather than Bilton’s pay-per-piece hypothetical. BI’s not going to do that, for many reasons, including the fact that it’s looking for growth and scale, rather than just a model which allows great journalism to pay for itself. (My favorite part of the article comes when Bilton reveals that NSFWCorp’s revenues allow it to employ “several seasoned full-time writers” — something he doesn’t feel the need to mention about BI.)

What’s more, despite the fact that BI is basically just about the quick hits and listicles and pageviews, I wasn’t surprised to see Carlson’s magnum opus. Bilton tries to explain the contradiction, but comes up short:

It seems that Business Insider made the right choice by choosing not to charge people to read the profile on Ms. Mayer, and instead giving it away online. The article was shared more than 13,000 times on Facebook and 5,500 times on Twitter, all of which helped garner nearly 900,000 page views for the article.

Er, no. Henry Blodget’s slideshow of what his crotch looks like on American Airlines economy class has got more pageviews than the Mayer profile, and there are many other posts whose numbers dwarf both of those. If the purpose of sending Carlson out to do months of detailed reporting was just to generate pageviews, then his piece was a clear failure: it would have been much easier, and much cheaper, to just put up a listicle about porn stars.

No: the reasons for encouraging Carlson to write this piece — and for putting it online for free — aren’t really about pageviews, or the ad revenue it generates, at all. Investigative journalism never pays for itself, and this piece is no exception. But there are a lot of good reasons to do it anyway, if you’re Henry Blodget.

Advertisers will think of this article when they think of Business Insider, understand that it’s a serious news outlet, and be that much more willing to pay premium rates to advertise on the site as a result.

Readers who like having fast news during the day like having meatier stuff to read over the weekend.

Writing this article is a fantastic way for Carlson to cultivate sources, and that in turn will mean that his future output is that much better.

Other writers who might be thinking about joining BI will see what Carlson was given the freedom to do, and be more likely to join; conversely, existing talent will be more likely to stay, knowing that such projects are possible and encourged.

And overall, a relatively small number of articles like this can do wonders for the whole brand value of BI itself.

So please, enough of the naive idea that on a wholly ad-supported website, pageviews are the only things which matter. By that measure, Neetzan Zimmerman would be the hottest journalist in the world: he got more than 22 million pageviews last month, and puts up similar numbers every other month as well. But there’s more to ad-supported journalism than reblogging viral videos: that’s why Jonah Peretti hired Ben Smith to run BuzzFeed, rather than, say, Zimmerman.

Ultimately, it’s far too easy to get caught up in the “business model” question, and thereby lose sight of the much more important question of who’s doing the best journalism. NSFWCorp is producing great stuff, as is Business Insider, as is the New York Times. All three of them look as though they’re going to find a way to make that journalism pay, which is fantastic. And here’s something else they all have in common: if one of their writers finds a great story, and needs to spend a lot of time deeply reporting it before it can be published, all of them will make sure that can happen. When it comes to what matters, it turns out that profound differences in business models make much less difference than you might think.


Modern economic thought has been pushing the idea that each and every thing needs to generate a profit. Boeing tried that model with its 787, and got an expensive lesson in business and economics, though it isn’t clear what they’ve actually learned. In the real world, all one really needs is an aggregate profit.

BI seems to have picked up on this. Not every article, or even every reporter, needs to be profitable. It is perfectly reasonable to lose money in certain areas, as long as these losses are helping increasing overall profitability. That’s why we have multi-cellular life.

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Larry Summers and the politicization of the Fed

Felix Salmon
Aug 29, 2013 21:00 UTC

Ezra Klein has an excellent piece on Larry Summers today, basically saying that he’s “the overwhelming favorite” to become the next Fed chair just because he’s an old Clinton hand, and is trusted by all the other old Clinton hands with whom Barack Obama has surrounded himself. (Interestingly, that’s a phenomenon unique to the economic team: no other department exhibits the same trait.)

The top slots on the economic team are all held by members of the Clinton clique. Sperling leads the National Economic Council. Lew is secretary of the Treasury. Furman is chairman of the Council of Economic Advisers. Sylvia Matthews Burwell, deputy director of the Office of Management and Budget during the Clinton administration, now heads OMB…

It stretches credulity to believe that a pure meritocratic process has simply and ineluctably led to the same six or seven people cycling among positions.

Klein’s thesis, when it comes to economic appointments, is that “the bar for each appointment is that the economic team already likes the candidate and knows he or she is good at the job and will work well with the other members of the team”. The reality of economic appointments to date is entirely consistent with that thesis, and I, for one, am convinced.

But here’s the problem: such a mechanism is a bad idea in principle, a bad idea in practice, and an especially bad idea when it comes to the Fed chairmanship in particular.

In principle, it’s even harder for a team like this one to learn from its mistakes than it is for an individual to do so. When the world changes, individual technocrats tend to change with it. But when a small, close-knit team is put in charge of running the economic policy of the global hegemon, they create the facts on the ground. In practice, what that has meant is a depressingly predictable cycle of laissez-faire regulatory policy leading to crises, which are solved with massive bailouts, which leave the financial sector largely unscathed, and free to continue taking excessive risks, safe in the knowledge that if and when things blow up again, there will be yet another bailout.

This cycle creates what I call Obama’s dangerously heroic view of economic technocrats — a view which, it should go without saying, works very much to the advantage of the very advisers who have helped him develop it. It’s a view which places crisis-management skills far above crisis-prevention skills, and which considers crisis-management experience as being uniquely valuable. It’s also a view which makes it almost unthinkable for Larry Summers not to be nominated to the Fed: short of nominating Terry Checki to the position, it’s hard to imagine a candidate with more crisis experience than Summers.

But it’s one thing having groupthink within the White House — it’s the job of a disciplined executive branch to implement clearly-articulated policies, and if the populace doesn’t like it, they can kick the incumbents out at the next election. It’s something else entirely to take one of the most central — and most political — members of the White House team, and nominate him to lead the independent board of governors of the Federal Reserve.

Make no mistake: Summers would be the most political Fed chair in living memory. Greenspan was pretty bad, especially when he testified — in clear support of the Bush administration’s tax cuts — that we had reason to be worried about budget surpluses. But Summers has been one of Obama’s closest economic advisers since the day that Obama took office: he’s much closer to Obama than Greenspan was to Bush.

Summers has spent most of the past five years doing everything in his power to shape and advance Obama’s agenda. Obama, of course, is very happy about this, and would love to reward Summers for his loyalty by handing him the Fed chairmanship.

Summers is not a consensus-builder; he’s the kind of person who, as chairman, would be convinced that he was right, and who would bully the rest of the board into doing exactly what he wanted them to do. (In this, he would have the active help of Obama, who would certainly nominate Summers-friendly names to the multitude of open board positions, and to the vice-chairmanship.) The result would be a central bank which had, to a first approximation, zero independence from the government, at least so long as Obama is president.

A non-independent central bank is a bad thing; a bullying central bank chairman who’s determined to get his own way is also a bad thing. (The Fed is run by a diverse board of governors for a reason.) But put the two together, and you get a uniquely toxic combination, a way to fulfill all the craziest conspiracy theories of Ron Paul. Having what Klein calls the “Clinton clique” in sole command of Obama’s economic policy is bad enough. But it would be much worse if they essentially managed to engineer a hostile takeover of the Federal Reserve Board.

When Tony Blair became prime minister of the UK in 1997, the first thing he did was to make the Bank of England independent. It was a signal that he was committed to orthodox economic policy, and that he was willing to be punished by an independent central bank should his policies go awry. It didn’t exactly work out that way, in the end, but his initial decision was clearly the right one, and came from a position of strength and self-confidence.

If Obama nominates Summers to the Fed, the message will be the exact opposite: that he’s not going to be comfortable unless he can install his own man to run the show. Obama, it seems, can’t trust Yellen to do the right thing — or maybe he worries that her actions will reflect the consensus of the board as a whole, and will therefore be less predictable and controllable. So he’s going to pass her over, and put a political operative in charge instead, albeit a political operative with genuine economic chops.

That’s a move even Clinton would never have dared make: he kept Greenspan at the Fed for his whole presidency. And it sets a horrible precedent: the next Republican president will henceforth have no compunctions whatsoever about appointing a party hack to the post. From here on in, if Summers gets the job, we won’t just be voting for president in presidential elections. We’ll be voting for Fed chair, too. And the Fed will become just as politicized as the Supreme Court has become.


CraigPurcell: Yes, yes, yes, yes, yes, yes, yes.

This is what Felix said, and about this, now, he is correct:

“when a small, close-knit team is put in charge of running the economic policy of the global hegemon, they create the facts on the ground. In practice, what that has meant is a depressingly predictable cycle of laissez-faire regulatory policy leading to crises, which are solved with massive bailouts, which leave the financial sector largely unscathed, and free to continue taking excessive risks, safe in the knowledge that if and when things blow up again, there will be yet another bailout.”


“Having what Klein calls the “Clinton clique” in sole command of Obama’s economic policy is bad enough. But it would be much worse if they essentially managed to engineer a hostile takeover of the Federal Reserve Board.”

which means that the Federal Reserve would be fully transformed into a political extension of the Supreme Court, and we would have complete unity of Executive and Judicial branches, with the full backing of the Obama-Fed.

Why doesn’t anyone care? I have lost all trust in Professor Bradford DeLong. Felix, you see more clearly, or maybe, you are more honest and brave. No one listens to you. When you were towing the line, although who knew for certain what “towing the line” was, not with certainty, a few years ago, you had lots of happy fans. Maybe you still do. I hope so. I am not happy, but at least I know that I’m not part of a Ron Paul conspiritard-fever dream. It is real, you are right. Oh Felix, this is so grim.

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Go forth and multiply

Felix Salmon
Aug 28, 2013 22:08 UTC

Izabella Kaminska delivered a typically sparkling essay yesterday, riffing off a Tyler Cowen post headlined “Will accurate 3-D reproductions disrupt art markets?”. The science of reproduction is getting better, you see, with paintings now able to be reproduced in three, rather than just two, dimensions; already reproduction Van Goghs — in a limited edition of 260 — are being sold for $34,000 apiece.

Kaminska reckons that she knows where this is likely to lead:

Some time soon it is highly likely that the naked eye will no longer be able to differentiate between reproductions and originals, and that the only way to know for sure which is which will be to carbon date or test the materials microscopically…

If things are not scarce, there is no rivalrous consumption… Value then becomes entirely an eye of the beholder thing. In logical terms the value of the Mona Lisa should collapse, especially so if the clue to authenticity is lost or diluted entirely. If the painting stays valued it’s because a narrative, myth of belief system has been attached to that particular version of the object — much as happens with sacred relics or superstitious charms.

I think that Kaminska is wrong about this: improvements in reproduction technology neither have in the past nor will in the future have any particularly deleterious effect on art values. If anything, the opposite is true, for reasons I’ll come to in a minute. That said, they do change the kind of art which gets produced, in interesting ways.

But first, let’s look at those Van Gogh reproductions. Let’s say that the value of the original is $170 million — that means the reproduction is being sold for roughly 1/5000 the value of the original. The massive gap between the two figures — at least three orders of magnitude — has nothing to do with the ability of Tyler Cowen or anybody else to be able to discern, with their naked eye, the difference between the original and the reproduction. If the reproduction was perfect, its value would not rise significantly from the current $34,000 — not so long as the original remained the possession of, and on exhibit at, the Van Gogh museum in Amsterdam.

When paintings become worth millions of dollars, it’s not because of some intrinsic aesthetic value. If it was, then known fakes would be valuable, rather than worthless, and outfits like Artisoo would be serious operations, rather than laughingstocks. We value certain objects because they are handmade; because of whose hand made them; and because they are historically important. This is the unique actual painting that Vincent Van Gogh painted in a certain month in 1890, these are his actual brushstrokes, his actual paint; this is a key part of the oeuvre which changed the course of (art) history. There is only one of this painting, it exists in a certain museum, and if you want, you can do the pilgrimage: get on a plane, and fly to Amsterdam, and visit the museum. Kaminska sneers at “sacred relics”, but the financial and sociological and art historical value in these paintings makes them much closer to being sacred relics than they are to being purely decorative works, admired just for what they look like.

The invisible aura of authenticity is of paramount importance. Look at the people who sell their beloved masterpieces at auction — they have in many cases lived with these paintings for decades, grown to love them dearly, and are parting with them only with the greatest reluctance. There’s a simple way to have your cake and eat it, in that situation: before you sell the work, you get a very accurate reproduction made, which looks to all intents and purposes identical, and hang it in the same place that the original had been. Aesthetically, your life is reduced by only the most minuscule amount, if at all; financially, you make millions. But no one does that.

Even fakes can acquire an aura: one collector I know had a beautiful Paul Klee drawing by her bedside, and learned after many years that it was a fake. It stayed by her bedside, as beloved as ever (if not nearly as valuable). But again, if it had been stolen, she would not have replaced it with a reproduction, or some fake fake.

The point is that so long as authenticity can be determined somehow, the value of an original unique artwork will always be orders of magnitude greater than the value of any copy. It doesn’t matter if you can tell the difference; the value lies in the authenticity, not in the aesthetics of the piece.

That said, advances in reproduction technology have changed what artists do, in profound and interesting ways. I don’t have formal statistics on this, but I would guess that a significant majority of the contemporary art sold at high-end galleries is editioned. This makes perfect sense: if you can create three pieces, or five, then that gives you the opportunity to sell the same piece three or five times over. Wonderfully, in the case of small editions like that, the price doesn’t even go down: collectors like buying an edition of three or five, especially if one of the other pieces in the edition ends up in a respected museum.

And of course it’s very common for the most prolific artists to also be the most expensive. (Think: Picasso, Warhol, Hirst, Murakami, etc.) The more of an artist’s art there is out there, the more such art there is in grand institutions, the more fungible your own work becomes, and the more certain you can be of its valuation. That, in turn, helps gives collectors confidence to pay high asking prices for the work, and explains why Richter sells for more than Velázquez, despite having vastly more supply on the market.

I do think, though, that the flood of supply from brand-name artists is having an interesting second-order effect. It makes perfect sense for any given artist to maximize her own output, and thereby her own income — especially when doing so causes her prices to go up rather than down. Selling more pieces at higher prices is always a no-brainer. But take a step back and look at the art world as a whole, and you see a different phenomenon: a move away from the artwork, and towards the experience.

Jeff Koons was early to this, with his Puppy of 1992 — moving art out of the gallery, and into the world of public spectacle. More recently, we’ve seen a rash of large-scale installations, many of them — think the Olafur Eliasson Weather Project at the Tate, or Anish Kapoor’s Cloud Gate in Chicago — proving incredibly popular. And temporary experiential works, be they Christian Marclay’s Clock, or Marina Abramovic’s The Artist is Present, or massive installations at the Park Avenue Armory, or even just a silly water gimmick, are capable of drawing enormous crowds, who become much more invested in the art than they do when they look at a painting, just because they spend so much more time with it.

Even old art, now, is being turned into spectacle and experience: look at what Peter Greenaway did with Leonardo. Or, while you’re on your pilgrimage to Amsterdam, go visit an exhibition of Van Gogh reproductions, complete with “3D animations”.

The parallel, here, is with the music industry. When digital technology helped bring the cost of music down to zero, musicians started putting much more effort into to live shows and touring. The music industry is not particularly healthy, if you look at the big record labels — but the live music industry has never seen more people paying more money to see more shows in more venues.

Experiential art, by its nature, doesn’t lend itself to being auctioned off for millions of dollars at Christie’s. But thousands of people will pay real money to be part of the show; in that way, the way that the art gets “collected” is much more democratic than the elitist world of the big auction houses and high-end art galleries.

In other words, the big effect of reproduction on the art world is not fakes, or reproductions of originals. Rather, the first-order effect is the rise in editions, and then the second-order effect is the rise in spectacles and experiences. Neither of them, pace Kaminska, will do any harm to art’s financial value. Quite the opposite: as more art is seen by more people, its desirability will only tend to increase. There might be an art market crash — but if there is, it won’t be due to oversupply. In fact, oversupply is a major factor keeping the bubble afloat.


Felix – you spent 7000 words saying that you agree with Izabella – that authenticity has value to the beholder in excess of its pure tangible economic utility.

Izzy *analogizes* the intangible value of the authentic piece of art to the intangible value of a sacred relic above the cost to credibly reproduce the relic – not sneers at and dismisses that fact.

In most material goods treasured by people, the narrative story of that particular object is as important as the replacement cost. How much would your mother sell your baby shoes for? Why do you keep your kindergarten report card instead of scanning it and throwing away the paper? Why don’t you sell the pocket watch your father gave before he died and buy a cheaper replacement?

The same goes for $100mm paintings, or the habit of Mother Theresa – all worth more to the holder than the replacement cost of the materials, due to the story, the memories associated with the object, the perfect uniqueness of “this one” as opposed to another.

Ask a toddler why she prefers this blankie she has loved for a year to that one over there, and you’ll have answered your question.

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Can Rupert Murdoch hold on to Kara Swisher?

Felix Salmon
Aug 28, 2013 00:19 UTC

Who is the best journalist (so far) of the new millennium? Who has best embraced the opportunities afforded by digital media, and used them to deliver breaking news and incisive opinion to the greatest effect? Put like that, it’s hard to wind up with any name other than Kara Swisher.

As David Carr and Jay Rosen will tell you at length, we live in a world of the opinionated scoopmonger — a world where a handful of brand-name journalists, wearing their opinions proudly, create a virtuous cycle of news. Ezra Klein is a good example: he is both very smart and incredibly well-sourced in Washington, which in turn lends a lot of credibility to his opinions. Because policymakers read him and respect him, they reach out to him and talk to him — which in turn gives him insight, for his opinions, and also scoops, which only serve to consolidate his importance.

Klein is in the process of building out his Wonkbook brand at the Washington Post: he’s one of a handful of what Jack Shafer calls the Marquee Brothers. Among the others: Andrew Ross Sorkin, Andrew Sullivan, and Nate Silver. All of them have strong personal brands, but only Klein is a true double threat, on both the opinion and the news-breaking front: Sullivan and Silver are read for their analyses, not for any news value they might have, while Sorkin, for all that he has a high-profile weekly column in the NYT, is still valuable mainly for his sources and the access (and information) those sources will predictably give him over any of his rivals. Indeed, there’s a case to be made that Sorkin’s column is in large part a means of buttering up the sources he’s looking to get scoops and access from in future.

There’s value in all these models, and Sorkin’s in particular is not to be sneered at. But if you can master the dual arts of both analyzing and breaking important news, and if you can do so faster and better than anybody else, then truly the journalistic world is your oyster. Klein is good, when it comes to such skills. But Swisher is better. Her analysis is more interesting, and more pointed; her news scoops are hard, rock-solid items about boards and deals and companies, rather than being softer, more conceptual pieces about things like who’s the front-runner to take over the Fed chairmanship.

On top of that, Swisher, along with her partner Walt Mossberg, has been building the All Things D brand for much longer than Klein’s been building Wonkbook, and they’ve created a true force in Silicon Valley. They’re not some buried section of WSJ.com, in the way that Wonkbook is part of the Washington Post or Five Thirty Eight and Freakonomics were part of the NYT; they’re an editorially independent, non-paywalled force of nature, competing aggressively against any and all journalists in other parts of their parent organization. People want to know what Swisher and Mossberg — and Peter Kafka, and Jason Del Rey, and Liz Gannes, and the rest of the ATD editorial staff — have to say. They love the way the site is designed, and the way in which it’s open to featuring many voices from outside News Corp. They’re reassured by the site’s editorial transparency, its writers’ detailed codes of ethics, and the fact that over many years it has proved itself to be extremely reliable in reporting the news. And, of course, they come back regularly to read the constant stream of scoops that ATD serves up.

Swisher, then, has created not just an amazing personal brand, but also a highly enviable corporate one. ATD is in many ways the most glittering digital jewel that News Corp owns — much more than its 5% stake in Vice, or the also-ran nypost.com website, or any of the stuff that gets hidden behind various paywalls. But according to Fortune, there’s now a real possibility that News Corp is going to allow Swisher and Mossberg to slip out of its grasp:

Reuters reported in February that AllThingsD co-executive editors Kara Swisher and Walt Mossberg had begun discussions with owner Dow Jones, a subsidiary of News Corp, about either ending or extending their partnership, which is set to expire on December 31.

Since then, Fortune has learned that AllThingsD is working with investment bank Code Advisors to find outside investors at an enterprise value that could exceed the $25 million that AOL reportedly paid in 2010 for rival site TechCrunch. One source says that the asking price is between $10 million and $15 million for a 25% or 30% stake in the company…

Dow Jones officially owns the AllThingsD brand, website and content. It also manages the site’s ad sales, but only Mossberg is an actual Dow Jones employee. Swisher and the rest of her AllThingsD editorial colleagues are contractors paid via an independent limited liability company. One scenario could involve the AllThingsD team leaving to start an independent venture with a new name, while Dow Jones retains the AllthingsD brand (and possibly the archived editorial content).

What’s happened here is that Swisher and Mossberg have created something with substantial value — as much as $50 million. And since the value lies with them, rather than in the ATD brand, they can walk away and find a strategic partner willing to invest an eight-figure sum in creating a new, entirely independent brand. That’s got to be attractive to them, for two reasons: firstly, they would become truly independent, and in control of their own destiny. No more begging their New York paymasters for extra investment: if they own the company, they can make all those decisions themselves. And then, of course, there’s the money: if they each own say 25% of a $50 million company, that’s a lot of paper wealth which they’re never going to accumulate working for News Corp, and which — in the way of Silicon Valley — could become worth much more still if their expansion plans work out the way they hope they will.

Meanwhile, Rupert Murdoch stands firmly on the other side of the Great Paywall Divide, and feels as a matter of principle that all of his properties (except, perhaps, nypost.com) should charge readers for their content. He’s also human, which means that, like all other humans, he’s deeply reluctant to pay a large amount of money to buy something he already owns.

Murdoch, by rights, should be able to retain control of ATD, complete with Swisher and Mossberg. They’re offering very little to his rivals: a minority stake, no editorial control whatsoever, and probably very little cashflow, at least for the first few years, since as a startup they’re going to want to reinvest all of their revenues back into their company. Meanwhile, News Corp has the opportunity to own ATD 100% (indeed, it already does), and can offer Swisher and Mossberg the ability to invest in the site without having to go through the hassles of rebranding and relaunching. Given the economics of control premiums, Murdoch should easily be able to promise significantly more resources than his rivals can come up with.

But after years of writing the entrepreneurial gospel, it’s understandable that Swisher and Mossberg might want to live it for themselves. And they’re both wealthy enough to afford a few years of startup wages: Mossberg has been one of Murdoch’s highest-paid print journalists for years, while Swisher, who’s well paid herself, is also married to long-time Google executive Megan Smith.

Swisher and Mossberg built the ATD franchise as far away from New York and Murdoch’s interference as they could — they based it in California, and refused even to share back-end technology with Dow Jones. That decision was smart: one look at The Daily shows what happens if you’re too close to the man himself. They don’t need News Corp — but if News Corp aspires to be a real force in digital media, it really does need them. The digital world is closer to TV than print, in terms of the importance of talent management and talent retention. If Murdoch and his dealmakers can’t hold on to Swisher and Mossberg, News Corp’s digital future looks pretty bleak.


This is an excellent post. The analysis of Sorkin is apt.

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Elliott vs Argentina: Enter the crazy

Felix Salmon
Aug 27, 2013 06:26 UTC

Back in February, when I made my prediction for how the Argentina endgame would play out, I got the date wrong. I did, however, get the substance right:

One likely scenario is that the appeals court will uphold Griesa’s decision at some point in April or May, forcing a big default in June. At that point, Argentina will probably launch an exchange offer under Argentine law, under which anybody holding currently-performing bonds would be able to swap them into bonds with substantially identical terms, just payable in Buenos Aires rather than New York. Given that Argentine-law bonds have been trading at tighter spreads then US-law bonds for some months now, one can assume that nearly all bondholders would jump at the opportunity to keep on getting their coupons.

Argentina might even take the opportunity to give its holdouts a third bite at the cherry, offering them some kind of option to take a haircut and get performing Argentine-law bonds in exchange for their defaulted debt. But many holdouts would still remain, and will surely continue to pester New York courts for the foreseeable future.

Timing aside, this is exactly what has now happened. Argentina might still be in the midst of its Supreme Court appeals, but given the choice between working within the US legal system and blatantly working against it, the country seems to have decided that it wants to do both at once.

For if Argentina does indeed open up this new exchange offer to existing New York-law bondholders, as the president said today that it would, that would might* be in clear and outright violation of Judge Griesa’s existing court order — the one which has not been stayed, which prevents Argentina, or its agents, from doing anything which would re-route payments on restructured debt. Doing so would pretty much guarantee that a loss for Argentina at the Supreme Court level, and might well give the appeals court all the excuse that it needs to lift the current stay.

From a tactical perspective, then, this doesn’t make a huge amount of sense: Argentina wants to delay proceedings as much as possible, and this action risks speeding them up very quickly indeed. And from a practical perspective there are massive obstacles in Argentina’s way as well. Argentina can’t do this alone: it’s going to need the help of bankers and lawyers and payment agents and trustees and the whole panoply of the international capital markets, if it’s going to come up with a way in which existing bondholders, with bonds registered in New York, can take those bonds and exchange them for new bonds which are registered in Buenos Aires.

Now Argentina has some very clever and very expensive legal minds working for it at the venerable firm of Cleary, Gottlieb, Steen and Hamilton — and maybe they’ve come up with a genius way of doing just that. But on its face, it’s going to be very difficult indeed for Argentina to find any companies in America which will help it blatantly and directly violate an existing court order — since the court order explicitly includes not only Argentina but also anybody aiding and abetting it.

If Argentina does manage to find a way to jerry-rig a bond exchange, however, then that exchange is likely to be taken up with great alacrity. Reuters poses the question well:

Fernandez’s proposal of a new bond swap raised questions about whether investors would be interested in taking Argentine bonds in lieu of foreign debt, given strict currency and capital controls that the left-leaning Fernandez government has imposed.

The answer to that question is hell yes, investors would be very interested in taking Argentine bonds in lieu of foreign debt. Here’s where I part company with the Associated Press:

Analysts have predicted that any attempt to pay bondholders in Buenos Aires rather than comply with the U.S. courts will fail, reasoning that few bondholders who now can turn to courts in New York in any dispute with Argentina’s government will be willing to risk a change that makes Argentine courts the final arbiter.

This, I think, is completely wrong. As we’ve seen time and time again over the past ten years, the ability to turn to New York courts in a dispute with Argentina is worth, to a first approximation, zero. On top of that, local-law bonds are trading inside foreign-law bonds — which is another way of saying that you get an immediate price boost to your debt as soon as you change the jurisdiction from New York to Buenos Aires. So give bondholders half a chance, and they will jump at the opportunity to change the jurisdiction and receive, in return, much more certainty that they’ll be paid in future. Sure, there are worries about exchange controls and the like. But being paid in Argentina is always better than not being paid at all.

If this exchange offer does go ahead, expect an extremely high acceptance rate — somewhere well north of 90%. And then, expect whatever New York law bonds remain to go into default shortly thereafter. That will trigger Argentina’s credit default swaps, which will pay out at a very high rate, since the value of defaulted New York law debt will at that point be extremely low. Remember that Elliott Associates is reported to own a large quantity of Argentine CDS; that means a big payday for Elliott, even if it doesn’t receive the $1.3 billion that the New York courts have ordered it be paid. Elliott, it seems, wins either way.

But frankly I have my doubts that the exchange offer will simply appear, as the Argentine president seemed to say that it would. An anonymous Argentine government official told Bloomberg that the exchange offer would only be opened up to existing New York bondholders “depending on the nation’s request for the Supreme Court to take their case” — so Kirchner might just be telegraphing what she intends to do if and when Argentina loses in Washington.

If that’s the case, she’s crazy: you might intend to do such a thing, but you don’t say that you intend to do such a thing, since that only damages your chances with Plan A, which is to get the Supreme Court to overturn the current ruling. But of course we all know that Cristina Kirchner is crazy.

All of which is to say: Kirchner has now dragged this whole saga deep into the land of the weird and irrational. Maybe we will soon see an illegal exchange offer targeted at existing New York bondholders; maybe we won’t. Either way, the rhetoric in this case will only get louder and less constructive. Expect much more heat than light going forwards.

*Update: Mark Weidemaier has found what seems to be a loophole. There were two original orders from Judge Griesa; the first implemented the draconian remedy for breaching the pari passu clause, and that was the one which was stayed pending appeal. Then there was a second “no workaround” order, which was not stayed, preventing Argentina from attempting anything clever like the exchange offer Kirchner just announced. When the Second  Circuit stayed its ruling pending appeal to the Supreme Court, however, it seems to have stayed “the November 21, 2012 orders.” Which seems to include not only Griesa’s remedy, but also the no-workaround order. If that’s the case, Argentina now has a very short window of time to get an exchange done, before the Second Circuit realizes what it has done and reinstates the no-workaround order.


The CDS won´t be triggered by the lack of payment to the defaulted bonds, the CDS language excludes that, but by the default of payment to the holdouts.

Now, have you thought about the possibility that BNY may give the bond holders names to Argentina so that the Republic can simply create an account at some Argentinian bank (in Buenos Aires)for each holder of the bonds and deposit the coupons there?

That way you don´t really need any further help from any US banks..

Posted by Santin | Report as abusive

Is Marissa Mayer the right CEO for Yahoo?

Felix Salmon
Aug 26, 2013 21:28 UTC

Nicholas Carlson, Joe Weisenthal, and Henry Blodget deserve many congratulations on Carlson’s monster 22,500-word profile of Marissa Mayer. It features the kind of deep reporting one normally only finds in books, and it sheds a lot of light on what is going on at Yahoo — both at the senior executive level and at board level. What’s more, Carlson was fortunate enough to get just the right amount of access to Mayer — enough to be able to fill in the necessary details, get lovely bits of color, and ask her the questions he needed to ask, but not so much that he became captured. (In general, with very few exceptions, the more time that a journalist spends with his subject, the more favorable the resulting profile will be.)

After reading Carlson’s piece, it’s clear that Mayer has genuinely changed Yahoo for the better, over the course of the year that she’s been running it. What’s not clear, yet, is whether Yahoo’s board made the right choice in picking Mayer over the alternative choice, Ross Levinsohn. Especially since the choice of Mayer was pushed through by two men — Dan Loeb and Michael Wolf — who aren’t even on the board any more.

When Loeb first took his large stake in Yahoo and pushed for a shake-up, his plan was clear. Yahoo was massively undervalued on any kind of sum-of-the-parts analysis, thanks to its large stakes in Alibaba and Yahoo Japan. As a result, if a new CEO were to come in and shake things up radically, the chances of value being destroyed were relatively low, while the amount of potential upside was enormous. So Loeb was itching to roll the dice.

What’s fascinating about Carlson’s account is the way in which Loeb, along with Wolf, his handpicked lieutenant, managed to override Yahoo’s chairman, Fred Amoroso, who favored Levinsohn over Mayer. Loeb’s 5% stake in the company was significant, but far from controlling — yet somehow, in practice, Loeb managed to get exactly what he wanted, even when he disagreed with the chairman of the board.

The choice of Mayer is particularly interesting in light of the fact that Levinsohn’s plan was in many ways more disruptive than Mayer’s. Yahoo has always struggled with the question of whether it is a media company or a technology company, and Levinsohn wanted to settle that question once and for all: he would sell Yahoo’s search business to Microsoft, while receiving MSN.com and lots of money in return, and move to using Google’s superior search product instead. And he could increase Yahoo’s Ebitda by 50%, even while he shrank Yahoo to a mere 4,000 employees — down from well over 15,000 as a technology company. At the end of the process, Yahoo would be a large, lean media machine, with more than 700 million unique visitors every month. Yahoo could sell those readers to advertisers, and make a fortune.

Given the inherent difficulty of competing over the long term not only with behemoths like Google and Apple but also with countless startups all wanting to eat your lunch, Levinsohn’s strategy made a lot of sense. You could get a lot of buzz by hiring a young, photogenic technology icon, who could then go on a massive shopping spree with shareholders’ money; that might well cause investors to boost your p/e multiples over the short term. But that basically would just turn Yahoo stock into a timing game, with the trick being to get out just as the honeymoon period is ending, and before shareholders start demanding financial returns on their M&A investments.

Loeb is a hedge fund manager: his job is to be good at timing games, buying low and selling high. And that’s exactly what he did at Yahoo. He sold his shareholding, and gave up his board seats, after the stock went up. But the job of the board, and of the board chairman, and of the CEO, is not to enrich and enable here-today-gone-tomorrow speculators. Rather, it’s to create permanent value. And it’s far too early to tell whether Mayer is capable of doing that.

Indeed, it’s still too early to tell what Mayer’s strategy really is. Levinsohn had a strategy — one which was clearly thought-out, and which would produce a focused, profitable company. Mayer, on the other hand, had, well, an excellent grasp of detail. Carlson has nailed down the timing: Yahoo’s board met with Mayer on July 11, 2012, and she gave an impressive presentation.

She described her long familiarity with Yahoo and its products. She described how Yahoo products would evolve over time under her watch. Her presentation included an extraordinary amount of detail on Yahoo’s search business, audience analytics, and data. She talked about fixing Yahoo’s culture with more transparency, perks, and accountability. She named her perceived weaknesses, and explained how she planned to address them — including by hiring people who had the skills she didn’t have.

That evening, the board decided to hire Mayer. The following morning, the board went through the motions of listening to a similar presentation from Levinsohn, along with his key lieutenants. But they’d made up their mind. Wolf started questioning Levinsohn aggressively, while Loeb spent a lot of the presentation playing with his BlackBerry (!) — and even disappeared off to the bathroom for a particularly important part of Levinsohn’s presentation.

Mayer did what she said she would do. She went on an aqui-hiring spree, buying more than 20 startups in her first year, culminating in the billion-dollar acquisition of Tumblr. She brought passion and buzz back to what had been a very demoralized company. And she sweated the small stuff: she would approve or reject, for instance, every single call or email that the PR team wanted to make to a reporter. She also dived head-first into a huge redesign of Yahoo Mail, taking personal responsibility to ship an awesome product in record-quick time.

On the surface, the results were fantastic. Yahoo’s new products, whether internal (Yahoo Mail, Flickr) or bought in (Tumblr) are best in class. Talented engineers actually want to work for the company again. And the stock price speaks for itself.

Screen Shot 2013-08-26 at 4.36.09 PM.png

But here’s the thing: it’s still far from clear what Mayer’s long-term strategy might be, or whether there even is one. Carlson does an excellent job of demonstrating how little she cared about anything on the business side of Google, and also of how distant she is when it comes to managing her direct reports at Yahoo — the people in charge of actually bringing in all the revenues. Mayer is more product manager than CEO, which maybe explains why she got on so well with David Karp — another person whose expertise is very much in the realm of product design rather than business-side nitty-gritty. When your company is your product, then the product manager as CEO can work very well. (See: Zuckerberg, Mark.) But Yahoo is not a product; it’s not even really a suite of products. To use the 90s terminology, it’s a portal — it’s a place where traffic can be aggregated and then monetized.

Yahoo’s doing very well on the traffic front, coming in top of the most recent Comscore rankings. But revenue is falling, and product design is only one of very many skills that Yahoo’s CEO needs. It’s also not even clear that Mayer is very good at that: although the new Yahoo Mail turned out lovely in the end, Carlson also recounts how Shashi Seth, the Mail team leader, along with his lead designer and his product manager, all departed shortly after their new Yahoo Mail shipped. Like Dan Loeb, perhaps, they decided it might be best to quit while they were ahead, rather than stay hitched to Mayer’s star. And these are the people in Yahoo who know Mayer best.

Mayer was extremely good at the job she held at Google until 2010 — essentially doing everything in her power to make the user experience as great as possible. Yahoo’s current users, too, have every reason to be happy that she has the CEO job — their experience is almost certainly better, as a result, than it would have been under Levinsohn. And for the time being, Yahoo’s employees and its shareholders are all happy as well. But I can’t help but feel that the CEO of a public $30 billion company, especially one which makes nearly all of its money by selling ad space to media buyers, needs certain management skills, and a passion for improving the company’s bottom line. Otherwise, Yahoo is likely to join the long list of companies where the people who sold their stock into the aggressive corporate stock buyback program ended up much better off than the loyal shareholders who didn’t.


Marissa Mayer, the Stanford genius, began her career at Google and thirteen years later, Google’s Geek Goddess switched loyalties. Wooed by Yahoo in 2012, Mayer became the youngest female CEO of her time There’s one thing about Marissa Mayer that everyone agrees to: she is among the smartest people you could meet. Mayer went to STANFORD UNIVERSITY only after scrutinizing the PROS AND CONS of 10 colleges that she had been accepted at. http://www.bidnessetc.com/business/maris sa-mayer-one-of-silicon-valleys-most-pow erful-women/

Posted by andrewstuart18 | Report as abusive

The negative value of US citizenship

Felix Salmon
Aug 26, 2013 14:34 UTC

Kirk Semple has a big piece today on a longstanding phenomenon: the millions of people who live in America, who are eligible to become citizens, and yet who never do so. The numbers: there are roughly 8.8 million green card holders who are eligible to naturalize; about 750,000 people naturalized in 2012. Overall, if you’re still in America and you received a green card more than 20 years ago, there’s roughly a 60% chance that you became a citizen somewhere along the way.

This being a NYT story, there’s lots of talk about national identity: the lead anecdote is about a man who worries that he would “feel a little less Italian” if he became a citizen. And there are many people who become citizens, or who don’t, on purely patriotic grounds. But there are lots of other forces at play here, many of which Semple ignores entirely, or barely touches on.

Firstly there’s the fact that in many cases becoming a US citizen is a trade-off: while you acquire certain rights in the US (foremost among them the right to vote), you also lose certain rights — and sometimes your very citizenship — in your country of origin. For instance, consider a landowner with a green card who owns land in both her native country and the US. Often, the minute she becomes a US citizen, she can no longer own land back “home”.

More generally, if your home country requires that you give up your native citizenship when you become an American, then the choice can be a very tough one.

But beyond, that there are numerous much more practical considerations at play. Semple touches on one, which is the sheer cost, both financial and psychic, of going through the naturalization process. Another is jury duty. Being a non-citizen is like having a permanent “get out of jail free” card whenever you get a jury summons; many US citizens would value such a thing very highly.

And then there’s travel. It’s much easier to travel the world on a US passport than it is on a passport from, say, Syria, or Bangladesh — but, that said, there are countries which really don’t like admitting Americans, and if you already have a passport from Canada, or the EU, then you’re going to find it just as easy to travel as you would if you had one from the US. Especially given that green card holders are eligible for line-jumping programs like Pre✓ and Global Entry.

The weirdest omission from Semple’s piece, however, is the whole issue of taxes. A green card holder can leave the US at any time, give up her green card, and thenceforth never have to pay a cent in US taxes, or even file a US tax return, ever again. Again, this is an option which would be valued extremely highly by many Americans. By becoming a US citizen you essentially give up that option, as the likes of Eduardo Saverin have learned to their cost. If there’s even a small probability that you might want to move or retire to a low-tax jurisdiction, then it makes financial sense to keep the green card but not become a citizen.

Finally, it’s worth noting a statistical symmetry: the proportion of green card holders who eventually become US citizens is pretty much the same as the proportion of US citizens who vote. Voting is the top reason to become a citizen — and it’s something which roughly 40% of American citizens don’t bother to do. The NYT comments section is full of angry people who are deeply offended at the idea that people might be living in the US and not becoming citizens at the earliest opportunity. But really, if you have the same attitude towards voting as 40% of the US population, why bother? After all, if you take the option value of remaining a green card holder into account, becoming a US citizen probably has negative value, overall.


Hey guys,

First of all one cannot look at getting a citizenship for selfish/personal reasons. Many who get naturalized citizenship every year get it for personal satisfaction of being an American and the ability to participate in making this country a better place by participating in jury duty and voting. For people complaining about paying taxes after leaving this country, I can give you my personal reasons on why I feel its fair to do so. First of all, I moved into this country when I was in elementary school and got free education paid for by tax payers till graduating high school. I also got subsidized tuition for college and medical school, where I saved around 20-30 thousand dollars a year because I was an in-state resident. I also got the benefits of living in a country with good roads, electricity and water due to taxpayers money that I would not get in my home country. If I do decide to go back to my home country once I retire, I would not once hesitate to keep my US citizenship or hesitate to pay taxes, because it is immoral to do otherwise. Besides you also get the benefit of social security and medicare, and the opportunity to come to this country to visit anytime I want as a citizen. Paying some money to the betterment of this country in terms of taxes is a small price to pay for benefits and opportunities I have gotten which eventually will give me the ability to have enough money to retire anywhere around the world.

Posted by Randpaul | Report as abusive

Elliott vs Argentina: It’s not over yet

Felix Salmon
Aug 23, 2013 18:35 UTC

It’s the ruling we were all waiting — and waiting, and waiting — for: six months after hearing oral arguments, the Second Circuit has finally handed down its 25-page decision, finding in favor of Elliott Associates and against Argentina. On its face, the ruling is, as Mark Weidemaier puts it, a big loss for Argentina, and “a total win for NML”, a/k/a Elliott Associates. The ruling was unanimous — the rumored dissent never appeared — and pulls no punches: there’s no indication that this was a hard case to decide, or that the lower court’s extremely aggressive rulings were anything other than entirely reasonable.

Still, there are some oddities here, starting with the fact that this decision took such a long time to appear. The ruling, written by judge Barrington Parker, is not exactly a model of pellucid clarity; rather, it’s messy and scrappy and very narrowly argued. The real power of the lower court’s ruling was not that he told Argentina that it needed to pay Elliott: the court has been making such rulings for years, and Argentina has happily ignored all of them. So the district court judge, Thomas Griesa, went nuclear, and roped in virtually the entire global payments system as well. So long as Argentina was in default to Elliott, said Griesa, he would prevent actors like Bank of New York and Clearstream from doing their job and making the payments they’re contractually obliged to make to Argentina’s bondholders. The entire force of Griesa’s ruling, and the reason why this case is such a huge deal, is predicated on its ability to stop money from being lawfully transferred to bondholders after it has left Argentina and entered the payments system.

And yet here’s the Second Circuit blithely ducking all the hard questions raised by such an order:

The amended injunctions simply provide notice to payment system participants that they could become liable through Rule 65 if they assist Argentina in violating the district court’s orders. Since the amended injunctions do not directly enjoin payment system participants, it is irrelevant whether the district court has personal jurisdiction over them. And of course, “[t]here will be no adjudication of liability against a [non-party] without affording it a full opportunity at a hearing, after adequate notice, to present evidence.” In such a hearing, before any finding of liability or sanction against a non-party, questions of personal jurisdiction may be properly raised. But, at this point, they are premature. Similarly, payment system participants have not been deprived of due process because, if and when they are summoned to answer for assisting in a violation of the district court’s injunctions, they will be entitled to notice and the right to be heard.

Or, to put it another way: we’re going to dismiss all objections to the most important parts of Griesa’s order as being irrelevant or premature, and if you think you’re hurt by them, well, we’ll cross that bridge when we come to it. We’re not going to rule on the substantive issues, and we’re going to disingenuously declare that those issues can be litigated in some hypothetical future hearing — a hearing which will probably never happen, since the payments companies will end up just complying with Griesa’s order rather than risk him finding them in contempt.

It’s important to remember that the Second Circuit, with this ruling, is setting a hugely important precedent with massive consequences for the entire sovereign debt asset class. In such cases, it behooves any serious jurist to address the issue at hand head-on, rather than disingenuously punting with poltroonish pusillanimity.

At one point Judge Parker goes so far as to talk about “some payment system participants, ostensibly concerned about being sued for obeying the injunctions” — the “ostensibly” being a clear signal that he doesn’t even think that they’re particularly worried about being sued at all. It seems, indeed, that the Second Circuit judges take this entire case much less seriously than just about everybody else in their packed courtroom — and much less seriously than, to take one high-profile recent example, the government of France.

Indeed, Parker bends over backwards to try to persuade himself that his ruling really isn’t that important after all:

This case is an exceptional one with little apparent bearing on transactions that can be expected in the future. Our decision here does not control the interpretation of all pari passu clauses or the obligations of other sovereign debtors under pari passu clauses in other debt instruments. As we explicitly stated in our last opinion, we have not held that a sovereign debtor breaches its pari passu clause every time it pays one creditor and not another, or even every time it enacts a law disparately affecting a creditor’s rights. We simply affirm the district court’s conclusion that Argentina’s extraordinary behavior was a violation of the particular pari passu clause found in the FAA.

We further observed that cases like this one are unlikely to occur in the future because Argentina has been a uniquely recalcitrant debtor.

That last sentence carries a footnote, which quotes an FT article as saying that Argentina is an “outlier in the history of sovereign restructurings”. Parker fails to mention that the article in question is in fact all about how important this precedent will be, and how it could radically upend the balance of power in the sovereign debt market. As Joseph Cotterill says, this ruling opens up “a huge fissure in pari passu litigation going forward”, and really only serves to muddy the waters, rather than clearing anything up.

All of which, weirdly, might conceivably end up being a good thing for Argentina. The country has suffered a series of brutal losses in the US courts, and there’s no particular reason to believe that’s going to change. But the Second Circuit did stay its ruling pending an appeal to the Supreme Court — and there’s even reasonably explicit language in the ruling hinting that the appeals court would actually welcome the Supreme Court taking this case. Much of Argentina’s argument was based on the idea that the ruling violates the Foreign Sovereign Immunities Act (FSIA); the Second Circuit decided that it doesn’t, but only “absent further guidance from the Supreme Court”.

As a result, it’s possible — not probable, but possible — that the Supreme Court might at least ask the Solicitor General to weigh in on whether it should accept the appeal. If that happens, the Solicitor General will face an enormous amount of lobbying on both sides, but is ultimately likely to stick with the US government’s stated position to date — which is that the ruling does violate the FSIA. And if that happens, and the Supreme Court is faced with not only France but also the US and the IMF and various other actors all saying that the case was wrongly decided, it could actually go ahead and accept the appeal.

It’s a long shot, to be sure. The Supreme Court rarely accepts appeals where all the lower courts are in agreement with each other, and unanimously so. What’s more, there’s no clear constitutional issue at hand. And in any case even if it does accept the appeal, there’s surely a good chance that the Supreme Court will uphold the Second Circuit’s decision. But I’d say that Argentina’s chances of getting its case heard in Washington probably went up today — which might explain the positive market reaction to the ruling.

In any case, my prediction that Argentina was going to default in 2013 is now straight out the window. I thought that the Second Circuit would rule in April, or maybe May, and that the default would come in June; it never occurred to me that it would take the appeals court six months to write an unimpressive 25-page ruling. And now there are going to be many further months of delay, as Argentina puts together its appeal, and (probably) as the Solicitor General takes his time responding to the Supreme Court.

Indeed, if you read between the lines here, it’s possible to see a slightly different interpretation of the appeals court’s ruling. Remember that the court came out very quickly to ask Argentina to make an offer to Elliott Associates; it then waited a huge amount of time before finally ruling, and even when it did rule, it immediately stayed the ruling pending appeal. It seems to me that the Second Circuit didn’t really want to rule in this case: what it wanted was for Argentina and Elliott to settle, and it gave them every opportunity, and all the time they needed, to do so.

It almost goes without saying that Argentina and Elliott are not going to settle — not so long as Cristina Kirchner is president of Argentina, anyway. But given how long this litigation has gone on already, it’s actually now conceivable that it could still be in front of some court or other when Kirchner finally gets replaced by someone else. (The next presidential election in Argentina is scheduled for October 2015.) The base-case scenario is still, very much, that Argentina will default on its debt once the court ruling takes effect. But looking at how slowly this case is moving, I wouldn’t like to hazard any kind of guess as to when that might be.


“poltroonish pusillanimity”

Posted by jacobcepstein | Report as abusive

Data crashes: inevitable and mostly harmless

Felix Salmon
Aug 22, 2013 21:34 UTC

When you look up the price of a stock on the Nasdaq stock exchange, you’re not really looking up the price at which it’s trading on that exchange. All of the Nasdaq stocks trade on dozens of exchanges, all of which have the right to trade in those stocks. That right is known in the market as unlisted trading privileges, or UTP. The job of the Nasdaq is to serve as the securities information processor, or SIP, for all those different exchanges: the exchanges report to the Nasdaq all of the information they have on bids and offers and trades, and then the Nasdaq aggregates all that information and presents it in one place. Most importantly, it shows the most recent price at which any given stock traded, on any exchange. That’s the price you’re looking at.

Now the Nasdaq is an exchange itself, but it doesn’t really have to be: it could halt all trading on its own exchange tomorrow, and no real harm would be done. So long as Nasdaq stocks could trade on all the other exchanges, and the Nasdaq could continue to keep tabs on all the trading going on across the different exchanges, no one would really notice. The real importance of the Nasdaq, then, is not its status as an exchange, but rather its status as a SIP.

The stock market is a bit like chess, or backgammon: it’s a game of (to coin a phrase) total information awareness. Everybody in the market receives the same information in real time. Of course it’s up to any individual trader how — and how quickly — they act on that information. When you enter the stock market, you basically sign a waiver giving up all privacy rights; the Nasdaq, doing its best NSA impression, watches your trades, collates the data on each one, and then republishes it. It’s a prime example of a situation where all the value lies in the metadata: if an exchange stops trading, the effect is much less drastic than if the SIP stops collating and disseminating its index of what’s going on.

Today, of course, that’s exactly what happened. In the parlance of the Nadsaq, there was “an issue at the UTP SIP”, and as a result, all trading, on all exchanges, came to a sudden stop at 12:14pm. The system stayed down for most of the afternoon, until 3:25pm.

The financial system can cope with a three-hour outage, of course. The entire stock market was closed for two days after Hurricane Sandy, and for four days after 9/11. Yes, unexpected intraday outages are bad things — they leave traders with open positions which can’t be closed. But in this case, the Nasdaq managed to reopen before the end of the day, and not much happened over the course of the three dark hours.

But the Nasdaq’s systems aren’t designed to go down and up like this. It’s really just good fortune that the Nasdaq managed to get things working again before the close. Our system of stock exchanges is so incredibly complex, with so much information flowing around at mind-boggling velocity, that it is certain to fail from time to time — and to fail in unexpected ways. We probably won’t know for days what caused today’s mysterious “issue” — and even if the Nasdaq manages to put patches in place to ensure that it doesn’t happen again, something else — something equally unexpected — will happen instead. As Alexis Madrigal says, the surprising thing isn’t that the Nasdaq broke, it’s that we don’t see this kind of thing far more often.

In fact, if I had the opportunity to interview Edward Snowden, that’s one of the questions I’d love to ask: How well do the NSA’s systems work? How often do they just crash, or otherwise stop working for an unexpected and unpredictable reason? The NSA is dealing with orders of magnitude more data than the Nasdaq, and has to do so in conditions of great secrecy. My guess is that things go wrong on a pretty regular basis. But the real-world consequences of today’s market outage, just like the real-world consequences of the flash crash, were pretty slim. And so too is it hard to determine what if any harm might be done by a temporary failure of America’s national security apparatus. When we look at an ultra-high-tech world of server farms and state-of-the-art code, we tend to assume that it’s all incredibly valuable and important. But it turns out, when we lose it, that most of us don’t even notice.


….”with so much information flowing around at mind-boggling velocity”….

Thank you for admitting that a lot of the high velocity “trading” is CIRCULAR.

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